MORTGAGE RATES REPORT

Mortgage Rate Quote Expiration Dates

Looking at mortgage rates on the internet?  Maybe your shopping in the Zillow Mortgage Marketplace, on Lending Tree, or even in the newspaper.  One thing you should understand is, unlike milk, the mortgage rate quote "purchase on or before" dates do not extend for 3-4 days.  Mortgage rates change as often as 2-5 times each day.  Why is that?

READ: You'll NEVER get the lowest rate on your mortgage.

Mortgage rates are a dynamic market, based on mortgage -backed securities.  The volatility in mortgage bond markets is wildly erratic, especially in financial crises.  With European countries facing bankruptcy, perpetual war in the Middle East, and a debt-riddled US economy, things change...a lot...and more than once or twice a day.

We used to be able to "eat" those price movements, if they weren't too erratic, after we quoted your rate and before we locked it in for you.   A new federal rule, Regulation Z, prohibits us from adjusting our compensation, to your benefit, when the market changes.  If the market changes for the worse, you get stuck with the higher costs.  Conversely, yoou get rewarded with the lower costs if the market improves.  Essentially, you bear the risk and I am protected.  So much for the "consumer protection"of regulations.  Don't get me started down that path or I'll digress into the politics of mortgages.

What can you do to protect yourself? 

Well, if you have three quotes, and you are pretty sure that you've narrowed it down to 2-3 lenders, ask each lender to e-mail you a good-faith estimate, all at the same rate, at a specified time.  Then open your email, find the best one, call the winning bid, and lock-in the rate.

The key thing to remember is that the good faith estimate you receive is probably only valid for 2-8 hours.  If you're on-the-ball, act quickly, and are dealing with an originator who follows this market like a hawk, you'lll get a great deal.

Mortgages For Condominium Complexes With Commercial Businesses (Mixed-Use)

Some mortgage lenders eschew condominium complexes which have a portion of the complex leased to commercial businesses.  For example, in Pacific Beach (San Diego), there is a property with 8 units on top of a 2200 square foot, retail business.  Why won't lenders make a loan there?

Both FHA & conventional financing permit a certain amount of the property, to lease commercial space.  Fannie Mae allows for 20% of the property to be leased to commercial ventures as does Freddie Mac.  FHA allows for up to 25% of the square footage to be leased commercially.

If the commercial space is more than the permitted percentage of the project, or it's being advertised as a condo-tel, or the public liability insurance doesn't cover the commercial spaces that are owned by the HOA, the loan can be funded.

In our Pacific Beach example, each of the eight units is approximately 975 square feet, for a total of 7800 square feet.  The retail space is 2200 square feet.  The commercial lease is 22% of the toal square footage of the complex.  It is not eligibile for Fannie mae or Freddie Mac financing but is eligible for FHA financing.

What We Know About the HARP Refinance Program, As Of November 28,2011

The HARP Refinance loan program is still unclear but the basic gist of the plan is that, if a borrower is refinancing into a fixed-rate home loan, there will be no equity requirement.  Stated differently, the appraised value won't matter; the government loan program wants to help borrowers get fixed-rate loans which they can afford.  If the new loan is an adjustable rate mortgage (ARM), the maximum LTV will be 105% of the appraised value. 

An Automated Valuation Model (AVM) will be the preferred valuation determination but a full appraisal may be required.  There are no restrictions to the amount of negative equity . A home owner could owe $400,000 on a home that is only valued in today’s market for $300,000.

Income verification is required for the HARP refinance program. If  the original mortgage was underwritten and funded,  as a a stated income loan, the borrower will have to provide proof of income to be approved for a new HARP loan.

There are substantial "risk-based" origination fees, for new loans with a term exceeding 20 years.  Those "risk-based" origination fees are waived for terms of twenty years or less.  The reasoning behind that guideline is that a lower rate, with a lower term, should not have a material impact on the payment amount when compared to the existing payment.  The accelerated amortization however, should establish equity for the home owner more quickly and reduce the risk to the government-insuring entity.

If the existing loan doesn’t require PMI (Private Mortgage Insurance), the new loan won’t require it either.  If  the existing loan requires PMI , there will be no change to that PMI however, the “transfer” of your mortgage insurance policy may require an extra step. Make sure that I know that you currently pay PMI and tell me that amount.

