2008: The American Dream of Home Ownership Is Alive and Well

The conservative approach to home ownership, buying what you can afford and demonstrating feasibility, returned in 2007 as the best way to mortgage a home.  This year proved to be challenging for those in the housing market accustomed to easy loan approval and a seemingly never ending spike in housing prices.   Several representatives of banking firms I spoke to a year ago believed the mortgage market was due for a change and all those banks offering easy financing programs would take a financial bath in a slew of bad loans.  

Some major players in the industry have filed for bankruptcy, shut down, or have chosen to get out of the mortgage business altogether.   The turmoil for those hurt by the subprime meltdown created a boon and a record year for my company™s (Chicago Bancorp) bottom line in terms of total loan amounts closed.   Making sure each loan closed is a liquid asset readily saleable on the secondary market is the secret of success for any mortgage bank.   This year was truly a reversal of fortune and a flight back to quality loan underwriting.  

The most significant piece to this meltdown was the rejection of U.S. housing mortgage paper by overseas investors who buy U.S. mortgages in bulk.   The risk was far too great with little prospect of getting payments in return.   Why?   The quick, easy way of originating loans for anyone who could hold a pen to paper was finally debunked as a great farce in underwriting and the approval of home loans.   People could not keep up with the terms of their contract (resetting ARMs, interest-only payments, and option ARM mortgages).   Documenting income and assets by a borrower with good credit in combination with a fixed rate mortgage remains as the safest method of home loan origination.   Banks in the
United States still offer the easiest requirements to home ownership.   100% financing is still available to qualified buyers.   Try doing that in other countries.  

The American dream is indeed a reality.   This past year I have closed several loans to first time home buyers, including a married couple who immigrated to the U.S. a number of years ago.   They came here to enjoy the opportunities their talents would bring them.   They quickly learned our way of life and followed the rules.   I informed them of what was expected of them to make owning a home a reality.   Success can be had for those willing to work hard and make sacrifices necessary to achieve great things.   In the words of that young couple at the closing table, œBuying a home for no down payment would never be possible in our home country.  

The free market always finds balance and stability.   Gone are the too-good-to-be-true loan programs.   We have retuned to proven methods of loan approval.   Low down payment and no down payment programs are still available to qualified buyers.   Opportunities abound in a market saturated with homes and interest rates near historic lows.   Expect 2008 to be a great year for the strong willed, willing to take a chance on the opportunities available in the real estate market.   Americans: Count your blessings every day.   You live in a country that allows for your dreams to come true.   Make 2008 a great year!  

©  2007 Michael S. Amers

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