Good Luck Trying to Get a Mortgage

Until only a few weeks ago, just about anyone could walk into the bank and get a mortgage. The young, the old, the jobless and heck, there were stories of dead people getting mortgages.

Anything was possible. Until now.

There are stories coming out from all over the country of homebuyers now unable to get loans. Virtually overnight access to credit has simply gone away.

Here is a list of what you can no longer get:

1. No doc loans
2. 100% financing
3. Avoiding PMI by getting an 80-10-10 (80% first mortgage, 10% second mortgage and 10% down.)

In addition, jumbo loans, those that are over $417,000, now have rates at 7.5% to 8.0% whereas only as recently as August 1, you could still get a 6.5% rate on a 30 year.

The 80-10-10 loans are going away because brokers cannot place the 10% second mortgage in the market anymore. They have become too risky (as in a foreclosure, the primary mortgage is paid off first) so homebuyers wishing to obtain a loan with the second mortgage are increasingly finding themselves out of luck. From the San Francisco Chronicle:

Boris Morales, deal-desk manager at Residential Pacific Mortgage, a Walnut Creek midsize independent lender, said he had a well-qualified borrower buying a $2.5 million home in Greenbrae who wanted to put down 10 percent, borrowing 80 percent of the home’s value in a first mortgage and 10 percent in a second mortgage.

“He had both (lined up) back in the middle of July,” Morales said. “Both got approved and were moving forward. As of this week, (the investor) will no longer do second mortgages, period.”

Mortgage brokers are scrambling to fund anything over $417,000. That means most California home buyers are out of luck. Even the rich ones.

Think about that for a minute. Virtually the entire mortgage industry in California has come to a screeching halt. From the San Jose Mercury News:

“I’ve been in this business for a quarter-century and I’ve never seen it this bad,” said Christopher George, president of San Ramon-based CMG Financial Services, a vendor of home loans. “This is huge.”

Mortgage brokers are scrambling to come up with ways to still get the loans done. According to the Mercury News article, some are trying to fund two loans, the first for under the $417,000 rate and the second a more massive $200,000 or higher (depending on how much you want to borrow.) The second loan would be at rates as high as 8% or 9%- if they can even get the second loan right now- which for most people would probably price them out of the house.

Or the brokers offer some of these solutions:

Among the workarounds: Holmgren suggests that borrowers obtain loans with fixed interest rates of five to 10 years. Or they could find a co-signer. Or they could provide a larger down payment.

Yes- they’re going to provide a larger downpayment. In 2005 in Vallejo, California (in the East Bay of San Francisco), fully 70% of borrowers were taking out all interest 100% financing loans.

Are they going to come up with a downpayment? Of course not. And certainly not in the next year, two years, or three years. A 10% downpayment on a typical $600,000 Bay Area home is $60,000. Who has that kind of money?

The country has been in a negative saving environment for over the past year. Few have any cash on hand.

In the Chronicle article linked to above, there was a family of first time homebuyers declined a loan on a $420,000 Bay Area home because they wanted to do 100% financing. The article said that three adults in the family, when you combined their income, were making decent money.

My advice to that family: go save some money. Come back in three years.

What is so wrong with saving something first?

Unless Americans suddenly find cash somewhere, mortgages are going to be much more difficult to get- insuring that the housing slowdown worsens.

After what has gone on the last few years, is anyone truly surprised?