Mortgage Underwriting Starting to Loosen its Grip

Massachusetts’s home owners and prospective buyers may possess the desire to buy a new home or refinance their current one, but if the mortgage financing is not available, the desire can quickly turn into frustration. Lending standards and practices have gone through some dramatic changes over the last decade.  The Wild West pendulum of regulation was pushed completely in one direction for years, with exotic and easily accessible mortgage products dominating the mortgage landscape. There were sub-prime lenders on every corner making no income and no employment verification loans, and we let the deadly sin of greed take over our psyche. Homes were being utilized as credit cards, facilitating large credit card debt exposure and then allowing the false hope that our ever appreciating home would be there as our financial back stop. We were buying homes that were more than we could afford to keep up with the Joneses, and it seemed like everyone you spoke to had a friend who was a mortgage broker. This reckless behavior by banks, regulators, real estate professionals, and most importantly each one of us, led to an enormous credit freeze. This freeze dramatically changed the way we now apply for and obtain mortgage financing in Massachusetts.

The past few years frustrated buyers and home owners as they were subjected to the intense scrutiny of mortgage underwriting checks and balances. Many joking if they would be required to submit a blood samples to satisfy the guidelines. Well there is good news that has been building off of itself the last six months, and backed up by economic releases such as the Case Shiller Index. It seems that the Massachusetts’s housing market is back.

We have interviewed real estate professionals ranging from Realtors to appraisers,  and home inspectors to attorneys, and they all have the same feedback; the Massachusetts real estate market is on fire. The market paradigm has shifted in the last six months from a buyer’s market to a seller’s market. MA real estate agents are reporting that properties are receiving multiple offers and many homes are selling over list price. This activity is pushing up home values and restoring consumer confidence to the over all economy. When we  have faith in the value of our most valued possession, our home, we tend to loosen up the wallets and pocketbooks and start heading back to the mall.  For this reason a strong real estate market is a crucial stabilizer for the overall economy.

Mortgage underwriting is beginning to find a good balance between responsible lending and satisfying the demand of the expanding market. In the past couple of months, the Mortgage Buddy has seen several lenders lower their credit score and down payment requirements on purchase loans, yet still place emphasis on the importance of  “housing payment reserves” and other “compensating factors”.  In previous market expansions, there would be a loosening of all guidelines without consideration of later ramifications. It seems at least for the time being we haven’t forgotten the lessons from the Great Recession. Let’s all hope that our need for more and bigger doesn’t outweigh responsible home ownership.

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