Monday, October 6, 2008

What loans are in danger of going away?

Here is a modified July 2008 Ventura County LTV chart:

Click to enlarge

The pink line represents the new conforming limit on January 1st 2009. These "super conforming" loans represent a lowering of the conforming jumbo limits by $104,000, the loans above this line represent the new jumbo limits and these loans will have higher credit standards, much higher rates and fees. I think these loans will essentially be eliminated and supply will have to fall under the pink line in order for it to see any effective demand.

The green area represents Mortgage Insurance territory and the blue dots (non-FHA/VA) will be the items affected here. Most mortgage insurers have announced guidelines that limit their loans in California to the conforming limit of $417,000 and 90% max LTV. Demand in this area will either have to be met through FHA or be eliminated if the property or borrower doesn't meet FHA guidelines.

It is clear there are more headwinds coming for the mortgage market. The government has done everything possible to keep it as liquid and functioning as it can but credit is still contracting. Even though falling prices can help meet demand, prices alone aren't a panacea. The demand in the green square if unable to get insurance must be met by saving more money for a down payment or choosing a much cheaper home.

Update: I've looked at the top Mortgage Insurers guideline and I don't see a single one who will lend over 90% LTV in Los Angeles or Ventura County. This includes United Guaranty (p.29), MGIC (p.8), Genworth, RMIC and PMI. The area in the graphic above in the green shade is definitely in trouble.

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