Comment du Jour: Little impact from raising conforming loan limits, and the end of Stated Income Loans

Kelly McCray comes through with a comment that will be heard around the world!

I was at the east bay CAMB [California Association of Mortgage Brokers] legislative update meeting yesterday. It is becoming quite clear that there will be little, if any, impact with the raise in conforming loan limits. This news is disappointing to say the least. Fannie Mae is planning on charging a premium for loans over $417K, so what was the point?

And more…

I am very concerned for the consumer right now. There is a lot of legislation on the table both at the state and federal level that will make it extremely difficult for borrowers to obtain financing, with or without a broker. On the state level, stated income [loan] is very likely going to be outlawed. 100% financing is on the chopping block as well.

And you think we don’t report the doom.

11 thoughts on “Comment du Jour: Little impact from raising conforming loan limits, and the end of Stated Income Loans

  1. “On the state level, stated income [loan] is very likely going to be outlawed. 100% financing is on the chopping block as well.”

    How refresching to read some good news… how on earth did adults start to believe in santa claus and stated income? yeah yeah. I earn 20K a month… oh, btw – I didnt tell you, my boss is firing me at the end of the week – if I can stay that long.

    I understand that lying is the one and only deadly sin in the US judicial system – thus everybody assumes that you dont lie. But when people get desperate, they are more likely to forget commun sense, and eventually put glitter over the truth.

    Any foreigner here who could tell is there is ONE other country where stated income and 100% financing are legal?

  2. I don’t see any doom here. If anything, this is good news for everyone.

    Liar loans and 100% financing are key components as to why everyone on the mortgage side of the home ownership equation have had their asses handed to them – and continue to do so – over the last several months. Ending that nonsense is central to the mortgage biz regaining any credibility if they ever wish to sell mortgages again. This is nothing more than a return to sound business practices. The most disappointing thing about this is that it apparently needs to be legislated rather than the mortgage biz stepping up and ending this nonsense on their own.

    Likewise, I see nothing wrong with FM charging premiums on loans in excess of $417K. The old J. Paul Getty quote comes to mind (paraphrased and with relevant numbers): “If you owe me $200K and can’t pay, that’s your problem. If you owe me $2M and can’t pay, that’s my problem.” Increased loan values equals increased risk and should be priced appropriately.

  3. There are a lot of smart people out there in a heap of trouble and I’m still not convinced that there isn’t a worst case scenario looming out there. The last thing the gov’t wants to do is continue to fuel what is being proven to be an over-valued housing market financed by mortgages where home owners have no equity and are increasingly under-water. So it’s no surprise that these laws are not designed to drive responsible lending and borrowing — for a change.

    Roubini has a down-right frightening, and not totally unrealistic, blog posting (registration required) stating the potential future down-case scenario associated with home owners with no or negative equity walking away from their homes. There was a systemic failure of the industry where one side of the home ownership equation was changed (100% financing, no doc and sub-prime loans) without considering the impacts to the fundamentals of mortgage lending and equity backed loans. This article pretty much covers the economic scenarios associated with these realities.

    This is not an article that should be missed by anyone that thinks this is a temporary problem that will correct itself.

  4. Later – you have to be kidding. When you remove the very channel that provides competition for the big banks, you help keep things like rates and fees competitive. Don’t forget that the big banks are looking for ways to make back the losses they have recently endured, they are getting the brokers out of the way, and so the borrowers will only have a few options. That will not = rational pricing. Quite the opposite.

  5. The sooner we get all of the gamesmanship out of the mortgage process the better. Here’s a novel idea — set a standard rate, and get a simple no-fee home loan!

    The whole process of “buying” a loan with all of the costs/fees are almost as bad as our federal income tax laws and processes. The current process is not efficient and purposefully confusing to enable intermediaries to screw the consumer. Sure, some intermediaries are more pro-consumer, but seriously — only to a point.

    I think “Laters” comments was just focused on the fact that there appears to be some common sense being interjected into the process that hopefully will result in more responsible / fiscal lending practices.

  6. here here eddy. spot on! i’d only add to that the bullshit in paying for title searches and for disclosures (in condo’s). such a farce. not even funny.

  7. Eddy – you would have to believe then, that the banks will not screw the consumer. And a flat rate just like a flat tax won’t work, because there just isn’t a one size fits all way to go. the banks are going to want to consider in their profit margins ALL risks, so the person with the lowest risk to the bank will pay far more than their share to cover the person with the highest risk.

    Don’t forget, even with “free” checking and “no cost” loans there is a WAMU, BofA and wells fargo next door to every starbucks and they want more.

  8. This is only “good news” as some have stated if you can reduce the 1,200 Sq foot house that goes for $1 million or the over $1 M 600 SF studio apts in NY to much lower levels – say take us back 10 years on values, and increase wages by tremendous amounts. I’m in the top few percent of income earners and I need every dime to pay the college and law school loans ($40,000 a years now just for tuition at my old law school), the oil heat bill – by itself $600 a month – the electricity $280 a month – the car payments – the property tax. I have a nice home for my family, but if I had to move now, I’m not sure if I could get or afford a mortgage.

    There may be problems but “fixing” part of the picture and leaving a wide swath of society to try and cope – I’m not just taking about the most in need amongst us, I’m talking about the professionals who in decades past could support a middle class family with a single 40-hour a week income, and now struggling with two 45 or 50 hr a week professional incomes.

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