Home Buying Outlook
Fox Business Network
May 27, 2008
NEIL CAVUTO, host:
All right, home building is doing well. Connecting the dots right now. Case-Shiller still sinking. The widely watched housing barometer in key cities in this country showing, right now, home prices are still tumbling in this country, on average, about 14.5 percent from a year ago.
But is it all a matter of buyers protesting, or buyers simply not qualifying? With us now is the president of the Americana Mortgage Group, Bob Moulton.
Bob, you’re saying it might be more the latter, right?
Mr. BOB MOULTON (President, Americana Mortgage Group): You know, there’s still people out there, Neil, that are looking to buy houses. However, the requirements are getting a lot more stringent. Credit score needs are getting higher. Borrowers have to put more money down. And, they need to get pre-approved before they go out looking for that home.
Someone looking on the high end may have to put down 25 percent now, maybe 30 percent. There’s no more with that 10 percent down, 20 percent down. And even on the lower end, on the $400,000, $500,000, $600,000 range where three years ago, lenders were giving money with no money down, those days are gone.
CAVUTO: Those days are gone. But a lot of those people who can only finance--only allowed to finance maybe, in the best cases, 70 percent, let’s say, on an expensive purchase, they’re shopping around and getting multiple lenders to cobble together a payment, right?
Mr. MOULTON: What we’re doing is we’re looking at these borrowers that may have only 20 percent to put down. The bank is requiring 30 percent down. We’re suggesting that maybe they speak with the seller of the home. Maybe they’ll hold a 10 percent note. Or maybe take a home equity line of credit for the 10 percent. So you have to get a little creative and hope they understand.
CAVUTO: So if they automatically take out a first and a second on the--to cover the 70 percent.
Mr. MOULTON: That’s correct. Or the generation above them, too, there’s a lot of wealth there.
CAVUTO: Yeah.
Mr. MOULTON: And so instead of waiting for the estate to break out--
CAVUTO: Mom, dad, can we talk?
Mr. MOULTON: Exactly.
CAVUTO: So this is a theory that I’ve always had, Bob, that I don’t think there’s a lack of interested buyers, because I hear in all these talks, even from realtors I know, that the traffic is there, but the money to finance the purchase is not. How long do you see this going on?
Mr. MOULTON: Well, right now, there’s a lot of fear in the banking world. And when there’s a lot of fear, they retract just the way they did in the early 1990s. They retract and they price up their product. Until they really understand what the losses are on their balance sheet, this is not going to ease up.
CAVUTO: So they’re going the other way. They were too devil may care before, now they’re too strict on the other end.
Mr. MOULTON: It was very loosey-goosey three, four years ago. Now they’re real tight. But this is what we see in the banking world.
CAVUTO: But these guys, you know, Bob, they’ve gotten all this money. The Fed has opened up the spigot, giving us money. They even said, ‘We’re gonna collateralize a lot of your bad debt. We’ll give you some fresh stuff from Uncle Sam.’ So they’re sitting on all this dough, and they’re not doing anything with it.
Mr. MOULTON: There’s a lot of government intervention. The Fed has lowered the discount rate 300 basis points, you know, from (inaudible-crosstalk).
CAVUTO: But what are the banks doing with it?
Mr. MOULTON: Banks are still holding the mortgage rates at 6 percent, 6.25 percent. They really should be more down to the 5.5 percent, maybe 5.25 percent range. We’re not seeing that because of the risk-based premium the banks are collecting to make up for the shortfall and the losses that they had in the (inaudible-crosstalk).
CAVUTO: So you’re saying, even when it comes to normally very qualified customers, they’re upping the ante as well. Explain, like use of credit scores or the demands that they have.
Mr. MOULTON: Credit score is critical right now. Even if you’re putting down 60 percent. We have a case in hand right now. We have a high-end buyer buying a house for $2.5 million, looking for a million with a 670 credit. Six hundred seventy credit, over the last 15 years or so, was always fine. Right now, the underwriter is looking for 720 and, in some cases, we’re even seeing 740.
CAVUTO: So this guy isn’t going to get a loan from that underwriter?
Mr. MOULTON: Not from that underwriter, but he will find another one.
CAVUTO: So you have to scramble around and look for someone else.
Mr. MOULTON: Right.
CAVUTO: But that means his rate will likely be higher with a different underwriter.
Mr. MOULTON: Slightly higher. The higher the credit score, Neil, the lower the interest rate on the mortgage.
CAVUTO: So where does this all go if they’re being this tough and this reticent, and no one’s budging, and it’s this Mexican standoff?
Mr. MOULTON: It’s slowing things down. We have a lot of prospects that don’t like the feel of the market right now. You follow up with them. You ask them if they’re still going to buy the house. Well, they really don’t like the feel of the market. On the sales side, they’re going to ride it out. So it’s really sort of a little stagnant right now. And it’s not as brisk as it could be. Pricing is still very competitive. Mortgage rates are a lot closer to the low point than they are to the high point in the early 1980s (sic). But it’s just a little stagnant. People would rather do nothing as the best course of action.
CAVUTO: Now, that’s what’s happening. Bob Moulton, thank you very much.
Mr. MOULTON: Sure.