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Changes in Lending Shrinks Buyer Pool

Loose lending rules helped pump up the real estate market. When lending tightened the buyer pool shrunk. I think the squeeze is on the buyer with good but not excellent credit. There are still 3% FHA loans and the USDA rural loans are up to 102%. VA loans have a 2% funding fee that the buyer pays in financing costs. The 80-20 loans are almost extinct from what I am seeing (ask your mortgage broker). That’s when there was an 80% conventional loan and another 20%, often a maxed out equity line, to make up whatever cash to close the buyer needed.

Jumbo loans exist but at significantly higher interest rates than conforming loans (those under $417,500 for most markets). That’s hurt the sales of the $500k-$750k homes (numbers chosen somewhat arbitrarily) since most of the population isn’t sitting on wads of cash for a down payment. There were first time buyers in that range before, and there still are, but not as many. Those thinking about making a change by selling what they own and moving are weary of having to sell their existing homes. There are some houses that I’d love to buy if I was sitting on the cash to do so but since I’m not, I’ll be sitting on the sidelines as well.

28 Comments on “Changes in Lending Shrinks Buyer Pool

  1. Thanks for your thoughts, Charles and DinOr, too. I was curious if banks were thinking who the riskier crowd is at this point therefore asking for more of a DP or higher credit scores: the FHA folks with little down or little credit history but usually smaller mortgages OR those who are buying the bigger house/mortgage with the thought that the bigger they are the harder they fall, the more banks risk losing.

    Yeah, I was thinking US Bank would be strong, too. We do have the VA option available to us if we want to go that route. I am not gonna to waste any lender’s time right now as my life circumstances continue to evolve even though prices are dropping (w/ a ways to go IMHO). We decided to ‘give’ the little one a sibling come late January thus practically doubling our childcare expenses starting next Fall. It would be like paying two mortgages! But hey, think of the tax write-offs!?

    I obviously, am still keeping my eyes on the market and would be tempted to jump if the occasion arrived but that, I guess, is a year down the road. I lot can happen until then.

  2. Hey Charles – the Portland Housing Center has 20% loans available to match with others’ 80% loans – but customers have to fall within certain income guidelines to qualify.

  3. Yes, I do. Our default rate is less than 1% because we couple our financing with a strong educational component. We are helping people get into houses who are ready to be responsible homeowners.

  4. “We are helping people get into houses who are ready to be responsible homeowners.”

    Education does not prevent negative equity. I smell the blood already.

  5. FYI, I recently got a 670K Jumbo loan with “ZERO” down at 6.1%. The banker told me today it is easier to get a home loan than a car loan — if you can document your income and have good credit. There is tons of loan money available to responsible buyers.

    Thought I’d share.

  6. LOL, who’s pretending to be daycare?!?!? What ‘bank’ approved this one?!?!

  7. Wow, Daycare, your payment would only be $4,060.00/month not including loan fees, taxes, and insurance. Damn, how much money do you make?!?!?! Ball park figure, come on, tell us!!!!

  8. Strange and scary as it is, I have some friends making 100K between the two of them who were recently approved for a loan similar to the one daycare describes…

  9. “We are helping people get into houses who are ready to be responsible homeowners.”

    Yeah, the last batch only caused the beginning of The Great Depression circa 2009.

  10. “Yeah, the last batch only caused the beginning of The Great Depression circa 2009.”

    Ummm – did you not see above when I noted that customers of the Portland Housing Center have a default rate of less than 1%? It’s something like .6% actually. And that’s over the past 17 years. So – no – they did not *cause* anything.

  11. Daycare in this thread appears to be the real daycare as there are multiple comments from the same IP address. I have not heard of such a loan but am curious. What bank???

  12. That’s my biggest question: what bank is offering this loan?!?!?! One that just assumes there is a short term profit to be made and really doesn’t care if the borrower follows through with making any payments?!

