MORTGAGE RATES REPORT

VA Home Loans Are Not Necessarily "Government" Loans

VA home loans, in San Diego County, account for over 10% of the new mortgage originations.  Our proximity to Camp Pendleton, MCAS Miramar, Coronado, 32nd Street Naval Station, and MCRD makes San Diego a haven for active duty and retired military.  As such, the VA-guaranteed mortgage has been an important financing tool for San Diego County real estate.

Volume for government-insured mortgages spiked in the past two years in response to mortgage credit tightening.  FHA is feeling the brunt of the "non-traditional" credit buyers so much that they've hired a new risk chief.  Congress is worried:

Many lawmakers, especially on Capitol Hill, have expressed concerns that the FHA is taking on too much risk with its greater volume of insured mortgages, exposing itself to future defaults and delinquencies in much the same way as Fannie Mae and Ryan’s employer, Freddie Mac, did before the government took them over and pumped them up with billions of dollars in emergency capital.

Recently, default rates were released for San Diego County.  VA home loans had the lowest default rate, outperforming FHA and conventional prime loans. Why does VA have superior performance?

VA home loans are employee-benefit loans, not pure "government" loans like the FHA.

The VA is an affinity group; a "club" if you will.  It's current and past members share a common goal and feel a responsibility towards each other.  As such, VA borrowers feel a greater moral compunction towards the insuring agency (the VA) and are less likely to default on their obligation.  That "sense of duty" then, makes the veteran a more attractive borrower to lenders.

 

The VA actually cares about the condition of the collateral (house the veteran is buying)

The VA requires lenders to use assigned appraisers to perform a comprehensive appraisal report which includes commentary about the property condition.  Influence from loan originators and REALTORs is diminished because of the "arms-length" nature of the appraisal assignment.  The appraisal report is then reviewed by the Veterans Administration or a designated VA underwriter to complete the valuation process.  The VA valuation process is so successful that conventional lenders adopted the process through the Home Valuation Code of Conduct.  FHA plans to adopt this process next year.

Success of the VA home loan product comes down to this statement; the VA takes care of its own and expects them to appreciate that.  It's been working since 1944; we expect to work for another 65 years.

Check VA Mortgage Rates.

Get Pre-Approved for a VA home loan online.

New Good Faith Estimate Debuts January 1st, 2010... But Why Wait?

Last week I got my first peek at the new Good Faith Estimate all lenders will be required to use by the Department of Housing and Urban Development after January 1st, 2010.  It is a tremendous improvement over what we have now.  They're not even in the same ball park!  It is so good, in fact, that I predict the quiet rumblings of criticism I've heard within the industry will grow louder.  Why?  Because this is one of those rare, government mandated documents that actually and truly helps the people it purports to help: the borrowers!  This is not good for those lenders that rely on borrowers' gullibility and ignorance as a crucial aspect of their business model.

A quick overview: the new Good Faith Estimate is three pages long.  Within those three pages borrowers will find these helpful sections:

• Important Dates showing how long the rate and terms of the offered loan are valid and the terms of the rate lock.
• Summary of your loan including term, rate, amount, whether it is adjustable, negatively amortizing, subject to a prepay penalty and so on.
• Escrow Account explanation and information.
• Summary of Loan Charges in plain black and white.
• Origination Charges revealing fees charged directly by the lender.
• Other Settlement Charges making clear third party fees not quoted by or given to the lender.
• Instructions clearly explaining which charges cannot increase at closing as well as any limits on increases for those charges that can change at settlement.
• Trade-off Table wherein the lender compares how the payment (rate) and closing fees move in opposite directions for the same loan as the rate moves higher or lower than that quoted.
• Shopping Cart giving borrowers an organized way to compare lenders.

This new Good Faith Estimate is transparency on steroids!  Take a look again at those last two items: a Trade-off Table and a Shopping Cart.  Lenders like Brian Brady and myself have been providing this kind of understanding for years.  We've spent hours explaining the concept of rates vs. costs to borrowers who are often misled by other lenders and even the industry in general.  I can not count the number of times I've heard a client remark to one or both of us, "Gee, no one's ever told me this before."  I guess we can expect to hear that a lot less often.

