Monday, October 6, 2008

What the $700 billion settlement means to you

Where to begin dear readers? There is so much "stuff" out there to sift through that it's tough even for us that sell real estate full time to figure out which way is up. So allow me to clear up a few myths that are running amuck.

Myth #1: "There is no financing available for buyers"

False: If you have over a 700 credit score and are putting 10% to 20% down on your home purchase, there is not a bank in America that won't give you a loan. If you have a 615 credit score and can only afford to put 3% down on a home purchase then you probably shouldn't be buying a home. Instead, try paying down your credit card debt, getting that credit score up and saving up so you can put down 10% to 20%.

Myth #2: "The bailout plan will free up money for buyers"

Unclear: While I do believe this will free up money for some buyers, it's my opinion that it's only freeing up money for those people I just described above. There is not a bank out there that is willing to take on too much risk. For example, if I wanted to get a loan to build a $100 million, 100 unit high rise on Turtle Creek, there isn't a bank out there that would give me money because our city - and country - is overbuilt. See the difference?

Here is what some folks are saying about the bailout and the Countrywide mortgage relief settlement. Regarding the bailout, Shawn Hartmann, a Realtor in Minnesota writes, "With taking the financial hardship off the lending institutions from the non-performing assets, the lenders are now able to free up capital to lend more money. " I agree. But not for just anyone. See my examples above.

Regarding the Countrywide settlement, "This is good," said Christopher Whalen, managing director at Institutional Risk Analytics, a provider of analysis and ratings for banks. "I hate to say we'll need to see a lot more of this, but we will. Banks have no choice because the economy's getting so flat. They're going to become increasingly aggressive about keeping homeowners in their homes." I think this is a step in the right direction but will definitely not solve our problems. There are many other unforeseen consequences that we have yet to see and I think these quick solutions will have long term consequences.

In closing, I believe this is the tip of the iceberg. What hasn't been mentioned is the amount of credit card debt looming in the background. When people can't pay their mortgages they stop paying their credit cards first. Then they stop paying their mortgages. Wachovia, WAMU, BofA, Chase all hand out tons of credit cards each year. All of these banks also deal in mortgages. No one has mentioned how the credit card issue has impacted their cash flow concerns which worries me.

Bottom line is that if you have good credit and can put 10% on a home you have nothing to worry about. If you don't have good credit and don't have much free cash, then you probably don't need to be in the market and never should have been in the game over the last 5 years. It's not your fault. You were just given bad advice by greedy lenders. So if you're looking to buy or sell and want straight up advice, give me a call. I'll be happy to make this all as clear as mud for you.

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