New Jersey Real Estate Report

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From the Wall Street Journal:

Bush Moves to Aid Homeowners
By DEBORAH SOLOMON
August 31, 2007; Page A4

President Bush, looking for ways to respond to the subprime-mortgage crisis, will outline a series of policy changes and recommendations today to help borrowers avoid default, senior administration officials said.

Among the moves will be an administrative change to allow the Federal Housing Administration, which insures mortgages for low- and middle-income borrowers, to guarantee loans for delinquent borrowers. The change is intended to help borrowers who are at least 90 days behind in payments but still living in their homes avoid foreclosure; the guarantees help homeowners by allowing them to refinance at more favorable rates.

Mr. Bush also will ask Congress to suspend, for a limited period, an Internal Revenue Service provision that penalizes borrowers who refinance the terms of their mortgage to reduce the size of the loan or who lose their homes to foreclosure. And he will announce an initiative, to be led jointly by the Treasury and Housing and Urban Development departments, to identify people who are in danger of defaulting over the next two years and work with lenders, insurers and others to develop more favorable loan products for those borrowers.

The moves are the first visible steps the Bush administration has taken to help stem the fallout from the subprime crisis, which has roiled financial markets and threatened to contaminate the housing sector. Defaults and foreclosures are increasing as borrowers — many of whom got interest-only or no-money-down loans — begin having trouble making their mortgage payments as higher rates kick in. Many homeowners believed they could refinance their loans, but that has become much harder as lenders tighten their standards in the face of defaults and foreclosures.

With more than two million loans expected to adjust to higher rates over the next two years, possibly triggering many more defaults, the Bush administration is looking for ways to stem the damage.

“The president wants to see as many homeowners who can stay in their homes with a little help be able to stay in their homes,” a senior administration official said. “We’re not looking for an industry bailout or a Wall Street bailout. The focus here is on the homeowner.”

Mr. Bush is instructing Treasury Secretary Henry Paulson to look into the subprime problem, figure out what happened and determine whether any regulatory or policy changes are needed to prevent a recurrence.

For now, the administration’s primary vehicle to help homeowners will be the FHA, which doesn’t originate loans but helps riskier borrowers qualify by guaranteeing their loans against default. By allowing the agency to back loans for delinquent borrowers, the FHA estimates it can help an additional 80,000 homeowners qualify for refinancing in 2008, bringing its total of refinancing guarantees to about 240,000, senior administration officials said. Mr. Bush also plans to announce that the FHA will begin charging “risk-based” premiums, a move that will enable the agency to help riskier borrowers since they can charge those individuals higher insurance rates. Right now, FHA premiums are a flat 1.5% of the loan, and the change would give the FHA flexibility to charge some borrowers as much as 2.2%.

Still, the move will help only a small portion of homeowners — and few in high-cost states such as California or New York — because the FHA faces constraints on the size of the loans it can back and strict rules that borrowers must meet. The Bush administration has been pushing Congress to enact overhauls that would eliminate the required 3% down payment and raise the size of the loans the FHA can insure to as much as $417,000 from $362,790. Senate Banking Committee Chairman Christopher Dodd (D., Conn.) said recently that FHA reform will be among his priorities when Congress returns from its August recess, and a bill is expected to head to the full House this fall.

From the Times Trenton:

Foreclosure opening the door for scam artists

As the number of foreclosed homes in New Jersey keeps rising, so does the list of people looking to defraud those who have lost their properties, state consumer affairs officials are warning.

One scam being seen more and more involves taking advantage of residents once their homes have been sold at a sheriff’s auction. In some instances, properties are sold for more than what is owed on a mortgage — meaning the surplus funds may be available to the former homeowner.

But not many people are aware of surplus funds, and authorities say unscrupulous companies or individuals have been contacting former homeowners and charging them exorbitant fees to recover the money.

“It is definitely going to be a major concern for us,” said Lorraine Rak, a deputy attorney general and chief of the consumer fraud prosecution section in the Division of Consumer Affairs.

“It’s when consumers are most vulnerable that companies take advantage of them,” she said.

Earlier this month, Rak’s section filed a civil complaint against a Glouster County man, alleging he collected tens of thousands of dollars from homeowners for retrieving surplus funds after a sheriff’s sale. Samuel E. Goodwin III, a licensed real estate agent, was accused of charging people between 15 percent and 65 percent of the surplus funds.

