The regulatory lending guidelines just went in effect for depository institutions (CitiBank, Wells Fargo…), and will soon apply to state regulated lenders (New Century Fiancial, Option One…). This is a nationwide effort, begun 2 years ago, to make sure that borrowers can stay in their homes, not just qualify for the loan. I have yet to read the document, but from what I’ve skimmed, it’s going to eliminate the sub-prime I/O and Option ARM market, bringing home transactions in San Diego to a screeching halt, *after* the state regulated lending guidelines is effective. What do you all think? If buyers now have to prove income and are qualified based on their ability to pay the fully indexed rate, the median home price must come down to 3.5 x the median income, so homes must make a very quick plunge to a median price of $250K. That’s my interpretation, but I need to read the document and interview some loan officers. Stay tuned….