The Wall Street Journal is talking about the tightening lending standards in today’s issue.
According to the article, the entire Chicagoland area is now designated a “declining market” by 4 out of 5 of the largest mortgage insurers.
That means that mortgage insurers are routinely requiring at least a 10% downpayment to purchase a house, and sometimes more. From the WSJ:
“To put this blanket overlay on my marketplace and say it’s all a declining market, it’s not true,” says David Hanna, managing partner of Prudential SourceOne Realty in Chicago. City neighborhoods such as Lincoln Park and Hyde Park, as well as affluent suburbs such as Hinsdale, still are seeing home prices appreciate, he says.
Mr. Hanna points out the declining-market tag has hit such unlikely transactions as a $1.1 million sale of a home in Wilmette, a well-to-do suburb. The buyer had to come up with an extra 5% down payment.
In another case, a two-unit building in Chicago was ready to be sold to an investor for $449,000, when the required down payment again was boosted. The buyer still is trying to come up with the funds. It turned out that a different investor in that neighborhood had defaulted on seven properties, driving down comparable prices.
Mr. Hanna says such circumstances should be taken into account. “Maybe one project, because of past history, you have issues, but you’re impacting literally thousands of other people,” he says.
Mortgage insurers say the data they receive on home sales aren’t conclusive enough to be more precise in designating declining markets.
Other costs of obtaining a loan are also increasing.
Next month, for example, MGIC plans to charge an annualized premium of up to 0.75% of the loan balance for fixed-rate, 30-year mortgages with a 10% down payment, up from 0.67% this month. The company doesn’t plan to change course anytime soon.
“Housing cycles don’t correct quickly,” says MGIC’s Mr. Zimmerman.
Has anyone heard of mortgage insurers requiring more than the 10%?
Mortgage Insurers Raise Bar [Wall Street Journal, July 15, 2008]