Posts Tagged ‘lenders’

Housing Crisis to End in 2012 as Banks Loosen Credit Standards

From DSnews.com, by Krista Franks.

Capital Economics expects the housing crisis to end this year, according to a report released Tuesday. One of the reasons: loosening credit. 

The analytics firm notes the average credit score required to attain a mortgage loan is 700. While this is higher than scores required prior to the crisis, it is constant with requirements one year ago.

Additionally, a Fed Senior Loan Officer Survey found credit requirements in the fourth quarter were consistent with the past three quarters.

However, other market indicators point not just to a stabilization of mortgage lending standards, but also a loosening of credit availability.

Banks are now lending amounts up to 3.5 times borrower earnings. This is up from a low during the crisis of 3.2 times borrower earnings.

Banks are also loosening loan-to-value ratios (LTV), which Capital Economics denotes “the clearest sign yet of an improvement in mortgage credit conditions.”

In contrast to a low of 74 percent reached in mid-2010, banks are now lending at 82 percent LTV.

While credit conditions may have loosened slightly, some potential homebuyers are still struggling with credit requirements. In fact, Capital Economics points out that in November 8 percent of contract cancellations were the result of a potential buyer not qualifying for a loan.

Additionally, Capital Economics says “any improvement in credit conditions won’t be significant enough to generation actual house price gains,” and potential ramifications from the euro-zone pose a threat to future credit availability.

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It Sold! No it didn’t!

As I was walking through the neighborhood, I saw a client who had written a contract a few days ago.  He had hoped to purchase a particular REO property, as he wanted to help some friends by renting the house to them.  This was a multiple offer situation, and he wrote his cash offer above the listed price. 

Photo courtesy of Stockvault.net

I called to him and said, “I haven’t heard anything yet.”  He called back to me, “It sold!”  When I caught up to him, I asked what he meant, as it didn’t seem possible that it could have sold already.  “Oh yes,” he said, “I read it in the newspaper.”  I must have looked incredulous, as he asked me if I wanted to see the paper.  “Yes,” I said, “please show it to me.”  When he showed me the clipping, I saw that some recent sales were listed, and among them was the address of the home on which he had written the offer.  “It sold for more than I bid,” he said, looking at me with disappointment. 

Upon closer examination of the details in the newspaper I noticed that the sale date was January 10, 2010.  We had dated his offer February 9th, and so far had not heard back from the listing agent.  The list of sold homes was prefaced with the explanation that these sales were purchased through foreclosure by lenders.  When I pointed out to him that the sale reported in the paper took place in January, he looked puzzled.  You may be too.  This is what happened:

The prior owners lost their home to foreclosure.  The home was purchased in January by the loss mitigation department of the lender holding the note.  The lender paid $237,000 which was reported in the newspaper.  The lender then engaged a Realtor to sell the home, and as this home needs work, it was listed at $180,000, less than the lender paid for it.  Because this San Jose home was listed so low, multiple bids came in on the property, many of them above the listed price. 

We must wait to see what the sale price will be on this house.  That is not disclosed until escrow closes and the property has been recorded in the new owner’s name.  Will it be what the lender paid?  Or less?  Or more?  It could be any of these, but in this case, in this area, it’s likely to sell for a higher price.  In this troubled time in our nation, lenders would be happy to recoup what they paid, but they may not.  Lending institutions are in the business of lending money, not owning real estate, and their interest is in getting the REO property off their books.