Wednesday, February 16, 2011

Banks will demand bigger down payments

The subprime meltdown is living proof of the infinite number of systemic failures within mortgage origination practices applied by many, if not all of the lenders in the USA.
Today, WSJ’s Mitra Kalita presents us with a brief analysis on what could potentially be the uprising of a new mortgage origination era, one that could lead lenders and borrowers to act in a more responsible and conscious way.

Even though, some of you could argue that tougher loan origination policies may restrict credit accessibility for potential home buyers with little or no cash available, it’s also true that the recent subprime crisis was caused by both irresponsible lenders and borrowers that took advantage of the widely spread origination malpractice that allowed them to extensively profit either from lending money, debt securitization, speculating with properties' artificially increasing prices or from borrowing money that they could never pay back. Even though lenders, mortgage brokers, real estate agents, as well as sellers and buyers gained from such strategy, their actions consequently sparked a loss to us all.

I believe that the demand of bigger down payments will help strengthen our financial industry and will boost a sustainable growth in Real Estate markets across the USA. Certainly not everyone will profit or benefit from new responsible practices: housing markets will move slower, property inventories will suffer from smaller rotation and many of us will not be able to buy our dream home unless we actually have the means to do so (that’s not too bad, is it?).

Its common sense…which is in fact the less common of all our senses.
Not everyone will profit or benefit from responsible lending, but it is time to learn from mistakes of the past, to instead strengthen sustainable growth for all to benefit from.

Hope you like the reading:

Santiago H.

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