No "Mortgage Meltdown," but ...

Respected real estate columnist Kenneth Harney today takes issue with conventional wisdom that there has been a "mortgage meltdown" that has made mortgage money harder to come by. "Mortgage money is plentiful," he writes, " the majority of mortgage products remain relatively unaffected by troubles in the sub-prime segment."

Point taken. But if you read Harney's column, he notes numerous ways in which mortgage credit is much harder to get than it was at the beginning of the year:
--"products and underwriting that allowed people to buy houses they couldn't afford have disappeared."
--"underwriting standards are stricter than they were a year ago."
--"Jumbo loans ... often require two appraisals -- one by an appraiser selected by the lender and the other by the investor."
--FICO score standards generally are higher than a year ago
--Stated-income mortgages with no verifications are hard to find.

In other words, a lot of mortgage products HAVE been affected by troubles in the sub-prime segment.

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

Comments

[l.a. guy]

It seems like the only way the sub-prime mess would effect jumbo loans is if there isn't enough liquidity to fund them.

I don't know about other banks, but in my experience with Wells Fargo they never let up on their loan requirements during the past few years. We wanted to increase our home equity credit line and they would not go above 70% loan to value.

I would imagine everyone is doting their i's and crossing their t's a little more these days, but I think the requirements for getting a jumbo loan have always pretty strict.

[waitingitout]

There are a lot of potential buyers in Southern California caught in the netting of exceptions raised by Kenneth Harney. The fact is, the products and underwriting of the recent past - in particular I'm talking about piggybacks, 95 or 100% financing and stated income - did more than get people into homes they couldn't afford. For at least the last 2-3 years, these products were the only way ANY first-time buyer could get a home. As the price for a SFH in Los Angeles surged well past the 500k mark, people like me who fall short on both front-end ratios (my car is paid off, I have no debt and my FICO is about 800 -- yeah, my ratio is 44%, but I can handle it) and 10% down (what first-time buyer has that much in cash anyway?) couldn't get in otherwise.

No, it's not a mortgage meltdown. But it's enough to keep the next generation of first-time buyers in SoCal on the sidelines. And that means no new money gets into the system. And that's not good for anybody.

[Ken H]

I'm amazed you all don't see what is going on. The Countrywide story illustrates it the best, as does this article.

In short...the mortgage industry made risky loans to people they knew couldn't afford the homes they were buying. The overall market appreciated rapidly and even more homeowners were enticed into using their good equity as a piggy bank by taking low teaser rate HELOC's. Guess who owns those appreciated homes when the dopes get stuck in foreclosure? The lenders do, and they will sell at current market prices(slightly adjusted to appear as bargains) to other dopes who think there is a market depression(there isn't, its just paralyzed by media hyped fear). Last time I looked, the medians in almost every major market are still very near all time highs. Others who are squeezed by higher adjusting rates but who can still barely get by, will hold on to their properties because they cant afford not to. The bank got them good, taking advantage of their lower credit standing as banks always do. Those people, could they have qualified, would have been in fixed rate products under 6% but instead let their greed guide them and got into loans that are resetting as we speak.

As this story clearly points out, the broader mortgage industry is not hurting and neither are conforming and fixed rate borrowers. This little debacle will shake out the foolish who jumped in the frenzy and the banks and wiser buyers will be just fine, perhaps even better.

Don't believe the hype...the media ALWAYS lies to help their corporate sponsors. When the media and the chicken little herd is all saying "Don't buy now! The sky is falling!"; the wise are quietly scooping up the properties being unloaded by nervous buyers who also buy into the hype and drop their prices. Just remember, the worst time to buy was in mid 2005 when everyone was screaming BUY, BUY! The smart investors always go opposite the herd.

[Steve Wimer]

No one wants to buy now anyways. Not with prices falling. Wait a year or two, most are thinking. The builders and banks are still asking too much, despite their 20% drops in price, for their real estate. Why buy when you could lose your job due to the upcoming recession? Why buy in a suburb when the price of oil is headed higher? The housing to buy is housing close to the jobs. That's the cheese these days!