I also expect an even greater share of business to come our way.  For a number of lenders out there, this new Good Faith Estimate means their model for doing business is going to change.  That benefits the borrowers (obviously) but it also benefits those of us who have been doing this all along.  As a matter of fact, I am going to start using this new Good Faith Estimate now, along side the older one.  Why wait until January 1st, 2010?  This is the clearest explanation of fees I've seen yet and it will only serve to educate our customers.  As Brian is fond of saying: "An educated customer is our best customer."

by Sean Purcell

Tales From the San Diego Foreclosure Crypt

What do foreclosures, code violations and stories around the campfire have in common? They’re all frightening of course! But what if you combined them into one big, scary tale? We’ll need a monster, of course - but that part’s easy. We’ll use the most powerful, most evil monster known to man. A creature so singularly alarming that every time it is involved, no matter what the story, the scary title remains the same:

“If We Weren’t the Government, We’d Be Arrested For This.”

Once upon a time, the local government stumbled upon a great way to increase revenue: heap hidden, onerous fees onto some of the people buying foreclosures, virtually guaranteeing their failure. Sound frightening? Good, then you’re in for a treat. Booooooooo…

 

Here’s how it goes: Mr. & Mrs. Homeowner incur a number of code/zoning violations which they dispute with the local authority. During this time, hardship befalls them (or maybe it’s a bad loan, or a big, bad wolf - either way the result is the same) and the foreclosure process starts its evil dance around their hearth. “To heck with you, city power brokers,” they scream, “we’ll not pay a dime of your fees or your penalties. We’re losing the home to foreclosure and you can go pound sand.”  The city/county sees that the house has gone into foreclosure and gets scared. Why? Because now those code/zoning violations will prevent the next owner from selling the house… and the next seller is the only thing more hair-raising than the government: Banks! These are dire straits for the henchmen of the local authority; what to do?

 

But you, gentle reader, should know by now to never underestimate the creativity of evil. In the middle of the night, these men and women of authority sneak into the recording office. Moving with the ease and confidence of the protected, they move through the records and with nauseating glee they PULL all the red tags off the books! “The horror… the horror.”

 

That’s right, now if anyone like… oh, say an REO agent or a title company or even a buyers’ agent researches the property, it’s free and clear and ready to go. Hey, that sounds pretty generous on their part, doesn’t it? Yes, maybe too generous? Good on you for paying attention because the other shoe is about to drop (actually, it’s more of a swift kick than a drop…) Soon thereafter, a nice young couple buys the foreclosure and makes it their home. With dreams of white picket fences and evenings by the fire, they never see it coming. They never checked under the bed or inspected the closet for monsters. Suddenly it happens: they get a visit from the code enforcement people. Somehow, mysteriously, all those red flags reappeared on the property.  “Hi, Mr. & Mrs. Naïvete.  Congratulations on buying your new home. You owe us $100,000 in fines and penalties. Have a pleasant day and a better tomorrow.” Ahhhhhhh!

Sound far-fetched? I spoke this week with the managing broker for one of the biggest “big-name franchises” here in San Diego. He currently has TWO of these in his office, both levied by the City of San Diego and each totaling nearly $100,000. I also spoke with two agents from two different offices who had each dealt with a client that received almost $200,000 in fines and penalties in their Welcome Basket from the County of San Diego. In each of these cases the title company had no idea nor did the agents involved. It’s not covered by homeowner’s nor E&O. In the very best-case scenario, the new homeowners are going to spend thousands of dollars paying lawyers to defend themselves. In the worst case scenario, they’ll lose the house. Oh, and for you real estate agents joining us tonight by the campfire… there’s a good chance you’ll be sued too.

Let’s all stand back in awe of the monster’s never-ending creativity and moral equivalency. I guess if you run your own financial house into the ground far enough, you can rationalize just about anything. Sweet dreams…

Mortgage & Real Estate News: August 25, 2009

HR 2801: Will Home Ownership Move the Economy ?

The original tax credit was basically a fifteen year, interest free loan.  That was replaced by the current $8,000 bribe for first-time home buyers (set to expire at the end of November).

HR 2801 is a doozy.  Income limitations would be removed and ANY homebuyer could claim the $7,500/a year for two years credit.  It could very well go down as the “Cash for Fixers”  bribe this market wants.  Call it an upper-middle class neighborhood stabilization plan.

Median Home Price To Increase 8% In 2010

The CCUL expects the median home price to increase by 8% in early 2010 throughout Los Angeles and Orange County.  Home sale increases will likely begin with the coastal regions of the state.  They expect the state of California as a whole to have a 5% increase in their median price by 2010. 

