BRADY MORTGAGE AND REAL ESTATE

Government-Sponsored, Sub Prime Mortgages Coming Soon

Just in case you missed how horrendous the results of centralized, government planned, sub-prime, mortgage industry were, the Kommisars have decided to....

  ...create a sub-prime mortgage industry?  From the Boston Herald:

But some of the other requirements that federal agencies and the Obama administration are proposing in the same plan have gotten much less attention yet could prove just as troublesome for consumers:

•Strict mandatory debt-to-income limits. Under the proposal, to get the best mortgage rates, you would need to spend no more than 28% of your gross monthly income on housing-related expenses, and you couldn't have total monthly household debt that exceeds 36% of your income.

There would be no flexibility to go beyond these ceilings, unlike in today's marketplace, in which Fannie Mae and Freddie Mac consider debt-to-income ratios along with other factors through their electronic underwriting systems. Freddie Mac, for example, has an overall debt-ratio limit of 45% of an applicant's stable monthly income.

•To refinance your existing mortgage and replace it with one carrying the best interest rate, you'd need no less than a 25% equity stake in your house to qualify. If you sought to take any additional cash out through a refi, you would need 30% equity. Today's typical requirements for a conventional refi are nowhere near as strict.

•Pristine credit standards. For example, if you were 60 days late on any credit account during the previous 24 months, you would be ineligible for a mortgage at the best terms.

These are all core features of what may be the most sweeping and controversial set of changes in decades for the housing and mortgage markets. The so-called "qualified residential mortgage," or QRM, proposals were released at the end of March by banking, securities and housing regulators, along with the Department of Housing and Urban Development. The agencies were required by the 2010 financial reform legislation to come up with new standards for low-risk conventional mortgages.

Of course, this isn't being sold as a creation of a new sub-prime mortgage industry but simply rewarding those who have the money, credit history, and income to qualify for the best mortgage terms.  Wait a minute!  Isn't that what banks are supposed to do?  Aren't bank underwriting departments supposed to analyze risk, assess a commensurate return required for that risk, and offer loan terms?

This is MORE centrailized planning and it won't work because it never does.  Scream if you want but there is nothing you can do about it.  This Administration rules with an iron fist and Wall Street, and the banking cartel are being guaranteed profits by eliminating any competitiion.  These proposed rules will stifle any form of innovation in residential real estate finance.  This is Rotarian Socialism at it's finest and, as Greg Swann says, "It's evil dressed up in a Brooks Brothers suit"

The only way to save the mortgage industry is to break up the big banks, deregulate completely, which means abolishing the FDIC depositor insurance, and letting the free market determine interest rates, risk analysis, and loan terms.  If you want a robust economic recovery, get rid of this adolescent President, his Soviet-style Adminsitration, and demand an abolishment or (at the very least) completely transparent central bank (the Fed).

Can you imagine if the Kommisars regulated green beans the way they regulate your money? 

Oh wait...never mind. 

Picture credit icanhascheeseburger.com

Broken Windows in California: Why The First-Time Home Buyer Credit Failed

This just in, about February sales, from the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.). 

The statewide median price of an existing, single-family detached home sold in California was $271,320, down 2.8 percent from a revised $279,140 in January and was down 2.5 percent from the $278,190 median price recorded for February 2010.  The February 2011 median price was the lowest since May 2009, when it was $263,440.

Why are prices declining? 

Perhaps the shadow inventory is being released.  It is widely believed that most buyers will be looking to move in the summer which means the best time to list a property would be April, May or June.  Expect more of this slow decline for the next 3-4 months.  After that, it's a crap shoot,  If the California unemployment rate stays north of 12%, this might be a tepid summer for real estate.  Until Jerry Brown's tax hike is defeated, expect the unemployment rate to remain over 12%.

Here are other highlights of C.A.R.’s resale housing report for February 2011:

• The Unsold Inventory Index for existing, single-family detached homes was 7.3 months in February, up from 6.7 months in January 2011.  The index was 6.0 months in February 2010.  The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate. 
  
  
• Thirty-year fixed-mortgage interest rates averaged 4.95 percent during February 2011, compared with 4.99 percent in February 2010, according to Freddie Mac. Adjustable-mortgage interest rates averaged 3.35 percent in February 2011, compared with 4.23 percent in February 2010.
  
  
• The median number of days it took to sell a single-family home was 64.4 days in February 2011, compared with 39.2 days for the same period a year ago.

So mortgage rates are similar to what they were a year ago but inventory is rising and staying on the market longer?  How can that be?  Perhaps the first-time home buyer tax credit was really just another failed stimulus plan, stalling a meaningful recovery.  The result is a bunch of wasted money; $600 stolen from nine neighbors so that one neighbor could sell his home at a higher price.

