Repurchase agreements are driving the tightening of credit standards. Until the economy strengthens and house prices start moving up on a sustained basis, delinquencies will remain high, and the threat of buybacks will tighten standards further. realtors will complain, but since their money isn’t at risk, their complaints will be ignored.
realtors never want to see a deal die because the buyer can’t get financing. Lawrence Yun, chief economist for the NAr, recently lamented about “unnecessarily tight credit standards” and “frictions related to obtaining mortgages.” In a realtor’s world view, there are no unqualified buyers. Back during the height of the housing bubble, the lending community agreed with them, and billions of dollars worth of loans were underwritten to people who had no hope of paying back the money absent continuing rapid appreciation. realtors should be careful what they ask for because getting their way with the lending community is what caused the devastation we are dealing with now.
The reason lending standards are tight, and will continue to tighten, is because recent borrowers are still defaulting on their mortgages, and the investors in these mortgages, including the GSEs, are demanding the originators buy these bad mortgages back. Whatever standards the GSEs might enact, if a loan goes bad, the GSEs demand the originator buy it back, so originators have responded by enacting their own standards even tighter than the GSEs to avoid these costly buybacks.
Halah Touryalai, Forbes Staff – 7/18/2012 @ 1:18PM
It seems that when Bank of America puts one mortgage-related problem behind it another pops up. This time the new problem is in the form of $6.8 billion in new repurchase claims.
The nation’s second largest bank had a decent quarter posting a $2.5 billion profit thanks to cost cuts, some improvements in its credit portfolio and lower provisions for loan losses. Bank analyst Nancy Bush calls is a “relatively clean quarter” compared to last year the bank reported a painful loss of $8.8 billion tied to a big settlement it made with some investors over mortgage securities gone sour.
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Proprietary Irvine Housing News home purchase analysis
$980,000 …….. Asking Price
Cost of Home Ownership
$980,000 …….. Asking Price
$196,000 ………… 20% Down Conventional
3.65% …………. Mortgage Interest Rate
30 ……………… Number of Years
$784,000 …….. Mortgage
$185,025 ………. Income Requirement
$3,586 ………… Monthly Mortgage Payment
$849 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$245 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$99 ………… Homeowners Association Fees
$4,780 ………. Monthly Cash Outlays
($809) ………. Tax Savings
($1,202) ………. Equity Hidden in Payment
$234 ………….. Lost Income to Down Payment
$143 ………….. Maintenance and Replacement Reserves
$3,146 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$11,300 ………… Furnishing and Move In at 1% + $1,500
$11,300 ………… Closing Costs at 1% + $1,500
$7,840 ………… Interest Points
$196,000 ………… Down Payment
$226,440 ………. Total Cash Costs
$48,200 ………. Emergency Cash Reserves
$274,640 ………. Total Savings Needed
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