Countrywide’s recent “Soft Market Policy Changes” via a seriously plugged-in tipster:

As you are well aware, 2008 is forecasted to be a challenging year for the mortgage industry, characterized by a declining Housing Price Index in a wide variety of metropolitan markets. In the context of the prominent threat to our industry of collateral values falling below outstanding loan balances, mortgage professionals must strive to ensure that borrowers do not take on loans that they do not have the ability or economic interest to repay.

Because of these market conditions, as well as policies implemented by Government Sponsored Enterprises and Mortgage Insurance agencies, Countrywide®, America’s Wholesale Lender® is adopting new Soft Market policies designed to help serve qualified borrowers in markets which are either declining or projected to decline in 2008.

Impacted markets across the nation have been categorized, with Category 5 being the highest risk for declining market value and Category 1 markets currently demonstrating more stable market values. Those counties in a higher risk category are subject to additional guideline restrictions as described below. Click here to view a list of the counties currently attributed to Soft Market categories 1-5.

San Francisco, San Mateo and Marin counties have been defined as Category 2 Soft Markets; Napa county a Category 3; and Alameda, Contra Costa, Sonoma, and Solano counties Category 4. The impact (more or less) of the policy changes that became effective last Friday:

For Countrywide Purchase Loans:
Soft Market Category 4-5 loans: Maximum financing will be reduced by 5%
Soft Market Category 1-3 loans: Maximum financing will be reduced by 5% if the appraisal or appraisal review indicates any of the following: Declining Market, Oversupply, Marketing time over 6 months.

For Countrywide Home Equity Loans:
Soft Market Category 5 loans: Maximum financing will be reduced by 10%
Soft Market Category 4 loans: Maximum financing will be reduced by 5%
Soft Market Category 1-3 loans: Maximum financing will be reduced by 5% if the appraisal or appraisal review indicates any of the following: Declining Market, Oversupply, Marketing time over 6 months.

UPDATE: A comment worth highlighting: “I was all set to take out a mortgage with 5% down from Countrywide this week. On Monday, I got a call saying they no longer have that product. Bummer. I think they were the last to offer the 5% down loan; and it had the same rates (5.75% at the [time]) as their 10% down.”

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Comments from “Plugged-In” Readers

  1. Posted by Carlos

    Thats only countywide(for the moment). Most lenders i talk just want to close some deals.

  2. Posted by SFHawkguy

    I wonder if this equals out the benefit of raising the conforming limit announced yesterday?
    Which has a greater impact on the market? Countrywide tightening lending standards or Congress trying to force the GSEs to give a few more people a 100 basis point or so better deal? On one hand more people qualify for a GSE backed mortgage while a few more don’t qualify for a Countrywide loan.
    And how soon until people realize that Congress sticking it’s finger in the dike won’t work?

  3. Posted by Tom

    I was all set to take out a mortgage with 5% down from Countrywide this week. On Monday, I got a call saying they no longer have that product. Bummer. I think they were the last to offer the 5% down loan; and it had the same rates (5.75% at the tiem) as their 10% down.

  4. Posted by Carlos

    Tom,
    Up to what LTV were you going to? rates are way better this week and will most likely keep getting better.

  5. Posted by Tom

    I don’t know what LTV is. But it was 5% down 5.75% interest on a jumbo loan. Rates are lower now, but I was looking forward to avoiding much skin in the game. Now, I’ll be waiting to see if my Jumbo becomes conforming.

