Turn to any channel or read most newspapers and you would believe that the entire country is experiencing a mortgage "meltdown," leading Ohio consumers to think that now is not the time to buy a house or borrow money. While the housing industry is facing many problems, there is still plenty of mortgage money available to qualified borrowers.
Driving the "meltdown" mentality are the changes that consumers have noticed in both the underwriting standards and the types of loans available to borrowers. These changes aren't new, they are simply a return to the standards that had existed in the industry for most of the last 50 years. Borrowers with a decent down payment who pay their bills and, most importantly, are able to show that they can actually make the mortgage payment will have no problem securing a mortgage. While the changes may eliminate some potential homeowners from the market, this return to normalcy should result in fewer foreclosures for years to come.
The lowering of underwriting standards and the invention of new products like the four-payment option ARM proved popular over the past few years with lenders and consumers alike. But ultimately their popularity may be responsible for the problems that are occurring today. "Easy" money allowed borrowers with little or no down payments, credit problems and, most importantly, unprovable income to buy homes. But these "exotic" mortgage products where borrowers could choose their payments caused many to buy bigger homes than they could afford and, in some cases, to buy a home when making a monthly rent payment was difficult enough. The added burdens associated with homeownership -- taxes, insurance and general maintenance -- are things that many had not considered. Now faced with higher payments as their "teaser" rates adjust, these new homeowners may find themselves ill-prepared to handle the doubling or even tripling of their payments. Is it any wonder that increased numbers of foreclosures and the tightening of credit has occurred?
While the government and industry look for solutions to help those unfortunate borrowers, the lessons to be learned may be expensive. The ability of borrowers to repay the loan should be the major factor when any responsible lender looks at any application, be it for a car, a credit card or even a new home, and this is what may cause problems in solving the dilemmas we face today.
Those of us in the lending community must realize that approving every loan is not necessarily a good thing for the lender, the borrower or even the community. We as lenders must weigh that responsibility against our commitment to those who have entrusted their life savings and retirements to us.
Jim Nabors is a participant in the Class of 2008 Leadership Erie County Program and based in Sandusky. He is also a past president and currently an honorary member of both the Ohio and National Association of Mortgage Brokers.