It’s a terrific time to buy a home, but not because homes happen to be affordable, or because values in Philadelphia are maintaining a positive direction.
It’s a terrific time to buy because the variety of mortgage products available to home buyers looks poised to shrink.
Monday, Alt-A mortgage lender IndyMac Bank stopped accepting mortgage applications and it’s likely that other Alt-A lenders will likely follow suit.
Alt-A loans are ones in which borrowers can’t (or won’t) verify one of two major underwriting criteria:
- Evidence of income
- Evidence of assets
Since the Credit Crunch began last July, Alt-A mortgages have been a steady source of funds for “in-between” borrowers — those that are not quite prime, and not quite sub-prime. IndyMac was among the largest lenders of its type and had outlasted many of its peers.
Its position as a market leader and subsequent exit from lending means that the remaining Alt-A lenders will likely make one of two choices in the coming weeks:
- Raise rates and fees because of greater Alt-A mortgage risk, or
- Follow IndyMac’s lead and exit mortgage lending altogether
Both outcomes would be harsh for home buyers of all types because when any large bank takes mortgage-related losses like IndyMac just did, it tends to create major risk aversion in the market.
Risk aversion impacts everyone — even the “good” borrowers.
Banks have been nervous about lending for several months and so they’d rather pass on an “average” mortgage application rather than risk getting stuck with a potentially “bad” one. IndyMac’s exit may cause fewer mortgages to get approved.
In other words, buyers eligible for financing today may be ineligible tomorrow.
Therefore, if you’re a home buyer and you know your credit profile is less-than-ideal, consider writing a purchase contract sooner rather than later. Your mortgage options may be thinning, and the ones you have may be getting more expensive. To find out what options may be available to you, contact one of our real estate professionals ,