The Death of 10% Down

Based on recent conversations with my mortgage banker, 10% down on New York condos has been, for all intents and purposes, dead for some time now.

And here's something to add to the happiness:

Merrill Lynch plans to issue new shares worth about $8.5 bln - MarketWatch

BULLETIN MERRILL LYNCH SETS $8.5 BILLION STOCK SALE IN BROAD CAPITAL REALIGNMENT
Merrill to raise $8.5 bln selling new common stock
By Alistair Barr

MER 24.33, -3.19, -11.6%) said late Monday that it plans to raise $8.5 billion selling new common stock as the brokerage firm tries to bolster its capital position. Singapore's Temasek Holdings has agreed to buy $3.4 billion of the new shares, Merrill added. The firm also said it sold a big chunk of its U.S. super senior asset-backed security collateralized debt obligations, cutting its exposure in this area by $11.1 billion compared to the end of June. Merrill shares fell 5.7% to $22.94 during after-hours trading on Monday.

http://www.marketwatch.com/News/Story/Story.aspx?guid={60F1B958-15CD-49B8-A2DC-DFEC9A5C6982}&siteid=mktw

Just weeks after saying that everything was hunky-dory. Not too much credibility left, is there?

Apparently they have NO CLUE what's on their balance sheets, or off.

A friend that is in contract to buy a condo said the bank is requiring 30% down. Two years ago ppeople were buying NYC condos for 5% down. This will KILL the condo market.

where's the condo and whats the friend's financial situation. commercial deals are now requiring 30% down. Hard to believe that applies to owner occupied residential.

30% down?!? wow, that seems harsh. is that some sort of proxy for something like 20% down plus more cash to demonstrate ability to cover condo fees?

actually, i guess that's another question -- if someone skips out on their condo leaving unpaid monthly charges, does the bank get first short at the apartment, or does the condo board itself?

Anything nonconforming requires 30% down.

Ouch.. This dive is going to happen much faster then I initially anticipated. I knew once the govt got involved they would make things much worse.

"a friend that is in contract to buy a condo said the bank is requiring 30% down."

wow, I had no idea - this is indeed tough - I wonder if the banks lending on those condos are projecting 15% price drops and trying to protect themselves from having underwater borrowers with nothing at stake? Seems like a deathwish/self-fulfilling prophecy!

This sounds great for the lower end conforming sized apts.

July 23. from conversation with one of the mortgage brokers:
"We use the savings banks for jumbo loan sizes above 729,250 and the commercial banks for loans smaller. Now have ability to do FHA loans with 3 percent down. The minimum credit score for FHA - 97% financing is 580."

elena
(broker)

Another complicating factor in a spooked market is the appraisal. Suppose a loan program permits a Loan-to-Value ratio of 80, based on the lesser of appraisal or purchase price. You would expect the down-payment to be 20%; but if the appraisal comes in 10% below the contract price, the buyer might have to put close to 30% down even if the loan amount is 80% of the appraised value.

Yeah I was shocked too. This is a brand new condo new Madison Square Park. Yes, owner occupied. I think, especially after the Fannie, Freddie near meltdown, 30% down is going to be the new 10%. Scary.

What's so scary. I believe this will stabilized the market and probably drive up prices. Only the rich can afford to buy in Manhattan and soon will control that market. Keep in mind many co-ops required and always required at least 20% down and some require no mortgage at all.

The stupid. It burns.

"Now have ability to do FHA loans with 3 percent down. The minimum credit score for FHA - 97% financing is 580."

How many people buying in Manhattan qualify for FHA loans? How many co-ops will approve an FHA applicant?

Please.

"What's so scary. I believe this will stabilized the market and probably drive up prices. Only the rich can afford to buy in Manhattan and soon will control that market."

Houser, you need to learn some math. If there are suddenly considerably less potential buyers for the same apartments, that doesn't drive up prices, that knocks 'em down... quick...

Stevehjx....the merrill offering priced at $22.40, Merrill is up again today to $27.32, I guess the market handled all the stock pretty well? what say you?