Goodwin allegedly convinced consumers the process was complicated and needed his expertise, but state officials said applying for surplus funds from the Superior Court Trust Fund is a simple process that requires less than $100 in fees.
…
Rak said the state is investigating other suspected post-foreclosure frauds. The lawsuit against Goodwin marked the first official action under the state’s Consumer Fraud Act involving deceptive actions related to surplus funds.

The increase in complaints coincides with an increase in the number of actual foreclosures in New Jersey. Mortgage lenders took possession of 215 homes in the state in July, a 25 percent increase from June and a 65 percent increase from July 2006, according to the latest figures from RealtyTrac, a California firm that tracks real estate data.

At least one county has started alerting people whose homes have been foreclosed on and sold at a sheriff’s sale about surplus funds. Since early last year, the Ocean County Sheriff’s Department has been sending letters to former homeowners, said Undersheriff Wayne Rupert.

From the Asbury Park Press:

It’s being built, and they’re coming. . . albeit slowly: Market slump makes buyers, not building, Asbury’s priority

The beachfront developers getting the headlines this summer have been the men showing their money — Metro Homes’ Dean Geibel, who is building the beachfront Esperanza high rise, and Madison Marquette’s Gary Mottola, who is renovating and rebuilding the historic boardwalk buildings and pavilions.

The first builders to come in five years ago — Kushner Cos.’ Westminster Communities and Paramount Homes — aren’t getting quite the same attention.

But representatives of both say they are concentrating on selling the condominiums they have built and will continue to do so despite a housing market that, in Geibel’s words at a business luncheon last week, is “frozen in place.”

Sam Gershwin, president of Westminster Communities, which built its first 91 town homes and condominiums on Wesley Lake, said Tuesday that reports of Kushner Cos. refocusing the company’s commercial and residential investment opportunities in New York City are true but that construction on current New Jersey projects is not being shut down.

“We still have a very vibrant and active construction company ongoing,” Gershwin said. He said there are seven projects in New York, New Jersey and Pennsylvania.

“The marketplace is not good,” he said. “We’re building for those people who have bought units and finishing the rest of the buildings we have on the way.”

Gershwin said current buildings in Asbury Park, Cranford and Perth Amboy are being completed.

But at the same time, he said that in Asbury Park, for example, the focus is to get the St. James, the first planned lakeside building, sold out. What happens next on other blocks Westminster has contracted to develop is not clear.

“The St. James building we will finish,” Gershwin said on Tuesday. “When we or someone else can figure out when the marketplace is going to change and people want to buy real estate, we will get involved again. We would look at opportunities.”
…
“Asbury Partners did file litigation against us,” Gershwin said. “We presently are working with them to come to a mutual, agreeable resolution, and both parties have agreed to adjourn the court actions pending a negotiated resolution.”

Deputy Mayor James Bruno, asked if it was possible that another developer could come in and replace Westminster, said “it is possible — any developer who comes in must be approved by the City Council.”

From the Baltimore Sun:

Lending reforms explored in Md.

With the mortgage-sparked credit crisis expected to worsen over the next year, Maryland lawmakers are exploring legislation aimed at protecting consumers and forcing lenders to examine a borrower’s qualifications more carefully before offering loans.

“We need to prevent people from getting into loans that set them up for failure,” Maryland’s secretary of labor, licensing and regulation, Thomas E. Perez, said yesterday at a hearing in Annapolis. “Foreclosures not only tear families apart, but they undermine communities.”

About a dozen states have begun to make legislative and regulatory changes aimed at protecting subprime borrowers. Gov. Martin O’Malley and Attorney General Douglas F. Gansler have convened task forces to examine the subprime market and find ways to help forestall foreclosures. Legislative fixes could become a major thrust of the General Assembly session that begins in January.

Problems in credit markets, which have hit disparate segments of the global economy, began with rising defaults and foreclosures on subprime mortgages, those extended to borrowers with weak credit histories.
…
Industry groups are girding for a fight. Representatives with the Maryland Bankers Association, the Mortgage Bankers Association and the Maryland Association of Mortgage Brokers urged the Senate Finance Committee, which held the hearing, to be wary of legislation that could destroy the subprime lending market.

