The Home Affordable Refinance Program

To read more about the new The Obama Administration Home Affordable Refinance program released on March 4, 2009

Click Here to download a copy of the Treasury Release Notes for details

What Will The Future Holds For The Housing Market

Read the following blog by Keith Gumbinger and make your own prediction. An interesring read and I tend to agree with him - history has shown us that markets and people have very short memories -for better or for worst.

Subprime Borrowers Will Return to the Marketplace (Part 2)
Yesterday, February 06, 2009, 1:00:09 PM |
by Keith Gumbinger, VP, HSH Associates Financial

"We postulated not long ago in this blog that the subprime mortgage markets — one of the causes of the mortgage market meltdown — will re-emerge. What we don’t know is when that will actually occur, but we remain convinced that it will.

There are a number of factors which support the return of the subprime market.

First, the economic downturn is creating a new class of borrowers who are having trouble paying their bills on time. This is not only true in the case of mortgage loans; delinquencies are rising for virtually all kinds of credit. Late payments do eventually drive down credit scores, and a vast number of formerly good-credit-quality borrowers are now — or will eventually join — the ranks of a growing number of Americans who no longer qualify as “prime” borrowers.

The increasing emphasis on tightening underwriting standards — the raising of the credit bar — means more Americans are slipping into “near prime” status already. Formerly, a FICO score of perhaps 650 was considered “good” credit (with over 700 “excellent”), but those numbers are more like 680 and 720 now. At the moment, these borrowers can get loans, but the risk-adjusted price of their money is increasing over time.

Second, the new subprime market will be an untapped reservoir of new business with little competition, at least initially. Savvy investors or investment firms will re-discover a ready audience willing to pay above-market yields simply for access to credit.

It’s worth noting that much of the risk of investing in subprime mortgages has more than one component. Obviously, there is the risk that a borrower with a history of not making payments on past loans will decide to not make payments on the next one, too. However, that’s a known risk, and certain safeguards can be put into place. Perhaps the greater risk — at least the one which has caused the most damage to date — is that the value of the asset against which the loan was written can decline so far and so fast that it not only overwhelms any possible hedging strategy, but that it also wipes out the hope of recovering even a majority of those lent funds.

That being the case, the crucial criteria in rebuilding a subprime mortgage market is stabilizing, and ultimately increasing, home prices. If investors believe that certain risks can be managed, and that recovery of invested funds is at least possible, they will probably find some new appetite for higher-yielding mortgage risk.

A third consideration may be “affordable housing goals,” those broadly-defined government initiatives to help promote homeownership. At least some portion of “affordable” mortgages contributed to the mortgage mess in which we find ourselves, and with the ranks of the un- and under-employed growing daily, efforts and initiatives to again “help these people” are certain to follow. Some such initiatives already exist in the case of loan modification and refinance plans, and arguably in the form of “cramdowns,” all with the intention of helping people stay in homes they can no longer afford without extraordinary intervention.

After all, what was the subprime market if it wasn’t a way to help promote homeownership to the underserved, credit fringes of society? There’s a good reason why the homeownership rate went up to record levels over the past few years (only to have started receding lately).

Fourth, if our long history in this business has taught us anything, it’s that the market tends to make certain of the same mistakes over and over again, all under the guise that “this time it will be different.” Negatively-amortizing short-term ARMs? They date from the mid-1980’s; rates went up and that ended badly. Low- and no-doc (lately known as Alt-A) loans? The experience of those back in the late 1980’s/early 1990s nearly broke several major mortgage lenders, and the losses on them were among the proximate causes of the “credit-crunch-led” recession of that time. Subprime loans going sour? See 1997-1998, when billions were lost in bets on poor credit quality borrowers at well-above-market interest rates. High-LTV loans? Been there, done that: anyone remember the 125% - 135% - 150% home equity lending craze during the mid-late 1990s subprime boom?

Add those together, mix in a refi wave which flushed cash into the market and pushed default rates down to record lows, spiraling asset values and put them into a number of securitizing machines running flat out… you get — once again — all of the ingredients for another boom-and-bust cycle. So shall it be with subprime lending. If history is any judge, about the only thing that will change will be what it’s called next time.