This is a perfect illustration of the broken window fallacy.  We still have a lot of broken windows in California.  My California real estate weather prediction?  Cloudy with a chance of rain.

Documents Required For A Short Sale in San Diego

 
Yalda Alawi, the San Diego Real Estate Lady, offers a free book about short sales, at the end of this article:

The documentation required to process a short sale is commonly referred to as a “Short Sale Package” and is usually submitted by the agent representing the seller or the seller of the property themselves if they are attempting to do the short sale on their own. Here’s a sample short sale package:

Note that items may vary depending upon the lender.

• Cover Letter.
• Authorization to Release Information (pgs. 11)
• Sellers Hardship Letter (pgs. 12-15).
• 2 years W-2′s.
• 2 months pay stubs.
• 2 months bank statements.
• Supporting Hardship Info – HOA liens, medical/disability statements etc.
• Repair Estimate for the property (when necessary).
• Comparable area sales (see BPO on pg. 23).
• Listing & Purchase Contract(s).
• Net Sheet (provided by agent).
• First mortgage holder may ask for a payoff amount from the 2nd (obtain pay-off statement from lender).
• Second mortgage holder may ask for a payoff amount from the 1st (obtain pay-off statement from lender).
• Lender may ask for an Initial Title Report.
• FHA and VA may have their own forms and special requirements as well.

If you plan to work with a real estate professional and can have your last two years tax returns as well as past two months bank statements and pay stubs together with your hard ship letter and authorization to release information statement for them at your initial meeting you’ll give them a running head start and they will love you!

This is ONE Page from the 40 Page Book “The Homeowner’s Guide to Real Estate Short Sales”

Request your FREE copy today: http://www.BreakForeclosures.com

Call Yalda at 858.863.3860 or, do what I do and stalk her on Facebook.

FHA Monthly Premiums Likely To Rise April 1, 2011

Remember when the FHA monthly mortgage insurance premiums rose from .5%(annual) to .9%(annual) ?  The NAR kicked and screamed about housing affordability but the move was made to shore up the ailing HUD reserves.  What many folks missed was that HR 5981 allowed for an increase for an annual premium of 1.55%:

The bill has already passed the house. The bill (H.R. 5981) allows FHA to raise its annual premium to 1.55% from 0.55%. Approved by unanimous consent, the legislation now goes to the White House for the president’s signature.

I haven’t decided that this is a good thing to happen to mortgage lending or a bad thing. One of the determining factors for me will be how much of the authorized increase FHA determines they will actually take. If they take the full 1.55%, it will literally take about 25% of the buyers out of the market.

According to the National Mortgage News, “With this new authority, FHA will lower its 2.25% upfront premium to 1%, but then raise the current 55 basis point annual premium, basing the hikes on loan-to-value ratios. FHA wants to raise the annual premium to 85 bps for loans with LTVs of up to, and including 95%, and to 90 bps for loans with LTVs above 95%.”

Well, it looks like HUD Secretary Shaun Donovan has decided to raise the FHA premium again:

Higher FHA Insurance. "As Fannie Mae and Freddie Mac's presence in the market shrinks, we will encourage program changes at FHA to ensure that the private sector – not FHA – picks up this new market share," states the Treasury plan. In addition to the change in loan limits, the Administration will put in place a 25 basis point increase in the price of FHA's annual mortgage insurance premium, which is paid in 12 monthly installments. FHA just increased the annual MIP payment to .85 percent last October. The new rate will be 1.10 percent. FHA currently accounts for 30 to 40 percent of all new purchase mortgages, and more than half of all mortgages taken out by first-time buyers.

What does that mean to the average FHA borrower, taking out a $300,000 loan in San Diego County?

• Six months ago, the FHA mortgage insurance premium would have been $125.00.
• As of October 1, 2010(and currently), that FHA monthly premium would be $225.00
• After April 1, 2011, expect that FHA monthly insurance premium to be $287.50.

It's more than doubled.  Can you blame HUD though?  As Greg Swann writes, while the Obama Adminsitration says they want to wind down the government's role in housing finance, it appears they just want to shift the responsibility to a growing agency.  That's not helpful for a sustainable recovery in mortgage financing.  Until the government completely withdrawals from housing finance, private lenders have no incentive to come up with a solution.

 

Saving Money Through a Mortgage Refinance on Black Friday

Mortgage rates are the lowest they've been since Ike was President.  Today (Black Friday), Americans will wake up at 2AM, stand in line for hours, and purchase things they really don't want or need, because they are sold at such a steep discount. Why aren't those shoppers looking for a mortgage refinance rather than shopping in the malls?

