Comments on: Mortgage Market DOA

By: Michael Wells

Michael Wells — Fri, 20 Feb 2009 20:23:03 +0000

I come pretty close to agreeing with Buzzcut. While I think there’s way too much paperwork involved and extra charges added on, someone with a 50% down payment is still borrowing the other half. On the other hand once you do qualify, the high interest rates caused by financial nervousness are going to slow sales of more expensive houses.

A quick look at Zillow shows that the US average home price is $180,000, Portland is roughly $360,000, Boston is $384,000. Granted these aren’t always the “best” neighborhoods, but price doesn’t keep people entirely out of housing.

By: Buzzcut

Buzzcut — Fri, 20 Feb 2009 17:17:39 +0000

Jumbo mortages SHOULD be hard to get. It SHOULD be the financial equivalent of a proctologist exam.

ALL mortages should be like that!

I just re-fied with Wells Fargo. Even now, they really didn’t care to know where I worked and how much I made. They didn’t ask to see tax returns. They didn’t ask for brokerage balances or anything like that.

It was way too easy to get the mortgage. Whatever happened to due dilligence?

By: Nashvilian

Nashvilian — Fri, 20 Feb 2009 17:07:13 +0000

Richard,

You’re right about the zombie state of the market. I love the invective language in the quote – “nearly impossible, wading in mud, getting tortured.” Usually the examples in these kinds of stories are exceptional. There are just far too many homes in the price range requiring jumbos than people who can honestly afford them. We have to wait for prices to come down, which wil be mostly due to successive ownership where owners take small successive losses (knife catching).

I think only people making north of $120k and having good credit should even look at a $417K mortgage to begin with. Three times, maybe 3.5 times earning is max. That’s maybe the top ten percent of household income? Problem is, those households tend to have volatle income in lean times as often more than one person is a breadwinner and loss of one job cuts income in half; jobs like finance and real estate that bring in high earnings are hemmorhaging.

One needs to buy a $200k condo when earning only $50k with some money down, somewhere close to work, and build up equity so the next home, should it cost north of $417k, will only require a conforming mortgage to cover the difference.

By: Wendy

Wendy — Fri, 20 Feb 2009 16:59:58 +0000

While I agree this suggests that a housing led exit to this economic malaise may be further off, perhaps, this is a “long-run” blessing in disguise for two reasons.

First, it could be what US urban social-economic development needs in order to spur the creation of smaller homes, which are often more ecologically sound and create more density, offering more amenities. If there is a market of people who can afford $375K, but no more, someone will create homes in this range. They might not be 4000 s.q. mansions, but something more appropriate for a couple with 0 or 1 child.

Second, maybe downpayments need to be bigger in order to avoid the negative equity trap that is preventing people from relocating to the places with jobs. The larger the value of the house, the more important that the owner puts equity into it.