Prime Loans: getting harder to get
U.S. home-mortgage market is starting to pinch even buyers of high-end homes with good credit records, in the latest sign of rising anxiety among lenders and investors.
This surge in rates on so-called jumbo loans is particularly notable because rates on 10-year Treasury bonds have been falling. Normally, mortgage rates move in tandem with Treasurys, but market jitters have caused investors to ditch mortgage securities.
Lenders -- having already slashed lending to subprime borrowers, as those with weak credit records are known -- now are jacking up rates on jumbo mortgages for prime borrowers. These mortgages exceed the $417,000 limit for loans eligible for purchase and guarantee by Fannie and Freddie. They account for about 16% of the total mortgage market
Lenders were charging an average 7.34% for prime 30-year fixed-rate jumbo loans yesterday. That is up from an average of about 7.1% last week and 6.5% in mid-May.
Losses on most types of prime mortgages have remained very low. Even so, lenders have raised rates on prime jumbo loans defensively because they are unsure what rattled investors may be willing to pay for them.
Investors who buy loans and securities backed by mortgages have fled the market for almost any loan that isn't guaranteed by Fannie Mae or Freddie Mac ($417k limit)
What does this do to the high end Bay Area Market? Anyone seeing an effect?
WSJ
posted by Dr. Jeff Lazarus MD at 12:18 AM
4 Comments:
I have a friend who just bought an $800K "starter house" in San Jose using in part a 6-month adjustable. I think she's going to be in for a world of hurt when here 5% loan jumps at least a point if not more. Ouch.
At over 7% a 30-year is going to have payments of $3500 a month for a 600K home (current low-end price).
That's barely 1500 sqft.
You'd have to earn over 168K net to afford such a home under normal circumstances.
What percentage of the Bay Area earns that?
Can you hear the hammer pounding the last few nails in the Bay Area housing market?
If you can't you're not listening. This market was climbing so high the fall was destined to crash hard.
I am happy all the greedy people who thought the Bay Area for some reason can sustain such ridiculous prices are losing their collective asses right now. A 1,200 sq. ft. 3 bed / 2 bath house is not worth $600,000 in reality...maybe in some idiots minds or in 10 or more years. Let the fall continue and for those who were foolish enough to drink the NAR/CAR kool-aid I hope it was worth it.
I think things will get bad in the bay area just like they did in the early 90's, but those waiting for a 50% drop will be waiting for a long time. IMHO, looking at the data, houses around here have never dropped more than 30-35% from peak to trough. Not to say that it can't but it just never has. As long as there is not a DEEP recession/depression, don't expect a 50% drop...
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