The next boom probably won’t take the same shape as the last one, probably won’t go as far in terms of liberal underwriting standards (we expect that new regulations will take care of much of that), and will likely include counseling requirements for borrowers. Still, we have no doubt that as long as there’s a willing, untapped audience and the never-ending search for higher yields, it will come."

To read more, go to HSH Blog

Latest Mortgage Updates

The mortgage industry has gone through a lot of changes these past 6 months. While it is still sorting its way out trying to find a footing, there is finally a little light at the end of the tunnel with the recently passed stimulus package that also included a temporarily increased conforming loan limit for some states and counties. I am going to try to summarize below what they are and bear in mind these are in some ways still works in progress and more clarity will come in the coming weeks.

A couple of things to keep in mind:

1. These changes will only be incorporated into the rate sheets starting March 17 (progressively as they become available). In the mean time, while we are anxiously awaiting a return to some sense of normalcy in the mortgage market, please be steadfast in maintaining superior credit and hang on to your job(s) as those are the two most important factors in securing best mortgage rates.

2. Not all updated programs are available to all situations so call me. As you know, borrower's fico, LTV/CLTV, doc type,(strength of borrower's income and assets) and area property is located (new factor) (Stable, Soft, Distressed, Severely Distressed) all play a factor in which programs and rates one can qualify for.

Starting March 17th and the weeks ahead, we can expect the following changes:

1. Property location now plays a factor in loan underwriting as mentioned above. Whether a property is in a Stable, Soft, Depressed, Severely Depressed neighborhood will play a part in how much the lender will lend, i.e. max Loan to Value (LTV) and Combined Loan to Value ration (CLTV). The zip code is checked against a database and is updated from time to time.

2. Simultaneous Home Equity Loan (HELOC) will become available again but max CLTV and fico limit and max second loan amount apply. (This product was discontinued at the height of the mortgage crisis). This is a very big improvement to the current situation of one loan with borrowers paying Mortgage Insurance.

3. If borrower's mid fico score is >740 fico, full doc, single family home, property in a "stable" county, that will qualify a borrower up to 85-89.99% max CLTV. At the other end of the spectrum, if your mid fico is at least 660 and can go full doc and it is a single family home, "stable" property location, then the max CLTV is 75%. If your fico is anywhere in between, then max CLTV will be in between those numbers. Condos, 2 unit, 3-4 units or those not in Stable property location will have lower CLTV and more restrictive lending.

4. New Fannie Mae conforming loan limit is $729.750, however this is determined county by county throughout CA (and outside CA) and whether the county is considered stable, soft, depressed or severely depressed, and some counties will see much lower conforming limit if they fall in the latter categories. Another thing to keep in mind is max LTV/CLTV will apply according to lending guidelines so we do need the housing market to stabilize for this increased limit to help ease the housing situation. As it stands, 89.99% max CLTV with fico 740, full doc, single family home, in stable market appears to be the highest in the lending matrix currently.

5. For Stated Income/Verified Asset or Stated Income/Stated Asset conforming loans ($417,000), these loans are still available but rates will be higher and max LTV/CLTV will be lower. So call me and I will price them out for you. Hopefully Stated doc type will be made available on new conforming loan limits as well and as soon as I have confirmation on it I will email you.

6. Second Home is only available to single family homes, condos in Stable and Soft markets and max CLTV is 85% (mid fico 740) and 75% (mid fico >660) on full doc. Lower CLTV and higher fico needed for Stated loan.

Many of you have emailed/called me to see about doing a refinance/getting a purchase loan when market conditions permit and I am staying on top of everyone's file/situation and crunching the numbers all the time to see if it makes sense to do so. It is a very challenging time for borrowers, mortgage brokers and lenders.

Quick rule of thumb
If your current loan is <$417,000 and your current rates are below 6%, your rates are pretty good, until rates come down a bit, refinance only if you need to, cash out, consolidate etc.
If you have a jumbo loan (the old definition, i.e.>$417,000), and your rates are in <6-6.5%, you have a decent rate, again until rates come down a bit, refinance only if you need to consolidate or need cash out.

Purchase loan, 10-20% down payment and >700 fico is highly desirable, try to find a single family home as condos and multi units (duplex, triplex etc) have higher rates and lower LTV

HELOC (Home Equity Loan), if you have one currently, because prime lending rate has come down by 2.25%, you should see your interest rates drop by the same amount, again refinance only if you need to consolidate both loans, debts or need cash out.

