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The Coming Mortgage Drought
By admin | August 5, 2007
The Housing Bubble Blog » The Coming Mortgage Drought
The Coming Mortgage Drought
Readers suggested a topic on what the credit meltdown means for the housing bubble. “A topic suggestion: The effects of the coming mortgage drought on the subprime & Alt-A homeowners. Will the ‘new, improved’ lending standards kite the foreclosure rates through the roof? Will LA (where a shack is ONLY 1.2 Mil gulp! ) finally tank?”
One said, “If we are going to see credit tightening in the mortgage lending arena, then how can that not affect the rest of our economy as the FED would have us believe. Take crack away from a crack head, cold turkey and you have a problem on your hands.”
A reply, “I don’t think it is a question of ‘if we are going to see credit tightening in the mortgage lending arena,’ we are seeing it. Just how bad did Alt-A get hurt yesterday? Just grazed, or was yesterday really a gut shot like many people think? How long until conforming follows the same path?”
One pointed out. “Wells Fargo just raised the interest rate on their jumbo mortgage to 8% this morning. Last week the rate was 6.78%. The meltdown is in full swing. Hold on the drop is going to be very steep. Ouch!!!!!!!!!!!!”
A followup, “I’ve also heard that Wells Fargo is cutting out the mort. brokers, meaning they will only loan their Alt-A products directly… Anyone else get chills when they read the CEO of IndyMac’s letter?”
One sees a change coming, “I think it is a matter of going back to what always protected the buyer and the lender…dealing direct. When lender dealt directly with the buyer, no mortgage lender, the buyer got what they could afford and there was alot less fraud. We are going to return to those days since it is the only way the lender will have control over the transaction.”
One reflected, “As far, far back as 2002, it used to be said NEVER flip a 750-800K house, because you can’t get $1 million for it after you invest 50-100K in the flip — because…..JUMBO mortgages are hard to get, and most people with that kind of cash are very discriminating! Boy how times have changed. So many generations.”
One concurred, “Agreed. $150,000 is about the tops that I would flip a SFR. First off you need to make sure that if you rent it out, that eventually after credit repair, your tenant can qualify to buy and still make you a reasonable profit. I just could never understand the idiot flippers of the past 36 months telling me they were gonna buy at $450,000 or $500,000 and flip for an extra $150,000 profit…I guess for a brief period of time there were some FB’s, but not now.”
The New York Times. “The market dropped particularly sharply yesterday afternoon after investors were rattled by remarks by executives at Bear Stearns, the investment bank that has been heavily involved in mortgage securities. The firm’s assurances about its own financial position were overshadowed by bleak comments by its chief financial officer about the credit markets.”
“‘I have been at this for 22 years, and this is about as bad as I have seen it in the fixed-income market,’ said Samuel L. Molinaro Jr., Bear Stearns’s chief financial officer.”
“Lenders say they are increasingly unable to persuade investors to buy packages of home loans made to borrowers with little or no down payment or those who cannot fully document their incomes. As a result, many companies are no longer offering such loans to potential buyers.”
“‘I have never seen it happen so quickly,’ said Steve Walsh, a mortgage broker in Scottsdale, Ariz. ‘Banks always do these little cutbacks here and there. What they are doing now is a liquidity crunch. It’s a credit freeze.’”
“‘It seems to me things got every bit as silly in the credit markets in the last few years as they did in tech stocks in the late 1990s,’ said Douglas M. Peta, chief market strategist at J. & W. Seligman & Company, an investment firm based in New York. ‘I still think we may have a ways to go in this.’”
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