There is no doubt that what we are experiencing today is unprecedented in real estate and mortgage lending. My name is Darren Meade, and I am a the President of Victory Mortgage.
The purpose of my article is to give you a brief overview of what is taking place within mortgage lending at this time and to offer you insights that you can share with both your sellers and buyers. This information will allow you not only to profit in today’s market, but it will help you advise your clients so that they can make educated decisions about buying and selling property.
Have you ever seen on the news, the satellite photo of a hurricane? It looks rather ominous, doesn’t it? And, while it certainly seems like it’s going to be a bad day here, anyone who’s been through a hurricane knows that there is a world of difference between a Category 1 bad day and a Category 5 bad day. And, based on this image alone, we can’t really say for sure what we’re dealing with. To adequately prepare for this storm, we need more information, don’t we?
What I’m going to do for you today is similar to what a pilot of a hurricane-hunter airplane does. I’m going to take you right into the eye of this hurricane, so that you can prepare for the kind of storm that’s about to come ashore. And, from what I can tell, the storm we are about to be hit with is major, even catastrophic.
The mortgage meltdown of 2007 is one those storms. If you were to try and compare the economic damage of this financial storm to that of the storm in this picture, don’t even try. In the past few weeks alone, over $2 trillion was lost in global markets, and I don’t think we are anywhere near the worst of it yet. And, to add salt to the wound, we are seeing signs that what’s taking place here in the United States is starting to infect other countries as well. Within the global economy, not only are other countries dealing with their own subprime woes, other financial companies in these countries have invested in our mortgage-backed securities as well.
To get an idea of what it is that com buy to let mortgages brought us here, we have to wrap our arms around what’s happened. We have to understand the key determining factors. As with anything this major, there wasn’t just one thing that brought this situation to light. No, quite the contrary. There were a number of factors that, once aligned, produced the laser-like heat that ignited and culminated in the meltdown we have today.
First of all, we have what is known as Subprime and Alt-A lending. Subprime lending is for people who would like to get a mortgage but haven’t done a good job of paying their bills. However, as we’re in the days when tracking one’s FICO score has become a hobby for some, lows scores – even in conjunction with no late pays – can force someone into a subprime mortgage. Other factors mandating the necessity of a subprime loan could be little-to-no down-payment, the inability to validate income with tax returns, or the inability to source funds for a down-payment. Or, it could just be a combination of all of the items mentioned here.
Alt-A lending is a lot like subprime lending, except that the borrower will predominantly have good credit. With Alt-A loans, borrowers are unable or unwilling to provide documentation for income and/or assets. These types of loans are commonly referred to as Stated- or Reduced-documentation type loans, or the infamous No Doc or no-documentation-required loan.