Currently:
Conforming rates (up to $417,000) are 6%-6.375% depending on fico, doc type, Fixed or Adjustable, LTV, property location
Jumbo rates (>$417,000 and above), 6.25%-7.5% and higher, again depending on fico, doc type, LTV, Fixed or Adjustable, property location, (Lenders are not accepting stated loan, that hopefully will change in the coming weeks)

Hopefully I have covered all areas and I am sure I have thoroughly confused some of you :( call me or email me and we can go over your loan scenario and plan a course of action.

Thank you for your business in the past, your many referrals, and I have always enjoyed working with each and everyone of you.

I look forward to speaking with you soon.

Please Don't Create Another Bubble

Between last Sept and January 2008, the mortgage industry was literally turned upside down. First we saw jumbo rates spiked up Oct through Dec 2007 as lenders pulled away from lending high LTV loans and high loan amount, discontinuing all sub prime and most ALT-A loans, stated income stated asset loans. It all happened very quickly, in a span of a few weeks when no one wanted to touch these mortgages. The about face came as Wall Street investors, pension funds, state retirement funds suffered heavy losses in CDOs and SIVs (now dubbed the toxic alphabet soups). CDOs and SIVs are re-packaged tranches of these mortgages which did not fall into the Fannie Mae/Freddie Mae loan guidelines and hence fed to the yield hungry Wall Street investors and their proxies.

I recalled there were a couple of days when jumbo mortgage rates "fell off" the lenders' rate sheets figuratively speaking. What I mean is rates that used to be at least par pricing is now pricing with 1-2 points and there was nothing on the jumbo rate sheets that were better than par pricing. I am talking of A paper jumbo rates in the low 8 % range when they were in the mid 6% two weeks prior. Mortgage lenders and their secondary market departments were scrambling to cope with these quick fire rate changes on an hour to hour basis. There were in fact large discrepancies in rates between them as there was huge confusion as credit market deteriorated rapidly. This lasted about 2-3 weeks where jumbo rates made no sense. Then the Fed intervened after consecutive days of bloodbaths in the stock markets around the world and had their first inter-meeting rate move in Sept, followed by more cuts at the Oct and Dec meeting and another inter meeting cut in Jan, all in all cutting Fed funds rate by 200 basis point. Congress also swung into action putting a stimulus package together in hope of putting some cash into the hands of taxpayers in their effort to calm the market and stem the slide.

It was chaotic to say the least. As a mortgage broker with a conscience, I have always told my clients and anyone who came to me for advice to be prudent when buying a home and taking out a home mortgage to speculate in the real estate market which had shown signs of topping out. When ordinary folks working two jobs or a family with two incomes can no longer afford to buy a simple house with 4 walls and a roof (lucky if they get a small garden) in a suburb where they still have to drive at least 30-40 minutes to get to work, something has got to give.... Soon the buying will stop!!! A home is an abode, a retirement asset for you and your families someday. It is not a get rich quick scheme. Leave that to those with loose change to spare because they are likely to loose their millions if they become too greedy.

With the sub prime crisis unfolding rapidly and spreading globally, stock market saw wild gyrations and that was the order of the day. Heads rolled at a few investment banking firms but many managed to walk away with huge bonuses and were able to pad their bank accounts before it got ugly leaving ordinary Americans to wonder what they did to deserve these consequences. Have we not learned from Enron, WorldCom, from the Savings and Loans debacle and the dot com crush? What about a little responsibility and fiduciary and why has greed overtaken Wall Street and Main Street? This is where I think the fancy derivatives created by smart young kids on Wall Street had come back to bite them. Lending sight unseen, as soon as loan docs were signed, mortgages were packaged and re-sold, lenders washed their hands, someone else somewhere carried the mortgage repayment risks provided they have not cut themselves a little deal and re-package these mortgages and sold to the next parties, everyone along the food chain got paid nicely. In the end, no one knows who own theses mortgages, and the word "risks" has been forgotten.

