Although I promised a six-week sabbatical from my blogging while I worked on my relocation and my new office, I have decided to jump in today and write because I need to clear something up. I felt this was necessary based on many conversations I have had with borrowers over the past week and, in part, what I am seeing on the news.
The media would have you believe that our country's financial system has fallen flat on it face and that there is not any money left out there for those that want to borrow. This is simply not true.
Again, this is simply not true.
Of course some of the credit markets, mainly those affecting big businesses - such as Commercial Paper and other short-term financing - are having difficulties right now, but First Omni is still here and still has plenty of money to lend qualified borrowers.
Here's an article I found online today that says - perfectly - what I wanted to tell you:
by Holden Lewis of Bankrate.com
Credit Crunch? Mortgages still available
Mortgages are still available, despite talk of a credit crunch.
Qualified borrowers can find conforming and FHA-insured mortgages easily. Jumbo mortgages are more scarce, but available. Rates went up in the last week, which is another way of saying that credit is tighter. But the mortgage marketplace isn't frozen, at least in part because of federal intervention.
"There's almost no difference in the availability of money compared to a year ago, with the exception of jumbos," says Jim Sahnger, mortgage consultant with Palm Beach Financial Network in Stuart, Fla. "The main difference is that you have to provide documentation, such as W-2s, tax returns and bank statements. Welcome to the full-doc world."
Credit standards have been getting tighter all year, reducing the number of people who qualify for loans. It's hard to quantify how many people have been disqualified merely because of more strict lending standards.
As Sahnger mentioned, one prominent change has to do with documentation of income. A year or two ago, a borrower with an excellent credit history and no change in employment might have been able to refinance a mortgage without having to provide proof of income -- even on a full-documentation loan. Those days are gone, mortgage lenders say. Bring in W-2 forms or income tax statements, or get turned down for a loan.
Borrowers need better qualificationsThe income-documentation requirement is part of a yearlong trend in which mortgage insurers and Fannie Mae and Freddie Mac have added fees and restrictions, little by little. Each change knocked a few more people from the ranks of qualifying borrowers.
Take the mortgage insurers, who protect lenders from the costs of borrower default when borrowers make down payments of less than 20 percent. Last year, the mortgage insurance companies began publishing lists of "restricted markets," where home prices are declining. Borrowers have to make bigger down payments and have higher credit scores to get mortgage insurance in restricted markets.
The mortgage insurers have tightened the screws slowly, adding cities and states to the lists of restricted markets and increasing requirements. In the latest example, Mortgage Guaranty Insurance Corp. recently boosted the minimum credit score needed to buy a house in a restricted market. In August, the minimum score was 680. Beginning in October, the minimum score will be 700.
At the same time, MGIC tinkered with down payments on second homes. In August, you could buy a second home in a restricted market with a 5 percent down payment. Starting in October, that same home requires a 10 percent down payment.
Fannie, Freddie and feesMortgage financing giants Fannie Mae and Freddie Mac have been adding restrictions, too. Before they were taken over by the federal government in early September, Fannie and Freddie had been on a months-long campaign of adding fees that were then passed along to borrowers either directly or through higher mortgage rates. The Fannie terminology for these fees was "loan level price adjustment."
That trend might reverse soon, courtesy of the federal government. James Lockhart heads the Federal Housing Finance Agency, which now oversees Fannie and Freddie. He told Congress this week that the mortgage finance companies' mission to support affordable housing "had been impaired," partly because of the added fees that had made mortgages more expensive.
In a sign that he wants to rescind some of those fees, Lockhart told the Senate Banking Committee that he has instructed the new heads of Fannie and Freddie "to examine the underwriting standards and pricing. They have begun to do so, and I expect any changes to reflect both safe and sound business strategy and attentiveness to the Enterprise's mission."
Jumbos are scarceIt's not all good news. The marketplace for jumbo mortgages has been in disarray for more than a year now, and it isn't getting better. Jumbo rates are higher than rates on conforming loans (mortgages of $417,000 or less).
"Jumbos are harder to get. To me, that market is scarce," says Bob Walters, chief economist for Quicken Loans. If there are any jumbo deals to be had, they come from banks and thrifts that keep the loans instead of selling them on the moribund jumbo secondary market.
"Jumbo still exists, but in a horrifying format," says Dick Lepre, senior loan consultant with Residential Pacific Mortgage in San Francisco. A few lenders offer 30-year, fixed-rate jumbos at 8 percent or more. That rate is too high for today's borrowers. For jumbos, "the most common thing that we do is a 5/1" adjustable-rate mortgage, Lepre says.