Crazier still is the tilted, Black Friday opportunity costs scale; professionals spend ten hours in malls today, to save $200, when their time is worth at least twice that.  It would make more sense for those Americans to work a half-day today, and pay full retail price, rather than subject themselves to the frenzied crowds of Black Friday shopping.  At least they could "create" 4-5 extra hours of leisure.

I'm no enemy to bargain shopping.  I rarely pay full retail price for big ticket items.  Still, don't we shake our heads at our neighbor who drives 20 miles to save $.10/gallon on a fill-up? 

If you're sitting at home, contemplating the hundreds of dollars you can save in the malls today, consider this:

• mortgage rates are below 4.5%; the lowest they've been in over 50 years.
• if you can reduce the rate .5%, on a $500,000 mortgage, you'll save over $200...every month

Boast about that Black Friday savings to your friends.  You don't have to go to the mall either.  Simply apply for a refinance online or call me today at 858-777-9751.

 

Forbearance An Option For Active Duty Service Members

Fannie Mae announced its Wounded Warriors Forbearance Program:

At an event today at the Pentagon, Fannie Mae (FNMA/OTC) and the U.S. Army announced new initiatives to help service members who are struggling with their mortgage payments avoid foreclosure. The effort includes a mortgage payment forbearance of up to six months where the death or injury of a service member on active duty causes a hardship for impacted military families with a mortgage obligation.

One positive feature is that Fannie Mae will suspend credit reporting during the forbearance period:

Service members or surviving spouses who may be eligible for the special forbearance are to contact their mortgage company. The mortgage company may grant forbearance of up to six months under Fannie Mae's "Unique Hardships" guidelines with Fannie Mae's approval. Under forbearance, the mortgage company may reduce or suspend the borrower's monthly payments for the specified period. Credit bureau reporting will be suspended during the forbearance to minimize any derogatory impact.

It is important to note that the program is NOT sponsored by the Veterans Administration.  The VA offers similar options for wounded service members through its partner lenders.  The VA encourages wounded veterans or surviving spouses to contact the lender if they are unable to make payments as well as notify the regional VA lending center.  While the lenders often offer forbearance agreements, they usually report the delinquencies to the credit bureaus.

Veterans facing financial difficulty might think these programs are complimentary when in fact, they are exclusive.  The first step is to always contact the loan servicer (the company to whom you make payments).  Always ask the loan servicer which entitiy "owns" the loan (investor or guarantor).

 

 

 

Buy American? How About Build American First?

Lorena Gonzalez encourages San Diegans to become "economic patriots" and redirect their spending towards domestic products only.  She demonizes the financial sector yet fails to see the problem:

The last year has proved to us that the revered financial sector and our undying allegiance to Wall Street have failed our country

The protectionist meddling into the financial services sector has rendered Wall Street and banking a ward of the State.  Winners and losers are picked by political processes rather than economic viability.  Any reasonable person knows that banks aren't doing what they should be doing; lending money.  Banks won't lend money as long as the economic incentive is protectionism and subsidies.

Mrs. Gonzalez' argument for protectionist purchases is a classic  tu quoque fallacy.  Rather than to support a failed system, we should focus first on the principle of serving customers best.  Unions, or organized labor, are exactly like the cabal on Wall Street.  Rather than restrict access to capital for economic gain, organized labor restricts access to employment for political gain.  Both systems are dysfunctional and symptomatic of the disease that afflicts our economy; protectionism.

Free markets are the best way to prosperity.  When bad banks are bailed out, or favorable labor contracts are granted unions, those restrictions of capital and labor distort the market and lead to higher prices.  You, as a consumer, might "feel better" by keeping your money in an American bank, or buying products made by Americans, but in reality, you are enabling a dysfunctional system (besides penalizing your family).

American labor and American capital needs to get competitive in this global economy.  Fortunately, this country has a lot of both.  Entrepreneurship has always been a byproduct of a free people and creates economic opportunities for all members of our society.  Economic prosperity always starts with the question "Can I make it better, cheaper or faster?"

If you really want to be an "economic patriot" this Labor Day, find a way to compete with those foreign producers.  "Build American" by starting a business to compete with them.  Your solution will most likely include free workers rather than organized ones.  Mrs Gonzalez won't like that because it erodes her political power but...

..it's the RIGHT thing to do.

Mortgage Questions And Answers

Consumers want answers to mortgage questions in a low-pressure environment.  I created a forum for consumers with five topic headings:

• Jumbo Loans
• VA Home Loans
• FHA Mortgages
• Should I Lock or Float My Rate?
• Grab Bag

It's pretty slick because it allows you to sign in with your credentials from Facebook, Google, Yahoo, Twitter, Myspace, or Twitter.  I'll get an email that shows your question and come back and answer them daily.

Ask your questions here.

