Mortgage Market Update: Version 1
Hey guys. Sorry for the delay in posts, this week has been absolutely hectic and I’ve had no time at all to take a step back and take a breather.
As I mentioned to you in my initial post here on UrbanDigs, I will always try to give you a clear view of the mortgage market and will always do my best to keep you in the loop and offer an unbiased opinion.
That said, I introduce to you the “Mortgage Market Update”. This will be my weekly update on UrbanDigs as to the present day trends in mortgage industry - directly from the front line.
So here goes.
Guidelines:
1) Fannie/Freddie raised their premiums. As per Noah’s latest post regarding the Fannie/Freddie situation, a bailout is in the eyes of many investors right now and the GSE’s have raised their premiums accordingly to sustain the new wave of loans rumbling in to their portfolio. These premiums are built into the rate and will result in a higher rate quoted to you by your lender of choice. Obviously if you have bad credit and are looking for the maximum amount of financing, this will come at a price and will not be a bargain.
2) Jumbo products are being retracted from the wholesale channel at many financial institutions. This means that many brokers will not be able to offer jumbo products to their clients and will force them to go directly to the lender for financing.
3) No more jumbo products on second homes. As a combination of an unhealthy balance sheet and a much more risk adverse environment, many banks will no longer offer financing on second homes because of falling home prices and an investor concentration that will not buy assets with declining collateral.
4) A lower cash back limit on cash-out refinances. Once again, due to a softer real estate market, banks will not offer as much equity out of borrower’s homes in a refinance transaction. At this time many banks will allow up to $500,000 cash back to the borrower at closing, however this will all change and might be slashed in half. All of you that are seeking to add a Unit to your CO-OP or Condo – make sure you ask you lender if they are able to provide the financing!
Rates:
Rates pulled back a little this week and as result I am quoting the following at par (Par is industry talk for not loosing any money on the deal, from a pricing stand point. For example if I was to offer 6.875% I would be .125 points out, meaning that I would have to pay $1,000 out of my commission on a $800,000 loan, to the bank, after the loan closes):
1) Jumbo 5/1 ARM – 7.00% @ 0 Points.
2) Jumbo 5/1 ARM Interest Only – 7.50% @ 0 Points.
3) Conforming 5/1 ARM – 6.25% @ 0 Points.
4) Conforming 30 Year Fixed – 6.875% @ 0 Points.
All rates are based on a 60 Day Lock.
Fannie/Freddie:
If the government steps in to bailout Fannie and Freddie, it will cause a lot of turmoil in the mortgage markets. In most cases, when the government steps in to rescue a private company it usually comes with some extended guidelines of their own. Here is what I think will happen:
1) As many predict, equities will rally causing a sell off in the treasuries. Giving mortgage rates a boost in the higher direction.
2) Premiums charged to banks for loans will be increased yet again.
3) The government will probably set a standardized conforming limit for buying loans in 2009. Remember the stimulus boost to $729,250 is expiring December 31, 2008!
4) FHA will probably increase its down payment requirement to adhere with current risk profiles and declining home prices. Currently it is at 2.75% minimum, I think this will be increased to somewhere around 3½%.
I also wanted to mention that I have been contacted by many borrowers from overseas looking to purchase property in Manhattan, most of them from Paris and London. The funny thing is whenever I ask how much they want to provide as a down payment, their answer is always “how ever much you want us to”. Just goes to show you how much the Euro has on the dollar - unreal.
Other than that, it has been relatively quiet for the past week but this is usually the case towards the end of summer, as many people are on vacation and back to school time is upon us.
Posted by Uwsider
Fri Aug 22nd, 2008 07:48 PM
great article,
Could you provide some insight in the range if incomes/assets of the european buyers and what price ramge they are looking at
Posted by MortgageMan
Fri Aug 22nd, 2008 08:13 PM
Hey uwsider!
The international buyers are generally looking at the UES and UWS. Usually in the price range of $1.2 - $1.6MM. The people that I have come accross mostly make roughly $470k EUR or ~$700k USD. Amazing conversion huh?
I am not sure as far as assets but I am confident its enough for financing purposes, in relation to their income.
Have a great weekend!
Posted by Pez
Fri Aug 22nd, 2008 11:15 PM
Mortgage Man,
Great update. What percentage of Manhattan buyers are getting ARMs? Is that percentage higher or lower than it has been over the last 2 years?
Are co-op boards still allowing new owners to finance with ARMS?
Thanks,
Posted by uwsider
Fri Aug 22nd, 2008 11:42 PM
Mortgage Man,
wow, those European salaries are quite high.. even by Manhattan standards! I wonder if there is really that many of them as this has to be VP/Senior VP level salaries..
Posted by MortgageMan
Sat Aug 23rd, 2008 12:13 AM
Pez:
I would say that about 85% of my buyers get ARM's on purchases over $1MM and about 60% on less than $1MM.
Jumbo 30 Year mortgage rates are extremley high at this time, somewhere in the area of 8.25%. So to keep a reasonable monthly payment, many buyers choose to opt for the ARM's; which generally carry lower rates.
CO-OP's are still allowing adjustable rate mortgages but generally require more for down payment.
Keep in mind that if a bank offers a ARM product, they still underwrite the loan using the fully amortizing rate. Which means that if you get a rate of 6.50% on a ARM, the bank will add the margin to the rate (about 2.25%) and will use it to calculate your debt to income ratio, should the rates adjust. A very smart move to reduce default or foreclosure risk down the line.
Posted by Bob
Sat Aug 23rd, 2008 08:32 PM
The mortgage rates quoted in your piece are extremely high. Many local banks and Credit Unions are about a full percentage point lower. Astoria Federal, ING Bank, Hudson City are all high 5% range for 5YR ARM. Which bank rate are you quoting? They seem way out of market.
