Friday, August 1, 2014
PLACERVILLE, CALIFORNIA
99 CENTS

Pending sales slump no surprise

By
From page HS3 | November 08, 2013 |

According to the most recent U.S. Pending Home Sale Index, fewer Americans than forecast signed purchase contracts for existing homes in September. The index was down 5.6 percent; the biggest drop in more than three years.

Important Subscriber Update

We will be switching to a new online subscription service on Tuesday, August 5th. If you are already a subscriber with login access to MtDemocrat.com you will need to re-register under the new service. This will not affect your bill. Please take the time today to click "Subscriber Verification" to verify your subscription with us and continue your access to MtDemocrat.com before the new service takes over.

We apologize for the temporary inconvenience this may cause and thank you for your patience and continued support while we make this transition.

- Mountain Democrat

1-Month Access
Subscriber Verification
Help?

“This tells us to expect lower home sales for the fourth quarter, with a flat trend going into 2014,” NAR Chief Economist Lawrence Yum said in a statement.

The news shouldn’t have been a surprise to my weekly readers. Our local real estate market has been cooling since August and several of my columns have discussed the relevant issues and their implications to buyers and sellers. However, this large drop in national sales is of significance. The slump is more than a seasonal adjustment. If it continues it could curtail the housing market’s recovery and slow the pace of our economic recovery.

The sales slump caught most national housing economist off guard. Now they are scrambling to identify the culprits disrupting what was expected to be a steady sustained housing recovery. The list will include: the bump in interest rates, higher home prices, fatigued buyers who tired of competing with cash buyers and multiple offers and then there was the government shutdown. All those factors are contributing to a bumpy recovery. Absent from the list of easily identified influences is another culprit that has already been a drag on home sales … banks.

Mainstream economists and the media often give a pass to lenders as being an obstacle in the housing market’s recovery. While the loan origination process is a pretty easy concept to grasp, the banks internal workings of underwriting, securitization and secondary marketing is not. Pointing to an increase in mortgage rates as the reason for slower September sales is an easier concept to explain than the systematic tightening of credit policies designed to discourage borrowers from applying for a mortgage.

Back in the day, lenders generated huge profits on originating and servicing mortgage loans that they securitized and sold off to Wall Street investors. The emphasis was to approve as many loans as possible. No one is advocating a return to the reckless lending policies of the past but the pendulum has swung too far in the other direction. Banks no longer look at their mortgage origination as profitable. It actually cost lenders $1,750 for every purchase loan they process and $950 for every refinance. Their credit card divisions generate more profit with less risk. Servicing mortgages has also become more costly. Lenders have had to hire thousands of new employees to service their loan portfolios and to comply with new state and federal regulations.

Not only are lenders losing money with every loan they process, they incur a higher degree of risk on the loans they approve. Fannie Mae, which securitizes loans and investors who eventually purchase them, is forcing lenders to buy back loans that go into default. These “put-backs” are often disagreements over small mistakes that bear little relation to either credit risks or the subsequent default. The result is it takes longer to underwrite a loan and lenders are putting in place additional underwriting standards that go way beyond Fannie or FHA guidelines. According to the Mortgage Bankers Association, the typical loan underwriter will work on 50 files a month. This compares with 200 a month a few years ago. The excessive time and documentation is turning off many borrowers from even attempting the process.

After what the banks have been through, it’s natural they have an aversion for taking on the risk of making unprofitable mortgage loans. The foreclosure crisis impacted everyone but lenders got slammed the worst with increased federal and state banking regulations, billions of dollars lost on their property foreclosures and billions more paid to settle state and federal claims for often procedural miss-steps. Now with federal regulators permanently stationed inside banking headquarters and activists state attorney generals looking for more “deep pocket” opportunities, banks have adopted a defensive loan posture. Rather than viewing a new loan as a profit opportunity, banks now view every loan as a potential liability. And while no CEO has come out and said we’re really not interested in making new loans, their collective aversion to taking on any risk of default, consumer litigation or inadvertent violations of a new federal or state regulation is clear by the number of loans they decline.

According to data released this last month by the Federal Financial Institutions Examination Council and published in the Wall Street Journal, banks are rejecting mortgage applicants at increasing levels. J.P. Morgan Chase turns down 33 percent of mortgage applicants, while Bank of America rejects 25 percent, Wells Fargo 21 percent and U.S. Bank 17 percent. Based upon these rejection rates, it would appear that many applicants simply are not credit worthy. Not so!

Loan applicants applying for a mortgage today have an average credit score 50 points higher than prior to 2008. These higher scores are actually understated since they were earned during a much more difficult economic environment than credit earned during the more prosperous early 2000s.

According to Mark Zendi, chief economist of Moody’s Analytics, “Easing lending standards to return credit scores to pre-bubble levels would boost home sales by 450,000 units and new single family home construction by 275,000 units.”

The recent housing recovery is encouraging and much of our economy is dependent upon it continuing. The recovery, however, will be more difficult and protracted as long as lenders and policy makers continue to discourage borrowers from applying for a loan.

