Wednesday, April 04, 2007

Lots of sub-prime money

I am usually at the kitchen table with my first cup of coffee and the newspaper by six-thirty. The first section of the paper I go to is the business section. Being self-employed and in sales, the state of the economy is important.

Two headlines caught my attention in Monday’s business section. The “Mandatory time off” bill, proposed by the Democrats who now control things in Congress, provides paid sick leave for 57 million employees who don’t already have this employee benefit. I wonder who is going to pay for that? I bet self-employed real estate agents aren’t included in that category of “covered workers.”

The next big headline was “Slower outlook for state.” That’s an attention getter but the first sentence of the article appeared out of context……..”The housing downturn has done little so far to slow the California economy.” Naturally, the article went on to say that the most recent economic forecast project slower growth in the future. In case you have been missing out, the national economy and the California economy have been really doing well the past few years with record new employment, low unemployment, record corporation profits, lots of consumer spending and low interest rates.

The slower economic forecast is attributed to a slower hosing market, which will be caused by “The drying up of subprime credit suggesting that home sales in California will be stagnant for some time to come.” Now, I really need to check into my unemployment benefits and perhaps it’s time to support that mandatory time-off legislation if it will include 2,000,000 real estate agents. The abbreviated version of the article was the lack of sub-prime lending in the future, not the fall-out from its past indecressions is finally going to slow the California real estate market.

By seven o’clock I am in my office checking my daily fax broadcast from lenders. Their daily barrage of flyers and advertised offerings as to their interest rates and loan programs ties up my fax machine each morning. Lenders must not be reading the newspaper’s economic forecast. They must not be aware of the looming shortage of sub-prime loans that will result in a slower economy. There is lots of sub-prime money! Here are some examples of what major purveyors of money are offering today: “100 PERCENT LOANS” “NO CREDIT LOANS” “JUMBO LOANS WITH LITTLE FICO SCORES AVALIABLE” “NO DOC LOANS” “EASY QUAL” “BKs OK”.

The housing market is still going through an adjustment. It appears to be quietly settling. It didn’t crash and won’t. Lenders will continues to make loans. That’s what they do. Sub-prime will continue. Loan programs will be adjusted, there will be more disclosure forms for borrowers to sign but borrowers who are serious about buying a home will continue to have many options to choose from.

Economic growth isn’t consistent. Some years are better than others. Recessions appear every ten years or so. It doesn’t take a PHD in Economics to predict slower growth in light of past cycles. This is a normal pattern of economic behavior. It isn’t the result of sub-prime lenders. They are still looking for reasons to make loans.


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