Kevin's Blog

In California, we know that Prop 13 prohibits tax increase until property ownership has changed.  Your property taxes might increase a little per year, but not substantially.  But have you heard of Prop 60?

Prop 60, otherwise known as the Reappraisal Exclusion Program, allows a one-time property tax relief for San Diego residents aged 55 and older by preventing a property valuation increase when they sell a current principal residence and purchase a new principal residence of equal or lesser market value. 

For example, let's say the homeowners purchased their current property 20 years ago for $75,000 and the current tax value (assessed value) is around $100,000 making their annual taxes $1,100.  The market value is $600,000.  They then decide to sell this property and move to a new community and pay $600,000 for the new home.  Without Prop 60, their new property taxes could be as high as $6,600.  With Prop 60, they can transfer the taxable value of their previous home to the new home.

Here are some of the requirements:

•·         The homeowner if single or one spouse when married must be at least 55 when the original property is sold

•·         The replacement home must be purchased within two years of the sale of the original home

•·         Both properties must be considered as a principal residence

•·         This is a one-time benefit

•·         The necessary application must be filed with the San Diego County Tax Assessor

In addition to Prop 60, there is Prop 90 which allows qualifying relocation buyers to transfer their current taxable value into San Diego County from any other county in California.  There are currently 7 counties allowing the same: Alameda, Orange, Los Angeles, San Mateo, Santa Clara, Ventura, and of course San Diego.

This benefit just might convince some of your clients to get off the fence and downsize since they will not have to worry about a major property tax increase.

For more information, visit the San Diego County Assessor page or consult your tax professional.  Hope this helps! 

As always, please feel free to email me with any buyer questions.

We started off the week with "perfect" borrowers still able to get a 30 year fixed in the upper 4's with zero to little points.  Ended at around 5%.  This uptick was partially due to comments released by the Fed on Wednesday.

Here is a blurb I received from MBSQuoteline:

"Over the last year, the Fed pushed mortgage rates lower by purchasing over $1 trillion in mortgage-backed securities (MBS). Wednesday, the Fed suggested that they should begin selling those MBS "sooner rather than later."

Later that day, the Fed released the detailed minutes from the January 27 Fed meeting. The minutes revealed that "several" Fed officials favored starting the sale of the Fed's MBS portfolio "in the near future." Investors were not expecting that Fed MBS sales would begin any time soon.

Adding to the supply of MBS being sold means that yields would need to move higher to attract buyers. Since mortgage rates are largely determined by MBS yields, mortgage rates rose after the news."

Rates are still low, the tax credit is still here (for now), still a great time to buy.  Please email me with any questions.

You might recall that until late last summer, if a homeowner had their property listed for sale within the past six months, they were not eligible for a conventional refinance.  Just a reminder that the policy changed to allow not only rate/term refinances, but also cash-out refinances.

The new policy is very similar to the policy of a few years ago: 

• Property must be taken off the market on or before the loan application date.
• The maximum loan to value for a cash-out refinance is 70%.

Some sellers are lacking the cash to update their homes to "market ready" and do not realize this fact until the home has sat on the market for several months...even though their Realtor has explained that to them from Day 1.

Provided that they are able to qualify for the new loan, they can pull cash out to accomplish this task. 

I have a buyer that recently pulled cash out of her home, updated the home, and got it under contract the first weekend it was listed.  If she finds a new property for herself by April 30, 2010, she will also qualify for the IRS Tax Credit for repeat buyers.  Not bad.

Please email me with any questions.

Site condominiums, as defined by FHA, are "single family detached dwellings encumbered by a declaration of condominium covenants or condominium form of ownership." 

Basically, a site condo is a detached home sitting on condominium land.  This is similar to a PUD except for land ownership (you can tell by the legal description).

These communities attract many home buyers because they typically have the amenities of a condo complex, but without shared walls. 

However, many of these communities are newer and therefore not FHA approved which up until recently made it difficult to use FHA financing.  The builders most likely did not try to get FHA approval since the sales prices when they were brand new exceeded the FHA loan limits at that time.

Fortunately, last fall HUD announced that site condos are not subject to these requirements. 

FHA's new requirements for condo complexes comprised of attached units and the elimination of the "spot approval" are anything but user-friendly. 

Combine this with lower prices and higher FHA loan limits (up to $697,500 in San Diego County), and there are more opportunities for home buyers with less than 20% down payments that were unable to obtain conventional or FHA financing on detached condos in the past.

Please feel free to email me with any questions.

We have all heard recently that FHA is waiving their 90day anti-flip rule for transactions with purchase contracts dated from 2/1/2010 to 2/1/2011.  However, most lenders have been hesitant to follow suit due to FHA's very strict re-purchasing rules. 

