Loading ...All of the well publicized mortgage troubles are not just affecting the low end of the housing market. Even the luxury market segment is experiencing disruptions and problems in the financing arena, and it is causing some major stress, hardship, and in some cases, losses.
The credit crunch now is hitting home buyers from all walks of life, not just subprime borrowers with poor credit. That in turn could mean fewer buyers - and lower prices.
For instance, a multimillion-dollar deal in Larkspur went belly-up last week when the lender yanked the financing at the last minute.
“Everything was perking along smoothly. All contingencies were removed,” said Bill Hogan, a Realtor with Coldwell Banker in Greenbrae, who sold the four-bedroom home for $2.45 million and expected to close the deal later this month. “The loan was approved and locked in. People were ordering moving trucks, everyone was feeling euphoric.”
On Thursday, the couple buying the house learned that their lender was rescinding their loan because they were making only a 10 percent down payment.
“All of a sudden the lender, because it is backed by a series of investors that are feeling very shaky and panicky, decided it could no longer honor the loan commitment,” Hogan said. “This was not a subprime loan; this was fully documented, people with outstanding credit who own a $5 million home now and didn’t need to sell it to buy this one.”
The buyers could have gotten a mortgage at a substantially higher rate - just under 8 percent - Hogan said, but “they crunched the numbers and said, ‘Hell, no, maybe this is a sign for us to get out.’ ”
The buyers walked away from the deal, forfeiting their $73,000 deposit. The home is back on the market for $2.2 million, its original asking price.
The incident underscores how the mortgage crisis could undermine real estate prices.
Lenders nationwide have drastically tightened their purse strings because Wall Street investors, spooked by rising foreclosures and defaults, no longer want to buy mortgages. Earlier this year, both lenders and investors soured on subprime loans to people with poor credit.
But starting last week, Wall Street started to spurn jumbo mortgages - those above $417,000 - even for borrowers with sterling financial profiles. Those loans have become scarcer, harder to qualify for and more expensive.
In the Bay Area, high home prices dictate that most mortgages are jumbos.
“A month from now, when we’re reporting closings for the month of August, we think that will be a pretty lousy number because of the mortgage market crunch,” said Andrew LePage, an analyst with research firm DataQuick Information Systems of La Jolla (San Diego County).
The one bright spot for Bay Area real estate in the past year has been upper-end sales. The median price of homes has risen in many counties. That’s not because prices rose but because a larger percentage of sales was for more expensive homes. At the same time, sales of homes in what passes for inexpensive here - less than $600,000 - eroded significantly because many entry-level home buyers were knocked out of the market by tighter lending standards several months ago.
“If people are having trouble getting jumbo loans, it will put downward pressure on the high end of the market,” said Michael Carney, a finance and real estate professor at California Polytechnic State University Pomona. “People know it will be tougher to get loans. A lot of potential buyers will wait.”
There is no question that this has had an adverse impact on interest rates, especially in the jumbo loan segment (which is virtually the whole Bay Area). Still, the market will find its level at some point, and skittish investors will ultimately return to the market, although they are going to be a lot less likely to swallow many of the risky mortgage loans that the market has relied on for the past 3 or 4 years. In fact, several lenders have instituted new, more stringent underwriting guidelines to help make loans more appealing to investors in the secondary market. The flip side of this? It is harder to qualify for a loan, and if you have marginal credit or a small downpayment, you might be out of luck.
Courtesy sfgate.com
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Mortgage Credit Crunch Affects All Price Ranges