Dennis' Mortgage Blog

Question of the week:  Courtesy of Marilyn Kalfus from the Orange County Register and author of the Huntington Homes real estate blog:  What do you see for the local real estate markets for the Fall of 2009?

Answer:  There are several factors that will impact the local real estate markets in the coming month, in no particular order:

Continued impact of the Home Valuation Code of Conduct (HVCC) Existing home sales in August dropped below existing home sales in July, which was a surprise to the “experts.”  Many of the pundits were scratching their heads of this drop in transactions in the month that is usually the hottest for real estate sales.  The drop is not a surprise however to those of us on the front lines battling bad appraisals that have caused countless homes in the Southern California region and throughout the country to fall out of escrow.  Congress and the media have no concept of how deleterious the HVCC process has been on squelching home sales.  When ever anything anti-HVCC is posted on Marilyn’s or other blogs the home grown “experts” accuse me and others of sour grapes because now “true” appraisals are being forced on us.  Every time I see a comment like that I know it is from someone who has as much clue about the real estate industry as I have about avionics; just because I can fly on a Delta flight from LAX to JFK does not mean I know how to build a plane.  As we continue to be forced to use the HVCC process we will continue to see homes fall out of escrow or home prices falsely decline by bad appraisals from bad appraisals.  (Skip to next point if you want, real life example on my desk:  Detached single family home in small and desirable pocket neighborhood with less than 100 homes and an association.  Appraiser used condos, including upstairs units, for comparables and no surprise brought in 10% below sales price.  Pulling single family residence, detached property comps shows sales price is at least 10% below like properties.  Typical transaction we are dealing with now.)

Encroaching impact of  Mortgage Disclosure Improvement Act (MDIA) You know when the government puts “improvement” in a title it is anything but.  This new act that took effect July 31^st impacted many sales in August as it caused lenders to have to reject applications for technical issues as to when a Truth In Lending disclosure was provided to the borrower and when an appraisal was ordered.  This new act has added time to closings due to delaying when appraisals can be ordered, when loan documents can be ordered and when mortgages can fund.  Undoubtedly some of the decline in sales in August were the result of delays due to the MDIA which can cost rate locks to be lost and closings delayed.

New Regulations Currently the Fed appears to be making a massive power grab for more control over the lending and borrowing industries.  They have a 195 proposal currently being circulated that will further increase the regulatory processes lenders and brokers must endure to get from step A to step almost B.  As these regulations are put into policy we will experience more delays and also tighter criteria preventing Americans from buying homes.  Fighting the power play Barney Frank (D-NY) chair of one of the most powerful committees in Washington is now on the record saying he wants my industry, mortgage brokers, to go out of business.  Actually he stated he wants us to face death panels.  He wants a vote by November, this is the ultimate regulation and reduces consumer choice, creates higher rates and fees and will eliminate many borrowers from home ownership.  But hey the whole real estate/credit crisis was the fault of mortgage brokers right? I mean all of are greedy ogres preying on the American people and the only bad people in the entire real estate industry are mortgage brokers, no bad direct lenders, no bad real estate agents.  Sorry, this goes right to my core to hear a corrupt politician like Barney Frank disparage me and my industry that has helped millions of American families become, and remain, home owners.  Anyway, back on topic, as this continues with other new regulations you can count on them dampening home sales.

Foreclosure Moratorium Impacting the re-sale market from the supply side is the expiration of the foreclosure moratorium in California.  This will result in thousands, perhaps tens of thousands, of properties being put on the market in the coming months as banks conclude the foreclosure process on properties that were affected by the moratorium.  Depending on how banks handle the release of these properties to market we could see a glut of homes on the market forcing prices down. 

First Time Home Buyer Credit As I have been writing every week, the federal tax credit of up to $8000 expires at the end of November.  All transactions for those eligible and applying for the credit must be closed by the end of business on November 30, 2009.  Unless an extension of the credit is announced we should see an uptick in demand in October and November as buyers rush to take advantage of the credit.  Should the credit be extended I foresee no change in demand due to the credit. 

Changes in FHA  FHA is pulling back on condominium financing and also may impose a 5% minimum down instead of the 3.5% current down payment.  As well FHA is tightening requirements for lenders and brokers to be able to originate and fund FHA mortgages, reducing the supply of available options for borrowers.  Finally, many lenders are tightening guidelines for FHA guidelines further restricting the pool of eligible borrowers.  Fewer borrowers, less demand, lower prices.

