Building Wealth Magazine

President Obama will sign into law the $787 Billion stimulus bill tomorrow in Denver.  There are a number of provisions in this plan that affect California home owners including:

FHA, Fannie Mae and Freddie Mac Loan Limits -The bill reinstates last year’s 2008 loan limits for FHA, Freddie Mac, and Fannie Mae loans.  These limits were equal to the greater of 125% of the 2008 local area median home price or $271,050 for FHA and $417,000 for Fannie and Freddie, with an overall maximum cap of  $729,750.  For the few areas where Read the rest of this entry »

Read the rest of this entry »

DataQuick Information Systems, www.DQNews.com

La Jolla, CA.—-Bay Area home sales decelerated in November but beat the year-ago mark for the third consecutive month. The allure of discounted foreclosures continued to drive sales in affordable inland markets, which helped push the median sale price down to its lowest point since former President Bill Clinton was in the White House.

The median price paid for all new and resale houses and condos combined in the nine-county Bay Area fell to $350,000 last month. That was down 6.7 percent from $375,000 in October and down a record 44.4 percent from $629,000 in November 2007, according to MDA DataQuick, a San Diego-based real estate information service.

The November median sale price - the point where half of the homes sold for more and half for less - stood at its lowest since it was $350,000 in September 2000. It was 47.4 percent below the peak median of $665,000 reached last year in June and July.

The median has fallen on a year-over-year basis for 12 consecutive months, yanked lower by several factors: price depreciation; a shift toward more sales in the less-expensive inland markets; slower high-end sales; and buyers’ preference for lower-priced foreclosures.

Last month 47.6 percent of all homes that resold in the Bay Area had been foreclosed on at some point in the prior 12 months, up from 44.0 percent in October and 10.1 percent a year ago.

Visit DQNews.com for the full article.

Banks got stupid, thinking that values would rise eternally, replacing sound underwriting with the belief that they were secured by the ever rising real estate.

In an effort to gain more market share, they came up with ever more creative ways of selling loans – lower start rates, easier qualifying, no documentation, no fees…  And they offered huge incentives to their distribution channels, both their own retail branches and mortgage brokers, to sell their products.  In their greed, they forgot reason, and made many loans that should not have been made.

The greater ease of buying created more demand for housing, putting upward pressure on the prices and creating artificially inflated values.  So buyers paid too much for their homes, using loans Read the rest of this entry »

The Benefits of a Professional Consultant

Choosing the right lender is a key element to managing your mortgage. As a mortgage consultant, my goal is not just to provide you with a loan, but also to help select the one most beneficial to you and your long-term goals, and then, help you manage that debt over time. There are not many lenders out there who provide this type of personalized service.

My job is just beginning when your first loan closes. I will continuously monitor rates on your behalf, and stay in touch with you to make sure we remain on target with your financial goals.

Seek Pre-Approval

What’s the difference between pre-qualification and pre-approval?

Pre-qualification is the starting point in your search for mortgage financing. A quick snapshot is taken which includes income, existing debt, savings, length of employment, etc. All of these factors will then be analyzed to determine your loan eligibility.

Pre-approval is Read the rest of this entry »

The Federal Funds rate is now 4.75%, down .50% from 5.25%.  The first drop since June 2003.  Coupled with a .50% drop in the over night rate that is used by banks to lend to each other short term, this is big news!

As you probably know, the Federal Funds rate affects Prime from which Home Equity Lines of Credit, Credit Cards, Auto Loans, and Business Loans are priced  It does not have a direct correlation with home loan rates.

Equally important as this rate cut is the Central Bank’s Policy Statement.  This is where analyst try to predict the Feds next move and thoughts on potential inflation.
The explanation for these drops was to avoid “the tightening of credit conditions which has the potential to intensify  the housing correction and restrain economic growth more generally”.

This was the first real test of Chairman Bernanke’s willingness to take aggressive measures to help ease the woes caused by the subprime melt down. 
What this means to you. 

We can expect an increase in investor confidence now that the Fed is actively working to reel in the credit crisis. It’s still too early to predict if more decreases are to come but this is a good first step.

If money returns to the Bond Market and consumer and business financing loosens up a bit we will see a drop in mortgage rates and a return to sound lending practices for the average borrower.
 
Lee Williams, ARC Funding (415) 247-1825

Unscrupulous lenders who deceptively sold a subprime mortgages to millions of Americans should be fined and the proceeds used to help bail out borrowers facing a wave of foreclosures, according to Barack Obama, the Democratic senator running to be his party’s presidential candidate.

The proposal is among the most radical yet from a leading Democrat and comes as Washington tries to respond to a growing wave of foreclosures and a crisis in credit markets.

It also comes amid greater discussion in Washington on whether the mortgage industry – including credit rating agencies involved in rating mortgage-related securities – should be more tightly regulated to prevent a repeat of the crisis. 

Writing in today’s Financial Times, Mr Obama blamed lobbyists working on behalf of lenders for obstructing tougher regulation of the subprime industry, adding: “Our government failed to provide the regulatory scrutiny that could have prevented this crisis.

