Practical thoughts on the Mortgage Market.

  My favorite characterization of today’s mortgage problems comes from noted economist, John Mauldin. He says it is like watching the Pig going through the digestive process of a Python.  

The essential “root causes” of the current mortgage problem are the intense appetite the world markets have had for mortgage backed securities and the current declining home prices nationwide.  

First, I am optimistic about the future. The “Python’s” metabolism is many times faster than when we had the S&L crisis of the ‘90’s. What took months back then, takes days or weeks now. In our current world economy, asset backed investments such as mortgage “bundles” are still very attractive. I believe that as soon as the “quality” issues are adjusted, there will be liquidity and the mortgage loan availability loans will improve 

What does it mean to the buyer and seller? 

When selling a home, you must monitor you buyer’s loan approval, documentation and funding process. Be sure your agent understands the process.  Be sure the loan approval comes from a reliable bank. Stories of prime borrower’s loans not being funded at the very end of escrow are becoming more common. This means that a seller could be all packed up ready to move, and ready to close their new home escrow on a Friday and find out that the buyer’s loan didn’t close on Wednesday. Sellers need to protect themselves by insisting that they have additional time to vacate their homes, just in case the buyer’s loan wasn’t funded. 

For the home buyer, be sure you are approved by a reliable lender. Try to keep your new loan amount under $417,000—an easy thing to do in Reno or Sacramento, but not so easy to do if you’re moving “up” to Squaw Valley. Despite very good credit, banks have failed to fund because of lack of funds.  How can they do this to me? When I was a Loan Officer, the best explanation given to me was; “Because they’ve got the money and you don’t!” 

This turbulent market should work itself out before the end of 2007. Keep a positive attitude, price your home to sell and protect yourself with intense attention to details. They buy side opportunities in most markets are fantastic. Remember, the first portion of your profit in real estate is achieved by buying right.