FHA , USDA, and VA loans are ineligible for HARP.  Only loans, which were sold to Fannie Mae or Freddie Mac, prior to May 31, 2009 are eligible.  This means that it is highly likely that loans closed,  in 2009 or thereafter, are ineligible.  To determine if you are HARP ekigible, check these two sites:

http://www.FannieMae.com/loanlookup/ 

https://ww3.FreddieMac.com/corporate/

HARP is not designed to delay, or stop, foreclosures. It’s meant to give homeowners who are current on their mortgages, and who have lost home equity, a chance to refinance at today’s low mortgage rates.  Home owners may not have used the HARP program before and must be current on thier mortgage to refinance via HARP.  Borrowers may not have had any late payments in the last six months.

Only rate-and-term refinances are allowable. No cash out refinances are allowed.  Borrowers can refinance an investment property or vacation home with HARP, even if the home was once a primary residence.  Condominiums can be financed on the HARP refinance program but the lender will require that all warranties from the HOA are satisfied.

HARP refinances first liens only. All junior liens must be subordinated to the new first mortgage. Mortgage balances can be increased to cover closing costs but loan amounts may not exceed the local conforming loan limits ($625,000).

If you are HARP-eligible, you must close on your mortgage prior to January 1, 2014.  Please call me today, at (858)-777-9751, so we can determine your eligibility, qualify you for a HARP refinance, and take advantage of the program as soon as it is authorized for fundings.

San Diego Housing Approaches Rent Vs. Own Parity

Should you buy a home or rent one, in San Diego? 

As always, that depends.  If you're looking for a home in La Jolla, you may never find a one which is less expensive to own than rent, in today's dollars.  The physical beauty of the seaside burg is stunning and La Jolla has traditionally traded at a steep premium to rent v. own parity.

Nick Timiraos suggested that buying conditions are getting better for San Diego, in the Wall Street Journal:

Home ownership is also looking more affordable because after several years of declines, apartment rents will rise by around 4% this year, says Mr. Nadji. He says rents are poised "to pick up even more momentum across the country next year."

Rising rents are one reason a would-be home buyer should consider purchasing a La Jolla home rather than waiting for prices to reach parity there.  If inflation kicks in, and onc day it will, rents could increase a level far above what the mortgage payment, for a La Jolla home, would be today.

Even cities where it is still cheaper to rent than own have seen big boosts in affordability. In San Diego, the monthly cost of owning a home has averaged around 83% more than renting over the past two decades. During the third quarter, owning was 22% more expensive than renting, according to John Burns Real Estate Consulting

Take note of this figure.  In many San Diego sub-markets, (mostly the beach cities), housing prices will never reach parity with today's rents.  Like the La Jolla example, inlaftion may cure that in 2-3 years.  Still, some San Diego County markets have already reached parity meaning, it's cheaper to own rather than rent.  Even in some beach cities, like Oceanside or Imperial Beach.

I searched active Oceanside homes for sale and found one which is listed for $189,000.  With about $7,000 down payment,  and an FHA loan with a 4.88% APR, the monthly mortgage payment would be $1250, some $50-$100 below what it might fetch in rent.  That's one of many Oceanside properties which are at or below parity for the rent V own model.

I also found plenty of similar opportunities while searching for homes for sale in Chula Vista.  There were many more recently built homes, which command premium rents, listed under $250,000.

San Diego entrepreneur Bill Lyons intends to make these home searches easier when he releases his new website, Revestor.com.  Revestor organizes current listings, by capitalization rate or cash flow, to offer homeowners a chance to "rate" properties, by comparing the listed price to current rental data.

San Diego is still selling at a slight premium but this may be as good as it gets.  If mortgage rates continue to stay low, because of the Fed's printing press and quantitative easing, the bubble for low rates will soon pop, and inflation will kick in.  Locking in a price, and a low mortgage rate, might be the best way to insure you won a piece of our sunshiney paradise.

Foreign National Mortgage Financing for California Properties

I am continually asked about foreign national mortgage financing, mostly from Canadian investors looking for a vacation home or rental.  Most of that mortgage capital has dried up but there are two lenders, who will make these loans, at good interest rates, to resident aliens, working and living in the United States. 

The two major conditons are:

1- An I-94 form with an expiration date that is more than two years from the date of property closing or an I-94 form with a "duration of status" (D/S) for expiration.

2- Employment by an American company, with at least one year's history OR, six months history and an employment contract, with at least two years remaining on the contract

Furthermore, the lenders want to see an established banking relationship, in the United States, for at least three months.  Like all other conventional mortgages, the down payment (at least 25%)  and closing costs funds must be verified as seasoned for at least 60 days.  Any large deposits to that account will be required ot be explained and documented.

Generally speaking, a loan will be made for up to 75% of the purchase price and 30-year fixed-rate loans are available.  rates are typically about .125% to .375% higher than a traditional mortgage, made to Americans.