Higher Rates?  The Federal Reserve has been extremely active in purchasing Mortgage Backed Securities (MBS), having committed $1.2 trillion to the program.  They have announced that starting next week they will slow down their purchase of MBS and continue the purchasing program into 2010.  Because of their pulling back on their purchases we will see a decrease in demand for MBS, lower demand means lower prices, lower prices for bonds means higher yields, higher yields means higher interest rates for borrowers.  Also impacting rates will be the continued positive economic news, as our economy transitions from recession to flat to growth rates will increase as investors hedge against inflation and demand shrinks as investors move to stocks.  Higher rates mean fewer qualified borrowers.

Give us an answer!  Okay, okay! Before I do let’s look at where the market is today, the first week of Fall.  Prices are stabilizing in many markets, particularly traditional first time borrower markets.  Rates are very low, very-very-very low. Despite the issues with appraisals, new disclosure regulations, short sales and bureaucrats in an office in Delaware acting as the seller, we have somewhat healthy market, with the exception of the upper end properties.  With the higher rates and influx of properties from the expiration of the foreclosure moratorium in the coming months I predict a dip in prices and a new wave of first time buyers entering the market in the fall creating more sales transactions.  Should the first time buyer credit be extended this wave of buying can continue into 2010—re-stabilizing the market prices in the first quarter of the new year.  While summer is usually the more active season, we can see return to June/July levels should the inventory on the market increase dampening prices and expanding the amount of qualified buyers in the marketplace.

Predictions are like opinions, everyone has one and not every one is right.  My call on the economy at the beginning of 2009 appears pretty close, we’ll check back in December and again in March to see how this one goes.

Have a question for me?  Ask me!   

Time is running out on the IRS tax credit!  If you are considering purchasing a home this year, are qualified and wish to take advantage of the IRS credit hurry and get into escrow.  All escrows must be closed by the end of business on November 30, 2009.  Are you qualified?  Click this link IRS Form 5405 for Frequently Asked Questions click here IRS FAQ

Another crazy week as we saw daily swings in the market from big lows to late rallies.  Our economic data was a bit mixed but over all positive.  What has the biggest impact moving forward is what I mentioned above: the Fed slowing its purchase of mortgage backed securities.  Its, the Fed’s, participation on such a large scale this year in the market has created artificially low interest rates.  They have definitely benefited borrowers with lower rates, but that party is due to end sometime.  As well their pumping an extra $1 trillion into the economy through the purchase program adds to the monetary supply and that….is inflationary. 

While inflation is somewhat in check it is sort of like the water that builds behind some logs across a stream.  As more debris is forced up against the logs and rains bring more water into the stream the build up grows, eventually the build up is too much and the dam breaks.  When it does look out downstream as flood waters are coming.  Right now in our economy the money supply is backing up against some debris in the economy, once it is cleared out look out.

Mortgage Backed Securities have jumped up and down all week with the result being conforming loans ending the week flat and other products seeing a dip.

Rates for Friday September 25th:

FIXED RATE MORTGAGES AT COST OF 1 POINT*

30 year conventional 4.75%                              FLAT

30 year conforming-jumbo 5.00%                     Down 0.125%

30 year FHA    4.75%                                      Down 0.125%

30 year FHA jumbo 5.125%                            Down 0.125%

Remember we have true, honest to goodness quality Jumbo rates again! Call for quotes as they vary depending on LTV, FICO and loan amount. 

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, and period rate is locked (i.e 45 days instead of 30 days).

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.

HAPPY BIRTHDAY! Last week our family celebrated my daughter’s 10^th birthday, this coming week our company celebrates its 10^th Anniversary.  Yes, on September 29, 1999 Stratis Financial Corporation was formed by six guys who thought they had a good concept for the industry: focus on the client and providing great service, treat everyone with honesty and respect, maintain high standards.  Our motto from the beginning has been Serious About Service and it is more than a motto for everyone at Stratis.  I could not be more proud of my association with my partners, my co-workers, my professional partners and especially my clients these past ten years.

To the thousands of clients we have worked with over the past decade: thank you so much for entrusting us with your mortgage transactions.  To the real estate professionals, agents, appraisers, escrow officers and assistants, title reps and officers, underwriters, funders, wholesale reps, we thank you as well for your partnerships as we put families into their homes and help them retain them.

What a great business!  I love it and look forward to the next decade!

If you need me this weekend I am around, although on Saturday afternoon we are having Blaire’s “family” party so I will be busy manning the grill and making some ceviche with fresh tuna caught by Mike, one of the Stratis partners, who graciously has provided several coolers of fish from his recent trip.  Some tuna, a little lime juice, some jalepeno…..perhaps a margarita or cold beer?  Oh yeah that’s a Saturday afternoon! Thanks for the fish Mike!

Have a great weekend,

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.

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