patrick.net

@Wnt,

Honestly, I don't know. I haven't checked those since Patrick upgraded the site from WordPress 1.x to 2.x, so that might have been a factor.

I guess the “rumors” of Wells Fargo and other banks increasing rates on jumbo loans are more than just rumors, at least for the MSM.
Skibum,
Saw the article last night on SFGate and was going to post it , but thought I'd give you the satisfaction. :-)
However, I would like to point out that if you have good credit and CAN DOCUMENT your income, jumbos stand at 7% (see Wells Fargo website for rates). I think this, unfortunately, is the profile of many of the types who buy in Fortress BA (pay no attention to the ~25% option ARMers, they buy in Non-Fortress areas :-) ).
As you noted a couple of days ago, the secondary market has ground to a halt (truly an awesome thing to watch) so I don't doubt the noose is tightening. If you are a non-depository mortgage lender, buh-bye... and these were the folks who offered the more "creative" loan packages.

btw HARM

I'm sure you're happy to see the ECB binging on liquidity injections while the Fed held back to under half of what was expected. For all his faults, Bernanke is holding the line far more than the cacophony of screaming market chicken littles thought he would be able to. Futures pricing 100% chance of cut in September. I think those futures are 80% wrong.

@Randy,

Yeah, I have to admit, so far I'm quite impressed that Ben has not lived up to his "helicopter drop" moniker. However, as time goes by and politicians start to become aware of how the credit meltdown is impacting their well heeled constituents (the ones that really matter), the pressure may become unbearable for him. I still think a rate cut by EOY is all but inevitable, despite the fact I'd like to see the exact opposite.

"those futures are 80% wrong"

I tend to agree. This is why DL was so emphatic about rate cuts earlier. Back then they might have been able to stem some of the damage? At this point it might keep some FB's on life support but anyone that's thinking a cut here will stop the slide and set the stage for a recovery has got to fooling themselves.

EBGuy,
Thanks for giving me the satisfaction... :)

Seriously though, this credit freeze-up is truly amazing to watch. I was but a mere lad during the S+L crisis, so this to me is much more interesting to see. Not to harp, but even in the Fortress, these putative buyers you mention need to sell their "starter homes" to someone, and likely that's the subprime/Alt-A market, which is now a mere shell of its (recently) former self...

DOW down 380 points.

Let's see what will happen tomorrow. Rate cut or not will totally depend on the job situation. No rate cut until job market visibly worsen. After all, both parties will need to worry about election next year, and whoever is going to win will have to promise employment.

When job market worsens, there won't be just one or two cuts, but a hastened pace of a series of rate cuts. At that point, I think all currencies will get into a competitive devaluation mode.

EBGuy,

bank rate is not the driver of fortress area, it is the job that matters. As long as these people can hold down a high-paying job and are instilled with the confidence that they can continue to do so, they will buy, because most of them do have enough dp and a good lending profile.

However, when layoff starts, even those who can buy a home with 50% down will think hard about the decision.

Tokyo is a good example of this. Many Japanese have loads of savings. When the Tokyo core market bottomed, rent was actually more expensive than buying, yet most of those Japanese with substantial savings still stayed on the sideline because the job market did not pick up until later.

Committing oneself to a 30-year loan, or 15-year loan, especially with a couple of mouth to feed, is a game of confidence. The most effective way of shattering that confidence is a nasty job market.

Bank rate +2% : cool housing
Job Market going down: crush housing

Seriously though, this credit freeze-up is truly amazing to watch. I was but a mere lad during the S+L crisis, so this to me is much more interesting to see.
Yes, a once (hopefully) in a lifetime ringside seat. I tell my friends to take notes. In the past, I wondered how we'd ever be able to hit the "down slope" on the Shiller graph. There was always the hint that the FBers could do a workout or refinance to mediate the fall. Workout? The cost of translators alone makes this untenable. Refinance? Oops, sorry, no more loans. Makes perfect sense (in hindsight), as the market is now behaving rationally. ARMageddon is unavoidable and it's going to be brutal on the way down, one foreclosure at a time. I am now carrying around a copy of the Credit Suisse ARM reset chart in my wallet, along with the Shiller graph. Two pictures, two thousand words.
As the mortgage nazi says: "No loan ... FOR YOU!"

