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Good News for California....

According to the Commerce Department, sales increased by a solid 24% from May to June in California. That still leaves us with a very weak level of sales, but the turnaround may prove meaningful.

The median selling price of a home in California, according to the California Association of Realtors, gained 13.6% May to June, resulting in a median price of $311,950. While that is a great distance from the price levels reached during the heat of the real estate boom, it is surely a move in the right direction. At the same time, the number of existing home sales in the state declined by only 4.2%, a gentle slowing that should cause no concern.

This is an indication of what it might look like when the $8,000 and $6,500 homebuyer tax credits finally ceases to be much of a factor in the markets. People aren't going to refrain from entering a transaction because they'll no longer get a check for $8,000 for buying something.

So we're beginning to get an idea of the health of the real estate market, which is probably better than most analysts have been declaring. It is beginning to appear that the California population is ready to buy. Doing so with such low rates as fuel is surely better than what most analysts had forecast many months ago.

And Speaking of Low Rates.

Jumbo loans are back in full force. I'm astounded at the great rates for loans of $1,000,000 and up. Look at the rates below for a sample. And, I have lenders going to $4,000,000 and beyond. Interest-Only loans are available too.

More Good News..$729,750 Limit to Stick Around?

Financial Reform! Or not?

All the talk in mortgage circles this week is about the sweeping Financial Regulation Bill that was passed yesterday in the Senate by a margin of 60-39 and will be signed by President Obama and become law.  The Bill calls for a new consumer protection agency and prohibits Banks from taking risky bets. 

From everything I read, this legislation.over 2000 pages worth.amazingly does nothing to address the core reasons for the financial collapse.  Past political policies promoting higher percentages of homeownership appear to have been misguided, but this new legislation pushes that agenda even further.  Fannie Mae and Freddie Mac are completely left out of this legislation.  The credit rating agencies, which may have played the largest role in the financial collapse, go unmentioned.  The legislation gives unions and politicians much more power.  Sadly, a very cursory view of this legislation appears to illustrate that the vast majority of this reform has far less to do with fixing the financial problems, and much more to do with pushing the political agenda of its authors, Barney Frank and Chris Dodd. 

What Greenspan said when asked on CNBC last week about the 2300 page FINREG Bill..was that this was the first time the Fed was not asked to write this regulation, and that it was basically written by junior staffers that have no clue about the complexities of these financial entities that they are trying to regulate.Greenspan said there are unintended consequences in every page of this bill.  He said that any banker dealing with Washington is very familiar with what is known as the 25 Cubed Rule..basically that the government is run by 25 year old staffers that are making $25,000 a year and work 2 5 hours a day...and a majority of them have never even financed a car.let alone a home, yet we are handing our regulatory oversight to these 25 year old staffers.

This is scary stuff. If anyone reading this has any other opinions, I'd like to hear them.

Mortgage Rate Update:

Who Would Finance Mortgages If Fannie, Freddie Disbanded?

Our Government has struggled with what to do with Fannie Mae and Freddie Mac. Remember, these are the two major providers of mortgage money in our country. They became nationalized about two years ago when they failed to remain solvent during the mortgage meltdown of 2008. Now the U.S would like to get rid of these two money-losing entities that are responsible for providing standard underwriting guidelines and are the source of money to almost every mortgage lender and borrower.

As the system works now with the two entities, Fannie and Freddie, banks write the mortgages, but they rarely hold them. The mortgages are sold off into pools, known as Mortgage-Backed Securities (MBS's). Fannie and Freddie guarantee the mortgage payments, so that the MBS buyer, be it the Chinese government or an American pension plan, has the security of the US government behind them. Their only risk is in the interest rate.

This system worked great for years. In fact, so great that Fannie and Freddie shareholders got rich because the companies borrowed money in the markets with an implied government guarantee.

But without the guarantees, there would be no securitization, no capital from the rest of the world for long-term fixed rate mortgages and banks would have to hold their mortgages indefinitely, decreasing the availability of mortgage money to others.

Our leaders have been meeting to decide how to ultimately divest the Government of these two entities. I'm sure it will be a long time before it's decided. First, the housing and the economy must recover. Earlier this year, Treasury Secretary Tim Geithner laid out a general outline for how the Obama Administration would reform Freddie and Fannie. "While the form of the housing finance system will change, government has a key role to play in shaping the future of the nation's housing finance system," said Geithner.

Other experts, including Edward DeMarco, director of the Federal Housing Finance Agency (FHFA), contend that ending the subsidies that Fannie and Freddie provide could cause a catastrophe if it's done too quickly or their functions are not replaced. Mortgage rates would go up 2% to 3% and home prices would drop precipitously-between 10 percent and 30 percent-according to some experts.

