A couple of weeks ago we posted a blog titled, “Future of Lending – Who Will Fill the Gap?”    In yesterday’s (February 14th) Washington Post, an article by Dina ElBoghddy and Renae Marile titled “Refinancing unavailable for many borrowers”, is a much better discussion of the problem borrowers and lenders are starting to face because of the mounting numbers of people who have suffered credit problems or home valuation problems because of the current recession and problems in the mortgage industry and consequently can’t qualify to refinance.  Refinancing unavailable for many borrowers

The challenge and/or opportunity for lenders in the coming months and years with refinancing this large group of people who cannot qualify for a refinance transaction under the current lender guidelines or because home values have declined significantly, will be an interesting situation to watch.

Over the past few years, as lenders have become very strict with underwriting guidelines and stopped lending to borrowers in situations resulting from a bad economic environment, (self employed, less than 620 credit score, BK or foreclosure in the last four years, for example).will this growing group of people ever be able to qualify for home loans again?    If the economy struggles on for another couple of years, as may well be the case, the number of people who can’t qualify for loans under the current underwriting guidelines will grow to be a very large number.   Will they all be destined to be renters for the rest of their adult lives, which is not such a bad thing, but certainly not the American dream.   Or, will lenders be able to bring back portfolio lending and start to address the merits of each loan individually?

Will underwriting standards change to address particular situations that were not the borrowers fault?   How big will the pool of people be that can’t get loans under the current guidelines?

If the number of people gets really large will the government feel obligated to get involved and force lenders to make loans to people in this large pool?

Are we on a path that will start to replicate itself as a multitude of previous home owners want to be homeowners again?   What about that person who had perfect credit until their company went out of business and they lost their job?   Can we turn back the clock and consider only their credit history prior to the job loss that wasn’t their fault?

The longer people continue to fill that bucket of unqualified borrowers, the more need there may be for creative lending in the future.   Isn’t creative lending what got us into this mess in the first place?   Does history truly repeat itself in the mortgage business?