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TBTF Banks Lowering Down-Payments & Credit Standards To Keep High-End Housing Market Alive

Tyler Durden's picture




 

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

What do you do when even wealthy people begin to face an increasingly hard time purchasing a home in a vertical market completely disconnected from income trends? You reduce downpayments and lower credit standards, of course.

Where have we seen this story before…

From the Wall Street Journal:

The nation’s largest bank by assets plans to announce Wednesday that it is lowering the minimum credit score and down payment it requires for mortgages as big as $3 million.

 

The New York firm’s moves follow similar steps at Bank of AmericaCorp.Wells Fargo & Co. and other banks on requirements for “jumbo” mortgages—those that exceed $417,000 in most parts of the country or $625,500 in pricier markets. At the same time, some big banks are backing away from smaller loans where they see higher regulatory costs and litigation risks.

Guess it’s gonna be shipping container apartments for everyone else.

 

Since the financial crisis, a recovery in the mortgage market has faced several challenges, but the jumbo market—popular with well-heeled borrowers—has bounced back along with sales of higher-priced homes. In the second quarter, overall jumbo originations rose to an eight-year high of $93 billion, up 58% from a year ago, according to a preliminary estimate from industry newsletter Inside Mortgage Finance.

 

By dollar volume, jumbo mortgages given out by lenders last year accounted for about 20% of all first-lien mortgages, used mostly to purchase or refinance a home, according to Inside Mortgage Finance. That is up from 5.5% in 2009. The last time jumbo mortgages accounted for a larger share was in 2005.

2005…got it.

For jumbo mortgages, J.P. Morgan plans to lower the minimum FICO credit scores it requires to 680 from 740 for loans on primary single-family purchases, second homes and certain refinances on those properties.

 

The increase in jumbo lending underscores a housing recovery concentrated in higher-priced homes. Sales of existing single-family homes priced between $750,000 and $1 million, for example, increased 21% in June from a year prior, according to the National Association of Realtors.

 

Sales of homes priced between $100,000 and $250,000, in contrast, increased 12.5%, while those priced lower fell 3%.

I don’t call this the oligarch recovery for nothing.

Rising home values have helped give lenders confidence that lower down payments won’t leave borrowers at risk of owing more on their homes than they will eventually be worth.

 

J.P. Morgan’s changes, which go into effect Wednesday, will reduce minimum down payments for some borrowers to 15% of the purchase price for single-family homes serving as the borrower’s primary residence, down from 20% currently. That change applies to mortgages between $1.5 million and $3 million; the bank last year made the same change for jumbo mortgages up to $1.5 million.

 

The bank also is lowering down-payment thresholds for jumbo mortgages used for second homes, such as vacation homes, and certain two- to four-unit properties. The bank says the changes simplify its offerings.

 

Several large banks have recently lowered their jumbo-mortgage requirements. Wells Fargo last year cut the minimum down payment it requires to 10.1% from 15% for jumbo mortgages of up to $1 million.

 

In June, Bank of America began allowing first-time home buyers, which it defines as people who haven’t owned a home for at least three years, to make 15% down payments for jumbo mortgages of up to $1 million. The bank previously excluded this group of buyers from its 15% down-payment option, which it rolled out in 2013.

Gotta love these banks. They just make shit up. Somehow “not owning a home for three years” = first time homeowner. Aren’t you glad we bailed them out?

 

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Thu, 08/06/2015 - 16:03 | 6398778 kaiserhoff
kaiserhoff's picture

Because it worked so well last time.

Thu, 08/06/2015 - 16:15 | 6398823 KnuckleDragger-X
KnuckleDragger-X's picture

I think it's time to test the TBTF theory and start letting them fail and sending their leadership off to prison.......

Thu, 08/06/2015 - 16:23 | 6398851 Captain Debtcrash
Captain Debtcrash's picture

A few tweaks to lending standards will not keep the housing bubble going, but if they do what they want, ban cash and push rates into negative territory it won't just perpetuate the bubble but cause super bubbles by current standards, explained here. Won't stop the crash though, just cause it to happen from a higher level.  Don't buy this rising rate BS, can't be done, not for any length of time anyway. 

Thu, 08/06/2015 - 16:46 | 6398929 NoDebt
NoDebt's picture

When real growth is gone you have only the volatility left to make money.  If you are in a position to exploit volatility.  Which is the realm of the elites and the well-connected, not regular people.  

If you can't make money on this in both directions you've got no business being involved in it.

Thu, 08/06/2015 - 17:32 | 6399083 Arnold
Arnold's picture

Very nice Sensei, may you live in interesting times.

Thu, 08/06/2015 - 18:27 | 6399237 Groundhog Day
Groundhog Day's picture

high end NJ properties are falling fast.  sellers are dropping prices at 50 to 100k @ a time.  I house i track went from 879k to 799k to 759k in a matter of weeks.  inventory might finally be hitting the market.  what happens when all the high end owners decide it might be a good time to sell

Thu, 08/06/2015 - 16:42 | 6398917 Vullsain
Vullsain's picture

Yeah and the tax payer is always there to pick up the eventual tab..

