Please keep in mind layered risk pricing for all loan products for credit score and loan to value mixes.  Call for quotes.

 

***Maximum combined loan to value for Jumbo A+ products in Southern California is 85%***

 

Yesterday the Senate finally passed their version of the stimulus package--while I disagree with the rebates which will not hit most Americans' mailboxes until late spring or early July, a critical piece of the bill is the increase in loan limits.  It gets very confusing because if the Joint Session of the House and Senate pass the Senate's version and it is signed by President Bush we should see an increase in loan limits.  Why the emphasis on "should?"  It is a bit murky how the limits will work and what our new limit will be.  My understanding of the bill is that the median housing price as determined by HUD will trigger the new loan limit for various markets in the country--the maximum conforming limit would be $730,000 if you market qualifies under the formula.  But the limits still have to not only be approved by Fannie and Freddie but they also have to determine how they will price the higher loan limits.  Will they keep the same price structure they have under the current maximum loan limit of $417,000?  Will they tighten LTVs, credit scores and tier pricing at higher loan amounts?  How long until they are effective? These are all questions that everyone in the mortgage industry is asking and there are no answers yet.  As soon as I have them I will forward to you.

 

Bonds took a severe beating yesterday as the Treasury had a big auction that no one decided to attend.  While there was some come back today in rates it is not nearly what we lost yesterday.  I will repeat myself here:  we are in a very volatile market with rates changing not only daily but often interday rate moves are the norm.  Clients need to lock their rate and close their loans as locked to avoid losing the rates they have.

 

Speaking of locks, historically we have been fairly able to move like for like loans between our wholesale sources; i.e. a conforming mortgage that is pretty generic locked with Bob's Bank at 6% if rates drop we are able to move to Fred's Bank at 5.75%.  As you can imagine with the recent volatility in rates brokers are moving mortgages all over the place to take advantages of dips with clients. This kills banks "pull through" rates--that percentage of locked loans that close with a broker.  The Southern California region (and Stratis Financial) has a historic pull through rate of about 80%--eight out of ten loans fund where they are locked.  Since December the pull through rates for the industry have dropped to somewhere in the neighborhood of 60%--and the banks are getting killed on losing commitment fees.  Because of this there is a very strong possibility that in the near future almost all lenders will have stricter lock in policies--perhaps limited to 15 days, or have borrowers commit an upfront fee to lock for more than 15 days, or both.  This has not happened yet, but I want to warn you that there is a possibility of some change in the next several weeks if the pull through rates do not start to increase.

 

What causes pull through rates to be low?  Primarily lower rates cause brokers to pull loans for better rates for their clients.  In the current market property values are also leading to a decline in pull through rates as applications that are taken and locked with a 80% loan to value may become 95% or worse when the appraisal comes in as the client and/or broker completely missed the market when estimating value. 

 

Jumbos have been resilient this week whereas conforming loans are off from last Friday.

 

NOTE PRICING BELOW IS BASED ON 15% DOWN FOR JUMBO LOANS AND 10% DOWN FOR CONFORMING, FULL DOC, AND FICOS OF 720 AND ABOVE:

 

 

The LA/Orange Country regions are seeing an increase in purchase money mortgage applications--overwhelmingly in the entry/conforming level markets.  This will continue to lower our median price points, but should reflect in higher volume.  Purchase applications historically have led the housing market numbers, if the trend continues we should see some health returning to the market and a trickle up in price points as we get into summer--at least that is my, and many others, interpretation of the data.

 

Please feel free to forward this email to your co-workers and clients--or send them to my Mortgage Blog where it is posted weekly.

 

Have a great weekend,

Friday, February 08, 2008

 

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