There is another reason, and is increasingly a cause for concern.
“Most anyone can get a loan within reason,” said Robert Moulton, president of Americana Mortgage brokerage mortgage Group in New York.
To be sure, many home buyers would not be commercial, buying a first home or investing in a holiday home if not for lower down payment requirements, loans with ultra-low monthly payments and flexible lending standards.
According to Keith Gumbinger, vice president of HSH Associates, the change in lending standards began after the dot-com bust stock in 2000. As big investors shifted out of stocks and bonds - such as mortgage-backed securities - banks have more money to lend.
By 2003, with the refinancing boom coming to a head, banks were quickly trying to recruit more first home buyers, promote the second purchase of housing and promote fair housing credit lines as a Dell and responsible to fix the house or finance a vacation.
Last year, according to the National Association of Realtors, 23 percent of the houses were bought second homes. The amount owed to the Americans home equity credit lines, according to the Federal Deposit Insurance Corporation, jumped to nearly $ 491 million at the end of 2004, up 42 percent from a year earlier, and more than triple the amount at the end of 2000.
Not everyone sees these developments as negative. Lenders have become more lenient, LendingTree president said Anthony Hsieh, but not because they are irrational or irresponsible. With the help of credit score, lenders have refined the way they measure credit risk, he said.
Few people will argue that consumers have not benefited from these changes. “Keep in mind that 20 years ago you could not buy a house unless you had a 20 percent down payment,” said Hsieh. “You have three options for loans, adjustable, 15 years or 30 years.”
However, lenders are giving borrowers more credit they deserve?
“Lenders have less of a vested interest in maintaining the highest credit quality, as do [loans] and sell them off,” said David Joy, chief strategist at American Express Financial Advisors.
“It’s like a game of musical chairs,” he added. “It works as long as the music still playing, but when the music stops with a chair is not in danger.”
Measured risk?
One of the first things that lenders made to help achieve a greater number of buyers in the market was eliminating what was once the biggest obstacle to buying a home - the downpayment.
In recent years, under the money-mortgages have become the rule rather than the exception. Among first-time home buyers in 2004, according to the NAR, the median payment was 3 percent - half of what it was in 2003.
Lenders also rolled to obtain loans for most borrowers home for the smallest monthly payments. These loans still represent a small fraction of the mortgage market - most of all loans are 30 years old fixed rate loans - but appear increasingly popular among buyers who can not afford to pay principal and interest in your mortgage each month.
Interest on loans only, as its name implies, require that borrowers pay only the interest on his loan to be during the first 5 to 10 years during which the balance remains the same. Option ARMS give borrowers several payment options, including a “minimum payment” equal to less than the interest. Pay only the minimum and the balance will be increased each month.
“In the event that borrowers are stretched thin, this leaves little equity cushion if the value of housing declines,” said Greg McBride, senior analyst for Bankrate.com, explaining that borrowers who have put their own savings in property are less likely to get close when hard times.
Equity might have been the only thing preventing the exclusion a decade ago, Hsieh said, but these days most borrowers understand the importance of keeping your credit score. “Studies show that if you are credible lender, you will do everything in its power to maintain its high credit,” said Hsieh. “That in itself is skin in the game.”
Considering that lenders used to say that borrowers of the annual mortgage payments should be more than one third of its annual revenues, which now weigh debt-to-income ratios against the credit score and other factors.
“I have seen debt ratios as high as 70 percent or 80 percent,” Hsieh said, adding that lenders approve or reject loans based on guidelines set by subscription Fannie Mae, Freddie Mac and other institutions that package and sell mortgages. “But somehow these people have found a way to pay their housing debt and maintain its high credit rating.”
In fact, the percentage of loans in the foreclosure process is a little over 1 percent in the fourth quarter of 2004, the lowest rate since 2000, according to the Mortgage Bankers Association of americas. Moreover, crime rates of all loans fell last year, with the risk of loans see the largest decline.
The figures look good now. “But the way in which the borrower takes place after taking the loan is not ‘the best indicator of what’s to come,” said McBride. “The peak of delinquencies and default comes from three five years.”
The credit score, for its part, has only been widely adopted in recent years, when rates were low and housing prices were rising. “Credit ratings absolutely have helped make mortgages available to more people,” said Gumbinger. Even so, he said, the fact that billions of dollars are riding on a single number is disturbing.
“What is new today is that lenders are allowing the stratification of risks at the top of each other,” said Gumbinger. “What we do not know is if we put all these risks together and put them in an increase in the interest rate environment, a decline of the housing market, or a weakening of the economy.”
If the music stops playing left standing? Lenders could feel some pain, said McBride, but ultimately is that the borrower is stuck with the loan - or the lasting consequences of exclusion.