To avert problems and allow private firms to re-enter the $10 trillion mortgage market, DeMarco suggests a transition phase in which a new infrastructure for the home financing system is put in place.

In the meantime, while we don't necessarily like the stricter underwriting guidelines created by Fannie Mae and Freddie Mac over the past couple of years, we need these entities to continue providing liquidity and mortgage money to our fragile economy.

And while the fate of Fannie and Freddie are debated, Mortgage Rates are at an All-Time Low!

Mortgage Rate Update:

THE IMPACT OF THE TAX CREDIT:

On a national level, Purchase applications plummeted 27 percent last week and have declined almost 20 percent over the past month, despite relatively low interest rates.  The data continue to suggest that the tax credit pulled sales into April at the expense of the remainder of the spring buying season.  In fact, this drop occurred even as rates on 30-year fixed-rate mortgages continued to fall, and are at their lowest level since November 2009....However, refinance borrowers did react to these lower rates, with refi applications up almost 15 percent, hitting their highest level in nine weeks."

On a more local level.......

The data seems to suggest that our local housing market is hotter than the rest of the country. The number of home sales has steadily increased over the past several months and home prices have risen in may local markets too. My own observation is that the purchase market is getting stronger, based on the number of pre-approval letters that I write for clients making offers. Realtors and Title Company friends are also telling me that their business has increased too. I am seeing the higher priced markets moving.

What's Hot!

·         JUMBO's are Back! Fixed rate loans to $1.5M starting at 5.375% are very attractive. Larger loans are slightly higher. Jumbo ARM's start in the mid 4.0%'s.

·         ARM's: The yield curve has steepened making the spread or difference between Adjustable and Fixed rate loans greater. Conforming ARM's are priced in the 3.25% - 4.0%.

·         Buydowns: As if rates are low enough, the 2-1 buydown allows the first year rate to be 2% below the going rate for a fixed rate loan. Example: An interest rate of 3% in the first year, 4% in year 2 and then 5% thereafter for the next 28 years. Other variations are available.

·         Reverse Mortgages: Can be used for purchase or refinance transactions. Perfect for Senior borrowers - particularly those that can't qualify for a traditional mortgage. Qualifying is based on age and equity - not income.

·         Cash-in refinances: According to Freddie Mac, One-third of all refinances now of the "cash-in" variety- where the homeowner pays down the principal balance in order to refinance. Many of the refinances that I have handled over the past year have been cash-in. The reason's are: Homebuyers trying to avoid to mortgage insurance, avoiding jumbo loan limits, low appraisals, or they just can't qualify for a larger loan but want to take as much advantage as possible of today's low rates.

Mortgage Rate Update:

Mortgage Rates continued their slow descent this week as the situation in Greece and other European countries forces investors to the safety of U.S. Treasuries and Mortgage-Backed Securities. Low inflation and continued concern over employment has kept a lid on rates this week. This is all good news for homebuyers and homeowners looking to refinance. We can't expect the slide in rates to continue and when a solution emerges for Europe the rise in rates will be rapid.

Trigger Leads: Don't Be Exploited by the Credit Bureaus

Certain mortgage companies will pay top dollar to know exactly who is in the market for new financing. What's more, the major credit agencies not only allow files to be flagged whenever someone applies for a home loan, they actually sell this private information as leads to the highest bidders!

For a price tag of $25 to $100, names, addresses, phone numbers, mortgage histories, and even FICO score ranges are sold by the credit bureaus to mortgage companies, which then blindly solicit business.

Unfortunately, no legislation exists to prevent credit companies from profiting from this practice. As trigger leads, consumers are simply at the mercy of any number of solicitations designed specifically to discredit the mortgage professionals they've come to know and trust.

Remember, a limited number of sources exist for lenders to obtain mortgage money, and it's unlikely that a borrower will find an unbelievably low rate without an unbelievably high cost.

How To Opt Out:

Prior to applying for any loan program or even right now, anyone can visit www.optoutprescreen.com to opt-out of credit bureau solicitations and avoid the problem altogether. While you are at it you may also want to put yourself on the "Do Not Call List" and cut down on your junk mail too. Below is a link to each of these websites. Let's keep ourselves, our clients and our colleagues from receiving unwanted solicitation.

To Opt Out of Credit Bureau Trigger Leads: www.optoutprescreen.com

To get on the "Do Not Call" list:                  www.donotcall.gov

To cut down on junk mail:                          www.directmail.com/directory/mail_preference/

As consumers embark on what could be the largest financial transaction of their lives, it's important to work with a mortgage professional who clearly explains all available options and provides comprehensive solutions.

