Updates and Trends

Updates:

Every year about this time, we get an update for
the new conforming loan limits.

Conforming loans are those that are eligible to be
sold to FHLMC (Freddie Mac) and FNMA (Fannie
Mae).

For the 5th straight year, the limits are as follows:

Single family home $417,000
2-unit properties $533,850
3-unit properties $645,300
4-unit properties $801,950

As I mentioned in an earlier newsletter, loans above
thsoe loan amounts may also be created and sold to
FNMA and FHLMC under special legislation designed
to stimulate the housing market. The maximum loan
amounts for these loans, commonly called "Conforming-
jumbo" or "High-Balance Conforming" loans, are set
by county.

The High-Balance Conforming loan limits for San Diego
County through 2010 are as follows:

Single family home $697,500
2-unit properties $892,950
3-unit properties $1,079,350
4-unit properties $1,341,350


Trends:

We are getting word that underwriting guidelines
will be tightening further as we head into 2010.

Currently, we can obtain loan approval through an
Automated Underwriting System (AUS) that essentially
gives the OK to the file (subject to verification
of the data submitted) and the lender will create
the loan, knowing that FNMA and FHLMC will purchase
the loan from them.

It is not uncommon for the AUS to approve a loan with
high ratios. When I use the term ratios, I mean the
relationship between the borrower's monthly debts
and their monthly income. The monthly debts will
include the proposed new loan payment, plus property
taxes, plus hazard insurance and a homeowner's
association fee if applicable, and combined with other
monthly debts for installment debts, revolving debts,
student loans, or alimony/child support payments.

The AUS has allowed for qualifying ratios above 50%
of the borrower's gross monthly income, especially
when the borrower has substantial liquid assets that
can be available to the borrower if they have extra-
ordinary expenses in a month.

The new guidelines look like they will provide a "hard
ceiling" of rations not to exceed 45% of the borrower's
gross monthly income. The discretionary judgment to
assess the borrower's overall qualifications appears to
be eliminated in an effort to standardize the approval
process.

On a related topic, we can often solve this problem by
having the borrower pay off some of their debts to get
the ratio below the stipulated guideline. We are now
seeing that some lenders, in conjunction with their
agreements with FNMA and FHLMC, are no longer
allowing the payoff of revolving debt - like credit card
payments - to qualify.

The best strategy would be for the borrower to work
toward paying off their bills, before we have the
opportunity to run their credit report, so that it
is not an issue for an underwriter.


As always, the mortgage business is changing all the
time. If you are considering purchasing a home, or
refinancing in the near future, take the time to get in
touch with me before the need arises so that I have
a better opportunity to help you navigate through the
changing guidelines that we will be facing.

Good News from Congress!

There have been two significant programs in place this
year that have contributed to any housing recovery that
we have been experiencing.

Both had deadlines that threatened to turn their coaches
into pumpkins, unless Congress pushed through legislation
that would allow them to continue.

First, the first-time home buyer tax credit of $8000 was
scheduled to expire as of November 30, 2009. There was
a lot of concern that with the length of time that it was
taking for short sales and foreclosures to work their
way through the system, that a lot of needy buyers would
miss out.

But, the Senate has approved an extension of the tax
credit until April, 2010. It appears that there are no
changes to the requirements to receive the credit, and it
has not yet been signed into law by the President. It
would be highly unlikely that it would not move forward.

Second, over the last couple of yeras we have enjoyed
a lending category commonly known as high-balance
conforming loans. Conforming loans have a maximum of
$417,000. The high-balance conforming loans that are set
by county.

In San Diego County, the high-balance conforming loan
amount on a single-family home is $697,500.

The enabling legislation called for an expiration to this
program as of December 31, 2009.

But, the President signed an extension for the availability
of these higher loan limits that will continue through
December 31, 2010.

This is incredibly helpful in the San Diego market because
it allows properties in the $550,000 to $900,000 range to
obtain more affordable financing that can be purchased by
Freddie Mac and Fannie Mae.

If we had to rely on the traditional market (loans above
$417,000 before the high-balance category was created),
availability of loan products would be impaired and the
interest rates and fees would be higher.


What the government is helping us with on one hand is
being micro-managed and over-regulated on the other.

Soon, I will try to summarize just how we are going to
try to navigate through the HVCC, MDIA, HPM Section 35,
HMDA, Red Flag, RESPA, and the SAFE Act which will
be in effect in 2010.

It is going to create a more complicated process and
create timing considerations that will most likely
lengthen the time it takes to close an escrow.

But, that is for another day!