Borrowers Lie for Better Loan Mods, Real Estate Players Say

In his 25 years as a real estate agent, Jim Klinge has seen plenty of borrowers try to work the system, especially in subprime-scourged North San Diego, where he works and lives. Like many in his industry, he says the Obama administration's $75 billion loan modification plan is giving rise to another bout of fraudulent mortgage activity. "With all certainty, it's being gamed," he says.

Economist sees rebound for San Diego real estate market

Lawrence Yun, chief economist for the National Association of Realtors, said the local market is buoyed by a tight housing inventory and federal tax incentives.

Yun was speaking at a lunch event hosted by the San Diego Association of Realtors on Tuesday. Some 700 people attended the event held at the DoubleTree Hotel in Mission Valley. San Diego Mayor Jerry Sanders, as well as representatives of various politicians in town, also attended the event

 

 

 

Downtown San Diego Condo Loans: VA and FHA Approved Complexes

If you want to purchase a property within one of Downtown San Diego condominium developments, you might choose to use an FHA loan because of the low down payment requirement (3.5%).  Prior to last week, FHA condominium approvals could be issued on a "spot approval basis", meaning a HUD-approved lender could approve a loan regardless of the FHA complex approval. That practice has been discontinued.

Veterans choose to use a VA home loan because there is no down payment requirement.  Like FHA's amended policy, VA home loans can't be approved if the complex isn't.  VA, however, accepts the FHA approval and grants reciprocity.  FHA-approved condo complexes in Mission Valley will have explicit reciprocity by the VA. 

The following Downtown San Diego condo complexes are approved for both FHA and VA loans (as of 8/6/2009):

• Aperture
• Aria
• Atria
• Park View
• The Park at Tenth Avenue
• Terrace Village
• Park Row
• Park Terrace East Village
• Solara Lofts
• Union Square at Broadway
  

This information is not guaranteed for accuracy.  FHA condominium approvals can be searched at the HUD portal and VA condominium approvals can be searched at the VA portal.  It is advised to search at the portal before visiting the complex.

Mission Valley Condo Approvals For FHA and VA Mortgage Loans

In Mission Valley, there are 39 condominium projects.  If you want to purchase a property within one of those Mission Valley condominium developments, you might choose to use an FHA loan because of the low down payment requirement (3.5%).  Prior to last week, FHA condominium approvals could be issued on a "spot approval basis", meaning a HUD-approved lender could approve a loan regardless of the FHA complex approval. That practice has been discontinued.

Veterans choose to use a VA home loan because there is no down payment requirement.  Like FHA's amended policy, VA home loans can't be approved if the complex isn't.  VA, however, accepts the FHA approval and grants reciprocity.  FHA-approved condo complexes in Mission Valley will have explicit reciprocity by the VA. 

The following Mission Valley condo complexes are approved for both FHA and VA loans:

Friar's Pointe
Friar's Hollow
Friar's Mission
Creekwood at River Run
The Franciscan
Friar Gardens
Union Square
River Scene
Mission Gate
Mission Greens
Mission Heights
Mission Playmor
Mission Plaza
Mission Village
Mission Ridge
Mission Verde
Park Villas North
Rancho Mission Villas
River Colony

As of today (August 6, 2009), the following Mission Valley condo projects do not have FHA or VA approval:

Presidio Place
The Courtyards
Mission Bellwood
Woodspring
Rio Vista
Park Place Estates
The Bluffs
Mission Valley Terraces
City Scene
Fashion Hills
The Vistas at Fashion Heights
Hye Park
The Mission at Rio Vista
The Lido
Escala (Bridges, Bungalows, Courtyards, Terraces, Verandas, Villas)
Rio del Oro

This information is not guaranteed for accuracy.  FHA condominium approvals can be searched at the HUD portal and VA condominium approvals can be searched at the VA portal.  It is advised to search at the portal before visiting the complex.

What's The Cost Of Renting?

Does buying REALLY make sense?  In this goofy real estate market there really are some costs associated with renting instead of buying a home.  Opportunity costs but costs nonetheless.

Why are folks buying homes today?

1- They're cheap. It's going to go up in price. It won't be for awhile but still a good reason to buy .
2- You can write off your mortgage interest.  That's not true for most home buyers today.
3- A fully-amortizing loan is like a forced savings account.  Illiquid savings account but I'll buy that.
4- The US Government is bribing people to buy homes.  We'll harvest that $8,000 tax credit.

