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Archive for May, 2010

Euro Crisis Drives Mortgage Rates Down to Record Lows! Wednesday, May 26th, 2010
When the federal tax credits ended last month, everyone started wondering what will it take now to keep buyers interested in buying homes and keep the housing market moving forward? The answer for now seems to to be the crisis in Europe. Because of the financial turmoil in the Euro Zone, mortgage rates have plummeted down in the past 10 days to match their lowest levels on record. For example did you know that a qualified buyer can get 3.99% on a 15 year fixed loan!
 
 
Rates are at record lows
I don’t think even the media has caught onto how low rates are yet, as this sudden drop in rates has happened so fast. But this presents a great opportunityfor anybuyers who may have been a little disappointed in missing out on the $8k tax credit or to buyers who still are on the fence thinking about buying. Because with these really low rates, buying a home now will present an opportunity for a buyer to save more money than they would have received from the $8k federal tax credit when rates were higher.
 
These low rates have more savings than the $8k tax credit
If anyone was wondering if the tax credits that ended April 30th would have an affect on buyers? well they had their answer last week. Purchase applications had their biggest drop in 13 years as applications plummeted 27% for the week ending May 14th. 
 
So obviously there are a lot of buyers out there who are disappointed they missed out on the $8k credit. But these record low rates now present a great opportunity for buyers to save more money than the $8k credit if they secure a loan now. Check it out 
 
 
1. How to recoup the tax credit loss of $8k and more by securing a record low rate. Because rates are roughly -.375 to -.5% lower than they were a month ago, the savings long term on a loan at 4.625% will more than make up for the loss of the $8k credit on a loan at 5%.
 
Loan A                          Loan B
 
Before tax credit        After tax credit

$400k loan                $400k loan

5% interest               4.625% interest

Payment $2379          Payment $2291
 
Monthly savings = $88
 
$88 x 30 years = $31,680 total savings
 
If you multiply the $88 monthly savings over 30 years, this amounts to $31,680 in total savings. So the loan made after the tax credit deadline ends up being a better investment than the loan that received the $8k tax credit, as the before tax credit loan had a higher rate. 
 
2. Consider a 25 year fixed loan instead
Did you know that some lenders offer a 25 year fixed loan? With the rate on a 25 year loan at 4.625%, the payment on a 25 year fixed loan today will almost match the payment on a 30 year fixed loan that had a higher rate recently. This will save 5 years off a mortgage. For example, the payments at 5.125% on a 30 year fixed are almost the same as a loan at 4.625% on a 25 year fixed.
 
Using the example above on the $400k loan at 5% with a $2379 payment, saving 5 years mortgage payments will amount to $142,740 in mortgage payments and interest. This is a great way for someone to make a great investment with a shorter term loan, and all of a sudden the $8k tax credit does not seem as important compared to 5 years worth of mortgage payment savings.
 
So how low are rates?
Rates are now at 50 year lows. Qualified buyers with excellent credit scores and strong down payments of 20% or more can now get 3.99% on a 15 year fixed, or a 20 year fixed is at 4.375% and a 30 year fixed around 4.625%, but I have one lender that can offer qualified first time buyers 4.49% on a 30 year fixed. Jumbo loan rates are also incredible right now too at 4.875% for loans up to $729k. 
 
What is causing mortgage rates to go so low?
Economists largely attribute the decline in mortgage rates to the European debt crisis and new concerns about the global economy, which unleashed a massive wave of cash into U.S. bonds from investors around the world.
 
 
Even though EU officials, the IMF (International Monetary Fund), and global central bankers officially have “addressed” the European fiscal crisis, market participants have not yet been convinced that the worst is behind and instead chose to continue to allocate funds into risk-averse assets like government guaranteed U.S. Treasuries. This “flight to safety” has allowed mortgage bonds to move higher and rates to go lower.
 
A flight to safety occurs when investors are nervous about owning risky assets like stocks, but do not want to miss out on earning a return on their funds, so they allocate money into risk-free U.S Treasury debt to provide a safe-haven AND an investment return. As Treasury yields fall, prices of mortgage backed-securities move higher, which allows lenders to offer lower mortgage rates. As Treasury yields rise, mortgage-backed security prices are led lower, which forces lenders to push mortgage rates higher.
 
