A paradigm shift

Sometimes an event occurs or a series of event occur which changes the entire paradigm of an industry. The gas crisis of the mid-1970s forever changed Detroit and propelled foreign car makers into the US market. Detroit car makers have yet to recover.

100% financing with no money down at scores below 600 – wow! Sounds too good to be true right? The past few years people have come to expect it. And like the stock market run of the late 1990s the market just crashed. The last four months has slowly put an end to the good times! I don’t even know if we can call it good times – there are a lot of folks hurting because of this easy credit. I’m not just talking about folks who might lose their homes, I also talking about shareholders of companies that have gone out of business.

The coming shock
The way events are moving right now people are set up for a big shock. Realtors will be shocked and borrowers will be even more shocked. Most likely the realtor will “fire” a loan officer because they can’t do a loan like they said they would. No fault to the Loan Officer because most lenders just changed their guidelines in the last 24 hours!

Borrowers with low FICO will go from broker to broker wondering why they can’t get a loan even though their brother who came out of bankruptcy in January just closed on a deal. People will be upset.

There is no easy answer. The issue is that Wall Street doesn’t like these “exotic” mortgages anymore and 80/20 mortgages for those with low credit scores just doesn’t sell on Wall Street anymore. There are a lot of lenders right now stuck with mortgages they don’t know what to do with. The longer these loans stay on their books the costlier it gets for them. Hence, the swing in the opposite direction.

So, like Detroit the industry has changed in the last few months. As Realtors and brokers adjust to this new climate – lenders will have to be patient and be very clear that – in the long term – the change that is happening is good for everyone, including the person who just got denied that loan.

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