Wall Street is always looking to pry real estate equity into unreliable stock investments. Make lenders more responsible and housing markets will remain stable. (original post from August 2007).
In case anyone hasn’t noticed, there are many real estate markets across the US that continue to fire on all cylinders. Some are again out of balance to the SELLERS side of things, Yes, that’s right. In the San Francisco area for example, we currently have referred clients that have just placed an offer on a condominium listed at $799,000. They offered $840,000 for the home. They didn’t get it. They missed out to another buyer who offered $899,000. No, this is not a post from spring 2004. It’s, August 11, 2007.
The fact is that more burdens should be placed on the lenders making such high loan to value loans, not the borrower. Appraisals should be required to be at least 105% or more of the contracted purchase price on LTV’s above 95%. That way a built in equity buffer would exist for borrower and lender to allow for market corrections. To charge higher interest on 100% financing is just begging for trouble. Force these borrowers to work harder to find better deals instead of penalizing them with higher rates and mortgage insurance, which only exacerbate the situation. Make the lenders, through this appraisal process be more responsible in originating such loans. This would also serve to stabilize real estate markets from being overleveraged as all purchases would contain equity, either in the form of a conventional 10% to 20% downpayment, or a sub-prime loan value of less than 100% of appraised market value. It this way, all could pursue their home ownership dreams. Also more allowance for seller financing participation could spread some risk for lenders if the seller is willing. There is no more universal desire in this country than that of home ownership. We do not see that changing any time in the foreseeable future. Again, I defer to the esteemed Mr. Will Rogers who said “Don’t wait to buy real estate, buy real estate and wait.” By putting more reasonable constraints and responsibilities on lender origination of less than “A” credit, the sub-prime bumps in the road would all but disappear.
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