SubscribeFree Mortgage Payment Protection, FHA Standards Easing and Loan Mods at Absolute Mortgage Banking
November 20, 2009
Free mortgage payment insurance, really? Yes! While hosting one of my monthly mortgage market updates, which generally occur every third Wednesday of the month, I learned that CAR actually offers complimentary mortgage protection through their Housing Affordability Program (special thanks to Pam Page and Julia Keady for this information). To be eligible, the following are a few highlights:
- First-time buyers only
- Dwelling must be single-family residential
- Must close escrow by December 31, 2009
- Must be represented by a CA Realtor
- Buyer(s) have not received benefits from HAF in the past
The maximum monthly benefit is $2,250 per month for a total duration of six months, after an initial four-month seasoning period. As such, it may be worth looking in to additional providers to augment the CAR program, should additional peace of mind be desired.
So what else was good information discussed at the update on Wednesday?
- Bridge financing is available for qualified move-up buyers looking to leverage their current home and buy before they sell
- “Jumbo” money is more available today than it has been over the last year, which is primarily due to price stabilization– there are now programs offering rates below 4%, leverage as high as 90% (80% to $2mm loan amount!) and financing for investment properties
- with the elevated conforming loan limits staying in tact, rates below 5% and a total of $18,000 in tax credits available to eligible buyers, first-time buyers are likely much better off owning versus renting provided that the holding period is five years
- Move-up buyers appear to be the most motivated lately, as we are seeing twice the number of applications on “jumbo” mortgages versus conforming mortgages coming in at present
- with qualifications tightening, sellers are wise to consider offering up to 2% of the sales price as a credit toward a buyer’s non-recurring closing costs to yield a lower rate and therefore payment
- Multiple offers are back, so it’s good to know that the 21-day close is also available again
Next update presentation will be on January 20, 9:30 am and posted on the AMB website calendar– hope to see you there!
FHA Standards Easing
If you know of someone looking to puchase a condo in a new development, HUD just made it easier to obtain an FHA loan. HUD is easing up on the requirements that 50% of the units be sold (now down to 30%) and now allows up to 50% of the units to be FHA financed (up from 30%) before funding for FHA is allowed. The rule that no more than 10% of the units can be owned by one owner and that 50% of the project must be owner occupied hasn’t changed, and the developers aren’t very happy about it, but the reality is that the deal is simply not insurable otherwise.
Loan Modifications Available Through AMB
Coming soon, Absolute Mortgage Banking will have an arrangement with a reputable company that can help individuals modify their loans per the HAMP requirements, and we’ll make the process very easy with a link through our website. We are in the final due-diligence stage, and we will have a formal announcement likely before Thanksgiving.
Tax Credit Extended, Markets Further Stabilizing and Real Estate Ideal Hedge
November 11, 2009
Tax Credit and Conforming/FHA Loan Limit Extended
Made official on Friday, the tax credit for home purchases was extended through July 1, 2010 and the important details are exactly as they were in my post on Friday the 30th of October, which was summarized as follows:
· Effective on binding real estate contracts from December 1, 2009 through April 30, 2010, The tax credit would be $8,000 for first time home buyers and $6,500 for move-up buyers who have owned their current home for at least five years
· The tax credit expires on April 30, 2010; however, if a binding contract is reached by April 30, 2010, buyers have an additional 60 days to close the deal and still be eligible for the tax credit
· For purchases made in 2010, taxpayers would be able to claim the credit on their 2009 income tax return
· The income limits for both first time home buyers and move-up buyers would be $125,000 for single return and $225,000 joint return.
· Cost of the home may not exceed $800,000 to be eligible.
Remember that a tax credit has about THREE TIMES the impact of a tax deduction, which allows someone earning $125,000 per year to be taxed on about $102,000*. And since other items like interest and property taxes are also deductible*, that same individual may be looking at less than half of their earnings being fully taxable..!*
Add the above news to the fact HUD also extended the conforming loan limit of $729,750 in the Bay Area to December 31, 2010, and you have a “perfect storm” for every qualified first-time buyer in the Bay Area.
