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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (6627)	5/18/2004 2:33:57 PM
From: mishedlo	Read Replies (4) \| Respond to of 116555

From Sonnypage on the FOOL: Many of you know that my wife and I are realtors. We live and work in the north Atlanta suburbs of Roswell and Alpharetta. In previous posts, I have mentioned a mortgage lender friend of ours named Brian. His company actually has him set up in a satellite office in our office. We usually have our buyers check with two mortgage lenders to compare...usually Brian and one other. Brian usually gets the business, which says what it needs to say. Our business is based on referrals, we had better get it right on everything, including the mortgage lender. Anyway, today Brian's general manager was in the office. We invited him to join us for lunch at the Thai Thai restaurant down in the terrace level of our building. Brian, my wife and I are all seriously addicted to Thai food.After a while, I moved the conversation over to some of the things we discuss regularly on this board. This particular general manager oversees about thirty LO's (loan officers) working on Atlanta's north side. Yes, he says, the "floaters" are now their bread and butter loans. Buyers still using the traditional fixed rate mortgages have become an endangered species. And not only floaters, but interest only floaters, and no money down floaters at that. Low interest rates and dumbed down lending requirements now mean that anyone who can still fog a mirror can qualify for a loan. I brought up the subject of consumer debt. Low interest rates have pushed the values of homes up; many Americans have responded by confusing their homes with a bank ATM machine and cashing out. As home values have gone up, many Americans have cashed out along the way. Quicky drive by appraisals are often very generous. Many Americans today, in spite of soaring home prices, have little, or no, or less than no, equity. So what happens, I asked, if short rates go up. Those mortgage payments go up, debt service becomes increasingly difficult, or impossible, for many. Brian's general manager agreed. He had no opinion on a possible recession next year, but agreed quite readily that it would not be pretty. Mortgage lenders would response to a recession and increasing defaults by tightening lending requirements, which of course would quickly make a bad situation worse. It is not hard at all to imagine this getting very badly out of control very quickly. The general manager had one other comment, and this was in response to the situation of a buyer I had just recently sent them who is closing next week. My buyer is an older couple, very conservative, buying much less house than they can afford, putting fifty percent down! The general manager's comment was that the younger buyers are all completely different, just the opposite. They want everything they can afford and then some! My wife and I are hunkering down. Our real estate business may offer some unusual challenges next year. Stay tuned....and I wish you all well. sonnypage