Nevada County Real Estate Market Snapshot - Mortgage Market

April 6, 2010 – The challenges we are facing today in the mortgage market, a liquidity crisis and the hangover from rampant price increases driven by easy credit, are going to take some time to unwind. There is a consensus that two major behaviors are largely responsible: excessively exuberant creativity on the part of the securities and investment industry in devising novel vehicles for enabling liquidity, and a shift in the mortgage industry from lending money to selling mortgages, some of them just as creative as the investment vehicles, both driven by personal greed. 

 

When the profit model shifted from long term quality in the loans that were written to short term volume to fill the huge pipeline created by the securities industry, the crash became inevitable. 

The usual sources of funding were crushed when the bubble burst, and will take years to recover. In the meantime, the remaining banks that are solvent and government sponsored programs will be the mainstay until the alternative sources of capital have recovered. 

What this means in the near term is that qualifications will be more stringent and the cost of borrowing will increase.   Gone are the days when loose standards of fiduciary responsibility enabled the writing of so many doomed mortgages. We hope such days will not return, and that when the pendulum eventually swings back, it will settle in a sensible range. 

What we have today is an environment where there are mortgage products available to all segments of borrowers, as long as the more stringent qualifications are met. A combination of credit score, income and assets (down payment) that enables qualified borrowers to pay a reasonable price for property and reasonable fees to lenders will restore a healthy market. We are all going to have to work harder to make this happen, and it will be worth it in the long run. 

In our local market, we are seeing a recovery in unit volume that seems to be sustainable, and an apparent halt to the steep price declines of the last few years. It is still a fragmented market, with retail sales, short sales and REO sales each having their own market forces, and there is something for everyone who is qualified to buy. Local mortgage lenders are cautiously optimistic that the market will improve. 

Shelley Mortara of Nevada County Mortgage advises: “It''s important to meet with your loan consultant and provide the requested financial documentation as soon as possible. In a buyers market, it''s critical to have your credit approval in place prior to negotiating an offer on a home."  

Tom Smith of Falcon Financial adds: “The rates are very low for the right people with the right home. The current underwriting guidelines give the lowest rates to borrowers with 740+ credit scores. Homes that are in poor repair or unique in some way will present appraisal challenges.”

In every market, there are real people with real dreams, making them come true.