Posted on 04/06/2011 7:57:36 AM PDT by Notary Sojac
During the housing boom, anyone who could fog a mirror could get a mortgage. Today, only highly qualified borrowers can get financing — let alone the best rates. The latest data from the Federal Reserve shows that nearly a quarter of people who apply for loans are turned down.
“Good borrowers with one or two blemishes on their credit are being denied credit,“ said Lawrence Yun, chief economist for the National Association of Realtors.
The denial rates tell only half the story. Many potential buyers aren’t even applying for loans because they assume they can’t get one — even with good credit.
“A lot of people know it’s very difficult to get a mortgage and they’re not even trying,“ said Alan Rosenbaum, CEO of GuardHill Financial, a New York-based mortgage broker.
That shows up in statistics on credit scores for loans financed with backing from Fannie Mae and Freddie Mac. The average credit score has risen to 760 from 720 a few years ago. For FHA loans, the average score has gone to 700 from 660. Loans made to borrowers with sub-620 scores are almost nonexistent.
Another factor keeping people out of the mortgage market is that lenders now require much more up-front cash. The median down payment for purchase is about 15 percent. During the boom, it approached zero.
On most loans, banks want 20 percent down. On $200,000 purchases, that’s $40,000, an insurmountable obstacle for many young house hunters. Or, in New York City, where the median home price is $800,000, buyers need $160,000 up front.
Industry insiders say all these factors have reduced the pool of buyers, lowering demand for homes and hurting prices.
“We feel it really reduces the demand for houses,“ said Mike D’Alonzo, president of the National Association of Mortgage Brokers. “It’s an unbelievable buyer’s market, but there hasn’t been as much activity as you would expect because not as many people qualify for loans.“
Jerry Howard, CEO of the National Association of Home Builders said, “You only have to look at the recent sales reports to see what the impact of the credit crunch has had. The statistics speak for themselves.“
New home sales in February were at an annualized rate of $250,000, a 40-year low; sales of existing homes, despite very affordable prices, were 30% off their peak; and home prices fell for the sixth consecutive month in January.
Anthony Sanders, director of Real Estate Entrepreneurship at George Mason University, speculates the tougher credit standards may have stripped as much as 30 percent of the buyers — or more — off the market, compared with normal times.
And it’s about to get harder for buyers. Federal regulators proposed rules last week that are designed to discourage risky lending but that will also likely further restrict lending.
Banks would be required to keep 5 percent of some loans, specifically those with less than 20 percent down payments, on their books rather than selling them all off as securities. As a result, banks make be unlikely to issue loans where less than 20 percent is put down. So much for first-time buyers.
“We think the new rules are appalling,“ said the NAHB’s Howard. “Only the wealthy will be able to buy homes at low interest cost.“
It could also further erode consumer demand for homes.
“It’s disturbing,“ said Lennox Scott, head of John LA. Scott Real estate in the Pacific Northwest. “We’re just starting to feel healthier in inventory levels and prices and this is a potential headwind.“
The immediate impact, should the new regulations get adopted, should be minor, according to Steve O’Connor, spokesman for the Mortgage Bankers Association. That’s because Fannie, Freddie and FHA loans are all exempt from the requirements and they represent more than 90 percent of the market right now.
The government, however, wants to reduce the presence of all three agencies in favor of private lenders, and banking experts fears the long-term impact of abandoning the field to mostly private companies.
“For the first time in 100 years,“ said Howard, “the government is discouraging you. It’s saying ‘We intend to make it more difficult for you and your kids to buy homes.’“
The median down payment for purchase is about 15 percent.
Oh, the humanity!!
On $200,000 purchases, that’s $40,000, an insurmountable obstacle for many young house hunters. Or, in New York City, where the median home price is $800,000, buyers need $160,000 up front.
The down payment is not the obstacle. The prices out of whack with incomes is the obstacle.
Banks would be required to keep 5 percent of some loans, specifically those with less than 20 percent down payments, on their books rather than selling them all off as securities.
Oh, dear God, can we not get back to those glory days when we could loan half a mill to a bean picker and then immediately flog that loan off to someone who is too big to fail??
...head of John LA. Scott Real estate in the Pacific Northwest. “We’re just starting to feel healthier in inventory levels and prices churning those 6% commissions" There, fixed it for ya.
Mortgage/banking ping. See post #1.
um... that’s racist?
At least that’s what we’re told -
OMIGOSH! How terrible! Now only responsible people who can be expected to repay their mortgages can get loans! How awful! What’s next, only giving jobs to people who can be expected to do the work properly?! Universities only accepting applicants who can be expected not to flunk out?! NFL teams only drafting players they expect have the talent to play professional football?!
THIS IS A TRAVESTY!
If you can’t afford it.....don’t buy it!!!
Imagine that.................
“the government is discouraging you. It’s saying ‘We intend to make it more difficult for you and your kids to buy homes.’“
He’s right..with this regime especially.
An industry which does not engage in Risk Management has a simple slogan: LET'S PARTY!
I’m so going to buy a house or two this year to rent!
Buy low, rent high!
Only one with an IQ as low as a journalist could consider that to be news. Wow, folks who don’t have good credit records aren’t getting loans.
Guess it’s time for the Obamaloons to take money out of my savings to help pay for:
Choose one or more:
1) a damned mosque
2) loans to illegals
3) health care for everyone but me
4) graft payments to unions
The problem here is that it’s government making more rules, regulations etc. just mucking things up more.
There is a private-sector market for less than 20% down, but only if government gets out of the way. It won’t be 0% but there have been private, portfolio lenders (not securitized) that would do 10% down for someone who otherwise has a stellar portfolio (excellent credit, plenty of income for the loan size, some assets that they have even if they don’t liquidate them all), etc.
I’d say let some private companies prop up to do what Fannie USED to do (pre CRA/Bailout/ETC) and it will work itself out.
Now, what to do with my house now that it’ll be 100k upside down...hmmm...
Rents are actually increasing.
Amen, lot's of houses to be had on the cheap for renting out.
ok........lets suppose you have the down payment, and can barely afford the payments....that is fine, as most people will earn more money as time goes on...the real travesty, the real reason that people cannot afford to own a home, is property taxes. In most cases, the property tax payment is equal to or exceeds your mortgage payment. Once again, the government and taxation are killing an economic sector..
Not around here though. “Cheap” houses in my area go for 200k and they’re in ghetto-ish areas.
It’s almost like playing a real life version of Monopoly.
What the industry decided in the oughts was: It’s not about the integrity and the creditworthiness of the buyer. It’s all about the collateral. And ‘Housing Always Goes Up’ so what’s to worry?
We look mostly for foreclosures and short sales. We’ve gotten some decent houses, about 1500-1800 square feet for around $100K in a fairly decent neighborhood.
Losing your job has an impact on what you can afford.
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