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Current Mortgage Lending-Don’t Believe Everything You Read

December 7, 2007

Dane County’s lending market

There’s been a lot of press about the “mortgage meltdown” and the “housing bubble” plaguing the U.S.  One idea point to be clear, all real estate markets are local.  Not every market in the U.S. has tightened lending to the point where a qualified borrower can’t get a mortgage. 

Subprime mortgages and mortgage foreclosures may affect other states, but Wisconsin is spared

  • Subprime mortgages make up 13.5 percent of the market, as opposed to prime lending, which constitutes 75 percent of the market.  “About 20 percent of all the subprime market is under stress,” said Michael Moran, chief economist of Daiwa Securities America Inc. “Twenty percent of 13 percent is less than 3 percent of the total mortgage market. The economy should absorb this shock.”
  •  Chicago economist, Asha Bangalore, says the Midwest economy is suffering due to the ongoing woes of the domestic auto industry. This has hit the economies of Michigan and Ohio harder than other states in the region.[1] In Dane County, foreclosure rates are up compared to last year. However, they remain lower than the national average. In fact, Wisconsin is ranked 33rd among all 50 states for foreclosures. Plus, Dane County’s market is more stable since it is home to a large university, the state capital and a steady job market. A November 4, 2007 article in the New York Times simply stated that “As the inner cities, along with much of Florida and the interior of California, face the prospect of a foreclosure meltdown, American college towns appear to be islands of stability.”

Loans in Dane County are readily available for qualified buyers – and at historically low rates. The housing market today has made it more difficult for financially strapped buyers to receive a home loan. In recent years, lenders have been providing sub-prime loans to financially strapped borrowers, when they should have been scrutinizing these loans more closely. (Sub-prime loans are given to borrowers with low credit ratings at an above prime rate in order to let them purchase a home when they otherwise may not have been approved with a traditional lender.) Now unqualified buyers, who received a sub-prime loan or an adjustable rate mortgage for a home they could not truly afford, are having trouble paying their mortgages. According to the Federal Financial Institutions Examination Council, only 14 percent of loans in Madison were sub-prime in 2006, the fifth-lowest rate among metropolitan areas. The national average was 29 percent.

With the shift in the market, this is a great opportunity for a buyer to jump into the market.  There’s an abundance of choice in many price points.  Interest rates are declining so affordability continues to grow.    

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