Mortgage Rate Update:

Why should what happens in Greece impact the mortgage rate that Joe Blow pays in California? US mortgage markets have been helped in two ways: the uncertainty in Europe has led to a flight to quality in safer investments, including US Treasuries and mortgage-backed securities (MBS), and  investors expect that continued economic turmoil in Europe will reduce US exports to the region, slowing US economic growth and reducing inflationary pressures. The United States does not have extensive trade and financial ties with Greece, and banks in this country own few Greek bonds. But other countries do, and the U.S. financial system could be adversely affected indirectly by the heavy exposure of other European countries to Greece. So, bad economic news is good news for interest rates.

Better Jumbo Pricing - More Choices Coming

It's almost every daily now that I read articles in the various mortgage-related trade publications that speak about various entities gearing up to buy jumbo loans and issue Securities backed by these loans. Some of the big banks have been sticking their toes in the water (B of A, Wells Fargo, Chase and Citibank) but so far they have not been too attractive. I also hear horror stories about borrowers not being able to qualify after their loan is in process for a month or two.

If the rumors are true we will see more private equity funds securitizing mortgage loans making them available through mortgage brokers and lenders. With common sense underwriting and rates not much higher than Conforming Loans, this could be a huge boon to the high price markets in California. I'll keep you posted as this develops.

Lowest Jumbo Rates in 3 Years - Now!

You don't have to wait for this one. My favorite Conforming lender has just drastically lowered their rates on Jumbo Loans to $1.0M and $1.5M.

A 30-Year fixed rate loan is now priced at just 5.375% with 1 point to $1M!!!

Loans to $1.5m are slightly higher. No- point options are also available at slightly higher rates. There are many variables involved so I can't cover all the details here. Call for details and accurate pricing.

Fannie Wants Second Credit Report Pulled

Beginning June 1, lenders originating mortgages being sold to Fannie Mae will have to pull a second credit report just before the loan closes. Until now, we have been able to use credit reports that are up to 60 days old. It's too early to predict the impact but interest rates are partially based on credit scores. What happens if the new credit report drops shows a lower score that precludes the borrower form qualifying for the loan? If we find that out at the last minute it could kill a lot of deals. Hopefully it won't be that restrictive. I'll let you know as the details emerge.

Help for the Self Employed?

Changes in mortgage lending has been have probably impacted the Self-Employed borrower more than any other. Lending guidelines all require documentation of income and borrowers must meet certain Debt-to-Income ratios to qualify. In the past there were "Stated Income' Loans and "Negative Amortization" loans to help the self-employed. Since the mortgage meltdown these programs have been completely eliminated. I'm not saying we should go back to No Doc and Neg Am loans for all but, I do see instances many where the Self-Employed is unintentionally unable to qualify under the guidelines that work best for salaried workers.

Now, Senate leaders late Tuesday cleared the way for Sen. Olympia Snowe, R-Maine, to offer an amendment allowing mortgage bankers to originate residential loans to small business owners with flexible payment schedules that reflect seasonal changes in cash flows.

It will be interesting to see how this will play out. I have no details on the proposal and I suspect it might take some time for it to be implemented but at least its progress in the right direction.

Mortgage Rate Update - Greece is the Word

Laguna Foreclosures Jump 66.7% Over Year

By, Kelli Hart, Orange County Register

The number of homes lost to foreclosure in Laguna Beach increased 66.7% over last year - the 10th highest increase in the county - recent MDA DataQuick foreclosure activity statistics show.

Though quarter-over-quarter foreclosures dropped slightly by two homes, the year-over-year figures jumped considerably for this beach town where finding a foreclosed home is often like finding a needle in a haystack.

Not so much anymore, in fact, some of these new foreclosures are hitting the beach market now.

The chart below breaks down the number of homes lost to foreclosure in Laguna Beach and the quarter-over-quarter and year-over-year change.

The number of homes with a notice of default filed, which triggers the foreclosure process after one or a series of missed mortgage payments, decreased by 24.4%. This actually supports the increase in foreclosed homes, because some of those homes in default eventually became foreclosures once the homes were taken by the banks.

The chart below breaks down the number of homes that received a notice of default in Laguna and the quarter-over-quarter and year-over-year change.

Local mortgage expert Richard Cirelli, president of Laguna Beach-based RTC Mortgage Corporation, makes the following observations based on this data:

• "Laguna Beach saw a larger appreciation rate than other markets during the boom years so there are more people with equity here than most other markets. As long as there is equity, owners are more likely to find a way to keep making their payments.
• "Laguna Beach has a higher percentage of executives and business owners and therefore a higher income than most other markets and presumably more cash reserves too. Many also owned other properties that they may have liquidated in order to survive. Now, that money has run out.
• "The low interest rates over the past few years were only for loans less than $729,750. Many Laguna buyers and homeowners owe more than that and therefore there are no programs to enable them to refinance to obtain a lower rate and payments. And if they did have a small enough mortgage, they probably couldn't document sufficient income to qualify.
• "The Loan Modification programs that were created were mostly geared to those that had Fannie Mae or Freddie Mac loans which were capped at $417,000 prior to the Stimulus Package increases to $729,750. There has been little if any relief for larger mortgage holders."

