Credit Crisis Cripples Markets, Safeguard Your Clients Today

Dear Friends,

Just last week, American Home Mortgage and its wholesale counterpart, American Brokers Conduit, became the latest casualties of the credit crisis. Last year, this company closed over $58 billion in home loans. Despite being, by all accounts, a well−run business, market conditions forced them to file for bankruptcy, leaving nearly $800 million in loans unable to close. Tens of thousands of borrowers have now been left without financing as a result of companies like this
going under.

In a notice distributed earlier this week, Wells Fargo informed mortgage brokers that it is curtailing its exposure to so-called ''alt-A''Â home loans - a product that typically doesn't require borrowers to fully document their incomes. The decision comes just a few days after Wells Fargo pulled out of the risky business of relying on brokers to finance ''subprime'' home loans for borrowers with bad credit records.

Clearly, with over 100 national lenders having now closed shop in the last eight months, this is no longer simply a subprime lending issue. The credit market is experiencing unprecedented turmoil that, according to Mike Perry, CEO of Indymac Bancorp, is "broader and more serious than past disruptions."

What does this mean to the real estate market?

• Sellers can no longer be reluctant to accept offers or reduce prices. Tightening credit and diminishing mortgage products will continue to reduce the pool of qualified buyers. This, along with the increase in national inventories, means now is not the time to hold out for the "best" price possible.
  
• Buyers with credit issues or who have difficulty providing required documentation can no longer sit on the fence. If market conditions change, buyers who qualify for a loan today may not qualify a few weeks from now for the same exact loan. Just this week, many lenders have stopped offering no−Doc loans, and some lenders have even pulled back on all forms of stated loans. As market conditions continue to change, a buyer's pre−approval status can disappear even more quickly, delaying or spoiling the deal.
  
• Subprime and Alt−A refi candidates, especially those with ARMs scheduled to reset over the next 12 months, need to act now − even those with a pre−payment penalty. ARMs borrowers struggling with monthly payments now might be shocked to know that monthly payments can double in some cases once an ARM resets.

What does this mean to you as a real estate agent?

Not only is it essential to protect your clients and your transactions, it is your fiduciary responsibility.

If you have any ongoing transactions that rely on this type of financing, you must work closely with those involved on both sides.

Don't leave your buyers or sellers in the hands of random mortgage providers.

If you would like to discuss this or any other strategies we can utilize to increase production in today's challenging market, please call me. I'm happy to speak with you.

Your Trusted Advisor For Life.
Jeffrey Stanton

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