Irvine Housing Blog

The idea of lenders being too strict causes both laughter and crying at the same time.

Diminished sales are not the result of lenders tightening.  There are probably 5 or 6 neighborhoods in my town very similar to mine, some with larger lots, smaller lots, gated vs. ungated, less amenities.  However, sales and new construction in those other neighborhoods has pretty much ground to a halt for the past 3 years, while there my neighborhood has > 10 new homes going up (200 total homes in ‘hood).  Why are sales and construction down in other neighborhoods down while mine seems OK?  Are lenders looser in my ‘hood?  My view is that builders and developers paid little attention to what they were doing (there are some back story factors that made the development process different for my neighborhood vs others).

That people are being more careful about where they buy and how much they pay is very important to the market.  When people don’t care about details, because prices always go up, prices migrate away from fundamentals and sustainable levels.

Hopefully the development that goes on now is also influenced by $4 gas.  In 10 years, we’ll be closer to $5/gal than to $2/gal.  Not putting more homes where people have long, and now expensive commutes, will help the housing market, and potential buyers.

The thing I absolutely do NOT understand is this:  Why do banks give out 30 year mortgages at such low interest rates?  I understand that conforming loans can be transferred by banks to Uncle Stupid (Gub’mint).  But, if I understand this correctly, the bank generally keeps the jumbo loans.  Why would ANYONE in their right mind lend out $1 million over 30 years to an individual/family at about 5%???

Home as collateral?  30 years from now, anything can happen to that home.  McMansions are built to be sold, not built to last.  And what about the near certainty that the US will experience high levels of inflation at some point in the next few decades?  The banks are finance people, for goodness sake.  They should know better than anyone else that with the current high levels of debt in the system, some type of default is very likely, and the easiest way to default is to “soft default” through inflation.

If I was lending my own money, no way would I accept 5%, or even 6%.  Maybe 7% or 8% would do it.  Which basically means going back to historical pre-2001 mortgage rates, i.e. rational mortgage rates.  Which would align them with other consumer interest rates (credit cards, personal loans, etc, which do not currently have unusually low interest rates).

Still, I go back to this point:  OK, we have low mortgage rates on conforming loans because of GSE/FHA support.  But why are jumbo rates also low?  Am I missing something?

H

Lenders having the requirement that the borrowers have the ability to pay back the loan!  That’s an financial inovation that needs to stop if we’re to have the housing market back on track.

It’s only human nature and greed that the loan originator approve a loan, be paid the commission up, get paid for selling it off in a CDO, get paid for servicing the loan and not care if the borrower can pay.  The lost money is no skin off his back with the govt bailouts and claiming that was standard practice and risk. In fact is more pay with the late fees and FC fees.

Now that the originators (banks) have skin in the game for Jumbo Loans, they are actually checking credit, assess and employment history and pay.  For GSE/FHA that’s another story for there’s no skin in the game.  All they need is to show the facts checked out with proper documentation and it’s investor/GSE beware.  Your tax dollars at work.

“The glut of high-end homes is apparent. And since many delinquent mortgage squatters are inhabiting these high end properties, the shadow inventory makes the time on the market much, much longer.”

I disagree with IR on this.  High-end homes by nature have a much longer market time than lower-priced homes, since there is a much smaller pool of buyers and demand.  I don’t think the numbers in the chart can be properly gauged until we can see a longer period data, but purely based on what’s shown we can make several observations:

Market time on high-end homes have been increasing at a much slower pace than those of lower-priced homes in the past 2 years, approximately 17.5% to 55.5% respectively.  I used $1.5M as cut-off based on the movement of these homes and what might constitute “high end” in OC during the time period measured.  Again we probably want to look at 5-yr & 10-yr numbers and compare these market time numbers to historical data, but numbers here do not indicate shadow inventory any more significantly than lower-end homes.  It does hint to a more willingness to buy higher-end homes than lower-end, possibly due to greater leverage for people with capital to move into a larger home at “cheaper” prices.

Saying lenders underwriting guidelines are too tight is nothing less than industrial grade bullshiat. We’re back to circa year 1 AD through 1998 AD underwriting guidelines. Yes, there are a few notable exceptions including:

1) If you don’t have a history of being a property manager for 2 years, lender’s won’t count rental income from your investment property. That’s prudent, not tight.

2) If you say your renting your departure residence after you buy your new home, we can’t use the rent income unless you’ve got equity, cash in the bank, and a history of property management - also prudent, not “deal killing”.

I’d like at least 5 crystal clear examples from Agents of “crazy” or “tight” guidelines that killed their deal. Upon further investigation we’ll likely find an over leveraged buyer, an over priced home, or some still ocurring shady deals by market participants that really capsized their deal. It’s not that banks are too tight with their underwriting, it’s that we’ve gotten better at catching the BS before the loan is booked.

There are two main participants in a sale - the buyer and the owner trying to sell. There are hundreds of lenders out there from Brokers, Bankers, Credit Unions, Commercial Banks, TBTF Banks, Hedge Funds, and Private Money lenders. Is someone actually suggesting (without evidence…) that every one of these funding resources all are grinding deals into the ground. Really….?

My .02c

Soylent Green Is People.

Jeeze ... I thought I was bearish on housing.  I was watching a video on Yahoo’s finance page.  Barry Ritholtz of the Big Picture blog predicts that it’ll take another 5-10 years of housing being in a slump before it finally rebounds.  I’ve always respected Ritholtz, but (even) I think he’s too bearish on this call.

JMHO ... this country cannot have a real economic recovery without the real estate market first capitulating.  The more the govt gets involved, the more debt we pile up, and the more pain the average joe experiences.

> I would like to take lenders and the U.S. government by the hand and show them that hard working buyers with a respectable job history, good credit and a reasonable down payment will NOT sting them ...

I’m a hard-working guy, but there’s a difference between that and being a hard-working buyer and working for the bank.

When I see 5x and 6x house prices, I rent.

So Steve, when you have an impressive Silicon Valley listing for 2x or 3x, give me a holler.

Actually, I have observed this in practice.  A close relative of mine has been attempting to buy a condo in FL.  Their income easily covers the mortgage, which will be much less than they pay now in rent even after HOA, property taxes, etc., they have perfect, 800+ credit, they are putting down 25% or so, and they have several times the purchase price in cash in the bank - yes, a whole digit multiple of the purchase price in cash.  And the bank has given them an absolutely unbelievable runaround getting financed - asking for all kinds of contingencies, checking everything under the sun with the HOA and its insurers and the IRS, etc.  They have actually missed their contract date and are just hoping the seller will hold out, and simultaneously so frustrated that they’re on the verge of walking away.  So I’d say yes, the banks at this point have gone way too far in the other direction - from NINJA loans to refusing to lend money to people who don’t need it.

After what seemed like a lifetime of thirty-Year adjustable-rate mortgages, with monthly mortgage payments going up all the time, The “Mortgage Refinance 123” helped me to lock in a great low fixed rate of 3.16%, helping me to guarantee myself the ability to always make my mortgage payment on time with money to spare.

this one is in my ZIP right down the street so I figured it would be a good read.  didn’t dissapoint.

to put this into a visual, I picture Bart Simpson standing in front of the local megabank saying, “eat my shorts, man.”