It appears the pendulum has swung too much to the careful side, to the extent of being paranoid, when it comes to mortgage lenders approving home loans. They seem to be not giving out loans even to the most qualified and motivated buyers (and refinancers). This way they may be contributing to the further decline of the home values, which will only worsen the rate of their clients defaulting on their loans.
This is all anecdotal at the moment. First from my own experience in trying to refinance my mortgage. The appraisers are so afraid of over-valuing, they are ridiculously undervaluing the property. Now, I realize, as a (so called) home owner, I will refuse to accept that my home is worth less than what I paid for it. Even then, valuing our 4-bedroom house less than what buyers are offering for an identical, though 3 bedroom, house in the next street is baffling.
What's funny is, the 3-bedroom house is not closing, even though they are getting offers close to the asking price, because, at least in one case that we came to know about, the buyer's lender rejected the appraisal that valued the house close to the asking price.
In effect, the banks are saying that these homes are not worth what buyers and appraisers think they are worth. This will probably force a desperate seller to lower the price further to close a deal. This way banks are now contributing to driving the home values further down.
Smart.
Saturday, April 25, 2009
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Nice observation. But that is how free market operates :-(. You always have to balance profitability vs. staying in business. Both sellers & banks have similar objective. The critical difference is - seller has a short term view & has only one house to sell vs. banks need to do it over a longer period and have to deal with tens of thousands of houses. It is interesting to note that short term players complain that long term players don't have long term view :-).
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