Wednesday, January 9, 2008

Borrow some money....please!!

Jim Cramer's begs and pleads with its readers to go and get a loan, any loan. It would be comical if it weren't so sad.

"Banks still need to make loans if they want to make money," said Steve Maizes, chief executive officer of the California office of Olympia West Mortgage. The key is in the creditworthiness of the borrower.

"Lenders want to see employed people, pay stubs, they want to see assets in the bank and FICO (Fair Isaac & Co. credit rating) scores of about 650, 660 and up," said Les Berman, president of EB Financial, a mortgage brokerage in Beverly Hills, Calif. "Over half the population has scores in that range. In the jumbo, we have a lot more stated income money coming back to the market, but they have to score generally above 700."

What has disappeared, Berman said, are loans for borrowers who didn't document either income or assets. "That doesn't exist anymore. You need stated income with verified assets. Borrowers can still state the income, but they have to have six to 12 months' worth of mortgage reserves."
Well heaven forbid banks don't make money. This can never be.

And what's this now? Credit worthiness eh? You mean the old pulse test is no longer applicable. Imagine that. In order to borrow hundreds of thousands of dollars, one must either show proof of income or proof of substantial assets and not be a total deadbeat. That's like sooooo 1999.

What this article doesn't tell you is that there aren't many people out there with high FICO scores, and 6-12 months reserves and good income. The average credit card carried balance in the US is $8500. People don't have $6 dollars in the bank let alone 6 months worth of mortgage payments.

What it also doesn't tell you is that the few people out there who do have money in the bank and a good FICO aren't crazy. They know that buying now would be a mistake. A colossal mistake. People who are good with money know a bad investment when they see one. People who can't balance a checkbook are the opposite. Hence the $500K ninja ARM on a $50K salary that leads to foreclosure 2 years later. My FICO is up there in the high 700s, I have $0 debt along with multiple years worth of mortgage payments in the bank right now. I ain't buying a house though. Sorry Bank of America. Sorry Countrywide. Sorry WaMu. You'll have to find another sucker out there.

This is the quandary for the banks right now. The people who want to borrow can't qualify. The people who do qualify, don't want to borrow. And no amount of spin from Jim Cramer or the NAR (National Association of (Lying) Realtors) will change that. Until prices fall much much more, this situation will continue.

1 comment:

Anonymous said...

I have three more months of morgage payments left. Then I will be free and clear. Wow!!! It feels good. I have a 12 year old car which almost died on me last week. Geuss I will replace the battery and keep it running a few more years. No point in taking on debt I dont need to.

Even I agree with what you say. I will not recommend buying in this market particularly in places like Las Vegas, LA and SFO. Buying in a small town where wages, rents and mortgages are inline is still not a bad idea.

If you are a renter in a overpriced market: hold tight and enjoy the roller coaster on the way down. I am sure you will know when to get out and start looking for homes. You hit the bottom when media stops talking about it and moves on to something more interesting.