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Category: Lending (page 39 of 56)

February 21, 2009

Obama’s housing rescue plan won’t rescue housing, but it will delay the eventual recovery of the real estate market

by

Suburban Phoenix Real Estate Broker

Author website

This is my column for this week from the Arizona Republic (permanent link).

 
Obama’s housing rescue plan won’t rescue housing, but it will delay the eventual recovery of the real estate market

President Barrack Obama came to Mesa Wednesday to announce his new housing initiative. The location made for good political theater, given that metropolitan Phoenix is one of the hardest-hit real estate markets.

The president promises millions of refinanced or renegotiated mortgages, at a price tag of $275 billion. The putative beneficiaries are homeowners, who may be able to negotiate their monthly payments down to less than 30% of their monthly incomes. But it is the lenders who will cash in, if the Obama plan works.

How’s that? Obama is hoping to shove a floor under still-declining home prices. Lenders will take a hit on millions of reformulated mortgages, but the hope is that this will save them even more money, in the long run, by stemming the rising tide of foreclosures.

In other words, the Obama plan is a price-support scheme. The market argues right now that homes are overpriced — which in turn suggests that the available supply of homes substantially exceeds existing demand.

That’s important. Prices for premium-quality homes are very low, and interest rates are still hovering at historic lows. Mortgage money is easily available to owner-occupants, and Fannie Mae just loosened its standards for rental-home investors. Even so, the number of homes being offered for sale at current prices still exceeds the number of buyers willing to pay those prices.

In reality, prices need to continue to drop until demand matches or eclipses supply. It wouldn’t hurt to convert some housing to other uses, or simply to tear it down altogether.

But forcing an arbitrary floor under prices is unlikely to have happy consequences. Despite his rhetoric, Obama’s plan can only reward our economy’s wasteful grasshoppers, at the expense of its thrifty ants. A price-support will serve to delay recovery, since it will do nothing to solve the supply and demand problem. And, as the worst of all foreseeable consequences, a price-support plus the $8,000 tax credit from last week’s stimulus bill could Read more

February 20, 2009

Bankrupt Ideas for Changing Bankruptcy

by

Real Estate Renaissance Man

Author website

Two excerpts from a local article:  Bankruptcy reform could help hard-up homeowners

Overwhelmed by debt from credit cards, a $536-a-month truck payment, $8000 in overdue property taxes and two mortgages, the single homeowner is hoping (San Diego bankruptcy attorney) Colwell can remove the $84,000 second loan on his home, which is now worth about $100,000 less than what he originally paid.  (emphasis mine)

———————————

House Speaker Nancy Pelosi (says) Congress is prepared to act on the (bankruptcy) legislation so “responsible homeowners can stay in their homes.” (emphasis mine)

The obvious question here is: Does House Speaker Nancy Pelosi know she’s a caricature?

But let’s go beyond the obvious for a moment and take a rational, economically based look at President Obama and Congress’ plan to allow bankruptcy judges to modify mortgages.  Why?  Because the effect of this legislation will impact not only home buyers, real estate agents and lenders but pretty much anyone who plans on using a mortgage to purchase or refinance a home in the foreseeable future.

This is not the venue to bore you with arcane language and minutiae on how mortgage back securities work.  Suffice to say that, as with all investments, investors in mortgage backs (upon which all mortgage rates are based) are happiest when they feel safest.  The more comfortable they are in their expectation of future redemption rates, the less profit they expect in return for purchasing mortgage backs.  Translation: a safe & happy mortgage back investor equals a low mortgage rate.

But, when you give a bankruptcy court the power to modify a loan at their own prerogative, you introduce the unknown and unstable into the world of our happy little mortgage back investors – you introduce risk.  Confronted with an increase in risk, investors naturally want an increase in reward.  That means higher rates across the board. This is not rocket science.

Says Dustin Hobbs, spokesman for the California Mortgage Bankers Association,

“If there’s the fear that judges can at any time modify mortgages, it’s no long the safe investment it was, and investors will charge mortgage bankers more to buy the loans – costs that will be passed on to Read more

February 19, 2009

The bad news: Obama’s housing relief plan is a giveaway to lenders, not homeowners. The worse news: It won’t work, anyway.

by

Suburban Phoenix Real Estate Broker

Author website

If you read the news this morning, you’ll find Realtors all over the country rejoicing that President Obama has surged into the depressed real estate market on a white charger, bearing with him an heroic plan to rescue everyone — borrowers, lenders and especially Realtors. No discouraging words? To the contrary. Some Realtors think Obama’s promise of $275 billion in mortgage bailouts does not go far enough.

