Banks until recently were able to offload the risk of many jumbo mortgages by selling the loans to investors. But now, as investors burned by the subprime debacle have become extremely picky about what they will buy, banks are having to keep more of these loans on their own books and as a result are charging higher rates.You know the median home price isn't higher than last year now that we are hearing about bailouts from politicians,no matter what the National Association of Realtors says.Ponder some of the numbers in this story.The Fed is throwing liquidity in the market but interest rates on jumbo mortgages can be as high as 9%.In certain places in California 44% of all mortgages are jumbos.Expect prices to go to where a significant percentage of the population doesn't need a jumbo mortgage.
Some lenders -- such as Countrywide Financial Corp. -- have made a point of saying they're now most focused on making loans that can be guaranteed by Fannie and Freddie.
Other lenders have simply tightened up their lending standards, for example by no longer making jumbo loans to lenders who can't fully document their income, even if they make large down payments and have stellar credit histories.
The banks that are still making jumbo loans are charging substantially higher rates to compensate for the lack of investor demand. Borrowers who could have gotten rates as low as 6.5 percent in June are now having to pay as much as 9 percent.
But aside from the financial impact of higher rates, in certain high-priced real estate markets, the effect of the suddenly tighter lending environment is more psychological, mortgage bankers and real estate agents say, as buyers and sellers alike don't want to plunge into an uncertain future.
"Showings are down, contracts written are down, and sellers are just as backed away as buyers are," said Lou Barnes, a partner in mortgage bank and brokerage Boulder West Financial Services in Boulder, Colo. The company arranges for financing on many higher-priced condominiums and houses in the state.
"I think the psychological damage is worse than the financial damage" which is already bad enough, he said. Even for buyers who have plenty of cash or can easily afford higher mortgage rates, the sudden change in the financing environment reduces "the ardor to buy a house unless you have to," he adds.
With numerous buyers and sellers sidelined, the higher cost of big mortgages is bound to put downward pressure on home prices should the lending environment stay tight for a long period of time, said Ellen Bitton, president of Park Avenue Mortgage, a mortgage bank and brokerage that does business in several states, including New York, Florida and Utah.
In New York, the most pronounced effect so far has been at the very top end of the market, for properties priced $25 million and above, said Dolly Lenz, vice chairman with Prudential Douglas Elliman.
"Every single person I have at the highest end is on hold. They're going to wait and see what happens," she said. "It has nothing to do with them being able to afford" properties or not, Lenz added. "It's a confidence thing. They somehow feel poorer, whether they are or not."
In California, where the median home price is well above $500,000, jumbo mortgages are as much as 44 percent of all mortgages issued in certain metro areas, according to data from First American LoanPerformance.
Wednesday, August 29, 2007
Subprime Mortgage Crisis Spreading to High-End Housing Market
The AP reports: