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Are mortgages even harder to qualify for these days?


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2012 May 8, 2:02am   21,498 views  48 comments

by lwoellert   ➕follow (1)   💰tip   ignore  

Hi folks - I'm a reporter at Bloomberg, where I cover economic issues, including housing.

We all know how tough it's been to get a purchase loan since the meltdown. But I'm getting the impression that it's getting even tougher as of late. One reason, I think, is new lender anxiety about regulations being put in place in Washington. Then there's continued falling home prices etc. People here in DC say lending standards are preventing a housing rebound. Banks are loosening consumer and business lending, but not mortgage lending. What do you think?

Has anyone with good credit failed to get a purchase loan recently? Would love to hear your stories, either off the record here in the forum or on the record by phone or email.

Thanks,
Lorraine Woellert
Bloomberg
202 624 1963
lwoellert@bloomberg.net

#housing

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1   RentingForHalfTheCost   2012 May 8, 4:03am  

Watch your comments around here Lorraine. Many on this site don't think housing prices are continuing to fall. Phoenix is a meca for housing appreciation right now apparently and the BA is just on fire. Low inventory, coupled with wage inflation, low unemployment, foreign investors, students with none to little debt being first time home buyers, and don't forget about the high test score schools causing prices to explode.

Yah, I know, I live on a different planet as well. Just passing on the news before you get attacked by the PatN forces around here.

2   PockyClipsNow   2012 May 8, 4:10am  

I heard you are required to have a job now to get a mortgage. That is outrageous. And self employed people who only report half thier income can't do 'liar loans' to get 1.5m zero down cash back at close mortgages anymore. Also an outrage!

3   tiny tina   2012 May 8, 4:33am  

We also recently refi'd. They required a decent amount of paperwork and asked for an explanation of some recent deposits, but no issues whatsoever. A co-worker also refi'd a couple of months ago - no issues.

4   bubblesitter   2012 May 8, 5:23am  

lwoellert says

Has anyone with good credit failed to get a purchase loan recently?

A credit card issuer asked for my 1040 numbers just to issue a cc - this after my credit report showed zero debt and stellar credit. I am sure it is much tougher for mortgage. That is why you see much activity in low end properties - the only comfortable zone for banks to issue a mortgage while minimizing risk,and the only comfortable zone for cash investors. Mid to high end market is snoozing.

5   rooemoore   2012 May 8, 5:42am  

Yes it is harder - with very thorough and detailed investigations of where the down payment money came from and what the long term income potential is.

In the BA where most loans are jumbo, PITI* reserves of 6 - 12 months must be liquid as well as down payment and closing costs.

So, for a $mil dollar property with 20% down you'll need about 250 - 280k liquid, a 720+ credit score, 2-3 years 1040s, a year or two of bank statements and a job that does not seem to be at risk.

These stringent requirements are loosening a bit in some zip codes now that homes are going quicker and at over asking.

*Principle Interest Taxes Insurance ~ about 5k per month on a 1mil property

6   Poop Deck   2012 May 8, 5:43am  

We decided to buy a parent's house last year to help them out when they fell on hard times and to make sure they wouldn't be homeless. Despite six-figure salaries, 750+ credit scores and 20% down we could not get a loan from our bank on what would be considered an "investment property". Eventually we found another bank that agreed to lend but the appraisal came in so low because of so many foreclosures that the loan fell through (appraisal was less than the purchase price in 2000). However, my credit card companies had no problem giving me 0% for 18 months on three different cards so we ended up purchasing the house using cash and some balance transfer checks. I guess the upside to this is that we'll own the house outright in another 8 months or so and all we'll have to worry about then are taxes.

7   rooemoore   2012 May 8, 5:45am  

bubblesitter says

Mid to high end market is snoozing.

Not in the BA. It's awake.

8   rooemoore   2012 May 8, 5:46am  

JonnyDanger says

we could not get a loan from our bank on what would be considered an "investment property".

True. Investment properties need much more down. Most are all cash.