Here are two important questions to put the matter into perspective:

1. By how many dwellings will the standing inventory of housing be reduced under Obama’s plan?

2. By how many households will Obama increase demand for housing?

Since the answer to both of these questions is zero, we can predict with certainty that President Obama’s housing relief plan will do nothing to relieve the housing crises.

What will it do? The true essence of the plan is Rotarian Socialism for lenders. Obama’s hope — probably hopeless — is that if lenders take a lot of small hits now — by refinancing homes for substantially less than is owed on them — they can avoid a lot of much bigger hits later — by not having to foreclose on those homes.

But the real problem — in Phoenix, Las Vegas, Sacramento, South Florida, the Rust Belt, etc. — is that the residential real estate market is overbuilt. There are more houses seeking homeowners than there are homeowners (or tenants) seeking houses. The real estate crisis will not end until supply is reduced, demand increases — or both.

Obama is trying to shove a floor under home values. But since this does nothing to correct the systemic problem — oversupply — he is simply pissing away money while delaying the ultimate and unavoidable market correction.

Want a true housing relief plan?

Here in Arizona, we could do ourselves a huge favor by repealing the employer I.D. check law that drove all of our undocumented friends out of the state — just at the wrong time.

And it would make great sense to make immigration to America easier and faster. Imagine having neighbors who work hard, pay their bills on time and can spell correctly!

But those Read more

February 9, 2009

What are the Stimulus Plan and TARP II going to mean for the housing and mortgage markets?

by

Mortgage Officer

Author website

While I could write for a LONG time about it, I’m going to limit it to what I feel are the top 6 things that I think could very well happen.   Keep in mind, this is being written after watching President Obama’s press conference but before anything gets passed.

1. The market is expecting that both the Stimulus Plan and TARP II will provide “the answer” to the problems that are currently plaguing our economy.   With that being said, I believe the markets will be disappointed because the problems facing the economy are way more complex and urgent than what one or two bills can solve.   The disappointment will put downward pressure on stocks and upward pressure on rates.

2. The $15,000 tax credit for home buyers will pass but rather than jumpstarting the housing market, it will instead cause a few people to buy homes, mainly first time home buyers, and will extend the inventory problems that we have because prices won’t adjust as they should.   We won’t get nearly the “bang” for the $Billions that will be spent on the tax credits.   I’m sorry but I really think the main beneficiaries of the $15K tax credit will be mortgage lenders, real estate people and the relatively few people who were already thinking of buying.   Will it reduce inventories?  No, other than taking some bank owned inventory (for first time buyers) off the banks, the rest of the people will be “shuffling” inventory because they all have a house to sell.

3. Between the Stimulus Plan and the TARP II funds, we’ll (yes, it’s you and me) will be spending close to $1.2 Trillion.   Do we have the money?   No, we don’t, so we’re going to borrow it.   What will that mean to the market?   A couple of things are going to happen (obviously in my opinion):  1) The government is going to flood the market with debt in order to finance this spending.   That’s going to push the supply demand equilibruim off base and that is going to put upward pressure on mortgage rates.

4. What about that 4.5% mortgage rate?  Is it Read more

January 30, 2009

The Fed Translated…..

by

Mortgage Officer

Author website

Tom here….  Sorry for the delay, but better late than never….. (my comments are in bold)

The Federal Open Market Committee decided today to keep its target range for the federal funds rate at 0 to 1/4 percent. Nothing new there and no surprises.  Can’t go lower than zero and certainly can’t raise them right now. The Committee continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time. Here again, no big surprises.  I think the surprise is going to be the amount that rates go up once the economy does recover and inflation becomes an issue.   I’ve been talking to a large number of people who want to use a home equity line (at prime or prime minus .5%) to pay off their mortgage.   They would lower their rate down to around 3%, but my recommendation would be to do that only if they can plan on paying the balance off within 1 to 3 years.   My feeling is that any longer term than that will make it too expensive because of the way rates are going to jump up.   For more thoughts on that, see what I wrote a couple of weeks ago about the “W” recovery.

