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| Mortgage Sample Shows Impact on Demand |
| Written by Jonathan Smoke | |
| 08.14.2007 | |
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Discuss this article on the forums. (0 posts) Jack Guttentag, the Mortgage Professor wrote an excellent article last week that currently is featured in our Real Estate News. In “Mortgage upheaval prompts look at wholesale loans,” Guttentag shopped three different types of mortgages at a dozen large wholesale lenders. The results he found were telling about how the credit market is impacting current mortgage quotes. And it doesn’t take much to extrapolate the data to show how the mortgage market is impacting demand for housing. Here are his results: For conforming loans to good credit home buyers with documented income, rates are up from where they have been in recent years. Wi  th all twelve wholesalers providing quotes, there was a relatively little difference between the fees and points quoted.Simply increasing the loan by 1,000 and making it non-conforming, Guttentag started to see differences. First, the rate quoted was significantly higher than the rate for the conforming loan, and according to Guttentag, “To my knowledge, the current spread is larger than it has ever been.” In addition a few lenders wouldn’t quote and the range of fees and points was significant. For the third type of mortgage, Guttentag upped the risk by making it a cash-out refinance with no income documentation. Only a third of the lenders quoted. The rates were significantly higher than the other mortgages and the range of fees was also wide. This data, while clearly just a limited sample, reveal that the credit market is in flux regarding any mortgage besides conforming loans to low credit risk individuals. A risk premium is being priced into rates for other types of mortgages and fees, and this risk premium will make it even harder for entry level buyers to finance a new home. The sample did not test geographic differences, but since 417,000 was a key inflection point because of the conforming loan status, the impact will be more wide-spread in markets with relatively high home prices. 
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