Dennis' Mortgage Blog

Question of the week:  Why would anyone looking to purchase a home doing it on a rainy day?  Answer:  In Southern California a rainy day or weekend is the best time to shop for a home!  The rain we are experiencing locally this week is a rarity, as local residents know we are in a drought and can go many months between rain storms.  Many a March homebuyer in our region has owned their home until October or later before experiencing their first rain storm—only to discover then they have water issues.  Previewing potential new homes during rain storms allows potential buyers to see leaky roofs, porches, windows or door.  Walking the exterior of the property they can see where rain water pools; is it against the house where it can cause erosion, are huge puddles of water flooding a ventilation area for the foundation?  Are there adequate gutters and downspouts?  Last spring our church had a new roof put on, last night I was in a class being held in the church and one of the participants said, “let me know if you feel any drops.  We’ve had a leak in the new roof and they were coming down right where you are sitting.”  Seven or eight months have passed since the roof was installed, this current storm is the first serious test of the roof—and it leaks.  Think about if this was the home you had purchased last year, you too have gone many, many months without the opportunity to see how weatherproof it is.  My advice, if you are looking to purchase a new home do not put off looking just because the weather outside is inclement, in fact call your agent and make an appointment to go look at houses because it is raining!

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

For all the talk in Washington about stimulus the word has not gotten out to Fannie Mae and Freddie Mac.  Recently the GSEs (government sponsored enterprises—although at this point we should call them GOEs government Owned enterprises since the purchase of stock by the Fed in 2008) have imposed stiff fees on many lenders for mortgages they fund over the $417,000 benchmark.  This fee is equal to two points (two percent of the loan amount) for any lender whose funded mortgage portfolio of Fannie/Freddie loans over $417,000 exceeds 10% of their total mortgage volume; i.e. if Dennis’ Bank funds a total of $900 million in mortgages with Fannie and $91 million of that total are mortgages over $417,000 then Dennis’ Bank will have to pay the premium on future Hi-Balance mortgages until their volume drops below the 10% threshold. 

This fee is more like a fine and it is definitely not stimulating home purchases in high price areas, like Southern California.  For lenders and banks who do significant lending in our region and other regions with similar price markets this is essentially shutting them out of a significant portion of the market; and creating higher interest rates for consumers who need mortgages over $417,000 to purchase the homes they desire.  In 2008 our company’s average loan amount was $380,000 with, I would estimate, 80% of our volume in Los Angeles and Orange Counties.  I estimate that over 25-30% of our mortgages last year exceed the $417,000 mark, and that was without the ability to fund those mortgages until April when the new expanded loan limits hit the market.

So while Senators and Congressional Representatives look to spend almost a trillion dollars on “stimulus”, including a couple of hundred million to “stimulate” home sales, the GSEs in which we own stock through our federal government, is acting in direct contradiction to those efforts.  We could save several hundred billion by not having any additional tax credits for new homebuyers and have a more significant impact by having Congress tell Fannie and Freddie to get rid of the hi-balance mortgage penalty for lenders, and while they are at it raise the loan limits back to $719,000.  That would stimulate, encourage, and support home sales across the nation.

“Will I get $15,000?” was a question asked by a few clients this week, in reference to the reports that one of the possible items in the TRILLION dollar spending bill will be a tax credit to new homebuyers, possibly as high as $15,000.  At this point it is a proposal to increase the credit that is available to those who purchased qualifying properties in 2008—nothing is final yet on this proposal.  Keep in mind however that if the credit follows the 2008 credit it will be more like a loan—those who take the $7500 credit for purchasing 2008 will have to pay that money back (see here item #16).

Finally I would like a little perspective once again on media hysterics.  Those who have been receiving this weekly communication for several years know that I am apt to point out misinformation, or misdirection, from our mainstream media.  Every week the number of individuals filing for unemployment claims is growing incrementally.  This week when the number came out the media screamed that it was the most people filing since 1974! What is unreported is the current job losses are coming against the highest number of employed individuals in U.S. history.  Trying not to sound callus, when a business cycle ends after peaking at the highest employment in history it will naturally shed record numbers of jobs when it turns down, and that is what we are experiencing in the current economy.  The national unemployment rate has hit 7.5% and most likely has another 1.5% to go; while these are not positive numbers keep in mind the “natural rate of unemployment”—the number of people who would be unemployed in any normal economy due to desire to change jobs, companies going out of business, people who just don’t want to work—is 5%, so our current number is 2.5% above the natural rate (by the way this rate is standard used for economic models).  While not trying to diminish the loss of jobs, I am pointing out that once again our media is looking to make as much negative light as they can by misusing data and statistics.  Just as they do with median home prices.

Bonds and mortgages did not have a great week, especially the hi-balance/jumbo conforming mortgages.  The 0.875% spread between the conventional and conforming-jumbo is the highest since the hi-balance limits came out in 2008 and the highest between conforming and any jumbo since December 2007 just before Jumbos vanished.

FIXED RATE MORTGAGES AT COST OF 1 POINT*

30 year conventional at 1 point 5.00%           down   0.25%

30 year conforming-jumbo at 1 point 5.875%   up    0.125%

30 year FHA at 1 point 5.25%                           flat    0.00% 

Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment and a minimum FICO score of 740; APR is not quoted as it is dependent upon specific loan amounts, lenders and services selected.  Numbers provided are for comparative purposes only.

Have a great weekend and enjoy our rainfall!

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.