Weak Home Sales, Tightening Credit Standards = Multiple Mortgage Apps

Wednesday on Real Money's columnist conversation, Tony Crescenzi noted that "It would be extraordinarily unusual for the combined figures on new and existing home sales to continue falling in the face of increases in mortgage applications."

I have to disagree.

Based on our interviews with our Real Estate clients (commercial builders, RE brokers) and especially residential Mortgage Brokers, there appears to be a dramatic rise in multiple applications for both new purchases, refis, and home equity lines.

As many of the ARM resets come up over the next 18 months, I would surmise these multiple mortgage apps will increase -- especially amongst the more desperate marginal homeowners.

Meanwhile, we see Defaults on 'Alt A' loans surpassing Subprime ones,  according to Citibank:

"Defaults on some so-called Alt A mortgages packaged into bonds last year are now outpacing those from subprime loans, according to Citigroup Inc. 

The three-month constant default rate for 2006 Alt A hybrid adjustable-rate mortgages is 2.3 percent, compared with 2.2 percent for subprime ARMs, New York-based Citigroup analysts led by Rahul Parulekar wrote in a July 20 report. . . "          

More than $800 billion of subprime mortgage bonds and $700 billion of Alt A bonds are outstanding, with ARM bonds totaling more than $600 billion and $450 billion, respectively, according to a March report by Zurich-based Credit Suisse Group."         

And, as we mentioned Tuesday, it's NOT just Alt A and Subprime, according to Countrywide (CFC) CEO Angelo Mozila:

"Countrywide Financial, the nation’s largest mortgage lender, said yesterday that more borrowers with good credit were falling behind on their loans and that the housing market might not begin recovering until 2009 because of a decline in house prices that goes beyond anything experienced in decades."

Incidentally, I was on Kudlow with Mr. Mozila about a year ago. Nice guy, he gets credit in my book for being a bluntly candid  speaker. As it turns out, he is also a canny seller of his own stock -- a net of $380 million, according to Thomson Financial.

As I said at the time, it was smart they were diversifying away from Housing, but I wouldn't touch Countrywide Financial with a 10 foot pole -- and that's still true today.

UPDATE:

Bloomie:

"Home resales in the U.S. fell for a fourth straight month in June, a sign housing remained mired in the worst slump in 16 years going into the second half.

Purchases last month declined 3.8 percent to an annual rate of 5.75 million, the slowest pace since November 2002, from a revised 5.98 million in May that was less than initially reported, the National Association of Realtors said today in Washington.

Rising borrowing costs are discouraging buyers, leaving a glut of unsold homes on the market and dimming prospects for a quick recovery in housing. Federal Reserve policy makers last week trimmed their economic growth forecast amid persistent weakness in home building."

When even the NAR start revising forecasts downward, you know that we are nowhere near that elusive bottom . . .

>

Sources:
Defaults on Some `Alt A' Loans Surpass Subprime Ones
Jody Shenn
Bloomberg, July 24 2007
http://www.bloomberg.com/apps/news?pid=20601087&sid=aeWSvfvHw3cQ&

Top Lender Sees Mortgage Woes for ‘Good’ Risks
VIKAS BAJAJ
NYTimes, July 25, 2007
http://www.nytimes.com/2007/07/25/business/25lend.html

Home Resales in U.S. Fall 3.8% to 5.75 Million Rate
Joe Richter
Bloomberg, July 25 2007
http://www.bloomberg.com/apps/news?pid=20601087&sid=abCy7BmqWaYc&

Comments

[Paul Meisel:]

Besides the multiple apps, Barry, there are a lot more apps that just don't get approved, so the deals don't get done. For the last few years, there was always some mortgage broker that could get your dog Fluffy approved. A lot of that has dried up.

2007 Jul 26 09:10 AM

[Carl leason:]

Personally I blame the Mortgage Loan Companies for the problems in housing this time. They were writing loans with no documentation and convincing a lot of unqualified people that they "deserved" to have their own home,.and that it was in their interests to buy,...buy,...buy !!! No one "deserves" a home,...you must be in the right financial shape to "Deserve" a home.
The Appraisers are also much to blame for not sticking to their guns and placing realistic values on homes but they too were afraid of loosing business to appraisers who would OK anything.
Even the big banks were way to loose with their lending policies.
Being in Real Estate for over 25 years, I saw similar loan activities in the early 80's when lenders were writing 17-18 % loans and having the buyers paying at an 8-9% rate and adding the balance of the REAL payment to the principle every month .Lenders were convincing buyers that the int. rates would be coming down fast ! ( The Reagan years ), For those who don't remember that time, it took 8 years for interest rates to drop below 10% !.. Huge numbers of people went into forclosure over that activity because, like adjustable loans, you can get in trouble real fast, and missed payments are simply added to the principle every month, making buyers even more "upside down".
This time, again, I blame it on the lenders !!
Unfortunately, by playing with the numbers, the lenders can make any deal sound attractive. ( How about zero down loans ,..PURE INSANITY !)
Also, please don't blame the Realtors because they are always at the mercy of the banks ! Always !!

2007 Jul 26 02:53 PM

[joyofyoga:]

Yep, multiple apps are on the rise because underwriting guidelines are literally changing on a daily basis. And a good loan that would be considered a lay down is suddenly subject to additional layering because everyone is now spooked. So you can get a DU approval from Fannie Mae on a 30 year fixed to take out a borrower in an ARM but the lender won't approve it because the $100,000 in retirement funds are not liquid till the borrower is no longer employed. Go figure. Of four applications you submit, only one will lender will close the loan.

2007 Jul 27 01:36 AM

[Daniel Hood:]

I as an average retail investor cannot believe the builders and mortgage companies did not see this coming???? How in the HELL long did they think this party would last????? Does no one remember NASDAQ 5000 ???

I live in Clearwater Beach FL and there is now vacant beachfront land everywhere (looks like Beirut) where they tore down the older Holiday Inn's to build mega condos and now are bust .... It is disgusting, the city should bear some blame too for allowing it. I find people so ignorant for believing the party would last forever..... Where did they think all the buyers were going to come from.

2007 Jul 27 04:49 AM