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Category Archive: ‘Mortgage Qualifying’

‘Affordability Shock’

Hat tip to daytrip for sending this in from cnbc.com:

The sharp rise in home prices in 2013 caused two conflicting results: The return of positive home equity for hundreds of thousands of borrowers and considerably weaker affordability for an equally large pool of potential homebuyers.

While positive equity allows more borrowers to move, weaker affordability keeps them in place. So which will be the greater driver of housing this spring?

  “There’s going to be a reality check in the spring in terms of realizing that what we saw in 2013 is not a real market,” said Daren Blomquist of RealtyTrac, a real estate sales and data website. “It’s a nice bounce-back market, but ultimately you need the biggest pool of potential homebuyers out there to be able to afford those homes.”

In an analysis of housing affordability, RealtyTrac found that the estimated monthly house payment for a median-priced, three-bedroom home purchased at the end of 2013 was a whopping 21 percent higher than it was at the end of 2012 in more than 300 U.S. counties. That includes mortgage, insurance, taxes, maintenance and the subtracted income tax benefit.

The rise is the result of higher home prices and higher mortgage rates. RealtyTrac used a 30-year fixed-rate mortgage with an interest rate of 4.46 percent and a 20 percent down payment. That is versus a 3.35 percent interest rate the previous year.

Some metro regions, especially in California and parts of Michigan, saw monthly house payments rise about 50 percent from a year ago.

Read full article here:

http://www.cnbc.com/id/101431244

Using the same calcs, the difference was closer to 30% higher around NSDCC.

Posted by on Feb 21, 2014 in Interest Rates/Loan Limits, Mortgage Qualifying, Sales and Price Check | 9 comments

Defaulters Get Another Chance

Housing foreclosure authorities LoanSafe.org and YouWalkAway.com have created a new website to help people re-enter the housing market after having been through a previous foreclosure. The website is called AfterForeclosure.com and helps those most affected by the housing crisis take charge of their financial future and own their own home again.

Read More

Posted by on Dec 29, 2013 in Mortgage Qualifying, Short Sales, Short Selling, Strategic Defaults | 2 comments

New Mortgage Rules/Pricing

Fannie Mae and Freddie Mac are too big, and changes are coming.

moneypitBeginning on January 10th, the new QM rules take effect – limiting the debt-to-income ratios to 43%, and capping points and fees charged by lenders to 3% of the loan amount.

Because lenders will be subject to repurchasing any mortgages that don’t comply, some lenders are talking about limiting the DTI to 39% to provide a margin of error.

In the past, borrowers with compensating factors have been able to stretch their D-T-I ratio as high as 50%.  Now they won’t.

Is it a big deal?

It is for lenders, but to home buyers and sellers all it means is that there will be fewer people in the buyer pool for each house for sale.  Buyers may need to lower their sights, which will make the cheaper homes in each market more competitive.

The other change is how Fannie/Freddie will add more fees depending on your down payment and credit score.  It is rather arbitrary too, where borrowers with 680-740 FICO scores get hit the worst.  They can look forward to a nasty choice; to pay 1/4% to 3/4% higher in rate, use a 30% down payment, or manipulate your credit score downward to pay less fees.

The gritty details can be found Here.

For home buyers who are looking for more to reasons to stay on the fence, this is a truckload of fun.  But for the highly motivated buyers (the ones making the market), all it means is being more determined to fight for the best deal you can find, and hope that home prices will reflect the new era.

For anyone selling a great house on a great street, these changes won’t mean a thing.  For those trying to sell an inferior home for retail-plus, don’t be surprised if 2014 brings a more-measured response.


Posted by on Dec 20, 2013 in Interest Rates/Loan Limits, Mortgage News, Mortgage Qualifying | 10 comments

NSDCC Affordability

While we are kicking around that affordability thing, let’s note that by the traditional measuring of the Housing Affordability Index that we are still better than the last peak.

