BradyLoan.com

Which offer should a San Diego home seller accept during the COVID shutdown crisis?

Q- Which offer to buy your home should you accept?

A- The highest net offer which is most likely to close.

 

That seems obvious, doesn't it, Let's consider the second part of the answer though. An old friend and Phoenix real estate broker Greg Swann, was promoting this new listing on his Facebook and asked me this question:

 

Q- Can you reflect on the current state of borrowers? I've never loved FHA-ish loans, especially not in cash-poor offers. Obviously, everyone loves cash, and 80/20 conventional is hard to turn down. Are government loans still doable? If so, are they more or less risky to close than they were two months ago?

 

My answer is:

 

Great questions. Government loans are fine and, based upon whom the buyers may be, might be preferable. Here is the biggest concern from a lender/servicer's point of view; will the new buyers start deferring mortgage payments under the blanket of COVID?

 

Lenders are going to verify employment before the loan is approved, right before the loan docs are drawn, and right before they fund the loan-- yes, three times.

 

How might a seller mitigate that risk? Consider the buyers' jobs as well as their qualification standards. "Essential" workers are good buyers but government-funded paychecks are the best buyers.

 

If presented with a VA offer, from a Staff Sergeant at MCAS Miramar, take it. If presented with a VA offer, from a Navy veteran working for a start up, scrutinize it.

 

If presented an FHA offer from a Law Enforcement Officer, take it. If presented an FHA offer from a security officer for an office building, scrutinize it.

 

If presented a 40% down conventional offer from a business owner, scrutinize it. If presented a 20% down conventional offer from a public school teacher, take it.

 

The old saw "money cures all problems" isnt applicable anymore if there is a loan involved.

Each acceptance should have an addendum and/or counter which states that the buyers lock their interest rate within 24 hours and order the appraisal within 48 hours of acceptance.

 

Unless you have a cash offer, there is ALWAYS going to some risk that the loan is declined. Most lenders are looking for a 680 minimum credit score for conventional loans and a 640 minimum credit score for VA/FHA loans. Downpayment matters only inasmuch it can mitigate a low appraisal. Ability to repay a loan, especially in a time when forebearances are handed out without much scrutiny, has underwrters worried about the continuity of the income and employment.

 

It's a whole new world in mortgage lending...AGAIN. As always, Debra and I can help you

 

Call or text Brian at 858-699-4590. Call or text Debra at 858-228-0617

I can't think of a better time to be a San Diego County listing agent...

...and a worse time to be a San Diego buyers' agent.

San Diego is in a housing crisis and the simple explanation for it is that we have a tremendous backlog of new housing--the politicians aren't helping us either. NIMBY-ism, water restrictions, and traffic density are core issues which restrict housing and, while they are legitimate issues, the county has a 65,000 unit backlog of new housing.

Experts believe that San Diego County needs 170,000 housing units built from 2012-2025 to meet demand and population growth- some 15,000 housing units each year. Over the past five years, San Diego County has averaged 2000 new housing units.. We are already 65,000 units behind and, if we continue at this anemic pace, we will end up 120,000 housing units short in 8 years. That is pushing up prices of existing homes.

You might think that rising housing prices, and double digit rent increases, will halt population growth in the County. While it might, SANDAG believes the region will grow by another million people within 25 years. Increased demand for housing and restricted supply means one of two things to your clients: they have to move out of San Diego County or home ownership is now, more than ever, the only defense against this housing shortage. Your role, as a buyer's agent, is now more important than ever to your clients' futures.

We are here to help you--here are three ways we can do that.

1- TBD approvals: this isn't a pre-qualification, this isn't a pre-approval, this is a full underwriting approval for the buyers' credit and income. We take an application, gather up supporting documentation, submit the file to the underwriter, and have a clean approval within 5 business days. What this means is that we can close a transaction in 21 days, giving your buyers a competitive advantage when they make offers.

2- "Selling" the buyer to the listing agent: a lot of the buyer's agents we work with ask us to speak to the listing agent when they make the offer. We communicate to them that we have that underwriting approval and, more importantly, tell them exactly what that means. It means that the only issues for a full loan approval are property related: appraisal, homeowners insurance and title insurance. When we explain the process to the listing agent, and represent the strength of the buyer, more offers get accepted.