 
Where will rates go from here? 
Economists are advising that predicting rates has become a little more difficult due to unforseen circumstances. NO ONE predicted the current chaos in Europe, in fact everyone had predicted mortgage rates to increase significantly after the Feds pulled the plug on their rate reduction program on March 31st this year. 
 
For now, I don’t think the troubles in the European markets are going to go away anytime soon. It really is a crisis of confidence right now in the Euro zone because the markets know that these countries are not going to solve their debt problems overnight. So with that being said, I would say we are going to have a low interest rate environment here in the US at least for the next few months, unless there is another crazy twist in the financial markets that has not been accounted for yet.
 
 
 
Another golden opportunity for buyers still on the fence
There is no doubt that the end of the tax credits has lowered demand for housing. But with these sudden low rates, there truly lies another golden opportunity for a buyer to get a much lower payment on a loan that was not available a few weeks ago. Also, lower mortgage rates can give a powerful lift to a buyers purchasing ability too, A general rule of thumb holds that for every 1% percentage point decline in rates, is the equivalent of roughly a 10% reduction in the home price for a buyer. 
 
A good idea if you are a buyer, is to address your buying position again, as lower rates will help some buyers afford a slightly larger home, or a lower rate will mean that the new mortgage payment now fits within your budget.
 
If you have any questions in regards to any of the information above or you need help getting pre-approved for financing, please feel free to contact me directly at 858-200-9602. I look forward to chatting soon
 
 

Posted in Euro Crisis Drives Mortgage Rates Down to Record Lows! | No Comments »

How to Make a Buyers Offer Stand Out From the Crowd! Thursday, May 13th, 2010

 

With multiple offers going in on properties these days, it is important that the buyers offer is given every chance to stand out from the crowd and get accepted. With tougher lending rules now in place, the sellers are learning fast that only the most qualified buyers are getting their loans approved for financing. So from talking to several top agents recently who also list REO’s, I got the inside scoop on what it is they look for in the offers they look at. I want to share some of these tips so you can maximize the chances of getting your buyers accepted too. You can also use these pointers as a reference on your listings too, so you can determine the strength of the buyers offer you will eventually accept. 
 
Here are 4 tips to use when presenting an offer for your buyer. 
   

1. Provide a DU Underwriting approval with all offers
It is imperative that all buyers have an offer that is accompanied by a DU underwriting approval. A DU approval is when the buyers application has been ran through Fannie Mae’s or FHA’s automated DU (Desktop Underwriter) and will issue either an approval or a denial. A pre approval letter does not carry as much weight anymore even if it is from a direct lender, as essentially anyone can write up an approval letter even at a direct lender.
 
An offer letter accompanied by a DU underwriting approval will always place ahead of a basic approval letter, as a DU underwriting approval shows the most important information needed on a buyers profile to give the seller a good idea of the strength of the buyer. For example it lists the credit scores, the debt ratios and the type of loan they are approved for, as well as other information too. Also it is important to note that the DU underwriting approval must match up with the loan program the offer is submitted for, it is not uncommon for example, to have a buyer who has a FHA DU approval but will submit an offer with conforming financing. 

 

2. Provide proof of down payment funds
Always provide proof of where the down payment funds are coming from for the buyer. Make sure to send over recent bank statements or whatever asset account they are using for the down payment. Make sure there are enough funds in the statements you are providing to match the % of down payment the offer is for. Many times statements are provided but there are not enough funds to cover a 20% down payment for example. If the buyers are going FHA and are getting a gift from the parents, provide a copy of the gift letter from the parents.
 
3. Provide a copy of the buyers credit report (first page only)
If the buyers credit scores are very good, list them on the pre approval letter and point this out on the offer. Also provide a copy of the first page of the buyers credit report that lists the 3 credit bureaus and the 3 fico scores, make sure to black out their social security numbers for privacy issues. This is a great way to provide full transparency on your buyers offer, so the seller can see the credit strength of the buyers profile.
 