Let's run some numbers.

June was considering a Pacific Beach condo for $278,000.  She currently pays about $1,000/month in rent.  She's considering this condo purchase with a VA loan because she's a veteran of the US Army.  Her total payment, including the property taxes and HOA fee, would be about $2200.  June's a nurse who makes $80,000.  She's single so she currently takes the standard tax deduction of $5,700. She plans to hold the home for five years and expects to sell it for 15% more than today's price; she'll net $296,000 after sales expenses (in 2014).

What is the cost of NOT purchasing the Pacific Beach condo today?

1- Let's assume June's right about the appreciation.  She stands to make $18,000 in five years; that's about $300/month.

2- June doesn't fully benefit from mortgage interest deduction.  If she stays put, she can write off $5,700/year (479/month).  She will have paid about $75,000 in interest over the next five years or $1250 per month.  When we back out her standard deduction ($479/month), her benefit of buying the home is that she can write off an extra $771/month.  She'll also be able to deduct her property taxes (289/month) for a total MARGINAL income deduction of $1,060.  That saves her about $365/month in income taxes.

3- June will pay that loan down to $257,000.  That builds equity up of about $350/month.

4- The effect of the $8,000 legal bribe is about $133/month, over five years.

5- June's closing costs are $6,000. Amortized over five years, that's an added expense of $100/month

June's opportunity cost of NOT buying, exclusive of appreciation, is $748.  Subtract that from the $2200 payment and her payment "feels like" $1452.  She gains $352/month by renting instead of buying.

The big question is...will June make 15%, over five years, by owning this home?

or...can June negotiate a lower price, by about $45,000, so that her monthly payment drops about $350/month?  At $233,000, June is actually losing money by renting.

San Diego County Houses For Sale Down. Is This a Head Fake?

Jeff Dowler reports that Oceanside supply (number of properties available) is dropping precipitously.  This phenomenon is happening all over San Diego County causing new home buyers to get into bidding wars for aggressively-priced, bank-owned properties:

At the end of May 2009 there were 726 Oceanside homes for sale (380 detached and 346 attached) a decline of 7% from the end of April (this includes the homes with Contingent status). This represents an inventory of only 1.8 months for detached homes and 3.7 months for detached homes based on the current rate of sales over the last 6 months, both of which declined again from the previous month.  These absorption rates continue to be impressive when compared to many other parts of the country, some of which have over 2 years of inventory. Indeed we are seeing more multiple offers, not only on distress sales but also on regular sales, especially below $400,000. 

In May we saw 162 homes come on the market, 31% fewer than in April (and almost half the number of new listings in March) . During May 211 homes went pending, about 20% fewer than in the previous month. So coupled with another decline in inventory (with fewer new homes for sale) we saw an increase in volume, which has resulted in the low absorption rates noted above.

Is this the bottom of the real estate market or, as Greg Swann referred to this phenomenon in Phoenix, a "Fools Gold Rush" ?

Here's what's really going on: Last fall FannieMae and FreddieMac, along with some of the bigger private mortgage banks, declared a moratorium on new foreclosures.

So for four months, homes that would have been foreclosed on sat on the sidelines of the real estate market.

And for those same four months, inventories of already-foreclosed homes declined. In March of 2009, for example, a total of 7,621 listed homes were sold in the Phoenix area, of which 5,066 -- two thirds! -- were lender-owned homes.

That sounds good doesn't it? Even better, as I write this, only 7,607 lender-owned homes are listed as being Active in the MLS database. That's just a month-and-a-half's supply. Happy days are here again!

Not quite. That Fannie/Freddie moratorium on new foreclosures ended on April 1st. In the first three weeks of April, there were 2,460 new lender-owned listings. And there are still two years of foreclosures in the pipeline.

What we're seeing is a Fool's Gold Rush. The perceived shortage of housing is an illusion, an artifact of a normal number of buyers competing for an inventory that seems to be declining rapidly. It isn't. Instead, even now the inventory of lender-owned homes is surging.

Head fake or hard numbers?  The federal foreclosure mortatorium is over but the State of California just initiated a like measure for ninety days.  Are these moratoria government's efforts to delay the inevitable or are bargains really available to the San Diego County home buyers?  Keep in mind that lenders will have been forbidden to pursue a defaulted San Diego County homeowner for seven out of twelve months this year.  This could lead to an onslaught of inventory after Halloween.  That might just be okay because we're seeing lots of pent-up demand to mop up that excess supply.

