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CA Beach Cities: New Financing Rules... It's Going to be Rough...

I've spent a lot of time today talking with local lenders about the changing home mortgage market. It's going to get nasty out there before it gets better. Buyers who have traditional jobs with a regular paycheck and 20% down will breeze through.. everyone else may have trouble getting the loan they want to purchase a home. Underwriting rules are going back to the old days.. 10%-20% down and full document verification for most loans. If you want to do a loan using stated income you will need 20% down.

I've got clients in all price ranges. Fortunately most of them have good down payments but a few were hoping to use 5% and get an 80/15/5 loan. They still might be able to do it as they have no debt but it will be extremely hard. I noted a few brokers still pushing 100% financing but I think that's a thing of the past.

The fortunate buyers are the ones with 20% + down; especially in the $800,000-$1.5m - range in Hermosa, Redondo and El Segundo and in $1.5m -$2.5m price range in Manhattan Beach. These buyers are going to be gold as far as buying a home. Others who had been hoping to buy a beach home using an 80/10/10 with a stated income loan are going to have problems. They will have to use full documentation to get that loan and many, because of the type of jobs they have, will have a difficult time qualifying....... Continue

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Posted by Manhattan Beach CA/ e-PRO..... Kaye Thomas... on 08/02/2007 02:56 AM

Comments (18)

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18 Comments on CA Beach Cities: New Financing Rules... It's Going to be Rough...

AUG

2007

many of my clients have so much equity in their existing homes that they can come up with the 20 percent down, the first time home buyers are the ones that are going to struggle. but these new financing rules will help the undisciplined consumers from getting in way over their heads

I am still amazed at where you guys find your buyers! 20% down....for a 2 million dollar home ain't chump change!! lol

Kaye,

The last deal I saw with 20% down and no problems was the sale of my own house right after the big hurricane...in 2005. It is sad that the days of the old fashion loan is gone..how do people buy homes with no money down...they will never be able to say they actually own the house....the bank does...they are just paying rent with interest.:)

Douglas- This is going to be tough on first time buyers and those who need to refinance... My main lender told me that if anyone I knew needed to refi.. they had a very short window to get it done and for some it is already too late.

Kaushik- Nice to her from you again.. We don't find them.. Hollywood turns them out from a little studio buried in the hills.....It's going to be interesting.. we don't qualify for VA/FHA financing which is the alternative for most buyers with low down payments

Neal-Looks as if the old fashioned loan is back.. at least for awhile..until they come up with another product. I'm wondering if they will use old ratios or will expand them somewhat. My main lender thinks it's going to be very very nasty for the next few months as all the changes sink in... people were used to being able to buy with little or no money down and this will put a crimp in a few lifestyles.

Kaye - Good post my friend. Lenders have definitely tightened up on their requirements. It will probably remain so for awhile and then will begin to loosen again in time...just part of the normal cycle.

Marlene- I believe that you are right.. if buyers dry up because of new regs they will find a way around them it's the people who need to refi who are going to be in big trouble if they don't have equity in the property..

Kaye,

Unfortunately the sad subprime situation is slowly spreading concern into the prime market, too. It appears that the real issue is that the investors who buy mortgage-backed securities got burned with the subprime product and now they are getting overly cautious. Over-reacting, in other words. They are getting really picky.

Esko- These guys built their portfolios based on a certain return so yes there is some concern about whether subprime will affect prime... but mostly I think they are playing CYA.. I think the gov't is going to take a look at some of the mortgage fraud that went on and many banks are trying to clean up their image. These guys knew these loans would go south and made them anyway..

Hey Kaye,

Good information here. For me personally, I have mixed emotions on the tightening if financing. In some ways, it's prudent, yet others could be hurt as a result.

As for the potential loan fraud, that's another whole issue. Sorry to say those who may be responsible, could cause harm to others. Earlier today I was at a short-sale seminar when a question was asked about the same thing. The lender (one of the U.S. largest) wasn't all that concerned...something that surprised me.

So what does that say, on the loan app., it's o.k. to "fudge" ? Yet what impact does/could that have long-term? Time will tell.

AUG

2007

Lynda-You are not only a babe but a very smart one at that.. so many of these guys are just sleazy.. I also have mixed emotions.. seems as long as they were going to cut all regulations for the last 4 years.. then the least they could do was to give buyers a litle lag time to make other arrangements..

I was talking to an LO I have been working a lot with over the years for about half an hour this am. It's really spooky. He decided to open his own business and by the end of the month will be away from the big co and on his own. He does well as a tax man as well and has a grand following. the things he was telling me reflect what you are saying here. No more 100% financing...VA and FHA are going to become more popular....10-20% down...full docs...he won't do stated loans...at all.

Many Loan Co's are closing, shutting down.

AUG

2007

Sally- You are absolutely right..I have an article that I posted awhile back that I may rework.. on the old way of doing business.. back then people would pay off their debts or save a bit more money... it was just the way it was.. it's going to be difficult to adjust but in the long run it will be better for everyone..

I agree....spooky for now...because many companies are closing....although another way of cleaning house I would say....and get everyone into (like you said) the old way of doing things with believing their credit is one of the important things a person has....and saving money...instead of buying a home no matter how they do it. This will bring back the good solid "american dream"....a dream home come true...because they had to make an effort to get it. The money they put into it will surely make a difference.

Sally- Well said.. I think you are right if they have to earn it it may have more meaning. We have become very cavalier in our attitude to owning a home.. This may bring back the notion of the value of the starter home and make the whole home buying process far more orderly.

AUG

2007

Kaye,

It is amazing...I list mostly and the last time I saw a 20% loan on a deal was the buyer who bought my house in 2005 and of course the house we bought ...we put 40% down ,since then most deals I have seen are still coming in with 100% down...people must really not have money to buy homes..I keep hearing lenders tell me that 100% financing is still existing...I just think none can close. We had a guy and his fiance ..they claimed to have high 700's credit scores with tow excellent incomes..yet they kept shopping around and I kept telling the buyers agent that they will never close on time or at all for that matter...100% financing with those credentials and 3 extensions later...they defaulted... what in the world are these banks thinking? To me they are misrepresenting their customers and now they are all going to go under...soon the only way to buy a home will be cash only. I am so tired of this.

Neal- I'm with you about idiot lenders.. 100% financing outside of VA/FHA loans is gone.. lenders that are still saying they can do those loans are either stupid or trying to do something very shady...as even 5% down may be a thing of the past. In my market the big issue will be that stated income loans will now require 20% down..Many of the buyers in my area have commission jobs and make a lot of money.. but nor necessarily the same each month. 20% down is OK if you have equity from a house that you have sold but if this is your first home many buyers won't have the $150,000- $200,000 down and will not qualify as high with a fully documented loan as they do with stated income.. If you make 20K a month...the basic loan qualifying calculations leave you with a lot of discretionary left over income each month. Might be time to require that potential buyers have to double app with a lender of your choice.. We used to do that...

I'm thinking the hardest hit will be those who need to refinance soon... One of my lenders told me that if they had less then a 20% equity position and could not make new payment when loan adjusts they should sell now..

With so many tipped workers making a small hourly + tip compliance in my neck of the woods, this is going to be a rough ride also!

Renee- Yep.. you guys are going to have some real problems.. especially when coupled with all the new construction and investors your market has seen in the last few years..

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