Posted on 09/02/2007 3:27:24 PM PDT by 2ndDivisionVet
The subprime mortgage crisis is spreading to a somewhat unexpected place: homes costing more than $500,000. As lending has rapidly gotten more restrictive for borrowers taking out large loans, sales of expensive homes have fallen sharply around the country during what should be one of the busiest seasons for buyers and sellers, mortgage bankers and real estate agents say.
To some degree the change is due to difficulty getting financing, as borrowers are finding fewer lenders willing or able to fund "jumbo" mortgages, loans for amounts greater than $417,000. Such loans are too big to be guaranteed by government-sponsored housing finance agencies Fannie Mae, Freddie Mac or Ginnie Mae.
Given the troubles in the subprime sector, investor appetite for all types of mortgage loans not guaranteed by housing finance agencies has nose-dived.
Banks until recently were able to offload the risk of many jumbo mortgages by selling the loans to investors. But now, as investors burned by the subprime debacle have become extremely picky about what they will buy, banks are having to keep more of these loans on their own books and as a result are charging higher rates. Some lenders — such as Countrywide Financial Corp. — have made a point of saying they're now most focused on making loans that can be guaranteed by Fannie and Freddie.
Other lenders have simply tightened up their lending standards, for example by no longer making jumbo loans to lenders who can't fully document their income, even if they make large down payments and have stellar credit histories.
The banks that are still making jumbo loans are charging substantially higher rates to compensate for the lack of investor demand. Borrowers who could have gotten rates as low as 6.5 percent in June are now having to pay as much as 9 percent.
But aside from the financial impact of higher rates, in certain high-priced real estate markets, the effect of the suddenly tighter lending environment is more psychological, mortgage bankers and real estate agents say, as buyers and sellers alike don't want to plunge into an uncertain future.
"Showings are down, contracts written are down, and sellers are just as backed away as buyers are," said Lou Barnes, a partner in mortgage bank and brokerage Boulder West Financial Services in Boulder, Colo. The company arranges for financing on many higher-priced condominiums and houses in the state.
"I think the psychological damage is worse than the financial damage" which is already bad enough, he said. Even for buyers who have plenty of cash or can easily afford higher mortgage rates, the sudden change in the financing environment reduces "the ardor to buy a house unless you have to," he adds.
With numerous buyers and sellers sidelined, the higher cost of big mortgages is bound to put downward pressure on home prices should the lending environment stay tight for a long period of time, said Ellen Bitton, president of Park Avenue Mortgage, a mortgage bank and brokerage that does business in several states, including New York, Florida and Utah.
In New York, the most pronounced effect so far has been at the very top end of the market, for properties priced $25 million and above, said Dolly Lenz, vice chairman with Prudential Douglas Elliman.
"Every single person I have at the highest end is on hold. They're going to wait and see what happens," she said. "It has nothing to do with them being able to afford" properties or not, Lenz added. "It's a confidence thing. They somehow feel poorer, whether they are or not."
In California, where the median home price is well above $500,000, jumbo mortgages are as much as 44 percent of all mortgages issued in certain metro areas, according to data from First American LoanPerformance.
In and around San Francisco, where the median home price is about $1.1 million, the tougher financing environment has created a "hesitancy" and has led to some canceled escrows for buyers around the $1 million range, said Rick Turley, president of the San Francisco and Peninsula Region for Coldwell Banker Residential Brokerage.
“The subprime mortgage crisis is spreading to a somewhat unexpected place: homes costing more than $500,000.”
Unexpected for whom? Perhaps the childishly simple minded reporters. Thats about the only people who find tightening standards on large loans to be unexpected.
I wish I can buy a home!
Things have tightened up a bit, especially on the stated stuff.
But we have the same products and rates as always for jumbos. Since we are a large national bank; we have the ability to keep and warehouse the loans we make. Smaller lenders and brokers don’t.
Bottom line is that the financing is still there for most people.
Not one story I have read about the mortgage 'crisis' has mentioned the PMI That most of the loans required. How does the mortgage company lose money if the loan is insured?
You can still buy a home. As a matter of fact, it is a buyers market.
You are correct, they don’t.
And most reporters don’t realize that most of loans have been pooled, and the lender has sold the pool of loans to investors. The big lenders however will retain the servicing and contact with the customer.
Ping
“Other lenders have simply tightened up their lending standards, for example by no longer making jumbo loans to lenders who can’t fully document their income, even if they make large down payments and have stellar credit histories.”
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Wow, you mean lenders actually are NOW expecting borrowers to actually be able to afford to pay back their loans??? Why, that is downright un-American!! I wonder if the Bank of Amigo is still doing mortagages for illegal aliens???
There are still good lenders making jumbo loans, usually thrifts. They can hold them on their books. And why shouldn’t they for people with 20 percent down, great credit and documentation of income and assets? While clearly the jumbo market is in trouble, this story is not even-handed. I’ve heard of people combining $417,000 first mortgages and home equity lines of credit to reach the total amount of the loan (provided 20 percent down.) For properties under $1 million, I think good borrowers can find a way to get a mortgage without paying the rates implied in this article. Plus, I think it’s only a matter of time until the prime jumbo market financed by Wall Street is back up and running. These are good, profitable loans, tarnished in the mad dash away from subprime and alternative A mortgages.
On the other hand, I have six open houses this holiday weekend.
Houston has turned around and it is great!
So there is a crisis because some folks do not want to purchase un-vouched for loans?
Why not have the bank actually make sure the loan has a great chance of being paid back, before selling it off?
I know don’t ask silly questions, if the bank actually made sure the loan was good, the time and money spent would come off of their bottom line.
Just last month the world was coming to and end when the market made a simple correction.
These things are cyclical. Spine up reporters. Things will be okay.
I have been watching several publicly traded mortgage companies, including some REITs, for the last month or so. If they have survived so far, things are starting to stabilize, and the stock prices are starting to stabalize at new levels, and gradually go up.
I do mortgages and we have NO problem doing anything from $50K to $100 million.
This is going to get a lot more ugly before it gets better.
It should be were selling.
The problem is that there is no price on the CDIs that are now out there.
I’m convinced that much of the mortgage “crisis” (not all, of course) is an exaggeration by the MSM who really need an economic crisis during the Bush years. The best way to elect Dems is to show the GOP as failures in security and prosperity.
I say that as I am trying to sell 2 houses (1 went like lightning); buy another (no problem getting conventional mortgage money, but then, maybe I’m nuts for buying something I can afford); and deciding about another purchase.
This is a good time for people who want or have houses they can afford. The speculators are as dead as the tech stock investors of the 90’s.
maybe standards have been tightened because many of those 500K homes were valued at 300K or less 5 years ago and lenders are skeptical that the current prices will hold up for much longer.
Credit scores don’t matter at this point as much. What they want to see is that the borrowers have the collateral and income to handle a buzzcut to their home values and not panic or walk away from it and let it go into foreclosure.
I have no problem with tightening standards due the fact that for many years now, banks have had NO standards. Especially with the Alt-A (aka liars loans since you could say whatever you wanted on the mortgage application) or subprime.
Simple logic is lost on most reporters. In the last two years I’ve driven past growing numbers of developments with monster homes and thought - there cannot be this many people who can afford to live this way. Guess I was right.
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