Information received since the Committee met in December suggests that the economy has weakened further. No surprise there. Industrial production, housing starts, and employment have continued to decline steeply, as consumers and businesses have cut back spending. Furthermore, global demand appears to be slowing significantly. Conditions in some financial markets have improved, Really?  Which ones? in part reflecting government efforts to provide liquidity and strengthen financial institutions; If you look at Bank of America and Citi, you can’t tell that the financial institutions are stronger, nevertheless, credit conditions for households and firms remain extremely tight. The Committee anticipates that a gradual recovery in economic activity will begin later this year, but the downside risks to that outlook are significant. Translated – we hope things get better later this year, but we really don’t know, so don’t blame us if it takes longer.

In light Read more

January 5, 2009

Mortgages Under Management

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

“Managing loans” is the tail that wags the dog today.  When I was a rookie stockbroker, the good folks at Mother Merrill taught us to “gather assets”.  Essentially, the firm encouraged us to pitch clients to have their assets transferred to a Merrill Lynch account.  The strategy was that assets “in-house” would result in a commission when they had to be sold.

Is it any wonder that the mortgage sales gurus who brought that strategy to the mortgage business were former stockbrokers?  Rich Katz, former President of Loan Toolbox, spent his early career with both Merrill Lynch and Smith Barney.  Dave Savage of Mortgage Coach perfected that strategy with his software offering.  Todd Ballenger developed a business model that partnered with financial planners; it’s cornerstone was actively managing mortgages for customers.

Simply put, a new mortgage originator could track current homeowners’ mortgages, by rate (and/or term).  The lowest-tech system would be in file folders, indexed by note rate.  Vendors like Mortgage Coach, Top of Mind, and MyLoanBiz.com offer automated solutions to managing mortgages.  Whether you spend the money for automation or not, “managing mortgages” can be fruitful, especially in a low mortgage rate environment like today.

Greg Frost of LoanToolbox tells us that “first in wins”.  When a dramatic move in rates occurs, the first originator to call the homeowner with an attractive loan solution usually has the best chance of earning the new loan business.  Regardless of rate movements, approximately 9% of all loans outstanding are refinanced each year.  Another 11% of all loans outstanding are paid off due to sales.  This means that one out of five loans will be retired (and new loans will replace them) annually.  A mortgage originator who wants to close 100 loans each year would do well to “gather” data for at least 500 homeowners then.

The strategy works whether you use a computer or a drawer-full of files. Here are some real life examples from practicing originators:

Dan Green talking to Dave Savage about how he used this strategy to excel in a down market.

Khai McBride discusses his quarterly credit review for clients

Jim Sahnger talks about how to Read more

December 30, 2008

A 4.5% Mortgage In Every Pot

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Embrace the New Deal!  The Bailout has made its way to Main Street.

The Fed’s gonna do it..for real:

The Federal Reserve on Tuesday announced that it expects to begin operations in early January under the previously announced program to purchase mortgage-backed securities (MBS) and that it has selected private investment managers to act as its agents in implementing the program.

Under the MBS purchase program, the Federal Reserve will purchase MBS backed by Fannie Mae, Freddie Mac, and Ginnie Mae; the program is being established to support the mortgage and housing markets and to foster improved conditions in financial markets more generally.

Here’s Sean Purcell and I, talking on BloodhoundBlog Radio, about today’s announcement (15 minute podcast)

PS:  Expect an orgy tomorrow and Friday, in the MBS markets….if the traders fly back from Cabo tonight

December 28, 2008

“U.S adults” may not want foreclosed homes, but homebuyers sure do

by

Suburban Phoenix Real Estate Broker

Author website

This is my column for this week from the Arizona Republic (permanent link).

 
“U.S adults” may not want foreclosed homes, but homebuyers sure do

Did you see in the news where only 47% of U.S. adults would consider buying a foreclosed home?

An amazing number, isn’t it? What does it mean?

Almost nothing, of course. The real estate market in Phoenix, along with many, many other cities, is dominated by foreclosed homes right now. They are virtually all that is selling.

So how could so many homes be selling if so many people are averse to buying them?

This is a nice lesson in the uselessness of public opinion polls. “U.S. adults” are not homebuyers. Homebuyers are homebuyers. Asking U.S. adults how they feel about sushi or blackberry wine will tell you nothing about their sales, either.

What the survey does tell us is that the news has gotten out about the sometimes difficult process of buying a foreclosed home — especially a short sale — and about the often dismal condition of those homes.

And yet, foreclosed homes are selling and virtually nothing else is.

Why?