This is a bit OT, but I read in another blog that the Bay Area RE infolink (local MLS) has adopted a policy where the buyer and/or seller can have the final sale price of a home withheld from the MLS database. This is presumably to prevent developers, or perhaps Realtors (TM) from letting lowering comps from seeping into the system. Has anyone else gotten wind of this?

If true, this is yet another REIC truly evil ploy.

OO,

I would really invite you to read the Chronic-le link EBGuy allowed skibum to post above. In spite of sterling credit, great jobs and respectable down payments BA MB's are having a tough time getting financing for their "clients". One even had to eat his fees just in order to be able to deliver as advertised.

At this point it isn't so much a matter of the borrower being willing to strap a board to his/her @$$ and take the plunge into debt, it's the fact that there is no market for MBS right now.

"No loan... FOR YOU!"

"The cost of translators alone makes this untenable"

EBGuy, well... YOU'RE in rare form today! Outstanding! (Just make sure you get a heap plenty big wallet to carry that chart around in!)

@skibum

I believe this is correct. It is why the RE self-reported data shows incredible gains in the face of overwhelming, easily observable evidence to the contrary. All I have to do is search PropertyShark on houses I've seen sold in the past 6 months to know they're full of shit and those sales are going through well below asking.

I just told the selling agent for a house I've been watching for months (and refused to accept an offer from me earlier) that I'm now willing to pay them their purchase price in 2004 plus their commission. That's only about 22% off asking, which doesn't make me happy, but I note even this healthy offer is so low it utterly offends the seller.

I told her they can wait until spring when I'll be willing to offer about 35% off asking, even less if I find out their ARM reset.

@Randy
Have you noticed your lowballs being given more respect/consideration than in the past?

If I were a listing agent I would try to get the offer approved since I can double dip the commission and times are tough for realtors, although most of them seem to be semi retired housewifes that work for vacation money.

I'm not buying for quite some time, I'm getting to like renting more and more. I just follow the bubble out of habit now plus its really getting interesting. Its like all my bearish dreams are coming true (in super slow motion).

DinOR,

I did read that piece, the issue is more with the marginal borrowers. The example quoted is a no-doc loan with no income verification despite 25% down, and based on the info, it seems like he is buying a $2M home! No wonder the bank won't lend him the money. If he were buying a $1M home, the story would have been different.

Things are a bit different here in the fortress, and I concur with you that fortress will be affected in the end, but the process will just take much longer. There are, sadly or fortunately, enough buyers in the fortress with much more than 20% down and a high household income to qualify full-doc loans. In fact, full-doc rate for the solid borrowers will actually improve because the raison d'etre for banks is to lend money.

Maybe the banks' attitude changed towards anything less of a full-doc, conventional and compliant loan, at least I haven't seen the rates move much for the conventional categories.

Most importantly, the job prospect of BA is still very hot, it is still in the mini-1999 phase. Unless the job market tanks, which I believe it will a few months later, I don't see the housing price coming down significantly in BA.

OO,

Well, I'm not sure what was meant by "employment hiccup" but they did say the borrower had a high FICO score, 500k in the bank plus he was putting 1/4 down. He had two offers for funding on Thursday, then one, then none?

In all of this, the one thing I -didn't- want to see was the job market tank! So now you're telling me we have to "hit the wall doing 100 m.p.h" from a financing standpoint AND have employment hit the skids to see a meaningful correction in the BA!?

OO,

What I "should" have said was this shows more of a lack of faith on the lender's part being skittish about the underlying asset than the credit worthiness of the borrower?

With 1/4 down, (your credit shouldn't matter) right?

DinOR,

well, job and housing is highly correlated, it is just impossible to imagine that job market keeps humming along while the housing value tanks. Housing market tanks only because the sellers HAVE TO sell at whatever price they can unload as they get foreclosed upon, if the sellers can all hang on to their homes, there will be no housing bust!

