Mortgage Industry In Trouble, And The Impact On Real Estate

The mortgage industry is very troubled lately. After the collapse of the sub prime market, fear has moved up the scale to the Alt-A and prime mortgage markets. The way mortgages are made happens as follows:

• Lender gets a warehouse line of credit
• Lender underwrites a mortgage application to common standards, and funds the loan at closing out of the warehouse line
• Lender packages similar loans together in a bundle called a mortgage backed security, and sells it to Wall Street, Fannie Mae or Freddie Mac for a profit. This way they get the money back into the warehouse line so that they can lend it out again.

Because of the fear about the mortgage market, if buyers of the loans in the secondary market suddenly stop buying, it will bankrupt a lender overnight. The reason why is because they have to pay those loans they made back to the warehouse line of credit which of course they can't if they can't sell them.

Real Estate In Atlanta

The luxury home market is strongly impacted since the number of lenders willing to make jumbo and super jumbo loans don't want the exposure to a single home with a loan in the millions. Days on market for Atlanta luxury homes have significantly increased. Certain areas of Atlanta for $1.5 million plus homes have 440 days on market before a sale, and a high percentage of expireds.

Atlanta luxury home buyers now have to put down far more money to qualify for a loan which reduces the buyer pool even more.

Rent To Own Homes

Given current economic conditions, many people are considering rent to own homes as an option. With credit requirements to qualify for a mortgage being higher than ever, many people are focusing on hunkering down, saving for a down payment, and improving their credit situation. The rent to own market is strengthening as sellers are struggling to sell their homes, and prefer getting income to carry the house payments vs having to come out of pocket.