3- VA and FHA condo approvals. So many condominium buyers are shut out because the complex lacks an agency approval, The perception is that VA and FHA condominium complex approvals are burdensome and lengthy--nothing could be farther from the truth.  Debra and I are experienced experts at VA condo approvals-- we have approved over 130 of them in the past 8 years and we get those purchase transactions closed in 45 days or less.  FHA condo approvals are easier for us because we have a HUD-delegated underwriter who has the ability and discretion to approve the complex FHA-eligible

This is a great time to be a real estate agent in San Diego County, especially if you list a lot of properties.  Representing buyers however, is difficult.  We're here to make that job easier on you.

WTH Just Happened to the FHA Mortgage Insurance Premium? Politics At HUD

If you have an FHA loan in process this month. you were "given a gift" only to have it "taken away" nine days later.    It was a political stunt by past HUD Chairman Julian Castro and it's a darned shame it happened to you.  Let me break it down for you:

The FHA charges borrowers money to insure their loan against default.  It adds 1.75% to your loan and charges a monthly mortgage insurance premium in addition to that added 1.75%.  You can avoid this by having at least a 20% down payment and getting a conventional loan (although FHA rates are lower than conventional rates)

The FHA monthly mortgage insurance premium WAS  based on an annual charge of .5% of the loan amount prior to the Obama Administration taking office.  During the housing crash, the FHA insurance pool (the money collected from the premiums) was depleted because of all the foreclosures.  The first term Obama HUD Secretary (Shaun Donovan ) started to increase the monthly mortgage insurance premium cost, from the annual charge of .5%,  to an annual charge of 1.4%.  This increased the monthly cost of a new $400,000 FHA loan  from $166/month to $466/month.

This was a bummer for new FHA borrowers because they were essentially paying for the failures of the past borrowers.  Still, if FHA was going to be sustainable, it had to do something so they opted this approach. It worked.  The FHA insurance pool grew from being depleted to sustainable.  As the size of the FHA reserve pool increased, the HUD Secretary during Obama's second term (Julian Castro)  started reducing the monthly mortgage premium from an annual charge of 1.4% to its current annual charge of .8%.  This reduced those monthly mortgage costs (on a $400,000 loan)  from $466 to $266.  

A few months ago, HUD Secretary Julian Castro floated another premium cut from its current .80% annual cost to .55% annual cost.  This would reduce the monthly cost (on a $400,000 loan) from $266 to $183.  This move was met with vocal opposition from career HUD bureaucrats and the Republicans in Congress.  The prevailing thought was to leave the annual FHA mortgage premium be for now and let the reserve fund grow more. 

HUD Secretary Castro ignored the advice of career HUD bureaucrats and issued the order to cut the FHA monthly mortgage cost anyway.  He issued this order on January 11, 2017 to take effect for loans FUNDED after January 27, 2017.  I thought this was suspicious when he issued it because all previous HUD orders were effective for loans STARTED after the effective date.  This seemed "too good to be true".  

If it looks too good to be true, it usually is untrue.  HUD Secretary Castro's order, breaking with normal HUD policy on effective dates, was a legitimate HUD order anyway.  We (like other lenders and REALTORS) delayed closings so that borrowers would benefit from the monthly cost reduction.  Here's what you need to know:

Castro's FHA order to reduce costs was never gonna happen and Castro knew it when he issued it on January 11, 2017.

Castro was playing politics with borrowers' money.  His intention was to put the new HUD Secretary (Dr. Ben Carson)  and the new President into the tough spot of saying "Sorry.  This was never a good idea".  As such, Castro timed the repeal of the January 11, 2017 FHA order to come out just an hour before the new President was inaugurated.  Castro was quick to release this repeal order to the media so that it could run with the story that "The New President RAISED FHA monthly mortgage costs".  

Let me give you a simple analogy:

I am the principal of  a school and you are taking my job next Friday.  Last month. I asked all the teachers if we could cut the dismissal time from 3PM to 2PM,  The teachers said "this is a bad idea" and you (the new principal) agreed with the teachers. Last week, I ignored the teachers advice and sent an email to all of the pupils saying that the new dismissal time would be 2PM, effective the Monday after you become the new principal.    My last act as principal, before I hand you the keys to the school, will be to send an email to the pupils saying "Sorry, the new principal might be a meanie so I can't keep that 2PM promise to you".  Guess who won't be popular with his new pupils next Monday?  You.