I have yet to see a housing bust WITHOUT the job market bleeding. BA went through the 70s with double digit inflation, and a minor recession without much job loss, so the housing market never went through major correction nominally.

Back to the article, this guy is buying a $2M home, that is a totally different risk category. After he put down $500K on the house, how much does he still have left in the bank? If this guy cannot show a dependable track record of IRS-verifiable earnings, he would not have gotten any money right around the time when I bought my home. Banks care more about your reliable income stream than just savings, unless you put half down or something.

DinOR,

I am not saying that I wish for a bloody job market, I just think it is going to happen when the home ATM runs dry. 2/3 of our economy is supported by consumption, if we run out of consumers, we run out of steam.

That's why it is important for all the bears here to live under our means and save up as much as possible so that we can do some bottom fishing when things look really nasty.

To be honest, we're looking at putting between 45% and 60% down, depending. And my wife has a long history of uninterrupted, very high income (mine is sporadic and often comprised of gains). Yet I'm not certain we could get a mortgage without a full visit to the proctologist.

I am not saying that I wish for a bloody job market, I just think it is going to happen when the home ATM runs dry. 2/3 of our economy is supported by consumption, if we run out of consumers, we run out of steam.

OO,
That is probably true, but don't forget that it's not merely a matter of personal consumption drying up that will slow down the economy. This drying up of corporate credit will do wonders to M+A activity, corporate spending (capital upgrades, hiring, etc.), and Wall Street bonuses. That's another blow to the jobs outlook.

"Bottom line" (to quote our friend): it's looking more and more likely to me that job cutbacks are in our near future. This also means Fed rate cuts will follow soon after that. It may or may not be this calendar year, but I think it will happen soon.

Randy,

You are fine. Even if there is tightening for borrowers of your profile, it will be very short-term. If banks don't lend to people like you, they might as well close down and call it quits.

I told her they can wait until spring when I’ll be willing to offer about 35% off asking, even less if I find out their ARM reset.

Evil Randy, just Evil. I like it! :twisted:

OO,

Oh I wasn't suggesting you'd delight in seeing soup lines by any means. And yes, I realize we simply can't have a correction without some pain. I just hope the majority of it stays where it belongs (in da' REIC!)

I get the impression that most here live below their means in good times and in bad.

"it will be very short-term"

I agree. We just don't know where the market IS right now? FWIW this will shake out in fairly short order. But Randy H, at 60% down...? Why bother with a mortgage at all?

at 60% down…? Why bother with a mortgage at all?

Because I don't have 100% liquid, nor do I want to put 100% in one place. Thus the preferred 45-50%.

...of course the other solution that would work just fine for me would be for the price of the house I want to come down about 40-55%.

...When the Tokyo core market bottomed, rent was actually more expensive than buying, yet most of those Japanese with substantial savings still stayed on the sideline because the job market did not pick up until later.

Committing oneself to a 30-year loan, or 15-year loan, especially with a couple of mouth to feed, is a game of confidence. The most effective way of shattering that confidence is a nasty job market.

Excellent right-on-the-money observation. Imagine that for a moment: RENT BEING MORE EXPENSIVE THAN THE MONTHLY CARRYING COSTS OF OWNING. Not only because the credit isn't there, but because the employment picture is so iffy that no one wants to take on a large debt load and long-term commitment in a perilous economy.

I can relate to this 100%, as the post-Cold War recession/jobs depression is permanently seared into my memory. Anyone who was unemployed and/or carrying debt during that period, or during the equally bad early 1980s recession cannot possibly forget what that was like.

Today I see a lot of fortunate young pups, who've been suckling on the teat of Dot.com, Web 2.0, Googledom, and the Great Housing Bubble ever since they left H.S. or college. They have no personal memory of bad times or having to economize. Therefore, they are quite smug and complacent, and have *no idea* how bad things really can get "out there" (e.g., "bad" = no Jamba Juice for a month).

There are about to get their first lesson in the school of hard knocks.

@Randy H,

Find out when her option-ARM resets, wait 'til Spring (at least) and rip that bitch's throat out. No mercy.

