I guess lenders aren’t worried

[Steve Beebo]

Apparently lenders and FannieMae/FreddieMac aren’t that worried about declining prices in the next several years. I know that most loans are sold on the secondary market, but not all are.

It’s amazing how many homes are still being bought right now with 100% financing. I did an appraisal yesterday in Fallbrook on a small house that is selling for about $400,000, and of my six best comparable sales, all six had 80/20 loans – no money down. And at least some had closing costs paid by the seller. I don’t even think 80/20 loans require mortgage insurance, do they?

If I ran a bank, I wouldn’t be giving 100% loans out to just anybody with a pulse and a job. In the “old days”, like the 1980’s and 1990’s, you had to put some money down, and even with a 90% loan, you had to have PMI.

[PerryChase]

That’s because the lenders are not lending out their own money. They need the origination income so that the salespeople can make their commissions and so that the executive can cash in their options.

[no_such_reality]

The purpose of the 80/20 loans or 80/15/5-down or 80/10/10 is to avoid PMI on the 80% loan. PMI may or may not be on the 2nd, however with 2nd climbing to the $100K range, I’d be surprised if they still aren’t.

[SD Realtor]

Somewhat agreed NR however… The buyers for our Encanto listing simply do not have any money for the downpayment. Additionally they are represented by thier mortgage broker. So they are financed to the hilt… My seller is crediting them money for the closing costs.

I am not saying this is a good thing… however I am saying that many people are buying with 100% financing because they have no choice. Which in my opinion means, they should not be buying at all…

SD Realtor

[ibjames]

I agree, they should not be buying then.

[blahblahblah]

My seller is crediting them money for the closing costs.

Does this mean the recorded sale price of the home won’t truly reflect the actual price the buyer paid? If not, it will distort the comps. If there is a lot of this monkey business going on (I suspect there is), then prices have fallen farther than the numbers indicate.

[ybbor]

Another one bites the dust

http://www.consumeraffairs.com/news04/2007/01/mln_subprime.html

Mortgage Lenders Network USA (MLN) announced it was shutting its doors today, as a result of market economics the lender said were “not good … it deals with the performance of loans, and to a lesser extent the value of homes.”

The company’s abrupt shutdown left many brokers scrambling to find new financing for their clients’ home purchases.

[bob007]

Why do mortgage lenders go out of business ? I thought the banks resell 30 yr fixed loans in the secondary market. Is the same true for sub-prime loans, interest only loans and ARMs ?

[RottedOak]

Often these lenders try to sell the loans, but if the loans are too risky then they may not be able to sell them at a profit or they may be forced to buy them back due to agreements requiring that they take back loans that default very early in the life of the loan. If they have a high rate of early defaults, then they end up with a portfolio full of non-performing crap. Say hello to BK!

[bob007]

thanks

what loans are insured by the federal govt ? some people complain Fannie Mae and Freddie mac are unfairly subsidized.

[guitar187]

Subsidized and goverment insured are two different things. You have goverment loans (VA, etc.) and convetional loans.

Also, 100% financing will always be available as long as Wall St. is willing to purchase the product. Most true portfolio lenders have stricter guidelines. I can post guidelines for Downey, World, US Bank, etc. Their portfolio products are stricter than what is being passed on as a mortgage backed security.

Give it time, Wall St. is slow to react to change, but they will eventually come around. We’ll see some decent changes by 2008. We’ve already seen PMI become tax deductible (a big wiin) and soon we’ll be able to welcome back the 125% market.

[ibjames]

what do you mean by 125% market?

[guitar187]

I mean 125% seconds. They were big before the days of double digit appreciation. They’ll be back soon.

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