The morgage industry is going through some major transitions and a period of correction. This is common in many industries and usually happens in 6 to 8 year cycles. In 2004, 2005, and 2006, underwriting guidelines were very loose and allowed many indviduals to obtain morgage financing even though they had marginal or poor credit. The correction started in the beginning of 2007 when economists noticed the high delinquency rates among sub-prime borrowers. The problem became worse as housing prices leveled off and started declining in some markets. Borrowers were unable to tap the equity in their homes and bail themselves out so delinquencies rose.
Just about everyone is affected. When the housing market was strong, we were able to refinance our homes or take out a home equity line of credit to pay off bills and buy the goods that we wanted. Now many homeowners are finding it difficult to finance their way out of debt. The tightening of credit standards and elimination of certain mortgage programs are causing a further slump in the housing market. This will impact property values as it is more difficult for some people to get a mortgage loan today. With foreclosures on the rise and more supply of homes on the market, it is unlikely that home values will rebound anytime soon. We are experiencing a greater supply of homes and a lower demand.
The housing market is likely to take a couple more years to recover. The market must equalize the supply and demand unbalance before we will be able to see any noticable improvements in the housing market. Until then, it will continue to be a buyer’s market. Due to the changing mortgage landscape, it is more important now more than ever to consult with your loan officer regarding your current mortgage or any potential purchases that you are considering. The full documentation convential loan market is still doing well and interest rates for this segment of the market are still attractive.