Full Story Click Here

By Elizabeth Razzi • Bankrate.com 

As concerns about subprime mortgages plague the nation’s leaders and lenders, America’s homeowners are confused and worried about their own mortgages, according to a recent poll commissioned by Bankrate.com.

What type of mortgage do you currently have?   Source: Bankrate.com 2007

In the survey conducted by Gfk Roper, homeowners with mortgages were asked what type of mortgage they had. A stunning 34 percent of the homeowners had no idea.

“That’s a symptom of the complexity of the mortgage market today,” says Ken Wade, chief executive officer of NeighborWorks America, a nonprofit organization that provides financing and training to neighborhood-based housing organizations.

A generation ago, mortgages were made primarily through banks. Today there are many more types of organizations making mortgage loans, some of which are less regulated than banks. Adding to the confusion is the variety of loans now available to borrowers. “There is a proliferation of new products that come on line just about every week, and I think it creates confusion among consumers,” says Wade.

Read the rest at Bankrate.com

Stated Income loans were originally created for self employed or individuals who had sufficient income to service the loan but had circumstances that made it difficult to show the required documentation for traditional underwriting.  In exchange for a slight increase to the origination cost of the loan, borrowers were given a free pass from this documentation requirement.

The downside is this has become a way to raise the amount of loan for employed people to qualify.  Wait, why is that downside?  This was another log on the fire fueling housing appreciation. During the heyday more than 80% of loans in the Bay Area were stated income, thus contributing to 300% housing appreciation since 2000.  If I make $4,000 per month but am able to “state” I make $12,000, this can greatly increase what a bank is willing to lend me.  However in a society where an ever increasing number are living paycheck to paycheck it is easy to see how overstating how much one makes can lead to mortgage lates and even foreclosure.

Joan and Sarah are sisters in Daly City.  When they bought their 2 bedroom condo they had a combined income of $5,500 per month.  The loan application they signed at closing stated their income as $10,500 with loan payments of $4,300 PITI.  When they pointed out the error to their Realtor^® they were told,”Don’t worry, you’ll refinance out of it.”  6 months later they are a month behind, out of savings and out of options.  “We can’t make the payments even if we refinance at a lower rate and only pay interest.  I wish we had stopped everything at signing, but we were afraid to lose our deposit and didn’t really understand what was going on.”
 

What goes up must come down…
As this type of lending comes under greater scrutiny, the market will tighten up and lower what people can “afford”.  When people can no longer qualify for these loans it lowers purchase offers and possibly housing prices. 
This may be a necessary part of normalizing the lending standards as lenders become more fearful of getting caught cheating.  Loan reps will be required to act in their client’s best interest instead of focusing on commission checks.

I am often asked about subprime loans for purchases of properties and I have a simple answer.  Subprime loans should NEVER be used for a purchase of a home.  And only be used in a refinance in rare and temporary cases.
Subprime loans are generally given to borrowers with a credit score below 620 who are “qualified” primarily on income.  5 years ago subprime loans were made to folks with big down payments and new jobs that were used to help get out of past financial woes.  The aim was to use these loans as part of a strategy to raise credit scores, decrease other debt and prepare for traditional financing in a short period of time, usually 24 to 36 months.
The recent subprime feeding frenzy led to sketchy qualification practices, interest only loan options, 2 - 3 year prepayment penalties, 100% financing, twice the origination cost

Read the rest of this entry »

SACRAMENTO, February 26, 2007 – Local government agencies can now apply for low 3.5% deferred interest loans to promote affordable housing projects in their communities through the California Housing Finance Agency’s (CalHFA) award-winning program, Housing Enabled by Local Partnerships (HELP).
The CalHFA HELP Program is offering $7.5 million in low deferred interest loans to California cities, counties, housing authorities, redevelopment agencies, and community development commissions to assist with the acquisition, development, rehabilitation or preservation of affordable rental housing. In addition, this program also provides financing to facilitate the construction or rehabilitation of ownership housing, as well as making funds available for the implementation of subordinate loan programs for eligible home buyers. Applications must be submitted to CalHFA by 5 p.m. on Friday, April 20, 2007.
                
“Through the HELP Program’s nine years, CalHFA has partnered with 105 local government agencies, awarding $167.5 million in financing statewide,” said Theresa Parker, CalHFA

http://www.calhfa.ca.gov/

Deductions in the Loan Process

Write-offs are the government’s way of rewarding taxpayers when they’ve done something the government likes. And to judge by the write-offs, the government likes it when people borrow money to buy a house. There are write-offs aplenty, many of which people often forget.

Make sure your clients take advantage of every break the IRS will give. Here are a few they tend to forget:

Points:
According to the IRS, origination fees charged as points must be paid for the use of money, (for example, to obtain a lower interest rate) in order to be tax deductible. Origination fees that constitute a “service fee” are not tax deductible. The question must be asked, “Does the fee apply to the use of money, or is it a service charge?”

Discount points are paid to secure a lower interest rate. IRS Publication 936 lists Read the rest of this entry »