Because they’re cheap, that’s why. Even in the nicest neighborhoods, a lender-owned home will sell at a discount of 50% to 80%, compared to owner-occupied homes. In not-as-nice communities in the West Valley, you can pick up a stucco-and-tile 3 bedroom, 2 bath, 1,500 square foot home with a two-car garage for $50,000.

As I write this, there are 120 homes like that, all built 1995 and later, listed for $75,000 or less.

Let the price rise to $100,000 and there are 690 available right now.

Last month, 191 of those homes sold for $100,000 or less. That’s an implied absorption rate of 3.61 months, arguably a seller’s market.

So on the one hand an undifferentiated population of U.S. adults, who may or may not be in the market to buy a home, has a generally negative opinion of foreclosed homes.

And on the other hand there is a land-office business in foreclosed homes.

We will see many years’ worth of foreclosures in our market. How we feel about that in the abstract makes no difference.

Technorati Tags: , Read more

December 20, 2008

Workable real estate deals may require even more creativity

by

Suburban Phoenix Real Estate Broker

Author website

This is my column for this week from the Arizona Republic (permanent link).

 
Workable real estate deals may require even more creativity

I do a lot of work with buy-and-hold rental home investors, more and more of whom are able to come into Phoenix with all-cash offers. Poor me, I know.

But: I’ve been spending a lot of my time, lately, thinking about “triangle-trade” strategies — old-style funding mechanisms that we were happy to forget all about when money was easy.

So picture a buy-and-hold investor with 100% equity who wants the best deal he can get when he sells his former rental home. Why not do a lease-purchase instead of a straight sale? The investor can help his buyers accumulate a down-payment, perhaps working with them to improve their credit score at the same time. The investor gets a higher purchase price, the buyers get a lower monthly payment, everybody wins.

Or how about selling with a contract-for-deed? There are a lot of people out there with great incomes but lousy credit — more every day. If an investor — or ordinary homeowner — is willing to take on the risk of a carrying back a note, the home can sell now, rather than languishing on the market.

Or if the seller isn’t able to carry the whole mortgage, how about carrying back a second loan? If the seller has the equity, and if that will swing the balance with the buyer’s lender, it can make sense.

San Diego Realtor Don Reedy has come up with his own blast from the past: Parents help their kids get into homes by co-signing on the loan and helping with the payments, then share in the equity on resale.

Single people or single parents or childless couples could do the same sort of thing with a larger home: Go in on the home together as tenants-in-common, using their combined income to qualify for the loan, then paying the mortgage and sharing in the equity on a pro-rated basis.

Buyers are not in short supply, nor are homes available for sale. Creativity could make all the difference, going forward, in putting workable deals Read more

December 16, 2008

The Fed Translated…..

by

Mortgage Officer

Author website

Release Date: December 16, 2008

The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent.

What’s up with the “range” of rates?   Well, they’d look pretty foolish if they said they wanted the rate to be at .25% and the market was already trading fed funds futures at .14% as of this morning.   Calling the rate at .25% would be sort of like predicting yesterday’s weather.

Since the Committee’s last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. No arguments there. Financial markets remain quite strained and credit conditions tight. I’m not sure that a lot of people are as aware of the strain on the financial markets as they should be. Overall, the outlook for economic activity has weakened further. Enough said there….

Meanwhile, inflationary pressures have diminished appreciably. Saying that inflationary pressures have diminished is being modest.   Inflation is dead for now. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters. For inflation to moderate any further, deflation will become a huge issue. Let me rephrase that, in light of the Consumer Price Index report this morning, it’s pretty apparent that deflation is an issue.

The Federal Reserve will employ all available tools (available tools – oh and since we’re running out of ammo in our normal tools, we’re going to come up with some new ones.   We hope that they work and we hope that they persuade people to start spending and borrowing money again) to promote the resumption of sustainable economic growth and to preserve price stability. Price stability – yeah, we are kind of concerned about that deflation thing and we’re afraid that all of the money we are printing is going to have a very negative effect on the value of the dollar and the value of our stock market investments, but we’ll worry about that some other time. In particular, the Read more

December 9, 2008

Can We Stop Falling House Values? An Op Ed piece by the NAHB

by

Mortgage Officer

Author website

This is excerpts from an op ed piece written by Steve Hodgkins.   I’ll throw some comments in to explain/clarify what he’s saying and why I don’t agree with a large portion of it.

The decline in single-family home values is the predominate reason for the current economic collapse……

Tom here – which came first, the chicken or the egg?   Did the subprime mortgage lending boom send housing prices way too high because credit was too easy?   Or did housing prices fall because those loans went bad?   Or both?

