Apparently a reader sent him a memo that the private mortgage insurers sent out (basically they deal in any mortgage with sub 20% down payment) and it shows how restrictive lending is becoming. I've highlighted the comments from the realtor in blue but this goes to my greater point of "housing is not coming back in 6 months" brainwashing. The market always overreacts - and the lending market will go from overreacting to the "ease" side (hey you have a pulse? $500K mortgage can be yours) to "restrictive" side. It's again, all about confidence... but as so much of our financial system deals with flameouts from their egregious past behavior, they will overshoot to the conservative side.
So layer yet another restriction on top of the housing market. Interesting memo! Check to see if your market is in the "danger zone!"
Here's the memo, from the Mortgage Guaranty Insurance Company, with parenthetical annotations from the realtor:
February 6, 2008
Dear Valued Customer:
As a result of our ongoing evaluation of market conditions and loan performance, we are making a number of changes to our base underwriting guidelines and have created a new set of guidelines for areas exhibiting market weaknesses. The following underwriting guideline changes are effective for mortgage insurance applications received by MGIC on or after March 3, 2008.
(Then it goes on to break down underwriting guidelines. FICO is very important...and it better be above 660! And if the appraiser says that the property is in a declining market [see list below] , then many lenders wouldn't touch it, as these loans right now can't sell on the secondary market.)
Here is the list of restricted markets:
- Arizona -- Entire State
- California -- Entire State
- Florida -- Entire State
- Nevada -- Entire State
- Denver-Aurora, CO
- Greeley, CO
- Washington-Arlington-Alexandria, DC-VA-MD-WV
- Atlanta-Sandy Springs-Marietta. GA
- Honolulu, HI
- Coeur d'Alene, ID
- Chicago-Naperville-Joliet, IL
- Baltimore-Towson, MD
- Bethesda-Frederick-Gaithersburg, MD
- Hagerstown-Martinsburg, MD-WV
- Barnstable Town, MA
- Boston-Quincy, MA
- Worcester, MA
- Detroit-Livonia-Dearborn, MI
- Minneapolis-St. Paul-Bloomington, MN-WI
- Atlantic City-Hammonton, NJ
- Edison-New Brunswick, NJ
- Newark-Union, NJ
- Ocean City, NJ
- Nassau-Suffolk, NY
- New York-White Plains-Wayne, NY-NJ
- Poughkeepsie-Newburgh-Middletown, NY
- Portland-Vancouver-Beaverton, OR-WA
- Virginia Beach-Norfolk-Newport News, VA-NC
- Winchester, VA
- Tacoma, WA
In some other reading this weekend, I read that California, Ohio, Michigan, Florida, Arizona, and Nevada account for about 25% of US GDP. I'd argue all are already recessionary either through industrial slowdown issues (Midwest) or reversal of home boom that accounted for much job creation. Throw in the Northeast, a pantheon of financial jobs (sure to be seeing large job losses as credit contracts and all these people creating stuff no one wants anymore are not needed), and this is why I just think we are on the bleeding edge here.
Positive markets? Farmers in the heartland; oil rich areas (TX? OK?), and places with natural resources like say a Montana (mining).
Again, these are more long term structural and economic issues - doesn't mean the market needs to go down or that it cannot in fact boom in an ocean of Fed liquidity in the coming quarters. But to be buying housing stocks on the assumption of a massive boom or even STABILIZATION (or shortage per Cramer) of homes by end of year 2008? Hardly.