9   bubblesitter   2012 May 8, 6:35am  

rowemoore says

Not in the BA. It's awake.

Uh,BA is in its own world,if you think it is hot then live with your assumption.

10   Tenpoundbass   2012 May 8, 7:12am  

I think it would be quite refreshing if you did an article on, even though interest rates are at historical lows. They aren't actually at historical lows.

With the added fees and semi annual MIP premium increases over the past two years. I would call the lows at November 2010 when the rate was 4.50%. But MIP was a paltry $70. It is now tipple that, also there are FHA monthly fees that are for the life of the Mortgage, that didn't exist in 2010.

Reports talk about the virtues of 3.70% interest, but by numbers I've crunched. I would have to refinance at 2% just to pay the same I'm paying my 4.75% mortgage I got in 2010.

11   David9   2012 May 8, 7:38am  

What if she really is a reporter? Go Patrick!

RentingForHalfTheCost I thought your first comment was hysterical, thanks for the laugh.

12   Patrick   2012 May 8, 7:43am  

David9 says

What if she really is a reporter? Go Patrick!

Lorraine really is a reporter for Bloomberg. I've conversed with her by email and she's got a Bloomberg email address.

13   lwoellert   2012 May 8, 7:50am  

Thanks for saving me from the wolves, David! :-) I am a longtime lurker but have never posted before.

I really liked the observation about MI - if you look at other fees, such as LLPAs and increased FHA premiums, the current low rates do look a lot less attractive. Might be a good time for us to do that story.

But has anyone had troubles with purchase loans in particular? Talking heads in DC and economists who study this say that looser purchase money is the only way out of this mess. Are they right?

14   David9   2012 May 8, 8:15am  

lwoellert says

Thanks for saving me from the wolves, David! :-)

You're welcome. :-)

I personally have not filled out a loan application yet because coupled with this site and my own Real Estate analysis prices have been dropping for the last 3 years in the Los Angeles area.
Had I purchased a property at any time before now, I would just be another upside down mortgage statistic.

Surely, looser purchase money will have an effect on the Real Estate Market as with the previous interventions.

But isn't the problem more complex than that?

* Fannie and Freddie still operating with taxpayer funds and have not repaid the TARP funds.
* The incredibly illusive shadow inventory count that is just not available to the public.
* Surely, over 50% of all sales now are Bank owned, Fannie or Freddie, or a short sale.
* How many people are still in their homes that have not paid a mortgage payment in years and are not even counted in the shadow inventory?
* The systemic process that got us in this mess in the first place is still in effect to my knowledge, mortgages are still packaged off to investors.
* It's better for the bank to keep a bad asset on the books than to sell it.
* The generally slow economy itself.

15   rooemoore   2012 May 8, 8:37am  

bubblesitter says

rowemoore says

Not in the BA. It's awake.

Uh,BA is in its own world,if you think it is hot then live with your assumption.

DO YOUR MATH

What is the "uh" for at the start of your sentence? Is it like "doy" or perhaps "duh"? Could it be that you meant to type "umm"?

Anyway, I did not say it was hot -- that is merely your fear. I said it was awake. That means it is no longer dormant, or as you put it, snoozing.

16   PockyClipsNow   2012 May 8, 8:39am  

One new twist to push up prices is that rates have been so low for so long that REITs, calpers, etc, mom and pop, hedge funds are commoditizin SFR rentals big time mostly buying with cash at trustee sale. These homes will mostly never ever be for sale again.

They commoditized the MBS as part of the process which ramped up prices to 2006 highs - now the actual homes themselves are being put into portfolios to sell to investors. But the % return has to compare favorably to bonds and CD's.

Get used to the 'neverending intervention' in RE. The bankers are running this place like China.

17   MAGA   2012 May 8, 8:57am  

No problem at all getting a loan if I wanted one. I'm debt free, have six figures in savings, retired military and now working as a software developer.