Now you may say that providing a copy of the buyers credit and bank statements is a private issue, but the seller can also say, if you don’t want to show everything on the buyers profile then we will consider someone elses offer.
 

4. Make sure the buyers approval is current
Make sure the date on the buyers approval is current. It is not uncommon these days for a buyer to be submitting offers for up to 6 months, so sometimes the pre approval letter or the DU underwriting approval has a date from 6 months ago. This will not fly as perhaps the buyers credit scores have dropped or they do not qualify for a particular loan program anymore. If the date is more than 30 days old make sure to run the buyers application through DU’s automated underwriter again. Remember Fannie Mae and FHA have been making changes to their DU underwriting guides quite frequently recently, so the buyer may not qualify for the particular loan program anymore if a few months have gone by.
 

 

Be prepared to answer the following questions on your buyer
Many times the seller may ask other questions in regards to a buyers profile to make sure they will qualify for financing. Here is a few examples that the seller may bring up in regards to your buyer.
 
1. What is the buyers employment situation?
Many times the sellers are now asking about a buyers employment situation to make sure they will meet the minimum underwriting requirements for a lender. For example, has the buyer just started a new job, is the buyer self employed, how does the buyer get paid? For example, a lot of lenders are requiring that a buyer be on a new job now for a few months at least, or if your buyer just started a new job, make sure they are salaried and not commissioned only, as most of the time the lenders need 2 years commissioned income to be able to use commission income.
 
If the buyer is self employed, make sure the buyer has filed their taxes for 2009, as some self employed people file extensions on their taxes. If they have not filed, then of course the lender will have to use 07 & 08 taxes to get approved, and if they had a bad year for one of these years they may not qualify for the loan anymore.
 
2. Does the buyer have any additional reserves or funds?
This is an important question these days, as sometimes the sellers are making sure that buyers have back up funds for a plan B just in case there is a change in the transaction that will require additional funds to close. For example, sometimes there are repairs needed on a property that will pop up on an appraisal that the seller will not pay for, or perhaps the appraisal may come in a few thousand short which may leave the buyer a few thousand short for closing, as the lender will only finance the loan based on the appraised value.
 
Here you do not need to provide any additional funds to the seller, but make sure if someone asks these questions that you know the buyer has additional funds for a Plan B scenario. Many times FHA buyers are breaking the bank to buy a home and this can be off putting to a seller in case any additional funds maybe required, it is always a good discussion to have with a buyer to make sure they have “access” to any emergency funds in case a situation arises.

 

 
Ask these questions on listings
A good idea would be to use the same format above for your listings and request the same information on all buyers. Keep a cheat sheet handy and ask all these questions to the loan officer providing the information for the buyer on your listing, then keep it in the file for the seller. Too many times, something pops up in a buyers profile and no one will know about it until the last minute. This way you will have addressed all the specifics on a buyers profile ahead of time.
 
Full transparency and communication is key to helping a buyers offer get approved from start to finish. I always perform this duty for all the listings I am in charge off, so only solid buyers will get through the door and will get approved for financing.
 
A note on Greece, the EU and mortgage rates

   

What a week last week was in the financial markets all over the world. The DOW at almost -1000 had its largest one day drop in history, supposedly caused by someone hitting the wrong key on a trade (yet to be confirmed, but the conspiracy theorists are running rampant). Whatever the reason behind the plummeting DOW, it has certainly brought back fear and uncertainty into the markets again.
 
Keep your eye on events in Europe as they DIRECTLY affect interest rates in our markets. For example mortgage rates dropped down to 4.75% last week when the DOW started plummeting, because when there is fear and uncertainty in the markets, investors will pull their funds from the high risk equity markets (stock markets) and flock to the safe haven of US Treasuries and Bonds, thus dragging down interest rates with them. Check out the huge spike in mortgage bonds below (this lowers mortgage rates) last Thursday which was directly proportional to the massive sell off in the DOW on the same day).
 