Mortgage Rate Update:

As expected, this week's Fed meeting has adjourned with no change to key short-term interest rates. The post-meeting statement didn't bring any changes to the key verbiage that some had hoped to see. The Fed did say that the economy is improving, but did not change words from the previous statements that would have indicated they were expecting to start raising rates sooner than later. While not many people expected them to adjust rates at this meeting, some analysts are growing impatient and fear that waiting too long to start raising rates will cause more problems, particularly inflationary as the economy gains steam. This issue is widely debated but was the focal point of this meeting, so some market participants and economists are disappointed by its results.

Overall, the immediate reaction to the Fed statements have been fairly neutral for the bond market and mortgage rates. Rates for 30-year fixed rate mortgages less than $417,000 are still under 5%.

More Jumbo Money!

I am seeing more lenders offering Jumbo loans - above the maximum Fannie Mae/Freddie Mac limit of $729,750. Some lenders will go to $2 Million and some even offer loans to $4 Million and higher.

This is great news for the higher priced markets that have been left out of the government's stimulus packages that increased conforming and FHA loans from $417,000 to $729,750.

The reason is that some of the bigger investment banking firms are allocating some money to the securitization of jumbo loans. Some of the names I've heard mentioned are Chimera Investment Corp., The Carlyle Group, PIMCO, and Goldman Sachs. Most of the firms working on a jumbo Mortgage-Backed Securities (MBS's) hope to originate recently funded loans that were underwritten to today's stricter guidelines. Until now, the few lenders willing to make jumbo loans had to be able to keep these loans on their own balance sheet. They also had to increase their reserves in case of future default. Therefore, most banks just couldn't afford to offer jumbo loans.

The securitization of Jumbo's still has a long way to go but the signs are very encouraging. Just a few months ago I was reading articles saying it could be years before there were buyers for Jumbo MBS's.

This is all good news for those of us in high-priced markets.

Update Regarding Stricter Documentation

A few weeks ago I wrote about the trend of lenders requiring more and more documentation. It's a result of Fannie Mae and Freddie Mac forcing lenders to buy back loans that are less than fully documented or just outside their guidelines. Having to buy back loans will put a lender out of business faster than almost anything except for fraud. So, you can see why lenders are over-conditioning now. They can't afford not to. I also just read that some investors are now paying upwards of 85 to 90 cents on the dollar for performing loans that have been sent back to the originator because-for one reason or another-they violated Fannie Mae or Freddie Mac underwriting standards. These buy-backs may not be a total loss but I can assure you that no lenders want to lose 10% or 15% either.

An interesting development is that there are now some large investor pools that are intentionally originating loans that are just outside the Fannie/Freddie guidelines at rates that are only slightly higher - say .25% to .50% above the low rates for standard loans. Their strategy is that once these loans are seasoned for a year or two, the performing loans would then be eligible for sale into Fannie or Freddie loan pools.

I have sources for the "just outside the guidelines" loans and at rates just slightly above the best rates. I think this is a great opportunity for those with slightly high Debt-to-Income ratios or Loan-to-Value ratios. It's also an opportunity for self-employed borrowers that don't quite have meet the two-year self employment requirement of Fannie and Freddie.

California Re-establishes Buyer Tax Credit

California Gov. Arnold Schwarzenegger has signed legislation that re-establishes and extends the state's $10,000 tax credit for homebuyers, a program that proved so popular last year that it ran out of money eight months before it was set to expire.

The measure sets a $10,000 credit, up to 5% of the purchase price, for buyers of newly built homes and a similar credit for first-time buyers who purchase existing homes. The credit will be available on "personal residences" purchased between May 1 and Dec. 31, and "principal residences" acquired between Dec. 31 and Aug. 1, 2011, as long as long as they were purchased pursuant to a contract executed on or before Dec. 31.

The $200 million allocated for the program, which is offered in addition to the revised and extended federal tax credit, will be split evenly between new homebuyers and buyers of existing houses. The credit comes with two caveats. It must be claimed in equal installments over a three-year period and buyers must live in the homes they buy for two years or forfeit the benefit.

The tax credit should help push prospective buyers off the fence, clear out inventory and jump-start the homebuilding industry, which will help create jobs and reinvigorate the state's economy.

It is expected that the state credit will have the same positive impact on the market as the federal write-off. Nearly 40% of first-timers said they wouldn't have purchased a home if the federal credit buyers were not offered.

Mortgage Rate Update: