SAN DIEGO MORTGAGE AND REAL ESTATE

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

VA home loans and FHA mortgages could be shut off as early as April 15, 2020

Want to hear something scary? Mortgage industry association executive Anthony Casa thinks VA and FHA lending will cease to exist as soon as April 15, 2020. He breaks it down for mortgage brokers in this 9-minute video.

 

If you don't want to watch Anthony's video, mortgage trainer Barry Habib explained the VA/FHA liquidity crisis in this long article.

 

I might suggest that you watch Anthony's video and read Barry's article if you are a REALTOR who services veterans and first-time homebuyers. If you don't want to watch the video or read the article.

 

Here is an explantion (pay close attention to emboldened statements)

 

There are four major particpants in the mortgage market:

 

1- lenders (originators)

2- servicers (collect monthly payments and remit them to investors)

3- investors (for VA/FHA loans, those are GNMA pass-through securitires)

4- Wall Street (hedges interest-rate risk for lenders and packages loans sold from servicers to investors)

 

Servicers buy loans from lenders and sell them to investors (through Wall Street) for a cost of about 1% of the loan amount-- they earn about .35%/year in fees for servicing the loans. Thus, servicers need to hold a loan for about 3 years before they make a profit.

 

Lenders lock interest rates for borrowers, guaranteeing the terms from the application date through funding date. Without getting into the technical details, it costs lenders about .25% of the loan amount to hedge that interest rate risk through contracts with Wall Street.

 

When the Federal Reserve makes a huge drop in the Fed Funds rate, and intervenes in the market by directly buying mortgage-backed securities, it has unintended consequences:

 

1- Borrowers break interest-rate loacks with lenders and switch the loan to another lender-- lenders who "paid" that .25% to hedge the interest rate risk dont recover it with a loan funding and are out that money-- that eats into the lenders' capital and Wall Street requires them to put up more cash as collateral for future rate locks (which they may not have)

 

2- When loads of people rush to refinance the loans they took out less than 18 months ago, servicers "lose" the premium they paid for the servicing contract, Servicers typically borrow against their servicing contracts to buy more loans, using those servicing contracts as collateral. If that collateral disappears, Wall Street issues a "margin call" to the servicer, asking them to put up more capital (which they don't have)

 

This is no big deal is it happens over a period of 3-12 months (as it has in the past) but when it happens in a 2-3 week period, the whole mortgage industry gets hit with a margin call-- both lenders and servicers are scrambling for capital they dont have.

 

3- But wait, there's more bad news. You know how the federal government is trying to "help' borrowers by staying foreclosures for a 90-day period? That hurts the servicers even MORE. When the borrowers dont make their mortgage payments, the servicers STILL have to remit those payments to the investors, draining their capital even MORE. It's like that scene from the 90s movie Goodfellas.

 

There is some hope. GNMA announced yesterday that they will try to alleviate the third problem but the first two problems still exist: lenders are getting burned on locks and servicers are losing their shirts on rapid refinances.

 

The problem wont last forever but we may see major changes (for the next 4-12 weeks) in the VA and FHA loans markets. Here is what to expect:

 

1- borrowers may not be able to lock rates until they have full loan approval

2- some lenders could go out of business altogether

3- some lenders could delay loan closings because they have a liquidity crunch

 

Call us to plan for this market interruption. 

Wht China Matters to Southern California Real Estate

You have heard me talk about China and it's effect on California real estate a lot.   Just two years ago,  I was on TV, talking about the oversized influence Chinese nationals had on Southern California real estate.  Since then, a trade war with China escalated and the Chinese government cracked down on capital leaving Mainland China. The result has been lower mortgage rates and lower real estate prices in areas where Chinese nationals were buying properties.

Chinese buyers aren't as active as they were two years ago:

A big reason Chinese investors are retreating from the American housing market is that Beijing has placed tight limits on how much capital can leave the country in the wake of a devaluation in the yuan a few years ago. 

“In China, each family member has been restricted to $50,000 or less,” says Steven Ho, senior loan officer at Quontic, a New York City-based bank. That makes it tougher for Chinese investors to elbow out American buyers with all-cash offers.“A few years before, these restrictions were not so stringent.”

The government toughened capital controls last year as the Chinese economy weakened, Ho says.

Also, China's slowing economy itself has dampened the confidence and purchasing appetite of Chinese buyers, Yun says. The Trump administration's trade war with China, he says, has further chilled investment in U.S. housing.  

Meanwhile, more Chinese homeowners have been selling their American houses and condos because they can’t pay the maintenance costs with their money trapped in China, says Jeff Lu, vice president of Fidelity National Title Insurance.

President Trump's tariff war, with China, is causing global unrest.  Investors are flocking the US treasury bonds, driving US mortgage rates lower:

U.S. Treasury yields have plunged since the July meeting and the gap between 2-year and 10-year yields has inverted, a typically reliable indicator of an impending recession.

Thirty-year mortgage rates have dropped about 100 basis points since late last year and are expected to stay below 4% over the next several years, around 60 basis points lower than forecast just three months ago.

You may love or hate China.  You may love or hate Trump.  You can hold either or both opinions but to ignore Chinese buyers of real estate or US treasury securities is to let youor opinion cloud your judgement when making a real estate purchase

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.

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.

VA Home Loans, FHA Mortgages and a Government Shutdown

Congress is quibbling about the size of the token cut to the federal budget,  The stalemate could force a shutdown of the federal government.  How will that affect VA home loans, FHA mortgages, and conventional residential loans?

VA home loans are insured by the Veterans Adminsitration which receives its annual appropriation in advance.  As such, most veterans services, including VA home loans, are funded through FY 2011.  It is beleived that VA home loans will still be insured for the next 8 months and no interruption will occur.

Conventional mortgages require a 20% down payment and, as such, should be unaffacted by the shut down.  Lenders can and will "warehouse" those loans until the can be sold, in bulk, to Wall Street.

FHA mortgage fundings may be arrested during a federal government shutdown. FHA mortgages are insured by the Federal Housing Adminsitration (a division of the Department of Housing and Urban Development).  All functions of that department are considered "non-essential" so it is believed that FHA will cease operations.  Lenders can (and some may will) fund FHA loans, for a short period of time, in anticipation of obtaining the FHA insuarance in the near-term future but it is unlikely they would continue to fund beyond the end of the month.

What does this mean to you?  Lenders will probably be very choosy with the loans they fund.  We could see them refuse to take normal risks and susoend or decline loans which are not "plain vanilla" files.  HIgher debt-to-income ratios, marginal credit scores, and unclear exceptions to the FHA guidelines will most likely be shunned during a government shutdown.

 

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.