"How many people buying in Manhattan qualify for FHA loans? How many co-ops will approve an FHA applicant?"

- No FHA in Manhattan......no one offers it. All FHA loans they do are outside: Queens (LIC), Brooklyn, Staten Island, the Bronx..... Criteria is as follows: 3% down, Minimum 580 fico, no open collection debt, charge offs, etc.. Primary residence, Full doc.

They also have 75% to $2MM on interest only, full doc at the savings banks.

elena
(broker)

EddieWilson more than 70% of all apartments are comprised of Co-ops the majority require at least 20% if not much more and on top of that financial and a whole host of other idiotic monetary requirements. I hardly doubt that this will have any effect whatsoever. Got to ask yourself how long will this last if it is in fact true which I doubt it is in the first play

However, there is hope for all of us who want to buy at post crash prices. Lets all mentally masturbate to the Manhattan RE crash that soon will be in our neighborhood. Finally something to hope, wish and pray for. Gee I'm so giddy I could almost pee.

this ought to cool the new condo sales in the over $600K price bracket
should be interesting to see if it pulls down prices on established
coops, the ones that require 30%+ down and liquid assets - my guess
is that that will be a slower effect and not move lockstep with the
new condo prices

Houser, I'm not quite sure what your post is supposed to say, particularly with the double and triple negatives and grammar.

Back to the original question... how on earth is a reduction in the number of potential buyers supposed to drive UP prices?

> coops, the ones that require 30%+ down and liquid assets - my guess
> is that that will be a slower effect and not move lockstep with the
> new condo prices

Manhattan co-op sales are down 50%. That should be a pretty clear sign of what the tight restrictions are doing that that market...

if todays requirement is 30% down (which is probably BS except for a few banks) it will last for about 18 days to they drop it to 25% then wait another 12 days till they drop it to 20% then wait another 120 days till they drop it back 10% again.

I can see higher demand for the lower end due to loan restrictions and the requirement for large % down payment. More pain for the middle class.

10% down is currently only available for loan amounts up to $729,750 with full project approval, good credit, 41 max. back end DTI, and it be approved with non-delegated MI. 20% allowed up to 1M. And 25% up to 3M. If the bank is requiring 30% down there may be factors such as DTI causing that. I certainly agree that the days of 10% down are probably going to go away for jumbo loans. But banks requiring 30% on all loans will probably never happen. Although, its good to hear that the conforming limits will be raised to 625,500 with the housing bill that was passed. sunny_hong@countrywide.com

We haven't had realistic 10% down in cooperatives for a long time

AnneC, they are talking about condos, not coops for the death of 10% down.

Shong - "But banks requiring 30% on all loans will probably never happen"....careful with that comment!

If this credit crisis continues, driven by continuing falling home prices (Case Shiller says we are down 18.5% from peak thus far, with estimates of another 10-15% yet to come), the securitization of securities will continue to be all but dead, and may not exist anymore at all. Banks will have to recapitalise and that means hoarding cash. If we have learned anything so far, its that we cant trust any corporate CEO whose job is to instill confidence to avoid a crisis of confidence, where the institution cannot raise capital.

Well said, UD.

"...the securitization of securities will continue to be all but dead..."

Securities are not securitized, assets are. That said, securities, including mortgage bonds and other debt securities can be assets which are securitized.

Yea, but whats your point regarding the process of securitization that I related to?

Securitization is of assets, indeed, not securities, which are already securitized. They will likely be replaced by the European model of covered bonds, whose terms are minimum 20% down, but they also require banks to hold the assets on their balance sheets, meaning that suddenly underwriting standards will increase.

You will also see a restructuring - nationalization and then denationalization, maybe - of Fannie and Freddie. They obviously don't work.

All roads lead to the Damascus of tighter (more prudent) lending standards.

my point was that securities do not get securitized (generally). are you becoming belligerent now too?

as to covered bonds, cannot see why banks won't simply form shell subsidiaries to hold to assets under covered bond issuances just as before. only difference will be in the underwriting criteria. call it what you want. mbs, covered bond, the market will return. what we have now is irrational exhuberance in the downward direction.

and in the recourse. non recourse mbs is dead in the water for a while.

