Tomorrow marks the beginning of a new year. What will happen to the economy, mortgage rates and the housing market? If I had my wishes, the following would happen:
The economy would slowly gain strength. Economic growth would inch up in a slow and deliberate manner. Productivity and capacity utilization would increase. This likely would improve our economy without sparking inflation.
Interest rates would remain low, thanks to moderate and efficient growth. Low interest rates would help support the ailing housing market and continue to fuel the refinance wave, which eventually would put money back into the economy.
Property values would stabilize, and housing demand would increase. This would be a good thing for everyone - builders, contractors, financial service firms, etc.
My biggest wish for 2011 probably isn't a surprise. I am hoping mortgage underwriting standards will ease. Ever since the subprime crisis and subsequent mortgage meltdown and credit crunch, obtaining a mortgage loan has been akin to maneuvering through a difficult and painful obstacle course that's open only to a certain segment of well-qualified borrowers.
I have no desire to go back to the days of subprime lending, which advocated the solicitation of high-interest loans to folks with spotty credit, no assets and questionable income. I predicted the mortgage meltdown long before it occurred.
But today's underwriting standards have gone overboard. Common sense doesn't exist. Consider the following examples:
c An applicant wishing to refinance owns some vacant land in Florida that's free and clear of liens. The underwriter wants to make sure there's no lien against the property. The owner provides me with the old promissory note that's been stamped "satisfied," which means the loan has been paid off. He also provides a signed letter certifying that he has no loans against the property. No loan comes up on his credit report. The underwriter isn't satisfied with this information and requires a title search. Ridiculous.
c Another applicant wishing to refinance retired recently and will be setting up his IRA distribution in a few months. The IRA is worth more than $1.5 million. He has an additional $500,000 in cash. Because he has no income at present, he cannot qualify for the refinance, even though he has 10 years of the necessary income already in the bank. Even more ridiculous.
So my New Year's wish is clear: Common sense in making loans to qualified individuals would relieve the credit crunch, stimulate the housing market and improve the economy.
Henry Savage is president of PMC Mortgage in Alexandria, Va. Send e-mail to email@example.com.
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