As of today, Primary Residential Mortgage can offer FHA financing if the seller is the owner-of-record 90 days or fewer if ALL of the following 10 requirements are met:
 
1. The new sales price of the property must be less that 120% of the amount the seller paid for the property (acquisition costs).  For example: if a seller originally purchased a property for $100,000, the sales price cannot exceed $119,999 ($120,000 would not be allowed).  Likewise, if a seller originally purchased a property for $200,000, the new sales price cannot exceed $239,999.  $300,000 max increase to $359,999.  $400,000 max increase to $479,999.

2. The contract of sale for the purchase of the property is fully executed and dated between Feb. 1, 2010 and Feb. 1, 2011.

3. The transaction is arm's length, with no interest between the buyer and seller or other parties participating in the sales transaction.  To ensure there is no inappropriate collusion or agreement between parties the lender must assess or validate that:

• Public records show the seller listed in the purchase contract is in title.
• The seller holds title to the property.
• The transaction is not a simultaneous closing. 

4. Limited Liability Companies (LLCs), corporations or trusts serving as sellers were established and are operated in accordance with applicable state and federal laws.  The LLC's Operating Agreement or documentation that reflects membership in the LLC must be reviewed to determine the transaction is non-arms length to ensure the borrower is not affiliated with the LLC.

5. There is no pattern of previous flipping activity for the subject property, as evidenced by multiple title transfers within 12 months. 

• The chain of title information from the appraisal and title documentation for the subject property must be reviewed. 
• Only one title transfer, other than financial institutions or government entities, in the last 12 months is allowed.
• Full or partial transfer of title to a land trust is considered a title transfer but asset management companies that lenders hire to handle foreclosures or short sales are not considered a change in title for these purposes.

6. The property was openly and fairly marketed, i.e. the property was marketed via MLS, auction, FSBO or developer marketing.  NOT allowed: A sales contract that refers to an "assignment of contract of sale" (which represents a special arrangement between seller and buyer).

7. The appraiser must complete three requirements:

• Comment on any improvements to the subject property made by the seller supported with photos.
• Acknowledge the increase in sales price from the previous sale and provide specific commentary on support for an increase in value.
• Provide listing and sales history of the subject property.

8. The executed purchase contract can not be re-dated.

9. The buyer's real estate agent can NOT be the seller and the buyer's real estate agent can NOT be employed by, related to or affiliated with the seller.

10. The underwriter may require a second appraisal if necessary.  No surprise.

Kind of lengthy, but better than not allowing these properties.  There is a possibility that we will be able to allow an increase of 20% or greater in the near future so I will keep you posted as I hear more.  Please email me with any questions.

After months of speculation, we finally know what the new 2009 high balance conforming loan limits are for San Diego and other "high cost" areas.  The Federal Housing Finance Agency (FHFA) said that the $697,500 number we enjoyed for part of 2008 is dropping to $546,250 in San Diego.

Some areas such as Los Angeles-Orange Counties, San Francisco, San Jose, and Santa Cruz are having their 2009 numbers set at the new maximum of $625,500.

According to FHFA's press release, the 2009 loan limits were calculated using 115% of median house prices as determined by the Federal Housing Administration (FHA) whereas the 2008 loan limits were calculated using 125% of median house prices.

So what does this mean? It means that anyone currently in escrow in San Diego with plans to borrow more than $546,250 needs to do everything they can to get their loan closed before 12/31/2008 or face significantly higher interest rates.  There is almost a 2% interest rate difference between loans less than $697,500 and loans greater than $697,500 (also known as true jumbo loans) because conforming loans are guaranteed by the government (FNMA and FHLMC).  Guidelines are also more strict for true jumbo loans than for conforming and high balance conforming loans.

As expected, the Federal Housing Administration (FHA) announced that FHA Jumbo limits will match the high balance conforming limits.  The Department of Veteran's Affairs (VA) said that VA Jumbo loans with zero-down payments will be allowed up to the high balance conforming loan limits through the end of 2011.  This is good news for FHA and VA buyers as they will still be allowed to take advantage of these programs for higher priced properties.

Any questions or comments?  Please email me at kkueneke@primeres.com

It was announced this evening that Washington Mutual was closed by the U.S government in what is the largest U.S. bank failure in history.  The Federal Deposit Insurance Corp was named receiver and stated that "customers should expect business as usual on Friday, and all depositors are fully protected."

I am not writing this post to discuss the details of the post-failure workings (please see this Yahoo! News article), and I do understand that WaMu's failure is far more complicated than it may seem.  I just want to express my lack of surprise that WaMu failed from a loan officer's standpoint.

WaMu was a leader in subprime originations and they were fortunate enough to weather the subprime storm of February, 2007.  They even had a separate subprime division with a separate name (Long Beach Mortgage).

