Cash is king, but potential borrowers are pawns

The graphs above are several weeks old, but I held onto the image because it presents a compelling indictment of mortgage lenders.

I just wish there were a third graph that charts mortgage rates over the years.

With interest rates at low and then historically low levels starting in 2009, it stands to reason that the line representing purchase loans would turn up along with an increase in home buying activity.  Only because lenders imposed onerous standards on borrowers did that fail to happen.

To be sure, one explanation for the all-cash trend has been the choice that certain buyers could make.

They would include self-employed individuals with, by definition, uncertain future income even though they have accumulated substantial savings.  Others may have been buyers who were making progress too slowly for lenders to clean up a poor credit history.

A third category of potential borrowers whose loan applications would have been denied include those associated with buildings that didn’t meet (unnecessarily) tightened standards.

Those standards for condos have covered maximum percentage ownership by a single owner (almost invariably the developer), minimum percentage of sold apartments and, for many co-ops and condos, building finances or compliance with city regulations.  I know of one loan blocked because a Manhattan building had decades ago received a certificate of occupancy that specified one more elevator than has existed for many, many years.

Fourth, minimum downpayment requirements favor homebuyers of perhaps more means than those with impressive savings for their income level, excellent credit and virtually no chance of defaulting on their loan.

The charts basically demonstrate a shift from less well-off buyers and potential buyers to much more affluent ones.

Although I am among the legion who fear another housing bubble, I’m hard-pressed to acknowledge that the change has been entirely to the good.

Tomorrow: Everyone is a critic

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Malcolm Carter
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022

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