How does market confidence affect availability of credit?
The current lack of confidence in Banks and Financial Institutions as our folly has come into the public eye has led to a concern over the commitment of banks to lend money to consumers. HUH. Banks make the mistakes and consumers pay? Ah but the the BIG question is...just who is lending and for how long?
For starters, a new FICO-08 Credit Scoring model is in the works at Fair Issac. This model, due for release in a few months, is designed to 'drill down' and more effectively split borrowers into more accurate risk categories. While we are hearing different reports about this model, the overall effect on lending could mean banks will feel 'more informed' and confident about to whom they are lending. New tighter rules for appraisals, national licensing of loan originators, and higher lending guidelines are helping validate higher standards all around. All good.
Of course, nothing beats good old underwriting guidelines applied by trustworthy human beings who know WHAT they are looking at. Here's a very revealing news item showing how some banks circumvented their own guidelines via 'stated income' or 'liar loans'. Check out this MSNBC video clip on the biggest financial abusers, and how they broke the rules.
Some staff inside banks were offered incentives to lie! MSNBC Clip2
Having seen that news story and the results of these practices over the last two years, it's no wonder we have tighter lending guidelines today. Laws are created when we have lawlessness...so this is the banking world's way of making the lending arena safer for borrowers and bankers alike. Surprisingly some of the very banks who committed these loans are still in business. Some of these very banks are, inexplicably, receiving bailout funds. Not everyone 'gets it' how incredibly greed based our systems had become.
So, the question lingers for folks considering their home loan options today: should you borrow now or wait? If you can qualify now, can document sufficient income and can afford the loan, you have done your homework and the investment is within your means-- then now is a very good time to buy or refinance. It's not going to get easier to borrow...in fact we expect even tighter guidelines for quite a while in a correcting swing of the pendulum toward conservative standards.
Happy Spring! Loannetter
