David Zugheri, co-founder of Envoy Mortgage Ltd, which has 475 employees in 20 states, has also seen a big slowdown. He said 30 percent to 40 percent of prospective buyers who could have qualified for mortgages two or three years ago are being shut out.
"There has been a mad rush back to the basics and if you don't have the necessary documentation you cannot get a loan," Zugheri said. But he noted that not all credit is dead.
"If you have decent credit, a verifiable income and want a loan for under $400,000 it's business as usual."
Well, I think it's pure scare tactics and exaggeration when the President and the media are telling us that we won't be able to get any credit at all. What is happening now is exactly what needs to happen. The banks need use more discretion and tougher requirements for credit than the free-for-all orgy of credit that has been going on for about the last decade. People will have to learn to live within their means and to stop expecting to get credit that they don't really deserve. What ever happened to the wisdom that credit has to be earned?
The article opened with a story of a guy wanting to buy a new truck with a $3000 down payment. The trouble was that he owed more on the old truck than its trade-in value, and he couldn't get approved for a loan without more down payment. That always happens when you buy brand new vehicles. They are already overpriced, and as soon as you drive off the car lot they automatically lose at least 25-30% of their resale value. This is one of the problems with the auto industry. It costs so much to build the cars because the auto unions demand that the employees are paid $30/hr to make the vehicles. But in the real "free market" of used cars the actual value is much lower than the new ones, and so people always end up owing more than they are worth for several years. The lender knew that the guy with the $3000 down payment would still end up driving off the lot owing much more than what the truck was worth. The bank knew that if they had to repossess the truck then they would be stuck with a loss because they couldn't resell it for enough to cover the loan amount. That is the proper decision of a lender. But people have gotten so spoiled with all the too-easy credit that the banks, for whatever reasons, foolishly extended.
Harsh as it might seem today, I have to say that this whole push by Bush, Congress, and so many supposed capitalists for keeping that kind of credit orgy going is absolutely insane. And as Neil Cavuto described it, they've all been turned into some kind of government bailout zombies: