Here is an email I received from a bank that we work with. It explains what is the preliminary impact of the recent signing of the economic stimulus package with regard to mortgages and getting people financed to purchase a home.
First:The Economic Stimulus Package (H.R. 5140) has many features, one of which is an income tax rebate that will offer $600-$1200 to over 130-million Americans. Only “qualified” people who file a 2007 return will receive a rebate. The tax rebate is a one-time cash payment to most American households, which could be mailed as early as May or June; depending on how soon you file your returns. These rebates are based on your income, how many children you have and whether you receive Social Security or disabled Veterans’ benefits. Not all of us will receive the money, but 2007 was a year where many people in our Industry earned far less then previous years; so like you, I’m hoping for some money.
Second: The Economic Stimulus Package has increased the FHA loan limits in “high-cost” areas, based on the median area sales prices and will follow the standard HUD mortgage limit calculation process. To determine high-cost areas, the calculation factor will increase to 125% of the area median sale price and in no case will it exceed 175% of the area median sales price. Example: In order to hit the $729,750 limit, the median sale price in your Metropolitan Statistical Area has to be $583,800; San Diego just barely makes it due to a continued rash of declining home valued. Right now the Bay Area blows away the limit, and will be allowed to go to $729,750. Orange County makes it easily, while LA County just barely makes the grade. Fortunately for us the analysis shows that mainly California, Honolulu and a small part of Manhattan will see the limits of $729,750. This will certainly help us here in California, which is much needed today.
FHA: The loan limits will not be immediately available. FHA must assess their internal impacts to determine the delivery approach they will require of mortgage lenders and investors; they then must communicate their requirements to the mortgage lenders and investors. FHA is going to act quickly, but they too need to go through a series of steps to ensure they do their due diligence before moving forward. Fortunately for us FHA is a federal agency so they must buy loans at the higher loan limits, and the Secretary of Housing and Urban Development (HUD) must publish the median prices and corresponding loan limits within 30-days of the enactment of yesterday’s legislation. Hopefully for us it will happen sooner than 30-days, but that is the time allotted for HUD. For now we wait for the median prices to be posted, then it’s “off to the races”.
FNME/FMAC: Just because Congress rose the conforming loan limits, it does not mean that Fannie Mae and Freddie Mac have to buy them. Fannie and Freddie are comprised of mostly private corporations these days. They’re definitely going to give weight to what Congress has indicated it wants them to do, but they’re not going to completely ignore actuarial concerns; we all know, the bigger the loan the worse the consequence should the loan default. Remember that a couple of months ago Fannie and Freddie elected not to raise their “conforming” loan limits for 2008, which offers strong suggestion that they will proceed with caution. Until they come-out and say they have raised their limits to “X”, we will all have to sit back and hope for a positive result; in my opinion, they will follow suit and raise their limits in “high-cost” areas to $729,750. As per the VP of Business Development at Fannie Mae, they are set to make a statement near the end of the month with instructions and time-lines to follow.
Now that the legislation just passed, we are eagerly waiting on the communications from FHA, Fannie Mae and Freddie Mac as to when they will start buying our loans. We know FHA must buy them, but until HUD posts the income limits for the areas we won’t know if we can cover the desired loan amount.
We ALL must wait on HUD’s information for FHA and that FNME will let us know by month end. Once this happens, the Investors will have to re-write their guidelines, matrices, process’s, etc… so I expect that will take a little time. Be patient, but aware and prepared as this news is some of the best we’ve received in a long-time.
]]>
Today the Fed cut the Fed Funds Rate by 1/2%. This is significant in monetary policy because this is the first rate cut since June of 2003. It's important to remember what the Fed Funds rate is because it doesn't really directly impact all loan rates.
"The federal funds rate, an overnight lending rate that banks charge each other, is important since it influences the amount of interest consumers must pay for various types of debt, such as credit cards, home equity lines of credit and auto loans." - CNN money.com
So the rate cut will provide relief to home owners with equity lines and auto loans will directly benefit, but that doesn't necessarily mean that tomorrow morning mortgage rates will drop too. For that we'll have to wait and see. Either way the fact that the fed funds rate has been cut means that what's going on in the credit markets and in banking is substantial enough for the fed to step in and do something.
