Wednesday, June 13, 2007

Anecdotal evidence of mortgage credit tightening overshoot

From Bloomberg:

“Josh Tullis, who in his eight years as a senior loan officer rarely felt compelled to reject a first-time home buyer’s mortgage application, is sending people away empty- handed in 2007.” “Tullis’s latest clients are a married couple that banks ought to love. Between them they make $70,000 a year and they’ve been renting the same apartment for three years with zero late payments, he said.”

“Lenders won’t approve them because they don’t have enough money in the bank, said Tullis, Virginia sales director at A. Anderson Scott Mortgage Group in Falls Church. With mortgage companies cracking down due to rising subprime defaults, Tullis needs them to sock away two months of payments for the $500,000 townhouse in Fairfax.”

“‘Six months ago, these folks might have qualified, a year ago, definitely,’ Tullis said. ‘It’s a lot, lot harder than it used to be for first-time home buyers.’”

The story doesn't say if the couple had a down payment ready, if so then asking for an additional two months of payments essentially in escrow seems excessive to me...


Robert said...

No mention of the problem with purchasing a house that is 7x household income? They are still making these loans with no down payment if they can scratch together 2 months payment in savings? At 7%, they are paying $35,000 in interest alone? Earth to housing industry........

Scott said...

That is a fair point; when you think twice about it, paying half of your annual income just for the interest on a home is absurd. These buyers are probably still hoping for some price appreciation sometime down the road.
So the loan officer really did them a favor.