The San Diego index got down to 8 in 2005, and today we are at 27:

http://www.car.org/marketdata/data/haitraditional/#

But that is using today’s San Diego County’s median sales price of $485,040, for which it takes an income of $99,670 to qualify for an 80% LTV mortgage.

Have you seen many houses around NSDCC selling for $485,000?  Me neither.  In the last 60 days there have been 403 NSDCC detached-home sales closed, and only three of those were under $485,000!

The NSDCC median sales price for the last 60 days? $1,010,000.

In the same stretch last year we sold 500 houses, median SP = $837,243 with mortgage rates in the low 3s.

Income needed to qualify for 80% LTV mortgage:

2012: $126,500

2013: $175,000

Logically, this affordability issue should start to matter at some point.  Could we run out of buyers?  There have been 1,425 houses sold this year over $1,000,000 between La Jolla and Carlsbad!

Posted by on Dec 19, 2013 in Jim's Take on the Market, Mortgage Qualifying, North County Coastal | 12 comments

Investor Activity in 2014

investors2014The Trulia predictions earlier this week included several references to less investor activity in 2014, due to higher prices.  In particular was his #2 point:

2) The Home-Buying Process Gets Less Frenzied. Home buyers who can afford to buy won’t be as frantic as buyers in 2013. That’s because there will be more inventory to choose from, less competition from investors, and somewhat looser mortgage credit in 2014.

Investor activity is less than what the media will have you believe – at least in San Diego. According to this article by the Fed, investors made up less than 4% of total sales in San Diego in 2012.  Flippers came on strong this year, so the 2013 investor count is likely to be higher than last year’s, but probably still under 10% of the overall market.

I don’t think investors are done.

They will only quit when they’ve been burned – and it will probably take a few big losses to run them out of the business.

Instead, I think we will see increased competition for the deals – the standard listings that are priced at the comps or under.  There should be a solid floor to the market.

But investors/flippers will be under increased pressure to pay more than they are comfortable paying – everyone is!

They will try to pass it on to the retail buyer, and bump their list prices even higher.  Because of their confidence from recent successes, they will main contributors to the OPT pool (over-priced turkeys).

It’s already happening - there are flippers sitting on OPTs everywhere, confident that once the holidays are done, the buyers will be back.

However, the market has been extremely active the last couple of months – there hasn’t been much of a holiday dip in buyer interest, there just aren’t many quality homes for sale at decent prices.

Coming off a boisterious 4Q12 and fueled by mortgage rates in the low-to-mid 3% range, the spring selling season went gangbusters this year.

But now that the hyper-frenzy is done, buyers aren’t jumping at everything any more.

The current environment is much more cautious, which is ideal for a standoff.  With (over) confident flippers continuing to push their list prices, and regular sellers tacking on an extra 5% to 10% just to make sure they get all their money, we are ripe for the Big Stall in spring.

P.S. Trulia’s other comment about ‘somewhat looser mortgage credit in 2014′ is suspect too.  We haven’t covered the QM yet, but back-end ratios will be limited to 43% starting January 1st - and they have been as high as 50% this year.

fed investor share

Posted by on Dec 13, 2013 in Forecasts, Interest Rates/Loan Limits, Jim's Take on the Market, Mortgage Qualifying | 8 comments

The Effect of Higher Rates

Talking heads discussing the impact of higher rates – one being more ARMs:


The guest commentator said that we will lose 20% of the buyers if rates go over 5%, which sounded like a guess.  We don’t have to lose any buyers if they were just willing to look at smaller homes or a cheaper area.  It’s the buyer psychology and ego that will cause people to drop out.

Posted by on Jun 26, 2013 in Interest Rates/Loan Limits, Market Conditions, Mortgage Qualifying | 2 comments

Underwriting Change

This is a big shift in underwriting policy – from the latimes.com:

seniorqualifyingHere’s a heads-up for the growing ranks of seniors whose post-retirement monthly incomes aren’t sufficient to qualify for a mortgage under today’s tough underwriting standards: Thanks to a rule change by the largest players in the home loan business, you may be able to use imputed income from your 401(k), IRA and other retirement assets to qualify for the loan you want.