State officials also said they don’t want to hurt the market. Subprime loans have opened up credit to many who would not have qualified for a loan a decade ago, especially lower-income and minority borrowers.
…
D. Robert Enten, general counsel for the Maryland Bankers Association, said legislators should be careful not to over-regulate an industry that is already subject to federal regulation. He said the “cyclical” credit crisis will pass, and higher defaults on subprime loans should not be surprising.

“These are people for whom it’s a stretch,” Enten said. “It’s a stretch to make these loans.”

Industry officials, many of whom are participating in the task forces, said they might support some legislative proposals. David Pulford, president of the Mortgage Bankers Association, said his group would like to see increased enforcement of existing regulations and more education and counseling about financial issues, especially mortgages.
…
Some states are looking to require that mortgage brokers act in the best interests of consumers. Roughly two-thirds of mortgages are originated through brokers, and consumer advocates say some steered borrowers to high-cost loans or deliberately excluded real estate taxes and insurance escrow to make mortgage payments look more affordable.
“I firmly believe most mortgage brokers are trying to do the right thing, but the pressure is enormous for them to close the deal,” said Steve Silverman, chief of the consumer protection division at the attorney general’s office.

Other proposals are aimed at tightening standards used in deciding whether to make loans. One would require that lenders verify a borrower’s income. Another would force lenders to consider a borrower’s ability to repay an adjustable rate mortgage at the higher reset rate. Many borrowers signed up for such loans at low initial rates and fell behind on payments once the rate reset after a period of time.

From the Observer Reporter:

New mortgage rules sought

Pennsylvania’s acting secretary of banking told lawmakers Wednesday the state needs to toughen its regulation of mortgage companies.

But during an informational meeting with members of the state House Commerce Committee chaired by state Rep. Peter Daley, D-California, representatives of the banking and mortgage industry asked that legislators refrain from making regulations so stringent that they would be unable to compete with banks from other states.

The meeting, held at the Belle Vernon Holiday Inn, was to present proposed regulations that aim to improve oversight of home mortgage lenders on such things as fuller disclosure of terms and ensuring that borrowers understand and can afford the loans they sign.

The Department of Banking has proposed regulatory changes that would require mortgage lenders and brokers to clearly disclose key loan features, such as the presence of a prepayment penalty, balloon payment or an adjustable interest rate. It also would require companies to evaluate the borrower’s ability to pay back the loan.

Steven Kaplan, acting secretary of banking, who expects to be confirmed when the state Senate returns from its summer break, said stronger regulations are needed because of the number of foreclosures stemming from subprime mortgages, those written for people with lower credit scores or other credit problems.

“Too many people have been getting mortgages they simply can’t afford,” Kaplan said. “Clearer disclosures and better documentation will help all parties to focus on loans that are safer and more realistic.”

Several people representing the banking industry in Pennsylvania reminded the panel that banks and savings institutions are already closely regulated by several federal bodies, such as the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.
…
One of the main recommendations of the banking department calls for creating a new licensing category for individual mortgage originators - those who deal directly with the consumer by soliciting, accepting or offering to accept mortgage loan applications or negotiating loan terms.

Under the current laws, first- and second-mortgage lender and broker companies, as well as consumer discount companies that originate mortgage loans, are licensed but the employees of the companies are not.

The department also wants to amend regulations for real estate appraisers to increase maximum civil penalties the board may assess from $1,000 to $10,000 for each violation for the improper inflating of home values.

From the Wall Street Journal:

Steep Home-Price Drop Stirs Fears
Market May Get Worse Still As Effect of Stricter Lending Has Yet to Show Up in Data
By KELLY EVANS
August 29, 2007; Page A3

The decline in U.S. home prices accelerated in the second quarter as a glut of unsold homes and tighter lending standards continued to weigh on the market.

Home prices nationwide tumbled an average 3.2% from a year earlier, according to an index compiled by Standard & Poor’s Corp. The decline was sharper than the year-to-year decline in the first quarter, when the S&P/Case-Shiller national home-price index dropped 1.6%.

Lehman Brothers Holdings Inc. economist Michelle Meyer attributed falling home prices to a “huge imbalance” in the housing market: “There’s a high presence of risky [mortgage] loans and a massive overhang of homes for sale,” she said.

