Some Effects of the Southern California Wildfires on Mortgage Lending

The fires that have been raging through San Diego County have
had immediate consequences to hundreds of thousands of
people. From evacuations, to property damage, to complete
loss of homes, and blessedly, only a few fatalities so far, we
all probably have been directly affected or know a family member
or friend who has been affected.

I sincerely hope that you have been spared from severe
consequences from these fires.

There are some procedures that you can expect to encounter
if you are in the midst of a transaction right now. Each lender
will ascertain their own approach to risk assessment, but these
would be fairly standard:


APPRAISAL UPDATES: If the lender has already received an
appraisal of the home and has based their approval on the
condition that was in effect at the time of the inspection, you
can expect that they will not move forward on the closing of
your loan without requiring the appraisal to make an updated
inspection of the property.

This inspection (with new photos) is designed to show that
the home is still standing, that there has not been any damage
to it, and that all the factors that went into the original valuation
of the property are still valid.

Availability of services such as gas and electric, sewer, and
water will be necessary. Any health or safety concerns will
need to be addressed and found acceptable.

This will obviously create some additional timing concerns, and
the lender is now free to make a new decision based on the new
facts as disclosed by the appraiser.


INSURANCE UPDATES: The insurance companies will also be
important players in the closing process. With substantial
losses anticipated with existing policies, you may find that the
insurance company that you were planning on using does not
have an interest in extending new policies in the area.

You may need to find a new insurance company to consider
your request. Also, you may find that the cost of the insurance
is now higher because of the higher risk associated with
insurance coverage in these impacted areas.


TIMING CONSIDERATIONS: Everyone's schedules have
been disrupted this week. Businesses have been closed,
employees have been taking care of their immediate
personal issues, Government offices have been closed as
well.

You may be eager to move on with your plans and finalize
your transaction.

But we have seen disruptions with the County Recorder's
Office being closed, so that transactions cannot be finalized.

Lenders have been closed, or short-staffed, so that their
normal work flow is much slower than usual. Loans are
moving through the pipeline with more scrutiny. This
all contributes to new conditions to be satisfied (such as
the appraisal and insurance discussed above), additional
review of new material, and fundings being scheduled
when offices and staff support warrants them.

To summarize, be prepared for delays and some confusion.
Do not expect things to go as smoothly as they normally
do.

Understand too, that the person you are dealing with, who
you may think is contributing to making your life more
difficult, may be going through their own personal issues
with disruptions, losses, or family problems.

We are truly all in this together right now. Search for the
people that can help you reach your goal and who can
demonstrate that they are working as hard as they can
to help you through a difficult time.

Some Normalcy Is Returning to the Mortgage Market

Whenever we go through these wild gyrations in the market,
the correction to the problem is usually a very conservative
reaction, many times overly conservative.

In the last eight weeks, as the sub-prime mortgage market
created doubt among the investors that the quality of the
loan products was as good as they were led to believe, the
investors also pulled out of the jumbo loan market (those
loans over $417,000).

The absence of liquidity rippled through, from the investors
to the lenders to the cutbacks in lending programs to fewer
opportunities for borrowers to get the loan that they needed.

We are now seeing that after this reaction, that the lenders
are now resuming some loan categories and products that
have been missing for the last two months.

Specifically, there has been a resumption of the stated income
jumbo loan products. These allow borrowers to represent their
incomes without having to provide documentation as proof.
The guidelines have not snapped back to where they were
before the meltdown, but they are moving in the right direction
to benefit borrowers.

At first, the lenders dropped these loans to only 80% of the
home value, but would allow a second loan of 10% so that a
buyer could still purchase a home with only 10% cash down
payment.

Now there are jumbo lenders who will do a stated income
loan up to 95% of the value. The qualifications are somewhat
more stringent than they were before, but at least the program
is now available, which will help many borrowers.

There are also proposals in Congress to expand both the
conforming limits substantially beyond the $417,000 limit and
to the FHA program. In the San Diego area, the $417,000
limit has not served the high-priced areas very well, and FHA
has been essentially dormant for much of the county for quite
some time.

If these changes go through, we will see many more opportunities
for borrowers to obtain favorable financing with the support of
the FHLMC, FNMA and FHA programs.

Keep in mind that our far-reaching lending resources can help
you find solutions to your mortgage needs that many other
lenders cannot provide.