Credit Update: HSBC Warns of Bad Debts
A: I know some of you guys HATE that I talk about this stuff, but its important. I stated months ago that I thought the 2 biggest threats that would extend the housing correction are tighter lending standards & weak jobs reports. The weak jobs data I'm on record for stating I think will occur during the 2nd half of 2007; closer to the end of 2007. However, the tighter lending standards seem to be right around the corner.
If you are interested in the fundamentals that affect housing cycles, then start reading Calculated Risk daily; its just a great read about a variety of economic data and corporate trends that could ultimately affect real estate. According to a recent post titled, "Mortgage Refinancing Gets Tougher", published in the WSJ:
... borrowers are getting caught short by a changing housing market -- one in which home prices have flattened and lenders are beginning to tighten their standards after a long period of making mortgages easier and easier to get...And to make matters worse, HSBC Holdings, a huge global bank warned late yesterday that charges for bad loans will be more than 20% higher than expected. According to Yahoo Finance:These new challenges come ... when .... about $1.1 trillion to $1.5 trillion in ARMs ... will face rate increases this year ... The MBA expects borrowers to refinance as much as $700 billion of those mortgages.
... there are signs that some lenders are beginning to tighten their standards. ... [as an example] This month, Wells Fargo & Co. will begin reducing by 5% the maximum amount it will lend to certain riskier borrowers in "declining" markets. Those markets, covering more than 150 counties in two dozen states, include parts of California, Florida, Michigan and Ohio.
The change "reflects the tighter requirements of our investors," a Wells spokesman says. "I think all lenders are experiencing this kind of tightening of credit standards."
"Foreclosures have shown a higher severity" than expected, Chief Executive Michael Geoghegan said on a conference call. "The major impact was taking into account adjustable mortgage resets."Folks, I'm not making this stuff up. These are the things that LEAD to policy changes that could ultimately affect the playing field of real estate investing. The whole purpose of UrbanDigs should be to expand your knowledge of real estate investing and to understand more clearly the fundamentals that affect housing cycles. Sure, its always fun to talk about new deals and what apartments wont last long on the market, but that in itself doesn't educate you! What is the old adage?HSBC had said in December that the main risk in the near term was in personal lending in the United States, where increases in short-term interest rates are hitting people with adjustable-rate mortgages.
Give a man a fish, and he'll eat dinner...Teach a man to fish and he'll eat for lifeThe goal of UrbanDigs will always be to hold an open forum to dicsuss market trends, fundamentals affecting the housing market, NYC real estate tips and tricks, and most importantly to be FORWARD THINKING in my posts so that you (the buyer, seller, or owner) can view the real estate market from a slightly different perspective and hopefully learn something along the way!
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Comments (3)
How much will this impact NYC? On the one hand, we seem one of the more extreme affordability problems- median manhattan homeprice/median icome = 1.3MM/45k. Ergo, it would seem that any tightening of credit standards hits the NYC homebuyer square in the privates. Almost everyone I know whos bought in NYC in the last 5 years did so via option arms, or at least a second piggyback. If those go bye bye, or at least become really hard to get, prices will have to fall.
Posted by drtomaso | February 8, 2007 2:54 PM
True but NYC also has a lot of high income earners too. And to boot, we are 75% co-op who for the most part play an active role in limiting weak buyers from getting through and putting off speculative investors.
I think it will hit us psychologically at first, and then at a lag from other markets.
Posted by Noah | February 8, 2007 3:19 PM
Don't believe the mailers that come to your house or telemarketing loan people. They are all just trying to talk you into putting money into their pockets. Be very careful. So far, I have not heard of one good deal with one of those specialty marketing strategies. Best to always get all details of the loan they are offering in writing and not verbally. Always ask for a Good Faith Estimate before proceeding. Use FREE and anonymous professional mortgage broker resources like LoanChatLive.com where you can ask a real mortgage specialist your questions with no obligation and giving up no personal information.
Posted by Mortgage Refinancing | October 20, 2007 2:38 PM