...or rational dysphoria, depending on your point of view.

Urbandigs obviously meant "securitization of mortgages". Eventually, liquidity will seep back into residential real estate. Step one is for prices to stabilize, which becomes a vicious circle because it's hard to establish price stability in the midst of massive changes in liquidity conditions.

By the way, if Typo Court is still in session, the word is "exuberance", whether it's rational or not.

I believe we have not even started yet.
in the next 15 months we are goin to feel a tighter squeeze on everything.

not belligerent, just expecting a more constructive response rather than pointing out a typo; which we all do.

As you said, MBS is dead, and its not coming back anytime soon. The original comment was in response to SHONGS comment that 30% down required will probably not happen for all loans. I respectfully disagree if this story continues on its path! There is much more to come. People get a whiff of govt rescue, and feel all warm & cozy inside. Stocks go up and people think its finally over.

Its not. Problems are spreading, oil is STILL about $120 (like thats a good thing by the way), housing still has negative pipeline pressure which means more downside coming, inventories are still very high, sales are down, standards are tightening, rates are rising, and banks/IBs have exposure to higher quality MBS that are yet to be marked down. Add in shady accounting practices (level 3, changing default time from 120 days to 180 days, etc) and it delays the discovery of these problems. Wachovia has a brutal exposure to option ARMS that reset from 2009-2011. Plus they marked down toxic assets to about 90 cents on the dollar last quarter, that are now trading about 30-40% lower.

This whole game is a SHAM! We are yet to discover the depth of the problems because these MBS are so damn complicated and there is no transparency.

"..just expecting a more constructive response rather than pointing out a typo; which we all do."

That wasn't a typo. A typo is a misspelling.

how about this. YOU WIN! feel better?

urbandigs...youre right...anything can happen the way things have been going...30%, 40%, maybe more...

Catching up on old thread. A data point. My wife and I looked at a bunch of $1.7-$2MM family Manhattan apartments, both condos and coops. In July, I talked to several mortgage brokers and got a bunch of quotes. The loan was obviously non-conforming. Bottom line:

a) 30% down was the preference, and the interest rates were great.
b) 25% down was fairly doable, but required an interest rate premium of almost 1% compared to (a).
c) 20% down was possible but difficult, and likely required an interest rate premium of 1.5%-2% compared to (a)
d) Anything lower than 20% down was a non-starter.

Based on my experience saying it HAS to be 30% for anything these days is an overstatement. However, 30% is certainly the preference, and if you want to put less down, you better show great financials and be prepared to pay a substantial premium.

Not surprisingly, all the mortgage brokers clearly stated that the world was changing, and they had no idea how the above might change, and in what direction, going forward.

newbuyer99- That was informative, thanks for the insight. Its good to hear about the real world. I also loved the mortgage brokers response

>> "that the world was changing, and they had no idea how the above might change, and in what direction, going forward".

The credit world has certainly changed and not for the better, if you are hoping to buy in the future. This is exactly why home price will not stop falling for sometime and will continue to erode the economy. If people don't have access to borrowing then how in the world will the inventory be absorbed.

newbuyer99 - thanx - that is sobering - good luck!

UB, I totally agree. I get a felling at times that some folks don't see the gravity of the current financial crisis. As you mentioned recently at your site, write downs have surpassed the $500 billion mark & the $1 trillion estimates that may have seemed far fetched a few months ago, no longer do.

Most financial institutions are so capital constrained that they are simply not willing to take on additional mortgage loans on their balance sheets. The situation at Fannie & Freddie isn't much better. Who knows what will become of the latter unless the tax payers start writing some seriously large checks.

"As you mentioned recently at your site, write downs have surpassed the $500 billion mark & the $1 trillion estimates that may have seemed far fetched a few months ago, no longer do."

And each week someone says the worst is over... yet its still getting worse...