According to CNN yesterday, tighter lending standards have made it more difficult, and more costly, for even the best borrowers to get loans:
The credit crunch has finally hit the traditional mortgage market.
Investors are now shunning mortgage-backed securities issued by government sponsored enterprises Fannie Mae and Freddie Mac, which have been critical in keeping the real estate market from completely falling apart.
Some fear this development will make it harder for people, even those with strong credit histories, to get a home loan.
"Even if you have good credit, you don’t know if they are going to give you a loan or not," said Joseph Mason, a senior fellow at the Wharton School of the University of Pennsylvania.
And for those who can still get a loan, the tremors in the mortgage-backed securities market has made loans more expensive for borrowers. As the prices of mortgage-backed securities have fallen, their yields have risen, leading to higher mortgage rates.
So what do you think Doomers? At a time when lenders need every Tom, Dick and Harriet to get out there and buy their REOs, Tom doesn’t have the downpayment, Dick doesn’t have the credit score, and even Harriet with her perfect payment history and great credit is having trouble. How do you see banks managing this?
This is an open thread, so feel free to weigh in on this or any other housing related topic.
As always, this thread’s for you!
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First, home prices need to fall significantly further and then stabilize for the investor and lender community to warm up to the market for these loans. Second, I’m thinking that downpayments need to be 10% or even more, validated as actual savings from the borrower, given the “jingle mail” data regarding consumer behavior these days.
In my own case, we’ve been preapproved twice by our savings bank, SunTrust, and while interest rates are up due to the risk asumptions they are building in, the actual loan availability is not a problem.
There’s a difference between these markets prudently tightening (good) and freezing up (bad).
“I’m thinking that downpayments need to be 10% or even more”
Not to pick on you, but there’s a reason why traditional guidelines called for 20% down. And in a really bad market, even more. And it’s a really bad market. That reasonable people can think that 10% might be a kinda strict loan shows how far outta whack things got.
Check out the new agency jumbo standards for a look at the direction things are going.
I am thinking PMI is going to get expensive in the short run.
When my parents moved out here from IL in 1989, they needed 25% down. I think you are going to see down payments as high as 30% or more that are required. The good thing is that prices will have to significantly be reduced.
Surak-
I’ve thought the same thing. The only way to have larger downpayments and declining inventory is for prices to go WAY, WAY DOWN. The only other strategy for clearing inventory would be to give mortgages to anyone who passes the mirror test.
Never mind. We already tried the last one.
How to manage? I’d guess the banks will raise fees on other services and loans, as well. Take HELOCs, for example… they may decide to bump those interest rates up, tack on some sort of surcharges…. or simply call the loan in, if the bank needs money that badly.
Check your loan docs, and they’ll tell you what the bank can do!
Oh yeah,… banks will start closing branches, too. Those are freakn’ expensive to operate.
The Great Contraction has arrived.
Here in SA I finally got an offer yesterday (full asking price, except that my asking price has come down 16% in the last 9 months). Had the inspection today, and if they don’t back out, closing in 2 weeks. I was excited yesterday. Today I’m just thinking of all the things that can go wrong. Of course if it goes thru, I have to figure out where the blazes I’m going to be living 2 weeks from now and how to get a house full of stuff there. But I’m definitely not making the bed tomorrow, and the dirty dishes can sit in the sink! That’s reason enough to celebrate.
tc-
Congratulations, and tomorrow should be a great day for letting the chores go- the weather looks great.
I don’t think I’ll spend the whole day slaving over a hot computer, myself.
Igor says “tragedy” I say nice try- he can manage on his own for a couple of hours!
Hi, netdance!
I agree with you that things have gotten way out of wack with loan standards and downpayments in particular. I also agree it’s strange that 10% or more down would be perceived by folks as a lot, but that is in fact the case.
It’s hard for me to see lenders going back to those 20%+ down terms when very few buyers are prepared to do it these days. And if buyer demand deteriorates even further as a result of traditional downpayment requirements, does that help or hurt the banks? Some of both I think.
Tis a good question. Me being a full time mortgage broker…I am thinking that this down payment thing is being answered by the new FHA limits. No one trusts the bonds and treasuries right now and prices are higher. Everytime Ben-arke- opens his mouth the markets fall 200-300 points. The new FHA loan limits make it possible to do a 3% down payment and get into a pretty nice size home. Here in PHX, AZ the new limit is 346k. No reserves required either with an FHA loan. However is your wish is stated income then yes 15%-20% down should be required in a depreciating market. I have never put 20% down on a home and I have owned for the past 15 years. Investors should have to put even more down. I am hearing story after story of folsk upside down that have great credit that are buying another home on stated should have to put down 20%
Back a few weeks ago in a thread about borrowers walking away from a mortgage, some readers scoffed at the idea that lenders could and *do* change rates, even after the GFE and the rate lock.
Well, this one’s for them:
Borrowers Find What Citigroup Says Isn’t What It Does