Falling values have decimated the single-family construction industry, which normally supplies roughly 16% of the gross national product of the United States……

At the height of the housing boom, developers and home builders were buying land, developing lots and building houses based on an economy fueled by subprime mortgages.

They neither asked for nor were even aware of this giant social experiment conceived by our political leaders and the heads of mortgage giants Fannie Mae and Freddie Mac.

Tom here – so they didn’t ask for increased lending?   They weren’t even aware of the fact that lending was significantly more lenient than it was before?   They are saying that they never lobbied for easier lending?   I’m sorry I’m not buying it….

As entrepreneurs and job creators, home builders were simply responding to perceived market conditions. Likewise, their banks and financial partners were making decisions based on historical market data.

Tom here – “making decisions based on historical market data?”   So he’s saying that the sudden relaxation of mortgage guidelines was based on historical data?   How does he figure that?   I’m absolutely positive that I’m not the only mortgage lender who said, “Wow, I can’t believe that Fannie and Freddie will buy this loan…..”

After the subprime loans were pulled out of the marketplace, builders were left with large inventories of land, lots and houses and far fewer buyers who were able to qualify…..

Tom here – I’m not sure that it’s quite an accurate description of the market dynamics.   Did the subprime mortgages get pulled or did buyers stop buying a new home because prices have gotten too high and the increase Read more

December 6, 2008

Seriously, who’s a better risk for a mortgage than someone who has already lost a home to foreclosure?

by

Suburban Phoenix Real Estate Broker

Author website

This is my column for this week from the Arizona Republic (permanent link).

 
Seriously, who’s a better risk for a mortgage than someone who has already lost a home to foreclosure?

We talked last week about credit flexibility among merchants as they try to find ways around the banking crunch. The flip side of the same coin is how the credit marketplace will react, going forward, to home foreclosures.

You’ve heard all your life that a foreclosure is second only to a bankruptcy in the way it will ruin your credit. This is still true, but “ruin” may turn out to be an adjustable calamity.

Here’s why: A lot of people are going through foreclosure. Ninety percent or more of homeowners are unaffected by the wave of bank repossessions, but that still leaves millions of people who are going to have a foreclosure on their credit for the next seven years.

What’s going to happen to those folks when they go to the furniture store or the jewelry store or the car dealership? They might end up paying a higher interest rate, but they’re still going to get financing.

I have been advising my investor clients for months to ignore recent foreclosures on credit reports. Past performance on every other sort of credit account matters a lot. But if landlords refuse to rent to folks who have lost their homes, they will be turning away half or more of the tenant population.

My take is that, right now, a recent foreclosure is like hospital debt: If everyone else was getting paid before, during and after the financial catastrophe, you just have to look past the elephant in the room.

And here’s the funny part: I am sure this will apply to home loans in due course, also. If mortgage money remains freely available, lenders will find a way to overlook recent foreclosures in order to underwrite new home loans.

We can hope that, this time, interest rates will reflect the true risk lenders are taking on. But this country runs on credit. Just because a borrower recently defaulted on a six-figure debt, that’s no reason to withhold the unlimited boon Read more

December 3, 2008

Treasury may lower mortgage rates?

by

Mortgage Officer

Author website

WASHINGTON (MarketWatch) – The Treasury Department is contemplating a proposal that would cut mortgage rates for new loans for homes, according to the Wall Street Journal.

The plan would employ Fannie Mae to offer mortgages with rates as low as 4.5%, roughly 1% lower than current rates.

The measure is under consideration as part of the Treasury Department’s continued effort to limit foreclosures, which has been at the core of the financial crisis. The plan would seek to revitalize the financial market without bailing out homeowners and lenders, the Journal reported.

As part of the proposal under consideration, Treasury would buy mortgage securities backed by Fannie Mae and Freddie Mac, in addition to those guaranteed by the Federal Housing Administration.

Fannie Mae and Freddie Mac guarantee a significant chunk of all new mortgages in the United States.

Treasury may set mortgage rates at 4.5% to boost sales – MarketWatch.

Okay, not to rain on everyone’s parade, but let’s take a logical look at the numbers and the statistics behind it.

