Sunday, March 2, 2008

Tougher Refinancing requirements are making things worse

Well I guess the banks have decided to ignore the "Hope Now" mantra coming out of Washington DC. I ran across a great article below which really surprised me in the Baltimore Sun today.,0,2083684.story

Many homeowners have two mortgages on their homes. This became very common over the last 4 years because people were getting 20% loans in addition to their core loan in order to avoid having to pay PMI which is insurance that is required if you put less then 20% down on your house. Many other homeowners got HELOCS which allowed them to take equity out of their homes which they then used on everything from buying a new boat to upgrading their home. Some have called these HELOCS "The housing ATM".

Since the banks required No Documentation loans I would guess that a high percentage of recent buyers have two loans on their homes since the appreciation made them so unaffordable. Many HELOCS were done to keep up with the Jones.

When homebuyers bought over last 5 years this wasn't a problem because as your house appreciated in value you could just refinance into one loan at a fixed rate. Well this is just fina and dandy as long as houses keep rising in value. No one could ever believe they would fall in value.

So as people see their 2 loans about to reset they start to panic and when rates dropped a month ago many were ready to refinance at a lower rate because they could afford both mortgages at a fixed rate. You would think that with so many people having trouble the Wall Street Pigmen would be very accommodating towards working with distressed owners and allowing them to refinance both loans into one.

Well National City then decided to drop a bomb on Feb. 18th and decide that they would no longer approve any loans that had a second mortgage with another bank.

So as Washington DC pleads with the banks to work with their distressed buyers banks like National City Bank decide to tighten the noose. What this tells me is the banks are in such bad shape that they are doing anything to avoid taking on any risky debt. This poor guy wasn't looking for more money. He was just looking to save his house.

Each say I read something in the paper or watch somthing on CNBS that shows further evidence that the housing market is continuing to freefall and things are getting worse. All of yoo potential homebuyers should pop some popcorn, be patient and watch the oncoming housing train wreck.


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