18   HydroCabron   2012 May 8, 9:05am  

APOCALYPSEFUCK is Tony Manero says

Do you think Lorraine would be interested in my ideas about throwing bankers and Realtor®s out of helicopters as a policy mechanism to reduce financial crime?

Your ideas are intriguing to me and I wish to subscribe to your newsletter.

19   Teri   2012 May 8, 9:13am  

I just closed on a house with Wells Fargo for the first time in Jan. It was much easier than we thought. We sort of fell into the house really - we weren't planning on buying anything but then we stumbled upon our dream home. (I may get beat up on this board for this) We didn't really have our financial house in order the way we would have wanted but the loan went through without a hitch.

I think the reason houses are falling out of escrow and loans are being denied has a lot to do with the appraisals. If the property values are headed south in a neighborhood the bank won't lend to you for it no matter how good your finances are.

20   Rent4Ever   2012 May 8, 9:22am  

lwoellert says

People here in DC say lending standards are preventing a housing rebound.

I think the economy is preventing a housing rebound. "Unemployment" at 8.1% which is a suspect number to begin with. Then you have a housing market that has shown no signs whatsoever of stabilizing. On top of a growing number of homeowners waiting to sell for when the market recovers (Pent up supply waiting to flood market, and the baby boomers waiting to unload their house to retire on), everyone who was/is foreclosed on and is ineligible for a mortgage for x number of years after that event, new graduates burdened with student loans and a new perspective on what owning a home means, the continued government intervention in the economy preventing the markets from being rational, so that even with low interest rates housing prices are still falling showing just how weak the market actually is...so no I don't think it's a lack of loose lending practices that is preventing a housing recovery. There are so many larger issues at play here that the banks are just waiting this thing out, just like the majority of the people on this board. There are better places to put your money right now. And if I were a bank, business lending and consumer lending to all the new renters with better cashflows because they don't own a home makes more sense.

21   REpro   2012 May 8, 9:35am  

Let’s look on mortgage market from this perspective:
Real Estate market is a combination of micro markets. BA definitely belongs to this category with its own specifics; majority of housing being above $500K, great weather, high salary, highly restricted development but… state financial problems, weak business climate plus high unemployment/underemployment. From bank perspective, they pay handsomely to institution predicting market trends in micro markets. If local market is poison to go down, they request more documentation and effectively mortgage is more difficult to obtain. (Activity in all cash purchases have partially they own reflection to local mortgage market). If local market reach bottom and begin go up, and then mortgage qualification tend to be loosen.

22   Claire   2012 May 8, 10:10am  

Will let you know, applying for a loan right now.

Main proble - people with all cash are coming in and overbidding big time. I can't compete with that :-(

23   drtor   2012 May 8, 10:25am  

rowemoore says

So, for a $mil dollar property with 20% down you'll need about 250 - 280k liquid, a 720+ credit score, 2-3 years 1040s, a year or two of bank statements and a job that does not seem to be at risk.

Sounds pretty reasonable to me...

Lorraine - if you write about this it would be very interesting and valuable to put the present situation in a larger historical context. No doubt banks are stricter now than they were during the bubble years when "anybody with a pulse" could get a loan. But is it an overreaction or is it just a "return to normal"? Are banks stricter today than they were say 15-20 years ago?

24   drtor   2012 May 8, 10:38am  

lwoellert says

People here in DC say lending standards are preventing a housing rebound. ... What do you think?

Btw Lorraine, like many in this forum I reject the notion that a "housing rebound" is something desirable. We have just gone through an incredible housing bubble. This was not a good thing, it was terribly costly for banks, for tax payers, for individuals. We don't want it back. If banks return to traditional lending standards and house prices return to historical norms, that would be the best outcome in my opinion. For many parts of the Bay Area that would mean further price declines.

25   rootvg   2012 May 8, 11:09am  


David9 says

What if she really is a reporter? Go Patrick!

Lorraine really is a reporter for Bloomberg. I've conversed with her by email and she's got a Bloomberg email address.

You're moving up in the world.