Posted by Noah
Sat Aug 23rd, 2008 09:59 PM
Bob - Mortgageman will remain anonymous to write here. I have known him a long while now. He works for a major lender, and tells it like it is.
These days, there are alot of lenders quoting a lower rate to get you business, and then having trouble getting that rate committed to down the road come crunch time. Its not everywhere, rather isolated yet growing trend, but its happening. Mortgageman will talk about this next week. Thats all I want to say about it for now.
Posted by anon
Sun Aug 24th, 2008 02:12 PM
I am also quite curious as to whom in London and Paris are making that kind of coin. Are these mostly people in the financial services?
Posted by Fred
Sun Aug 24th, 2008 06:18 PM
The whole Euro-driven explanation is so shallow it makes me laugh that folks in NYC (cough, brokers), use it so readily to "explain" why prices have held up. In actuality, foreign buyers are a phenomena that can only last so long. The UK is quickly heading into recession as is Germany. The euro simply won't stand at these levels. If you look at what's happening, the best explanation for why foreigners are buying USD real estate is simply to park capital outside of the euro - clearly buyers must enjoy NYC as well I guess - but the main argument is that if you think your market is heading south, put something aside in another asset class in a safe currency. Here's the rub, this feature of demand will subside because there's no meaningful resale market. It's kind of like buying zeros right before a rate hike. Also, abundant european salaries at 470k? Please. Europeans just don't make that much money. 200k in euro per year is senior management.
Posted by MortgageMan
Sun Aug 24th, 2008 07:11 PM
Fred:
I'm not sure why you commented on the "stability" of the Manhattan market in this post as I had not mentioned anything about it. I somewhat agree with you on one aspect of your post, if you are experiencing risk on one side of the spectrum, why not leverage it against something that is doing good for now? However, from a real estate perspective, I would think that the more property bought (via domestic or non-domestic currency) the better.
The only comment I made that comes close to the message you send out in your post, is that I have been contact by some borrowers from overseas - London and Paris to be specific. And, yes, those borrowers make that kind of money. Not sure why you said that Europeans are restricted to the 200k euro salary limit but the people that contacted me were 2 partners from a law firm in London and a money manager in Paris.
Posted by anon
Sun Aug 24th, 2008 09:45 PM
Fred - I tend to agree with you. If you're a foreigner buying in Manhattan right now, the only hope you have for near-term appreciation is, well, growing foreign demand. This is, of course, because prices are simply unsustainable from a purely local level (i.e., vs. rents and vs. incomes). The only thing supporting it right now is the foreign demand, and it's late in that game.
Also, Mortgageman, you say:
"if you are experiencing risk on one side of the spectrum, why not leverage it against something that is doing good for now?"
So, following that logic, pull your money out of a investment that has declined and invest (not just invest, "leverage" up) in Manhattan at peak prices just as the market is softening. Granted, people do that all the time, but it's how much money is lost.
Posted by MortgageMan
Sun Aug 24th, 2008 11:09 PM
Anon:
I wholeheartedly agree with you regarding the investment strategy, however, I do not think Manhattan is at its peak as far as real estate goes. I think it was at its peak when inventory was way below 7,000, but surely not now.
Posted by anon
Sun Aug 24th, 2008 11:58 PM
Mortgageman,
Price declines lag inventory changes, and I believe we are still early innings in the inventory game. I could be wrong, but I would expect inventory this coming fall and spring to be significantly higher than where we are now. So, while we may not be at absolute peak, I think we are still much closer to the top than the bottom - even if according to Noah we're off 8%.
Posted by Pal
Mon Aug 25th, 2008 12:08 PM
I just got quoted a 5.25% rate for a 5-1 Arm JUMBO loan... need less than a point down. Pretty happy with that rate.
Posted by anonymous
Mon Aug 25th, 2008 12:57 PM
Pal, where did you get that rate? can you give me the details in order understand if I should check out your bank (ie credit score, downpayment, loan amount etc)? Thanks!!
Here is my situation:
Credit score: great
Combined income: 340k-400k (varies)
condo price: 1.35mil
location: manhattan
downpayment: 30-35%
Posted by MortgageMan
Mon Aug 25th, 2008 01:39 PM
Pal, Anonymous:
That is a great rate. I am almost sure its from one of the smaller lender, I.E. Hudson City, ING, Astoria Federal, etc. The big dogs are all within the 6.875%/7.00% range at this time on jumbo loans.
I would be careful with a couple of things:
1. Make sure the broker/loan officer has locked you in and demand a confirmation.
2. Keep on top of the broker/loan officer at all times so that you are sure you have a commitment and the bank doesn't pull back at closing due to some unanswered stipulations.
Also I have found that smaller lenders do not want to finance new construction Condo's and regular CO-OP's as they try to limit their risk exposure to regular homes whether they be single or multi family.
Keep in mind at all times that these banks are relatively small and can only expose themselves to so much risk; generally they require a perfect file (perfect credit, low debt-to-income ratios, low LTV (55%/60%), just a simple vanilla deal overall).
Other than that, good luck!
Posted by Pal
Mon Aug 25th, 2008 02:55 PM
Anon/Mortgage Man:
Astoria Federal.
Anon - I think your stats should get you the same rate as they are similar to mine. You might need 40% down payment and might need 36x debt/maintenance post-closing.
Posted by k91
Tue Aug 26th, 2008 01:23 PM
Regarding Astoria and smaller lenders, they won't even talk to you unless you are purchasing at 80 LTV. It does not matter your income to expenses AT ALL. They will simply not lend unless you have sufficient amount of equity at closing. Take it from this 90 LTV'er that has literally been hung up on by various brokers and banks, including Astoria, because of such number.