A first-time home buyer tax credit, combined with relatively low mortgage rates still might make today's property offerings a bargain.  You might analyze each property the way we do so that your downside is limited.  Certainly, property prices should be higher in 2020 than they are today.  Just be careful to do your homework.

Whichever you decide, Jeff Dowler is a pretty sharp North County real estate agent.  Use his Search tool to look at the properties offered.

Don't Fight the Fed: June 2009 Rates Won't Break 5%

If you've been paying attention, you know that I have the heart of a trader.  I try to offer analysis  rather than opinion.  Last week, I felt the bond traders were overreacting to optimistic economic news and commentary by politicians.  I generally ignore those folks and focus on the Fed.  I said that one of the first rules of investing was "Don't Fight The Fed"; I won't.

This morning's par mortgage rates (with 1%origination fee):

Conventional:      5.375%
FHA/VA                    5.50%
Jumbo(>$417K)   5.875%          

Last November, The Fed released this:

The Federal Reserve announced on Tuesday that it will initiate a program to purchase the direct obligations of housing-related government-sponsored enterprises (GSEs)--Fannie Mae, Freddie Mac, and the Federal Home Loan Banks--and mortgage-backed securities (MBS) backed by Fannie Mae, Freddie Mac, and Ginnie Mae.  Spreads of rates on GSE debt and on GSE-guaranteed mortgages have widened appreciably of late.  This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally.

Yesterday, Fed Chairman Ben Bernanke said this:

We continue to expect overall economic activity to bottom out, and then to turn up later this year. Our assessments that consumer spending and housing demand will stabilize and that the pace of inventory liquidation will slow are key building blocks of that forecast.

Bernanke might just be off the "support the MBS market" bandwagon.  If he ain't opening the Fed checkbook, expect mortgage rates to naturally gravitate towards the 6% plus level by the end of the year.  This won't happen immediately so there will be periods of market overreaction, which will cause me to issue a "float" recommendation.  Generally speaking, my bias has changed from "there will be sunny days tomorrow", for mortgage rates to "there may be a storm-a-brewin'".

I've got you locked if you're closing your loan before June 21.  Today, I'm locking anyone who is closing by July 15, 2009.  The past two weeks have been a fun ride and many of you got 5% mortgage rates by being patient and nimble.  The tacit change in Fed bias has me too worried right now; lock all loans at application.

Apply online now.  It's really simple and should take about 20 minutes.

Expect June 2009 Mortgage Rates To Improve

UPDATE:  Now locking all loans closing before June 21, 2009.

The catastrophic mortgage rates meltdown is almost over.  The mortgage-backed securities market dropped significantly, driving retail par mortgage rates from 4.5% (8-9 days ago) to a high of 5.375% (Wednesday).  While many cautioned that mortgage rates were headed higher, I separated personal opinion from my analysis and suggested that bond traders overreacted.  I advised borrowers to suspend the rate lock decision until retail mortgage rates came back down to 5% or better.  I expected that to happen next week. 

I was wrong...

...it just happened.   One of our leading banks "repriced" this afternoon and the retail par rate is now 5.0%. 4.875% has a quarter-point cost.  If you have to close next week, 5.0% isn't a bad rate to grab.  I think we'll see the rest of the lenders follow this big bank's lead, early next week.

What could make this mortgage rate recovery advance to 4.5% next week?  Remember, mortgage bonds drive retail mortgage rates so we want to be looking for bond-friendly events. Investors look for safe havens when there is unrest in the world.  US Treasuries and mortgage-backed securities are a favorite safe haven.  If North Korea launches more missiles or Iran keeps taunting Israel to the point of armed conflict, investors might buy bonds which would drive down mortgage rates.  Increased Fed mortgage market intervention is likely too.

What could reverse the current recovery and send mortgage rates to 5.5%?  Inflation, or the fear of it, is the market enemy number one.  If traders think the economic recovery is nigh, we could see rates inch up again.  I think that's unlikely; the economic data we receive suggests the opposite.  If traders get back on the McClintock-Gross bandwagon and think that the US Government is about to declare bankruptcy, we'll see higher mortgage rates.

My money's on a sputtering economy, a pugnacious North Korea, an annoying Iran, and a sustained mortgage rates recovery.  I'm looking for rates to get back to to 4.75% by the end of next week.

Apply online now.  It's really simple and should take about 20 minutes.