August 29, 2007

Are you a Desperate Homedebtor trying to sell your depreciating housing asset for more than $417,000? Good luck with that. Jumbo mortgages now AWOL.

I've got baaaaaaaaaaaaaddd news for anyone who is trying to sell a home for more than the Jumbo max ($417k). Your pool of prospective buyers, already freaked out by collapsing home prices, now can't get a mortgage even if they wanted to. God forbid an interest-only, no-down mortgage either. Those days are O-V-E-R. And so are 2005 prices.

Yes, the housing crash really goes into overdrive now, thank you Mortgage Meltdown, and the realities of Jumbo mortgages and the death of confidence.


Subprime Mortgage Woes Spreading - Subprime Mortgage Crisis Spreading to High-End Housing Market

NEW YORK (AP) -- 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.

"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.

29 comments:

Anonymous said...

Lots of naked swimmers

Anonymous said...

Next on our show.....the conforming loan limit raised to $600,000.

Of course, this won't REALLY help all that much, because to be a conforming loan you have to have good credit and 20% down. Good luck finding someone who has around $100k to put down as down payment. And forget people who recently sold their homes.......many of them took out home equity loans and 'cashed out their equity', so sorry, no money to carry over to the next house for money down.

Anonymous said...

Does this mean we will not be hearing anymore the old tired phrase:

"Oh, my house is worth at least a cool million!"

Agent #777 said...

"I think the psychological damage is worse than the financial damage" which is already bad enough, (Barnes) said.

He thinks the psychological damage is bad NOW? Sadly, we ain't seen nothing yet!!!

Happy Homedebtor said...

"Lots of naked swimmers"
--------------

Warren Buffett is the man!

Re: raised to $600,000
* You all realize it's the loan amount, not the house price? The current restrictions essentially lockout people from absurd mcmansions that shouldn't be there, forcing them into us poor folks' simply "nice" homes for about 525K or less. :) I think the exact # if you do 20% down is $521,250 for the house, which is 417K after 20%.

Anonymous said...

I think the 600k limit currently in effect in Alaska and Hawaii will be extended to California, and perhaps nation-wide. I don't have a problem with it as long as credit quality metrics are the same (e.g. downpayment, DTI, FICO score). It will improve liquidity without bailing out people who made bad decisions. There are a lot of potential buyers who could pony up the down and meet the other metrics, but who are frozen out by the unavailability of and/or higher rates for so-called "jumbos". This isn't fair, really, as there's no reason to think a pool of 6000 mortgages of $400k each is less risky than a pool of 4000 mortgages of $600k each, all credit metrics being equal.

Veronica Lodge said...

RE: "I think the psychological damage is worse than the financial damage" which is already bad enough, he said.

There was a sad story in the paper this week about an immigrant family whose pristine Craftsman house -- valued at $500 thousand -- is in the dead zone, as far as finding eligible buyers is concerned.

This family wants to further advance toward their ultimate American Dream and use their current house as a springboard to a bigger, better house in a safer neighborhood. (Apparently, the kids are being harassed by gang members and Mr. Immigrant was robbed at knife point earlier this year.)

They owe $400 thousand on the house and the so-called value of the house is $500 thousand, but they have found themselves stuck in their current situation because there are no greater-fools lining up to throw money at their house.

In this case, the best choice would have been to rent in the crummy neighborhood for a few years -- for half the cost of maintaining a mortgage -- and then move to another rental unit in a better neighborhood, again, for half the cost of maintaining a mortgage.

V.L.

serindippity said...

This isn't fair, really, as there's no reason to think a pool of 6000 mortgages of $400k each is less risky than a pool of 4000 mortgages of $600k each, all credit metrics being equal.

The point is that the construction of F&F by the Federal Government, instead of private sector actors, was designed for a public purpose, to help lower income housing.

The jumbo market is the true free-market rate, lower loan amounts are pushed downward because of government subsidizing to lenders by taking away risk at a below-free-market price.

