No day goes by in Silicon Valley without reading about thousands of potential home buyers turned down for a loan in spite of coming up with the 20% down payment and overall good credit records. Cheap lending combined with historical home affordability is without merit if only so few can have access to mortgages.
Is the pendulum swinging too far in the opposite direction after the Real Estate bubble of the New Millennium?
A few thoughts from a San Jose Realtor confronted to these issues on a daily basis:
- 3.5 million upcoming foreclosed homes (aka Shadow Inventory) does not mean that every home owner currently under is bad. Many home owners were ill advised and offered to buy beyond and above their means. Many home owners are in a precarious financial situation due to lay-offs from left and right (lenders are not the last to cut jobs!). Many home owners were lured by escalating real estate home prices and forgot their common sense.
- Closing the front door of credit application always pays off. No credit, no risk...but also no business, no profit and unfortunately no hires. Increased scrutiny means increasing costs of compliance passed on to the applicants. No wonder closing costs are up 9% since one year. Keeping credit low if the best thing to do in these uncertain economic times like today but benefits from low mortgage rates are starting to be offset by higher lending costs.
- A negative value on a house is scary...beyond a certain threshold. However, a number of lucky home owners who were able to buy in privileged areas (like Almaden Valley or Willow Glen in San Jose CA) have not see any decrease in the value of their homes. San Jose Homeowners who bought and held on to their home for the past 10 years have limited their losses, compared to those who bought newer condos or townhouses at mind-bending prices in Silicon Valley.
- Silicon Valley home owners who truly lost tremendous value are stuck, cannot borrow equity, cannot sell, often cannot refinance hence resort to short selling their home. Contrary to popular belief, the population of short sellers still have tremendous long term value for lenders. The lucky ones (40% of them) who manage their way out/up are short term future customers of lenders. They will rent, save and buy homes as soon as they can. The unlucky ones (foreclosed home owners) are really not that different from the short sellers. Many of them will get back on their feet with help from their family, work hard, rent like everyone else and save to buy later.
So, at the end of the day, today's distressed home owners are tomorrow's borrowers. The sooner lenders allow them to get back on their feet, the quicker they will start saving and restoring any damage to their credit record, the better for the Real Estate market and...profits of lenders. The virtuous circle tying together lenders and borrowers is not broken, it is just too far out of the sight of the key stakeholders.
© Sophia Delacotte CDPE, SFR, CHS
San Jose Realtor
Cell: (408) 717-2575