Home prices have been falling for more than a year and economists had widely expected the S&P/Case-Shiller index to reflect that trend. But the size of the latest decline was worrisome in part because it was larger than that of competing home-price indexes. A separate report released Monday by the National Association of Realtors found that the median sales price of existing homes slipped to $228,900 in July, down just 0.6% from a year earlier.

Moreover, the latest S&P/Case-Shiller survey covers the April through June period, prior to the sharp deterioration in the health of the nation’s mortgage lenders that came to light this month. That trend, which has been unfolding for months, picked up pace in August as Wall Street cut off funding to mortgage lenders and mortgage companies sharply curtailed their lending to consumers, squeezing a number of buyers out of the market. That could lead to further deterioration in home prices in the future.

“These pricing pressures have not been seen in post-World War II history,” said economist Brian Bethune at Global Insight. “It’s very difficult for the markets to be able to deal with that kind of stress.”

Mr. Bethune noted that today’s price declines are worse than those during the housing bust of 1990-91 that preceded a national recession. “The housing market is definitely a leading indicator of a potentially more serious downward moment in the economy,” he said.

BY METRO AREA
The S&P/Case-Shiller Home Price Index includes data on major metropolitan areas. January 2000=100.

From the Record:

N.J. loses its place at the top

New Jersey’s six-year reign as the state with the highest household income is over, according to U.S. Census Bureau data released Tuesday.

The state, with a median household income of $64,500, is now second to Maryland, according to the data, which also showed a decline in New Jersey’s household and individual spending power.

Workers and households have less spending power than in 1999, after the figures are adjusted for inflation, the data show.

Bergen County’s inflation-adjusted median household income, for instance, has fallen from $80,800 to $75,900 since 1999, the data indicate. Passaic’s median income fell from $61,000 to $49,900.

The data also show New Jersey’s median household income rose by $600 in 2006 compared with the year before, after adjusting for inflation — only the second increase in the last six years.
…
The data release came amid a growing debate over the state of New Jersey’s economy, and whether it can continue to provide the high incomes and quality of life its residents are accustomed to.

Critics say New Jersey’s regulations, taxes and red tape put it in danger of losing the competition with other states for corporate relocations and expansions, and the new jobs that go with them. The state has added 15,400 jobs so far in 2007, a slower job creation pace than in 2006.

Hughes and another Rutgers economist, Joseph Seneca, argue that the state is creating higher-paid jobs at a much slower rate than low-paid health, hospitality and other positions.

Seneca said that could explain the decline in individual earnings, which include only salaries and wages. Median earnings in 2006 dropped to $35,500 from $36,700 in 2005.

He said the growth in household income likely reflects the strength of investment gains in 2006, because the data include dividends, capital gains, interest and other non-salary income.

“It indicates again an income profile that is one of the highest in the nation,” but is vulnerable to volatility in the financial markets, he said.

The state’s median household income rose to $64,500 in 2006, an increase of about 1 percent. That trailed the national rate, which rose by 1.7 percent as inflation-adjusted median household income increased from $47,700 to $48,500, the data show.

(emphasis added)

From the Record:

CIT will end home mortgage operation

CIT Group Inc., the nation’s largest independent commercial-finance company, said Tuesday it will close its Livingston-based home-lending unit and eliminate 550 jobs around the country within the next 30 to 60 days.

Company spokeswoman Mary Flynn said in a telephone interview that she did not have any information on how many, if any, of those jobs are in New Jersey.

“We are working with the affected employees to help ease the transition,” she wrote earlier in the day in an e-mail response to questions. “Severance will be provided.”

Like many mortgage lenders that serve high-risk borrowers, CIT’s home-loan division was clobbered this year by the investment community’s loss of appetite for such loans, amid rising defaults and concerns about the value of the homes that back the loans in a sluggish real estate market.

The company said in a statement it will take a $35 million third-quarter charge for severance and other exit costs.
…
CIT, which employed 7,354 people at the end of 2006, said this month it planned to close a business-finance office in Mahwah at the end of September and lay off the 137 employees who work there.

