Tightening Lending Standards Squeeze the Rich, Even in Marin

Thanks to reader "Lisa" for the heads-up on this SF Chronicle article:

Mortgage woes have moved upstream, landing even in tony neighborhoods.

The credit crunch now is hitting home buyers from all walks of life, not just subprime borrowers with poor credit. That in turn could mean fewer buyers - and lower prices.

For instance, a multimillion-dollar deal in Larkspur went belly-up last week when the lender yanked the financing at the last minute.

"Everything was perking along smoothly. All contingencies were removed," said Bill Hogan, a Realtor with Coldwell Banker in Greenbrae, who sold the four-bedroom home for $2.45 million and expected to close the deal later this month.

On Thursday, the couple buying the house learned that their lender was rescinding their loan because they were making only a 10 percent down payment.

Only 10% down? In Marin?

So, even the rich in Marin are finding it hard to get a loan. So what's the problem? I mean, I thought everyone here is rich and they don't care how much they have to pay to have a house in Marin and "I want it now and the hell with how it affects everyone else". So making a $200K+ down payment should be a piece of cake for them. What's the problem?

The [Larkspur] incident underscores how the mortgage crisis could undermine real estate prices.

Gee, ya think?

...Wall Street started to spurn jumbo mortgages - those above $417,000 - even for borrowers with sterling financial profiles. Those loans have become scarcer, harder to qualify for and more expensive.

In the Bay Area, high home prices dictate that most [about 80% in Marin] mortgages are jumbos.

"If people are having trouble getting jumbo loans, it will put downward pressure on the high end of the market," said Michael Carney, a finance and real estate professor at California Polytechnic State University Pomona. "People know it will be tougher to get loans. A lot of potential buyers will wait."

While jumbo loans should become more affordable eventually, that doesn't mean the days of easy lending will return. Lenders now are adamant that borrowers meet increasingly stringent guidelines for their credit history, earnings and assets.

Ah, and now, below, finally the MSM for our area is telling it like it is and for which I discussed and provided data long ago -- that the medians have been going up recently not because house prices have been going up but because only the pricier houses in the nicest areas have been selling. Prices across the board can all drop but if the mix of houses that do sell changes in the direction of the pricier houses, then county sales price medians can go up (and unfortunately instill a false sense of security [not to mention pride and arrogance]):

The one bright spot for Bay Area real estate in the past year has been upper-end sales. The median price of homes has risen in many counties. That's not because prices rose but because a larger percentage of sales was for more expensive homes.

The lending situation (as opposed to the price situation) may or may not be short-term. If it is short-term it will be so only for the upper end of the market. The lower half of Marin's market (say, roughly $1.2 mln and below) can look forward to a protracted bearish environment. Those selling small POSs in Marin might as well walk away unless your anticipated profit margin minus the insurance/maintenance/tax/interest/advertising/staging costs over a long period of time is still positive.

"Sellers always lag behind the reality," said Mary Dresser, a Realtor with Prudential California Realty in Montclair. "They're never willing to respond to the current market conditions in a short-term fashion. They need to see something go on for months before they finally get it."

* * *

Interestingly, over the last week I've received a series of emails from one Marin real estate agent which have been sounding more and more desperate. The subject of the emails (I can't post them because I still don't have permission to reproduce them here) are about the tightening lending standards and contain suggestions on how to improve your chances of securing a loan for the amounts typical for a Marin purchase. Among other things, these points in the latest email jump out at me:

• To get the best rates, your FICO score should be 720 or higher.
• Lenders are looking for 25-30% down, and 6 - 12 months in reserves, if you are not doing a fully documented loan.
• Be prepared to have your tax returns, W-2s, paystubs and the like available in the event the lender requires them.
• You might want to check on http://www.salary.com/ to see what they say the average person doing your job makes -- lenders are.