26   rootvg   2012 May 8, 11:16am  

Lorraine, my wife and I closed on our home in Danville about two months ago and we didn't have any problem at all qualifying. Several caveats here: we bought a fixer, i.e., a home in the very low sixes in a neighborhood where most everything is in the sevens and eights and we had excellent credit and low ratios but other than that we're just two people who work for a living.

I think most of the issues with qualification tend to be in what these people call "the fortress" where ~2000 sq ft homes go for $1M or more.

27   ordertaker   2012 May 8, 12:06pm  

We had a tough time buying a primary residence we could more than afford. Our underwriter was new and questioned everything down to an $18 deposit into my checking account. Supplying information was a full-time job in itself. An acquaintance of mine is a VP with the bank and she had to get involved. We closed a day late. It was a huge hassle. Owning two rental houses complicated things.

28   Andy S   2012 May 8, 2:06pm  

If you have a decent job with an income that supports the loan, and your credit score is not in the sub 630 then getting a mortgage should not be a problem.

And yes, the lender will want to see all supporting documents as evidence of what you earn, W2, bank statements (6 months) and references from work about employment history etc.

If you have all of the above, then its no problem.

Gone are the good old days of NINJA, Illegals, anybody who could sign their name getting a loan.

Which is how it should be..

29   ttt   2012 May 8, 3:07pm  

I've been watching the BA for a few years now and gotten know the situation of a lot of friends. If you got a stable job, 20% down and decent credit history getting a loan is about as easy as it ever has been.

If you perceive that getting a loan is harder you are ignoring the actual problem. The problem of course are lack of available jobs, sinking wages and too much accumulated debt in the middle class. With the economic policies we have today and had for the last 30 years this trend is likely to continue. Along with dropping house prices which will finally start to match what's really happening to average American families.

Personally I placed an offer on a home 9 days ago which was accepted the next day and got my loan approved today. With most personal banking information being available electronically and electronic signing you can get through the paperwork pipeline faster than ever. You just have to be organized and responsive. The appraiser took the longest to get the appraisal out: 4 days.

What's for sure though is that you have to disclose _everything_ about your financial situation if you are a first time buyer. They will double check everything, including calling your banks, employer, previous landlords etc. Lenders pretty much know what brand of toilet paper you buy.

30   elliemae   2012 May 8, 3:16pm  

RentingForHalfTheCost says

Yah, I know, I live on a different planet as well.

Duh.

RentingForHalfTheCost says

What your comments around here Lorraine.

Whachoo talkin' about, Willis? You made no sense, which is why whatever it is you attempted to say didn't translate into our language. You know, the languages on planet Earth.

Since I haven't tried to refi or buy in the past 5 years, I've got nuthin' for Lorraine. Just snotty comments about snotty comments, as usual.

31   freak80   2012 May 9, 1:18am  

RentingForHalfTheCost says

God bless America!

Amen.

32   lwoellert   2012 May 9, 1:49am  

There's definitely huge differences between micro-markets. Ellie Mae, which processes about a fifth of originations, says that the average REJECTED conventional purchase-money borrower has 732 Fico and 81% LTV.

On the other hand, that average rejected borrower also had 42% back-end debt to income, compared to 33% for closed loans.

http://www.elliemae.com/origination-insight-reports/EMOriginationInsightReportMarch2012.pdf

I wonder if part of the problem is that underwriting has become a check-the-box procedure that no longer allows for any individual judgement. Maybe that's good and bad.