It's political scheming and it's garbage.  The Obama Administration took a parting shot at the incoming Trump Administration and, if you have an FHA loan in process, you are the loser in this political game.  In my opinion, the incoming Administration should honor the reduction for 30 days and restore the (higher)  premium for loans funded after February 28, 2017.  They might not have time to do that and I don't make policy so, if you have an FHA loan in process, expect to pay the original (higher)  amount.

 

San Diego Mortgage Rates Report: January, 2017

WHERE ARE SAN DIEGO MORTGAGE RATES GOING?

Non-farm payrolls reported today at 156K vs. the expected 178K;  the unemployment rate ticked up to 4.7%. The mortgage bond market is DOWN a quarter point. That doesn't compute.

Today's released data also signaled an uptick in wage growth. Uh oh, that means we are seeing inflation, right?

Not so fast. As Debra points out, a lot of minimum wage laws were passed; 19 states raised the minimum wage effective Jan 1. Businesses often meet those laws prior to the effective date to be in compliance.

The wage growth is probably just a reaction to legislation rather than organic growth. It's a "false positive".

I still think we see lower mortgage rates at the end of January and higher mortgage rates at the end of the summer. If you want to know how this would affect you, call me at 858-777-9751.  A real conversation, with someone who has worked in capital markets for three decades, will give you greater insight

Your agent is why your condo isn't selling

Jill was a good client of mine.  I funded an FHA loan for her when she bought her condo back in 2010.  She was sitting on $100,000 in profit in just five years.  Her original real estate agent left the business so she found an agent who advertised on Zillow  (Jill is pretty tech savvy).  She listed the property with this agent instead of calling me for advice.  The condo didn't sell, Jill called me to ask why, and I had to tell her the truth:

"Your agent was the reason why your condo didn't sell, Jill"

I told Jill of the tale of two real estate agents:  Barbara and Mike. 

Mike listed lots of properties...LOTS of them.  He was constantly on listing appointments, advertised those listings heavily online, and had things down to a "system".  His signs were all over her heighborhood and each listing was prominently displayed on his website;  he was a tech savvy property seller's dream agent...BUT...

Mike didn't know a darned thing about condos and condo loans.  Thus, Mike was always presenting offers which Jill had to decline because Mike assumed that, because the condo didn't have an FHA or VA approval, only cash or conventional offers would be funded.  Naturally, Jill was shown a lot of "low-ball, all cash" offers from investors and Mike told Jill "I guess the market has shifted".  Jill's $100,000 profit looked more like $50,000 when Mike was finished presenting the offers.  Naturally, Jill declined those offers and the listing eventually expired.

I had Jill speak with my friend Barbara, an agent who worked condo listings all over town.  Barbara spent a good bit of time with me after I funded a loan for one of her VA buyers (way back in 2009).  Since then, Barbara has done one thing...just one thing..which helped her take less listings but sell each and every condo listing she DID take, for full price.

Barbara insisted that the seller order the condo docs before it went into the MLS.

Barbara explained to her sellers that they would eventually have to order those condo docs when they were in escrow.  Unlike Mike, who "shotgunned" his listings approach by saying "don't pay for them before you have a contract",  Barbara explained that the couple of hundred bucks investment (in the condo docs), could add tens of thousands to the sales price, if the property qualified for FHA or VA financing.  Barbara would order those docs immedialtely and send them over to me.  I would take one look at them and say one of three things:

1- Barbara, I can get that complex both FHA and VA-approved
2- Barbara, I can get the complex VA-approved but you'll only be able to accept 20% down conventional, VA, or cash offers.
3- Barbara, that complex will only work for 20% down conventional loans and cash

Armed with that information, Barbara entered this into the marketing remarks on the MLS:

"Property may be eligible for VA or FHA financing.  Approvals pending through World Wide Credit Corp.  Call them at 858-777-9751 for cross approval"

Barbara explained to clients that that representation attracted twice as many buyers to her listings and justified charging a "premium" price--that meant more profit for her clients.  You know how the story ends...

Jill listed with Barbara, we ordered those HOA docs, and Jill sold the property to an FHA buyer...for a price which was much closer to what she wanted than the offers she received when Mike had the property listed.

Wanna be like Barbara?  Call me today at 858-777-9751.  We'll grab a cup of coffee and I'll break it all down for you.