But WaMu's real niche over the last several years was the negative amortization loan, aka, the Option Arm, which allows a borrower to make a minimum payment that might not cover the mortgage interest that is actually accruing thereby causing the mortgage balance to increase.

WaMu was obviously not the only lender offering these loans, but they were known for underwriting guidelines that were further outside of the box than most other lenders.  They also loved very large option arm loans and were one of the last option arm lenders to offer stated income.  Even though they seemed to have a fairly stringent appraisal review process, many bad underwriting decisions were made.

WaMu was not alone in the big option arm mess.  Here are some other lenders that offered, and even pushed, the option arm loan:

· Bear Stearns had an appetite for very large, stated income option arms loans as well.  They also offered No-Documentation option arms up to 90% loan to value.  We all know what happened to Bear Stearns.

· World Savings built their business on the "Pick-a-Pay" loan, which was their name for the option arm.  If the loan to value was 70% or less, then no income or assets were verified, not even the source.  They referred to this as their Quick Qualifier.  World Savings was purchased by Wachovia in 2007 and the poor performance of the Pick-A-Pay has since caused the closure of that division.

· IndyMac was recently taken over by the FDIC.  They too had a large subprime division, but they also originated many stated income option arms. 

· Countrywide pushed the option arm and they pushed it hard.  At the time they were "saved" by BofA, 89% of the loans Countrywide originated in the previous year were no longer within their guidelines.  Although many of these loans were considered subprime, many were stated income option arms.  Little tidbit that is frequently overlooked...BofA actually offered an option arm for a brief time...I wonder how those are performing...

· Downey Savings has been rumored to be in trouble.  They recently discontinued their Lite-Doc program and today officially discontinued the last of their option arm products.  They were always loose on income, but tough on property values.

What do these lenders have in common?  Stated income option arms.  Is anyone else left that offered these?  Homecomings is gone.  Greenpoint is gone.  Bank United stopped lending in California.  SouthStar allowed 100% financing, stated income, with an option arm 1st mortgage, no surprise they are gone.

Looks like the option arm really was too good to be true.

The home buying landscape is significantly different than this time last year.  For those of us in the industry, this is obvious.

The media has mentioned this in countless articles and news broadcasts, but there are still many homeowners looking to buy a new home that expect to get the same loan they got when they purchased their last home.  They expect, and in some cases demand, a No-Documentation loan or a No Income Verification loan with little money down.

These loans were so easily attainable that many people forgot what "real" qualifying is like.  Questions like, "What do you mean you want to see a paystub?" or, "My tax returns... you need every page?" are becoming quite common.

However, I had a very refreshing meeting the other day with a new client.  Refreshing in the sense that the client understood that lending guidelines have actually changed over the last 12-18 months...but it took a little time for it to sink in.

We first spoke on the phone two weeks ago and at that time he was determined to buy a home that was outside of his full-documentation price range, but well within his "stated income" or "no doc" price range of years past.  He is a 100% commission employee with significantly lower income than two years ago, and has about 15% down payment (he is selling his current home and is fortunate enough to have equity).  However, his loan amount will still be over $417,000 (but under $697,500 - the current Agency Jumbo limit in San Diego County) and his once high credit scores are now considered average.

Two weeks ago, he sounded obviously frustrated by the fact that his No-Doc loan was no longer available.  I explained that lending guidelines have changed since the last time he purchased a home and options are far more limited, especially with a down payment of less than 20%.  He was still in the year 2006, the year where anyone with a pulse could qualify for a home loan.

He then left for a week-long family vacation.  It took another few days for us to finally meet, during which time I encouraged him to call several other lenders, including his servicing lender.  They all told him the same thing...lending has changed and banks are stricter than before and that his ocean view dream home is outside of his budget.  But they forgot to tell him how much home he can afford. 

We ran the numbers and found that if he was willing to live a little further away from the ocean, that he could still afford a nice home.  Nicer than what he has now but for less money.  He even said that his current payments are a little steep and that he always thought it was strange that he was able to purchase his last home even though he did not have a job at the time.

If the mortage market had not crashed and his No-Doc loan was still available, this client admittedly would have purchased a more expensive, more unaffordable home like so many others have. Fortunately, he was forced to re-evaluate.  He was forced to change his expectations.  And he was willing to do so.

Any questions or comments?  Please feel free to call me at (760)500-1919 or email me: Kevin@MyCWMtg.com

I recently wrote a post about FNMA's underwriting guideline change regarding retaining a principal residence as a rental when buying a new home.  The gist of the new guideline is that the retained property needs to have a minimum of 30% equity in order for rental income to be used to help qualify for the new home.  Otherwise, the buyers must have an increased amount of reserves in the bank and also sufficient income to carry both mortgages.

