For example, because of rumblings from the sub-prime market during the past couple of months, lenders have recently put the screws on 100% financing. What will happen once the bulk of foreclosures hit later this year and into next? Lenders could really tighten up standards in response. Furthermore, if investors are not willing to take on the risk of packaged mortgages, this could further push lenders back to the lending standards of yesteryear (20% down anyone?)
A change in lending standards could seriously dry up the pool of buyers and crash the market quickly as REOs and those who must sell race to the bottom to attract a shrunken pool of buyers. At least that’s a scenario I could see play out.