[Enlightenment]

The rumor mill is predicting a major blood bath in the house repo market between now and end of 2008, thus only a fool would think you could find the a great deal right now...yeah the prices are lower than 2005....but that isn't saying much...because next year they will be lower!

[jdj]

"Congress appears to be on the verge of transforming the once-stodgy Federal Housing Administration program into a competitive home loan option nationwide, with lower minimum down payments and maximum mortgage amounts generous enough to fund loans even in pricey California."

Oh yes, by all means do away with that onerous 3% down payment requirement and raise the conforming loan limit to $600,000. That should help "stodgy" old FHA get with the times. Of course Harney neglects to mention that it was these reasonable rules that kept FHA loans solvent while all the crap that his friends the mortgage brokers were peddling turned radioactive.

Harney is a hack and he can't take it when the news turns against him.

[yourkillingmelarry]

Ken H,

Please!!! Sales in the region are plummeting not because of the media hype, they are plummeting because of affordability. Households with 55k to 85K cannot purchase homes that are 550K to 850K. 10 times income will not work and that is where we find ourselves.

Alright people, BEWARE of the Ken H's. You will be hearing more and more from them as we go into winter hibernation. This the period of time they can tell a story without having to back it up with data. The NAR will spend millions and use all of their media contacts to SPIN the RE story positive. That is their job, that is what they do. They are not looking out for your best interest. They are trying to unload a massive amount of inventory at the highest possible price. They have a small window in Spring before the negative data kicks back in and exposes what the market is actually going through. Do not be Fooled!

[Ace]

'The NAR will spend millions and use all of their media contacts to SPIN the RE story positive.'

Did anyone see the NAR commercial that aired yesterday during football games saying that it is a good time to buy? One person says 'this is the best market in years.... in terms of choice'.

You can check it out here:

http://www.realtor.org/pac.nsf/pages/television

Then click on 'good time to buy'

[Cal]

Wow, Realtors saying its a good time to buy.. SHOCKING.

This should shake the housing market to its very core!

[Willie]

To be honest there is never a good time to buy or sell if you are doing so for the wrong reasons. You buy a house to provide shelter over your head, not as an speculative investment. The mentality of a house, is just a house is wrong, a house should be home where you are suppose to raise your family.

I can tell a flip from a real sale just by looking at the prior sale, how long the house has been owned and the illusinary appreciation in just a couple of years or less. There is this one home in Pasadena that sold for $550k at the end of 2004, was remodeled and now they are asking $1.25 million for it. Can you tell a flip here? After languishing in the market for a long time, now the price has been reduced to $1.1 million and still no takers. Now, if the drop the price to lets say $750k I'll buy it! That will give them a nice chunk of money for their troubles of upgrading and fixing the property.

Who is their right mind will give anyone a $700k profit in less than three years? Who in their right mind will give anyone a profit of $600k? Not me. By the way, they are trying to find a renter willing to pay $4k a month, which is probably what it will cost to service their original mortgage. The owners of this house are hurting and hurting bad. Who in their right mind will spend $4k a month on a house on a not so good part of town? People are just nuts!

[Linda Slocum]

Regardless of whether you think the real estate market is in "meltdown" or whatever the current media hype is, buyers are still getting loans, and they're still buying homes. They're just not buying as a short-term investment that they'll hope to flip in a year or less like before.

Granted it takes a better credit report than in the recent past, but stated income low-down loans are still out there. Mortgage brokers don't always have access to these loans though, since lenders like Wells Fargo and Countrywide are providing these more choice offerings for in-house loans only. Also, many lenders are structuring loans with larger seconds to avoid using the jumbo loan products.

Standing inventory at new home developments was being sold at fire-sale prices this weekend, as builders were trying to meet sales targets for month-end and quarter-end reporting. Major price reductions and interest rate buy-downs were the name of the game.

Relocation properties can also be good buys, since the company covering the relo often covers much of the loss that the seller would incur by dropping the price to rock-bottom in order to get the home to sell.

Underwriting is definitely taking longer and often more documentation is being requested than before. I was surprised that a "newbie" was given the task of performing a final review on a loan recently. This newbie was clearly trying to earn bonus points for trashing the file, and didn't even know enough to ask for the HR department when re-verifying employment. You'd think they'd have better trained employees for the final review process!