Dennis' Mortgage Blog

Question of the week:  Should I avoid FHA offers on listing because of property conditions and repairs that have to be made? Answer:  NO!  Currently FHA borrowers are about half of our fundings, and probably the same can be said for any broker with FHA funding approval (there are not that many of us).  When a seller says they will not accept a buyer with FHA financing they are essentially shutting out half the market; actually probably more than half the market since without FHA buyer need a 10% down payment (see below for more).  With some proper planning a seller can have their home quickly up to snuff for an FHA appraisal.  Some of the most common call outs that can be fixed before listing or an appraisal are:  water heater with pressure relief valves and overflow pipes; water heaters vented through and/or above roof lines; chipping, peeling, scaling paint (typically on outdoor windowsills and doorways) painted—it need not be professionally done, just quickly scrape, lightly sand and brush on some paint; cracked and broken window pains replaced; if there are security bars on the windows they need inside release mechanisms; smoke detectors in every bedroom and major hallway.  Most FHA property concerns are for safety not necessarily cosmetics.  Shutting out FHA financing in this market is shutting out demand for your product.

If you have a question you would like answered send to me!

Crazy week huh?  If the purpose of The Plan was in part to shore up equity markets it seems we could have saved $700 Billion after watching what has happened this week.  But there are no quick fixes and we need to start somewhere.  As much as I am against much of The Plan and my cynicism with the Feds to use the money wisely and appropriately, much of it can work if done right.  My biggest concern with the proposals I have heard thus far is concerning buying out mortgages for homeowners who are upside down.  Just because someone owes more against an asset than it is worth is no reason to assist them—if that were the case we would need to assist every single person who finances a new car since they depreciate about 20% before you can park it in the garage the first night.  Another concern is that this package will encourage people not to pay their mortgages so they can get some relief in principal reduction and interest rate.  If I owe $400,000 on my home that is worth $375,000 and have been making payments on my mortgage, then find out my neighbor who is in the same boat but quit making payments had his principal reduced to $350,000 and rate cut by 2-3% with no repercussions just because he stopped making payments, what is my incentive to continue to pay?

Any reduction of borrower principal and/or in rate must be accompanied by some form of repayment and lien to ensure when that home is sold in the future the government, i.e. you and me and every other taxpayer, gets reimbursed for assisting the family in keeping the home so they could sell it at a later date for a profit.  Don’t get me started on bailouts for families that cashed out hundreds of thousands of dollars in equity to buy boats, cars and other luxury items. 

Where and who and how to help is very complex and complicated, it will take some time for any of the $700 Billion to make its way out of Washington and into Fresno, or Biloxi or Long Beach.  I feel that many in Congress and on Pennsylvania Avenue felt just by passing The Plan Wall Street would shout “yippee!” and everything would be fine.

Let me quickly state that if anyone feels this situation has been caused by the deregulation of the banking industry feel free to give me a call as that is flat out wrong.  In fact deregulation of the banks to allow them to trade securities has greatly assisted in more failures since banks are now the ones buying failing brokerages.  Of the banks that have failed none of them were because of deregulation but instead because of funding crappy loans:  Washington Mutual was hounding us for several years to sell “Option ARMs”, i.e. negative amortization loans with low teaser rates and big additions to principal balances when rates went up; IndyMac was renowned for “Alt-A” mortgages, loans that required no income verification and/or no asset verification and accepted low FICO scores—if you could breath and bring money into escrow IndyMac had a loan for you; Wachovia was renowned in the industry for cheap and easy loans for investors, what we call “non-occ” (for non-owner occupied) mortgages using stated income and low down payments—when things get tough what loan do you stop paying on your own home or the one you rent to others?   Each major bank that has failed we, as brokers have seen the trail to the types of loans they funded and specialized in and nodded our heads.

Fannie and Freddie?  When they went to automated underwriting approving mortgages up for borrowers with debt to income ratios up to 60% of gross income they started on the path of collapse when home prices flattened and then dipped—causing the dips to become drops. 

All the failures blamed on deregulation of banks have in fact been because of very poor credit analysis and lending portfolios that collapsed when rates rose and property values froze.