  1. What’s the only way possible that I’m aware of to lower mortgage rates?  By raising the price of mortgage backed securities which lowers the rates on them.   Lower rates on mortgage backed securities equals lower mortgage rates.
  2. How do you increase the price of mortgage backed securities?  The only way that happens is by increasing the demand for them.
  3. How do you increase the demand for them?  Have the government step in and buy a HUGE (I’m talking many many many zeroes!) amount of mortgage backed securities off of Fannie and Freddie.
  4. How is the US government going to come up with that money?   All joking about printing presses aside, in reality, they are going to have to borrow the money.
  5. How do they borrow the money?   By issuing a LOT of US Treasury bonds to finance their purchase of mortgage backed securities.

So, what happens with the price of US Treasuries if suddenly there’s another $1 Trillion on the market?

  • Demand stays the same
  • Supply goes way way up because the government is flooding the market with more debt.
  • Price goes up down because there is more supply than demand.
  • Rates go up.

(Thanks Sean for correcting my Read more

December 2, 2008

Investor Sues to Block Mortgage Modifications

by

Mortgage Officer

Author website

The battle over the mass modifications of troubled mortgages has begun in earnest. On Dec. 1, William Frey, a private investor in mortgage-backed securities, filed a lawsuit in New York State Supreme Court alleging that the proposed modification of some 400,000 home loans originally underwritten by the defunct lender Countrywide Financial is illegal.

Investor Sues to Block Mortgage Modifications – Yahoo! News.

At first glance, you’re probably thinking what I was (well, maybe not…) but seriously, why would some mean hearted investor want to prevent Bank of America from helping 400,000 home owners stay in their homes?

Let me attempt to explain:

  1. Countrywide wrote the loans and sold them on the secondary market.
  2. When they sold them, they didn’t sell them in 1 piece, they sold sections (called tranches) to a multitude of different investors and investment companies.   It’s actually possible that parts of one mortgage end up being owned by 30 different “parties.”
  3. The parties who bought these loans bought them as contracts that had a prepayment risk but didn’t buy them with a modification risk.
  4. When a loan gets modified, it changes that contract which inherently changes the value of the investment.
  5. The investors who are suing to stop it are saying that if you start changing the contracts, you are going to effectively ruin the secondary mortgage market because suddenly the value of the loans that are sold becomes an unknown.
  6. If the secondary mortgage market dies, then the housing market dies.   It’s just that simple, without mortgage money, the party is over.

Are the investors saying that the loans shouldn’t be modified?   No they aren’t.   What they are saying is, “I didn’t buy this investment with the thinking that it could be modified going forward.”   So if you, Mr. B of A, want to change the terms, that’s fine, buy it back and change the terms.

The investors are, it seems to me, hoping for one of two results:

  1. That Bank of America will buy the loans back (with our help of course).
  2. That they take their chances with foreclosures.  Given the report that the National Association of Realtors issued earlier on Mortgage Modification Defaul Rates of 50%, that’s not Read more
November 29, 2008

Someday soon we may have to turn back the clock on home lending

by

Suburban Phoenix Real Estate Broker

Author website

This is my column for this week from the Arizona Republic (permanent link).

 
Someday soon we may have to turn back the clock on home lending

Furniture stores are offering weekly payments. Department stores and jewelry stores are making Christmas easier with layaway plans.

Check the calendar. Did someone dial the clock back to 1968?

Not quite, but the credit crunch has got us looking backwards in time to try to remember how we used to do business, back before easy credit made things so easy.

Here’s the dirty little secret no one shared with you: For many, many years, the business of America has been credit.

Car dealerships don’t sell cars, they sell financing, selling your loan at a discount as soon as your tires hit the pavement.

Furniture stores don’t sell furniture, they use your desire for new furniture to get you to sign a promissory note.

One of the best protections of your financial interests is called Regulation Z. The Z reportedly stands for Zales, the easy credit jewelry store.

New home builders are in the same game. That’s why the incentives are so much better if you use the builders’ lender.

And that’s why there’s no interest for the first six months. Or no payments at all for the first two years. And all it takes is one quick signature…

But those days are done. Consumers — and corporations — are defaulting on debt like never before in history. The buyers of promissory notes aren’t buying any longer. Instead, they’re in Washington begging for bailouts.

And that leaves the furniture stores and the jewelry stores back in the merchandise business. They need to come up with ways to get people with no money to part with what little they have — a little at a time — in order to have any sort of cash flow at all.

And all this will come to real estate, too. We still have easy credit, but when interest rates start to climb, we’ll see our own kinds of “old fashioned” financing arrangements: Seller carrybacks, land contracts, wraps, lease purchases, etc.

We may be headed into tough times, but we still have a roadmap from Read more

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