Early this week, a 5/1 jumbo ARM was available from Lepre at a starting rate of 6.375 percent, with a one-year prepayment penalty. To qualify, the borrower had to have good credit and "fairly strong reserves" -- as much as 12 months' worth of house payments in readily available savings. That loan was from Union Bank of California, a regional bank based in Los Angeles.
At the same time, Citi was charging more than 9 percent on a 5/1 jumbo ARM -- plus more than 2 discount points. Chase was charging high rates, too. "Citi and Chase just don't have any appetite for jumbo loans right now," Sahnger says.
Lepre and Sahnger are brokers, and they say brokers are the best source for jumbo loans because they have access to the reduced number of lenders that are offering them at affordable rates.
It's important to remember that, "Qualified borrowers can find conforming and FHA-insured mortgages easily." This means that you can contact me if you are still interested in getting a home loan!
Great news!
Chairman of the House Financial Services Committee, Barney Frank, has discussed publicly the fact that he has negotiated an agreement with HUD Secretary Steve Preston that will provide for the continuation of privately funded downpayment assistance.
The agreement allows HUD to impose risk-based pricing on downpayment assistance transactions which provides Secretary Preston the fiscal protection he seeks for the FHA insurance fund.
According to an Inman News article published today, Chairman Frank is quoted as saying "The FHA loved the ban on down-payment assistance (but) hated the ban on risk-based pricing," Frank said at Saturday's hearing. "That seemed to me to offer an opportunity. So (HR 6694) will replace both bans with middle ground -- and it will pass the House, I can guarantee you. What you want to do now obviously is talk to your senators. We think it will go through there -- it has the approval now of the Secretary of HUD."
Thanks to the advocates of downpayment assistance, there is significant momentum in this direction. We urge everyone to continue the campaign to save DPA by contacting their Senators and request a swift passage of pro-DPA legislation.
This is great news, but the fight isn't over; please click here to contact your senators!
Read the entire article: http://www.inman.com/news/2008/09/10/congress-weighs-reprieve-seller-funded-gifts
After taking a week off (from Blogging) for Labor Day, I have decided to write about debt today. Are you stressed about your debts? Here are four solid tips to help you breath easier:
Analyze your situation
Redo your budget
Personalize your due dates
Consider your options for consolidating your debts
Debt can pile up quickly, leaving you unsure exactly how much you owe. So it's important to keep a running tab of balances, interest rates and required minimum payments. Consider using a debt evaluation calculator to get a handle on your situation and your current debt to income ratio. Here's a great one from MSN Money.
A budget that worked six months ago may not work today if your debt to income situation has changed or the cost of consumable goods (i.e. groceries and gas for your work commute) has increased. If possible, include a "payment" to yourself every month; money you can set aside for an emergency situation. This will help ensure that you don't get farther into debt when your budget cannot stretch to meet an unexpected demand.
There are several online resources that offer worksheets to assist you in this process. One example can be found at Kiplinger.com.
If you have bills that are due at awkward times of the month - days that don't coincide well with when you get paid - consider calling your creditors and asking them to change your due date. Some people find it easier to group dates around times when they have the most available cash. Many credit card and other companies' systems are set up to accommodate such a request.
Consolidating your debt can be one quick way to ease your budget stress. Consolidating higher-interest debt into a low-rate debt consolidation loan can lower your monthly interest payments and give you some breathing room that you can then use to begin paying down the consolidation loan. Of course, it's important to consolidate the debt into a loan that has a lower interest rate than the rate of your current debt.
One popular, lower-interest debt consolidation option is a cash-out refinance of your home loan. This type of loan uses the available equity in your home to fund the debt consolidation at interest rates that could potentially be five to ten percentage points lower than a high-interest credit card, depending upon your situation.
Further, an added benefit is the fact that the interest you pay on a cash-our refinance/debt consolidation loan is usually tax-deductible; something that is not available with credit card debt. Of course, you need to check with your accountant to make sure this applies to you.
If you would like further information on a debt consolidation loan, please contact me for a free quote!
The Labor Department recently reported that wholesale prices (PPI) jumped 1.2 percent in July, compared to June. Excluding food and energy, wholesale prices went up 0.7 percent last month. They rose 9.8 percent compared to the previous July.
The numbers above are higher than most economists and investors expected. Because of this, I would suggest that you expect mortgage rates to rise as they often do when there are threats of inflation. I would also bet that you will hear people talking about a Fed rate hike sooner than later.
As for housing starts...
Housing starts tumbled in July to their lowest level since Ronald Reagan's second year in office. That's 26 years! Builders began construction on 641,000 single-family houses in July, down 39 percent from the previous July, according to the Census. The decline in single-family starts was especially steep in the western states -- 44 percent. The smallest year-over-year drop was in the northeastern states, at 27 percent.
