Monday, September 23, 2019

Effects of Mortgage Problems in Todays Economy on the Business of Real Essay

Effects of Mortgage Problems in Todays Economy on the Business of Real Estate Appraisal and Sales - Essay Example When considering the historical data, the prevailing rates for a 30-year fixed loan, is extremely lower and the mortgage lenders are facing problems to setoff their losses from real estate business. Location factor is the basis of mortgage business and it is now assuming greater significance in today’s housing market. Thus there exist differential rates of growth in the mortgage industry. Mortgage lenders face serious financial problems such as default from borrowers on repaying loan installments in time and such instances of nonpayment had severe implications in the housing market and real estate industry. Mortgage business is based on lending of mortgage loans to the clients. Thus, falling house prices in the US economy will result in immense losses on the mortgages the companies own as security for loan issued, and thus the loan given out on the basis of such securities also suffer higher risk. This higher risk in security investment will influence individuals and institutions like pension funds, hedge funds, insurance companies and banks negatively. Therefore these institutions compelled to stop buying the residential mortgages from mortgage lenders. Thus the mortgage industry will suffer from lack of financial resources and the home buyers are also restricted from getting loans. Investment is the basis of the real estate market. The report on real estate business shows that the values for homes across the country are showing a declining trend and the real estate appraisers are suffering increased pressure from real estate agents and mortgage brokers to show the asset values at a higher rate in order to increase sales. Control measures for followed by the real estate agents and mortgage brokers by compelling the appraisers to artificially increase the property values, which also affect the mortgage business badly. Due to the increased pressure from mortgage brokers, appraisers give over value report on the asset on mortgage. The authenticity of their valuation seems to lack reliability and the customers hardly trust it. This affects their further business growth badly. The mortgage lenders are facing problems with default in repayment of loan installments and they are not in a position to retain the loan from the securities which are overvalued through the influence of brokers. (Kerr). As per the new regulations in the US mortgage industry, banks and mortgage brokers are required to order all appraisals through an independent third party. This third party is required to order the appraisal from a licensed appraiser, and he selects only those who agree to do it for the lowest rate without any quality constraints. This provides advantages and disadvantageous in the mortgage industry. The new regulations help the borrowers to get the appraisal price at reduced level. Due to the elimination of upfront communication between the lender and the appraiser, the problems arising from such communications in the mortgage industry can also be reduced. A consequence of this new regulation is that only lowest priced appraisers are accepted by borrowers while most of the qualified appraisers are avoided. Thus in the real estate market, there may only be the lower priced appraisers. Thus local appraisers, charging a little higher price has to do their quality work in a very special ized market. This new system also creates other problems for the mortgage busi

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