San Diego Housing Bubble News and Analysis

Until all lenders have strict standards, the loose lender is stealing business from the strict lender.

I'm sure mortgage brokers are not turning away borrowers; they shop to loan out to the most lenient lender. These days business is slow. The mortgage broker's got to eat. Perhaps he can start attending caravans? :)

Do the lenders HAVE TO follow the guidelines? Will they get penalized if not?

PerryChase, where is the money coming from for the mortgage brokers to do business? I thought they get money from the lenders also!!

Its the people with the money to lend who set the rules, and since that lending money has been coming from wall street- when the mortgage is packaged into a bond and sold- they decide, not a broker.
Actually, I think now people are still guessing what wall street will be willing to buy up. I would assume that whoever set the rules outlined in the original post thinks mortgages meeting those criteria will be sellable on wall street, but I don't think anyone knows right now.

I think the real test of this housing market will be the next few months. How many buyers will this new criteria drive out of the market? How many people who need to refi will not be able to and will foreclose instead? These are the million (billion?) dollar questions.

There was recent guidance from the Department of The Treasury, FDIC, OTS and other agencies regarding Subprime Lending. The "Final Guidance" applies directly to any institution that is under their thumb. In general this is directly banks that lend their own money, with deposits that are covered by FDIC insurance.

It probably does not apply to those who broker loans or hope to sell them off on Wall Street.
I believe that any BANK could have a BANC division so these regulations wouldn't apply. Crazy loophole.

There will always be someone willing to take a risk at some rate, so crazy leneding won't disappear completely.
The potential losses in the next 36 months are staggering, but much of the risk is already spread out upon the global economy.

There probably will be institutions that will fail and need a federal bailout ala Lincoln Savings Days. There are pension funds and other major funds that will collapse.

The aftermath could be 1930's like and further separate the rich from the poor. The middle class is shrinking.

The "Final Guidance" (Until the revision!)
http://www.fdic.gov/news/news/press/2007...

HLS,
I dont think it has been said yet but here's HEARTY welcome to you! I've been hanging around this forum for about a year and a half. Plenty of realtors have stopped by and a few straight shooters have hung around. Very few lenders have stopped by and none to my knowledge have hung around to become valuable contributors.

I really hope you stick around.

The Original sdr
not to be confused with the new and improved SD R;)

With standards like that, no one is ever going to be able to afford a home at today's prices. let the slaughter begin.

Thank you,

I just discovered this site a few days ago.

I'm in the lending biz as a mortgage consultant in Murrieta. I'm not a salesman. I live in Fallbrook and have been in north county SD over 20 years.

I got my first loan in 1980. I survived the upside down market of the 1990's. I've had tenants for over 20 years.

I over explain options to borrower's so they can decide what's right for them. I don't make anything extra if they choose one over another. My fee is the same, and I hate option arms. I don't make rebates on the back end.

I try to stick with the facts and throw a bit of opinion in now and then. I'm definitely a straight shooter, which some people DON'T seem to like.

I can poke holes in many ads and some financing myths.
It's just what I do.

I yam what I yam. I'll try and stick around for awhile.
I might be able to be helpful to some, esp if they need to understand their financing options.

HLS (or anyone) what does the 5 year ARM mean against say the 2-3 year? Are less people willing to take those? The biggest downer I see to this list is the 90%, do you agree that is a tougher requirement? 540 is still pretty low, but I am assuming the documentation thing is pretty big too.

"HLS (or anyone) what does the 5 year ARM mean against say the 2-3 year? Are less people willing to take those?"

The 5 year arm could be better, if you just want to control cash flow(which is what these things are supposed to be for, but the teaser rate won't be so low because the banks are postponing interest income further out.In any case now a borrower would have to qualify based on the post reset rate and that basically means only people qualified to go conventional can get the exotic stuff now. That is how it usually is. "Affordability" , using credit, is getting worse and worse even as prices fall, That is a recipe for a snowball.Just add foreclosures, oh yes we have those.Job losses/income/wealth setbacks on deck.

You are right Cardiff, the LTV requirements are much bigger deals. Documentation of income requirements is huge.
Before, a buyer or their mortgage broker could literally enter any fudged income figure and a FICO score and that was it...instant homeowner.

EDIT: Man am I slow!

It's a better loan for the borrower. The rate is locked for the longer period. The subprime push of 2 year loans wasnt intended to be a long term loan, but it's sad how many prime borrowers that should have long term fixed loans are in these sp's with a prepay that will need to refi.

For short term borrowers or hopeful flippers, they don't need a 5 YR. Every situation is different.

The intent of a 2YR loan was a band aid. It turned into a crutch.

