Rates Are Down, But Loans Still Hard To Get

March 23, 2009


So far, people have not been able to get the pump running.

So far, people have not been able to get the pump running.

The Stimulus Bill Has Passed. Are You Feeling Stimulated?

I want to preface this by saying this is not a political commentary. I don?t like debating politics, because there is never any resolution. I can talk until I?m blue in the face, and I?ll never change somebody?s political views whose don?t match mine. I honestly believe that most politicians are actually well-intentioned. Sure, they play the game, and have some of their own agenda, but I do believe that most  elected officials, at all levels of government, are doing what they genuinely believe is best for the people, whether we agree with them personally or not. I want to talk real estate and finance.

At the very heart of our recession is the credit crunch. Banks and lenders at all levels are tightening up, making money less available. And at the heart of the credit crunch is the mortgage and housing mess. I think most of us can agree on that. For an insider?s view on that, read my article, Who is to Blame?

So far, what has happened with the stimulus bill (both the first and second versions) is this: the government has printed more money, and handed it to the top of the financial food chain: the big banks, and, as you know, the American auto industry. In theory, they give billions to the banks, who then have increased capital and liquidity, and then they loosen up just a bit to make money more available to Johnny Public.

No Loose Purse Strings Yet

However, being someone who deals with dozens of banks and lenders daily, I can emphatically state that the banks have not been loosening up the purse strings. They take the money, and extend credit to only the most-well qualified, who likely aren?t feeling the brunt of the recession anyhow.  The federally-controlled mortgage giants, Fannie Mae and Freddie Mac, as well as the Department of Housing and Urban Development (HUD)?the entity that backs Federal Housing Authority (FHA) loans?have themselves tightened up underwriting guidelines significantly, making mortgage money harder to get and mortgage loans harder to qualify for, which seems to contradict the federal government?s goal of loosening up credit markets and making money more available.

Who among us that owns a home didn?t refinance and take cash out sometime in the last 5 or 7 years? I can tell you from a mortgage guy?s perspective, it seemed everybody wanted in. It went something like this ?OK, I can lower your interest rate, and save you $200 a month on your mortgage, or I can give you $10,000 cash, and still lower your mortgage payment $140 a month.? The answer was almost always, “Yes,” to the cash. Some took out $20,000, $30,000, or more. Skyrocketing property values and plummeting interest rates made it a no-brainer. In areas that really skyrocketed (and subsequently have fallen the worst), like Boston, Miami, Las Vegas, Phoenix, or southern California, it was even easier than it was here in Chicago. But now, even people with modest goals, like just trying to lower their interest rate and mortgage payment, or get into a fixed from an adjustable, are having a hard time getting the financing they need. See my article, Why you Might not be able to get a 5% Mortgage for more detail on why. At a time when we all need to save as much money as possible, it is becoming harder to do so.

Low Mortgage Rates Are Only Half the Story

Now, there is one really bright spot. Again, if you?ve read, What Causes Mortgage Rates to Move? you know that investors buying mortgage bonds causes the price or value of mortgage bonds increase, according to supply and demand. A couple of times in the past few months, the Fed has bought, or pledged to buy, billions of dollars worth of mortgage bonds. Wall Street investors respond in kind, buying up mortgage bonds to catch them on the upswing. And when mortgage bonds go up, mortgage rates go down. We had record-low?or near record-low?rates at the end of November 2008, and mid-January 2009. On March 18, we saw another sharp jump in mortgage bonds, which really produced some low mortgage rates on Thursday the 19th and/or Friday the 20th. But, low rates are just half the picture. Extremely well-qualified borrowers will be able to take advantage of these low rates, but I?d really like to see some letting-out of the purse strings to allow more borrowers to refinance or purchase homes.

Let?s all hope for the best from our current lawmakers and regulatory agencies, because we surely have a while to go before we are in the clear.

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About Brad Walbrun

Brad Walbrun grew up in northeastern Wisconsin, moving to Chicagoland over a decade ago, and never to return, although he remains an avid Packer fan. He is married, with 3 children, living in Schaumburg. Brad's passions are fitness, MMA, and mortgages. He has been in the mortgage industry since before the refi boom, for almost 10 years now. You can reach Brad at (847) 975-4440 or bradwalbrun@hotmail.com.

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3 Responses to “Rates Are Down, But Loans Still Hard To Get”

  1. John J Bates Says:

    I would have to agree wholeheartedly. I witnessed a family with a 750 credit score, 65% equity try to get a home equity loan purported to be 3.25% from their banks. Equity amount of 500k, and after 4 banks getting only a 150k equity line at 5%! This family has cash in the bank, and income levels that easily support the line requested. I say W T $#%&& the banks are a bunch of pigs in my estimation. I think the lending institutions problems are much bigger than reported, and they are just trying to buy time. Bank presidents are afraid of prison time along with bank board members if they let the real problem be known of their institutions, they would be in deep do do, not only losing their jobs, but more than likely facing federal free housing with an exercise yard! How many of us have received letters stating the credit cards we carry will now be adjusted to 24.9% interest rates, or a subsequent reduction in our credit limits. I am seriously considering going long on pitchforks and torches.

  2. Colleen Lynema Says:

    Great article! I am a Mortgage Loan Officer in Michigan and are seeing the same things you mentioned in your article. The wild swing from anyone gets credit to maybe we are having a good day and ok you get credit is really hard to deal with along with the time it takes to get approved (or denied) for a loan. At the rate they are lending now it will take the banks forever before they recover any of the lost money. There needs to be the balance of risk/reward again and that is not there, it’s just fear of risk now.

    Thanks for writing.


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