Dennis' Mortgage Blog

Question of the week:  We are offering on a bank owned property and they say we have to pay a per diem if the escrow closes late, do we?  Answer:  We have seen a lot of per diems in the past several months on bank owned properties and are yet to see any per diems actually paid.  The per diem is an attempt by the bank to put a penalty on the buyer if the transaction closes later than the scheduled closing date.  Every single transaction we have had involving either a short-sale or foreclosure/bank owned property that has closed late it has been because of the bank or the services selected by the bank for title and/or escrow.  My advice is to strike through the per diem clause and refuse to sign it.  There are too many properties on the market and any bank dumb enough to not sell one of its REOs in this market to a willing and able buyer is going to be difficult to work with once you open escrow.  Remember, this is a buyers’ market so act like it!

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

As you are no doubt aware the Fed dropped the Fed Funds and Discount rates by 0.500% on Wednesday—sorry for not getting an update out to you but I was having technical difficulties on Wednesday, technically I was not near my lap top!  For the past, well let’s say decade, for the past decade almost every time the Fed has dropped rates we have seen mortgage rates jump that day and for the days following.  This week, prior to the stock market opening and the Fed announcement, rates were doing really well and dipped from Tuesday when rates came out Wednesday morning.  Ever since then we have not faired so well and rates are up from last Friday.  So true to form the Fed drops rates and mortgage rates increase.

We saw some gains early today when some key economic data was released.  Most interesting to me was that in September personal income rose and personal spending dropped—meaning Americans made more and spent less therefore savings were up.  The message from the American consumer in September was, “let’s wait and see before we buy that Wii, or television, or new shoes.”  Key inflation numbers showed a bit of a dip which is always good news for interest rates, not good enough however for a Friday climb in the market and as a result rates are worse from last Friday by a little bit.

We are now clear on our lenders that loans over the baselines for FHA ($362,000) and Fannie/Freddie ($417,000) and below the new “agency-jumbo” limits of $729,750, most are only funding these loans until December 10, 2008; thus taking some pressure off Thanksgiving week.  It appears more and more like the new limits for FHA and conforming loans will be $625,000 as that is what some mortgage insurance companies are starting to post as benchmarks beginning December 1, 2008.

The last two months of 2008 will be two of the craziest in my career with the loan limit changes, Presidential election, lame-duck session of Congress that may result in hundreds of billions more of our tax dollars being dumped into the economy to what effect, and who knows what else may happen.  My advice?  Consult with an experienced and knowledgeable mortgage broker to advise you on mortgage options, possibilities and to assist you in your new home purchase.  I can recommend one whose contact information is at the bottom of this message.

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 0.125%

30 year conforming-jumbo at 1 point 6.375%            é 0.125%

30 year FHA at 1 point 6.375%                                  é 0.375%

30 year jumbo at         NO PRICE CALL FOR INFORMATION  

Note that FHA has climbed considerably, giving back the lower position it had been in the past few weeks vis-à-vis conforming rates.

I hope everyone has a safe and enjoyable Halloween.

Do not forget to vote on Tuesday.  No matter what the result or for whom you cast your ballot take pride in the ability you have as an American to vote for your government.  Take greater pride in the role model we present to the rest of the world, and have for over two centuries, on the peaceful transfer of power through our electoral process.

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. 

Question of the week:  How do you determine which borrowers’ credit score to use?  Answer:  This is a common question.  When we have more than one borrower there are two scenarios lenders use.  The majority of mortgage guidelines use the credit score of the primary borrower.  The primary borrower is determined as the borrower who earns the highest income for most standard transactions.  So if the applicants are husband and wife or partners then the sole criteria for whose score we use is who has the highest income, very equitable!  Some programs have slightly different criteria, but for the most part the higher income is the score we will use.

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

This weekend I should have my initial podcast on Mortgage Insurance up on www.DennisCSmith.com  let me know what topics you are interested in for me to cover in the future.  By the way, you do not need an iPod to listen! Just a media player on your computer—which I am sure you do!

