2008 was not a good one for most homeowners in this country. Many who work in the real estate market are hopeful that 2009 will bring an upswing in their battered sector of the economy. They feel that potential home buyers will be encouraged to take on mortgage loans with the new low interest rates and help reduce the current glut of home inventory. But analysts outside the real estate sector do not agree that the new year will bring such rosy economic prospects. They foresee a deepening of the economic recession and a continued downturn in home values. Buyers can currently find some good deals on homes and mortgage loans, which could spur sales in some areas. The excess of inventory exacerbated by increasing foreclosures, however, will likely keep the housing market down. Making matters worse are the mortgage loans at adjustable interest rates that will reset soon. Many predict that will contribute to the already overburdened inventory of homes. Some consumers who would like to buy right now are finding that they are not eligible for mortgage loans like they once were. Lending standards have tightened significantly, which will exclude many buyers who would have qualified for mortgage loans a year or two ago.
Many people who currently own properties would like to lock in the low rates and refinance their mortgage loans. Applications for mortgage loans hit the highest level in five years last week. Over 75 percent of those were to refinance current mortgages. But many of those applicants were not approved. One mortgage lender in South Florida said that only about 5 of the 50 customers who called about refinancing recently qualified. Some homeowners that purchased in areas like South Florida that have experienced a decline in values are finding that they owe more on their mortgage loans than their homes are worth now. Banks will not approve homeowners who do not have enough equity. To be eligible for refinancing, a consumer must now have an excellent credit score, own at least 20 percent equity in the home and have a low percentage of debt. This is in stark contrast to the lending standards for mortgage loans of just a few years ago.
Many refer to the previous loose lending standards as the wild west. Those standards often required little or no down payments for mortgage loans and appeared to disregard the credit worthiness of many applicants. Although the new lending standards may be compounding the already suffering real estate market, they will offer a necessary correction for a credit market that appeared to be out of control. We will have to wait and see if the new year will offer a renewed confidence in the credit market, and ample encouragement for consumers to take on new mortgage loans to get the ailing real estate market going again.