S&P Case-Shiller Confirming Further Improvement of Housing Prices
Released last week, the S&P Case-Shiller index confirms that housing prices continue to improve, especially in areas like San Francisco where the index moved another 2.8% in August to 132.47. This marks the seventh straight month of improvement.
Zillow also reported that their index reflected further stabilization for the third quarter, with over 26% of the metropolitan statistical areas showing signs of improvement.
Real Estate as an Ideal Hedge to Both the “W” Concern and Inflation
You may recall from my last post that we are seeing far more application activity for purchases in the $1mm+ range, especially the $1.5mm to $4mm range. These applications have been coming from our more financially-minded clients, as they not only see tremendous opportunity to obtain a more valuable home, but they are very concerned about a “W”-shaped economic recovery and subsequent inflation. As such, obtaining an upgraded home for less, cheap financing and hedging against inflation make buying a larger home an ideal move. All things being relative, the reality is that the S&P 500 currently has a rather high price-to-earnings ratio at about 19.52 versus the historical average of 15.7. As such, if we were in average economic circumstances, it’s arguable that the stock market is overvalued by about 25%. Given the fact that our current economy is FAR from being in average condition, it’s anyone’s guess just how overvalued the stock market is. All I know is that my savviest, financially-minded clients think that the stock market is due a correction and that real estate is a great asset to have as a hedge against both a market correction and inevitable inflation.
Fannie’s New Program: Deed for Lease
Announced on November 5, Fannie Mae is helping those qualified applicants to essentially sell and lease back their current home. This program is also applicable to investment-property owners who are facing foreclosure and wish to deed the property over to the lender and allow the renters to continue renting at market levels.
Rates and Activity
- Rates continue to run as low as 3.75%, depending on a number of different factors, with the conforming 30-year at just under 5% and the jumbo 30-year at about 4.75%
- 71% of our transactions last month were purchases, and the average loan was in the $500k range.
- As mentioned above, we’re seeing a heavy trend in purchase applications for the move-up market, but inventory is turning off a majority of those buyers
- We closed a deal in TWO weeks, but we still recommend a 30-day closing period
- If you or someone you know prefers to pay cash for a purchase, then finance that purchase within 90 days to protect valuable tax advantages, we can help, as we have programs that DO NOT require 6 months seasoning and pricing is based on purchase money, NOT a cash-out refinance
* Does not constitute tax advice. Please seek any qualified tax professional for proper guidance.
High-cost conforming loans and housing prices
November 10, 2009
On November 6, Scott Sambucci of Altos Research did some analysis of housing prices around the $730,00 sales price to see if conforming loans requiring as little as 5% down were having an impact on selling prices, vs. the 20% minimum down payment for loans over $729,000.
Basically, there is an effect, and we are seeing market striations here locally at the $1.5M and $2M price points as well, where most lenders require 20% and 25% down payments respectively.
Get the scoop, analysis and commentary with cool charts HERE
Activity off the Charts, Tighter Guides, Tax Credit Extension– Weekly Comments for October 9, 2009
October 12, 2009
With the number of mortgage applications on purchases surging another 13% last week, combined with conforming-level rates remaining at sub-5% levels and pending home sales rising for the seventh straight month, who in the real-estate world doesn’t need an extra shot of espresso in the am! But not all is rosy with tighter guidelines and the Fed ready to raise rates as necessary to control inflation.
Applications and Rates
With total mortgage applications up 16% last week (13% for purchase applications), how is it that rates are lower if demand for loans is up? The answer is that rates are affected when loans are locked. So if applications are submitted, but processing times are extended and applicants are holding off locking their loan, rates will be lower until real demand (locking the loan) kicks in. The current trend seems to indicate that rates are moving higher, but not significantly. As such, if you are looking for that conforming 30-year fixed under 5%.., it’s still available. Non-conforming rates are also cooperating as they are tied more closely with savings rates than market fluctuations, and we all know how low those CD rates are right now.