Lower VA Mortgage Funding Fees Implemented November 18, 2011

N.B:  On the day before I published this, HR 674 passed, reverting the funding fee amounts to the “old” levels.  It was updated in VA Circular 26-11-19, published November 22, 2011.  The “new” lower funding fee schedule was in effect for three days, from Nov 18-21.  Sorry for the confusion.

The Veterans  Administration lowered the funding fee it charges, to insure loans made to active-duty or retired military personnel.    The new funding fee schedule distinguishes first-time users and repeat users and between active-duty, reservists, prior military.

Can you use your VA loan guaranty benefit more than once?

Of course you can.  The VA even allows for two outstanding loans (under certain circumstances) but generally, veterans can only have one VA loan outstanding.  A common misunderstanding is that a veteran can only use a VA loan once.  The benefit can be used as many times as the veteran wishes.

Can you still get a zero-down VA home loan, again?

Indeed you can.  The new funding fee schedule, for zero-down loan purchases, is only 1.40% for first-time users who are active-duty veterans and 1.65% for reservist/guardsmen veterans. Zero-down home loans, for the second and subsequent VA home loans, require a 2.8% funding fee for all veterans:  active duty, reservists, and guardsmen.

Can you lower the funding fee if you use a down payment?

Yes you can.  If veteran home buyers put 5% down, with a VA loan, the funding fee drops to .75% for active duty veterans (1.0% for reservists and guardsmen).  For a 10% down payment, the funding fee drops to .5% for active-duty veterans and .75% for reservists and guardsmen.

Here is a list of the current and new VA funding fees scheduled to take effect on November 18, 2011.

Use/Purpose	Down Payment	Active Duty Veteran		Reservist/National Guard
		Old	New	Old	New
First Time	Less than 5%*	2.15%	1.40%	2.40%	1.65%
First Time	5% - 9.99%	1.50%	0.75%	1.75%	1.00%
First Time	10% or more	1.25%	0.50%	1.50%	0.75%
Subsequent	Less than 5%*	3.30%	2.80%	3.30%	2.80%
Subsequent	5% - 9.99%	1.50%	0.75%	1.75%	1.00%
Subsequent	10% or more	1.25%	0.50%	1.50%	0.75%
Interest Rate Reduction	N/A	0.50%	0.50%	0.50%	0.50%
Assumptions	N/A	0.50%	0.50%	0.50%	0.50%

 

Jumbo Mortgage Rates Report--July 21, 2011- MARKET ALERT

LA JOLLA, CA--Jumbo mortgage rates are essentially unchanged since my last report (rate indications offered below) and that worries me.  Wall Street may be overconfident of a debt-ceiling hike deal and that overconfidence is priced into the market. 

In Washington, it can be tough to understand why New York is so sure of itself. While Wall Street is brimming with confidence that a deal will be struck, many Washington officials say the dynamics of this stalemate are different from any other they have encountered. And that means New York traders could be in for a big surprise in early August.

With less than two weeks to go before the Aug. 2 deadline, no deficit-reduction plan offered by the Senate or House has gained a significant amount of momentum. The House GOP’s “cut, cap and balance” proposal is dead on arrival in the Senate, which has yet to move its own budget. 

This means that a failure to extend the federal borrowing limit will catch markets by surprise; we could conceivably see jumbo mortgage rates rise 1-1.5% overnight, in early August.I've worked with mortgage-backed securities traders and I'm amazed at the huge gamble they're taking.  The culture of government bailouts is so pervasive in the financial community that the very flinty-eyed bankers are willing to ignore this risk.

Could jumbo mortgage rates go lower?   I suppose they could but not much.  There is clear and present risk right now.  If you CAN, lock your mortgage rate to avoid this risk.  

Jumbo Mortgage Rate Indications, as of July 11,, 2011:

• 5/1 ARM----------3.875%/4.110% APR
• 7/1 ARM----------4.375%/4.571%APR
• 10/1 ARM---------4.750%/4.917%APR
• 30 Yr Fix----------5.125%?5.557%APR
• 30 Y FNMJmbo-4.500%/4.724%APR
• 30 Y FNMA-- ----4.375%/4.615%APR

Jumbo mortgage rates quoted are for loan amounts from $700,000 to $2,000,000.  Credit, down payment, and income restrictions apply.  Not all will qualify.  Equal Opportunity Lender.  NMLS ID 339261

Jumbo Mortgage Market Attracting Proven Key Players

My post about the return of jumbo mortgage capital was noticed by some newspaper columnists and I spent a bunch of time on the telephone with them last week.  Each and every columnist, from the local paper to THE national business daily wanted to know what would happen if the government unwound its involvement in mortgage lending.