That, in turn, could open the door to a money-saving refinancing to a lower-rate loan or a downsizing purchase of a new house or condo.

Top credit officials at Freddie Mac, the giant federally controlled mortgage investment company, said recently that a little-known policy revision now allows seniors and others to use certain retirement account balances to supplement their incomes for underwriting purposes without actually tapping those balances or drawing down cash.

Read More

Posted by on May 26, 2013 in Mortgage News, Mortgage Qualifying | 3 comments

Subprime is Back

Some excerpts from the latimes.com - thanks daytrip!

Subprime loans are trickling back.

Michele and Russell Poland’s credit was shot, but they managed to buy their suburban dream home anyway.

After a business bankruptcy and a home foreclosure, they turned to a rare option in this era of tightfisted banking — a subprime loan.

The Polands paid nearly $10,000 in upfront fees for the privilege of securing a mortgage at 10.9% interest. And they had to raid their retirement account for a 35% down payment.

Most borrowers would balk at such stiff terms. But with prices rising, the Polands wanted to snag a four-bedroom home in Temecula near top-rated schools for their 5-year-old son. By later this year, they figure, they’ll be able to refinance into a standard loan.

“The mortgage is a bridge loan,” said Russ Poland, now working as an insurance investigator. “It was expensive, but we think it’s worth it.”

In the aftermath of the housing crash, there’s no shortage of Americans who, like the Polands, are eager to rebuild their shattered finances. In response, lenders are emerging to offer the classic subprime trade-off: high-priced loans for high-risk customers.

Today’s high-risk lenders differ from those during the housing boom in key ways. These lenders say the new subprime mortgages are actually old school — the kind of loans made in the 1980s and 1990s. In other words, a borrower’s collateral matters, down payments matter, income and ability to pay matter.

Among those hoping to reverse the trend is the Polands’ lender, Citadel Servicing Corp. of Orange County. Chief Executive Daniel L. Perl said he has tested the water by making a few dozen subprime loans since late 2011, mostly with his own money rather than investment capital.

The Polands, among the first to receive Citadel loans, are part of a success story, Perl said. None of the loans has gone bad; about a third have already been paid off. With that track record, Perl recently raised $200 million from private investors. He’s hiring 55 employees to help him make loans through mortgage brokers across most of the West, and he’s moving from Citadel’s Aliso Viejo location to larger offices in Irvine.

“We’re looking to build it up over the next 24 months to $30 million to $50 million a month,” Perl said. “It’s a decent business plan in a credit-barren world.”

Perl requires 25% to 40% down, depending on credit scores that can drop as low as 500 on an 850-point scale. His potential customers, who pay a minimum of 7.95% interest, include higher-income as well as lower-income borrowers.

“Quite a few” affluent borrowers are good credit risks, Perl said, even though they had recent short sales — they sold homes for less than they owed on their mortgages. Perl also writes mortgages that exceed the Fannie Mae and Freddie Mac threshold for conventional loans, which varies but tops out at $625,500 in the most expensive areas.

“They come from all walks of life — doctors and lawyers as well as blue-collar workers,” Perl said. “As long as they have the ability to pay and equity in their homes, they are a candidate for one of our loans.”

John C. Williams, president of the Federal Reserve Bank of San Francisco, sees no reason that subprime mortgage bonds can’t reemerge in “plain vanilla” form, as opposed to the complex concoctions that ended up as “toxic assets” in the meltdown.

“I can’t understand why it hasn’t come back sooner,” he said, pointing out that there’s a strong market for bonds backed by subprime auto and credit-card loans.

