WHAT HAPPENED IN THE LENDING INDUSTRY
In looking at what has occurred in our residential real estate markets one can’t help but jump to conclusions about what happened in the mortgage market.Whether your particular theory blames Wall Street, realtors, mortgage brokers, lenders or the individual homeowners you must keep in mind that the greed that soaked the market was fueled by everyone in the chain and not just one participant.
Let’s look at the requirement to get a mortgage 20 years ago, a potential borrower walked into the local bank and met with a branch manager who was part of the local community, the requirements were fairly simple in that you had to have equity of at least 15%, provide income and asset documentation and have a strong credit profile. The loan that was given was funded from bank deposits and kept by the lending institution in their portfolio; if the community was faced with a downturn in the local economy the local lending institution was able to foresee this in advance, be proactive with borrowers in their community and stay ahead of the curve.
A foreclosure on a property in these times was a rare and isolated event. The trend in lending changed as home prices started to appreciate, this caused an increase in mortgage demand at the same time that investments elsewhere made bank deposits dry up and rates increase dramatically. The combination of these events made it more difficult to qualify for a home mortgage, the answer that the industry came up with was to open up guidelines and create looser and riskier products, combine that with the creation of mortgage brokers, the internet and a surge in real estate speculation and you have a bubble that was unsustainable. The bad news is that home owners got caught up in the speculation of rising home prices but the good news is that lenders are ready willing and able to renegotiate the terms of the loans they made provided the borrower can make a strong case to modify their loan.
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