From the Wall Street Journal:
How the Mortgage Bar Keeps Moving Higher
Home Buyers With Good Credit Confront Increased Scrutiny And Fewer Choices as Lenders React to Subprime Debacle
By JONATHAN KARP
August 14, 2007; Page D1
Frankie Van Cleave says she has paid all her bills on time for more than three decades, save one car payment that got delayed in Christmas mail. But neither solid credit nor her track record running a number of businesses is sparing the 70-year-old from the turmoil in the home-mortgage market.
Several mortgage brokers had courted her to refinance a $1 million adjustable-rate mortgage she currently carries on her home, on two acres of prime riverfront property in Marietta, Ga. But most of them “dropped me like a hot potato” last week after two appraisals came in below $900,000, she says. Her bank of three decades won’t help her after her monthly mortgage payments recently ballooned to nearly $8,200, so Ms. Van Cleave is working 80 hours a week as a technical writer to make ends meet.
“A good credit record doesn’t count for anything now,” Ms. Van Cleave says of her futile refinancing effort. “If you don’t have assets, forget it. If you’re self-employed, you have real problems in this market.”
The impact of the subprime-mortgage crisis is spreading through most segments of the home-lending business, ensnaring more and more people who just months ago might have coasted through a refinancing or home purchase. In addition to raising interest rates on so-called prime mortgages, lenders are tightening requirements for everything from borrowers’ income verification and credit scores to home-appraisal reports, and yanking products that had allowed low-risk borrowers to avoid putting any money down.
The consumer market is changing at a dizzying pace, with loan applicants — even those with strong credit records — being placed under more scrutiny and given fewer choices than they were just weeks ago. Whereas lenders used to change guidelines a few times a year and would give mortgage brokers advance warning, they are issuing revisions almost daily now and dropping products overnight, industry officials say.
“We thought the dust was going to settle, but instead, it just blew up,” says Mitchell Reiner, president of Mortgage Associates, a Los Angeles-based lender that does business in 48 states. “Everyone is being affected.”
Yesterday, for example, IndyMac Bancorp Inc. imposed tougher rules on a big product, Alt-A mortgages, a category between prime and subprime that often involves borrowers who don’t fully document their income or assets, or those buying investment properties. It is the latest lender to shun 100% financing for borrowers who want merely to state their income. For Alt-A loans that don’t have third-party mortgage insurance, IndyMac is insisting on at least a 5% down payment for “all loan sizes and property types,” according to guidelines sent to mortgage brokers.
“Banks want to see that you have a vested interest in the property,” says mortgage broker Mark Cohen of the Cohen Financial Group in Beverly Hills, Calif. “Everybody thought the damage would be contained to the subprime market but it has spread to A-paper [products]. The impact is that there are fewer choices” for borrowers.
What on earth is a 70 year old in a marginal profession (technical writing!) doing with a million dollar mortgage?
My SO works as a technical writer. She’s seen her annual salary increase from around $40k/yr in 2000 to a little over $70k/yr today. There is no shortage of demand for technical writers in IT and gov’t contracting. I can’t speak for the job market in GA but here in the DC Metro area technical writers are in demand and making good salaries.
MJRMJR- you are missing the point. To handle a monthly payment of 8200 (and that is just the mortgage, not the taxes, insurance), that requires a pre-tax income of well over 150 thousand per year, maybe closer to 200 thousand (more than twice your SO).
To also cover the property taxes for a property that expensive, as well as things like food, clothes, health insurance, cars, etc., she would have to be making WELL north of 200k per year, and ideally well north of 300 (quadruple your SO) thousand per year, hopefully closer to 400 (almost six times your SO).
I think you all misign a point:
$1 million adjustable-rate mortgage she currently carries on her home, on two acres of prime riverfront property in Marietta, Ga. But most of them “dropped me like a hot potato” last week after two appraisals came in below $900,000, she says.
Let’s say someone come to you sand says – hey I have bank account with 900000 in it. I want to borrow 1000000 while I will place my 900000 as collaterall.
Now if I’d start a buisness and borrow it as buisness loan by rates would be well above 20%.
She is nto even starting a buisness – of course she will have trouble refinancing. Because if she defaults and lender will end up owning a property they are looking at anothewr 10-20% loss – so up to a 300K risk…. too much.
But in the past 2-3 years it was norm. because appraisals were artificially inflated.
Oh, I quite agree that $1 million is way more than this woman could afford. My only issue was with the characterization of technical writer as a marginal profession. My experience in the last 8 yrs indicates the opposite. My fiancee has seen her salary nearly double and has never had a problem finding work during that time. Perhaps the DC area economy is an anomaly, some might argue that it is. Ultimately, I can only say that for her it has been a good career choice so far. We bought before the bubble, 20% down, and our current mortgage balance is about 1.15X our annual income. Things look just fine from where I sit. :)
Reading my comment again, I can see how it might have been interpreted as… “this woman has a good job, I’m sure she’ll be fine”. LOL, nah, she’s screwed.
Yeah, good technical writers are in demand..
But $8200/month for a mortgage?!
Rotsa Ruck…