“California has been famous for devising exotic mortgages,” Williams said. “But the reality is that they held up rather well until we started doing things like giving them to people with no jobs.”

http://www.latimes.com/business/realestate/la-fi-subprime-mortgage-20130427,0,6498564.story

Posted by on Apr 28, 2013 in Mortgage News, Mortgage Qualifying, Thinking of Buying? | 12 comments

Private Mortgage Insurance Loosens

As housing heads into the critical spring market, credit is finally beginning to thaw. Lenders are increasingly approving low-down-payment loans, and government-sponsored mortgage giant Fannie Mae is buying more of them.

It is a noticeable shift from the last four years, when 20 percent down on a home purchase loan was the only game in the neighborhood.

pmi is the answer“In general lenders have been willing to do more than they may have been willing to do in the past,” said John Forlines, chief credit officer for Fannie Mae’s single family business. “Our requirements have not changed significantly, but other parties taking risk, the lenders and mortgage insurance companies in particular, have been more flexible than they may have been in the past.”

As the housing market improves, private mortgage insurers are starting to remove overlays on higher loan-to-value loans, meaning the percentage of the home value that is mortgaged. Low LTV’s and high credit scores were the rule recently for the private insurers, but that may now be loosening, making these loans cheaper than FHA.

“FHA is certainly becoming more expensive,” noted Craig Strent, CEO of Apex Home Loans in Bethesda, Maryland. “The increase in low down payments is reflective of first-time buyers coming off the sidelines and entering the market. We’re going to see more of this trend in the next couple of years as the economy improves and renters start to once again see the benefit of buying over renting. FHA has become more expensive and the mortgage insurance companies are the beneficiary of that, which is really not a bad thing as it means the private market is insuring the lower down payments rather than the government.”

Hat tip to Rob for sending this in:

http://homes.yahoo.com/news/no-cash–no-worries–home-lenders-ease-up-rules-193804515.html

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Hat tip to Ray for sending this in:

The fiscal cliff deal also revived a provision that allows taxpayers to deduct their premiums for private mortgage insurance (which can run from $50 to $220 a month on a loan of $250,000). Most people know about the deduction for mortgage interest, but few have heard of the insurance deduction, says Rebecca Pavese, head of Palisades Hudson Financial Group’s tax practice.

Posted by on Apr 1, 2013 in Mortgage News, Mortgage Qualifying | 4 comments

More Jumbos

Demand for new mortgages is finally revving up—among big spenders, anyway.

Home sales using a jumbo mortgage had year-over-year growth of 7.9% through September, compared with 2.7% for nonjumbo sales, according to an analysis for The Wall Street Journal by mortgage-technology company FNC.

It’s the latest sign that jumbo loans, defined as $417,000 and up in most places ($625,500 and up in high-cost areas), are boosting sales of luxury homes across the U.S.

Homes sold in major metro areas with a loan of $1 million or more were up almost 28% through September compared with the same period last year, the highest total since 2008, according to real-estate information company Dataquick.  Similar sales with loans of less than $1 million rose 8.5%.

“There’s no question that the increased availability of jumbo loans is stimulating home purchases on the high end,” says Guy Cecala, publisher of Inside Mortgage Finance.

Home buyers and their brokers say jumbos make it possible to compete in coastal cities where the cost of entry can easily go north of $1 million. Behrooz Torkian, 39, and his wife, both physicians, landed a jumbo loan this summer after being turned down three times in prior years, allowing them to buy a three-bedroom cottage-style home in Los Angeles for $1.645 million with a 20% down payment. “We thought we would get a lot less house for what we had,” he said.

Dr. Torkian said offering a larger down payment helped this time around, but he also sensed that lenders were more receptive. The couple, who have two young children and are first-time buyers, got a 30-year fixed loan carrying a rate of 3.75%. “It came a little as a surprise that the loan was so easy to get approved,” he said.

image

While loans below the conforming threshold far outnumber jumbos, their rate of growth these days is slower. Here are some reasons why.

Read More

Posted by on Nov 23, 2012 in Mortgage News, Mortgage Qualifying | 0 comments