As we say good bye to Barney I’m forced to look back on the push to House America from the White House and Congress and picked up by the biased GSEs. We have now seen the drop in minority lending to 16.7% of all loans even though minorities represent more than a third of all households. Good news is that the number is up from 15.8% in 2009. But minority loans are still unfunded per HMDA data less than average for the nation.
How long before the outcry begins again? Will the pendulum swing back from fear of ever making a “bad loan” to maybe we are keeping some good loans from getting funded. Some of the concepts of minority lending/neighborhood housing programs were near target, but they suffered in execution. The Occupy movements complain about the fact that lenders made bad loans and foreclose when people don’t make their payments. But how soon will that change till they complain that the declination rate is higher for minorities? Will this then drive loans to be approved that shouldn’t be, and start the foreclosure crisis all over again?
Doing a true full autopsy of these community housing loans made by the GSEs and comparing to some of the better performing state bond programs, would likely point to some key overlapping factors. The antiquated, lily-white, Levittown GSE guides clearly miss some solid credit risk from new generation first time buyers to trade down all asset/all equity buyers planning for a long safe retirement.
The rotation has begun from solely a first timer market of ‘09 and ‘10. NAR stated first time buyers have dropped from over 50% to less than 36% of buyers in the past year. Sure the tax credits had a lot to do with it but eventually you run real low after having pulled forward from the same group for so long. New rental housing is being built all over the nation and coming to market soon with conveniently located, clean, fairly-priced alternatives to buying. If you need a decent place to live why buy a short sale/bank sale/reo and never know for sure when you will close or if your negotiation will never be over. First and last month is a lot easier to figure out than the GFE and different down payment options.
So who is filling the void? It’s the people who have had the money all along, the repeat buyers, who are finally making a leap of confidence to sell their home and buy another one. With an average age of 53, vs. 31 of the first timers, these folks are experienced in life but also less emotionally involved. They are making a full analysis of all options; they start off a minimum two weeks on the internet before even contacting a realtor. 17% of them had difficulty with the process and steps involved in today’s market and 22% had trouble with the paperwork. 40% found the mortgage process harder than they expected, even with all the articles written warning them (and originators giving due warning at application).
This friction has shown in the NAR stat that Sales Contracts have fallen thru double than a year ago for 10 to 20% of sales. The two major reasons are Credit being declined, and properties appraising for less than the price agreed upon. You’ve heard me talk about the appraisal issue but the credit issue is amazing given the average FICO has moved from 717 in 2007 to 760 in 2010. The squeeze is on as people with scores below 599 have doubled from 2 years ago and they can t get financed conventionally. We are counting on the high end of credit to get us out of this mess but there is a limit to their participation. If they liked leverage so much and weren’t nervous about making bad investments, they wouldn’t have those high scores!
The one good news is that inventory is dropping from a peak of 4.5M unsold in 2008 to 3.2 M now and dropping. We can’t be naïve to think that the shadow inventory keeps a strong floor underneath, but it is a good sign nonetheless. Hopefully the trade-up buyers will price their homes right when they have to sell and create some velocity and comps for the market. It is up to us to help create new buyers and sellers who buy and sell with confidence and wisdom. It takes a long time to build momentum, but it starts with a strong core of smart committed people leading the way.
By The Way
At the tail end of a refi wave the pipeline is always littered with a large amount of hairy deals. These are not easy loans; they require much work and effort. Many hands worked these deals and massaged their way through the process. For too many loans the November pipeline had been extended proving their difficulty (and some incorrect locking decisions). All of you have a multitude of war stories of difficult deals -- difficult investors who cant see the forest through the trees, difficult appraisers who are burned out/stubborn/inflexible, difficult borrowers who think it’s 2005 (and who are also professional economists and know rates are going lower) and realtors who don’t think it’s a difficult time to lend and are structuring 27 day purchase contracts regardless of LTV or product.
One characteristic I’ve noticed is that those who have actually embraced this madness as a way of life and kept not only a “why complain about it” attitude, but a “Great! attitude - This craziness looks like an opportunity for me to shine and surpass others while they are reeling and complaining!” are truly succeeding not just surviving. We hope that all of us can notice and learn from those who have embraced, adapted and been energized by the changes surrounding them. It truly is a great opportunity for all of us to ensure not just job security but opportunity and success.
It’s time to tie up the year and clean out the pipe. Then take the time to truly analyze the year, learn from it and strategize for 2012. As my daughters say…”GTs, GTs” (or Good Times for you old folks out there)