Mortgage crunch hits Bay Area hard because of jumbo loans

The San Francisco Chronicle reports:

Need a mortgage this month? It's going to be harder - and more expensive - to get one. In the past week, turmoil in the mortgage markets has caused increasing problems for home buyers in the Bay Area and around the nation.

Kurt Herrenbruck, a mortgage planner with Fishman Financial Group in Berkeley, saw one client's financing evaporate in the space of three days last week.

"The client is well-heeled, with (a high credit score), and $500,000 in the bank, making an owner-occupied purchase with a 25 percent down payment," Herrenbruck said. "He needs a no-doc loan (meaning he cannot provide documents to prove his income) because of an employment hiccup."

Herrenbruck said Wednesday he found two lenders willing to make a no-document loan. But by Thursday it was down to one. And Friday, when his client's offer was accepted, there was none. "He can't buy even though he had the strongest profile of any no-doc: superlative credit, money in the bank and a whopping down payment."

The story underscores how skittish Wall Street investors are causing a ripple effect that hurts multitudes of people buying or selling houses.

Simply put, less money is available for mortgages.

Most lenders sell the mortgages they write to Wall Street investors so they can get more money to make more loans. But as defaults and delinquencies on all loans - from exotic and risky to more traditional - have risen, those once-voracious investors have lost their appetites for mortgages. That caused lenders to tighten their standards. Borrowers with less-than-stellar profiles started getting rejections or had to pay much higher rates.

You might say that the demand for mortgages is going down because credit standards are changing.