Saturday, August 04, 2007

Credit Crunch?? Cheap home mortgages still readily availablefor normal people

Despite all the talk of a credit crunch, people with good credit and a decent income can still get cheap mortgages. The latest weekly mortgage survey from Freddie Mac shows the average rate offered for 30-year fixed home mortgage is 6.68% and the average for the 15-year fixed-rate home mortgage is 6.32%. Sure, people with lousy credit and without a decent documented income or money for a deposit are on shaky ground, but that's the way it should be anyway. That doesn't qualify as a full-blown "credit crunch."

There was a semi-decent article on MarketWatch.com by  Amy Hoak entitled "Risky loans get harder to come - Lenders pull back on Alt-A offerings, raise jumbo-loan rates" which describes both some of the "turmoil" for those who don't quality for good rates as well as the simple fact that those who do qualify will have no trouble:

... liquidity in the market is still there -- it just doesn't come at the same rate, with investors expecting to be compensated for the risk ... doesn't see problems creeping into traditional "vanilla" loans such as basic 30-year fixed-rate mortgages... A borrower going in for a mortgage right now should expect that if you have good credit and you're willing to do full documentation, there is no difference...

Just last week one of my credit card lenders doubled my credit limit. Why would they do that if they were suffering from a "credit crunch"?

I have no doubt that credit problems abound down in the dense warren of financial alleyways and financial dives known as Wall Street, but most of that can best be characterized as dishonor among thieves and has very little to do with real people out in the real world.

To be very clear: The real world does not need Wall Street to finance mortgages or even most real-world credit. Fannie Mae and Freddie Mac are more than capable of meeting the mortgage needs of real people. Wall Street got greedy and wanted a piece of the action rather than simply being the underwriters for Fannie and Freddie's business and then blew it all up by throwing credit risk out the window. Meanwhile Fannie and Freddie are doing fine, and so is the normal home mortgage business that they finance.

Wall Street works best when they limit their role to assisting real businesses but they get themselves in trouble when they imagine that they can make their own business out of thin air.

-- Jack Krupansky

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