From the Jersey Journal:

Locals snap up Jersey City condos

Real estate pundits love to highlight New York City’s supposed love affair with Jersey City’s real estate market, citing the familiar trend of Big Apple residents being seduced across the Hudson River by lower prices and proximity to Manhattan’s job market.

But although they may lack the news appeal and marketing value of the mighty New Yorker, Jersey City residents are purchasing homes here in great numbers, an interesting and often overlooked trend in the local housing market.
…
For example, roughly 53 percent of the first 223 properties sold in the Liberty Harbor North development went to Jersey City residents, according to the project’s developer Peter Mocco.

“What it clearly demonstrates is a large number of Jersey City residents who had been renters or temporary residents have made the decision to be permanent homeowners in Jersey City,” Mocco said.
…
“People are here, and they see home prices rising, and they are buying a home with the confidence that they are going to continue to rise,” said Mary Boorman, senior vice president of Pinnacle Properties, which has seen 40 percent of the first 161 units at its Mandalay on the Hudson go to local buyers - compared to 25 percent to New Yorkers.

There are similar trends at The Residences at Dixon Mills, where roughly 50 percent of the first 50 available units went to local buyers, while 22 percent went to New Yorkers.

From the Home News Tribune:

CPI fraud directly linked to subprime credit crisis

In 1983, the Bureau of Labor Statistics was faced with an awkward dilemma. If it continued to include the cost of housing in the Consumer Price Index, the CPI would reflect an inflation rate of 15 percent, thereby making the country’s economy look like a banana republic. Worse, since investors and bond traders have historically demanded a 2 percent real return after inflation, that would mean that bond and money market yields could climb as high as 17 percent.

The BLS’s solution was as simple as it was shocking: Exclude the cost of housing as a component in the CPI, and substitute a so-called “Owner Equivalent Rent” component based on what a homeowner might “rent” his house for.

The result of this statistical sleight of hand was immediate and gratifying, for the reported inflation index quickly dropped to 2 percent. (This was in part because speculators needed to offset their holding costs by renting out their homes while their prices skyrocketed, thereby flooding the market with rentals that pushed down the cost of renting a house or apartment.)

While the BLS was correct in assuming that this statistical ruse would fool the average citizen into believing that inflation was only 2 percent (and therefore be willing to accept a meager 4 percent return on his bank savings), what is remarkable is that the ruse also fooled the bond traders, and apparently continues to do so, leading analyst Peter Schiff to describe these supposed savvy bond traders as the “hormonal teenagers of the capital markets.”

The present subprime credit crisis can be directly traced back to the BLS decision to exclude the price of housing from the CPI. It is now clear that the “benign” inflation figures reported over the last 10 years in no way reflected the skyrocketing rise in home prices, with states like California experiencing annual home-price increases of as much as 30 percent. With the illusion of low inflation inducing lenders to offer 5 percent and 6 percent loans, not only has speculation run rampant on the expectation of ever-rising home prices, but homebuyers by the millions have been tricked into buying homes even though they only qualified for the “teaser” rates that quickly escalated to unaffordable levels. As long as home prices continued to skyrocket, buyers could refinance based on the increased value of their equity as collateral; but once home prices stabilized and even declined, many families were forced into foreclosure.

If economic history were a required subject in our public schools, borrowers would be aware of the dynamics of such frequent bubbles that have occurred in the past. In 1624 in Holland, frenzied speculators saw that the price of tulip bulbs was rising and rushed to buy them on the expectation that the price would rise even further and they could make an easy profit. Banks were eager to lend money to such speculators, because they, too, stood to make handsome profits. Oblivious to the underlying value of the bulbs, more buyers entered the market, pushing the price of a single bulb to the preposterous price of 3,000 guilders (equivalent to perhaps $100,000 today).

Houses are today’s tulip bulbs, and in California they are the equivalent of the 3,000 guilder tulip bulb. But instead of letting the bubble play itself out in order to create conditions for long-term economic stability, the Fed, under extreme political pressure from the power brokers and banks, seems determined to keep the bubble from bursting for as long as possible by continuing to lower interest rates and flood the market with liquidity, much as the Dutch banks did in 1624 to keep up the price of tulips. Such a short-sighted strategy will not only keep the price of homes beyond the reach of the average American, but will make the final and inevitable collapse that much more horrendous.