Ken Calhoon is a real estate broker in El Dorado County. He can be reached at www.kencalhoon.com

Comments

comments

  • Recent Posts

  • Enter your email address to subscribe and receive notifications of new posts by email.

  • .

    News

    Sand Fire 95% contained

    By Cole Mayer | From Page: A1

     
    Cameron Park house burns

    By Dawn Hodson | From Page: A1 | Gallery

    Supes delay petition

    By Chris Daley | From Page: A1

     
    Fire generated small city, inspired volunteers

    By Dawn Hodson | From Page: A1 | Gallery

     
    Two fires in town

    By Cole Mayer | From Page: A3

    .

    Opinion

    Missing the point

    By Mountain Democrat | From Page: A4, 1 Comment

     
    The weekly Daley: The wrong side of history

    By Chris Daley | From Page: A4

    Billingsley’s bullets: Advice from my psychiatrist

    By Bob Billingsley | From Page: A4

     
    .

    Letters

    Olives need less water

    By Letters to the Editor | From Page: A5

     
    EID rate discrimination

    By Letters to the Editor | From Page: A5Comments are off for this post

    Second Amendment

    By Letters to the Editor | From Page: A5Comments are off for this post

     
    Pollock Pines’ Fourth of July Parade

    By Letters to the Editor | From Page: A5Comments are off for this post

    Water conservation

    By Letters to the Editor | From Page: A5Comments are off for this post

     
    Koby

    By Letters to the Editor | From Page: A5

    Debt reduction at EID with Coco?

    By Letters to the Editor | From Page: A5

     
    Time for change in CP

    By Letters to the Editor | From Page: A5, 2 Comments

    .

    Sports

    Camp draws good numbers

    By Jerry Heinzer | From Page: A9Comments are off for this post | Gallery

     
    New law tackles gridiron concussion problem

    By Mike Bush | From Page: A9 | Gallery

    Outside with Charlie: Rafting denied

    By Charlie Ferris | From Page: A9

     
    Racing returns with big 5-division card

    By Bill Sullivan | From Page: A9

    Roundup: July 31, 2014

    By Democrat Staff | From Page: A10

     
    .

    Prospecting

    Sing while you paint

    By Placerville Arts Association | From Page: B1Comments are off for this post | Gallery

     
    The making of a champion

    By Special to the Democrat | From Page: B2

    Plenty of golden fun during SlugFest

    By Democrat Staff | From Page: B2 | Gallery

     
    Things to do: Aug. 1, 2014

    By Democrat Staff | From Page: B2

    Art on the Divide is showing new exhibitor

    By Art On The Divide | From Page: B3

     
    ‘The Flu Season’ stirs emotions

    By Ovation Stage | From Page: B4

    Guitar group performs in Sutter Creek

    By Sutter Creek | From Page: B5

     
    Time to register for classes at Center Stage

    By Center Stage Dance Academy | From Page: B5

    Get a groove on in Sutter Creek

    By Sutter Creek | From Page: B8

     
    Chris Young in concert at Carson Valley Inn

    By Carson Valley Inn | From Page: B8

    The music continues at Bear Valley Music Festival

    By News Release | From Page: B8

     
    Sacramento Museums are celebrating

    By Sacramento Association Of Museums | From Page: B9

     
    .

    Essentials

    Weather stats

    By Michael Raffety | From Page: A2

     
    Crime Log: July 17-19

    By Cole Mayer | From Page: A2

    .

    Obituaries

    Larry A. Randall

    By Contributor | From Page: A2

     
    Mark A. Smith

    By Contributor | From Page: A2

    Jeffie “Jeff” Lee Callahan

    By Contributor | From Page: A2

     
    Patsy Ruth Wing

    By Contributor | From Page: A2

    Lisa Oliver Rose

    By Contributor | From Page: A2

     
    .

    Real Estate

    Avoiding the deal killers

    By Ken Calhoon | From Page: HS4

     
    Decorating your home by the numbers

    By Marni Jameson | From Page: HS4

    Hilltop home views outrank water-front views

    Press Release | From Page: HS7

     
    Luxury home sales jump

    Press Release | From Page: HS11

     
    Pending home sales decrease in June

    Press Release | From Page: HS13

     
    Sheryl Lindroos joins American Heritage

    Press Release | From Page: HS17

    Sunny Rosabella exudes a warm ambiance

    Press Release | From Page: HS23

     
    .

    Comics

    .

    Home Source

    Decorating your home by the numbers

    By Marni Jameson | From Page: HS4

    Avoiding the deal killers

    By Ken Calhoon | From Page: HS4

    Hilltop home views outrank water-front views

    Press Release | From Page: HS7

    Luxury home sales jump

    Press Release | From Page: HS11

    Pending home sales decrease in June

    Press Release | From Page: HS13

    Sheryl Lindroos joins American Heritage

    Press Release | From Page: HS17

    Sunny Rosabella exudes a warm ambiance

    Press Release | From Page: HS23