The Credit Crunch

You may hear from time to time about the Transparency of Real Estate.
There are people and companies marketing this term daily.
It refers to the general idea of the borrower or clients ability to see and know what is happening "behind the scenes".

I'm all for that!

In the broader sense, I like to see behind the scenes in the greater mortgage world.
I'm one of those types that wants to know how a company is doing.

• Are they in good financial health?
• Do they have great customer service?
• Or are they hurting and teetering on the brink?

Many times the things I see as a Mortgage Broker go virtually unnoticed by the general public.
One of which is the tightening of credit guidelines across the board.

Welcome to Part One - The Credit Crunch!

Make No Mistake!
This will and does effect everyone, no matter how good or how poor your credit is.

WAMU (Washington Mutual) issued a statement to the press recently that went unnoticed by the mainstream. In that statement, they said they were "emphasizing higher-quality loans to boost earnings and cut risk after its home loans unit lost $113 million from January to March."

I can see why it went unnoticed.

Here's what you need to know:
Just how much are they "emphasizing"?
How about 70%? Yeah - 70%!

Let's put it this way.
WAMU is one of the biggest lenders nationwide.
The loan you qualified for to buy your home, or the loan your 99 neighbors have is no longer available - period!

How will this effect you?

Follow the bouncing (snow) ball here...

• Maybe not you, but when any of your 99 neighbors need to refinance in the coming months they are going to be in for a little shock.
• They will not qualify for a refinance - plain and simple.
• They will be forced to keep their loans.
• Their payments will increase (3 trillion ARMS are set to recast in the next 18 months).
• They will be forced to try and sell.
• The market will not be able to absorb the new inventory at the prices they need to sell for.
• Your neighbors will go into foreclosure.
• The value of your home is determined by the sales (comps) of others like it in the neighborhood. When those houses sell due to hardship they are not selling at top dollar are they?
• This drives down home values in even the best neighborhoods.
• When the values drop, so does another key factor in the mortgage equation, Loan to Value
  

And that's part 2 of this series... The LTV Crunch