THE CREDIT HANGOVER OF 2009 - A MODERN HISTORY LESSON PLUS WHAT YOU CAN DO NOW TO HELP GET YOUR MORTGAGE APPROVAL!
Posted by Mike Askins on Wednesday, March 4th, 2009 at 3:15pm.
The old president may be gone, but the past 8 years of credit binging has now become the hangover for the new administration in Washington. Unfortunately for the overwhelming majority of people, the bankers have sobered up first and while the rest of us sit round with Ice Packs on our heads, all the lending rules have changed. I am reminded of a Walt Disney produced cartoon movie named "Pinocchio" and as odd as it sounds, the story line of this cartoon movie was about luring Pinocchio and other foolish children to "Pleasure Island" for the promise of no work, just fun and games, but in the end they were all transformed into “Jackasses” and sold off into a future of forced labor. I sometimes wonder what the writer, Carlo Collodi, was trying to tell us but I can easily see how with just a few tweaks, this storyline could be used to explain today’s credit crisis.
You know I should be writing about great new home builders, green building standards, lavish master planned communities and so on. The last thing I want to blog about are BANKS and the economic mess they have helped to create and how that problem has come home to roost locally in the DFW market.
BANKER INDUCED SHOCK TREATMENT - IS FINANCIAL TORTURE REALLY LEGAL?
I guess it is just plain unfair when you think about it but the same banks who lured so many people to their financial doom are many of the same banks that are now being bailed out at the expense of the taxpayers. While these failed institutions throw lavish board level parties to the tune of millions and give out bonus checks to the crooks in suits at taxpayer expense, a growing number of taxpayers are finding out that they can no longer qualify for a home loan from these same credit institutions even with a reasonable credit history! What is even more fascinating is how the government wants us to believe that bailing out "Wall Street" will help the man on Main Street? O.K, I'm game, but where’s the evidence that the so called bail out is actually working, because surely the pundits can’t be referring to the U.S. housing market.
Here's the point I am trying to make, unless a modicum of fair and rational lending standards can be instituted fast how can the deflationary pressures with regards to home prices be stopped? I would dare say that a majority of the U.S. home owners can't sell the home they are in without sustaining losses and until these homeowners can sell their current homes, well they won't be buying a replacement home anytime soon. If you just connect a few dots mentally you don't have to be a Rhodes Scholar to understand we got a big problem here and until the majority of home owners can afford to sell their homes then foreclosures and short sales will continue and this means home equities will remain deflated. Hello Congress, Hello President, and Hello State House - is anyone listening? I know Congress loves to “Twitter” so if you are an elected official please feel free to comment because I have a suspicion that the smoke you’re smelling may not be coming from Rome this time around.
STIMULUS “PACKAGE” OR STIMULUS “BILL?”
Change one "word" and you can so easily change the real "meaning" of just about any term or sentence and I have a hunch this slight of hand might apply to the recently passed U.S. Stimulus Package. I am not at all in agreement with the Bills' provisions with regards to helping housing which is at the root of the world wide credit collapse and deep recession. Perhaps the biggest question is just who is being bailed out here? The Fed has taken interest rates down to near ZERO percent to help banks lend, and there was talk that this would translate into U.S. mortgage rates going as low as 4% to borrowers in an effort to help stimulate demand in housing or at least to help present home owners justify losing some money on the sale of their current homes knowing they can somewhat make up for it with lower mortgage rates on replacement homes, but the fact is lower borrowing costs to the mortgage companies has not translated into proportionately lower borrowing costs to the man on "Main Street." This makes me think the Stimulus "Package" is actually a Stimulus "BILL" where we the people literally get stuck with the "BILL" while the same bank board members who rode herd over predatory lending practices get a free pass, continue to manage their failed banking institutions, receive bonuses, and throw lavish "Marie Antoinette" style parities knowing the "taxpayers" are the ones who will be "eating cake!"
BUT WHERE IS THE STIMULUS MONEY GOING?
I guess the Stimulus Bill makes wonderful sense to the banks who now appear to be making more money on each loan thanks to the FED lowering their cost of borrowing to near zero percent while they the banks keep their loan rates disporportinately higher so the man on Main Street (so called taxpayer) gets screwed. This might help to explain why banks can now justify such restrictive lending practices to the public as banks can now make the same profit from one new mortgage that they use to make on 2 or more mortgages before the credit crisis. When I checked with a local lender (not ARG's preferred lender) yesterday about approvals versus denials, he said almost 90% of their applicants are getting rejected in the Collin County region. This is scary as we are supposed to be the 5th best real estate market in the U.S. according to Hanley Wood Market Intelligence. Just last week Choice home’s a local entry level home builder elected to shut down their business, pay off their subs and refund deposits to their home buyers. Choice did not file Chapter 11 but they simply said it is impossible to sell homes when buyers can’t get loans. So much for an $8,000 tax Credit from Congress when so few 1st time homebuyers qualify. Help the man on Main Street? Oh really? What Street was Choice Homes living on? Last year they only sold over 500 homes per the statement they made when they decided to cease operations. Now we have even more unemployed construction workers and what about home buyer warranties? It is BANKS like these we can do without. The public currency belongs to the people, not the banks and speculators. It may be time to begin asking the tough questions about where our country is heading and just who Washington represents? All the more reason people, that you need knowledgeable real estate agents and lenders working for you in this tenuous market environment.