IMPORTANT INFORMATION

1)                  On January 1, 2009 the current loan limit of $729,750 for Fannie Mae, Freddie Mac and FHA will expire and the loan limits will drop to $625,500.  This will impact those looking to purchase property above $645,000.  Contact your Congressional Representative and Senators to urge raising the limit back to the current limits as soon as possible.

2)                  With the time lag in the implementation of the new limits loans above the current “standard” limits of $417,000 for conforming and $362,790 for FHA may face a funding gap after December 1, 2008 due to limit expirations and the way the GSEs manage their loan limits.  I will keep you apprised of this critical detail

3)                  Mortgage insurance companies stopped covering 95% loans on condos in “declining market areas” (i.e. California and 49 other states) several months ago.  Now they have stopped covering single family residences as well.  Unless a property can be purchased using FHA financing all homes will require 10% down or more effective immediately.  If you or a client are pre-qualified with 5% down better make sure there is eligibility for FHA financing for the client and property.

In September 2001 America was attacked and we entered a very difficult period, not just economically but emotionally as well.  Our country pulled together and rebuilt the economy and began the longest period of continuous economic growth in our history.  I firmly believe with the current situation we are in the same result can happen because of the American people.  Not because of our government and what it may or may not do, but because of you and me and our neighbors and our fellow Americans.  We are resilient, we are smart, we are entrepreneurial and we are the key to the strongest and biggest economy in the world. 

One reason I know this is that we, myself and others at Stratis Financial and other mortgage companies, are getting calls every day from families and individuals who want to be homeowners.  They don’t care that MSNBC is screaming “crisis, crisis” or that the front page of the Los Angeles Times has a huge chart showing the markets down dramatically, or that Rush, or Hugh, or Ken or whomever is talking to some professor from Yale portending the end or our economic system.  They want to buy a home.  They want to be homeowners and now is their time, the market is priced for them and we have financing available to help them…and we are.  Nicole and Ryan. Tracy and Jolene.  Karen and Jim.  Myrasol. Andre. Tony and John.  Sure they care about what is happening, but they care more that they can become homeowners.  That is why I am positive and optimistic about my industry  and my community and my country. 

A bit Pollyannaish I know, but it is what I believe and what I know based on my phone calls and emails.  One of the greatest dreams we have in this country is the dream of homeownership and when we are ready to fulfill that dream we are going to do it, regardless of what some politician or Wall Street wonk tells us.  Thank God.

Two final notes before I get to rates for the week.  First, this week if you were like me you got your quarterly statement for your 401(k) or retirement account and it probably did not look to great—one of my cohorts here at the office said he through it in a drawer and will open it next week.  Also those of you on this list who are homeowners received your property tax bills.  Not a good week to get either of those pieces of mail as you wonder how the hell your money is being spent or treated.

Finally on a much lighter note.  What is it about October?  October 1929 the Great Depression started.  October 1987 was host to Black Wednesday.  October 2008 we are seeing big dumps in a market that will be named in the future.  All in October.  Coincidentally Oktoberfest is also in October….hmmmmm. 

Have patience, let the money in the system start to work and flow and we will see our recovery.  If you want to see more of my thoughts on the economy this week check out my comments on my page at the Long Beach Post, click here, or go to www.lbpost.com and click on my picture on the right hand margin

Here are the rates as we finish off the week: (note rates are subject to change given market volatility, these are for week to week comparative purposes, call for actual quotes):

NOTE PRICING BELOW IS BASED ON 20% DOWN FOR JUMBO LOANS AND 10% DOWN FOR CONFORMING, 3% FOR FHA, FULL DOC, AND FICOS OF 740 AND ABOVE (change from last Friday):

30 year conventional at 1 point 6.25%              é 0.500%

30 year conforming-jumbo at 1 point 6.50%              é 0.500%

30 year FHA at 1 point 6.375%                                  é 0.500%

30 year jumbo at         NO PRICE CALL FOR INFORMATION              

Our biggest one week increase since early February.  Not quite at our 12 month high but getting close. 

Have a great weekend, enjoy your family and friends.  I you are buying a house or need assistance I am available for you.

Dennis