Kitsap Real Estate Blog

It’s a buyer’s market for housing, no doubt about it. Cash is king but you need to have the cash in order to sit on the throne…or do you?

You have probably heard a lot about the mess in the mortgage markets. By my unofficial count banks, mortgage companies and investment bankers have announced over one hundred billion dollars in losses because of “faulty loans” made to people with less than perfect credit. A billion here, a billion there, pretty soon it adds up.

These losses have thrown the financial markets into a tailspin. The Federal Reserve acted quickly to lower short term interest rates. That, combined with sudden and steep losses in world stock markets led investors to sell stocks and buy safe bonds such as US Treasury Securities. This led to lower interest rates on bonds and lower home loan rates.

Hooray! Lower rates, falling home prices..this is good for new folks who want to buy homes today, right? Well, sort of.

At the same time the two largest purchasers of home loans in the US, Fannie Mae and Freddie Mac announced new rules that effectively raised rates and tightened lending standards for people with lower credit scores. Before December 26, 2007 borrowers with FICO scores of 620 and higher could qualify for zero down loans with very attractive interest rates, say at 6.5%. On December 27 these two giants announced rules that effectively raised those rates as high as 8.5% for borrowers with a score of 620 and decreased the amount of income they would allow for total debt service. People with scores above 700 got access to even lower cost rates.

Ouch! That is a 25% increase in home loan rates for people with low scores. Did your income increase by 25% during that two days? Did your credit score improve to 700?

Oh, oh. Effectively, people with credit scores under 700 may not be able to borrow! No loan, no home, right?

Well, maybe not.

The turmoil in the mortgage market has brought about a change of thinking. Many people are beginning to dust off the techniques used in the 70’s and 80’s, a tough time in the real estate and finance markets and use innovative financing techniques that in effect give buyers and sellers the opportunity to create their own capital outside the system of traditional lenders.

More concretely, lease purchase financing and seller financing are bobbing up to the surface as viable alternatives for people who have been shut out of the institutional marketplace. To find out more about how to mix traditional and alternative lending to your advantage visit the Kitsap Real Estate Advisor.

Changes are in the making for unsecured lending as well. What I think are revolutionary changes in how lending may look in the future are being implemented successfully by online “people to people” lending efforts like Prosper.com. Take a look at the future and see how it might help you and everyone else.