Every Friday morning I say to myself, “Self, today you are going to get your market and rate update out before lunch…”  Inevitably I do not and lately I have been glad since Friday rates have been so volatile.  Today the mortgage market started poorly and then towards mid-day turned even worse resulting in price changes for the higher.  Despite poor performances today and yesterday, Monday was incredibly strong and resulted in a slight Friday-to-Friday decline in rates.  Woo-hoo!

This week it was published that homes sales in the Southern California region climbed dramatically from September to September, over 60% in Orange County, and that median prices dropped.  This is a phenomenon I have addressed earlier and shows what I have been commenting on for several weeks.  Our activity is some what healthy considering the overall economic news in the nation and around the globe, as we are working with a lot of first time homebuyers.  They are actively purchasing the entry level homes and condos, in many cases up to the middle of the market, and creating a movement of stabilization in many markets.  Because of the average buyer in the market today and their affordability most of the activity is concentrated on the bottom of the price spectrum resulting in lower median prices—see my blurb last week on apples. 

Increasing home sales is not just a SoCal trend; nationally existing home sales (as opposed to newly constructed home sales) are up 5.5% from a year ago.  So while new home starts—new construction homes) are way down, existing homes sales are showing some gathering momentum.  This is very good news.

I will continue my caution of the loan limits expiring at the end of December.  For loans over $417,000 for Fannie and Freddie, and especially if the loan amount is over the proposed new limit of $625,000, funding after Thanksgiving could be a real issue.  See My Blog for letter (Loan Limit Expiration Affecting Closing) I sent earlier this week to real estate agents (scroll to entry after this rate/market update).  Please call me to discuss our scenario and avoid getting caught in this potential funding gap.

Rates flat and a bit down this week thanks to a late rally.

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 6.125%            ê 0.125%

30 year conforming-jumbo at 1 point 6.25%              ê 0.125%

30 year FHA at 1 point 6.00%                                    ê 0.25%

30 year jumbo at         NO PRICE CALL FOR INFORMATION  

Note the larger decline recently in FHA mortgages, a very hot item on the mortgage backed securities market lately.

For over a year we have been working with changing guidelines, programs, loan limits and many other challenges.  Each step of the way I hope I have been able to keep you adequately informed and apprised of coming changes, or sudden changes, and what they mean to home buyers, home owners and real estate professionals.  I will continue to do so and appreciate the support many of you have shown with your business and referrals.  If there is any topic you would like me to comment on, publicly or privately, please contact me.

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

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. 

www.DennisCSmith.com on-line applications, My Blog and more

Question of the week:  Why do I have to pay my taxes now when they are not due until December?  Answer:  Property tax bills for California have been mailed out with the first half installment due on or before December 10^th.   Everyone now in escrow, be it on a refinance or a purchase, will have to have the first half installment paid prior to closing.  Every year starting in October and then again starting in February or March, lenders and title companies are requiring the tax installments be paid to ensure there is no lien placed on the property.  This is usually more of an issue on a refinance transaction than a purchase transaction—although with short-pay and bank owned transactions it can become a major issue as to who is going to pay.  If you are in escrow and having the taxes paid is part of the approval from the lender or underwriter my very strong advice is do not mail your taxes into the county.  Communicate with the escrow company and title company and pay your taxes through them so title knows they have been paid and do not have to wait for the payment to post on the county website and/or your cancelled check. 

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

Coming soon on DennisCSmith.com:  Podcasting!  I am working on recording and uploading interviews with various professionals from CPAs to home inspectors and brief podcasts on subjects such as credit reports, debt management and asset building.  If you have an individual or topic you would like covered let me know.  Click here and let me know!

