LOAN PEDDLERS

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 La Jolla, CA

There are twelve condominium projects, approved for VA financing in La Jolla , CA as of September 28, 2012.  They are:

• Boardwalk of La Jolla
• Broadmoor Condominiums/ La Jolla Village
• Cape La Jolla Gardens
• La Jolla Place
• Windemere
• Clinton Manor
• La Jolla Hideaway
• Mount La Jolla
• Playa Blanca
• La Jolla Racquet Club
• Torrey Pines Arroya
• Villa La Jolla

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

 

Santa Helena Park, in Solana Beach, is now approved for VA home loan financing

Brian Brady, Managing Director of World Wide Credit Corporation, a VA-approved direct lender in San Diego, CA announced that Santa Helena Park, a townhome community in Solana Beach, CA, was approved by the Veterans Administration for VA-guaranteed home loans.

“This approval adds value to the properties in Santa Helena Park because it expands the buyer pool and affords San Diego veterans the opportunity, to purchase or refinance a Santa Helena Park property, with rates below 4.0%” Brady said.  San Diego County zero-down VA loan limits are $477,000 but VA lenders will finance up to $1,000,000 with some equity.

“Veteran home buyers could purchase a Santa Helena Park home, for $650,000, and the down payment requirement would be about $43,000.  More importantly, existing Santa Helena Park homeowners, with VA eligibility, could refinance that same $650,000 home and get a mortgage for 90% of the appraised valuation” added Brady

San Diego County has the highest concentration of military veterans in the world.    World Wide Credit has been serving veteran home buyers, since 1992, from its Kearny Mesa office.  Brian and Debra Brady are Solana beach residents with an office on Jimmy Durante Blvd in Del Mar, CA.

CONTACT:  Brian J. Brady,   858-777-9751

 

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.

Can I purchase a home, with a new VA mortgage, if I have not paid off my existing VA loan and don’t want to sell the property?

I was asked this question today, from a Naval officer, relocating from the Washington, DC area.  The answer is...maybe.

A veteran might be able to use any remaining entitlement on a new home loan but will be required to certify that the new the home is his primary residence.   In San Diego, our VA loan limit is higher than most of the country ($537, 500 vs. $417,000).  This means that it is quite possible to buy a home, with the remaining eligibility.  Roughly, the veteran should back out the original loan amount, from his old home, from the local loan limit ($537,500 in San Diego County)

In this Naval officer's case, he purchased his home in DC, with a VA mortgage amount of $230,000.  This suggests that he may be able to purchase a home, in San Diego, for zero-down payment, for $307,500.  This looks good but he has two conditions which he must satisfy:

-He has to definitively prove that the old property is not his primary residence.  In this case, the Naval officer can furnish us with an active lease and cancelled checks, from the tenant, to prove he is receiving rent.  Furthermore, we can show that the utilities in the old home are in the tenant's name.

-He has to prove that his relocation was involuntary.  Had he not been active-duty, a job relocation letter might be sufficient if the relocation was due to unemployment.  Since he is active-duty, a copy of his PCS orders sufficed.

A veteran can not get the full entitlement restored, for a VA home loan,  until the VA loan for the other property is paid-off or refinanced into a conventional loan. 

Lower VA Mortgage Funding Fees Implemented November 18, 2011

N.B:  On the day before I published this, HR 674 passed, reverting the funding fee amounts to the “old” levels.  It was updated in VA Circular 26-11-19, published November 22, 2011.  The “new” lower funding fee schedule was in effect for three days, from Nov 18-21.  Sorry for the confusion.

The Veterans  Administration lowered the funding fee it charges, to insure loans made to active-duty or retired military personnel.    The new funding fee schedule distinguishes first-time users and repeat users and between active-duty, reservists, prior military.

Can you use your VA loan guaranty benefit more than once?

Of course you can.  The VA even allows for two outstanding loans (under certain circumstances) but generally, veterans can only have one VA loan outstanding.  A common misunderstanding is that a veteran can only use a VA loan once.  The benefit can be used as many times as the veteran wishes.

Can you still get a zero-down VA home loan, again?