    Mortgage bond market last week when DOW Plummeted 

 
Remember: When there is weak economic news (Euro zone problems, higher unemployment etc), this normally causes money to flow out of Stocks and into more stable treasuries & Bonds, helping Bonds and home loan rates improve. But if there is strong economic news (lower unemployment, Euro Zone problems getting fixed, more homes sold etc) investors will pull their money from the lower yielding bond markets and put their money into more risky higher yielding stocks, thus causing mortgage rates to increase. It is an interesting dynamic that generally bad economic news is good for mortgage rates.
 
I hope that these tips above help you and your business, remember the more work that is done upfront to ensure the buyers financial profile and offer is solid, the better chances everyone has of meeting their goals. If you have any questions about any of the information above, or you need help getting a buyer approved, please do not hesitate to contact me directly at 858-200-9602. I look forward to chatting soon.  
 
 

  

   
  

Posted in Michaels Housing and Market Updates | No Comments »

Qualified VA Buyers Get $8k Tax Credit Extended to June 2011 Thursday, May 13th, 2010

 

While all the different loan products in our market seem to be chopping and changing every week, VA financing still stands as the best loan product out there. Did you know the $8k tax credit has been extended for some VA buyers until June 30th 2011? If you are not tapping into the VA market then you are leaving a lot of business on the table. In this weeks newsletter I will discuss 3 tips to use when presenting an offer for a buyer using VA financing. 

  

The $8k tax credit is extended for veterans until June 2011! 
While the Home Buyer Tax Credit program will come to an end for most consumers, eligible Veterans will have an extra year to participate in this program? extension of 8k tax credit for VA buyers It’s nice that they are giving these young men and women an extra year to take advantage of the $8,000 first time home buyer tax credit and the $6,500 tax credit for those who are not first time buyers. There is one caveat, though; the veteran must have been on active duty outside the US for at least 90 days between December 31st 2008 and May 1st 2010, Otherwise, the same rules apply. These incredible people deserve all of the help they can get after the disruption their service overseas has brought to their everyday lives.
 
Who is eligible for VA financing
 
A veteran is eligible for VA financing if he/she served on active duty in the Army, Navy, Air Force, Marine Corps, or Coast Guard and was honorably discharged after 24 continuous months of active duty, or the full period for which called, or ordered to active duty, but not less than 90 days (during wartime) or 181 continuous days (during peacetime).
 
3 reasons why VA financing is the best loan program
 
  
 
1. VA buyers can purchase with $0 down 
On a VA Loan a borrower can finance 100% of the home’s value and purchase with $0 down. Eligible veterans are allowed to take out a mortgage for up to $417,000 (or the County limit as designated by the VA, VA loan limits for each county for 2010 ). Now more than ever banks are requiring larger down payments, the FHA still requires a 3.5% down payment and most conventional loan programs still require 10-20% down, putting home ownership out of reach for many first time home buyers.
 
2. Easier qualification rules for VA buyers 
Most banks have easier qualifying and credit guidelines for VA buyers. Because many first time buyers typically don’t have a lot of established credit, getting qualified for a conventional loan can be difficult. Most lenders only need a 620 score to offer 100% VA financing. Also I have a few lenders that allow us to go to a 60% debt to income (DTI) ratio on VA loans ( remember Fannie Mae has capped conventional loans at 45% dti).
 
3. VA buyers pay no Mortgage Insurance 
Another huge advantage for VA buyers is that the do not have to pay any mortgage insurance (MI) on their loans, as these are backed by the government. As all other loan products carry MI if you put down less than a 20% down payment, this helps VA buyers qualify for even more financing and a lower monthly mortgage payment.
 
Debunking seller held myth’s about VA financing so you can get your offers accepted 
So if VA home loans are great for buyers, then why won’t sellers accept them? Many people will argue that sellers discriminate against buyers using government- assisted financing because of the following reasons:
The low down payment requirement means less skin in the game.
The (misguided) perception that the seller must pay for some or all of the buyer’s closing costs.
The (false) belief that VA appraisers are less generous in their valuations. 

