Tuesday, August 07, 2007

Manhattan Beach-Beach Cities: Where Oh Where Has My Loan Gone?

It's only Tuesday but a lot has happened since last Friday's death watch for American Home Mortgage. Today interest rates on home mortgages literally shot up from last week on jumbo loans ( amount over $417,000) which is pretty standard for homes mortgages in the Beach Cities.... I hope you are you sitting down.. the fixed rate with 20% down is 7.5%-8.5% depending on the lender... ouch! Wells Fargo called it first quoting 8.5% but you can expect others to follow at least for the short term. That's a full 2% over a quote I had for a client on Thursday.

On my Active Rain blog I posted Subprime Meltdown: Hey Guys... It's not Rocket Science where I posted some opinions from some sharp mortgage lenders about what might be happening in the market. Looking at today's fallout I think these guys were right and wrong in their opinions.

The jump in interest rates on non-conforming loans confirms Brian Brady's opinion that lenders want more money to cover all risks associated with these loans.... even from consumers with good credit and sizable down payments. However I disagree with Brian's stance that as long as lenders get their additional money things will continue to chug along. I think today may have proved that wrong.

In talking with my local lenders this afternoon a few things at least are clear. Conforming loans ($417,500) are doing just fine with fixed rates around 6.2% and may even see a drop depending on the bond market. The non-conforming market is another story. The credit market is changing on a day by day basis, Lenders are determining rates on their individual assessment of risk... which means that rates will vary depending on the lender... and no one knows what's happening.

Some lenders were encouraged by the uptick in Indymac stock... there were rumors this morning that they were going down... which would have been a major blow. Another rumor is that Countrywide may decide not to fund loans that they can't sell to Fannie Mae and Freddie Mac... that means all non-conforming loans.... those above $417,500 and perhaps no second loans. That could put a big damper on the jumbo loan market.... which is our Beach Cities real estate market. Another factor to consider is whether stated income jumbo loans (Alt-A) with less them 20% down are about to disappear. It is a huge possibility and many people who have large incomes are not salaried.

So what does it all mean... I don't have a clue right now and I doubt anyone else does either.. but I do know that if this jump in rates for jumbo loans continues over a prolonged period.... and buyers who need those loans are unable to do stated income and/or lenders begin requiring larger down payments.... our market is in big trouble as the buyer pool just shrunk. If I were a seller right now I would make darn sure that anyone buying my house was 100% rock solid with a FICO score of 780 or better and a lot of cash.

There is some speculation that the market will settle down next week and that maybe much of the panic in the streets is to push the FEDS to lower rates at their next meeting. I think the credit market is trying to correct the mistakes it made over the last few years as more and more homes are heading toward foreclosure and short sales. I think they may adjust their rates for exceptionally qualified customers who are able to do a fully documented loan but those who need a stated income loan and don't have pristine credit may have to postpone buying a home unless they have a lot of cash.

A little advice... if you are loan shopping check with a Mortgage Loan Broker rather then a direct lender.....as they have access to a number of different money sources.


Alan Goldstein said...

Kaye, for what it's worth, jumbo rates are not exploding higher at every bank, just Wells. I've been working with my other lenders and finding pricing right in line with before the credit squeeze started. Wells has effectively pulled out of the jumbo market because they are unable to sell off those loans. But there are other lenders who don't sell their loans but rather own them and service them. Those lenders have much better rates.

I also think it's not unrelated that Wells was the single largest originator of subprime loans in 2006, and now is pulling back on it's jumbo prime loans b/c of the mounting losses in subprime. Banks that never did subprime won't have that exposure and will continue to do solid business.

Kaye Thomas said...

Alan- My lenders have told me that rates are on a case by case basis.. and yes Wells is the highest however fixed rates are significantly over where they were last week.. adjustables are also up.. I'm out of town and haven't checked since Thursday.. I supect with FED pumping in money they may look better in the coming week

Gerald Cavuto said...

Any more word about Indymac going down? I haven't heard that over here in Georgia. You guys seem to right in their backyard. What's the word. It sends shivers up my spine to think they would be in any kind of trouble. I have always bought into thier CEO's statements as very solid.

Kaye Thomas said...

Last I heard Indymac was holding their own... If I hear anything different I will post..