Credit Crunch? – by Ashley Leigh

25 06 2010

To some, the recent goings-on in the mortgage industry and in the stock market are very akin to the following:


To the uninitiated, texting shorthand is as mysterious as the credit crunch.  Let me tell you about both.

First, the easy one . . . “ XO A3 HAND” simply means “Hugs and Kisses. Anyplace, Anytime, Anywhere.  Have a nice day!”  To which you would respond . . .  OIC MTE :-*  (Oh, I see. My thoughts exactly … kiss).  Simple, right?

Now, about that pesky credit crunch.

Assume I-66 was undergoing even more work than normal.  (I know . . . but go with me on this!).   It is actually just like the credit crunch.

As parts of I-66 are being built or expanded some of the lanes are closed some of the time.  Clearly, it simply does not make sense to close all of the lanes, even if for just for a short time.  Yet, it is also clear the roadway needs to be expanded.

Because there are fewer lanes, the normal flow of traffic moves slower.  How frustrating!  Some travelers seek and find alternative routes.  Some just don’t drive, opting for tele-commuting.  And some simply do as they had always done and tolerate it.

That is exactly the same as the credit crunch.   Many, many people recognized there was a BIG problem.  Loans were not performing (that’s mortgage-speak meaning some home owners were not making their payments).  Lenders ran out of money and some went out of business.  The credit “highway” needed repairs.

It did not make sense, nor was it necessary to close down the entire credit “highway”.  Yet, because the then-current bond rating system no longer appeared to be valid, some of the bonds were no longer being traded (in mortgage-speak, a mortgage is considered a bond and the lenders have a way to rank the credit riskiness of each mortgage).  That is exactly like shutting down some of the lanes on an interstate highway.

Money temporarily was no longer flowing as efficiently as it usually does.  The lenders were going to run out of cash.

So, the Feds stepped in and purchased those “slow moving” bonds so that lenders would continue to have the money to make their next loans.  The Feds would then just hold those purchased bonds until the “money highway” repair project was done and then trickle them back into the normal traffic flow.

During the period while the bond rating companies were sorting out their rating system, some buyers were not able to get loans of the type they had anticipated.  Therefore, some real estate transactions fell apart. Those individuals were not very happy.

That is much like the scenario of seeing someone driving along the highway just as they get a tire blow-out.  Assistance is offered, the tire is repaired or replaced, and the traveler is on their way again.  They are delayed.  They are frustrated.  And they have road grime on their fancy duds. 

Exactly the impact this temporary credit crunch will have on our already challenged real estate market is unclear.

Buyers with higher credit scores (720 and above) and buyers putting at least 10% down will not experience any issue in getting well-priced money.  Anyone else will face higher interest rates.  And, anyone seeking 100% financing and/or adjustable interest rates won’t fare so well.

Call me so I can look at your exact situation as home prices vary depending on your particular price range, location, and new construction competition.  I am pleased to share my knowledge so that you can make a wise and informed decision.  Even if the resulting best course of action for you might be to sit tight for a while, then I would have accomplished my goal.  I want you to make the very best decision for you.


(Please call me.  See you later!)




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