While Libor has been heading up amid complaints “that financial institutions weren’t telling the truth about their funding costs after rising mortgage defaults contaminated credit markets and drove up borrowing costs,” jumbo-conforming rates have been heading down following Fannie Mae’s decision to raise their purchase price for the loans last Tuesday.
From Julian Hebron at RPM:

The [jumbo-conforming] rate drop [of about 0.5% over the past week] is good news, but approval guidelines for these loans are strict. Borrowers must have at least 10% equity, or at least 15% equity if their property is a designated declining market—even San Francisco and Marin Counties are on many lenders’ declining lists. Cash-out loans require 25% equity, and cash-out is limited to $100k. Loans require full documentation, 1-unit properties only (condos ok), debt-to-income ratios of 45% or lower, and 700 minimum credit scores.

Fannie Mae has said they may announce less stringent guidelines as soon as this week, but all lenders can overlay their own risk-control guidelines and rate premiums beyond what Fannie Mae (or Freddie Mac) may require.

With the rate drop, jumbo-conforming mortgages are now being offered for around 6.25%. That’s a 0.625% (62.5 bps) discount to jumbo rates (6.875%) and only a 0.25% (25 bps) premium over conforming (6.0%).
Libor Set for Overhaul as Credibility Is Doubted [Bloomberg]
If Lowering Rates Isn’t Working, Perhaps Increasing Limits Will [SocketSite]
Mortgage Rate/Spread Update: Are You Feeling Stimulated Yet? [SocketSite]

Comments from Plugged-In Readers

  1. Posted by San FronziScheme

    15% equity
    700 credit score
    Full docs
    debt-to-income ratios of 45% or lower
    In short, give loans to people who can afford them. Good.

  2. Posted by "Dave"

    Julian Hebron’s web site says that rates are at 6.25% for conforming loans. He needs to fix his widget…

  3. Posted by ex SF-er

    this goes along with my anecdotal stories from the other day, that BofA and Wells were asking my friends for 10% down, and perhaps 15% down once it goes through underwriting.

  4. Posted by tipster

    …and therein lies the problem. We BUILT enough houses for people who could afford them AND for people who could not afford them.
    We built enough houses for people who had down payments AND were willing to put them at risk, as well as those who did not have the down payment or were not willing to put them at risk.
    The supply of houses has therefore been built up to immense levels.
    But now we are only willing to FINANCE enough houses for people who can afford them, AND have down payments AND are willing to put the down payments at risk.
    What to do with all of the leftover houses?

  5. Posted by incredirent

    bulldoze ’em

  6. Posted by anidea

    tipsteer
    rent them……….many good people (good jobs, good credit, good family values) need a house for the family but don’t have the down payment, yet.

  7. Posted by mrbogue

    give them to foreigners in exchange for plastic crap and gas.

  8. Posted by Dude

    “What to do with all of the leftover houses?”
    Let the prices keep falling until someone can afford them?

  9. Posted by NoeValleyJim

    Where did “we” build them? Certainly not in San Francisco.

  10. Posted by missionite

    One question about the 700 minimum credit score: If a married couple has one person who qualifies (say 760) and one who doesn’t (say 660), would they qualify?
    Do they require both to be above 700, the average to be above 700, or just one to be over 700?
    Any mortgage brokers know the answer?

  11. Posted by tipster

    “Certainly not in San Francisco.”
    The last time I checked my map, Mission Bay was in San Francisco. Rincon Hill? San Francisco. Soma Grande – probably San Francisco. All the infill projects around the Marina and Pac Heights, including the Greenwich and the development on Steiner, were also in San Francisco, at least the last time I checked. Those hundreds of condos on Berry Street? San Francisco. Esprit Park is still in San Francisco. I’ve lived here for almost 30 years and I’ve never seen this level of residential building, except maybe after the 1906 quake.
    I think what you meant to say was “I wish there hadn’t been so much building in San Francisco”, or, “I’ll soon be regretting the amount of building in San Francisco.”
    All you needed to know there had been too much building was the 70% of the loans being Alt-A during 2005 and 2006. If they couldn’t have gotten those loans, which will start to reset in earnest next year by the way (and by 2010 most of the option arm loans will be toast), most of that building would not have been financed.

  12. Posted by San FronziScheme


    What to do with all of the leftover houses?

    In communities that have a weak local economy but depending on 2-hour commutes, this will be tough to fill these houses. Not only is the construction sector in recession in these towns, but commuting that long to save 1000/month doesn’t make sense when your gas bill goes north of 800/month.
    Look at California City or Salton City. Sometimes, you built it and they didn’t come…

  13. Posted by JJ

    SF won’t have trouble absorbing all the housing being built. It may take a little longer then historical norms and some buildings may go from condos to rentals but these units will be absorbed. SF has historically been a very undersupplied housing market. This amount of building is barely bringing us back to a normal level. I don’t see many Mission Bay buildings sitting vacant and from what I hear/read the units are being sold at a solid pace.
    The suburbs and commuter towns….now that is a different story.

  14. Posted by San FronziScheme

    SF will always absorb all that is built. The supply side is definitely gonna be too low in the foreseable future to absorb the demand.
    Supply and demand is definitely on the supply side. But pricing is another thing.

  15. Posted by anono

    what to do with all the leftover houses?
    Bulldoze them. Move people into contiguous subdivisions so that others are completely emptied out and flatten the whole thing. Turn them into parkland. This isn’t necessary in many places but in Stockton, Merced, Valejo, Fresno, Riverside County etc… you could just bulldoze whole chuncks of unoccupied track houses.

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