Zero-down mortgage? Big lenders saying no

Many years ago, a 20 percent down payment for a home was the norm. But as prices escalated, fewer people could afford that. After all, 20 percent of $500,000 β€” the cost of a middle-class suburban house in the Washington, D.C., area β€” is $100,000.

No-down-payment mortgages came into play about a decade ago, at first for wealthy borrowers with stellar credit. The idea was to give those borrowers loans that allowed them to buy houses without having to liquidate other investments, said Sean O’Boyle, a vice president at SunTrust Mortgage in Chevy Chase, Md.

“But the model deteriorated, and it became available to just about anybody in recent years,” he said.

In part, that was because lenders assumed that as long as home prices kept climbing, borrowers unable to afford future mortgage payments could sell or refinance. But once home prices dropped in many parts of the U.S., that option evaporated. Delinquencies and foreclosures surged. With urging from federal regulators, lenders tightened their policies.

I’ll admit…I’m a little concerned. Did someone hog-tie Lizzie? Where are the Strong Jobs? What is this “zero-down” loan they speak of? Financing? What financing?!?! Where did the pink ponies go??

(aside: now the italics are borked. :-P)

edit: I fixed your link.

One thing missing in jobs boom: high pay

FTFA:

As a rule, economists say, higher-wage jobs support lower-wage ones: The Boeing machinist buying camping gear helps sustain the sales clerk who sells it to him. As high-paying jobs boomed during the 1990s, so did those further down the wage scale: The same tech boom that generated 14,485 software jobs (average pay, including options payouts: well over $250,000) created 36,430 administrative-support jobs (average pay: about $23,560).

But until fairly recently in the current expansion, lower-paying jobs were being created without much of a bump in higher-paying jobs. So where was the support coming from?

Housing. More specifically, the housing boom that has boosted home values across much of the state and sent Seattle-area home prices into the ionosphere.

As house values soared and mortgage rates fell, homeowners had the best of both worlds. Even if you lost your dot-com job and were temping to pay the bills, you could refinance your mortgage or tap into your home’s equity to maintain your spending levels. And tens of thousands of people did just that.

Ouch. Lizzie — tell me it ain’t so!

I have a feeling it will happen faster than you think.

No… just because there’s 1550 building permits does not mean theres the demand for ~400K condos… remember, massive supply actually lowers demand

I have seen a few listings in Snoqualmie ridge which are underwater to their purchase price. Most anything I have found listed that was purchased in the ridge in 2006 is flat to slightly underwater.

Here is one example, down 10K from a 7/2006 purchase.
http://www.redfin.com/stingray/do/printable-listing?listing-id=655416

I have a friend who just started renting in Wedgewood for $2,100. A very similar house in the next block is for sale for $600,000. Assuming 20% down (anybody have $120,000 sitting around?) and 8% on a jumbo mortgatge, this works out to a mortgage payment of $3,522, plus taxes and insurance, and the opportunity cost of not earning interest on that down payment … Is everybody ready for 50% house price declines?

“Many now are focusing on loans to borrowers who are willing to document their income, can make a down payment of at least 5% and have a history of paying bills on time.”

You can often figure out anomolies in sales data by looking at public records. When land is subdivided the numbers look particularly confusing (which is not the case for this house).

For the house you listed, it was purchased in 3/2005 for $475k. The next transfer was between what looks like a law firm and a mortgage company. To me, that looks like it was foreclosed on and did not sell at auction.

The next transfer was in 10/2006 for $410k. That went from the last mortgage company to a mortgage guarantee company. It looks like the first mortgage company had insurance and the second company paid off the insurance and took the house.

The insurance company then sold the house to an individual in 3/2007 for $452k. That individual transferred the property into his own LLC and is now trying to sell it for a quick profit.

The individual in question has been very, very active in RE in KC since 2001 and has been involved with at least nine properties.

You can find all of this information at:
http://www5.metrokc.gov/parcelviewer/Viewer/KingCounty/Viewer.asp?App=Parcels&SearchFor=Addstart
http://www.metrokc.gov/recelec/records/

American Home Mortgage was primarily an Alt-A lender, not sub-prime.

The cancer has spread and the great credit contraction is now officially underway…

American Home Mortgage to close Friday
Friday August 3, 6:52 am ET

“NEW YORK (Reuters) – American Home Mortgage Investment Corp plans to close most operations on Friday and said nearly 7,000 employees will lose their jobs as the lender becomes one of the biggest casualties of the U.S. housing downturn.”

I did find this little gem though…

http://www.redfin.com/stingray/do/printable-listing?listing-id=821077
Purchased for $626k in 7/06, now being offered @ $625k. Assuming a 6% commision, they stand to lose quite a bit of money on the deal… even if they get the asking price.

I just find crazy things like this:

http://www.redfin.com/stingray/do/printable-listing?listing-id=874049

In the area where I look at recent sales, all I see going down in price is overpriced flippers

concerning 30 yr fixed rate hike: I rent a townhouse in the central district for $1500/month including wsg. two doors down, they’re trying to sell an identical one for $300k (MLS#: 27129941, if you’re interested).

according to the above rates, that is a premium of more than 50% to own vs rent identical spaces (down to the low end marble, fake fireplace, and easily marred bamboo). all this in a neighborhood that could easily crash more than most if/when the bubble goes.

i understand that rate doesn’t apply b/c it is Jumbo, but i’m guessing it’d be close

Thank goodness! If a significant percentage of homes in Seattle were selling for more than $417,000, the rate hike might effect us. Phew!

Please note the term Jumbo:
Wells Fargo just raised their 30-year Jumbo Prime Fixed rate to 8%. It was 6.875% last week!!!

Google for jumbo loan. It’s the non-conforming rate for loan that is greater than $417,000.

Lenders Broaden Clampdown on Risky Mortgages (sorry, subscription required).

In a nutshell, it states:
– the market for sub-prime & Alt-A Mortgage-backed bonds is gone
– Large lenders are no longer funding sub-prime & alt-a
– Wells Fargo just raised their 30-year Jumbo Prime Fixed rate to 8%. It was 6.875% last week!!!

To put this in perspective, the monthly payments on a $350,000 30-year loan at 6.875% is $2445/month. The monthly payments on a $315,000 30-year loan at 8% is… $2443/month. That is a 10% difference in the loan amount to accomdate this rate jump. Think this will have an affect on house prices?

All of this mortgage risk is spread around and those without effective risk management are the companies that are going to lose money.

If a p

It’s the Magic Of Leverage!

But if somebody has to sell their house with “only” a 2.5% loss, then that $10K plus closing costs is a huge amount of money for most people to write a check for. Especially people that probably bought with 0 down…

A 5% reduction on a 500k home? Ouch…