Changes in the mortgage market
There have been several changes in the mortgage market as of late. They are changes which are good, not only for the mortgage market, but also for the real estate market. The following four types of loan packages are no longer available or severely limited.
- 110% Loan-to-value mortgage. This gave the borrower the ability to borrow 110% of the value of the home they were purchasing.
- 125% Loan-to-value mortgage. This gave the borrower the ability to borrow 125% of the value of the home.
- Aggressive interest-only mortgages. This loan package usually did not require a down payment. With this type of loan, the principal stayed the same. The value of the the home might go down, but the amount borrowed stayed the same.
- No document loans. This loan did not require any proof of employment or income. This loan package became known as a “liar loan.”
It is good riddance to these loan products. It was because of these type of loan products that we have the financial problems that we now have. It was these loan products, especially the no-doc loans, that created many “upside down” loans that are so prevalent today.
The limitation of these type of loans, now virtually impossible to find, will have a positive effect on the housing market in the long run. Finding qualified buyers has always been a challenge in the real estate market. Now when a buyer says that they are “preapproved,” you can be assured that they are a strong buyer. With more restrictions on the loan qualification process there is less chance of the buyer defaulting on a loan. This will strengthen the housing market, as there will be fewer and fewer short sales and foreclosures on the market which artificially deflate the value of homes.