For years, Californians thought it was pretty funny to lament about our zoom zoom real estate. With glass of wine in hand and proverbial balmy weather as a backdrop, friends would often whisper to each other: "We couldn't even afford to buy the house we live in".
Then they would laugh.
Well, no one is laughing anymore. That's because even though we couldn't afford those houses, we bought them anyway. We refinanced them anyway. Those houses coughed up enough zoom zoom cash to fuel our economy, filll our local coffers full of tax money, and fund a lifestyle that would have otherwise been impossible.
We did it without qualifying. We did it with property taxes that remain fixed once you buy the house. We stated the income that worked, used our good credit and appreciating house as collateral, and laughed all the way to the bank.
Cha-Ching!
It might have been smarter to have faced reality (what goes up must always come down) But you know, it was much more fun to believe that those zoom zoom prices would forever go up. (Another glass of wine, please.)
Now, Californians are paying the price. Zoom zoom has turned to gloom gloom.
Left out to dry are the millions of Californians that desparately NEED to refinance, but are unable to do so. This is NOT the gardener who claimed to be making $10,000 a month that the media would like us to believe is the root of all evil in the mortgage world.
No, these are the owners of million dollar properties who simply spent the equity by repeated cash out refinances, and mega equitylines. They have good credit. They have a good property. But they have been stung by a quadruple edged sword that has made getting another mortgage impossible:
1. Declining values
2. Severe restrictions on stated income loans
3. The disappearance of loans amounts of over $729,000 (the temporary higher limits for "conforming' loans)
4. Equitylines that are frozen and/or eliminated when attempts are made to refinance the first mortgage.
Ironically, 28 year old Johnny Lunchbucket with a 620 credit score that needs a $250,000 97% loan is way more likely to find financing than a lawyer and a professor with 700+ scores who make $200,000+ a year and need a $1.1 million dollar 80% loan.
What is wrong with this picture? Do we penalize the lawyer and the professor for spending their equity to educate their children? Do we believe that individuals aged 50+ who have never made a late payment in their life will suddenly default on their mortgages?
While I try to explain to my clients NOT to take it personally, they still do. Banks cannot sell the million dollar loans and must retain them. That makes them very picky, and very likely to say, "thanks, but no thanks".
Call it being in mortgage prison. Call it being accused of a crime that was not committed. Call it what you want.
But understand that good credit and 20% equity will NOT automatically buy you a ticket on the mortgage train when it comes to a million dollar loan.
Please do not be surprised that there is a damper on spending here in California, causing the economy to sag, and real estate values to languish. Our zoom zoom days are over.
Our biggest spenders, with the most discretionary money, have stopped spending. They are being forced to watch loans adjust to higher payments, and plans to buy the next million dollar property go up in smoke.
Hey, the bigger they are, the harder they fall. I personally do not think the punishment fits the crime.
Written by Janet Guilbault, California Mortgage Expert Based Out of the San Francisco Bay Area
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