Mortgage and Real Estate Blog

IGNORE THE HEADLINES AND STOP WATCHING THE NEWS

Saint Paul, MN. Foreclosure foreclosure foreclosure. That is all we see and hear. This would have you believing Chicken Little that the sky is falling. Yes, there are a lot of personal financial disasters with a record number of people losing their homes. The vast majority fall into two categories:

• EXISTING homeowners who were encouraged to load up on debt by using home equity loans to pay for anything and everything, stripping away the safety and security of their equity position. I constantly speak to people who have owned their home 10, 15, 20-years, who owe 100% of TODAYS VALUE. I must ask. Is that a banking industry issue, or a consumer gone crazy issue?
• NEW homeowners who over bought using 100% financing and high risk adjustable and interest only loans. Home owners were drawn to these loans like bugs to a bug zapper because they allowed them to buy more expensive homes while keeping payments low, albeit temporarily. Again, a banking industry issue, or a consumer gone crazy issue?

The reality, while the numbers are at record highs, the overall percentage is extremely low. Adjustable rate mortgages cover only a small fraction of homes. Sub-prime loans makes up only a fraction of adjustable loans. Furthermore, most foreclosures end up with the lender recovering much of the original principal. So why is there such enormous unease with consumers and the financial markets?

THE GOOD NEWS. For every foreclosure there is a first-time home buyer getting a fantastic deal! As values increased, many first-time buyers were priced right out of the market. With the finance everyone for anything party over, home prices have fallen nationwide around 5%. Some markets even more.

This won't last for ever. Yet many people are sitting on the sidelines waiting, hoping, for prices to fall further. Look at the chart below. If one assumes a little further drop in home prices, does it really make sense to wait to buy? Rates are low today, but as the economy recovers, rates should go up to stem inflation. A 30-year fixed rate under 6.00% may soon be only a distant memory.

THE BOTTOM LINE: If you are financially ready to buy a home, plan on living in it for 4 to 5-years or longer, you are almost foolish NOT to buy a home today.

Learn more at www.MnHomesAndLoans.com

Copyright 2008, Joe Metzler, www.JoeMetzler.com. All Rights Reserved.

THE DEATH OF 100% ZERO DOWN FINANCING?  

MINNEAPOLIS, MN: Lenders nationwide employ a variety of sophisticated risk modeling tools to help assess key factors that shape the future direction of the housing market, including housing supply, foreclosure inventory, delinquencies, employment rates, and price appreciation trends. Based on lender assessments, significant market downturns have been noted in many areas of the country.  

HISTORY LESSON: For a refresher, up until the late 1990's, there really was no such things as 100% home financing EXCEPT for a VA loan. FHA 3% down was your only low down payment option, as standard loans required 5% down. The first zero down loans required excellent credit scores, and no real payment shock. If you had great credit, were successfully paying your rent, you could buy a home zero down if the mortgage payment was about equal or lower than your rent.  

By 2005, Zero down 100% financing was the norm. Just about everyone could get financing. Furthermore, many loans were made to homeowners with somewhat non-traditional or "non-conforming" situations, be it a poor credit history, inability to document income, or any number of factors that do not fit within the traditional "box" for home loans. These loans are often called "Sub-Prime", or "Alt-A", meaning that they were somewhat riskier in nature than A credit, prime, or traditional loans.  

WHAT'S HAPPENING TODAY: As a result of today's market, and in order to continue to provide loans for qualified borrowers, both lenders and the private mortgage insurance companies have been making dramatic changes across the board. The biggest change is what appears to be the imminent death of most 100% financing options.    

Consumers looking to buy with 100% financing better get approved, pick out a home and close immediately. By March 1, 2008, these loans will be near impossible to find. New credit score requirements, and lack of availability to get mortgage insurance on anything over 95% loan-to-value will rule the land.  

WHAT DOES THIS MEAN: Simply put, lenders again are demanding quality people with some skin in the game (down payment). What were the old rules (pre 1999) are back again. FHA with a gift from your parents for down payment is already very popular again. A few state and county bond programs will be available, but much harder to find. VA loans for Veterans still exist.  

IS THIS THE END OF THE HOUSING MARKET? NO! Somehow we all managed to come up with down payment and buy homes we could afford before zero down and crazy lending helped create the boom that turned bust. Will it be difficult over the short-term, probably. But truly, the only challenge will be the time it takes for the consumer mindset to forget zero down, easy lending, and return to having good credit, with a little saving for down payment.  

Learn more at http://www.joemetzler.com

Congress Acts to Promote Homeownership - Economic Stimulus Package Passes Congress

The Senate & House last night passed the stimulus package that includes higher mortgage limits for both FHA and the GSEs. The original stimulus proposals only involved tax issues. Because of the importance of this legislation, the bill could be signed by the President as early as today.

Below are the key provisions of the bill with respect to the mortgages.

First, it is a temporary increase that expires on December 31, 2008.   We will discuss the FHA and GSE changes separately below.

FHA

The mortgage limit provisions include four temporary changes for the FHA program.   (As a reminder, the FHA modernization bill includes higher mortgage limits. It is possible that legislation could make this provision permanent or limit the FHA maximum limit to $417,000 as the Senate bill does.)

*         Raises the base loan limit ("floor") to 65% of the current GSE limit ($417,000) = $271,050

This provision is effective the day the President signs the bill.

*         Raises the maximum FHA loan limit from $362,750 to $729,750 (175% of the GSE base limit - $417,000)

*   Secretary has the discretion to raise the maximum loan limit by $100,000 in an area at the $729,750 limit for any size residence (including 2-4 family units).

Only "high cost areas in California and Hawaii (Honolulu) are likely to increase to the $729,750 maximum.  Washington D.C., for example, will increase to about $600,000 based on our analysis of available data. 

*         Increases the calculation factor from 95% to 125% of area median sales price for determining "high cost" areas.  We have an updated list of affected areas. 

*         Implements Fannie Mae/Freddie Mac ratios for calculating maximum loan amounts for two-, three- and four-family units in all of the above categories.

Fannie Mae and Freddie Mac two-,three- and four family unit properties increase the same percentage that the single family limit increases. In 2006. the GSE single family limit increased 15.95% and the mortgage limits
for multiple units increased 15.95%.

This change should result in a significant increase in FHA limits for multi-unit properties.  In the past, FHA used fixed percentages of the single family limit  (i.e. 107% of single family for two family unit, 130% for three-family unit and 150% for four-family units).  For example, under the new provision, if the single family limit increases slightly over 100% in a "high cost area" (from $362,790 to $729,750), we would assume the multiple unit amounts would increase the same percentage (slightly over 100%).

Fannie Mae & Freddie Mac

The bill raises the GSE maximum loan limit to $729,750.  The bill states that the GSE limits should follow the HUD mortgage limit calculation process and therefore the GSEs and FHA will have the same limits in areas that
exceed $417,000.   Fannie Mae and Freddie Mac's current limit will, in effect, become their "floor" ($417,000).   There are a number of markets that will benefit dramatically from this change to the GSE mortgage limits, though not as many as NAR advocated. NAR will continue to advocate for broader expansion of the loan limits. 

THIS DOES NOT MEAN EVERYONE GETS $729,750! Many area of the country will only see SMALL increases!

Give it a couple of weeks, then consult your LOCAL mortgage professional for your areas new (temporary) loan limit!