  6. Posted by anon

    “but I was looking forward to avoiding much skin in the game”
    I am sure you can somehow put these 5% on one of your credit cards (maybe split between different credit cards) – or simply print some “CDs” and sell them on eBay to someone from China. That should help you avoid any “skin in the game”
    This site is so entertaining. It doesn’t get much better than this.
    And tax payers stand to bail out people like “Tom”

  7. Posted by Tom

    Anon,
    This site is entertaining. There are people like you ready to presume that people are making the “wrong” decision or can’t handle a loan simply because they choose not to put down 20%.
    I, for example, would rather have my money work for me elsewhere and was interested in putting only 5% down so I could get a better return with my other 5% outside of the housing market. And, of course, there is less risk to me if this the market emplodes. I am not an investor, I am a homeowner that wants to get the house I want in the most economical way. I can’t think of a reason anyone would want to put down 10% over 5% when the rate is the same in this market. Can you smart guy?
    Interest only loans, low money down, etc. are the means of financial failure for some, but also the tools of success for many others. Take some finance classes and think about it for a bit, you’ll figure it out.

  8. Posted by movingback

    Thanks Tom – I could not have said it better myself.

  9. Posted by Cooper

    you could probably get 5% somewhere but probably not at a very good rate. In a falling market, it doesnt take much for you to be under water by 5%. Heck transaction costs eat that away at 6% not counting the amount they lose if it goes into foreclosure. It used to be 20% required for almost any deal–that looks like a much more sound requirement. It would stop people from driving up prices to begin with which is how this crisis started.

  10. Posted by Mikey

    “Interest only loans, low money down, etc. are the means of financial failure for some, but also the tools of success for many others.”
    I couldn’t have said it better myself, either – in 2004. Different world these days, however. If Countrywide offered such a deal through last week even after all it has been through in the last few months, it would be just another indication of how poorly managed that company has been.
    And “avoiding much skin in the game?” We call those people “renters.”

  11. Posted by anon

    “This site is entertaining. There are people like you ready to presume that people are making the “wrong” decision or can’t handle a loan simply because they choose not to put down 20%”
    This is not what I am saying. What I am saying is that I resent the concept of giving “credit” to people at taxpayer’s expenses so they can play the market. Whether it’s the housing or stock market, I don’t care. I do NOT want a government sponsored organization to give you that “credit”. That’s all.

  12. Posted by Michael

    Carlos – Here is a good staright forward explanation of LTV;
    The loan-to-value (LTV) ratio is a mathematical calculation which expresses the amount of a first mortgage lien as a percentage of the total appraised value of real property. For instance, if a borrower wants $130,000 to purchase a house worth $150,000, the LTV ratio is $130,000/$150,000 or 87%.
    Hope that helps.

  13. Posted by Tipster

    I recall a number of mortgage broker sites having comments on them that CFC was essentially writing any loan they could in recent weeks. I think they were desperate to juice up their market share numbers so they could sell themselves off. Now that BAC has waltzed in, I’m sure those glory days are over.
    It *IS* amazing that our economy is so weak, that we feel the need to continue to guarantee loans for people who clearly are willing to walk at the first sign of trouble. As if that is some sort of help to the long term health of the economy. It isn’t just the tax and spend Democrats, it’s the Republicans too.
    So eager to make it to the next election without a recession that they will come up with any scheme to get there. With what they appear to be willing to do to make it past 2008, one can only imagine what 2009 will bring, when the guarantees required to keep the party going for one more year come due.
    In the meantime, with respect to this week’s tightening (as opposed to next week’s) me thinks that every appraiser is going to mark every market as one experiencing a decline, or live to regret it. So their differences between categories is going to be pretty meaningless.

  14. Posted by Greg

    I can’t believe any company would be providing 5% down loans in this market … think of what that means to the lender … all that has to happen is the value of your home to drop by 5% … which is totally possible, and you have ZERO skin in the game.
    If the value of the home goes down by 10% (which is again possible — the market could go down or maybe you’re just a bad homeowner and take very poor care of your home), it would be in your economic interest to let the bank forclose.

  15. Posted by Raj K

    This may be of interest:
    An interactive heat/thematic map of the counties by “Soft-Market” index is available for viewing
    http://www.geocommons.com/workspace/show/6912
    The brighter hues indicate higher index values of 4 and 5 (High-Risk markets) while darker hues show the opposite (the so called “stabilizing markets”). Use zoom and pan to explore the map details.

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