The way I see it, it must have been real hard for Congress to come up with the consolation idea for an $8K tax credit provision. If you read between the lines you might conclude that Congress knew they had to give the impression they were doing the credit to "bail out" the housing sector and that this was a benefit for the people all the while knowing full well the stimulus money was going to go to their "corporate citizens" instead and the average man on Main Street. If anyone should have benefited from the $8K tax credit it should have been Choice Homes who dealt with the exact people this credit was supposed to help. To this extent and this is just my opinion the Stimulus Bill as passed will do little good for the housing sector.
DID AMERICA'S FOUNDERS CLUE US IN THAT LIFE WASN'T FAIR?
I don’t want to start sounding like Bart Simpson, but it goes without saying that our nation's founders warned us about the dangers of a banking monopoly based upon the principle of lending privately controlled credit and the "engineered" boom and bust periods that would result from periods of credit expansion and contraction. They essentially warned the people that such mischief would eventually disenfranchise the American people from the very country that a revolution was fought to secure, or so the story goes. Maybe without knowing Oprah gave us an image of what the Founders were trying to explain without the benefit of modern video systems when she recently televised scenes from a growing number of ‘tent cities’ that are popping up inside the U.S. Without sounding disrespectful, maybe if Obama was forced to fly around in a Piper Cub and the Congress were forced to work from tents while their offices sat vacant with foreclosure signs hanging from the various Capital Buildings that somehow the light of day would be revealed to these elected officials enough for them to ask, “why?” I am sure if they felt the same austerity that as so many of the everyday “taxpayers” feel that better solutions would soon be realized or am I just dreaming? And if I’m dreaming, why am I blogging?
PRIVATE MONEY, PUBLIC MONEY? IS "MONEY" THE ACTUAL ROOT OF OUR PROBLEMS?
My question is why not create the 3rd Charter of the Bank of the United States and put the Stimulus bail out money there? Alright, so you're not up on Jacksonian history, but maybe as a nation we aught to at least understand the differences between a private and public currency. Believe you me I am no expert on this topic but it seems to me that if the people can have the benefit of a public currency and could pay an interest rate that is perhaps half as much as what they pay on private bank currency from the Federal Reserve or even pay the same interest rate as on Fed money that we could solve a multitude of vexing national problems. For example with regards to the stimulus bill, all the interest that is paid back to the U.S. Bank & U.S. Treasury from the stimulus money deposit approved by Congress would go directly into the public treasury to pay off the debt the Congress created to stimulate the economy thus effectively eliminating the need to raise taxes to pay off this new debt. I suspect the interest collected on this principal will easily exceed the principal amount itself, thus the idea that it could be lent at a lower real interest rate. At least it seems logical to me that IF we had a true public currency as opposed to a private currency system, which is exactly what we now have, that all interest collected on all sorts of bank loans would essentially be the Income Tax you pay to the government thus eliminating the dreaded, time consuming, ever confusing, un-American 1040. Basically all we cut out are the secret society, country club hopping, white collar, profiteering, party goers who are riding herd over the entire national economy and replace them with the GOVERNMENT. Say now wait a minute, isn't that what the constitution says anyway?? Well I'll be, just one big circle if you ask me.
So what I am trying to suggest is that interest collected on loans issued with a public currency belongs to the people and not a private corporation and would immediately create a tax system that would be so much simplier to administer than even a national sales tax. Basically when you make a loan payment you pay your taxes and it doesn't matter if you are an individual, small business or corporation. Simply borrow money and you're automatically paying taxes. Think about the time savings especially to small businesses! Think about all the unproductive over head companies could eliminate if interest from a public currency was going to public use to benefit the people instead of private banks. It seems to me to be a win-win and even downright American? Now think about it, do we really need private banks to issue our currency? Are you starting to understand what the real costs might actually be? This current economic crisis might aught to give you pause to begin thinking about this sort of stuff.
No one ever wants to talk about money, but it is the reason we are all in this pickle and why shouldn't the government of the people be the beneficiary of the interest collected on the public currency versus this money going to a bunch of profit driven, poorly managed private banking corporations? After all the Federal Reserve was created with a stroke of a pen, and so it can be “un-created” the same way. What are your thoughts? Please feel free to comment below in this blog.