Anonymous said...

Isn't every house over $417? Not really a jumbo mortgage, but a mortgage.

Also, just for fun. I am watching a house here in NJ that had an OLP of $449k, now asking $379k after only 60 days. Nice house (4bd/2ba split), nice town, etc. Still no interest.

I love it!!!

Luv-that-Bush said...

Is that a Republican Gen-Xer mooning people out his window?

Mark in San Diego said...

NJ Anon: yes, the real fall in housing prices is in the reduction of asking price. . .the Case Shiller index doesn't really pick this up. . .here in SD, properties which have been on the market for 6 months or more have reduced their prices by a good 15%, and they still remain on the market. . .someone called this "last years wish price." I think we easily have another 20% to go around here, so a Navy guy and his wife can afford a small house. . .after all, when all the RE agents, construction jobs, and mortgage people are out of business, its just the military and Qualcom left in San Diego - and of course low paying hotel jobs. . .

gt said...

well i know of one couple who got denied in the loan process with a bank, but their credit union is still going through the process, we'll see if it closes or not.
that's a problem with the dc area, anyway, each agency has a credit union and as long as you work for them you wont really have a problem finding a loan.

Anonymous said...

The recent disruption in the credit market is so bad the effect on the home sale numbers will be dramatic going forwards. This is why several players have taken out HUGE put positions which only payoff if the DOW drops by a third. And the timeline? One is betting it happens by the third week of September.

You have only a brief time to prepare for winter, squirrels! Get busy!!!!!!

Anonymous said...

Mark in SAN

I think we have a ways to go here too; i'd like to say half. Almost all listings I get now are reduced some much more than others. Whats funny is that desirebale towns here in NJ are struggling. Stuff is not selling. I have seen many re-listings too.

Another thing happening here is the opportunity cost problem. Some folks decided their dumps in non-desireable towns could be priced more that what you can get in desirebale towns. That becomes a no brianer to me.

Your right though about reduction in prices not being reflected in the index. Why would it? As I have heard many times, reporters do not want to cause a panic.

Anonymous said...

The jumbo market is the true free-market rate, lower loan amounts are pushed downward because of government subsidizing to lenders by taking away risk at a below-free-market price.

True, that's how I see it as well - the so-called jumbo rates are the true free-market rates. That said, I don't think the F&F program has really functioned as a way of supporting "low-income housing". Especially with a one-size-fits-all limit. The limit was $252k late last century. In most of the country that got you a pretty nice crib back then (and still does). For at least the last 30 years, the conforming limit has been set so as to make it a middle-class housing program, would you not agree? Now the question is, what exactly is a middle income these days. So please consider the following.

The price of anything is generally set by the marginal buyer and marginal seller, e.g. oil is at $73/bbl because someone wants it badly enough to pay that, so everyone ends up paying that price. This is also true for non-consumables like stock prices as well, the marginal buyer/seller pairs set the price. Unlike consumables, however, a small fraction of most assets is actually changing hands on any given day/month/year, so this is where the difference between a commodity like oil and something like a stock arises. Looking at metrics like median incomes gives you a distorted picture of what the market is for housing. Sure, if every house in an area were dumped on the market at once, it would have the same effect as a mass dumping of a stock, and you would quickly drop to a level supportable by the median income. But of course this is not happening, the majority of people who own houses are staying put, many/most of them have a lot of equity and a low basis for their houses, and their incomes have caught up with their obligations long ago. These are the smart ones who didn't refi to buy crap they didn't need. (The really smart ones did refis to lock in low fixed rates a few years back.)

People buying houses are generally the newer entrants into a market, and in many major metro areas such as SF, DC, Boston, and Seattle, these are people with high incomes compared to the median. Or at least, that's been the story up to now. In some areas (e.g. OC, Miami, etc.) it seems that many of the new entrants are illegals, people with low incomes, speculators, or all of the above. If traditional lending practices had been followed, these folks would not have functioned as price-setters at all. Anyway my point is that the people setting the price in areas like SF and DC are often dual-income folks with decent but not spectacular incomes - people you'd think of as middle-class. These are people who can afford a $600k house with traditional lending standards. Why should the F&F program leave them out in the cold but finance a $400k palace for someone in, say, Charlotte?

