New Lending Standards Make Obtaining Mortgage Loans Difficult
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by: marciafreeman
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2008 was not a good one for most homeowners in this country. Some real estate professionals predict that 2009 will offer a turnaround in the housing market. They feel that potential home buyers will be encouraged to take on mortgage loans with the new low interest rates and help reduce the current glut of home inventory. Most financial analysts see it differently, however. They believe the recession is only beginning and that home prices will continue to decline in the coming year. Consumers in some markets might take the opportunity to grab the current low rates offered on mortgage loans. But the inventory surplus from foreclosed properties may continue to hold back the real estate market. Making matters worse are the mortgage loans at adjustable interest rates that will reset soon. That will likely increase the foreclosure rate and add to the inventory of unsold homes. Some consumers who would like to buy right now are finding that they are not eligible for mortgage loans like they once were. Lending standards have tightened significantly, which will exclude many buyers who would have qualified for mortgage loans a year or two ago.
Current homeowners wonder if it is time to refinance their current mortgage loans under the new low interest rates. The past week had the most applicants for mortgage loans in half a decade. Over 75 percent of those were to refinance current mortgages. Unfortunately, a fair number of those who applied were denied. One mortgage lender in South Florida said that only about 5 of the 50 customers who called about refinancing recently qualified. Many markets across the country have homeowners who now have larger mortgage loans than the values of their properties, due to the drop in home values. Banks will not approve homeowners who do not have enough equity. Lenders are requiring a higher percentage of equity in the home, a high credit score and a low debt to income ratio. This reality is very different than that of a year or two ago, when lending practices for mortgage loans were looser.
A lot of financial analysts warned years ago that lax lending practices would lead to trouble. It was as if anyone was approved for mortgage loans, regardless of his credit history. Although the new lending standards may be compounding the already suffering real estate market, they will offer a necessary correction for a credit market that appeared to be out of control. We will have to wait and see if the new year will offer a renewed confidence in the credit market, and ample encouragement for consumers to take on new mortgage loans to get the ailing real estate market going again.
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