Wells Fargo calls L.A. market 'severely distressed'

A quickie: Wells Fargo has designated Los Angeles County a "severely distressed" housing market, which means tighter mortgage guidelines for L.A. borrowers, effective this week. From Biz Journals: "In a move that could have far-reaching ramifications for home buyers in the Golden State and elsewhere, Wells Fargo & Co. is tightening its mortgage lending guidelines in more than 200 markets across the country, including Los Angeles County, that it has labeled severely distressed or distressed."

More: "In markets considered severely distressed, for example, it will not make a loan for more than 75 percent of the value of the home. Twenty counties in California, including Los Angeles County and Orange County, are on the severely distressed markets list."

Thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Hat tips: Beth and Better Village

Comments

[Cal]

Retail will have a lot more flexibility in both pricing and exceptions to these standards than wholesale (brokers).

With few sales and lower credit quality coming from wholesale it makes sense to clamp everything down and ensure you are only originating solid loans.

From watching the broker boards there is more and more mortgage insurance chatter (can get a loan contingent on if they can find MI to cover it.. they cant find the MI) as well. It isnt a crescendo yet, but you can see it starting.

It'll be a FHA world soon enough with the GSEs and big banks cherry picking the good loans out of the loan pool. Not only is credit drying up faster than prices are dropping but down payment requirements are rising faster than peple can save.

Everyhing points to a much smaller buying pool for awhile until prices match incomes. We have a long way to go for that to occur.

[mbob]

Have lefty & pals hit the phones to WF. That'll bring 'em around.

[Valley Resident]

The last 6 buyers left can no longer qualify - how may people have $100,000 sitting in the bank waiting to buy a condo?

[IToldu2CashOut]

Makes sense to me. Now that they can't sell of their morgages to hedge funds as AA investments of course there not going to give loans on overpriced homes that no one can afford.

Oh and something else to consider. Only 2 banks give loans on lofts downtown, one of them is wells fargo.
This is because they are live/work and considered more risky.

My crystal ball tells me prices are going to really fall off a cliff. Buyers strike baby. Maybe the developers in LA will wake up soon and start listing there properties at the real price instead of the 10 years from now price.

[formerlahomeowner]

What??? 25% down payment on a $500K house? No big deal. That's only $125,000!!! Oh wait. I only have $125.32 in my bank account. Give me a no-asset, no-income verification loan with a piggyback. I deserve to own a house. Where is my bail-out?

[waitingitout]

I understand that Wells is gun shy, but two questions:

1) should WF maybe have thought about this a couple years ago? and

2) how do they make any money if they aren't lending?

[IToldu2CashOut]

Wells Fargo is lending. To people who can put 25% down :)

Luckily for me I can do that. Unfortunately for sellers I can't afford 2.5k a month for housing costs plus HOA $600.00.

Maybe someone should drop there prices ehh?

Wait I better act now before interest rates go up higher?

nope you better lower your prices now before interest rates go higher.

Don't worry I'll adjust my low ball offers lower to account for any increased interest rate and the banks will take your profit.

[American]

So what does this mean? You need to put 25% down now? No problem, I have $125k sitting in the bank.

Just don't ask me to document it...give me the $125k cash back on my Negative Arm. loan.

Oh, and don't forget to bail me out too.

You know what, my car just depreciated $4k last year and now I owe more on the loan than the car is worth, I need a car bailout!!!! My car is a deflating asset just like a house!!

[mike]

you don't need 26% down....i will be happy to rent to you and you can still live in the golden state...

sounds like wells is boosting my rental profits!!!!

[formerlahomeowner]

American,

I know you did not plagiarize my posting but it is eerily similar. Great minds think alike.... Nah....just bitter housing bloggers.

[Another]

LA and OC isn't nearly as "severely distressed" as they are going to be shortly. I've been on a buyer's strike (thanks IToldu... above) for a year while owning outright in another state and commuting to LAX/SNA.

I could buy at these ridiculous prices, but I won’t. Neither will I pay someone else’s mortgage through rent.

(Radisson, National and Continental love me and it’s all deductible as a business expense.)

At this rate I could retire from an LA job without paying a nickel toward this foolishness and end up with a hell of a lot more money in the end.

I really don’t understand how any homes sell in wonderful Southern Cal with median prices north of $400k. The OC homes with wishing prices of $600k and less that I’ve seen are old, aging, semi-depressing tract homes that anyone making enough money to actually purchase with a hope of paying off the mortgage would refuse to live in.

I will buy your $1.2 million McMansion for 0.50c on the dollar, cash. Its coming.

[vultur]

you don't need 26% down....i will be happy to rent to you and you can still live in the golden state...

sounds like wells is boosting my rental profits!!!!

Posted by: mike | February 28, 2008 at 08:51 PM
________________
It's true there might be a temp upward adjustment in rents. After all, most of the houses being foreclosed on where actually owner occupied so the occupiers have to go somewhere! Even though there was a degree of speculation the positive migration should slowly soak up the added supply. It's a housing meltdown, not a nuclear meltdown! These people still need shelter.

BUT

While you may notice a short term surge in demand for your units what will you find the next time you go to refinance your property or look to sell it is that the value of your rental unit has probably dropped 15%-20% from its 2006 highs.

Why you ask, as your rents appear to have increased since then and so has your bottom line. Well, guess what Mike- the same strict lending requirements that forced those homeowners into your apartments are handcuffing buyers of rental property. Multi-Family buyers find few sources of mortgage debt and at higher costs.

If you're just looking at the monthly cash flow then you should probably be happy with this turn of events, although massive job losses can may follow will spike your vacancies.

However, if you think that your property is magically rising in value in this market then you're just wrong.

[ray]

25% down. Home seller's I know won't budge off their asking price since they're pricing the homes like it was the year 2005. Expect this housing slump to last at least 10 or more years as buyers try to come up with the down payment.

[Raul]

Translation: you are not going to gamble with my money. Wells Fargo Bank

[Laker]

Translation: LA county House Prices "severely distressed " is heading down by at least 25% from TODAY's values. = Wells Fargo Bank.

[Sam]

In Los Angeles county, mean income is $62,000. That means that at currently "distressed" prices, only 3% of the income earners that don't own property can truly afford to buy. I am happy that Wells is raising the down payment scheme and hope that other banks do as well, so that the "free money" pool dries up and prices correct to where they should be - 40-55% less than current "ask".

As for the Fed's bailing out homeowners, unless it was proven to be a fraudulent loan -- I say my tax dollars shouldn't be used to bail out the stupid buyers. Let the market adjust accordingly and I'll buy.