‘[The bank] wouldn't do stated-income loans above 90 percent anymore,’ Williams says. ‘If he provided full documentation for his income, he wouldn't qualify for the loan because he doesn't make enough money,’ Williams says.$417K is a conforming loan! The wannabe buyer had a FICO score greater than 750 and was pre-qualified for a $450K loan, but wanted to put 0% down and did not want to verify his income.
Think about it.
10 comments:
I am thinking about it.
I really believe last week was the tipping point. Both the Marin IJ and the Chronicle ran scary articles about the mortgage meltdown, and how hard it is to get a jumbo loan now.
My beloved Marin Heat Index was a 0.52 today, the lowest I've seen it yet. Bet it dips below 0.50 with tighter lending standards.
I think people will start to accept that the boom had nothing to do with fundamentals and everything to do with utter insanity in the lending business, the likes of which we won't see again for many years.
Take away jumbo loans with little or no downpayment and stated income and permission to buy at 6x, or 7x or 8x annual gross income, and I think we may finally start to see some serious price drops later this year.
I think the lowest I've ever seen the heat index is 0.47 last Thanksgiving. It's documented on this blog somewhere but I am too lazy to track it down.
We will definately see the price drops (we already are) but the majority of "sellers" are not real sellers and will pull their listings if they can't get the price they feel entitled to. Those who must sell will sell for discounts and they will be setting the prices for everyone else.
But I really hope some people who helped to enable this madness go to jail. I hope the spinsters, including our beloved IJ and certain realtors/agents whose names I dare not print for fear of attempted lawsuits, go to jail or at least lose their credibility and business.
I agree that the tipping point is here (or very near). At last, everyone now seems to be getting the message that real estate is overpriced and prices should be coming down. Many realtors and stubborn sellers will continue to resist - particularly here in Marin - but buyers are going to just sit on the sidelines. Or they will be forced to sit due to the new mortgage market reality.
The market was insane and we need about a 25%+ price drop to correct it. I think we will see some real price declines - not just a few years of stagnation. We need a reset.
The message to all potential buyers is WAIT, WAIT, WAIT!
I'm hoping to buy my first house soon... In a declining market, how do you know when to pounce? Are there any good indicators to keep an eye on?
I just don't know. You have seen that the fed pumped more cash into the banking system, right? This will be a short-term stabilization and it was a move that wall street seemed to like on Friday and today. Japan did something similar. I just don't believe the government will stand by and let everything go to hell. That is horrible for the economy. Though we'd like to believe that prices are capable of diving 25% plus, recognize that we are getting closer to a presidential election. The republicans want to keep the white house and will do what they need to to make that happen (even agree with a Dem-sponsored bail out or something similar).
IMO, here's the likely scenario...
Of course, we all know that lending was out of control. Stupid loans to stupid people... we've all read the shocking stories about people in the central valley having $35K incomes but buying in the $750K range. That truly needed to, and has, stopped. In order to stop the madness, the lenders needed to basically freeze most jumbo borrowing, and that is what we're seeing right now. No money to lend except for those who are exceptionally well qualified. By the way, a story on NPR today indicated that the fed did a survey of lenders and found that just over 50% of them had in fact tightened their standards in prior weeks. Query - what happened with the other 40+%? There is still some money out there right now. You just need to look around and lock in QUICK when you find decent terms.
Fast forward a couple of months. Many houses are sitting on the market, no one's making much money in the mortgage game but the stock market has stabilized and there's less fear in general now that lenders have tightened their standards. Greed kicks in and investing increases. Lending standards loosen a bit, right near the end of 07 and in time for primary season. Money for jumbo loans is now available again for reasonable buyers/re-fi'ers. No more 125% LTV, mind you, but I anticipate that folks will be able to qualify for jumbos with 95% LTV. They still are now, even without income documentation.
Things tend to go in cycles. This is no exception. The government is made up of self-interested politicians who want to get re-elected. The housing market has already taken some hits and I don't believe they'll let it get much worse. There's simply too much to lose throughout the economy. No one wants a recession in full swing during the general election.
I think now is a crummy time to buy due to tighter standards and higher rates. But who knows what the situation will be 3 months from now?...
Just my thoughts. Comments encouraged.
The housing markets are suffering from an affordability crisis which has yet to be resolved.
To follow up on my earlier posting, the following is taken from the first portion of an NY Times article posted this afternoon. Is this a bailout, or perhaps an indication that some don't think this is as bad as projected and that this may be a good time to invest?... These are not small dollars....
"Goldman Sachs and a group of investors are injecting $3 billion of capital into one of its flailing hedge funds that lost about 30 percent of its value last week."
I found the following comments from one trader:
"Massive infusions of liquidity from the Fed and the ECB trying to keep this market from collapsing is the wrong recipe. Injecting liquidity makes the spread narrow between European and US bonds vs. Japanese bonds. That squeezes the one Trillion dollar Carry Trade. Ironically, raising interest rates is the right policy and injecting liquidity will cause markets around the world to collapse. This is the mirror image of 1929."
Re Jumbo loans....if the MBS market doesn't want them anymore, and banks have to keep those loans on their books, people will be able to get Jumbo loans....but based on traditional standards. Banks won't want to take the risk, especially if foreclosures continue to surge.
Almost 80% of Marin home purchases involved Jumbo loans. If the financing really isn't there anymore to buy at crazy multiples of income, then I have to believe prices will really start to drop. Even if half those buyers go away under tighter standards and higher rates, the impact will be very severe.
And remember the stricter standards are pretty new. Right now it's 5% or 10% down. Next year it could be 20%, etc., depending on how the rest of the market holds up.
In the mid nineties, I can tell you a million dollar home purchase required at least 30% down. Period. Banks had been burned in the early '90's and were extremely gun shy about making big loans.
I must ask the question... why buy now?
I agree completely with the comments made that RE is suffering from an affordability crises perpetrated by many false drivers... the chief amongst them being irresponsible lending... add to that the media hype, greed and fear, especially the fear of being “priced out forever” when the Fed started raising rates several years ago from historic low levels and you have the disaster we have today…
I will tell you, one of the things that I DID NOT MISS while out of country were all the sleazy mortgage adds, commercials and phone calls that the average consumer is inundated with day in and day out.. I also DID NOT MISS those sleazy real estate seminar commercials or the tele-evangelicals… I tell you, seeing what’s on TV in this country today is a scary thing…
No, I still predict a return to the norm / median of housing prices based on wages and rents… there will be small moments of price appreciation between that point and now, but, in the end, not even the RE machine and all their BS and hype can shake the math from playing out…
Matt
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