One of the most difficult questions to answer is WHEN our lenders’ credit standards will stabilize and maybe even ease. Of course, in the long run, tighter credit standards will help all participants in the real estate industry (be it mortgage originators, lenders, investors, homeowners, realtors, title companies, etc.) because it will promote more prudent and responsible lending. However, in the immediate term tighter credit standards is not welcome news to an already weary housing market.
There were two articles in this weekend’s Wall Street Journal which are conerning.
The first, “Markets at Risk for Additional Shocks” was a summary of a report issued by a forum of gloabal banking authorities who met in Tokyo over the weekend. The forum urged banks to be more “forthcoming about underwriting standards used.” Translation: Keep tightening….
The second article, “New Hitches In Markets May Widen Credit Woes” reported that the value of bonds backed by loans made to firms for leveraged buyouts have been dropping substantially (some as low as $.90 on the dollar). When the value of these bonds fall it negatively impacts the balance sheets of lenders who also make mortgage loans.
The impact on the mortgage industry?
This may spur another round of credit tightening. I would expect “stated income” & loans made to borrowers with lower credit scores to be the victims.