Here are 3 tips to use when presenting an offer for a buyer using VA financing. 

1. The low down payment requirement means less skin in the game 
We can’t argue this because it’s logistically true. What we can do here is show the seller that the borrower has a DU approved loan (automated underwriting approval) and also include income and asset documentation (proof of reserves etc) to support that approval. This will assuage the fears a seller might have about a buyer (and that buyer’s lender) performing within a prescribed time period.
 
2. The (misguided) perception that the seller must pay for some or all of the buyer’s closing costs. 
The seller is not required to pay ANY costs for the buyer, but is allowed to pay up to 4% for VA loans. There are certain “non-allowable” costs for which the buyer is forbidden to pay, for example some of these are (No escrow, wiring, notary, tax service, or loan application or processing fees are allowed). Here is a good tip to help get an offer accepted. It is advised that the following language be inserted in to the CAR purchase and sale agreement so the seller is not put off by the VA offer:    “Seller not responsible for any buyer closing costs, regardless of the selected loan program. All agency-related “non-allowable” costs to be borne by lender”.
 
3. The (false) belief that VA appraisers are less generous in their valuations.  
This is a common misperception that VA appraisals usually come in lower. While I am sure that plenty of people have had a VA appraisal come in lower, underwriters and appraisers will point out that as long as the property is properly priced and the offer is reasonable, the appraisal should go smoothly. I have been averaging 2 VA transactions a month for the past year and I have only seen a value come in lower in one out of the last 10, as the home was way overpriced.
 
One of the most common “hits’ I have seen is when the purchase price is increased, above listing price, to accommodate for the seller-paid contribution. Be wary of that when submitting/accepting offers and have a back-up plan. If the appraisal does come in low make sure the buyer has additional reserves to potentially come in with more cash to close. Remember the lender will only approve financing to 100% of the appraised value.
 
VA requirements on REO and short sales 
Be careful with REO’s and short sales for VA buyers, as these properties must meet the VA minimum property requirements (MPR’s). VA requirements on foreclosed properties Properties that can be repaired prior to closing to satisfy the MPR’s may be appraised as if the repairs were done. The seller is expected to pay for the repairs. Make sure you are aware of VA financing rules, so you are pairing up your VA buyer with the right property.

Why VA buyers are great to work with 


With over 2.3 million veterans in California and with a large percentage of these based in San Diego, this presents a great opportunity to work with VA buyers. I think VA buyers are great to work with as they are usually very loyal and communicate very efficiently (those are two of the biggest complaints I have heard about buyers recently). I always feel that I am giving a little back to our armed forces too, as they do this for all of us on a daily basis. They are great for referrals too if you take very good care of them, as they always know a colleague who is interested in buying a home. 
 
If you have any questions in regards to VA loans or you need help getting anyone pre approved for VA financing, please feel free to contact me directly at 858-200-9602. My company is approved directly with the VA, so we can offer excellent service and rates for all our military friends. I look forward to chatting soon.
 
 
  

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The 95% Conventional Loan is Back for New Home Buyers! Thursday, May 13th, 2010

 
A good sign for the real estate market is that some lenders have reintroduced the 95% conventional loan product. There are also some other “more risky” loan products making a comeback. I think we can look at these new financing options as a positive sign for our market place. Investors and mortgage insurance companies are now willing to offer these loan programs that have been unavailable for the past two years. In this weeks mortgage market insider newsletter, I want to cover some of the loan programs that have been recently revised and updated and are now available for buyers in California. 

 

1. The 95% conventional loan is back
A few lenders have started offering this loan product again in the past few weeks. This is good news for the markets as the Mortgage Insurance companies obviously believe that these loans are now worth insuring again, until recently most MI companies would only go to 85% financing. This loan is available for first time buyers up to $417k on single family residences only. Good credit scores over 740, low debt ratios and reserves are required.
 
This truly is a great low down payment alternative to FHA loans, especially since FHA just increased their upfront MIP (mortgage insurance premium) to 2.25%..conforming loans do not have this charge.  

