Dennis' Mortgage Blog

IMPORTANT NOTICE:  The new loan limits for LA and Orange County will be $625,500; San Bernadino and Riverside will be $417,000.  The temporary loan limits of $729,750 for “conforming-jumbo” loans will no longer be available and all loans above $417,000 and below the new area limits must be funded by early to middle December depending on the lender. 

Question of the week:  What happens if the appraisal comes in low on the house we are buying?  Answer:  When an appraisal comes in below sales price there are four options open to the buyer and seller---and remember buyer and seller must agree as to which option otherwise option 4 is the result.  For mortgage purposes our loan to values are based upon the lesser of the sales price or appraised value.  For our scenario the sales price on a home is $415,000 and the appraisal comes back at $400,000, a difference of $15,000 and the buyer is putting 10% down for a $373,500 mortgage. 

Option 1: The seller can drop the price to $400,000 and buyer gets mortgage for $360,000

Option 2: The price stays the same and either the borrower still gets a mortgage for $373,500; which in this case would be 93% loan to value on appraised price necessitating an FHA mortgage in California; or the price stays the same and the buyer makes up the difference in down payment to lower the mortgage to 90% loan to value on sales price, i.e. puts an additional $13,500 down.

Option 3: Buyer and seller meet somewhere near the middle and buyer modifies loan to value/down payment

Option 4: Transaction is cancelled and buyer typically gets deposit back if within agreed upon time frames.

If you have a question you would like me to answer send it to me!

A bit of history this week with the election of Senator Barak Obama to the Presidency on Tuesday.  With his pending inauguration as either the foreground or background to continued economic news pouring out of Wall Street and Washington D.C. there is no shortage of news for our front pages.  As we head to the end of the year we see increasing unemployment, usually good for mortgage rates, a strengthening dollar, usually good for mortgage rates, dropping oil prices, usually good for mortgage rates, and the Federal Government borrowing about $1 Trillion (with a Tee) in the next twenty weeks or so, not so hot for mortgage rates. 

With Congress reconvening in two weeks and talking about another stimulus package, plus the auto makers back in Washington with the hands out it appears the government is about the spend another $300-500 billion dollars---evidently the close to $1 Trillion spent on “stimulus” since the beginning of the year is not enough.  While this is supposed to ease the credit markets, what it also does is create false economies that make economic recovery even more difficult to attain.  I think those in charge need to answer this question regarding the economy:  Do you think it is more important for credit to loosen or for home prices to stabilize?  The answers to those questions present different solutions, unfortunately the only solution they know is to print more money and give it to those who have already made bad decisions.

I leave you with this regarding markets and investments:  Arthur Laffer, renowned economist and creator of the famous Laffer Curve which shows tax revenues increase when tax rates decrease, wrote an article last week for the Wall Street Journal (here, may require subscription) titled “The Age of Prosperity is Over.”  In the article Laffer makes two very important statements.  First he notes that “Financial panics, if left alone, rarely cause much damage to the real economy, output, employment or production.”  Meaning if there is a financial panic the governments best option is to let it runs its course within the industry where the panic is occurring.  Second, Laffer states regarding investments, including home purchases, “Good decisions should be rewarded and bad decisions should be punished. The market does just that with its profits and losses.”  Unfortunately too many investors, and Americans, and elected officials see profits and gains on Wall Street less as a result of risk than as an expected right for putting money into the market.  Because of this view government, which was previously intricately involved in regulation of financial institutions and transactions, is now intimately involved to the extent of government ownership of companies that make bad decisions and were punished by the market. 

The reactions by Washington the last few months to the bad decisions on Wall Street and Main Street are as if my daughter stuck her tongue out at me and used a bad word and I sent her to the corner; then her mother (dear, sweet, wonderful woman that she is) brings her some cookies and lets her go watch television.  What is to stop her from behaving in such a manner in the future?

Big improvements in rates this week as the Dow had its biggest back-to-back losses on Wednesday and Thursday in over twenty years---some how the papers did not print that this week….

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 5.875%            ê 0.375%

30 year conforming-jumbo at 1 point 6.00%              ê 0.375%

30 year FHA at 1 point 5.75%                                    ê 0.500%

30 year jumbo at         NO PRICE CALL FOR INFORMATION  

Note that with the new loan limits taking over $100,000 off the table for conforming loans we may (key word: may) see some emergence of jumbo financing in early 2009.

How great to see so many Americans exercising their right to vote this week.  What is also great is the number of Americans, specifically Southern Californians, who are pursuing the American Dream and buying homes as we see the end of 2008 creeping towards us!

Have a great weekend, if you need me please call!

Dennis

Remember this update is posted weekly on My Blog at www.DennisCSmith.com , feel free to forward the link to family and friends who may be interested in past commentaries.