It Just Became a Little Harder to Help Homeowners

(Yes, there was too much alliteration in that title)


This week Countrywide, one of the largest lenders in the country, announced their new "soft market" policy. This policy, in effect, will reduce the loan-to-value that borrowers can qualify for by an additional 5% if the home is deemed to be a slowing or declining real estate market.

This isn't subprime I'm talking about. This affects all borrowers, including those with perfect credit, stable W-2 job history, and thousands of dollars in the bank. And it affects owners too, already worrying about a declining value there is one more thing standing in their way.

Why is this important? Homeowner's who are finding things tight and need to refinance have been hit with an additional penalty besides a lower home value than they anticipated. Homeowner's who were looking to buy will have to come up with 5% additional down payment, in many cases hurting a slumping real estate market even further. And if its harder for people to buy, it will be harder for people to sell... and the struggling real estate market just got a bit worse.

Many of these customers are already paying PMI, which insures the lender in case the borrower defaults (but gives no benefit or protection to the borrower). Now, they have to cough up 5% more dough. A couple who was putting 10% down on a $200,000 home now has to come up with an additional $10,000 of down payment. Their $20,000 they saved to put down is about 50% short. And the homeowner who was already selling the home for a loss is now faced with it sitting on the market even longer, or decreasing the price even more.

I don't blame Countrywide for this policy as they have to do what is necessary to protect their interests and investment. They are already losing millions in the agreement they made with the government in freezing many rate increases for five years. But the effect of this policy will be a further declination of the housing market and an additional strain on our economy.

And whether you are buying, refinancing, own a home now, pr plan on buying in the future... this should concern you. As it will be one more hit to the home values in already repressed areas... one more hurdle for customers trying to refinance... one more difficulty for those trying to buy. Everyone, the economy included, takes a loss.