Hang in there, homeowners
TEXT OF INTERVIEW
Doug Krizner: Countrywide was a big player in adjustable rate mortgages. The business calls them ARMs and they were widely popular, especially during the housing boom. Now they’re at the center of the storm in mortgage market. Let’s bring in Kassie Welch, She’s a mortgage broker with Platinum Capital Group here in Los Angeles. Kassie what assumptions were homebuyers making when they got in to these ARMs?
Kassie Welch: They’re counting on a couple of things. One, they’re counting on their interest increasing so that even if their interest rate is going to go up they’re going to be able to afford their home. They’re also thinking hat their credit score might increase between now and the time that they’re going to be refinancing in the future. And the last piece is that they’re depending on appreciation, that they’re going to have more equity than they have when they buy and in a much better position to get a new and better loan with a lower interest rate.
Krizner: So now that environment changes, all the assumptions change. Their income is flat, interest rates in fact have gone up and the real estate market has gone against them. What are they to do now?
Welch: Honestly I don’t know. The products are disappearing. For instance a year ago I could do 100 percent financing very easily. Now not only is it restricted to a full doc loan, but also the loan amounts are much lower than they used to be. If you want to stay in your home, I would make sure that you have a loan that you can live with for minimum of five to 10 years.
Krizner: We’ve seen a real proliferation in these adjustable rate mortgages. Is there a motivating factor for the broker to sell this type of product?
Welch: No, actually the commission isn’t any larger. Really what the motivation is, is to get the deal done and to get the commission at all.
Krizner: Help me understand that, what do you mean?
Welch: Well if you have a real estate agent who’s your referral source and the source of your income and they have a transaction that they want done, you want to get it done because you don’t want to lose that referral source and of course you want to support yourself and your family. Now there were some mortgage brokers and even loan officers and direct lenders who would put together packages and overstate people’s incomes and get them into homes that they potentially could not afford. But also I want to say that every person who gets a loan, it’s a highly regulated industry and everything including their income that’s being stated to qualify is something they have to sign off on. The one part of the industry that’s not that highly regulated in my opinion is the ease of entry. Getting a real estate license so that you can be a loan broker is really quite easy.
Krizner: So where do we go from here?
Welch: You know the biggest issue I don’t think is the cost of money; I think it has to do with constriction in the market. So we just had a huge boom. I think the market is definitely going to slow down; that doesn’t mean that prices and values are going to decrease. But we’re almost like in a frozen market right now. I think in the next 30 to 60 days the money’s going to free up again but I don’t think we’re going to see double-digit appreciation, I would say in the next five years.
Krizner: Kassie Welch is a mortgage consultant with Platinum Capital Group here in Los Angeles. Thanks so much for joining us.
Welch: You’re welcome. It’s been my pleasure, thank you.
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