There is a sp loan today that prices out better than a prime loan. At 65% LTV 5 YR ARM for 5.75%, but it comes with a 3 YR prepay, and you need a 700+ credit score. Less risk to the lender @65%. It's cheap money today, but only for 5 yrs.

Of course the 90% will restrict many people from qualifying. There are lenders still loaning up to 100%, it's the qualifying that is more difficult....

Those guidelines are a good start but to be honest they are still pretty loose (by my personal standards)...

No matter who has been recommending the guidelines, the fact is that they are not law. The reason that the guidelines are finally being put in place is due to the credit crunch that Bugs has mentioned many times over. As the secondary market continues to wallow, loan originators MUST do everything they can to restore confidence to continue to sell loans. That begins with stringent guidelines and a restoration of an underwriting process with teeth.

SD Realtor

Without somewhat loose standards, borrowers wouldn't qualify. It would constrict spending, and the economy would suffer.

When some people use credit cards, they are agreeing to rates up to 30%... Those that use Payday advance have rates up to 400%.... These lenders are taking risks with unsecured debt. Is it the govt's job to outlaw this ?

Even if 100% home financing is abolished, there will still be those looking to borrow based on their monthly repayment, regardless of rate, and there will be parties willing to loan at some rate.

Car dealers sell cars to the masses based on payments, not rates.

90% home financing several years ago is now 100% (or higher) in many cases.

There is so much paper wealth around, it's insane. More than ever before.
My guess is that if one quarter of the population wanted to cash out, it would create an economic collapse.

Because people are convinced to stay in the stock market when it declines and hang on to homes in a declining market, it keeps a real collapse from happening. "it's only a correction...."

There is a small % of homes on the market right now and it is a crisis. People talk about a home still being "worth"
$700K today, but if 25% of people wanted to cash out at the same time, what is that house really worth ?

The same applies to stocks. As long as inventory is held and off the market, and there is a (false) sense of security of "worth" it's harder to have a real collapse.

1930's depression cured an entire generation of wanting to hold anything other than cash, and some wouldn't even put it into a bank. They remembered waiting in line and unable to get it out.

Many people with home equity today are also unable to get it out, as they don't qualify to get a decent loan.

We are all guilty of complacency today with anything other than cash.
I'm not predicting an economic collapse, but am aware that it could happen. I think that anyone who says it can't is fooling themselves. I hope that it doesn't happen.

"We are all guilty of complacency today with anything other than cash.
I'm not predicting an economic collapse, but am aware that it could happen. I think that anyone who says it can't is fooling themselves. I hope that it doesn't happen."

Precisely. This is similar to the point that I've been trying to make at this site for a couple of months now. We need to stop being so myopic about the value of real estate in SD...that is not the real issue at hand. How credit and actual monetary assets are perceived and controlled is the issue. Once those issues are forced to be addressed, through financial collapse potentially, the ridiculous out balance issues will self correct, but not without a lot of pain to individuals who are on the wrong side of that correction.

It's not just San Diego, it's America.
The credit card has changed the economy in the last 40 years, for the worse.
Attitude of entitlement of the recent generation isn't a good thing.

I've been drinking water since I was a kid. People thought I was a freak. Some people now pay more for a fancy bottle of water than they do for gas per ounce. I just heard on the radio that AquaFina is tap water.

Regular coffee isn't good enough anymore, many are convinced that expensive coffee with multiple names and a sleeve on the cup tastes better. When I was a kid, Sambo's had a great bottomless cup of coffee for a nickel, but then they couldn't even keep the name Sambo's because someone was offended. (THAT is a whole other topic)

The largest generation of seniors who are grossly in debt will be a burden to this country over the next 25 years.

No empire stays on top forever. Roman, British, German, French, Greek all fell. Guess who's next.

China will own America sooner than you might think. We've already sold out, I think that it's too late to stop it.

Everyone is told (and believes) that if you are invested in the stock market via 401K, IRA, or mutual fund,
"DON'T WORRY" ,,, "You will be ok... It's time in the market, not timing".... "it's just a correction...."

Ask any American over 75 today their views on society.
It's sad to many of them.

Nobody wants to talk about the decline of western civilization. Global Big business has taken over. Welcome to the 21st century.

I'm a little bit crazy, I'm a little bit scared. I hope that it doesn't happen. With conviction, can someone PLEASE tell me that I am wrong ??

HLS, don't think so much as an American. Think as a citizen of the world. You'll feel much better.

You can only do what's right for you and your family. Stick to that and you'll be fine.

I drink room temperature water, no ice. People think I'm weird. It's better for your digestion and better for your teeth (no dilatation and contraction that make your teeth more porous over time).

Ahhh Perry, Thank you.

It's just that when I see masses of people in the world with so much less than most Americans, it is humbling.