What we really need to be looking out for is FHA loan limits, and conforming loan limits to see if they will be raised or not. That's what's really going to have an impact.
Comments?
Out here in the Inland Empire prices are softening. At the same time creative financing is disappearing. With that we are seeing a rise in FHA and VA inquiries, and with good reason...these programs are GREAT! Government financing carries excellent rates and terms. In the past people didn't even bother with FHA or VA because creative financing was plentiful. Banks were loaning money at unbelievable rates and terms and they were easy to qualify for with little documentation. Now that those programs are going away, FHA and VA are coming back in a big way and you better make sure that you are aligned with a lender who can provide your clients with those products.
FHA loan limits are currently set at $362,790 throughout the Inland Empire. Congress is considering raising those limits, although as of now the limit remains where it's at. The program requires full documentation but is available for the 1st time home buyer. Down payment requirements vary from 0% to 3% depending on the specific FHA product. Loans are 30 year fixed fully ammortized and will be given as all 1 loan unless there is no down payment then there is a very small 3% second, and not in all cases. The sellers are allowed to pay for all closing costs.
VA loans had a loan limit of $417,000 which has recently been taken away with no specific limit placed. CalVET has a loan limit of $521,000 and is a great program. VA loans do not require a down payment. You of course must be a "qualified" Veteran. This product as well must be full documentation and meet traditional underwriting back end ratio guidelines however the debt to income ratios can be pushed higher with compensating factors like down payment, great credit, large cash reserves.
Above I said make sure that you are aligned with a lender who has access to these products because not all lenders do. You must be HUD approved to transact any FHA or VA home loans. In the past 4 years a lot of brokerages and lenders failed to renew their HUD license because at the time no one was doing FHA or VA loans because of the other financing out there in the private marketplace. Without that approval you are out of luck and getting approved again is going to be slow for a lot of these companies.
If you have any questions about VA or FHA home loans or you are interested in purchasing a home and need to speak with a lender please call my direct line at 951-515-2120.
Conforming Loan limits are currently at $417,000. Anything below that is considered conforming and anything above that is considered a non conforming loan amount and is labeled "jumbo."
Right now jumbo rates are significantly higher than those of conforming. That's because Fannie Mae and Freddie Mac agree to purchase loan that are conforming. Of course in order for them to purchase the loan the loans have to meet underwriting guidelines set forth by Fannie/Freddie.
Because there is currently no liquidity in the secondary markets other then that guaranteed by Fannie Mae and Freddie Mac, anything that is not conforming (not going to meet the requirements to be purchased by Fannie Mae and Freddie Mac, has higher interest rates because they have essentially no buyers on Wall Street).
The problem lies in the fact that here in Southern California, a lot of areas have home prices that are higher than the conforming loan amounts. So, it's been suggested in Congress that if the Conforming loan amounts were to be raised, less people would lose their homes because they would be able to refinance into better loans. Since there is no appetite on Wall Street for anything non conforming, the non conforming programs are disappearing and the ones that are still here are pretty restrictive, making it difficult to refinance into a non conforming loan right now. The thing is, right now people need to have the ability to refinance into a fixed loan.
By raising the conforming loan limits, you guarantee a purchaser on Wall Street. You may say that the borrower can't afford the loan but I think you are wrong. People now are losing their homes because the loan is adjusting upwards out of their control. If they could refinane into something fixed, they would be able to budget their monthly income and plan accordingly because the fixed payment would be something they can count on. But when you are adjusting with a max interest rate cap of 12 or 13% you are in big trouble. With how nervous Wall Street is now, we are at a time when things are over tightened because of the general lack of confidence.
Raising the conforming loan limits would significantly prop up the housing market and the mortgage industry which needs at this time some serious help until confidence returns and ultimately liquidity.