Considering A Reverse Mortgage? Waiting Could Prove Costly

Last August, I recommended that reverse mortgage borrowers should act quickly:

The reverse mortgage borrower is about to screw things up royally; he’s going to live longer than expected….and like sub-prime, that risk is not priced into the current market.

A reverse mortgage is basically a negative amortization, no-payment required loan.  Actuaries consider the borrower’s life expectancy,  discount a reasonable return on the future loan balance, and loan the borrower whatever is remaining.  When the borrower dies, the loan balance can be paid off so that the heirs can “reclaim” the asset or the house is sold.  The deal goes sour when the now 65-year old lives past his expected death date.   Consider that baby-boomers are the healthiest (and largest)  generation; they could add 4-5 years to that life expectancy.

The loans are still being underwritten as if the oldest baby-boomers were just 56 years old.  Throw in the fact that a tremendous amount of home equity evaporated, since, 2007, and you have a recipe for disaster. While you remember the wreckage an uptick in defaults had, on a levered sub-prime secondary market, imagine how those measly four years could cause the Great Recession of 2030, complete with bailouts.

Low rates compelled action while the demographics shift would require underwriters to offer less generous loan amount offers.  Rates are still low but the principal reductions look guaranteed now:

If Congress fails to appropriate $250 million for the Federal Housing Administration reverse mortgage program, seniors could see the principal amount of a new loan reduced by 30%.  "Without the budget request, we would be forced to reduce the amount of funds that would be available to seniors by more than 30%, which is, on average, a $23,000 to $27,000 impact," said FHA commissioner David Stevens. Last year, the Department of Housing and Urban Development requested $798 million in funding for the FHA home equity conversion mortgage program. When Congress rejected that request, HUD reduced the HECM principal limit by 10% for fiscal year 2010, which started October 1

Act now rather than waiting.  The product is priced overwhelmingly in favor of the borrower and the inherent risks associated with the product are tilted to the lender/insuring agencies.  The reverse mortgage product could be a victim of a liquidity crunch like the home equity product suffered in 2008.

January, 2010 Mortgage Rates Should Start Climb To 6%

December, 2009 mortgage rates have been quite volatile.  We started the month out with conventional rates as low as 4.5% (with an origination fee) and today, that same loan is offered at 5.0%  Throughout 2009, I reported that this was a classic overreaction, by the MBS traders and changed my posture to float rather than lock rates in at application.  That worked for 2009 but won't for 2010.

For those of you who have followed me on Twitter or Facebook, you've seen that I have been recommending borrowers to lock-in rates at loan application rather than "playing the market", for the past six weeks.  This rapid rise can be attributed to one thing; it's an answer to a comment investments broker, Jeff Brown made yesterday.  Jeff said:

I don't think it's the beginning of the climb yet. Uncle Ben is still doin' his thing with much vigor.

Jeff, Uncle Ben ain't got no mo' vigor; he's out of Viagra.  I tried to explain this phenomenon over on Active Rain, last night:

Markets are discounting mechanisms meaning that traders anticipate how potent the Fed can be.  The Fed's just about out of bullets and MBS traders know it.  Let me try to give you an example of what the Fed did by recanting the explanation I gave, to a Del Mar REALTOR, on the beach this summer.

I had my daughter (Maggie) get me ten cups of water from the ocean.  Then I drew six lines in the sand, equidistant from each other, and labeled them 6% (on the right) through 4.5% (on the left). I had Maggie stand at 6% and explained that this represented Dec, 2008 mortgage rates.  I announced that my intention was to throw water at her until she moves to the left, away from 6% and towards 4.5%.  I grabbed two cups and threw one at her, then at the line marked 5.5%; Maggie quickly darted to the left. 

Then, I threw a cup at her every time she inched to the right.  I explained that Maggie was acting EXACTLY like the MBS traders, naturally gravitating towards the "natural" market.  Each time I chucked a cup full of"stimulus", Maggie moved back under 5% and closer to 4.5%.  Once, she got real daring (like the MBS market this past summer) and I threw three cups at her.

At the beginning of December, The Fed had two cups of water.  Now, they only have 1.5 cups of stimulus left.

Even if the Fed announces an extension of the MBS purchase program, bond traders might view this an inflationary (printing money to buy money) and reject the Fed's efforts to control mortgage rates.  If bond traders push up yields on US Treasury securities, because they believe the Fed and Congress are borrowing and printing money irresponsibly, no amount of support will work.  The only weapon left in Uncle Ben's arsenal will be a form of wage/price controls; that didn't work 35 years ago and won't work today.

I might be early but I think the risk of a quick jump in rates is MUCH greater than the opportunity of slightly lower ones.  My bias is towards locking all loans at application.  We may see an opportunity to float in the next few months, if markets overreact but I doubt it.

Get a customized mortgage rate quote today.