Lenders used to allow buyers to merely provide a rental agreement and then use a portion of that rent to offset the house payment.  Unfortunately, some buyers would provide a fake rental agreement thinking that they would be able to easily rent out the home.

However, after a few months sitting vacant, and after a few more mortgage payments are made, the novelty of having a rental property wears off.  The decision to walk away for many folks became very easy to make.

This decision is even easier to make if the retained property is upside down, like many in today's market. Unfortunately, many people over the last twelve months have purchased more affordable homes with the intention of letting the previous home go, creating what lenders now call "Buy and Bails".

FHA has temporarily decided to tighten their guidelines to help avoid this practice.  Similar to FNMA, if the retained property has sufficient equity in the home (25%), then rental income can be used.  Otherwise, borrowers income must be able to support both properties.  **Relocation buyers are excluded from this rule as long as an executed lease agreement (with a minimum one year term) is provided as well as proof of receipt of rental deposit**

Even if the vacated property does not have an FHA-insured loan, FHA feels that if the property ended up in foreclosure it might have an impact on the value of nearby homes with FHA-guaranteed mortgages.

I understand FHA's reasoning behind the guideline change and it was really only a matter of time before FHA followed FNMA.  In the grand scheme of things, this change is another step towards reducing future foreclosures, but it does further emphasize that FHA is geared toward the first-time homebuyer.

Any questions?  Please feel free to call me at (760)500-1919 or email me: Kevin@MyCWMtg.com

Like many mortgage companies, we hold a weekly meeting to exchange ideas and opinions about the ever changing mortgage market.  We cover guideline changes, industry news, you name it, all in an effort to stay as current as possible.  One of my co-workers, Paul Gonzales, wrote a fantastic article that he is passing out to his potential buyers to help keep them on track.  I felt that this is worth sharing:

"Your loan application has been officially approved by your lender and you are in escrow on your dream home. Just days before you expect to close your purchase and begin moving, your lender tells you that you no longer qualify for your financing. What happened?

During the typical thirty to forty-five day escrow, there is ample opportunity for the prospective home buyer to unwittingly sabotage his or her deal. These innocent mistakes can be grouped into four categories:

Credit Issues

Your initial credit report was good enough to qualify you, and then you went out and:

• Forgot to make that dinky $18 payment on a store credit card
• Purchased a plasma screen TV with no payments due for a whole year (and now you have a new credit account with a subprime finance company)
• Opened a new credit card or maxed out the balance on an existing card
• Finally paid off that old traffic ticket that went to collection two years ago

Any one of these mistakes can have a dramatic effect on your credit score and disqualify you.

Employment

• You were a company employee, and now you are self-employed
• You still work for the same company but just switched from a salaried position to one that compensates you by commission or bonuses
• You have just made a significant career change, say from being an auto mechanic to a real estate agent

Lenders usually look for a stable employment and income picture for at least the last two years. Any significant change after your application is approved can start that "clock" over again

Income and Expenses

Your loan approval included a comparison of your present monthly consumer bills, together with the loan you requested, as a percentage of your monthly gross income, however:

• You or a spouse decided to switch from full-time to part-time
• You just made a major credit purchase such as a new car
• You have actually made no changes whatsoever, but you were qualified for a specific maximum loan amount to purchase a house. Now you want to buy a house or a condo that includes a $325 monthly homeowners association fee, or found a home in a neighborhood that has special tax assessments such as Mello-Roos.

Any significant decrease in income, or increase in expenses tied to consumer debts or the home purchase itself, can reduce the amount of financing for which you qualify.

Financial Assets

Most loans require that the home-buyer have a minimum amount of financial assets such as money in the bank, investments or an IRA or retirement plan. Once approved, however, you:

• Made a sizable cash purchase, such as furniture for the new home
• Repaid a loan to Aunt Bethany
• Took out a loan against your retirement plan

Your qualifying assets could fall below the minimum amount required to maintain your approval.

These mistakes are quite common and easy to make, because they involve normal activities and routine decisions that we make everyday. The key to avoiding any of these four major pitfalls is recognizing that your loan approval is like a photograph. It is literally a snapshot of you and your financial condition. Lenders will rely upon that snapshot right up until the time they wire the money to escrow, the title company records your new mortgage and your agent hands you the keys. There is nothing routine about that.

So smile, look your best and stay "YOU" until your agent hands you those keys!"

I think every loan officer has had a loan die, or have a closing significantly delayed, from one or all of the above listed pitfalls.  Ever have a client that quit thier job during escrow and forgot to mention that little tidbit to anyone until drawing loan docs?  I have had several, even though I "prep" each client at the beginning and discuss loan "no-no's".  Have to admint, these things keep the industry interesting.