Friday, January 25, 2008

New conforming rules

The latest on Congress raising the conforming loan limit for Fannie Mae and Freddie Mac loans from $417,000 up to $729,750 really hit me. Will it keep prices artificially high? Is it a bailout of speculators and lenders? Two items you should see are:

Yesterday's Statement of OFHEO Director on Conforming Loan Limit Increase

We are very disappointed in the proposal to increase the conforming loan limit as we believe it is a mistake to do so in the absence of comprehensive GSE regulatory reform. ...

Herb Greenberg's Reality Check on Raising Mortgage Caps on MarketWatch (emphasis added)

[C]hecking in with our old friend Mark Hanson, ... the reality is:

–New borrowers still have to qualify. Fannie/Freddie is full doc only primarily.

–Without stated income for wage earners, it’s tough to qualify for a $700,000 loan.

–In 2005 to 2007, 70% of all jumbos were stated income for a reason: Ninety percent of all stated income borrowers lied about their income to qualify.

Refi’s will still have trouble due to values dropping in jumbo areas by such a large amount. These are the ones that really need the help. ...

Mark adds:
For the past several years, a husband and wife working at McDonald’s for two years could borrower $650,000, STATED income no problem. They just put enough money as income listed on the application to qualify. Wall Street banks that ultimately bought the loans did not care. Lenders also qualified at interest-only payment rate with zero to 5% down. Credit scores at 600 were okay.

NOW, you must have earned $135,000 to $150,000 FULLY DOCUMENTED for the past two years and have a current pay stub and average ‘other’ debt to borrow $650,000. You must have at least 10% equity or down payment. You must have a credit score of 700 or above. This is not a large number of the population.

The third point relevant to the Westside is even $729,750 gets you into very little here.

So on the one hand the Fed and Washington politicians are scared enough for the economy and/or their friends at the banks to use their biggest guns, so much for "free market" rhetoric. But on the other they still are likely to be ineffectually swamped by the tsunami.

The "good" news is prices will fall. The bad news is we're really in deep doo-doo. Another $150B of national debt to send everyone checks, fire sales of U.S. assets to Middle Eastern and Asian investors, it's not pretty.

6 comments:

Anonymous said...

Thank you for a wonderful blog

why the heck does manhattan beach confidential have five times the traffic ?

the posts are few and far between here compared to there.


Also i have noticed that the nice area of Manhattan Beach (near the pier) has dirt that sells for $1400 an acre, wheras the nice area of 90402 is $250 an acre

Does this difference account for the difference between your blog and manhattan beach confidential?

?

Anonymous said...

can i digress for a minute

Anonymous said...
334 15th st. sold 9.2006 for ca. 1.2 mil. turkeys think they'll be cashing in now apparently.

can the person that posted this please tell me where i can find the fact that they paid only 1.2 million back in 9 2006?

that sounds way too low for a teardown thanks

Anonymous said...

anon, you are a moron

you said $1400 an acre when you really meant $1400 a square foot
near manhattan beach pier

similarly, 90402 is $250 a square foot

Westside Bubble said...

Anon 6:10,

You're welcome.... Well, there are blogs with multiple posts a day like Calculated Risk and Housing Panic, those like here that manage at least every couple of days, and then some you still fondly check on even if they've been silent for days.

I can't not follow the housing bubble. Some events, like this week, take some mulling over to decide what I should say. And it keeps me from other things I'm not getting done.

Anon 6:20,

Per the County, 334 15th has a Recording Date of 09/26/2006, land + building value of $1,367K.

It doesn't record any sale within the last two years, though, so that's not a sale price in 2006.

Anonymous said...

More on conforming loan amounts/issues-

“‘The problem in the home market today has more to do with prices relative to income than anything else. The idea that this is an interest-rate phenomenon or capital availability (issue) is ridiculous,’ said economist Christopher Thornberg, a principal at Beacon Economics in Los Angeles and a member of State Controller John Chiang’s Council of Economic Advisors.”

“While it might become possible to get a conforming loan for a $729,000 house here, the buyer will have to adhere to the Fannie Mae and Freddie Mac rule that no more than 35 percent of the gross household income can be used for the mortgage.”

“‘What number of people could buy a home in this market, given where prices are and the 35 percent rule? Very few,’ Thornberg said.”

“To buy a $500,000 home in Los Angeles County requires a household income of a little more than $100,000, he said, and the median income here is a little less than $60,000.”

“Prices need to fall further to improve the affordability. But how far?”

“Thornberg says a 35 percent drop from this cycle’s high isn’t out of the question. ‘You say that’s outrageous? We’ve already gone (down) 10 percent. A lot of sellers are going to be underwater, and that’s going to be very painful for the market.’”

“So despite the big jump in the conforming limit, the housing market is going to have to get this poison out of its system. Thornberg thinks prices might not start rising again until 2011.”

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