August 6, 2007
JustQuotes: From Credit Crisis To Credit Squeeze To Credit Crunch?
“What had seemed like a contained problem, involving home loans to people with poor credit, has suddenly mushroomed into a rout that threatens to make life difficult for everyone who needs to borrow money.
Home buyers are likely to pay more for mortgages, and some with less-than-pristine credit or an inability to come up with a down payment may find they no longer can borrow at all.”
∙ The Loan Comes Due [New York Times]
∙ Housings Busts and Hedge Fund Meltdowns: A Spectator’s Guide [New York Times]
First Published: August 6, 2007 2:45 AM
Comments from "Plugged In" Readers
There is considerable pain on the mortgage front right now. nobody knows (especially not me) how far this will go!
Practical point: If you are about to close on a mortgage, or if you have a mortgage pending, contact your prospective mortgage lender/broker immediately to see what is going on with your particular loan. Even if you're pre-approved or pre-qualified etc... No loan is final until you have the check in your hand! If you are selling a home, have your prospective homebuyer do the same!
Even if they say all is ok, I still might consider looking for a backup loan just in case...(things have been changing that fast lately)
A lot of people came to closing last week and found out that they had no loan for the purchase. (thus, their deals fell through, or they had to last-minute get a different loan with different rates).
this will eventually settle down...
good luck all!
Posted by: ex SF-er at August 6, 2007 5:37 AM
To ex SFer's point, Wells Fargo left the jumbo loan market as of Friday. Considering a studio condo in SF requires a jumbo mortgage this should prove interesting (not that there aren't other banks out there still providing jumbo's)
“They’re pulling themselves out of the market to regroup,” is what one of my mortgage broker buddies told me on the phone this morning when I asked how in the heck Wells Fargo could raise rates on a 30-year jumbo fixed rate mortgage from 6 7/8% to 8% overnight. A jumbo is anything over $417,000, and given today’s home prices, that’s going to hit an awful lot of borrowers.
Posted by: badlydrawnbear at August 6, 2007 7:57 AM
Hmmmmmmm. Let's see how many of those 5% down purchases in SOMA are actually going to close. You can't buy anything in SF without a jumbo loan.
Posted by: anon at August 6, 2007 9:01 AM
I should point out (because it was pointed out to me) that Wells Fargo online rate page does not currently reflect the change in rates ...
So this story from CNBC might not be 100% (or the online page could simply be inaccurate)
Posted by: badlydrawnbear at August 6, 2007 9:09 AM
So what happens to the new developments like the Hayes and Arterra for whom Wells Fargo was their preferred lender? Will they still fund the loans for those who were previously “pre-qualified”? And if so, at what rate?
Posted by: MoreQuestionsThanAnswers at August 6, 2007 9:13 AM
From the footnotes of the CNBC story:
"I want to clarify a few things. When I use a quote from a mortgage broker saying Wells is pulling itself out of the market, that’s the broker’s opinion of what that 8% means, not an official statement from the company. Now, as I said on TV, but which I didn’t clarify on the blog is that the 8% rate is for loans coming through brokers, ie broker-originated. If you go directly to Wells Fargo, you will likely get a better rate."
That would explain why the Wells rate page doesn't show the hike. That being said, could somebody in the industry explain to me what it means when the "broker-originated" rate is being jacked up? Is it an attempt to gain more control over underwriting?
Posted by: Michael at August 6, 2007 9:20 AM
Michael -- yes, it is plainly an attempt to get more control over underwriting. This has probably been forced on the lenders by those in the secondary markets who buy up mortgages. While it has always been common knowledge that info coming from the mortgage brokers isn't worth the paper its written on, in a mad dash to write as many loans as possible, nobody cared. But now that the sh** has hit the fan, the lenders care.
Posted by: Trip at August 6, 2007 9:23 AM
Michael - "Broker originated" loans are more expensive simply because they include the broker's compensation (magnified by the greed factor). If your credit is OK, there is absolutely no reason to use a mortgage broker and pay more...
Posted by: TrailerTrash at August 6, 2007 9:38 AM
...and if your credit is not OK, there is absolutely no reason to use a mortgage broker because no one will believe him when he says your income is 2X what it really is...
Posted by: tipster at August 6, 2007 9:54 AM
The secondary market for mortgages is very difficult right now, some would say "frozen".
Previously, Wells could take a loan originated from a broker and sell it to the secondary market, receiving a fee for doing this. Thus, they cared less if the loan is paid back, because they are simply a conduit... they're essentially selling wall street a loan. if the loan fails, the investor takes the loss (not Wells)
now wall street isn't buying those loans. But Wells still wants to lend. They will lend, but will have to keep the loan on their own books. If the loan defaults, Wells is the bagholder. Thus, they are still lending on Jumbo loans, but at a higher interest rate to compenstate them for the risk of default.
Jumbo loans aren't going away. Nor are alt-a or subprime. They will just be more expensive... to compensate the lenders for newly perceived risk.
and there will simply be much more scrutiny on all loan products...
if you have good credit and put down a large downpayment (like 30,40,50%) then I wouldn't be surprised if Wells lends out a Jumbo at the 7% range (I have no idea...). but I doubt they'll do loans like what was going on before. (high CLTV ratios, low doc, etc)
As an example-I myself would lend to any of you who want to buy a home at 7% interest, IF you can show me 3 years worth of paychecks and IRS statements and put 30-40% down.