Avoid These Common Mistake When You List a Condo

You just listed a new condominium and you're excited; you priced it right and you expect it to sell and close within 45 days.  Financing is a big deal for most condo buyers; in San Diego, condos are often bought by first-time home buyers.  You might be making these common mistakes which could cause the offers to come in much lower than you want, have deals fall out of escrow, or delay the closing.

1-  Not checking to see which financing is available.  See if the complex is approved for FHA financing and be careful to see when the expiration date of the approval is.  Check to see if the complex is approved for VA financing.  If you can't find the complex on these lists, call me at 858-777-9751.

2- Check with the HOA to determine the owner occupancy percentage.  If the percentage of homeowners is under 50%, the buyers won't be able to use FHA financing or conventional mortgages with less than 20% down payment.  If the percentage is below 50%, consider having us submit the HOA package to VA for a complex approval. 

3- Not ordering the HOA documents immediately.  Most agents tell owners to wait until you have an accepted offer,then ask the escrow company to order the documents.  This is a huge mistake because it delays the process.  It's a cost to your seller but the seller has to provide those docs to any buyer; they might has well get it out of the way.  Committed sellers will do this up front.  You can call me at 858-777-9751, to review those documents, so you are prepared for any offer.

Too often, agents make these mistakes and are chasing their tails in escrow.  We can help you to stop chasing your tail,  maximize the price your seller gets, and guarantee a quick and successful closing.

San Diego Mortgage Rates Report: September 1, 2014

Mortgage bonds have steadily strengthened since their August, 2014 levels, causing September mortgage rates in San Diego to drop.

You can follow the national average mortgage rates at Bankrate.com.  San Diego mortgage rates tend to be .125% LOWER than the national average.  Average rates as of August 1, 2014:

30 Year fixed conventional average=  4.06%
15 Year fixed conventional average=   3.17%
30 year fixed VA/FHA average=              3.65%
30 year fixed VA/FHA jumbo avg.=       4.0%
5/1 adjustable rate conv. average=         3.52%

We told you last month that San Diego home prices up but the price increases are decelerating.  While I believe that the long-term trend will track the increases in inflation, prices may soften through 2015.  I talked about this on Active Rain today and cited this Redfin article:

The first is a slowdown in home price growth. For the first time in five months, price growth was essentially flat in July. The second is a shift in pricing power from sellers to a more balanced market. That shift has been nearly nine months in the making from when sales began to first decline last November

Deals are going to be made this Fall.  If you're buying a home, you have some price flexibility.  Making offers 15-20% below asking price is almost as nutty as pricing your property $100,000 over recent solds but, without a doubt, buyers will be driving fall sales in San Diego. 

We can lock rates up to 60 days so, if you have to be flexibile with a seller who is trying to close on another house, we can cover you.  Make sure you get a good price concession for your flexibility.

San Diego Mortgage Rates Report: August 5, 2013

Mortgage rates improved about 1/4% since last month's report.  Today's best execution rates average 4.375% for a conventional loan and 4.125% for a VA loan.  Keep in mind that a "best execution rate" assumes the highest credit rating, a debt-to-income ratio undee the guidelines limit, and at least 20% downpayment.  Each borrower is an individual and may or may nor meet that criteria.

But it's a guide if you're watching the mortgage rates market.  Speaking of which, you can receive a twice weekly update, via text message, by sending the word "RATE" to 313131.  I'll be sending a text message in the middle of the week and on the weekend with the best execution mortgage rates.  You can always unsubscribe too so I won't be text-spamming you.

July was crazy for the mortgage bond market.  Wild price swings were the norm, with rates getting as low as 4.275% for conventional loans and as high as 4.75%.  While that might not seem like a "wild swing" to you, the home buyer, it has been perpelexing to mortgage industry veterans because we can't get a read on the market at all. 

One school of thought is that the Federal Reserve Bank will stop subsdizing rates, through bond purchases, as early as September.  That would suggest rates could rise as high as 5.0% plus.  The other school of thought, that the Fed woul delay this "cold turkey" approach until next year, was confirmed by the less than robust jobs report.

I gave up trying to outguess the Fed when they started this who quantitative easing policy.  I'm locking all loans at application and recommend that customers do the same.  It's just too volatile and the risk of a being stuck with 5% mortgage is greater than the potential reward of waiting for a 4% rate.

