How does market confidence affect availability of credit?
Wall Street created the financial vehicles we all use to buy everything from groceries to cars, student loans and homes. Unfortunately, the current financial chaos around 'fractonal lending' and how they resell 'risk' is causing Congress to step in and impose tighter guidelines. Better late than never?
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. Bank underwriters are also looking at the big picture: including compensating factors like job stability and the property you are financing.
Having seen so much news about bad these practices these last two years, it's no wonder we have tighter lending guidelines today. Laws are created when we have lawlessness...so this is the goal: to make the lending arena safer for borrowers and bankers alike.
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