STILL I REMAIN HOPEFUL THAT WE’LL SOON SEE POSITIVE AND HELPFUL CHANGES
You know there is nothing like a BLOG and certainly there are many points of reason to embrace. Blogs are but a time stamp journal of day to day events, ideas, thoughts and commentaries and they are provided freely without payment or criticism from a boss. It gives you a future opportunity to look back and relive the moment as seen through the eyes of people. I pray that next year much of the uncertainties surrounding our present economy are but distant memories. Lets all keep our fingers crossed.
FINALLY SOME HELPFUL HOME BUYER TIPS ABOUT GETTING A NEW "POST CRASH" MORTGAGE
Alright then no more history lessons! Instead let's focus on how all the new lending guideline changes will affect new mortgage borrowers and what you really must do before entering the real estate market in 2009. Here are my very best tips for you.
1. Find the BEST lender possible. A mistake here might easily mean finding out shortly before closing that you are a RENTER and not a buyer. You want the straightest shooter, the most intensive knowledge based lender you can find. You want someone who will put the 'screws' to you up front so you fully know what you are getting into. It is much better to find out in week #2 of your mortgage application process that you are not qualified or that you have more work to do to in order to get your loan approval. Receiving a rejection days before closing can also cost you your earnest money, option fee, inspection fees and other deposits associated with buying a home.
2. IF in doubt refer to No.1 above. In fact ARG has 2 great lenders you can contact. No one knows better than experienced Realtors just HOW IMPORTANT it is to have expert lenders who know their stuff. Anything less than a truly committed lender and you might be wasting your time in my opinion. Forget the .com mortgage companies; you need to sit FACE TO FACE with your lender - end of story.
3. Ratios Matter! Debt to Income Ratios matter like never before. No more fudge factor, no more "stated" income loans or "no- doc loans." Want a nice luxury home? You will have to show tax returns to substantiate income and your debt to declared income has to be within a ratio that can be approvable per the new mortgage lending guidelines or the amount your can borrow will be reduced. Paying debt down to improve your ratio is now another option to get the loan you want. Your word is no longer accepted. Hard cold verifiable facts are the new lending standard.
4. You’ll need a Down Payment. You are going to need at least 10%. Yes there are 80-15-5 possibilities currently if you have an iron clad credit history, but these types of loans are going away as 2nd lien companies are vanishing. This means if you want to go 10% down you will be getting a 90% loan to value with PMI. You can go FHA, but minimum credit scores are now 620 but maximum loan limits in Texas are just $271K.
5. Technology no longer equals FAST LOANS. Be prepared to wait 45 days even with PERFECT CREDIT before you are able to close escrow. The days of a 7 day close is OVER unless you are PAYING CASH! If you think the paperwork was insane before, you'll be happy to learn that "before" was actually quite "sane" compared to what you will have to deal with now with all the new lender guidelines. PLEASE be prepared for the new paperwork requirements and know that your mortgage lender also does not like all the extra work being thrown at them as this is killing them on time without any additional compensation.
6. If you are marginal BE WARNED! Even if you do NOTHING BAD to worsen your credit after you make a mortgage application you could STILL be subject to a future RULE change that can cause you a mortgage rejection or add months of additional waiting and credit repair to clean up "credit issues" that might not have been questioned before the rule change. These changing provisions along are responsible for a growing number of busted sales.
7. FORECLOSURES AND BANKRUPTICES - Sorry, but the NEW Rules regarding foreclosures and bankruptcies mean at least a 5 year wait for you to re-qualify for a mortgage and in a growing number of instances up to 7 or even 10 years of waiting depending on the lender. This means if you are over 5 years from a bankruptcy court judgment and your credit is totally CLEAN from late pays and other derogatory entries, you can re-qualify for a mortgage. If you have other bumps and bruises after your bankruptcy judgment or foreclosure, your will most likely be denied. Your lender will quickly determine this once you make application.
CLOSING COMMENTS
If you simply embrace the idea that getting a mortgage is serious business and is going to require work on your behalf and if you are willing to prepare ahead of time plus monitor your credit and be willing to pay all your bills on time and to NOT buy any big ticket items while you wait for your mortgage approval you might just find yourself sitting in the "cat-bird" seat when the right home buying opportunity presents itself.
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[...]to the recovery process. Banks are very much becoming "unamerican" institutions.Read my other blog about BANKS and the Economic Recovery - Just the way I see it.Folks, keep your eyes peeled, if you have a contract in place to purchase a home, you need to be[...]
Posted on Thursday, March 19th, 2009 at 4:54 PM.