From the Wall Street Journal:

Inventories of Homes Rise Sharply
By SUDEEP REDDY
August 28, 2007; Page A2

U.S. sales of existing homes fell slightly in July, but a surge in inventories set the stage for a steeper slump and sharper price declines in the months ahead.

After the credit crisis that hit financial markets this month, U.S. home sales are expected to drop further as tighter lending standards and a pullback by mortgage firms keep potential buyers on the sidelines.

Sharply rising inventories are a sign of homeowners trying to sell their homes before prices tumble more, said Joseph Brusuelas, chief U.S. economist at consulting firm IDEAglobal.

“There are going to be no happy endings here,” he added. “It’s the last days of the old order.”

Existing-home sales slipped 0.2% in July to a seasonally adjusted annual pace of 5.75 million homes, the lowest in five years, the National Association of Realtors said yesterday. The median sales price dropped to $228,900, down 0.6% from the July 2006 level, which was the highest on record.

Inventories of homes for sale jumped 5.1% to 4.59 million, or about 9.6 months of supply at the current sales pace. A supply of about six months generally indicates a balanced market.

The tightening of credit markets became most severe in mid-August. That means the full effect may not be seen until sales figures for September are released. The Realtor group’s figures reflect transaction closings, which mark the end of the buying process.

The problems may be most acute in the markets for lower-end homes, which tend to go to less credit-worthy borrowers, and for higher-end homes that require buyers to take out so-called jumbo loans. Rates for such loans, which exceed $417,000, jumped sharply this month.

Even before the market turmoil, inventories were expected to rise sharply into early next year as homeowners increasingly default on loans.

Sellers could face price declines of as much as 10% in the next six months as the market settles, said Joshua Shapiro, chief economist at consultancy MFR Inc. in New York.

“To sell cheaper homes, prices need to be slashed even more because demand is falling off,” Mr. Shapiro said. “If the bottom is falling out of the lower end of the market, it’s going to have to affect the middle, which affects everything above it.”

From the Courier Post:

Area home sales, prices down

Housing sales slid to the slowest rate nationwide in July.

Quarterly statistics for southern New Jersey showed a sharp decline in volume with the exception of the shore.

The only community that recorded significant gains in both price and sales was Moorestown, where the average home sale was $610,000, a 14-percent gain over the same time a year ago; 73 properties changed hands in the Burlington County community, a 12.3 percent increase, according to Trend MLS, a King of Prussia, Pa.-based provider of real estate statistics.

“In a few pockets, there hasn’t been a difference,” Howard Lipton of Weichert Realtors in Burlington Township said. “But in most places, prices are definitely coming down.”

While prices in the Northeast rose 1 percent overall, a number of communities posted double-digit dips. In Lumberton, the average home was off 16 percent to $267,900, Trend said. In Pemberton, prices dropped 20.4 percent to an average price of $172,000.

Overall, prices inched up. In Burlington County, the median price was up 2.3 percent over last year to $277,100, according to the most recent numbers from the National Association of Realtors. In Camden County, a typical home gained 4.5 percent to $211,800. In Gloucester County, a 5.2 percent increase boosted the median home price to $238,900.

In South Jersey Shore communities, both prices and volume gained, with the median home price up 4.4 percent to $251,000 on sales of 1,111 homes, a 17.2-percent increase in volume over 2006.

“This state is in a better position than many places in that we’re holding our prices,” said Bill Hanley, president of the Realtors Association of New Jersey.

The rub is fewer homes are selling, swelling inventory.

Nationwide, the inventory of unsold single-family homes ballooned to 4.59 million homes, the highest level in 16 years. In Burlington, Camden and Gloucester counties, 12,786 existing single-family residences were for sale as of June 30.

Hanley attributed the glut to buyers sitting on the sidelines waiting for a sign that prices have bottomed out. Credit curbs also are putting the brakes on buyers.
…
“With fewer buyers qualifying for loans and lots of unsold houses out there, that makes a choice recipe for further sales declines this fall and into the winter,” said Stuart Hoffman, chief economist at PNC.

Currently, homes in South Jersey are taking an average of 71 days to sell. Lipton noted listings that are overpriced or don’t show well are sitting for as much as 14 months.