Indeed you can.  The new funding fee schedule, for zero-down loan purchases, is only 1.40% for first-time users who are active-duty veterans and 1.65% for reservist/guardsmen veterans. Zero-down home loans, for the second and subsequent VA home loans, require a 2.8% funding fee for all veterans:  active duty, reservists, and guardsmen.

Can you lower the funding fee if you use a down payment?

Yes you can.  If veteran home buyers put 5% down, with a VA loan, the funding fee drops to .75% for active duty veterans (1.0% for reservists and guardsmen).  For a 10% down payment, the funding fee drops to .5% for active-duty veterans and .75% for reservists and guardsmen.

Here is a list of the current and new VA funding fees scheduled to take effect on November 18, 2011.

Use/Purpose	Down Payment	Active Duty Veteran		Reservist/National Guard
		Old	New	Old	New
First Time	Less than 5%*	2.15%	1.40%	2.40%	1.65%
First Time	5% - 9.99%	1.50%	0.75%	1.75%	1.00%
First Time	10% or more	1.25%	0.50%	1.50%	0.75%
Subsequent	Less than 5%*	3.30%	2.80%	3.30%	2.80%
Subsequent	5% - 9.99%	1.50%	0.75%	1.75%	1.00%
Subsequent	10% or more	1.25%	0.50%	1.50%	0.75%
Interest Rate Reduction	N/A	0.50%	0.50%	0.50%	0.50%
Assumptions	N/A	0.50%	0.50%	0.50%	0.50%

 

How Long Must I Wait, After A Short Sale, Before I Can Get A Mortgage?

Mortgages can be approved as early as one day after a short sale but the down payment requirements and terms are onerous.  San Diego private money lenders will make loans the day after a short sale but usually require at least 30% of the purchase price as a down payment.

Agency conforming loans (formerly known as conventional loans) can be secured in as little as two years after a short sale if the borrower has at least 20% of the purchase price for a down payment.  If the borrower has less than 20% down payment, then the waiting period extends to five years.

FHA loans require that the borrower wait at least three years, like a foreclosure, unless the previous loan had no late payments and the deficiency balance was paid-in-full (which sort of defeats the purpose of a shor sale).

VA loans can be secured as soon as two years after a short sale unless the seller is an active-dutymember using the HAP program (offerered to active-duty members who had a permanenent change of station <PCS>)

Proposed Good Faith Estimate Should Be More Consumer Friendly

The Consumer Financial Protection Agency just released its proposed Good Faith Estimate (GFE) disclosure form.  The form will combine the best parts of the original GFE (which we still issue) along with the "new" GFE (which is confusing and we issue, per disclosure regulations).

This six-minute video will walk you through it:

Owner-Occupancy Ratio in Condominium Complexes

"A big Bank in America declined my loan application because the condominium complex owner-occupancy density was too low.  I have great credit, five times the payment in monthly income, and I"ve saved my own money up.  How can I get a mortgage to buy this condominium?" 

Let's start by explaining why the big banks in America are declining these loan applications.  While you are an excellent borrower, the collateral, in this case, the property, is part of a  common-interest development (that's lender-speak for condominiums, co-operatives, and planned unit developments).  What that means is that the property you are purchasing is subject to a layer of "opt-in governance" and the composition of the "opt-in entity" could have material effects on the value of the properties in that "opt-in entity".

That was a lot of fancy speak for this statement; a high percentage of renters is less desirable because the owners of the property (investors) have less "emotional interest" than  owners who would make the property his/her home.

Stated differently, an investor-owner is less likely to pay his/her HOA dues, if he/her ran into financial difficulty, than an owner who makes the property his/her home.  It's a risk factor.

Does that mean its a dead-deal?

Absolutely not.  We can make loans on those condominiums if the purchaser puts 25% down payment and plans to make the property his/her home. 

If the property is approved by the Veterans Administration, and the buyer has eligibility for a VA home loan, the owner-occupancy issue is a moot point; the VA doesn't consider owner-occupancy to be a risk factor.

If the buyer wants to pursue an FHA loan, and the complex needs FHA approval, the owner-occupancy density  must be 51%.

Owner-occupany is not the only reason a property in a common-interest development might be declined for high, loan-to-value mortgages.  HOA financial stability, pending litigation, reserve and repair plans, and general maintanance all come into play.  I'll discuss those, in more detail, on this site, later.

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.