 
2. Jumbo loans up to 90% and $729k are now available
Several banks are now offering 90% financing on Fannie Mae jumbo purchase loans up to $729k in CA on single family homes only, the San Diego’s county loan limit is $697k. This is excellent news as the mortgage insurance companies are now willing to offer MI on jumbo loans with a lower down payment, until recently most MI companies would only go to 80% financing. This loan is also available for first time buyers, you need a 720 credit score and debt ratios are required to be under 45%.

 

3. Super Jumbo loans are making a comeback
This has been a demographic of the market that has been hit really bad in the past few years, as many investors and banks would not offer loans over the Fannie Mae jumbo loan limits of $729k here in California. There are now a few investors that will go to $2 million dollars on jumbo loans up to 80% financing. Up until recently most super jumbo lenders would only go to 65% or 70%. These loans are full documentation only, require good credit scores, Strong debt ratios and plenty of reserves
 
David Adamo the CEO of Luxury Mortgage Corp, whose company is always one of the biggest players in the super jumbo loans arena, recently announced “I am very optimistic that we’ll be restoring the liquidity in that end of the market very soon, as investor groups have been asking our company to come up with new super jumbo products having loan balances over $1 million for the first time in two years”.
 
4. Stated loans are available
Stated loans have practically disappeared over the past two years. But now there are two investors offering stated loans to new buyers. W2 stated borrowers can get financing to 80% up to $417k on a single family home or a condo. Once again good credit scores over 720, low debt ratios and assets are required.  
 
Stated self employed is another segment of our industry that has taken a beating recently, as no one has been willing to lend to this group. There are many Americans that are self employed with excellent credit and tons of reserves that cannot qualify full documentation, but deserve the opportunity to get a good loan. These loans absolutely make sense if they are underwritten properly. I have an investor that can now offer Stated self employed buyers between 50-70% financing up to $1 million with a 720 credit scores and Strong reserves. Interest rates are also very good. 
  
5. Private money loans for REO’s
Private money loans are a great financing option in this market especially for investors looking to flip properties. I have one very good source that I work with that offers up to 65% of rehab value and only requires 10% down of the purchase price, in most cases affords 90% financing and will do escrow hold backs like the 203K program. There are no payments and no prepay penalties due while the property is being fixed up, so maximum profits can be taken for the investor. Terms are also very competitive.  

 
Fannie Shortens Wait for Some Distressed Borrowers to Get New Loans
Fannie Mae just announced last week that it is reducing the wait time for some borrowers between when they complete a short sale or deed-in-lieu of foreclosure transaction and when they can obtain a new mortgage. Previously, a borrower was required to wait four years before getting a new mortgage, or two years if their home sold in a short sale. Under the new guidelines, a borrower that previously completed a deed-in-lieu of foreclosure transaction can get a new mortgage in two years, provided the borrower has a 20% down payment. This new policy is effective for manually underwritten mortgage loans with application dates beginning July 1, 2010.
 
Showing signs of recovery
I think it is great news for our markets that investors are beginning to offer these alternative financing options again for our buyers. Many of these loan programs above were not available a few months ago, so this is definitely a boost for everyone. The mortgage insurance companies are obviously deciphering that in most areas serious depreciation is becoming stable, hence why they are now allowing loans to get financing up to 95% for example. Now we can just hope that some of the other underwriting guidelines start to ease up for some of our buyers…I can hear some people groan:).  Click here to find out the top 5 reasons why loans are being denied by underwriters.  

 
I believe that for a full market recovery it is imperative that investors continue to make more of these financing options available, so more buyers can continue to enter the markets. But, as each month passes too, we also must be thankful for the signs of recovery we see. As these new programs become available, it is important to let your clients and friends know these new financing options are available to them. As one door opens there is always someone who is waiting for that opportunity.
 
If you have any questions about how to qualify for any of these loan programs, or you have a buyer that might fit one of the scenarios above, please do not to hesitate to contact me directly at 858-200-9602. I look forward to chatting soon.

    
 

Posted in The 95% Conventional Loan is Back for New Home Buyers! | 3 Comments »