Wednesday, August 15, 2007

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 to see what they say the average person doing your job makes -- lenders are.


Blogger Lisa said...

High FICO...big returns...Wow. Traditional standards are back in vogue.

This was what I went through when I bought in '96, and I was a Prime loan. And banks would NOT let you buy at more than 3x gross income.

Guys, if this sticks, prices will HAVE to plummet. Hardly anyone will qualify to purchase a home, and certainly 1st timers won't be able to. Not when "starter" homes in Marin are $700K. Hmmm...that would take $140K down and an annual income of $234K. And I can't imagine anyone with that income WANTING to own a crap starter house.

Aug 15, 2007, 3:43:00 PM  
Anonymous Anonymous said...

The "rich guy" that was buying that house for $2.45MM when it was listed for $2.2MM.

Come one, there was some sweet cash back under the table on this deal that made up his "10% down." It was a win-win and he was just realizing his profit on the front end of the deal.

Not that prices shouldn't come down, but there was some fraud in this deal that is not being discussed.

Why pay over asking in this current market? they obviously weren't competing against anyone, as the agent is complaining about having to list the house again.

Whatever. What do I know. Feh.

Aug 15, 2007, 5:47:00 PM  
Blogger see me said...

I am on vacation visiting family in Scarsdale NY and my brother in law told me that the rest of the country's RE market is in recession but Scarsdale is different( Scarsdale school system is the best, quick commute to NY city etc...BullSh*t) He is a senior partner at a very pro$perou$ accounting firm.

(I hope he doesn't read this :o)

Aug 15, 2007, 8:47:00 PM  
Blogger Matthew said...

Yea, a high FICO score... now, that's the ticket... geeze, why didn't I think of that ?

You know what's going on in the market right now ? The average consumer is choking and vomiting in all directions and all the businesses, banks and debt pushers that depended on that consumer continuing to gorge himself on more and more debt are scrambling for a new story line and scam.... I’m just amazed at what I hear on the news on whether or not this housing bubble pop will spill over to the broad economy…. Sorry chumps, you have it all backwards… The fact that the housing has about stopped in it’s track and started a long, steep decline means the broad economy has as well… remember, we are a consumer driven economy and the consumer is vomiting all over the place, especially in housing, their number one expense…

And, if it were not already abundantly clear to everyone, these blogs are a big part of the story as to why... Mark my words, Ben Jones will be featured as Time Magazine's Man of the Year or something equivalent in the near future for creating a voice and means for the rest of the consumers (aka savers) who have had enough and have called BS on this whole thing…. I’m in that camp squarely…. And although Marinite may not have Ben’s readership, he provides a necessary service for this grossly over-inflated and over-hyped market here in Marin… the last bastion of hope for the RE machine… yea, now’s the time to buy before you are priced out forever… NOT!!

I’ve yet to see a mortgage company that has hinted at having funding or solvency problems come out whole…. As such, I predict CFC will declare bankruptcy well before the peak sub-prime resets in 2008… probably later so as to provide the CEO with more time to dump more of his shares on some misinformed pension fund.. Yes, CFC is just another in a long line of greed infested RE related businesses that will go belly up after all the blood is out on this one..

Hey, I see the Marin Heat index is now .50… it was .55 when I got back from my trip a few weeks ago, so the slide is still well underway.. yea, sounds like .50 is another great reason to buy... NOT !!!! The good news is that it looks like my prediction of a .40 will be here sooner than later.. just about the time when the peak 2007 sub-prime resets happen in October I think.. I wonder what Melissa and her gang of thieves will be spewing then ?


Aug 16, 2007, 8:22:00 PM  
Blogger Holland said...

I just read a comment from a trading site that Sr. Sir John Templeton back in 2003 has said the following:

"Buy a house in your neighborhood when you can when can buy it for 10% of its highest appraised value" .....

Aug 16, 2007, 10:08:00 PM  
Blogger Marinite said...

As such, I predict CFC will declare bankruptcy well before the peak sub-prime resets in 2008… probably later so as to provide the CEO with more time to dump more of his shares on some misinformed pension fund

Well, today Mish and a few other blogs were making a big whoopdedoo about CFC maxing its line of credit today.

CFC is one of those institutions that are said to be "too big to fail". Yeah, right. So when it shows signs of weakness, the market gets really spooked. Sort of like when a devoutly religious person becomes convinced their religion is all a farce.

I doubt Ben Jones will be man of the year. But I bet Greenspan will be (assuming he hasn't been already... shows how much I pay attention to that sort of thing) and not because of the good he caused.

Aug 16, 2007, 10:21:00 PM  
Blogger mountainwatcher said...

Fear not!

This little beauty is back on the market and is priced only slightly above the jumbo limit.

Aug 17, 2007, 12:10:00 AM  
Blogger Matthew said...

I'm sticking w/my Ben Jones prediction, and that's because he's a small (but smart) guy who has helped slay the dragon...

What I love about these blogs is that the dragon and the dragon owners can see Ben (and you Marinite) but can't do a damn thing about it... it drives them crazy and I love it..

No, Sir Allen has had his day and he's nothign but a bunch of hot air and "has been" who's helped cripple and bankrupt the average consumer to the (great) benefit of his banking buds...

No, when he dies, his grave will have nothing but dead grass over it for years and years from all the piss deposited from bankrupt homeowners...

Aug 17, 2007, 5:34:00 AM  
Blogger marinite2 said...

This comment has been removed by the author.

Aug 17, 2007, 10:39:00 AM  
Blogger marinite2 said...

This comment has been removed by the author.

Aug 17, 2007, 10:43:00 AM  
Blogger marinite2 said...

Anxious customers jammed the phone lines and website of Countrywide Bank and crowded its branch offices to pull out their savings because of concerns about the financial problems of the mortgage lender that owns the bank.


A classic run on the banks.

Oh my god but how predictable this has all been. It's like people read from the same script time and time again. It really makes a blogger's job so much easier. Yet still permabulls continue to deny the eventual end. It's mind boggling really.

Bernanke's latest move to lower the Fed-to-bank discount rate (what a weenie to give in like that BTW) is an attempted bail out for folks like CFC which are thought to be "too big to be allowed to fail". They did that during the last housing collapse and it didn't make any difference.

All part of the same script. The only thing different is that the stakes are so much higher now.

The Fed's latest move is nothing more than a public admission of how screwed we are, that it acknowledges that we have some very serious problems in the system.

Aug 17, 2007, 11:39:00 AM  
Blogger CentralMarin said...

consumer confidence falls to 16 year low -- good article to post

Aug 17, 2007, 2:33:00 PM  
Blogger Lisa said...

"The Fed's latest move is nothing more than a public admission of how screwed we are, that it acknowledges that we have some very serious problems in the system."

And most of the resets are yet to come. Are they going to ride to the rescue every week until 2010? They can do their little dumbo drops, but I think banks have learned that their "experiment" with loose credit doesn't work.

Bottom line is that more traditional lending standards will take out the marginal buyer....they drove this market up and now they'll drive it down.

Aug 17, 2007, 4:55:00 PM  

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