Tuesday, March 27, 2007

Tiny bubbles

I'm sure you have heard about the rumble in the "sub-prime" lending market. The effect of this upset has been to cut off a number of potential buyers with 100% financing. There are still "nothing down" loans available but, unlike the wild and crazy days, the borrowers have to prove that they have enough income to pay the loan every month, and that the income they claim to have is really there. One of my preferred lenders sent me an e-mail pointing out that the very low quality borrowers, people who basically inflated or even lied about their income, accounted for 12% of the home loans last year but they are also turning out to make up 77% of the people defaulting on their mortgages. Its a garbage in = garbage out equation. There is no monolithic bubble, but instead a wide range of personal little bubbles of people who get over-extended with the encouragement sometimes of loan brokers and lenders who just want to get their origination fees from the bank and get out.
That's why I have a select group of ethical lenders I work with. I am not primarily interested in the sales hype of "I can get your client a loan", but rather in the professionals who will counsel my client about their best loan options given their financial situation.

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