Dennis' Mortgage Blog

For 11-14-08:  estate planning, taxes, etc.

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:  If we don’t have kids do we need an estate plan?  Answer:  YES!  Well unless you want the State to determine how your assets are distributed should you have and accident and pass away or become completely incapacitated without an estate plan.  Family trusts and estate plans are musts for anyone who owns real property, or has any significant amount of assets.  If you do not have one and would like information or who to contact please call or email me. 

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

With the election over the front pages and nightly news leads have been taken over by the economy once again.  This week new big news is that U.S. automakers, having seen the $700 billion bail out package for banks and credit market participants, have their hands out for some of that government money.  While an important piece of the economy, the automakers are not the foundation of our economy like the credit markets are so their pressure for more money from Washington (they have received over $20 billion already this year) rings hollow with me; but I do not have a vote in Congress or a veto stamp on Pennsylvania Avenue.   Of more importance to our industry this week is news from Sacramento and more news from Washington.

First, the California legislature is working on a bill that would put a 120 day pause in the foreclosure process in California; when a buyer goes into default, the new legislation would add 120 days to the process for the lender before they can issue a notice of sale.  What this bill assumes is that lenders file their notices of defaults, notices of intent to sell and notices of sale within the proscribed timelines now on the books.  In the current environment almost every foreclosure situation already extends beyond the new time frames being set by the new legislation, but it allows them time in front of the cameras and the appearance they are engaged in doing something. 

If the California legislature really wants to make a difference they will pressure Washington to keep the loan limits where they are ($729,750) instead of a reduction to $417,000 in much of California and to $625,500 for the high cost areas such as LA and Orange Counties.  This will do more to stabilize our housing markets than delaying someone’s foreclosure by four months.

In Washington Treasury Secretary Paulson announced that the Treasure will not be using some of the $700 billion bailout package money to purchase defaulting assets from banks.  Instead funds will be used to purchase equity in banks and others in the credit industries.  This will keep the U.S. taxpayer from owning billions of dollars in bad mortgage debt and instead will give the U.S. taxpayer stock in companies that own billions of dollars of bad debt.  One effect of this is that the U.S. government will not become the owner of thousands of foreclosed properties, other than those they would otherwise own through HUD foreclosures.  Banks and lenders will continue to have control of their own foreclosed properties through their REO (Real Estate Owned) divisions.  Key to this transaction from the taxpayers standpoint is the ownership of stock and equity in the companies.  Many are screaming “socialism” at the transactions, but there is a huge difference between government stock ownership and socialism, primarily is that the stock ownership can mean influence but not total control.  As the companies become healthy and begin to regain profits and growth, the government can start to sell off the equity they own to the private markets and divest itself, and the taxpayer, of ownership---hopefully at a profit.

Looking forward we had horrible retail sales for October reported today.  While WalMart issued a statement this week that they are somewhat optimistic about the holiday retail season; while not saying they will break records they are saying they do not expect their sales to be as bad as many are predicting---a somewhat positive voice howling in the wind!  Because of the bleak retail sales there is some positive momentum for bonds and mortgage rates, but week over week we have not seen a drop in our rates.  There is more downward pressure on rates than upward pressure however.

A slight loss on FHA rates but otherwise despite another week of jerks and jumps in the markets we are flat for the week.

NOTE PRICING BELOW IS BASED ON 20% 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%            ó 0.00%

30 year conforming-jumbo at 1 point 6.00%              ó 0.00%

30 year FHA at 1 point6.00%                                     é 0.125%

30 year jumbo at         NO PRICE CALL FOR INFORMATION  

Remember in the coming few weeks we have some turmoil built into the markets with the expiration of the conforming-jumbo loan limits and the introduction of the new limits in some markets.  If you have any questions on how you or your clients may be affected please contact me.

I will have limited ability to communicate on Saturday as I will be assisting in setting up for the Condit Spirit Awards Gala benefiting the Community Hospital of Long Beach Foundation and attending the event later in the evening.  It should be a fun evening and raise some funds for the “Community Dreams Fund” used to purchase equipment for Community Hospital.  If you would like to make a donation please contact me!

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. 

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. 

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. 

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