  13. Take it for its worth: Bank of America. Special loan program. Closed two months ago. Its a 7/1 ARM. I wont share any more details beyond this

    To bearlee’s question: I make enough to qualify for a 670K loan. No, I do not plan on defaulting. Also, my colleague got a 5.25% 30 7/1 from builder with 20% down. This is in Texas.

    The line of questioning on this blog makes me wonder if I want to post again here again.

    >One that just assumes there is a short term profit to be made and really doesn’t care if the borrower follows through with making any payments?!

    Bearlee, have you ever thought how much time you waste second-guessing/judging others on this and other blogs?

    Charles, do you ever questioned the absurd arguments made by bearlee and naysayers?

  14. Charles, do you ever questioned the absurd arguments made by bearlee and naysayers?

    I never said it was absurd, did I? I simply confirmed that you were you and asked what bank was making such a loan.

  15. Daycare, do you think a couple making $100K should qualify for a $670K loan? That’s $4k/month not including taxes and insurance. So about 70% of their take home pay is going toward principle and interest. Doesn’t that sound absurd to you?

    So why not give up some details. It’s not like we will ever meet you or even know you. How many daycares are there in this metro area?!?!? Hundreds? Trust me, I have no plans to track you down.

    And considering interest rates are likely only going to go up and home values are likely going down, maybe stay even, is it really that smart to get into a loan/home like this? How quickly have homes in this range been selling? And you must really be a pollyanna to think this is gonna turn out well.

    Do you know how absurd you sound?

    BTW asking for details is not passing judgement. I do question a bank willing to hand out this type of loan in these times. But then, maybe the bank is just counting on another bailout at tax payers expense. At least the lender in Texas got 20% down.

    Can I ask what your PMI rate is without sounding judgmental?

  16. Daycare, what other blogs do you see me comment on? Portland Housing Blog? You think I am ‘absurd’, you should post your scenario on that blog. Those guys will want the details, though…but if you don’t wanna give up the details we can only speculate. JP and DinOr are well educated and have many years of experience to share. Questions that are typically asked: what industry do you work in (though even health care is feeling this recession), savings? did the bank ask about a savings account in case of job loss, interest rate for the 7 yrs? do you plan on selling or re-fi’ing at that point? what were the comps for this house? and yes, your income range, cuz you have to admit that what is happening now is due in great part to speculators who couldn’t afford the mortgages they got into. It’s a fact and if you are insulted by those asking then you haven’t been paying attention to the $700 billion bailout, those for it and those who say we are just throwing money into the pockets of bank exec’s.

    These blogs are about learning and how can we learn if you won’t provide details. Did the bank ask for reserves? PMI rate? Were the sellers flexible, did you get a screaming deal given the buyers’ market atmosphere?

    What do you think is going to happen to Portland’s market over the next two years? How’s your 401K/IRA doing? Mine has taken a 7% hit over the past 13 months:O(

    If you are unable to discuss these details and find my questioning absurd, something tells me you are no position that makes $125K+.

  17. bearlee,

    Why do you care so much and why do you speculate so much? For a person that has nothing why do you care? Why do you postulate at all? Why do you think DinOr and JP are knowledgeable? How are they experts? How are you an expert? You’re just a nurse, a worker, an employee, a nobody doing nothing but trying to get your sad life together. You live in a rental, you owned a house you couldn’t afford, you did nothing to improve your earning prospects. Why do you care about anything? Why not work on yourself and improve your own prospects and life? You had all this time to do better but you waste it like all the others on these blogs doing nothing but putting up theories or wasted energy to say who’s better. If you and all the rest are so much better, why then not doing something about your life, your community, your family.

    You are a boor.

  18. boor — a person that is rude, clumsy manners, from ‘middle dutch – gheboer’

    not bore — to make a hole.

  19. To make a hole? You forgot to scroll down a bit more…

    bore   /bɔr, boʊr/ Pronunciation [bawr, bohr]
    verb, bored, bor⋅ing, noun
    –verb (used with object)
    1. to weary by dullness, tedious repetition, unwelcome attentions, etc.: The long speech bored me.
    –noun
    2. a dull, tiresome, or uncongenial person.
    3. a cause of ennui or petty annoyance: repetitious tasks that are a bore to do.

