What’s the real truth regarding whether or not the real estate industry
has officially recovered? Hopeful
optimism from real estate professionals, industry analysts and the government
paint a promising picture of the road ahead.
To be sure, their sentiments have quantifiable merit. Government intervention through a host of
programs targeting distressed borrowers is now gaining traction. Banks and
servicers are now more amenable to short sales and principal reductions than at
the beginning of the crisis. Rumor has it that in selected U.S. markets, home
values have hit the proverbial bottom and the words “positive equity” have been
uttered. The industry and the media point
to these and many more accomplishments over the past two years to validate
their positions that a recovery is actually, truly, here. However, the prevailing reports of a
turnaround in real estate exclude the one segment required to balance the
equation signaling once and for all that “the light at the end of the tunnel”
is no longer a convenient platitude: the first-time and previously-distressed
homebuyer has been redacted from the picture as a result of widespread
misinformation regarding their ability to join the party. And without the mainstream buyer as part of
the mix, reports of a real estate recovery lack the credibility they need.
Simply put, mainstream buyers are having a hard time separating fact
from fiction when it comes to obtaining a mortgage for an affordable home. The real estate industry and its pundits, by
lauding its attention on the “low hanging fruit” that represents stability and
growth in the housing sector, are sending the wrong message to a potentially
large group representing the next wave of home buyers. Here are just a few
examples:
- “All-cash buyers snapping up deals” interpreted by mainstream buyers as “I can only find an affordable home if I buy it outright.”
- “Banks are utilizing stricter underwriting standards to qualify” interpreted as “Why bother – banks aren’t lending.”
- “The average FICO score for an approved loan is 700-720 interpreted as “My FICO score is too low.”
- “Homeowners who have been foreclosed on or lost their home in a short sale are ‘distressed’” interpreted as “’Once distressed always distressed’ can never own a home again.”
- “America is becoming a nation of renters” interpreted as “There’s no real value in owning a home.”
- All-cash buyers comprise approximately one-third of real estate sales. Buyers with financing already in place can compete, and real estate needs a diversified source of buyers to truly experience recovery.
- Granted, extremely lax underwriting standards contributed to the mortgage meltdown of the last cycle. However, lenders have taken corrective steps to guarantee borrowers can truly afford the mortgage they seek, and they are now feeling more confident to allow guarded flexibility into the underwriting guidelines to enfranchise more borrowers.
- Lenders offering FHA –backed loans and other specialized loan products consider factors other than just a FICO score to qualify borrowers for a loan.
- Credit, along other criteria required to obtain a mortgage, can be rebuilt in a shorter time frame than prospective borrowers would imagine.
- More and more markets are emerging across the country where the divide between the cost to rent and the cost of a mortgage to buy a home is narrowing as a result of rising rents and affordable home prices.
Kirk Jaffe is Executive Vice President, Originations for Peak Finance Company - Residential. Jaffe oversees the consistent growth of a mortgage broker/banker and asset based lender. Through his expertise in commercial, residential and asset based lending, Jaffe seamlessly integrates these areas into a one stop financing solution for homebuyers and property investors. Mr. Jaffe is the publisher of two books and is the residing President of the Universal City/North Hollywood Chamber of Commerce. In his spare time, Mr. Jaffe enjoys cooking, skiing and reading.
Kirk can be reached at kirk@peakcorp.com
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