Thu, 08/06/2015 - 16:53 | 6398961 centerline
centerline's picture

Yup.  Throw it on the card along with everything else.

Thu, 08/06/2015 - 17:35 | 6399100 Bunga Bunga
Bunga Bunga's picture

What do you expect from the Moral Hazard Inc.?

Thu, 08/06/2015 - 16:07 | 6398779 Hitlery_4_Dictator
Hitlery_4_Dictator's picture

Soon people who think they have "value" in their homes are going to be in for a rude awakening....they are running out of the next sucker...

Thu, 08/06/2015 - 16:25 | 6398862 HonkyShogun
HonkyShogun's picture

Especially once the Bongo moves in the Section 8s.

Thu, 08/06/2015 - 16:07 | 6398794 Allen_H
Allen_H's picture

Shipping container ! Luxury, it'll be pavements and flop houses.

Thu, 08/06/2015 - 16:16 | 6398827 KnuckleDragger-X
KnuckleDragger-X's picture

Cardboard boxes on a 30 year note.....

Thu, 08/06/2015 - 17:20 | 6399037 Arnold
Arnold's picture

Much like the education bubble.

Many fuses are lit to explode on the next POTUS.

 

I completely endorse Hillary for POTUS 2016.

Thu, 08/06/2015 - 16:07 | 6398796 buzzsaw99
buzzsaw99's picture

i don't have a problem with ten or fifteen percent down but a minimum 680 fico on a jumbo is just rid god damn dickulous.

Thu, 08/06/2015 - 16:23 | 6398843 booboo
booboo's picture

fico scores don't mean jack shit. Warren Buffet probably has a 320

Thu, 08/06/2015 - 16:10 | 6398803 Rainman
Rainman's picture

 Jeezus ... 3 years and you're a first time buyer. This means my nitwit multi-defaulted sister-in-law will be back in the game in 4 months. 

Thu, 08/06/2015 - 17:18 | 6399026 Perseus son of Zeus
Perseus son of Zeus's picture

#blakMortgagesMatter

Thu, 08/06/2015 - 18:15 | 6399214 TheEndIsNear
TheEndIsNear's picture

I think it's been that way for several years, but I'm too lazy to look it up.

 

Thu, 08/06/2015 - 18:34 | 6399248 buzzkillb
buzzkillb's picture

Been that way for a long time. The party doesn't start until Cecil the dead lion receives a mortgage. #AnimalMortgagesMatter

Thu, 08/06/2015 - 16:15 | 6398822 H H Henry P P P...
H H Henry P P P Paulson's picture

has anyone been able to buy a home with 3% down? i know lending standards have approved this, but im curious if anybody has done it? im looking at buying a home and i want to put as little down as possible.

Thu, 08/06/2015 - 16:52 | 6398954 falconflight
falconflight's picture

Are you snarking, teasing, kidding or what?  WTF?  VA, FHA, Fannie/Freddie, USDA backed loans?

Thu, 08/06/2015 - 16:55 | 6398963 theTribster
theTribster's picture

Will the insurance requirements be lowered as well? Remember that anything under 20% requires paying mortgage insurance, if the bank lowers its requirement to 15% will that also reduce the mortgage insurance metric as well? If you plan on living in the house a long time then paying the insurance is a waste because it isn't for you the buyer but for the bank. There are programs that can get you into a house for less than the typical 20% down (still pay insurance however) but you have to qualify for them. Some people take out a second mortgage for the downpayment but that limits how many banks will do a primary mortgage on the house - the point is to make it a major purchase that you don't want to just walk away from - which many people did post the 2009 crash, looks like it is going to happen again. The banks were ejecting people that didn't have a 20% stake in the house even if they had made all their payments! IMHO, your better off putting the 20% down if it will be a primary residence, especially now that the banks have rewritten ALL of the mortgage laws in their favor - the next crash will be exponentially worse that they last.

For example, you make 25 years of payments and they can still kick you out for missing a single payment - that's 25 years of equity lost to the bank as well as the house itself! People don't believe what the banks can now do legally! If the bank fasces a question of solvency they can simply transfer all customer assets into their own accounts then its up to the gubmint to reconcile based on the new regulations - this is when the value of the dollar dissappears - this is how the banks will transfer the wealth of an entire nation to themselves - 401k, checking/savings accounts, CDs, IRAs, etc. Its coming. The person that lost their house after 25 years of payments will end up renting the same house from the bank as they will literally "own" every hard asset in the country...

