Subprime Crash Squeezes Out First-Time Home Buyers
Subprime mortgage lenders have tightened credit guidelines so much they’re squeezing about 500,000 first-time home buyers out of the market, according to NAHB. A decline of that magnitude would reduce sales of new homes by 4% and sales of existing homes by 7%. For instance, Josh Tullis, who in his eight years as a senior loan officer rarely felt compelled to reject a first-time home buyer’s mortgage application, is sending people away empty-handed in 2007. Tullis’ latest clients are a married couple making $70,000 a year who have been renting the same apartment for three years with no late payments. Lenders won’t approve them because they don’t have enough money in the bank, said Tullis. With mortgage companies cracking down due to rising subprime defaults, Tullis needs them to save two months of payments for the $500,000 townhouse they would like to buy. “Six months ago, these folks might have qualified, a year ago, definitely,” Tullis said. “It’s a lot, lot harder than it used to be for first-time home buyers.” The closing or sale of more than 50 mortgage companies and stricter credit rules will reduce subprime lending to $350 billion this year, a 47% drop from the $665 billion that the industry lent in 2005, according to Seattle-based Washington Mutual Inc., the largest U.S. savings and loan. “There were clearly weak underwriting standards in 2006 and the pendulum has swung pretty hard in the other direction,” said Doug Duncan, chief economist for the Mortgage Bankers Association. “It’s probably gone further than it should have gone.” (www.bloomberg.com)
Bloomberg.com (6/13/07); Bob Ivry
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Web Help for Getting a Mortgage the Criminal Way
A number of Web sites are telling consumers that they can make them more attractive to lenders. The sites, for example, offer better credit scores by hitching customers to a complete stranger’s credit card or providing them pay stubs from a bogus company. One has even offered a well-stocked bank account to rent for a month or two. Industry experts say these sites, which are relatively new, played a role in fueling the rampant mortgage fraud that has caused a huge spike in loan defaults in recent months because people bought homes they could not afford. Regulators and the mortgage industry are now vowing to crack down on aggressive lending practices that have led to rising foreclosures. But that greater scrutiny, including lenders requiring more documentation than they have in the past, may actually increase demand for some of the services these Web sites offer. One site, RaiseCreditScoreNow.com, offers to add a person to four separate $20,000 credit lines with 10 years of “perfect payments” for $4,000 (although they do not have access to the actual credit line). This could increase an individual’s credit score by as much as 200 points in 90 days, the site says, and make the difference between them qualifying for a home loan or not. (www.nytimes.com)
New York Times (6/16/07); Julie Creswell
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What’s Selling in a Slow Market; Builders Add Rooms, Options, Not Footage
Nearly two years into the housing slowdown, builders report that their top-selling high-end homes feature less conventional floor plans and more specialty rooms than previous models, even though the overall square footage in most cases has remained the same. Many of the most popular models, designed to fit into smaller lots, feature angled walls or entryways that make interior appear bigger; game rooms, sun rooms and other special-use space; and smaller formal living rooms. The best selling La Jolla model by Drees Homes in Fort Mitchell, Ky., puts the front door off to the side of the house instead of at the center, which creates a slanted hallway to the main rooms. Bensalem, Pa.-based Orleans Homebuilders’ Bradford Grand II twists the center staircase so it opens to the side rather than the front, opening up the sightlines throughout the house. Compared with two years ago, when the housing market was at the height of the boom, one emerging theme is particularly noteworthy: the square footage of the current best sellers isn’t getting bigger. Average lot sizes shrank 7% in the 10 years ending in 2005, to about 8,847 square feet, or a little more than a fifth of an acre, according to the latest U.S. government statistics. As a result, some of the current best-selling luxury models are designed for the sorts of long, narrow lots that are increasingly the suburban norm. (www.wsj.com)
Wall Street Journal (6/15/07); June Fletcher
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If You Build It, They Will Complain
As backyard clubhouses and jungle gyms get bigger and more elaborate, adding rock-climbing walls and towers, neighbors in some communities are protesting, even though most municipalities don’t regulate such play facilities. However, the village of Elm Grove, Wis. has ordered Tom Eddinger to take down the backyard fort he built for his children by Aug. 31 or face daily fines of $150. Bigger than a typical playhouse, the split-level “stilt fort” is two stories, 22 feet tall to the peak of its shingled roofs and hoisted into the air on four telephone poles. It has windows and vinyl siding that match the Eddinger home and spans about 232 square feet. The playhouse, village officials say, amounts to an accessory structure like a shed that requires a permit to build. Even if a permit had been obtained, it’s too tall and large, officials said. Children’s playhouses can’t be taller than 10 feet or larger than 150 square feet, they say. In 2005, when he searched the village Web site, Eddinger said he found no rules for play structures and was told to wait because they were being drafted. He built it anyway, and the rules still aren’t finalized. (www.jsonline.com)
Milwaukee Journal Sentinel (6/10/07); Lisa Sink
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Trade in That Old House
In a bid to boost home sales, builders are looking to the auto lot for tips on how to move merchandise in a sagging market and they’re talking trade-ins. For the buyer, a trade-in eliminates juggling a new home while waiting to unload the old one during a slump. “It’s a way to move the market,” said Steve Melman, director of economic services at NAHB. “It addresses one of the main reasons that would keep you from buying a home.” With their construction expertise, builders can quickly remodel the old home for a reasonable cost and sell it for more than it would have fetched in its old condition. Many builders also have a sales staff to market the home, so they don’t have to worry about third-party broker commissions. According to the latest NAHB survey, about 10% of builders nationwide use some form of trading program. About a quarter of them said trade-ins were either somewhat or very effective, compared with 19% who said they were ineffective. (www.money.cnn.com)
CNNMoney.com (6/6/07); Les Christie
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View of the Blue; More Buyers Seek New Home on a Lake or River
NAHB recently gauged the premium attached to American homes on oceans, lakes, rivers, ponds and other waterways and found it is considerable. Using a statistical model to estimate the impacts of both general location and specific neighborhood amenities, NAHB studied a standard new home built in a Midwestern suburb. Testing the effects of several attractive amenities on that home, the association found that the single greatest upward influence on a home’s price is a location on a body of water. The estimated price of the baseline home with no special location was $212,137. But moving that same house to an otherwise similar neighborhood on a waterfront elevated the price to $303,760. (www.chicagotribune.com)
Chicago Tribune (6/1/07); Jeffrey Steele
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