Find how the mortgage crunch is affecting your market

By Flickr user Aaron Alexander

Not too many years ago, banks would just about write you a mortgage on the strength of your scratch-off lottery ticket winnings.

Not so much anymore.

Gone are the days when lenders would predicate decisions on volatile borrower income streams like overtime, child support and commissions.  Nor will they toss in extra cash for remodeling and furnishing, a la the 125-percent deals of yore – a further blow to those industries.

Now, down payments are demanded and prudence is a virtue. And according to this astonishing NYT report, banks even are looking askance at expectant parents. Lenders are worried that repayment will suffer if one parent drops out of the workforce to care for a newborn.  And as the article points out, new Fannie Mae laws just kicked in that require more up-to-date checks on prospective borrowers; banks want to make sure home buyers didn’t run out and pile on a lot of consumer debt between getting pre-approved and making an offer.

As the NYT piece shows, this sort of scrutiny is creating a lot of extra red tape even for well-salaried, creditworthy borrowers.  A local story on the plight of people who are ready, willing and able to buy – but held up due to new credit crunch-inspired rules – would make an interesting counterpoint to the avalanche of hard-luck stories we’ve been reporting the past couple of years.

With the National Association of  Realtors set to report June existing home sales Thursday and the summertime window pretty much closing for anxious sellers (because buyers generally want to settle in time for the new school year) you’re probably due for another take on your area’s residential sales situation.  In addition to the nuggets above, consider a fresh look at these angles:

Foreclosures. Residential housing foreclosures in 2010 are on track to outpace even the nightmare levels of 2009, according to this ABC News report, with as many as 1 million homeowners losing their properties for lack fo payments.  This article is worth a second read for some interesting points you can localize.  For one thing, it details typical foreclosure timelines, from the first late payment onward, and notes that lenders –through tactics like letting delinquent borrowers continue living in their houses – are managing the flow of foreclosures into the already moribund real estate markets nationwide.  Have a chat with regional mortgage lenders and credit unions about strategies they are using to

This article from Ilyce Glink points out that lots of easy-term and subprime loans will be resetting soon – including those that let borrowers make payments that didn’t even cover interest, resulting in negative amortization.  When the intro (or non-existent) interest rates on these mortgages kick in, they may put payments out of reach of people barely scraping by, resulting in another wave of abandoned loans.  Be sure to ask your local bankers about how these loans figure in their portfolios and about any programs they’re running to convert these borrowers into affordable instruments.

Sales tactics. In this previous blog post I wrote about the plight of desperate home sellers, and judging by recent activity things aren’t improving for them.  Both existing homes and new homes are stagnant; the nation’s builders’ sentiment plunged in June according to the report issued earlier in the week.

This is all leading to some odd bedfellows in the sales arena.  I’m stuck with a moribund inherited property myself, and efforts to unload it have drawn some interesting proposals out of the woodwork.  Someone with a neighboring for-sale-by-owner condo wants us to partner together in marketing our respective dwellings, on the theory that we can cut our selling costs in half and that whomever we lure to a showing might want one or the other.

A number of hungry-sounding realtors have responded to my FSBO classified ad, with rather poignant offers to help bring buyers for a miniscule commission rate or flat fee that is cut to the bone.  And most of the prospective buyers have admitted that they can’t get a loan and are wondering if I’d be willing to finance the sale for them, offer a land contract, lease-to-own deal or other terms. You can probably find similar tales in your neck of the woods.

It’s grim on the front lines of the residential housing market, and that’s a story your readers will never tire of.