Another lender votes with its money
In the debate about the future of Massachusetts housing prices, I'm inclined to pay particular attention to the opinions of those with the most money at stake. Wells Fargo & Co., one of the nation's largest lenders, quietly sent mortgage brokers this week a list of areas where it believes real estate prices are most likely to decline. In those areas, the company is cutting the maximum amount it will lend relative to the value of the home -- basically, requiring larger down payments or limiting the size of refinance loans.
No Massachusetts county appears in the worst category, "Severely Distressed Markets."
The next, "Distressed Markets," includes Barnstable, Berkshire, Norfolk, Plymouth and Suffolk counties.
The last, "Soft Markets," includes Bristol, Essex and Worcester counties, along with Rockingham and Strafford counties in New Hampshire and all five counties in Rhode Island.
The exact implications are complicated, but basically the most you can borrow in soft markets is 85 percent of the home value, and in distressed markets 80 percent of the home value. In many cases, the maximums are even lower.
To paraphrase and summarize, Wells Fargo thinks our prices are going to keep falling, but things are even worse in other places.
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So is this plan by Wells Fargo a new form of red-lining? ;-)
Wells Fargo and other banks, of course, have some degree of control over real estate prices. Loose lending standards make prices go up and tightening standards make them go down. We've certain seen some pretty dramatic effects since the credit crunch started in August 2007.
Is Wells also disallowing 2nd mortgages as a way around their financing limits?
Richard,
Good question. These are equity requirements, meaning borrowers can't avoid the caps by taking a second mortgage loan -- they have to have an equity stake in the home of at least 15, or 20, or 25 percent, depending on the county.
The industry refers to such caps as CLTV, or combined loan-to-value, meaning the relevant "loan" number is the sum total of all outstanding mortgages.
Yes. I have been saving for 3 years and have excellent credit. I finally got to 5% down and got pre-approved by Wells Fargo 2 weeks ago. Years of saving and now I'm worried it's all for nothing. Prices are finally going down and I have to sit on the sidelines yet again. This is so frustrating. Do we think all lenders will do in this direction?
It is a combination of lenders and mortgage insurance companies adjusting what they will lend to. They are the parties with the most at risk. This is the most extreme that I have heard about. Many lenders have cut back to 95% financing in almost all of MA, but not all lenders. Even with these adjustments, FHA & VA have not cut back, so there are ways to buy with little or no money down. Now more than ever, consumers looking to buy or refi need to be speaking with someone who knows wha tthey are doing and will work in their best interests. Look at www.CMPSInstitue.org for more info.
Carol,
Don't worry. If you have good credit and 5 percent to put down, you'll have no problem getting a fixed-rate loan at a good rate. Talk to a competent mortgage broker about a FHA loan.
As for Wells Fargo, it's guidelines are silly. I could understand such requirements on a town-by-town or city-by-city basis, but to make broad assumptions about entire counties defies logic.
This blogger might want to review your comment before posting it.
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