Daigle said sellers are becoming increasingly willing to negotiate as they internalize the reality of doing business in a buyer’s market.

“What we’re seeing is a shift in the market, with prices getting down to where they should be,” she said.

From USA Today:

Your Money: Home-equity loans tougher to get

Back when the real estate market was flying at 30,000 feet, getting a home-equity line of credit was a pretty straightforward process. You called a toll-free number, asked for a loan, and within hours, a guy with a suitcase full of money showed up at your door.
It’s a lot harder now. Some lenders have stopped offering home-equity lines of credit and home-equity loans altogether, even to borrowers with good credit. And lenders that still offer the loans are being a lot more selective.

The lenders that have cut back on home-equity loans and credit lines are mainly those that raise money by selling the loans to investors. Investors have stopped buying such mortgages since the subprime market collapsed, says Bob Walters, chief economist for Quicken Loans, which has stopped offering home-equity loans or lines of credit.

Walters says investors have backed away from second mortgages for the same reason they’ve abandoned jumbo mortgages (those that exceed $417,000). Because investment mortgage giants Freddie Mac and Fannie Mae won’t buy jumbos or second mortgages, these loans are considered riskier than so-called conforming loans.

But just as community and national banks are offering jumbo loans, many banks, savings and loans and credit unions are still providing home-equity loans and credit lines, says Keith Gumbinger, vice president for HSH Associates, a publisher of mortgage information.

These lenders typically use customer deposits to finance loans, so they’re not beholden to Wall Street, he says.

Still, these lenders are unwilling to take big risks with their money, especially in this environment. The Federal Deposit Insurance Corp. said last week that delinquent home-equity lines of credit — those late by 90 days or more — jumped 16.6% in the second quarter.

Pava Leyrer, a mortgage broker in Grandville, Mich., says she’s been able to find home-equity lines of credit for clients with good credit histories who can show they have sufficient income to make payments.

Lending standards “have tightened somewhat to where they should have been in the first place,” she says.

From the Otteau Valuation Group:

HOUSING MARKET IMPROVES SLIGHTLY, INVENTORY STOPS RISING

The decline in the housing market which began during the 2nd half of 2005 is evidenced by the rising tide of unsold homes on the market. While there are many contributing factors, the supply of competing properties is paramount as it creates a ‘mood of the market’ which determines whether home buyers feel any sense of urgency. For example, as Unsold Inventory declines and a buyer’s choices diminish they are inclined to purchase sooner rather than later driving inventory even lower and home prices higher in the process. Conversely, rising inventory extends normal marketing time causing home sellers to reduce their asking price. In this rising tide environment home buyers adopt a ‘wait & see’ stance due to concern about falling home prices, leading to further increases in Unsold Inventory and thus creating a downward spiral. Any reverse of this cycle is then predicated upon a decline in Unsold Inventory. While this is admittedly a simplistic view which does not take into account corresponding demand factors, the bottom line is that the housing market can not improve significantly until Unsold Inventory declines. And the first step toward inventory decline is for it to stop rising.

The New Jersey housing market provided a glimmer of hope in July as Unsold Inventory declined for the first time since January. That this decline accounted for less than a 1% reduction in Unsold Inventory makes it clear that the housing recession is far from over and will continue into 2008. However, should inventory hold at its present level would signal the ‘beginning of the end’ for the housing recession.

The July housing market also saw an increase in contract-sales activity on a seasonally adjusted basis. As demonstrated in the NEW JERSEY CONTRACT-SALES ACTIVITY chart, July sales were higher than one year ago confirming that while the housing market is weak it still has life. No surprise here as despite the decline in sales activity over the past 2 years the underlying demand for housing is still bubbling beneath the surface. This is because life goes on with continuing household formation, marriages, the birth of children, job promotions, divorce and retirement all leading to changing housing needs which translates into housing demand. Thus, the stage is being set for a rebound in the housing market once the current challenges sort themselves out.

From a market absorption perspective, the Unsold Inventory presently reflects a 9.0 month inventory of homes as compared to 8.9 months in June. This however compares to a 4.0 month supply in July 2005 suggesting that inventory is currently about double where it needs to be before home prices will start rising again. This is important to would-be home sellers who are considering waiting things out before selling their present homes as any rise in home prices is likely several years off.