by Nancy Osborne, COO of ERATE®
(01-22-10) With over a third of all mortgage applicants being denied approval of their loans last year, lending standards continued to tighten as the transition back to make-sense underwriting guidelines accelerated.
Now that risky loan products, such as the notorious option ARMS and zero-down payment loans have been purged from existence, lenders moved onto the next step in the process by re-evaluating the potential transaction specific risks posed by both the applicant and the property.
Lenders relied heavily in the past on both the appraisal and credit score to help them assess specific property and applicant risk but in today's challenging lending environment, they are searching for patterns which may be predictive of future trends.
For example information on local economic conditions where a property is located will be examined as well as the type of employment position an applicant holds and the prospects for stability within their specific industry as well as the probability of their income continuing.
The national credit reporting agencies collect and compile enormous amounts of data from which patterns and trends can be established and new risk models may be developed.
Assessing the value of a property is both an art and a science in looking at current indicators, such as recent comparable sales and foreclosures in a neighborhood, as well as extracting information on developing trends in a local region which may be predictive of future value.
Employing a local qualified appraiser for the job is of equal importance in receiving a regionally competent valuation of the property. After years of lending to virtually anyone, anywhere and applying few principles of sound risk management, lenders now find themselves having to think outside the box in anticipating both where and to whom to lend to.
Nancy Osborne has had experience in the mortgage business for over 20 years and is a founder of both ERATE, where she is currently the COO and Progressive Capital Funding, where she served as President. She has held real estate licenses in several states and has received both the national Certified Mortgage Consultant and Certified Residential Mortgage Specialist designations. Ms. Osborne is also a primary contributing writer and content developer for ERATE.
"I am addicted to Bloomberg TV" says Nancy.
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