    Nice personal slams, though you would have looked ‘smarter’ if you used specifics instead of generalizations, but then, you don’t know me do you? Maybe you’ve missed some of my posts? Like when I hear folks who can’t save any money while paying $700/month in rent but now want to get into a $250K mortgage? Yeah, I’ll open up my life to criticism so others can think a little harder. We all have different situations and I realize that but when you see red flags wouldn’t you sound the alarm?

    Yeah, I make great money as a nurse, on my way to $80K this year, but I also have a spouse who’s in school, nothing like paying tuition, again, and a toddler in daycare with another one the way. I am not all ashamed to say that I can’t afford a mortgage on top of all that. It’s facts of life.

    I never said I was an expert nor did I say that DinOr or JP were experts. It’s personal experience that is so valuable in times like this.

    Why not share the loan details, the name of the bank, etc? Maybe Turner would like to refer potential buyers there. Maybe there are readers out there trying to get loans cuz they see a great deal on a foreclosure, why not give them a lead on a lender willing to work with them. The ‘rumor’ is that banks are requiring large DP’s on jumbo loans which have interest rates around 9%. When you discover differently wouldn’t you want to share on a real estate blog?

  20. Try looking up boor and not bore. You are filled with so many excuses. Just stop and listen to yourself. You desrve to be slammed. You have nothing constructive to add. Why should anyone share any detail? Why do you care? I know all about you and everyone else that posts consistently. You and all the rest have nothing to say constructive, never will since you never can be constructive. So, yes you deserve to always be personally slammed for your ingnorance and arrogance.

  21. Here we go again. Charles having to pipe up about respect. I don’t care if you agree with me or other commenters but leave the name calling and personal attacks out of it. Bearlee and I have not agreed on everything but she’s still on topic which is more than can be said for some.

    Let’s recap: We started talking about a shrinking buyer pool in real estate because of tightening in lending. Jumbo loans have paid a part in that. The requirements have changed to require a larger down payment. Daycare said he found a jumbo loan with zero down at a low rate; that’s news.

    It sounds like a portfolio loan; one that the bank will keep rather than selling on the open market (to Fannie or Freddie). Since they are lending their own money and keeping everything in house, they can afford to make their own rules and not follow typical lending guidelines.

  22. Bearlee deserves what she gets. If the person wanted details or more information, then ask in a respectful manner. No need to go on a diatribe. Bearlee, is consistent with her tone, she is still arrogant. And I have yet to see her comments be on topic. If anything, she writes recursively and ad nauseam.

  23. I agree with Charles that there are some fantastic values out there in the 550K to say 850K range if you’re sitting on enough cash to make it happen. Charles, do you think there are builders letting units go below cost at this point? Just curious.

  24. I disagree there is value in the 550-850k range. Maybe if the property was on the beach in Malibu…

    It would be silly to jump in now right at the start of the PNW fall – patience will pay dividends in this case.

    Hold tight and keep your powder dry – a lot of wishing prices out there still – economic gravity will do it’s thing over the next year or two.

  25. “I noted that customers of the Portland Housing Center have a default rate of less than 1%? It’s something like .6% actually.”

    Why would anyone default when the magic housing gods are raining mana from the heavens? I am certain that Tamar won’t be bragging about his default rates in 2009, 2010, 2011 etc. Also, providing the economically oppressed with free leveraged debt is, IMO, despicable.

  26. economic gravity will do it’s thing over the next year or two

    I think gravity will be doing its thing for more than a few years.

    if you’re sitting on enough cash to make it happen

    The redistribution of cash is a beautiful thing!

    I know all about you and everyone else that posts consistently. You and all the rest have nothing to say constructive, never will since you never can be constructive. So, yes you deserve to always be personally slammed for your ingnorance and arrogance.

    Unintelligible, illogical, and seething with anger.

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