33   anonymous   2012 May 9, 2:36am  

I live and work in PA/NJ, building is steady, prices are flat, and people that qualify have gotten loans

Think like a bank. Is there money to be made? What's the risk? Does the risk matter or should we be taking more risk, knowing the usfedgov is our trust fund daddy and has promised to cut us a check, every time we misbehave and find ourselves in a jam

Now, think like a potential mortgage debtor. While the general attitude and mindset about how things are, and how one thinks they work,,,,,up until these last couple years, the herd agreed that buying a house (via debt) is an investment, and that house prices only move down a one way street, north. Now, the worm has turned and us younger folk realize that a house is a place to live, not an investment. 30 yrs of debt sounds like a long rope with an anchor at the end, maybe if wrapped around ones neck enough times, would be easier to drag. That, and the lie that prices only go up, has been exposed. Prices do in fact, go down

Why anyone thinks that trend will reverse on a dime, is beyond me. Ever heard the term saeculum? I'm 30 and was throwing a couple back with some old friends last night. When you remind them that half our lifetimes ago, you could buy 4 gallons of gas, a pack of cigs and a rubber for 5$, they cringe. Us younger folk are taking our time to see how all this pans out, seeing as how there's no entry to the ponzi for us to buy and flip our way up the housing totem pole. For many of us, access to credit doesn't matter so much, when we're not dumb enough to fall into the lifetime debt trap

34   David9   2012 May 9, 2:57am  

errc says

no entry to the ponzi for us

Or us older folk either. Excellent, so glad to see younger people are not blind.

35   freak80   2012 May 9, 3:00am  

errc says

Think like a bank. Is there money to be made? What's the risk? Does the risk matter or should we be taking more risk, knowing the usfedgov is our trust fund daddy and has promised to cut us a check, every time we misbehave and find ourselves in a jam

Ah banking...

36   Walter   2012 May 9, 3:42am  

ordertaker says

We had a tough time buying a primary residence we could more than afford. Our underwriter was new and questioned everything down to an $18 deposit into my checking account. Supplying information was a full-time job in itself. An acquaintance of mine is a VP with the bank and she had to get involved. We closed a day late. It was a huge hassle. Owning two rental houses complicated things.

I think this experience is very accurate. If you have a clean file (W2 income, income covers PITI, little debt, etc.) getting a loan is not a big deal. But if you have anything off the painted line (K-1s, rental property, etc) the fun begins.

I bought last year and I think our app was over 200 pages. It is a full time job supplying documents.

Just closed on another rental. A lot easier when I have the 200 pages scanned and ready to go.

37   michael H   2012 May 10, 12:55pm  

I had to supply all sorts of documents and letters of explanation on my FHA loan closed on march 5, 2012. we have W2 and K1 income. they wanted to see all sorts of business bank statements, and questioned everything. Honestly, it all seems by the book. if someone can't spend some time putting together all necessary documents, then they shouldn't be buying a house. Now here's a tip coming from someone who closed a complex FHA loan in 43 days flat, and I have self employment income. if you want to avoid a colonoscopy, and avoid delays that amount to months in back and forth with underwriting, MAKE SURE you deal with a qualified mortgage banker who knows how to analyze your situation and get you to prepare the mortgage application and documents ahead of time the way pre-underwriting and underwriting wants to see it. do that and you'll save crap loads of time!

38   Walter   2012 May 10, 3:01pm  

APOCALYPSEFUCK is Tony Manero says

Or . . . just have cash and drop it on the closing table and slap the seller across the face hard when you hand him the bag o' money.

Could have paid cash. I will take the almost free money the govies are handing out thank you. Leave the cash for when rates raise and the passbook pays more then the mortgages cost.

39   Tenpoundbass   2012 May 10, 11:48pm  

michael H says

I had to supply all sorts of documents and letters of explanation on my FHA loan closed on march 5, 2012.

I did all those requirements as well, my MB told me what the LO would request and told me to preemptively print them up and send them in. I had about 5 different loan officers request the all of those documents all over again. Also every week they wanted me to reprint my banks statements and work pay stubs.

From my perspective, it only seemed to serve to aggravate me, as each LO seemed to have a deal killer tone to their requests.

40   rooemoore   2012 May 10, 11:57pm  

errc says

I'm 30 and was throwing a couple back with some old friends last night. When you remind them that half our lifetimes ago, you could buy 4 gallons of gas, a pack of cigs and a rubber for 5$, they cringe.

The rubbers are still cheap! And why would a 15 year old need 4 gallons of gas?

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