Sorry for the ramble but I HATE banks. BTW, many of these new regulations were slipped in with the budget - signed off on by the conveniently non-partisan congress, amazing how they come together when it comes to fucking the people and tongue punching bankers a$$holes! I doubt they even hold their nose -:)

Thu, 08/06/2015 - 18:30 | 6399240 MachoMan
MachoMan's picture

For example, you make 25 years of payments and they can still kick you out for missing a single payment - that's 25 years of equity lost to the bank as well as the house itself! People don't believe what the banks can now do legally!

This has been the case for centuries, if not millennia.

PS, to the extent that there is any money left at the end of the foreclosure sale, then it is to be returned to the former homeowner.

Thu, 08/06/2015 - 17:39 | 6399117 corporatewhore
corporatewhore's picture

I'm not convinced it's the down payment that needs lowering.  In this economy it may be more the debt to income ratios with all the student loans and new cars.  

Then again, who really wants to buy at these inflated prices?

Thu, 08/06/2015 - 23:22 | 6400015 Abbie Normal
Abbie Normal's picture

Buy a house in this bubble market with 20% down, wait until it crashes, now you'll have 3% down on the way to being underwater.

Thu, 08/06/2015 - 23:28 | 6400032 FredFlintstone
FredFlintstone's picture

my 25 year old son had been talking to banks and a realtor. They have a deal where he only puts up 1%! The State of Ohio puts up a couple of percent. He would have PMI and a slightly higher interest rate. Maybe a little over 4%. He is 1 year out of college. I was a little surprised but not too much.

Thu, 08/06/2015 - 16:23 | 6398854 fascismlover
fascismlover's picture

At this point, history is not even remembered nor effective as recently as 7 years ago.  Sad fools. 

Thu, 08/06/2015 - 16:34 | 6398888 wmbz
wmbz's picture

History is so, so yesteday.... Means nothing!

The fools back then were no where near as smart as the fools today.

It has all be figured out by recent grads. Failure will not be allowed. That would not be fair!

Thu, 08/06/2015 - 16:46 | 6398928 taint
taint's picture

there's bullshit everywhere but I have 2 recent personal examples where home buying is 2x or 3x more difficult than 7 years ago.   So I call bullshit.   Banks aren't making 'easy money' loans for house purchases....if anything they are unusually hard.   Talk to a quality realtor, you will hear the same story.  Bank due diligence on home loans is tighter than it should be but for good reason.   

 

Thu, 08/06/2015 - 17:26 | 6399062 Arnold
Arnold's picture

I took a Payday and a Title loan  for the down payment Bitchez!

(They wouldn't give me crap for my good nature or good looks .Bastards.)

Thu, 08/06/2015 - 17:15 | 6399017 starman
starman's picture

Let see 3% down on a half a mill shack. .....

Yeah I can afford five of those homes! I'm rich I made it! 

Thu, 08/06/2015 - 17:15 | 6399018 Arnold
Arnold's picture

This was a general news item on the local news.

I think the producer just liked the word 'Jumbo'

Thu, 08/06/2015 - 17:41 | 6399125 appocean
appocean's picture

Most people that need a jumbo mortgage value their credit and use their credit to further enhance their net worth.  Not surprising that banks want this business.  But keep pumping the extremists cause traffic is king.  

 

Thu, 08/06/2015 - 17:56 | 6399165 JC-BI
JC-BI's picture

The housing inventory has been overloaded for a long time. It's not gonna be pretty when sales come to a screeching halt because of the dire shape of the economy.

Thu, 08/06/2015 - 19:40 | 6399418 redman38
redman38's picture

The last paragraph was hilarious

Thu, 08/06/2015 - 23:44 | 6400074 Bemused Observer
Bemused Observer's picture

Art Fern: Got no job? We don't care. Got a bad credit rating? We don't care. Got a prison record? We don't care. Don't expect to pay us? THAT'S when we care!

Fri, 08/07/2015 - 01:46 | 6400294 onmail
onmail's picture

Who wants another QE?

Evereebaadeeee

have another joint of brown sugar

(but watch the dose , or else....)
------
Rolling Stones
---------------
Brown Sugar, how come you taste so good
Brown Sugar, just like a young girl should

Drums beatin' cold, English blood runs hot
Lady of the house wonderin' when it's gonna stop
House boy knows that he's doin' all right
You should have heard him just around midnight

Brown Sugar, how come you taste so good
Brown Sugar, just like a young girl should

Brown Sugar, how come you dance so good
Brown Sugar, just like a black girl should

I bet your mama was a tent show queen,
And all her boyfriends were sweet sixteen
I'm no school boy but I know what I like
You should have heard them just around midnight

Brown Sugar, how come you taste so good
Brown Sugar, just like a black girl should

I said, yeah, yeah, yeah, wooo!
How come you, how come you dance so good
Yeah, yeah, yeah, wooo!
Just like a, just like a black girl should
Yeah, yeah, yeah, wooo!

Songwriters: RICHARDS, KEITH / JAGGER, MICK

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