Glimmers Of Hope

As we work our way through the tightened approval
standards that the mortgage underwriters are
adhering to, we keep looking for the positives
that peek out from time to time.

First, interest rates are still staying low.
For the most part, conforming loans (up to
$417,000) for primary residences are in the 4.75%
to 5.0% range with a loan fee of one point.

Conforming jumbo loans (those between $417,000 to
$546,250 for San Diego County) are in the 5.25% to
5.5% range with the same one point loan fee.

Second, although it does not apply to the broadest
array of borrowers, Freddie Mac (FHLMC) and Fannie
Mae (FNMA) have relaxed a restriction regarding
the number of mortgaged properties a borrower can
own and still obtain a loan targeted to FHLMC and
FNMA.

Specifically, the previous restriction was that
a borrower could not obtain a FHLMC or FNMA targeted
loan if they owned more than 4 mortgaged properties.

The new limit is that the borrower may now own up
to 10 mortgaged properties and still obtain a new
loan targeted to FHLMC and FNMA.

This gives us some idea that as the underwriting
pendulum has swung from extremely lax (before the
mortgage meltdown became prevalent) to extremely
conservative (where only the most qualified borrowers
and least risky loans are being approved) that
there is some realization that there is room to
be a bit less conservative.

Third, we have seen some relaxation of add-ons to
loan pricing models in some cases.

Let me give a recap of how loan quotes (interest
rates and loan fees, also known as "price") are
determined.

We receive loan pricing quotes from our lenders
daily, and frequently receive mid-day changes as
the financial markets ebb and flow.

There is a base rate offered to us for each loan
program, and variations from that base for higher
rate/lower fee or lower rate/higher fee combinations.

In addition to these base rates and variations, there
are specific adjustments to the rates and fees for
various risk-based factors.

A few of these would include:

Loan-to-value (LTV) adjustments. A higher loan in
relation to the value of the home is priced higher
than a lower loan in relation to the value. For
example, a 60% LTV is less costly than a 70% LTV
which in turn is less costly than a 80% LTV.

Credit Score adjustments. The pricing models give
preferential results for scores of 740 or higher.
If the score is between 720 to 739, the pricing is
a bit higher. Other pricing differences exist for
the 700-719 category (still higher) and from 680-699,
(and higher yet).

Purchase loans vs. refinances. Purchase loans get
the best terms under the pricing models, refinances
where the borrower is not seeking cash from the equity
of their home are next, and cash-out refinances may
be the most costly.

Type of property: Single family homes are regarded
as less risky than condominiums, and the pricing
models show than condos have higher pricing. If the
property is 2-units, 3-units, or 4-units the pricing
is higher for these scenarios than for a residence.

Occupancy: There is significantly less risk for a
lender when they lend on a primary residence for the
borrower. Statistically, rental properties have a
higher default rate than a person's home (with all
other factors being equal). The pricing for a rental
property is quite a bit higher than an owner-occupied
home.

Loan amounts: Conforming loans (up to $417,000) are
priced better than conforming-jumbo loans (those
between $417,000 and $546,250 in San Diego County)
which in turn are much better than jumbo loans (those
above $546,250 in San Diego County).

There are other risk-based factors that could affect
the loan quotes.

Specifically, the improvment that we have seen is
that some of the pricing add-ons for some instances
in the conforming-jumbo category have been reduced.

Again this may be some recognition that things need
to be a bit more affordable to help borrowers obtain
financing in this market.

As always, give me a call to discuss your specific
circumstances. There are too many "moving parts" to
generalize a solution for everyone. We can make
sure you get customized answers for your situation.