Randy,

as far as the lending guidelines go, and I am quoting from my experience in the difficult times in 1992-1995 when credit really tightened up and non-Jumbo 30-year was looking 8%+ in BA, any LTV above and beyond 55% will not win you extra points in securing a low rate.

I initially planned 20% down, but due to my immigration status and lack of long-standing employment record in this country, I had to borrow an extra 5% from family to make the down payment. 25% seemed to be hurdle.

I wouldn't want to sink too much liquidity into a home, I'd say if I were in your shoes, I would cap it at 55%, or even put down only 25% if the marginal rate at 55% is not much better.

Randy,

as far as the lending guidelines go, and I am quoting from my experience in the difficult times from 1992-1995 when credit really tightened up and non - Jumbo 30-year was looking 8% plus in BA, any L-T-V above and beyond 55% will not win you extra points in securing a low rate.

I initially planned 20% down, but due to my immigration status and lack of long - standing employment record in this country, I had to borrow an extra 5% from family to make the down payment. 25% seemed to be hurdle.

I wouldn’t want to sink too much liquidity into a home, I’d say if I were in your shoes, I would cap it at 55%, or even put down only 25% if the marginal rate at 55% is not much better.

Randy,

as far as the lending guidelines go, and I am quoting from my experience in the difficult times from 1992-1995 when credit really tightened up and non - Jumbo 30-year was looking 8% plus in BA, any loan to value below 55% will not win you extra points in securing a low rate.

skibum Says:
it’s looking more and more likely to me that job cutbacks are in our near future.

Anecdotally, it is already here. Sun just announced cutbacks, and I am seeing engineers leaving WebMethods (there wasn't an announcement, but they recently got acquired), and a couple of (largish) startups are shedding people, (e.g. PayByTouch). Cisco just sent a bunch of contractors packing. Two of my contacts in the tech-writer function are also out of work as of July - they were both at (different) startups.

None of these are huge yet, especially in the MSM. But for the people losing their job, it will be hard to keep feeding the alligator. Another large tech company that I cannot name is cutting about 600 people. Since they are a big Bay Area employer, I expect that will get some coverage.

SP

The thought of a billionaire losing millions of his/her hedge fund investments just tears me apart..........

Another large tech company that I cannot name is cutting about 600 people. Since they are a big Bay Area employer, I expect that will get some coverage.

Let the guessing begin!

Yahoo?
Ebay?

Not on valleywag yet :(

It's a truism that jobs and housing costs are coupled.

How's the Web 2.0 boom going out there? I know that Randy, SP, OO and a couple others are all in various aspects of tech. If Web 2.0 cools and releases its resources (especially if capital is harder to come by), isn't that going to turn quite a few coders out on the streets?

Brand

VC cycles aren't directly correlated to stock market cycles. They tend to lag by a good bit, though we'll see if VC has gotten more efficient since the last round. Actually, if a recession/slowdown is shallow enough, VC might actually increase at the lowest point in the cycle because that's a time when many of the top-tier guys will put money in to shore up winners (though they'll cut losers pretty quickly). Smart VCs know it's a good time to "upgrade" employees for a reasonable salary burden.

I wouldn't look for coders on the street anytime soon. Lucky for many in IT and software we've already been through a terrible spending drought and shrinking corporate margins should push the upgrade cycle that much harder. Much of the "technology overhang" has been worked off.

There will be a number of Web 2.0 "social networking" yip yaps out looking for work, though. And that just breaks my heart. But any decent coders will get snapped up. It's all the non-techs that will be looking for work (probably elbowing their way in the jobs queue with ex-investment bankers and out of work hedgies).

Randy: I didn't mean to imply that VC was tied to the stock market, so much as VC is tied to access to inexpensive debt. Anyway, good engineers are always in demand at all companies. But in the Bay Area, if a large enough employment shift happens among the second-tier coders ("just yesterday I was working at Starbucks!"), then that could make some things happen with foreclosures and short sales.

>> Bush against lifting Fannie, Freddie mortgage cap
Says reform of government-sponsored mortgage buyers needs to come first

Bush is right on this topic ...... Democraps favor government sponsorship of mortgage buyers. I would not vote for democraps in 2008.