The dramatic reaction and domino-like effect of the sub-prime mortgage market is spreading to the prime market. At its root is a general fear-over-faith knee jerk reaction to rising mortgage defaults, or in some cases, simply fear of defaults. In the summer of 2005, The Chicago Tribune quoted me as saying the 'zero down mortgages were bad for our industry' and bad for consumers - my fellow bankers booed my sentiment. People loose their homes when they can't make the payments and no longer believe they have any equity to in their homes. So is it any wonder that a home buyer who put nothing down, and saw his home value dip even a minute percentage, would consider 'giving it back to the bank' when the payments get tough to make?
For several years we encouraged lenders to consider condo hotel or fractional second home loans, which require substantial 20%+ down payments, and are often borrowed by high-net worth borrowers. For several years, most lenders have opted to go 'up the risk curve' and make sub prime loans with zero down payments, instead of even considering new forms of real estate. The current panic in the mortgage markets is new, but wholly expected by even many of the participants. "We knew we were taking ever greater risks" says an anonymous banker now "but the machine needed the higher yielding mortgages to keep running." Vacation Finance is still making condo hotel, fractional and second home loans at the same terms without interruption.
Why Second Homes are a Safe Haven
Condo hotels produce revenue that help a home owner afford to make the payments. Fractionals are small bites of luxury second home properties, that cost less than owning the whole. Second home buyers typically put 20%+ down payments and intend to someday turn their cottage into a primary home. The emotional home is the cottage, home is where the heart is, not necessarily the home near your job.
The 'contagion' is rolling from sub prime to prime mortgages but share one key element - little to no equity invested by the borrower. If the consumer put significant money down, they have means to ride out the storm, and they won't loose. We predict, if the mortgage woes continue, interest rates are going to be cut shortly, and this will pull the mortgage market out of a nose dive, and breath new life into the real estate market.
For several years we encouraged lenders to consider condo hotel or fractional second home loans, which require substantial 20%+ down payments, and are often borrowed by high-net worth borrowers. For several years, most lenders have opted to go 'up the risk curve' and make sub prime loans with zero down payments, instead of even considering new forms of real estate. The current panic in the mortgage markets is new, but wholly expected by even many of the participants. "We knew we were taking ever greater risks" says an anonymous banker now "but the machine needed the higher yielding mortgages to keep running." Vacation Finance is still making condo hotel, fractional and second home loans at the same terms without interruption.
Why Second Homes are a Safe Haven
Condo hotels produce revenue that help a home owner afford to make the payments. Fractionals are small bites of luxury second home properties, that cost less than owning the whole. Second home buyers typically put 20%+ down payments and intend to someday turn their cottage into a primary home. The emotional home is the cottage, home is where the heart is, not necessarily the home near your job.
The 'contagion' is rolling from sub prime to prime mortgages but share one key element - little to no equity invested by the borrower. If the consumer put significant money down, they have means to ride out the storm, and they won't loose. We predict, if the mortgage woes continue, interest rates are going to be cut shortly, and this will pull the mortgage market out of a nose dive, and breath new life into the real estate market.
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