Anonymous said...

Isn't it surreal that the Fannie limit for "affordable" housing is 417K???!!!

Do these nuts in DC actually believe that 417K is affordable for the average American?

Or is the Fannie 417K limit a silent agreement betweeen the government and the banks to make absolutely CERTAIN that you NEVER PAY THE LOAN OFF ON "YOUR" HOME?

Anonymous said...

GET RID of Fannie and Freddie. Use the money for something useful like health care or education. It is nuts to use government money to prop a bottom under home prices. Just get the government out of home buying for once and for all.

Anonymous said...

there wont be any money made anywhere till 2017 when the G.I.s come home and get 2.5 years income and buy a house with it both from uncle sam...only problem, come home from where??? average income??????????

banker on crack said...

"GET RID of Fannie and Freddie. Use the money for something useful like health care or education. "

LOL! Both GSEs are now under the Fed's control. Why - because they're bankrupt!. To "get rid" of them the government would have to admit they are kaput - yeah that's really going to happen.

Since there is no money to use elsewhere, your last suggestion is moot. BTW, if the government can't operate a railroad, why the hell do you think they can run health care or education?

You progressives really crack me up.

Anonymous said...

417,000 generates the true yearly average income at 5.25 percent interest....if two people at that rate are the average household income of 44,000 average income per household thus 417,000??????????/

Anonymous said...

or lesson number 2... in how to screw John Q. Public long............

Anonymous said...

This story could almost be a poster child for what we are talking about here. There's no reason other than an arbitrary gov limit that these people shouldn't have gotten a loan at the "conventional" rate.

Anonymous said...

Since when did houses in gang-infested neighborhoods cost half a million dollars?

Matthew said...


True, that's how I see it as well - the so-called jumbo rates are the true free-market rates. That said, I don't think the F&F program has really functioned as a way of supporting "low-income housing". Especially with a one-size-fits-all limit. The limit was $252k late last century. In most of the country that got you a pretty nice crib back then (and still does). For at least the last 30 years, the conforming limit has been set so as to make it a middle-class housing program, would you not agree?


Oh I agree that F&F as currently set up is a middle-class housing program outside Northeast cities and all of CA. And yes it certainly is less fair for CA middle class because of the fixed dollar limit.

Gee, why is that? Lots of Congressmen from cow counties who think Their Salt-Of-The-Earth Constitutents deserve all that government stuff, but those liberal scum in San Francisco and NYC can go Cheney themselves.

Only Alaska and Hawaii have exceptions but look at Alaska---250 million for a bridge to nowhere, while California infrastructure rots. All political power.

LauraV said...

Here in the bay area, homes in Alameda are going up for sale, still well above 700k.

Condos have come down in price, though, but who really wants to live in a 1960's apartment conversion with only one parking space and no inside laundry for 390K???

October should be interesting around here...

LauraV said...

Veronica said:"They owe $400 thousand on the house and the so-called value of the house is $500 thousand, but they have found themselves stuck in their current situation because there are no greater-fools lining up to throw money at their house".

I saw that article too in SFgate. I think they left out some details about why they cant afford their mortgage. We need to read between the lines here...

It seems they re-fied and took some money out. Where did that money go?

Anonymous said...

Keith you've GOTTA get one of those video clips of Dr. Smith from an old episode of "Lost in Space" where he's saying "Ohhhh, the pain, the pain..."

Please someone record this clip and get it to Keith. It will make my day if it's posted on this site and it's sooooo appropriate : )

me in he OC said...

Showings are down... bla bla bla.
This is as it should be.

Anonymous said...

So then I should be able to buy that multimillion dollar place for 417,000 cash now.... but everything else costs 416,000