I'm going to disconnect my icemaker right now. I'm so spoiled. When I was a kid I had to fill up the ice cube trays and carry them to the freezer.
Also had to get up to change the channel on the TV and actually answer the phone to find out who was calling.

Those were the good old days. ;-)

HLS, when things go wrong if the market is left to cure itself, it usually will. The credit contraction is exactly what is needed to restore health to the market. The same people who are foreclosing now should have NEVER qualified for a home to begin with. There really is no harm in not buying a home if you cannot afford a home. In fact the strict measures would serve to protect the people that cannot think clearly for themselves, protect investors who invest in hedge funds that hold cdo's and other similar instruments, protect taxpayers from having to fund bailouts....

All in all, I think it is a much better plan. The economic consequences that we will suffer are needed and in fact destined to happen. I am consistently harping about how harsh recessions are so I understand the ramifications of a credit contraction.

I don't believe that a 5 year arm is in anyones best interest today.

SD Realtor

HLS: Hey from a fellow Fallbrook resident!

I don't think of America as an empire in the conventional (Roman, British, etc) sense of the word. While we certainly qualify from a military standpoint, our real influence has always been economic (at least since the end of WWII).

I also don't think China is going to buy us. I remember the dominant thinking in the 1980s when Japan, Inc. reigned supreme and Japanese businesses were buying everything from Rockefeller Center to Pebble Beach. As it turns out, easy money financed that buying junket and the Japanese are still paying for it to this day.

The Chinese have a whole set of their own problems, the least of which is a heavily overheated economy. Their current political infrastructure stands at complete odds with a dynamic market economy, and at some point the free market entrepreneurs are going to run smack into the more doctrinaire hard line communists with some fairly unpleasant results.

I think we (America) are in for a rude and long overdue wake up call as regards fiscal responsibility and restraint. There have been quite a few clarion calls as far as the bottom falling out, but it never has. I think a fairly tough recession would really clean out the pipes and I don't say that lightly or flippantly. It would come with a lot of pain and loss, but at this point it is necessary.

I'm not as unstable as I might appear. I'm not too concerned about me. It's others that I truly worry about.

A 5 YR ARM is actually good for people who only plan on having their loan for a max of 6 years.
Many people have a goal of selling or leaving the area, based on age, kids, etc. it DOES serve a purpose for those who understand their options.

It's not hard to figure out what the guaranteed savings is over the initial 5 years compared to a longer term loan, and it isn't uncommon to save $15K-$25K, which more than offsets a higher payment in year 6 or maybe even 7.
If the plan is to stay in the loan longer than 6 years, of course it's silly to gamble on a 5 YR ARM.

It is crazy to pay the 30 YR rate if you don't need that security, so I respectfully disagree with your last line.

HLS your premise is filled with speculation...

I do agree that for short term ownership/speculation, it absolutely makes sense from an investment standpoint. Very good point.

However from an investment standpoint at this point in time, it is quite speculative to say that a property will be more valuable in that 5 years. The most common misconception about a market decline is the appreciation rate on the bottom of the cycle.

Yet yes, your point is well taken about the investment strategy to lower carrying costs, and for that you are definitely correct.

Unfortunately many homewowners are not in that boat and get misguided thinking that they will have a markedly higher salary, or the market will change so they can refinance. Basically they get hoodwinked.

This is much more the norm. Wouldn't you agree?

SD Realtor

YES, we are on the same page.

This entire site is speculation, based on some facts.
I don't KNOW what values will be in 5 years.

People definitely get misguided by loan thieves.
There are way too many myths about mortgage loans.

Many/Most people in lending biz are financially ignorant and don't really have a clue what is best for the borrower.
They cannot explain options to the client or the pros and cons of a loan. They are sales people only trying to make money for them, regardless of what's best for the borrower.

They DO know that they can get the largest commission possible by selling the low payment of the option arm loan. They also know that they can make more money by charging the borrower "just a half-point" more than they should.

People who tell me that they had 700+ scores and knew they wanted to be in the property long term, yet were sold a 2 YR ARM, with the promise of a "free" refi in 2 years. It's a disgrace. The stories are true, and are endless.

I believe that the vast majority of borrowers are in the wrong loan for their situation OR paid too much in rate or fees. There are honest, ethical people in the industry, but it's hard to find them. It's a rogues gallery.

More people get outright screwed by friends and family on loans than you would think. It's also a falacy that going directly to a large bank gets the best loan. It may be, but not necessarily.

I give people straight answers and options and explanations beyond what they even knew possible. It's their decision, not mine.
The 10YR ARM provides many people the security that they need, however they choose the 30YR fixed. It's expensive insurance.
It doesn't matter to me, I just want them to know their options.