My response?  Lenders lend.  That's how we make money.

Well,  that's how lenders USED to make money.  These past few years, lenders have been engaged in arbitrage rather than lending.  I wrote about how government was crowding out private enterprise and it would prolong the housing finance depression rather than cushion the blow.  Thankfully, agency loan guarantees will be lowered this fall and the opportunities are attracting majoy key players.

Is it any surprise that the Wall Street Journal reports that  Lew Ranieri is ready to jump on this opportunity?

Yet Mr. Ranieri believes now is the time for nontraditional lenders to enter the market. While the bank-lending standards that created the mortgage crisis were too loose during the housing boom, they are now too tight, Mr. Ranieri says, reducing the supply of mortgages to average borrowers and opening a door for lenders like Shellpoint Partners LLC, a mortgage-finance company he recently founded with two partners.

This doesn't surprise me.  I mentioned that I was speaking with hedge funds and investment managers, earlier this year, to measure their willingness to enter the non-agency lending market and the responses were the same; they all want to make these loans but the government arbitrage scheme makes it too profitable to do anything else.  I posited that lenders, outside of the new GSE's (Citibank, Chase, BofA, & Wells Fargo) would look to serve those markets soon enough.

Mr. Ranieri sees an opportunity in the alternative-income documentation niche, most notably the self-employed borrower:

The aim is to target borrowers whose credit profiles prevent them from obtaining conventional mortgages in the tight market but who are nevertheless good credit risks and can make a down payment of at least a 15%. The company said a typical borrower could include self-employed contractors and other professionals who have assets and a steady income stream. The self-employed have been the hardest-hit by bank credit-tightening trends.

Returns could be staggering.  While most agency loans charge 4.5-5.0% in interest, non-prime loans can charge as much as 9% in interest.  Certainly, that kind of margin will attract capital and the spread will narrow in the future but the early providers can expect to reap rewards for their prescience. 

We saw this in jumbo lending.  Last year, jumbo home loans were as much as 1.5%-2.0% higher than agency loans.  Two government-supported banks offered non-government loans and bigger players started stepping in.  Today, the margin between agency loans and jumbo loans is but .375%.  Jumbo mortgage rates today average just 5.0%.

Lew Ranieri isn't the be all and end all of mortgage lending but he is an accomplished player in this market.  With over 40 years in mortgage securitizations, his actions should be a leading indicator of where lending is headed.  His most recent activity is a positive sign.

 

 

 

Proposed Good Faith Estimate Should Be More Consumer Friendly

The Consumer Financial Protection Agency just released its proposed Good Faith Estimate (GFE) disclosure form.  The form will combine the best parts of the original GFE (which we still issue) along with the "new" GFE (which is confusing and we issue, per disclosure regulations).

This six-minute video will walk you through it:

Owner-Occupancy Ratio in Condominium Complexes

"A big Bank in America declined my loan application because the condominium complex owner-occupancy density was too low.  I have great credit, five times the payment in monthly income, and I"ve saved my own money up.  How can I get a mortgage to buy this condominium?" 

Let's start by explaining why the big banks in America are declining these loan applications.  While you are an excellent borrower, the collateral, in this case, the property, is part of a  common-interest development (that's lender-speak for condominiums, co-operatives, and planned unit developments).  What that means is that the property you are purchasing is subject to a layer of "opt-in governance" and the composition of the "opt-in entity" could have material effects on the value of the properties in that "opt-in entity".

That was a lot of fancy speak for this statement; a high percentage of renters is less desirable because the owners of the property (investors) have less "emotional interest" than  owners who would make the property his/her home.

Stated differently, an investor-owner is less likely to pay his/her HOA dues, if he/her ran into financial difficulty, than an owner who makes the property his/her home.  It's a risk factor.

Does that mean its a dead-deal?

Absolutely not.  We can make loans on those condominiums if the purchaser puts 25% down payment and plans to make the property his/her home. 

If the property is approved by the Veterans Administration, and the buyer has eligibility for a VA home loan, the owner-occupancy issue is a moot point; the VA doesn't consider owner-occupancy to be a risk factor.

If the buyer wants to pursue an FHA loan, and the complex needs FHA approval, the owner-occupancy density  must be 51%.

Owner-occupany is not the only reason a property in a common-interest development might be declined for high, loan-to-value mortgages.  HOA financial stability, pending litigation, reserve and repair plans, and general maintanance all come into play.  I'll discuss those, in more detail, on this site, later.