Given the last month or so this past week has seemed down right leisurely, well with the exception of the stock market having a couple of days of huge drops and jumps in the same day, or just drops, or just jumps.  Our rates have behaved the same way.  Early in the week we were soaring through the day; later in the week we have seen a slow drift back down.  Working on another financing matter wearing my community/volunteer hat a commercial broker said, “Once the markets stabilize…” and I just laughed when I read it.  Laughed, because as I mentioned given this week compared to the recent past this almost was a stable market.

Not a lot to report except the number of homes sold in California is up, but the median price dropped—not a surprise because of the mathematics.  What may surprise you is this:  despite the drop in the median price I feel our local market is beginning to stabilize from the bottom, and there is no movement at the top so this is good news for the middle of the market.  If all the activity in a market is at the lower/lowest prices then naturally the median price of the entire market will drop.  If two apples sell for $3 (they are really good organic square specially grown from seeds imported from Japan); and four apples sell at $2 and 10 apples sell for $1; the median price for the market is $1; the average price is $1.50—a big difference.  That is what we are experiencing in our current market.  Plenty of  one dollar apples are selling, believe it or not some with multiple offers, and because of that the median price is at the bottom of the market.  The average prices are down are well, but not at far as the median which is what is reported in the media.

Keep in mind a 45 day escrow opened after today closes in 2009—when the new lower loan limits take effect.  If you are considering a transaction with the loan amount above the new limit of $625,500 you need to close before December 31, 2008; and per my update last week potentially before 12/1/08 if the limits are not temporarily extended to the end of the year from their expiration of the end of November.  We are inquiring as to what the situation is and no one knows at this time—apparently we are the only ones to see this potential funding gap as an issue.

A pat on the back for Stratis Financial Corporation if I might be a bit braggadocio; we were visited this week by one of the Executive Vice Presidents and the National Sales Manager of Flagstar Bank, one of our primary lending sources.  The purpose for the visit was similar to the visit we have from Fannie Mae several weeks ago, to speak to us about our origination model and who we conduct our business and processes.  We are targeted for these visits because of the outstanding performance of our funded mortgage portfolios and they are coming to see what our business model is so they can try to encourage other brokers to follow our model. 

Our business model is pretty easy to follow.  Be honest with clients.  If they cannot afford to purchase a home let them know that and also what they need to do in order to afford a home.  When and where possible use 30 year fixed rate financing, not much of an option these days but still our first choice even during the height of ARM-mania.  Rarely, very rarely, use Option ARM financing—negative amortizing mortgages.   With an honest and conservative approach to mortgage origination we have set up our clients for successful homeownership, as a result the Big Boys want to know why are we different.  A lot of brokers and lenders also use this model—and I feel safe in saying they are still in business.

A special thanks to all our clients who have worked with over the years to fulfill their mortgage needs—your commitment to homeownership has made us the premier mortgage broker that we are.  

Rates flat and a bit down this week thanks to a late rally.

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%              ó Flat

30 year conforming-jumbo at 1 point 6.375%            ê 0.125%

30 year FHA at 1 point 6.25%                                    ê 0.125%

30 year jumbo at         NO PRICE CALL FOR INFORMATION              

After last week’s jump nice to see a bit of a flattening.

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

Dennis

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

Question of the week:  With all that is happening and from what I am reading and hearing, are you still able to have loans approved and closed?  Answer:  YES!  Stratis Financial Corporation, and other brokers and lenders across the country are assisting home buyers and owners with their mortgage needs.  We are approving mortgages and funding them for our clients.  While credit approval criteria is tightening, and in some circumstances mortgage insurance companies are not insuring (like condos with less than 10% down in California), we are working with client to structure their transactions and ultimately fund their mortgages. 

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

Greetings from the edge of the Sonoran Desert where Leslie, the girls and I have been engaged in some hot R&R in Scottsdale—thank goodness for Blackberries and laptops!

