Why does it take weeks to get a $50,000 mortgage when you can get a $50,000 car loan in minutes? This has been the great question of my mortgage career for 21 years now. And for 21 years, it has not changed.
“Don’t let a crisis go to waste” So where’s the silver lining in any crisis? It forces change, dramatic change. Jump outside of what has always worked, because frankly, it’s not working any longer. So faced with this crisis, how should we change the mortgage process/industry.
1.) Allocate more risk, traditionally primary home loans defaulted at less than a 1% rate. We need to factor in higher default rates, which will mean higher long term interest rates on homes.
2.) More seller financing. Sellers and property developers need to be prepared to ‘carry paper’. The lenders will require 20%+ down. Private mortgage insurance will disappear, and the gap will need to be made up by sellers. This means that a secondary market for these notes will grow, and that many consumers and builders will have receivables in their portfolios. This is not a bad thing, just different. With new self-directed IRAs, many consumers will find seller financing an attractive investment option over the stock market.
3.) ‘Buy here, Pay Here’ the auto finance model will be require to encourage consumers to buy. Point of sale financing works for most products, and with today’s technology it should be much easier to set up a proper loan.
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