How tight is credit?

Good morning. We start the week with a question: how bad is the Jumbo mortgage squeeze? We know the rates on Jumbo mortgage loans ($417K and above) spiked this month, but what's the fallout? What's the damage to the market? How weak will August sales be? For guidance, we'll throw out a bunch of links and insights:

Today's LATimes reports the mortgage market turmoil is causing some deals to fall out of escrow: "Although it's hard to track how many pending sales fall out of escrow, real estate and mortgage experts say anecdotal evidence suggests that the current turmoil in the mortgage markets is causing a number of prospective deals to be abandoned."

Over the weekend, The New York Times reported, "The market for large mortgages has suddenly dried up." The NYTimes said the "spread" between conventional 30-year mortgages and Jumbos has widened from less than a quarter of a percentage point to more than two-thirds of a point, seriously harming the California market: "'In California, it has shut down the purchase market,' said Jeff Jaye, a mortgage broker in the Bay area. 'It has shut down the refi market.'"

Bearish realtor Leo Nordine, noting the spike in Jumbo rates, told us Friday, "That means people trying to buy million-dollar houses are in trouble now. It's just going to be a disaster.... The high end is gonna die now."

There have been less bearish voices. Inman News columnist Jack Guttentag (sorry, no link) wrote last week, "there is no shortage of money for jumbo loans. The shortage is in the higher-risk niches..."

And Beverly Hills mortgage broker Mark Cohen told us Friday, "People with good credit who are putting down five to ten percent and can document things are getting good loans."

Your thoughts? Insights? Comments? Email story tips to lalandblog@yahoo.com

Comments

[Toby]

"People with good credit who are putting down five to ten percent and can document things are getting good loans."

LOL, you know what's funny? I've always thought this was the mantra for everyone who ever thought about buying a home.

In fact, I thought that banks wouldn't even give you a loan unless you met those standards. I mean, why would they?

[J White]

I actually always thought you had to put down 20% before you bought a piece of real estate. I have always put down 30% because you just never know. I sold a property in LA in 2005 for 1.1Million which I had bought in 2001 for $500K (I sold because of a move), I had put down 20%. I just checked the property on propertyshark and saw that the new owners owe $1.08Million. Now, why would the bank lend these people 100% of the value of this house as of 2005? Who was making money in these deals. I just don't get the whole thing. And this property is in West Hollywood...anyone knows about the market there? I don't live in LA so I don't know what is going on.

[William Pinn]

It is ironic that the market sees lenders' new sense of fiscal responsibility as bad for the economy. Basically the market is saying, "We want you banks to keep making bad loans so the economy will be strong." Uh huh! "If you don't keep making bad loans, the economy will fall in a deep recession." Uh huh.