Here’s our next test of the short sale market.
It exemplifies a risk that banks may be considering when deciding how much of the mortgage market they may want, once the government gets out:
Jim Klinge
Klinge Realty Group
Broker-Associate, Compass
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If the borrower has skin in the game, like the proposed 20 percent down payment, the lender won’t care how old the borrower is. The heirs will have incentive to make the payments. The estate is responsible for payment in any event, and it would be tough to close it out without a final resolution of the debt. Maybe the lender approves an assumption or the loan is refinanced by whoever gets the property,
These loans are all pooled and securitized anyway, so unless there is a change in the default modeling of the pool buyer or credit quality rater, the loans will still be saleable.
Wow. Excellent point. Just think also of the zillions of Baby Boomers who will barely escape this housing disaster with little or nothing in equity and now wish to transition into that One Last House – sorta like the ’64 Stingray convertible you’ve always denied yourself.
I would love it if (1) the govt got out of mortgage lending in every way shape and form and (2) there weren’t that many lenders, and/or lenders tightened up standards (JtR — if the lenders enforced a 20% downpayment, my guess is that would tend to frighten off most elderly folks who were looking to borrow. You get into your 70s, you’re not looking to tie up your money in illiquid assets).
It would crush prices, and to me, that’s a good thing. Both for me personally and because I think that if you ever want to make the housing market as safe (financially) as it once was, you need to get back to the days where houses were boring assets that people financed because they wanted a place to live and not because they were looking for a quick buck.
However, my guess is that the realtors and home builders have enough political sway to keep the govt in the game. Even (perhaps especially) Republicans jump when the realtors and home builders tell them to, alleged free-market ideology notwithstanding. These folks swing a pretty big political bat. Unfortunately.
Another silly government regulation. The number 1 thing a loan should be based on is the ability and willingness to pay the loan back. Loans should never be made in a case that requires asset appreciation. If it was my money I wouldn’t loan anybody over 50 a 30 year loan even if projected social security payments would cover it. I’d probably set my requirements as 65-current age = max loan term.
@enplaned: “It would crush prices, and to me, that’s a good thing.”
You realize what would happen if prices when down too far, right? More people lose whatever equity they have, spending slows, companies lay of more people, fewer people spend, rinse, repeat.
You and everyone else would eventually be affected so much by the macroeconomic consequences that being able to buy a house cheap would not really matter anymore. This may be set in motion from other trends already, such as the foreclosure gut lowering prices, etc.
My in-laws purchased their retirement home using a mortgage. They could have paid cash, but preferred to maintain a larger cash reserve. Having a couple of hundred grand in the bank helps a lot when you want to borrow $100k, regardless of what your annual income is.