San Diego Mortgage Rates Report: July 10, 2013

Independence Day meant more things than barbecues, beer, and baseball this year.  Mortgage bond investors didn't like the idea of independence from Federal Reserve Bank subsidies.

Just before the holiday, I suggested that the Fed was sending stabilizing signals that the quantitative easing programs wouldn't be completely abandoned.  Last week, there was only one fear; the non-farm payrolls report released on Friday (July 5, 2013).  That report exceeded expectations and the mortgage bond market nearly collapsed-- rates spiked to as high as 4.875% for conventional loans and 4.75% for VA/FHA loans.

One thing which contributed to Friday's volatility was that it was a day after a holiday.  The trading desks operated with skeleton crews of junior traders, most of which were nervously selling befoe the weekend.  When their senior colleagues returned on Monday, they saw buying opportunities in mortgage bonds.  The mortgage bond market recovered a bit more than half of its losses, in two trading sessions, and rates settled in at 4.625% for conventional loans and 4.5% for VA/FHA.  Today, the mortgage bond market is slightly off on news that wholesale investory stocks are being depeleted.

All eyes were on the release of the June meeting of the FOMC minutes.  The consensus is that the bad news is already out and, since the Fed Governors are split on the idea of QE tapering, the bond market is getting used to the idea that Fed action (or inaction) won't ruin the bond market.

Where do we go from here?

I look to investment adviser Lenore Hawkins a lot.  She and I both share free market views and she has a good understanding of how non-subsidized economies should act.  From her July newsletter:

While many are criticizing the Fed for the tumult the comments caused in the markets, we think they ought to be applauded for injecting uncertainty into a market that was becoming entirely too complacent about the degree of excessive leverage being used to combat the low rates of return imposed by the Fed’s financial repression.

As we delve deeper into the data,  and you knew we were going to go there, the job growth continues to be among lower quality jobs.  The unemployment rate held steady at 7.6%, but the U6 (broader employment metric) jumped from 13.8% to 14.3% caused by a surge in part-time work.  Full-time jobs dropped by 240k and in fact, since the start of the year only 130k full-time jobs have been added while 557k part-time jobs have been added.  The unemployment rate would today be 11.1% if the participation rate was the same as it was pre-recession.  Despite the headlines, Main Street is still struggling.

I agree with Lenore--the grass isn't necessarily greener in this economy...yet.  As economic data materialize this summer, we may realize that the QE bond buying program is (a) ineffective and (b) causing little asset bubbles (think real estate prices in San Diego)--a classic case of the unintended consequences of bad monetary policy.

I thnk we're at a crossroads of a mini-panic.  The higher mortgage rates have certainly slowed mortgage applications, listings aren't moving as quickly as they did 4-5 months ago, and sellers are rushing to list homes for fear that higher mortgage rates will tank the real estate market.

The Fed isn't going to let mortgage rates tank the real estate market.  Bernanke sees a housing rebound as essential to a broader-based economic recovery.  On the other hand, Bernanke understands that QE has to end...eventually.

This summer should continue to be choppy.  I expect the mortgage bond market to bounce around a lot this summer as we all get used to a "new normal".  That "new normal should have mortgage rates bouncing from as low as 4.25% up to 5%.  Currently, best-execution conventional rates are around 4.625% and best execution VA/FHA rates are around 4.5%.  Jumbo rates are still over one percentage point higher with executions in the 5.75%-6.125% range

As volatility is the word of the summer, I still advise home buyers to lock-in rates at application--floating is just too risky.

VA Approved Condos in Solana Beach, Del Mar and Rancho Santa Fe

Solana Beach, CA has four condominium complexes which are approved for VA home loans as of September 28, 2012.  They are:

• La Mer
• Lomas Santa Fe Villas
• Santa Helena Park (I worked on this approval)
• Villa del Sol

Del Mar, CA has no condominium complexes which are VA approved and there is one complex pending in Rancho Santa Fe, CA.  12Mortgage.Com makes VA loans up to $1,000,000.  The 2012, zero-down VA loan limit in San Diego County is $477,000.  Loans higher than $477,000 and less than $1,000,000 may require a downpayment but do not have a monthly mortgage insurance requirement.

If you do not see your complex on this list, it may require a review from the Veterans Administration before a loan can be funded there.  Please read about how we are able to help veterans by expediting that review process or call Brian Brady at 858-777-9751