SubscribePendings, Applications and Multiple Offers all UP
May 15, 2009
Fellow contributor sent this to me, and I thought is was worth sharing. I’ll have Administrator Kevin re-post this under his authorship when he has a minute….
We are finally seeing seeing a little sunlight through the economic gloom, both nationally and locally. Take a look at these new statistics, and some anecdotal data from here in Palo Alto.
On a seasonally-adjusted basis, pending home sales in the US were up 3.2% last month (3.9% in the West) and 1.1% over last year (1.7% for the West)
On a non-seasonally-adjusted basis, pendings were up 28.2% last month (23.9% in the West) and 3.2% over last year (4.3% in the West)– wow
What’s significant about this is not only the fact that we continue to see more homes selling, but the index itself is running at volumes similar to what we saw in 2001! Further, this activity helps to stabilize the market, which leads to:
- more available lending, especially for the non-conforming (jumbo’s equity lines, construction financing) market
- helps the conforming market by enabling the MI companies to insure up to 95% again, as opposed to the 85% that they’re at now
- appraisal report concerns reduce
- reduces the emotional aspect of the sale that has created a tremendous amount of tension in the marketplace, as both buyer and seller feel more comfortable about moving forward
A factor that could be contributing to this increased volume is REO’s since Fannie and Freddie had a moratorium on foreclosures from December through March. As such, we may see a slight decrease in the median home price for the month of April. That written, it’s been the first-time homebuyers who have been driving this market, and first-timers don’t prefer to buy REO’s due to the headaches and lack of disclosure involved.
Purchase Applications Continue to Increase
Up 5% over last week on purchase applications, with no signs of slowing down. Refi’s are naturally very volatile as rates fluctuate with supply and demand. Overall, the conforming-level loans applications take the majority of overall applications but we have seen non-conforming application double this month over last.
On conforming loans ($ to $729,750) no matter how hard the government (taxpayers) works to throw money into the system, demand continues to outstrip supply driving rates higher.
On non-conforming loans, rates are driven by deposit rates, which have remained low this year. The 30-year is running about 6% with the 10/1 about 5.5%, the 7/1 about 5.25%, the 5/1 about 5% and the 3-year at 4.75%
Any mortgage rate below 7% is beating the average over the last 40 years.
Multiple Offers Coming Back
Last night one of our clients was the successful bidder of FOURTEEN total contracts submitted- wow! And, yes, this was on a $1.3mm home in Palo Alto. The important thing to remember is that going the old strategy of “as is” with “no contingencies” against multiple offers should be used with high caution when there’s a loan involved and the loan-to-value limits are applicable. Why? The due-diligence process on loans is 4X what it used to be, and appraisal reports are highly scrutinized; as such, it’s recommended that only the most qualified buyers consider proceeding as above.
Mortgage Process, Guidelines and Discretion
Did you know that a loan is actually NEVER officially committed until it funds? In most of the US, the financing contingency runs all the way to funding.
For the first time in 10 years, underwriters are using discretion to determine an applicant’s ability to replay a loan; as such, guidelines are just that—guidelines—and transactions may be in jeopardy if the process is rushed. A good example are those borrowers who have had a bankrupts in the past. Individuals who file bankruptcy once are 80% likely to do so again in their lifetime. An underwriter may see that a credit score requirement is met, but if the overall profile of the applicant’s repayment history is highly questionable, the request could be severely altered or declined.
The process is far more involved than it’s ever been, for both good and bad reasons. As such, we all need to keep in mind that closing dates need to be flexible. Additional due diligence is required on every transaction, and the verification process alone is one that can make the difference between a deal closing and a deal blowing up. A solid, reliable lending source will always provide proper guidance and multiple solutions
In a nutshell, BofA and Morgan Stanley are ranked at the bottom with Citibank and Wells in the middle, JP Morgan and Goldman at the top… The need to raise additional capital places stress on the system and essentially forces rates up since investors know that additional capital is required and will therefore demand a premium for it. For a 4-page version of the results, check out RBC’s summary.
Conforming Loan Limits Newsflash
February 19, 2008
I’d like to thank Kristen Emery at Princeton Capital in Palo Alto for providing me with the first bit of information that actually explains what the changes to conforming loans will mean to someone in Silicon Valley trying to buy a home.
A little light reading for you:
We have seen a whirlwind of legislative activity these past few weeks! There is much confusion surrounding the recentlypassed Economic Stimulus Package and higher loan limits. Unfortunately, the new law can be confusing to decipher, andnot everyone will benefit. For this reason, we have provided an outline below that clarifies what this new law means for youand how you can benefit from the higher loan limits.
Description and Overview:An economic stimulus package just passed Congress on February 7, 2008 and was signed into law by the President onFebruary 13, 2008. This new law is effective immediately and includes a temporary increase in both the FHA andconforming loan limits to as high as $729,750 in high cost areas. This means that the interest rates on many mortgages willgo down because these loans are now eligible to be purchased by Fannie Mae and Freddie Mac or insured by the FederalHousing Administration (FHA). Previously, the FHA was only allowed to insure loans with balances lower than $200,160 -$362,790, depending on the county where the property was located. Also, Fannie Mae and Freddie Mac were only allowedto purchase loans with balances at or below $417,000. This resulted in limited options and higher financing costs for thosewith loan balances above these limits. The new law substantially increases these limits in high cost areas and opens upnew options and lower financing costs for many people.