]]>
The title of this post might be an eye cather. THat's what it was meant to do. The people who really have the possibility to get in trouble is not necessarily the people I mentioned above, but it's the people who already own homes and have loans that aren't your standard vanilla 30 year fixed. You see a lot of people out there have loans that are fixed for just 2 short years, maybe 3 that are going to have to refinance into a new fixed loan when their short fixed term expires. Once the short fixed term expires, that payment will adjust and let me tell you, the payment will not adjust downward, it will most surely increase at which point it will become more and more difficult to hold on to that home. The problem lies in the fact that since loan guidelines have been so drastically tightened, there is a chance that you may not qualify to refinance into a fixed loan which would effectively make you STUCK with an adjusting payment until easier financing comes along. I've talked with people in Riverside, Moreno Valley, Beaumont, Banning, and Corona that are in this situation. It's something that we are going to see a lot of because a lot of people have short term fixed loans.
Then there are people today who have loans that are 5 year fixed loans. The fixed term isn't going to expire for say another 2.5 years. If they don't refinance now, they may be heading towards an inevitable foreclosure in 2.5 years and not even know it. Folks the way things are now, we don't know what financing will be available in 2.5 years. We don't know what home values in your neighborhood are going to be. If you are in a new area and purchased at the height of the market it's a very real possibility that you will owe more than your house is worth making a refi an impossibility. With payments adjusting higher, you might not be able to afford that house.
It's important to evaluate your situation and my advice to you is to refi into a normal 30 year fixed loan now. Get the security of a traditional fixed loan now because there is simply too much uncertainty in the market place today to think that just because you have 2 more years of a fixed term that you'll be able to refinance into a new fixed loan then, because a lot of the creative financing products that you may have used to qualify might not return for awhile. And if that happens you'll be stuck holding onto a rising mortgage payment that just might rise too high for you and your family to keep holding on to. FIX YOUR LOAN NOW.
]]>What's difficult about this is that these Alt A lenders have become very important in the last 4 years. A lot of people purchase homes using stated income or no ratio product and with these banks closing, other banks are adjusting their products BIG TIME. I'm not saying they shouldn't be doing that, I'm just saying that the adjustments will make it so that many will not be able to refi out of their short term fixed loans into new fixed loans, they'll just have to stay on an adjustable note. It's really going to be a mess because of the current lack of liquidity out there until some liquidity returns when things settle down.
]]>Well it's been an interesting couple of days in the mortgage industry. American Home Mortgage is slowly dying...looking for someone to purchase it or step in and give it some cash which will probably never happen. They have retained attorneys and consultants to try to find the best way to get through this mess including an orderly liquidation of assets.
This to me tells me that the worst is here for AHM. What makes this such a one two punch for the mortgage industry is that up until this point, it seemed that delinquencies and defaults were coming from the sub prime market. Well AHM is not a sub prime lender, they are primarily an Alt A lender but they have some Prime product too. Now Alt A is basically not quite A paper, but is still considered good it just can't quite fit in the small box of A paper.
The thing is the liquidity problem that AHM has, could ripple through to other Alt A lenders in which case Alt A lenders will be forced to tighten programs and guidelines even more than they are now just as sub prime lenders keep doing. We'll have to wait and see what happens in the next few days and we'll have to wait and see what happens to other Alt A lenders. I have heard that Accredited lender is having trouble too...so who's next?
It seems that American Home Mortgage is facing some liquidity problems due to margin calls on some of their credit lines. Shares fell in premarket trading to the 6 dollar area. Note that this stock was 19 dollars a share just a few weeks ago and 36 dollars a share a year and a half ago.
In fact, look at what one analyst had to say about bankruptcy:
"Bankruptcy is not out of the question," said Matt Howlett, an analyst at Fox-Pitt Kelton Inc. in New York. "It needs to find a partner with alternative funding and hope the market turns around. It's going to be tough."
For you real estate agents with a loan with American Home Mortgage going right now I would double check with your LO that this will not affect your transaction.
]]>
Apparently, the fire department had to pump out the water from the pool in order to get the 3 foot long gator!
]]>