The Other Door of the Mortgage Barn About to Close
February 16, 2008
Post Tags: Arizona-Daily-Star , FICO-of-680 , Kenneth-Harney , Mortgage-Insurance
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Mortgage Insurance
Kenneth Harney in his weekly column carried in the Arizona Daily Star business section on Saturdays brought to light for many of us the upcoming changes in the coverage offered or I should say not even offered in certain circumstances. Here is a quote from the article.
“On Feb. 6, the oldest and largest private insurer of home loans — Mortgage Guaranty Insurance Corp. or MGIC — issued a bombshell warning that, in large parts of the country, it would no longer provide coverage on cash-out refinancings, reduced-documentation loans, mortgages with down payments less than 5 percent, loans for rental houses or other non-owner-occupied investor properties, and mortgages with negative amortization features, such as payment-option loans.
The bans, which take effect March 3, cover four states in their entirety, the District of Columbia, plus 25 other major real estate markets. The states are Arizona, California, Florida and Nevada. Metropolitan markets on the list include Denver, the Maryland and Northern Virginia suburbs of Washington, D.C., Atlanta, Baltimore, Boston, Chicago, Detroit, Minneapolis, the Long Island and New Jersey suburbs of New York, Portland, Ore., and Tacoma, Wash.”
Lets make this easier to read.
It will no longer provide coverages as of March 3, 2008 in the state or Arizona for the following circumstances:
- cash-out refinancings
- reduced-documentation loans
- mortgages with down payments less than 5 percent
- loans for rental houses or other non-owner-occupied investor properties
- mortgages with negative amortization features, such as payment-option loans
Also all buyers of:
condominiums in declining markets will now need to come up with 10 percent down payments. Buyers of single-family homes in those areas with less than 10 percent down payments will need FICOs of 680 or higher.
This represents the second door on the Open Mortgage Barn swinging shut.
February 17th, 2008 at 1:27 pm
So are we officially a declining market as a city or only some zip codes? Based on what I read, the appraisers who dare check the declining market box on their reports find themselves without work… at least work ordered by lenders, which is most of it. I was quite upset by some recent developments in my future subdivision, so I ordered an independent appraisal. Will see what it has to say…
I found something else quite odd. The first few appraisers I talked with wanted a copy of the contract and made it sound like a standard requirement. For this reason I’d given up on getting my own appraisal. Certainly don’t feel the need to part with $300-400 in order to hear the contract price. I already know that. Turned out it’s not really the standard procedure. Another appraiser took the assignment without it. I really didn’t try to influence him in any way. The purpose of an appraisal to me is to get an honest opinion, so I just provided the details without the corresponding numbers.
February 17th, 2008 at 3:32 pm
Concerned, I think it is by zip codes and primarily around the Phoenix area. They have a log of vacant properties and last I saw about 55,000 active listings in the PHX area.
Here in Tucson we have a decline in the number of closed contracts yet sales prices are not declining rapidly. That being said we are noticing a asking prices are coming down because of the fewer number of offers and closed transactions in some price ranges, more than by zip code.
February 17th, 2008 at 3:51 pm
Boy, Dave, I don’t know about the stats, but what my own eyes have seen watching 85747 since April of ‘07 is downright scary. The asking prices in Rita Ranch used to start at about 190-200K. Actually, it was kinda rare to see anything below 200K. Now they start at 155K and who knows for how much they will really sell. If that’s not a rapid decline, I don’t know what is… Well, yes, I’ve seen declines into the 100K and above in CA, but they’re in more inflated areas and apply to much more expensive houses.
February 17th, 2008 at 4:02 pm
concerned,
Yes, Rita Ranch is one of those areas which has seen a decline. There are several good reasons for this and yes I would call Rita Ranch an area of declining prices.
This is one time when a lack of HOA for some areas in Rita Ranch is hurting the resale market.
There are certainly some areas of the Tucson area that are being hit and hit hard. But the overall is what I was referring to above with the numbers for Tucson as a whole.
It is going to get even scarier.
February 17th, 2008 at 7:38 pm
It is going to get even scarier.
That’s what I’ve been afraid of all along… It’s not that we’re so “special”… just the process is delayed here.
February 17th, 2008 at 7:44 pm
I thought I would get you with that one. It really does depend on the circumstances and the location. For the 94 percent of people that bought their home to live in. They are going to be fine.
The ones that need to move to Tucson will find a lot of options.
In most cases the people needing to sell for relocation will have to price their homes aggressively for this market.
But unless they over paid when they bought or they bought in the last 18 months they should at least break even or better.
February 17th, 2008 at 7:50 pm
But unless they over paid when they bought or they bought in the last 18 months they should at least break even or better.
Yeah, see… don’t feel like being one of those!
February 17th, 2008 at 8:18 pm
I’m still thinking about what you said last… Yeah, as long as we forget those unfortunate souls, it’s all good…
How were regular people supposed to know they were overpaying? The media was marveling at the boom. Don’t recall any realtors minding it or warning about it. The appraisers were appraising everything at and above contract price. Unless people had prior experience with bubbles, how were they supposed to know?
February 17th, 2008 at 8:25 pm
I can assure you all of our clients knew. One of the first things we do before preparing an offer is to run a CMA on the property and find out if it is over priced.
None of our clients have every paid more than a property was worth.
Today we are finding many properties on the market that were purchased at a price over market at the time. But some people just had to have an investment, other didn’t even check into it. Unfortunately, others did not have good counsel going into the transaction.
It was that period that brought about the starting of this blog to get accurate information to the public about the Tucson Real Estate Market.
February 17th, 2008 at 8:44 pm
I can assure you all of our clients knew. One of the first things we do before preparing an offer is to run a CMA on the property and find out if it is over priced.
None of our clients have every paid more than a property was worth.
Your clients might’ve not paid more than the properties were supposed to be going for at the time, but the key word is “at the time”. Whether it was “worth” what they paid for it is an entirely different story. Even if you did your best at the time, Dave, it doesn’t mean the properties were not overpriced. I don’t question your market analysis. The price might’ve looked perfectly OK because CMA is nothing more than a bunch of other overpriced properties resulting from the avalanche of insanity.
And if let’s say somebody didn’t get good service and the contract price was higher than it should be (even for this crazy time), have you ever heard of an appraisal coming in low in ‘05? Because I haven’t. People couldn’t even have inspection contigencies in many cases!
February 17th, 2008 at 10:32 pm
I bought a house in 05, I sold a house in 04, I’m living on the house right now I bought in 05. I had less than 30 minutes to make an offer on the house. It had 4 come in before noon on that first day on the market.
It is worth more now than we paid for it on 05. But it seems the point of this post has gotten lost in the comments.
The mortgage insurance should have done this a couple of years ago. But it is better late than never.
February 22nd, 2008 at 1:13 pm
Things are changing quite a bit with the mortgage industry. It is hard to tell week to week if clients with the same situation will be able to get the same loan products.
February 22nd, 2008 at 1:15 pm
Jim,
I agree, this is a very volitile part of the real estate transaction process.
I don’t think enough potential buyers are tracking the mortgage part of their transaction process close enough.
Some are going to be very surprised when they go to get a loan.
March 2nd, 2008 at 9:40 am
Nice article, it does seem that some of the lenders, even today, don’t want to lend. There is no reason for people with a 700+ credit score and otherwise decent credit possiton should have trouble getting a mortgage.