When will this end? I don't know. I just hope enough people learned their lessons and that the lawmakers put their heads together speedily and ordinary folks put their feet down to demand changes to the mortgage and financial systems so it works for the people and not break again the next time around. I am not sure if ordinary hard working folks can survive another financial shock such as this one without serious consequences and risk of the country going into a protracted recession.

Please don't create another bubble while trying to fix this one..........

This will interest you......

This past weekend, I came across a very interesting article in the Sunday LA TIMES. The title: "Bad Outlook for Homeowners". It was a Q&A session with Dean Baker, co-director of the Center for Economic and Policy Research by Diane Wedner, LA TIMES staff writer. The Q&A focused on what the deteriorating real estate situation in CA means to homeowners in the state. A MUST READ for everyone.

If you did not get a chance to read it, here is the link Baker RE Q&A

The Housing Bubble

I am a mortgage broker in California and I have been working for myself since 2002. I have always earned an honest living helping a lot of my clients get a good mortgage and advising them to keep paying down on their mortgage to build a very important retirement asset. I never once did a crazy mortgage for the real estate flippers and speculators and my advice to my clients have always been not to push the limits and get more loans than they can afford less they lose their job (one can never be sure these days the way Wall Street is acting lately and CEO's in gray suits are trimming, cutting headcount to pad bottom line to please shareholders).

However, in the last 2 1/2 years, starting early 2005, the real estate market went totally out of whack. Home prices which have already seen a 20-30% jumped between 2003-2004 and were already beyond the reach of average home buyers continued their mad climb. Lenders were feverishly writing loans, underwriting standards were laxed, unscrupulous loan officers were lurking every which way you looked, offering to get loans. Unsuspecting borrowers were being charged a few points on the Option Arms programs and a promise of the Get Rich Quick Scheme (never mind if you cannot afford the mortgage payment after a few months, you can always sell for a quick profit). One borrower who was referred to me for help told me "I thought that was the going rate" when I asked him did he know he had been had, paying 3 points to get a 9% 2/28 loan. No, it wasn't the going rate!!! It was the crook's way of making a quick kill so he can live off his clients (knowing perhaps this good life will come to an abrupt end someday)

The writing was on the wall. Early this year, I was told of a story of a young lady in her early 30s who made $33K a year, (yes, made, she no longer has a job) who was given a series of Option Arm mortgages to buy properties in a hot desert town off Vegas, all with a piggyback second mortgage, all between Sept 2006 and Jan 2007. Also, during the same period, she was able to get a large jumbo mortgage close to $900,000 to purchase a property in a part of Los Angeles which she intended to make it her new primary residence when she has made her riches in real estate (she already has a primary residence, albeit smaller and of lower price). Her trusted mortgage broker cousin had apparently crafted her loan application each time to secure her these mortgages and greedy lenders turned the other way. All her mortgages were Option Arm mortgages with start rate of 1-2%, all with second mortgage (usually a HELOC) of 12% or higher, all but one for investment properties). Remember, she made just over $33K a year (and she no longer has a job). As the market turned south very quickly, she failed to make more than the first mortgage payment on most of them and she was unable to get renters who would be willing to move to the hot desert town and guess what? she had completely stopped making payment on all the mortgages. I could not believe what I heard. How did it get this crazy? I was totally floored.

Of course the subprime contagion is spreading and is spreading fast to the rest of the US economy and the global economy. These jumbo loans are packaged as Collateralized Debt Obligations (CDOs) by Wall Street bankers and sold to many investors (big and small) and hedge funds who then sold them to pension funds, state retirement funds and to funds of funds around the world. After so many "product re-packaging", the high risks associated with these assets have all been disguised and forgotten as promise of higher yield lures investors (Think about the Money Market Funds, could you have in a million years imagined that Money Market Funds that are supposed to be conservative investments actually had bought into these risky re-packaged CDOs?).

Auto sales will slow and latest numbers are proof of that sector getting hit, retailers will see business drop, further job cuts will be seen across many sectors directly or indirectly impacted by this contagion. Brace yourself for many rocky months ahead.

What is the wisdom in all these bad news you might ask? For me, it is that one should live simply and always with clear conscience, never in excesses, any Get Rich Quick Scheme comes with a catch, and a big one. Never forget your humanity and finally, simple pleasures in life do not always have to come with a big price tag.