Posted by: ex SF-er at August 6, 2007 10:13 AM
here's an example (Option One's website)
Notice how a lot of their loan requirements changed on a SATURDAY. The execs in the big office are working weekends folks.
some interesting things:
1. they won't fund ANY Florida Condos. (that's interesting)
Eligibility Requirement Changes Effective Saturday August 4, 2007 at 6 pm PT (in AU/Prequal):
-Option One will only originate Full Doc loans secured by Owner Occupied properties (No 2nd Homes)
-Increase in disposable income requirements on D/R's > 50% from $2000 to $3000
-Note the following changes will require a manual process:
Option One will stop accepting refinance submissions:
-If the property is vacant
-On any property listed for sale in the last 3 months
-LTV limitations on cash out refinances for properties listed for sale more than 3 months ago but less than 6.
-Please Note: All loans in the pipeline meeting the above characteristics must fund by Friday August 17, 2007.
Posted by: ex SF-er at August 6, 2007 10:25 AM
Has anyone seen the Cramer video begging Bernanke to cut the interest rates? I think it's too late. The horse has left the barn....
Posted by: anon at August 6, 2007 12:19 PM
Friday night email from IndyMac...
Dear Valued Customer,
In response to recent liquidity issues in the secondary mortgage market, we have found it necessary to revise a number of our program limits and underwriting guidelines.
The following revisions became effective for loans that were not rate locked prior to 12:00 p.m. Pacific Time today. The Indymac Lending Guide will be updated to reflect the changes shortly.
Loans affected by the revisions below but rate locked prior to the effective date will be accepted and funded provided all QuickPricer® ratelocks are converted to full e-MITS® submissions by August 10, 2007 and all credit packages are delivered to Indymac by August 17, 2007.
In addition, there will be no grace period or “auto-extensions” for clearance of conditions after the rate lock expiration.
All loans that were previously delivered and not ratelocked are subject to the revised guidelines.
Program Revisions - Multiple Programs
The following revisions apply to the following programs, where applicable:
• Alt A - Standard Products with loan amounts that exceed the current conforming loan limit
• Alt A - Super Jumbo and Ultra Jumbo Program loans - all loan amounts
• Alt A - Pay Option ARM loans - all loan amounts
• Construction to Permanent Loans with loan amounts that exceed the current conforming
• Consumer Residential Lot Loans - all loan amounts
• HELOCs - all loan amounts
• Stated Income documentation is available only when one or more of the borrowers is
self-employed for loans with the following characteristics:
• LTV or CLTV greater than 70% or
• Decision Credit Score is less than 700
Stated Income remains available for borrowers with all types of income when the LTV &
CLTV are less than or equal to 70% and the Decision Credit Score is 700 or greater.
• FastForward, No Ratio, NINA, and No Doc documentation types have been eliminated.
Maximum LTV/CLTV: For Alt A - Standard Products, the maximum LTV/CLTV is 95%. For the Lot loan program, the maximum LTV is 80%.
Minimum Decision Credit Score: A minimum Decision Credit Score of 640 is required, unless a higher score is specified in the applicable program limit table.
First Time Homebuyers:
• The maximum LTV/CLTV is 90%
• The minimum Decision Credit Score is 680
• Not eligible for Construction to Permanent loans or Lot loans
Pay Option ARM Products: The following products have been discontinued:
• 12 MAT
• 40 Year 12 MAT
• FlexPay 12 MAT 1 Year
• Flex Pay 3/1 LIBOR
The Flex Pay 5/1 & 7/1 LIBOR products remain available.
For further questions, please contact your Indymac Bank sales representative.
Posted by: Stax at August 6, 2007 2:46 PM
American Home Mortgage Files for Bankruptcy Protection
NEW YORK (AP) -- American Home Mortgage Investment Corp. filed for bankruptcy protection on Monday and two other mortgage lenders said they were not accepting new applications, signs that the worst housing crunch in decades could be widening.
Posted by: james at August 6, 2007 10:07 PM
Gee, when I said several months ago that supply is going to outpace demand and cause prices to fall, someone told me I need to brush up on my economics ...
I guess I'm not the only bonehead.
Posted by: S&S in SF at August 7, 2007 10:17 AM
Well this can't be good for the SF Market ...
From today's (08/07/2007) Wall Street Journal
"Lenders were charging an average 7.34% for prime 30-year fixed-rate jumbo loans yesterday, according to a survey by financial publisher HSH Associates. That is up from an average of about 7.1% last week and 6.5% in mid-May."
"The higher costs for such loans will put further downward pressure on home prices in areas where homes typically bought by middle-class people can easily cost $500,000 to $700,000."
Posted by: badlydrawnbear at August 7, 2007 10:26 AM
i'm really confused about what's happening regionally. it seems like the only folks affected by the recent issues are those with no cash or credit.
i just sold my place in south beach, got out at a small profit, nothing to write home about but i'm out and happy. now i have no idea where i'm going to go next.
there is not enough inventory of single family homes for folks like me with a budget of 1.5mm, 1/3 of it cash to put down.
does anyone have anything they'll sell me?
Posted by: james at August 7, 2007 9:26 PM
James, just wait a little bit. You'll be able to buy the Droubi house.
Posted by: anon at August 8, 2007 6:27 AM