Last week I went into some depth on “The Plan” (go to my Mortgage Blog and scroll to last week’s date if you missed it) and it was close to being passed. As you know by now, on Monday in a bi-partisan “pphhhhhbbbttttt” to leadership Democrats and Republicans voted against the measure in enough numbers to defeat the plan and send it back to the drawing board.  Yesterday the Senate restructured the plan and approved it.  Then in what is a procedural matter, because any tax bill must initiate in the House of Representatives, took a bill that has been lying around for several years, gutted the language and substituted The Plan—and this is how our government operates!  As I type this early Friday morning the only news thus far is that the House has agreed to debate the new Plan and will probably vote on I later today.

You will recall that last week President Bush, Secretary Paulson, Senator Reid, Congresswoman Pelosi and others were stating that if the Plan was not passed by the opening of the markets this past Monday the financial world would collapse—it wasn’t and they didn’t.  Maybe the longer they stall the Plan the more things will work out. 

Warning political comment!  If I were a member of the House of Representatives I would not vote for any Plan, and would lobby hard against it, unless the following provision was provided:  Rep. Barney Frank and Sen. Christopher Dodd would have to be removed from their seats as Chairs of their respective committees on banking and oversight; as well their Republican counterparts who are most senior on their committees.  Fannie Mae and Freddie Mac are under Congressional oversight.  For years both of these men have been vociferous in their defense of Fannie and Freddie and politically maneuvered to not only avoid increased scrutiny and oversight of the two GSEs, but also allowed significant reduction in qualifying criteria.  I am not saying the blame for the whole credit mess lays at their feet, but they are part and parcel of the situation.  If the previous move by the Feds in taking over Fannie and Freddie required their CEOs to step down, and also those of AIG and other companies, I feel it is only right that the Congressional “CEOs” of the oversight committees also lose their jobs as Chairs of their respective committees.  That their historic roles have not been more of the story being reported shows the inability our nation’s media has to properly cover any story that involves Washington D.C.   End of political comment.

Bonds were once again on the roller coaster this week with huge ups and downs as news of the Plan surged and receded and funds flowed from stocks—sending prices tumbling—to bonds—sending prices higher and rates lower; and back to stocks—sending prices soaring—from bonds—sending prices lower and rates higher.  Up and down as investors tried to guess what would happen and moved like sheep from stocks to bonds and back again and fro again.  Here we are early Friday morning and mortgage rates have already dipped and then climbed as money flows into the stock market in anticipation of the Plan’s passage in the House.  I am sure as the debate gets coverage on CSpan and influential members make positive and negative comments that our markets today will be moving accordingly.  Underlying all of this is an unemployment number today of 6.1%, a number calling for hysteria from some pundits, but I fall back to my economics classes and degree from 1984 in which we considered the “natural” rate of unemployment to be 5%--meaning if everyone was offered a perfect job 5% of the force would still be unemployed for various reasons.  No panic from this mortgage broker on this number.

Some good news.  The mortgages that have been funded in the industry the past twelve months or more are perhaps the most credit worthy mortgages funded in any twelve month period, and the mortgages keep getting stronger.  Because of the tightened credit standards and the absence of stated income mortgages and adjustable rate mortgages the current portfolios of mortgages are very strong investments for lenders---a great foundation for them moving forward.

My advice, be it your 401(k), your home loan, or your nerves:  stay the course, keep having payroll deduction into your plan, keep planning on purchasing a home and doing what you are advised to do in order to qualify, keep faith in the American economy and the long term investment.  This too shall pass as other busts and booms have passed. 

Here are the rates as we finish off the 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 5.75%              ê 0.125%

30 year conforming-jumbo at 1 point 6.00%              ó Flat

30 year FHA at 1 point 5.875%                                  ó Flat

30 year jumbo at         NO PRICE CALL FOR INFORMATION              

Back to Long Beach tomorrow after a great week in the Scottsdale area, Dolly my horse from earlier in the week is glad I am gone and hoping on my next visit she has a smaller cowboy to drag around the desert!

Have a great weekend,

Dennis