What is important to note is that the Fed is concerned about the level of “slack” left as it relates to loose monetary policy, which suggests that tightening monetary policy (raising rates is one way to tighten the screws, but not the only way) has become the focus for the Fed.
Pending Home Sales Up 22.3% Over Last Year
August is typically a slower month for real estate sales, but August 2009 sure bucked the trend with the West reporting a 16% increase over last month and a 22.3% increase over last year—the index now stands at 130.5 in the West. For those still uncertain about whether low rates and tax credits are not doing their part to stabilize the housing market, this latest data is sure enlightening.
Even new construction purchases were up in August with new-construction inventory shrinking for the 28th consecutive month.
Fannie and Freddie Cutting DTI Allowances to 45%?!
Last quarter, Fannie and Freddie cut debt-to-income (“DTI”) allowances for their loans by 16% to 55%. Now, Fannie and Freddie have indicated that DTI allowances will be cut again to 45% DTI—an additional 18.2% cut! What this means is that borrowers who could afford a $500k home today will have to settle for a $400k home in the future. As if there aren’t enough motivating factors for first-time homebuyers already—low rates, low prices, tax credits– here’s another reason…
And speaking of the tax credit, let’s all keep our fingers’ crossed that it at least gets extended and hopefully improved!
Condodealz Update
If you know of anyone interested in purchasing a new condo in Palo Alto at sizeable discount, register yourself at condodealz.com as soon as practical, as a deal is currently in the works.
We’re working this weekend as we do every weekend, so please feel free to contact us at 650.543.8001 or 800.517.LOAN (5626).
Cheers,
Eric
Subprime loans – Should Palo Altans care?
March 29, 2007
If you are a reader of The San Jose Mercury News, or any other paper or media outlet, you know that there is a growing issue associated with home buyers who purchased their homes using subprime loans and are now facing foreclosure as they are unable to keep up with their payments when their rates adjust.
On Sunday, March 17, the San Jose Mercury News ran an article describing how an agent and lender with Century 21 Su Casa Realty violated a number of lending laws and ethical guidelines to get people to purchase homes which are now in foreclosure, in some case because the buyers couldn’t even afford the first payment.
While it is a stain on the already tarnished image of Realtors, it is easy for us in Palo Alto to say ‘what a shame, it won’t happen here’, or words to that effect. But, what is the effect of this issue on homebuyers in Palo Alto and the surrounding communities?
Rachel Van Emon with OPES Advisors, a financial services firm with offices in Palo Alto and San Mateo, recently sent me an article that discusses the effects of impending legislation and revised lending guidelines that will affect the ability of buyers to qualify for products like the interest only loans that so many of us use to buy our million dollar teardowns in Palo Alto and surrounding communities.
The highlights are:
- The Department of the Treasury has issued a Guidance on Guidance on “Nontraditional Mortgage Product Risks.”
- The Guidance specifies “nontraditional” as those loans allowing the deferment of principal and/or interest payments – not just sub-prime loans.
- The Guidance states that borrowers for these products are to be qualified at the “fully amortizing and fully indexed payments.” This means that qualifying payments will be bigger, and it will take more income to qualify.
- The new guidelines are to be in effect by 9/07. Some lenders have already adopted them, and many more will do so in the coming months.
- Virtually all lenders have cancelled their programs allowing 100% financing on a Stated Income basis.
- Guidelines have tightened around lending when other “risk factors” are present such as 100% financing, low reserves, high debt-to-income ratios and condo properties.
In short, it’s going to be harder to pay for that million dollar teardown in Palo Alto starting now, and especially in September.
The big question is whether these changes in lending laws will cool the red hot housing market we are currently enjoying, or if the Valley’s amazing ability to generate disposable incomes and wealth will overcome another hurdle to home ownership. Stay tuned . . .
The entire article is posted for your reading pleasure. Click here to view it.
