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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. 

HIgher Loan Limits in Southern California for 2019

The 2019 San Diego County loan limit is $690.000, up from $649.750 in 2018.  

In Orange & Los Angeles counties, it's $726.525 and in Riverside, San Bernardino, and Imperial counties, it's $484,000.

 

The higher loan limit affects FNMA, Freddie Mac, and FHA loans. For VA loans, the county limit is for zero down payment loans ONLY.   VA loans have no loan "limit"  but may require a down payment for prices over the county limit. Read about how to calculate the VA downpayment for purchases over $690,000 here

This year, the FHFA published this interactive loan limit map, showing the loan limit for every county in the US.

For fun, compare the 2016 Presidential election map (by county) with the FHFA interactive loan limit map.  If you click both links, the maps will open side-by-side

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.

 

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.

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

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

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

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

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

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

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

http://www.FannieMae.com/loanlookup/ 

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

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

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

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

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

San Diego Housing Approaches Rent Vs. Own Parity

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

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

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

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

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

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

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

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

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

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

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

Foreign National Mortgage Financing for California Properties

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

The two major conditons are:

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

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

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

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