Three months ago we alerted you to a trend in lending to tighten up on Home Equity Lines of Credit (HELOCs), so please don’t let us hear that any plugged-in readers have been caught unprepared or by surprise.
The latest local news: Wells Fargo has “lowered the maximum loan-to-value to 75 percent from 80 percent on mortgages involving an equity line of credit for houses in Marin, San Francisco and San Mateo counties.”
∙ When Hell HELOCs Freeze Over… [SocketSite]
∙ Wells tightens standards for home equity lines [Business Times]
Go Wells! Best managed large commercial bank in America!
75% isn’t too bad at all
Does that mean you can still get LTV of 80% in the east bay or was that previously lowered to 75%?
>>>>>”Does that mean you can still get LTV of 80% in the east bay or was that previously lowered to 75%?”
It says “…on mortgages involving an equity line of credit…”
With just a first mortgage (no line of credit involved) you can still go to 90% LTV.
Thanks Teddy but I was asking the question as it relates to HELOC’s.
I could be wrong, but I would be very surprised if it hasn’t been lowered for the East Bay already which is why there’s no mention of it (think CC County).
Enthano – I completely agree. That is why I asked. I can’t imagine the East Bay having lower standards then the rest of the Bay Area. But since it wasn’t mentioned I was curious if anyone knew for sure. Thanks!
I’ve heard anecdotally that both Wells and BofA are in tightening mode.
I know 2 different people who are getting ready to close on a condo in SF. one is/was using Wells, the other is/was using BofA
initially, they were both told that they could get mortgages with 95% CLTV (a so-caled 80-15 loan). but then when they went to get it, they were told that the underwriters said it has to be a 80-10 so they need 5% more down. just this week both got told that they need 15% down now.
not sure what’ll happen.
ex-SF-er – I can confirm the requirements have tightened for bofa and wells from 80-15 to 80-10.
I have not heard about about the 15% down requirement and have been talking with these lenders this week.
We used Wells for our mortgage two weeks ago and had to swtich from 10% down (80-10-10) to 15% down (80-15-5) at the last second. We were told that Wells is no longer offering 80-10-10 products in San Francsico.
It luckily wasn’t an issue for us, but certainly may be for others trying to close.
I wonder if it will ever hit 20% down…That surely should have an affect on the market.
My anecdote – We closed on a house in Orinda in early April. During our 3 week escrow, Wells Home Equity went from 15% down to 20% down in Contra Costa and no longer differentiated by zip code. The first mortgage would let us do 85%, but we couldn’t get that loan from Wells. At the time, you could still get 90% (maybe more) financing for SF and Marin – The banks have tightened more in CC. Fortunately, we were in a position to put down 20% and enjoy the lower monthly payments.
My anecdote – We closed on a house in Orinda in mid April. During our 3 week escrow, Wells Home Equity went from 15% down to 20% down in Contra Costa and no longer differentiated by zip code. The first mortgage would let us do 85%, but we couldn’t get that loan from Wells. At the time, you could still get 90% (maybe more) financing for SF and Marin – The banks have tightened more in CC. Fortunately, we were in a position to put down 20% and enjoy the lower monthly payments.
80% financing on a 30-year loan.
And why not keeping the place 40 years and raising your kids in the place while we’re at it?
Boring. Flipping is more fun.
Some banks are still doing 90% LTV on jumbos but the rates are currently around 7.5% (on a 30-year fixed).
I have a client in escrow that was approved for 10% down, but when the loan had to go through underwriting a second time because the Wells representative made a mistake, the terms were changed to 15% down. I wasn’t aware that this was the reason the down payment requirement was increased, but it just happened yesterday so it makes sense that this is related.
I just had an appraisal from Wells come in suspiciously light. This explains it.
M.R.
Theory 1 (9/2004-9/2007): No one will ever default on a loan because home prices always go up. So lend to sub primes with nothing down and you can’t go wrong.
Theory 1 shattered. Sub prime, zero down loans evaporate. Loans get harder to come by and therefore prices decline.
Theory 2 (9/2007 to 4/2008): The reason that homeowners walked away from their mortgages wasn’t that the homes were under water, it was that the homeowner had no “skin in the game”. Thus, if a homeowner had put virtually anything down, they’d stick around to recover the downpayment, even if the home was underwater. So asking for 3% or 5% down would keep the homeowner from walking away, even if the home declined by more than that amount, because homeowners are financially stupid and will keep making payments on an asset that is underwater when it is in their best financial interest to walk away.
Theory 2 shattered. 5% down loans evaporate, except for certain government baked loans for low price points as a social program. Loans get harder to come by and therefore prices decline.
Current theory (5/2008-12/2008) 3: The reason that homeowners walked away from 3-5% down loans was that the homeowner didn’t have ENOUGH skin in the game. So asking for 15% down would keep the homeowner from walking away, even if the home declined by more than that amount, because homeowners are financially stupid and will keep making payments on an asset that is underwater when it is in their best financial interest to walk away.
Loans are now harder to come by, so prices will continue to decline. It’s pretty obvious that this vicious cycle of more difficult loans followed by dropping prices followed by even more difficult loans is going to continue.
At some point, we get back to the same lending standards of 2002, incomes only slightly up relative to inflation, interest rates about the same or higher than 2002 (2002:6.56% on a conventional 30 year fixed, currently 5.74 and rising), but a HUGE increase in the number of homes having been built to meet the demand of a bubble. At that point, the real declines will begin.
Quick, someone repeal the laws of supply and demand!
I think this trend of stricter lending standards is ultimately a good thing and will probably continue for some time to come. Of course, it’s unfortunate for anyone who gets their terms switched at the last minute.
In my view, this is a very positive development that will likely keep more buyers from buying homes they cannot afford.
Much of the current foreclosure heartache could have been avoided had this happened three years ago, but better late than never.
I just sunk 30K into my HELOC and they froze it. Now I have no operating cash. Boy I wish I didn’t do that.
Savings is money that you own and control.
Credit is money that you don’t.
Credit is not a substitute for savings.