Here is the start of lenders getting more conservative when it comes to declining markets. This is Wells Fargo’s new policy. This will mean any property in an area that is listed on their declining value list or the appraiser has noted it on the appraisal, the LTV (loan to value) will be cut by 5%. So in reality, if a property has been appraised at $500K and the borrower wants 100% financing the most he will get will be 95% LTV or less depending on the underwriter.
$500K – 5% is $475K a decline of $25K per loan amount on the minimum. Think of the borrowers that are already at 100%? I believe most if not all of San Diego County should be in the declining list. With this as well as appraisers having a hard time bringing in values as well as being very nervous not to push values anymore, there will be a lot of upside down people.
Can anyone confirm this? It looks to me like the housing market is going to start building momentum on the way down just like it did on the way up.
I wouldn’t necessarily call this a “new” policy. It’s just unfamiliar to a lot of people who haven’t seen what financing looks like during a down market.
They’ll all get around to doing this if the current trends for decline continue, and the reductions on LTV won’t be limited to 5%, either.
And yes, I think the availability and terms of financing will have a direct impact on pricing, particularly for those buyers who view home purchases in terms of payments rather than price.
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