We are all witness to unprecedented economic times. Who would have believed that within one year we would see the collapse of Indy Mac Bank, Lehman Brothers and WaMu along with the sale of Countrywide, Merrill Lynch and Wachovia?  

We have just experienced the passage of a $700 billion financial industry rescue plan, which initially didn’t improve confidence in the financial system as the Dow experienced its largest decline in 112 years. None of us could have predicted such extraordinary conditions in the financial services industry and its impact on our everyday lives.

As one would only assume, housing data for Kitsap County is quite different from a year ago. According to the Washington Center for Real Estate Research/Washington State University, at the end of the second quarter of 2008, home resales in Kitsap County were down 17.2 percent from the previous quarter and down 28.9 percent from the same time a year ago. Median resale prices are down 8.9 percent from a year ago, with the median price for houses in the county at $271,300. Nationally, as of the end of August, the median home price had fallen 9.5 percent in comparison.

So is there any good news that can come from all of this? Actually, there is. In the short term, we can expect to see a continuation of a buyers’ market and some fairly reasonable mortgage interest rates. Homes will be priced well, making first time home buying a favorable possibility for many. And in the long term, we can expect better closing processes, more realistic qualifications and loan limits for borrowers and appraisal reform all contributing to a more stable real estate market.

Let’s face it. Buying a home can be very intimidating. It is usually the biggest financial decision made. Proposed mortgage reform is being designed to help consumers better understand the terms of the loans they are considering and offers guidelines for shopping different products.

The changes, if enacted, will provide consumers with a standard Good Faith Estimate with clearer more certain costs estimates including interest rate, monthly payment, whether the rate and principal balance can increase and by how much and whether the loan has a prepayment penalty or balloon payment.

While these standards are clearly not foreign to banks, it will help add some consistency across the lending industry. In addition, the new proposed rule specifies the charges that can and cannot be changed at time of settlement.

Also proposed is the idea of requiring the disclosure of lender payments to brokers, or the yield spread premium.

Finally, the proposal would recommend agents read a closing script to borrowers at the settlement table and that a copy be provided. Each script is different depending on the type of loan and restates in a specific manner every loan term and graphically shows the borrower how those numbers can change.

The U.S. housing crisis may bring on another positive trend: turning spenders into savers. With some mortgage lenders tightening their requirements including requiring down payments of 15-to-20 percent to buy a home, buyers will have to plan ahead and save to make the dream of homeownership a reality. Although this concept may seem foreign in recent years, 20 percent down helps to reduce mortgage payments and avoid private mortgage insurance requirements.

Inflated home appraisals were a big part of what helped fuel the current credit problems. Appraisers were pressured to over-value the homes they appraised. In response, a proposal has been made to govern appraisal selection, compensation, conflicts of interest and corporate independence. The proposal creates requirements on selecting appraisers including an independent national appraisal clearinghouse. While approval of the program has hit a snag, most expect a deal to be reached.

By moving back to stronger lending standards, educating borrowers, improving our processes and being more realistic about what the consumer can afford, the housing market can become a stable market again.

This column is provided by American Marine Bank. Contact the Kingston branch at (360) 297-1711 or mortgage lending at (800) 648-3194.