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I have just gotten an email from one of my wholesalers (who shall remain publicly unnamed) removing the "declining market" designation from San Diego loans!

This particular lender is still not willing to do 100% loans, but they will go 95% for conventional conforming and this also removes the requirement to reduce the appraised value for loan purposes.

I do not know how long it will be before everyone, or indeed, anyone else, follows suit, but this is certainly an encouraging sign, and the first official notice that we've had that we've seen bottom.

Believe it or not, I was typing an article with the words, "When will we see a loosening of lending standards? I don't know but I wouldn't be surprised if it happened today." It'll run tomorrow, providing I finish it.

I did predict this several months ago and re-emphasized it a few days ago. You never know market top or market bottom from official statistics until significantly after it has passed.

UPDATE: For those who may not understand, this means that this lender has seen evidence that the market is no longer declining. Other lenders are likely to follow suit. The practical effect is to make it easier to get loans, which means that now people with 5% down payments are now eligible for conventional financing. Since we were in an environment where 10 to 15% down payment was required (outside government guarantee), this means more people are able to be in the market, hence, there will be more people in the market. Therefore, demand increases, raising the price equilibrium point. Because of that, we can expect further rounds of loosening of lender policy to follow, now that this first step has been taken, each of which makes it cumulatively easier to qualify for loans, thereby boosting demand further in the future.

To someone not familiar with financial markets and the way lenders think, it may appear I'm building castles upon a shaky foundation, when in reality these effects are each very likely consequences of the one before it. It will take some more time before lender policy is back where it should be, but each step adds to the forward momentum. We're not going back to "fog a mirror" anytime in the next fifteen years, but I do expect to see 100% conventional financing for full doc conforming borrowers above 680 credit score within a couple years.


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This page contains a single entry by Dan Melson published on June 10, 2008 5:25 PM.

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