The Information you need!
Mortgages continue to be a key topic covered in the media - and this coverage can impact consumer perceptions of the real estate industry, as well as consumer's willingness to consider entering the market. To help you address this issue members of the media in your local area, this special report includes background information, points to study and share as well as potential Questions & Answers.
Mortgage Lending
Mortgage lending and loan underwriting is generally based on credit scores and income levels to help ensure that the size and term length of the loan does not exceed a consumer's ability to repay.
In the wake of the subprime "meltdown," the Federal Reserve has been criticized for failing to adequately supervise the mortgage lending industry - while lenders themselves have been under scrutiny for extending credit and loan terms beyond the means of certain customers. Members of the press have also been focused on a subset of broader mortgage and lending issues - which is the rising rate of foreclosures in many parts of the country.
For many consumers, a home purchase represents the single largest financial transaction they will undertake in their lives - and a mortgage, their single largest personal debt. So while lenders undoubtedly have responsibility to guide their customers toward the most appropriate loan level, it is imperative that consumers take personal responsibility for themselves and their financial futures. When considering mortgage options, consumers should first establish:
- What amount of money will I have to pay up front as a loan down-payment?
- What additional money will I have to pay during the closing process?
- What amount will I have to pay each month?
- What can I truly afford?
When people do not adequately research and understand these fiscal obligations before committing to a mortgage, their homeownership can be negatively impacted. Real estate professionals can and should play a critical role in reminding consumers of these essential first questions - helping them to align their home purchase expectations with their financial means.
One result of the recent fallout around subprime is that many buyers in today's market are now looking to obtain loan products that lock in monthly payments - as opposed to ARMs (adjustable-rate mortgage) or interest-only loan products that placed some homeowners in tight financial straights. The 30-year fixed-rate mortgage is usually the most conservative option. Those who do opt for an ARM or other non-fixed-rate mortgage type must make certain that they can handle potential rate adjustments.
Critical Points to Study & Share
There is still a great deal of flexibility in how mortgage financing can be structured at varied income levels. Both consumers and members of the media need to hear the "big picture story" about mortgages, as well as what is happening in your market on a local level. Preparing insights with strong context and data points for your market will allow you to be able to provide a more balanced view in conversations with reporters and consumers.
The guidance of a trustworthy Sales Associate, in addition to a reputable lender, can aid consumers when considering the variety of mortgage options available, to ensure that their current and future monthly payments are within their budgets.
Be ready to counter generalizations with mortgage facts from your market because people may ask you to comment on mortgages and foreclosures. Successful brokers and Sales Associates are helping balance negativity or broad generalizations by talking local specifics and strengths in today's market that headlines may be missing.
- Take a look at your local area. Housing sales may still be up in some neighborhoods, and mortgage loans may be at affordable rates.
If indicators are down in your market, provide an overview of the past 10 or 15 years to share the broader story and talk about the tremendous gains homeowners have made over the long term.
If people express fears about foreclosures, place the numbers into perspective, as numbers taken out of context can be misleading.
- There are 74 million homeowners in the United States according to the US Census.
- Most Americans with standard mortgage loans should not fear foreclosure, according to the Mortgage Bankers Association. Of the 45.9 million Americans with mortgages, according to the March 6, 2008, Mortgage Banker Association's National Delinquency Survey report, only 2.04%, or 936,360 homeowners, were in the foreclosure process at the end of the fourth quarter of 2007. This is an increase of about .85% from last year when 1.19% of all loans outstanding at the end of the fourth quarter of 2006 were in the foreclosure process.
Mortgages are still widely available, particularly to those with proven income and good credit. While many lenders have retightened their lending criteria, today's landscape is more of a "back to the basics" than a "credit crunch." As has always been the case in the past, consumers must take a close look at their credit and financial situation before seeking a mortgage - and need to have a realistic perspective on how much they can afford to borrow and repay.
Real estate is a business built on trust and referrals. Smart professionals want to ensure that they clients they serve find the right home for them for the long term. So a trusted real estate advisor is going to do all he or she can to help a client determine how much houw they can reasonably afford.
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