Overall housing starts, including multifamily dwellings, fell to 965,000 units in July, a 30 percent decline from the previous July.
I suggest that this is good news; builders are returning to reality.
Few people are buying houses, so fewer are being built. There are exceptions in many towns across America where block after block of new town houses and "McMansions" sit empty, yet large new tracts are still being built. With large multi acre-tracts being cleared weekly, I suppose the developers worry that, based on the data above, the price of construction materials will rise in the coming months and years, so why not build soon-to-be-empty dwellings now?
The drop in housing starts is probably the beginning of the end of good news for buyers, especially first-time buyers. Eventually, the supply of houses will more closely match demand, and prices will stabilize. But that won't happen for a while in most metro areas.
So what does all this mean? It means that prices will probably start to stabilize, and mortgage rates are probably going to be higher, in the next year. I say this because we are entering a period of political uncertainty, our government is running huge budget deficits, oil prices are still relatively high and prices, as we saw above, are rising quickly. How much higher will the rates be? I have no idea, nor would I want to guess.
Homeownership still has many benefits, even in today's market. Here are a bunch of facts that I have dug up that show why owning a home still has benefits today:
Despite recent slowdowns in some markets, housing remains a great long-term investment, and demographic demand favors housing over the long term:
The children of the baby boomer generation, often celled echo boomers, are the second largest generation in U.S. history, comprising about 75 million people born from 1982 to 1995. The oldest of these echo boomers are new entering years in which people typically buy a first home, while the country's 78 million baby boomers remain in peak earning years. Source: U.S. Census Bureau
Immigration continues to rise. Net U.S. immigration has averaged about 1.2 million annually since 2000, and the foreign-born represented more than 40 percent of net household formations in the first half of this decade, up from less than 30 percent in the 1990s and about 15 percent in the 1980s. Source: The Joint Center for Housing Studies at Harvard University
Minorities' share of household growth has been expanding. It is estimate that minorities will comprise 68 percent of the projected household growth between 2005 and 2015. Source: The Joint Center for Housing Studies at Harvard University
Homeownership offers immediate benefits and long-term value. Homeowners accumulate wealth for the future while enjoying the benefits of a shelter they can use, improve and sell.
Many buyers know that homeownership is an investment in their future. More than three-quarters of all recent buyers believed their home purchase was at least as good as an investment in stocks. Source: 2007 National Association of Realtors Profile of Home Buyers and Sellers
According the the 2007 National Association of Realtors Profile of Home Buyers and Sellers, first-time home buyers made a median downpayment of two percent, while repeat buyers who financed their purchase put down 16 percent, indicating a wealth-building effect of homeownership.
The Economic Stimulus Act of 2008 has raised the 2008 FHA loan limits to 125 percent of the area's median home sales price, not to exceed $729,750. Beyond that, HR 3221 extended this permanently. Now, many more Americans will have the benefits of FHA mortgage insurance. View a county-by-county list of the FHA loan limits here.
The conforming (Fannie Mae and Freddie Mac) loan limit has also been raised to a limit of $729,750, depending on the area's median home sales price. Because they can be sold on the secondary mortgage market, loans meeting this conforming limit come with lower interest rates than those that do not, making mortgages more affordable for many. To see where your county stands, go to the same website as shown above for FHA limits, but change the "Limit Type" from it's default of "FHA Forward" to "Fannie/Freddie."
According the National Association of Realtors research, the increased conforming loan limit will result in more than 300,000 additional home sales and strengthen current home prices by two-to-three percent.
Over the past 30 years, home values have risen more than six percent annually. Source: National Association of Realtors existing-home sales historical series
On average, the value of a home nearly doubles every 10 years. Source: National Association of Realtors existing-home sales historical series
60 percent of the average homeowner's wealth comes from their home's equity. Source: Housing and Urban Development "Homeownership and its Benefits: Urban Policy Brief No. 2 - 1995"
The average homeowner's net worth is $171,000 - that's nearly 46 times that of a renter's, who has an average net worth of $4,600. Source: Federal Reserve Survey of Consumer Finances
Homeownership is an investment in your future. It provides shelter and security, and it fosters involvement in community life, and provides important social & economic benefits.
Owners move less frequently than renters, providing more neighborhood stability. In turn, involvement in community quality-of-life issues helps prevent crime, improve childhood education and support neighborhood upkeep. Source: U.S. Census Bureau
Homeowners stay in their home a median of six years. Source: 2007 National Association of Realtors Profile of Home Buyers and Sellers
Thank you for reading; if you would like to talk about a new home loan for yourself, please contact me or apply now online for free!
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