Couple of random data points to share that support our assertion that mortgage credit standards will continue tightening throughout 2008. From the Second (Mortgage) front:
An email from Chase (emphasis ours – notice how they are now talking about survival, rather than profitability):
"Due to continued deterioration of the market, Chase has made several changes to credit policy to secure their survival in the future. Some of these changes are reduction to CLTV’s, DTI’s and other policy changes. Please make sure to read the attached credit policy effective on Monday 2-4. All file registered prior to Monday 2-4 will fall under current guidelines.
- Property needs to be off the market for 180 days
- No condos in Florida as collateral
- 85% Max CLTV Primary Residence (Cltv’s vary by state)
- DTI’s reduced to 40% for Purchases and refinance with credit scores under 700
- Max dti allowed for 700+ fico will be 45%.
- Additional State and County specific CLTV reductions (see chart attached)
- Many other changes listed in the attachment.
And at Countrywide, Home Equity Credit Lines are being suspended [via Calculated Risk, via Implode]
"A portion of HELOC customers have already or will soon be notified by CFC Loan Administration that their HELOC draws have been suspended indefinitely. These HELOCs were identified as candidates for suspensions for various reasons including:
- Significant decrease in supporting property value – If the customer’s current untapped equity (home value minus all mortgage liens) drops by 50% or more from their HELOC opening date, his/her line will be suspended.
- HELOC payment delinquency – If the customer’s payment is made two or more days after the grace period ends, his/her line will be suspended.
- Product Terms/Conditions Violation – In cases where the customer violated terms or conditions of the HELOC Agreement, his/her line will be suspended.
- Examples include, but are not limited to: HELOC on property originated as owner occupied, but now believed to be non-owner occupied or unpaid taxes or insurance on the subject property.
- Be aware that there may be other actions that could trigger draw suspensions.
This is not a one-time event, but an on-going strategy as we continue to manage our lending risk."
Our take on this is that more than a few people will interpret this move from CW as a shot across the bow, and draw the full amount on their equity line to preserve their access to these funds.
A run on home equity line withdrawals by cash strapped and otherwise shaky borrowers would be a disaster for banks trying to defend their balance sheet.