How to Determine “High Cost” AreasThere are two things you must know in order to determine if you are in a high cost area:
1. Understanding the Formula
If 125% of the local area median home price exceeds $417,000, the temporary loan limitwould be that 125% of the median home price with a cap of $729,750. Here are threeexamples to illustrate this concept: If the median home price in your area is $375,000, 125% of that number is$468,750. Thisis above the current $417k conforming loan limit. Therefore, the conforming loan limit inyour area WILL change and go up to $468,750. This number is also higher than thehighest FHA loan limits, so therefore your FHA loan limit will also go up to $468,750. If the median home price in your area is $650,000, 125% of that number is $812,500.This number is greater than the maximum cap of $729,250. Therefore, the conforming loan limit in your area willincrease to highest allowable amount under this new law which is $729,250. (Our median home price is $612,000 for Santa Clara County).
2. Determining the Median Home Price in Your Area
The Secretary of Housing and Urban Development (HUD) will publish the median house prices within 30 days of the billgoing into effect (30 days from February 13, 2008). HUD does not have any interim stats or information for us to use. However, the bill also states that HUD can use any commercially available data if they are unable to compile theinformation on their own within the 30 day timeframe. With that in mind, it is likely that HUD’s numbers will be relativelyconsistent with the data published by the National Association of Realtors (NAR), which already has a solid track record oftracking and publishing this information on a quarterly basis. Therefore, until HUD actually publishes their version of the median home prices, the most accurate way to get thisinformation today is to utilize the data that is published by NAR. Ironically, NAR just released their latest median homeprice update for the 4th quarter of 2007 on February 14, 2008! Contact me today and I’ll research your info and let youknow exactly what the median home price is in your area and how you can benefit from this information.
What do all the dates mean?
There is some confusion because the bill has a provision that says the higher limits areonly effective for loans originated between July 1, 2007 and December 31, 2008. Inshort, the reason it is effective beginning July 1, 2007, is because the credit crisis startedto unfold in July and August of 2007. Mortgage market conditions rapidly deterioratedalmost overnight. Many secondary market investors suddenly refused to purchase loansthat couldn’t be sold to Fannie Mae and Freddie Mac. (For more info on how this processworks, please see the article entitled Saga of the US Mortgage Industry.) Unfortunately, many mortgage banks had already funded these loans in their ownportfolio or through their warehouse lines of credit. Their intention was obviously to sellthese loans on the secondary market after the loans were funded. However, the creditcrisis prevented them from doing so, and they were stuck holding these loans in theirportfolio. The July 1, 2007 date in the bill is designed to allow these lenders to unloadthese mortgages and sell them on the secondary market to Fannie Mae and Freddie Mac.
However, the July 1, 2007 date has no bearing whatsoever on new refinance transactions!
In other words, it doesn’tmatter when the loan you are refinancing was originated. The old loan could have been originated in 2005, 2006 oranytime before or after July 1, 2007 and it would have no effect whatsoever on your current purchase or refinancetransaction.
If you are refinancing a new loan today, whether it is a purchase or refinance transaction, that loan issubject to the new limits set forth in the bill.
The other date of December 31, 2008 means that the old limits will go back into effect after this year. In other words, now isthe perfect time to buy a new home or refinance your mortgage because after this year, your costs will be higher and youroptions more limited again.
When does this all go into effect?
February 13, 2008 – immediately upon the President’s signature. Therefore, HUD is obligated to publish the median homeprices within 30 days of that date. However, Fannie Mae, Freddie Mac, and various wholesale lenders may have different policies as to how these new loans are going to be priced and underwritten.
- – - Information provided by:
Kristen Emery
Princeton Capital
650-566-5754
Tax break for mortgage debt forgiveness
December 20, 2007
President Bush signed into law today a new measure giving tax breaks to homeowners who have mortgage debt forgiven. Under preexisting law, the debt forgiven by a lender, such as for short sales and refinances, was generally taxable to the borrower as debt discharge income. With the passage of the Mortgage Forgiveness Debt Relief Act of 2007, a taxpayer does not have to pay federal income tax on debt forgiven for a loan secured by a qualified principal residence.
This tax break applies to debts discharged from January 1, 2007 to December 31, 2009. Qualified principal residence indebtedness is debt incurred in acquiring, constructing, or substantially improving the residence (up to $2 million for refinances).
For purposes of calculating capital gains, any debts discharged excluded from income under the new law must be subtracted from the basis of the taxpayer’s principal residence (but not below zero). However, taxpayers may generally exclude from capital gains income up to $250,000 (or $500,000 for married couples filing jointly) for properties owned and used as their principal residence for at least two of the last five years.
This is great news for homeowners who have gone through either a short sale or deed-in-lieu of foreclosure. Prior to this act, it was a double-whammy — not only did the homeowner not have enough equity to sell their home and took a big hit on their credit score, but they were taxed on the differential between what they owed on the house and what it sold for (because it was treated as income). Now they can at least know that Uncle Sam will not come after them to pay taxes on that differential.
For a copy of the Mortgage Forgiveness Debt Relief Act of 2007, go to http://www.govtrack.us/congress/bill.xpd?bill=h110-3648.
Also, keep an eye out for my upcoming article that will explain “What is a short sale?”, in the coming days.
