Rays of Sunshine

Over the past couple of years, we have seen the
housing and mortgage industries going through
some bleak times, after spiraling out of control
for a while.

As we have been slogging through the upheaval
and dealing with the slumping housing market
and more restrictive lending environment, we
have been hopeful that we would see evidence
of improvement.

There are some indications that we may be turning
the corner.

1. Well-maintained and fairly priced homes that
are being offered for sale are moving much more
quickly, and in many cases receiving multiple
offers.

Although the foreclosed properties and short
sales have not been absorbed by the market, there
is some evidence that they are slowing down.

And home buyers seem to have collectively come to
the realization that now is the time to buy.

There are still buyers that want to get the rock-
bottom price and will make as many offers to
distressed sellers as it takes to get the "best
deal". But, many people who want to finally
enter the housing market at these reduced prices
are acting now, and are negotiating fair prices.

This leads me to believe that buyers are thinking
that the bottom (or close to the bottom) has been
reached. And it is this mentality as much as
anything else, that will bring us out of the
slumping home price spiral.

2. Interest rates are staying low. The conforming
loan category, those loans up to $417,000 that
Fannie Mae and Freddie Mac purchase from lenders,
are staying below 5.00% with modest loan fees.

These rates are at levels that have not been seen
for the last 40-50 years. And buyers are recognizing
that borrowing money at these rates is a bargain
not to be overlooked.

We don't know how long they will last, but it is
reasonable to assume that once rates start to go up
again, we may not see these levels for a long time.
With the new government spending programs that have
been enacted in the last 60 days, there is a real
concern for future inflation, and that would mean
higher interest rates will be coming.

3. Any time now, Fannie Mae and Freddie Mac are to
announce the new guidelines and regulations that
will enable them to purchase loans above the $417,000
conforming limit to a new limit of $697,500 in San
Diego County.

This new availability of mortgage money that will be
priced somewhere between the conforming loans and
traditional jumbo loans will add liquidity to the
market.

Even though underwriting standards have tightened
a lot in the last year and a half, they have
stabilized and become more predictable. We have
not been "chasing" guidelines like we were doing
last year, when we could not get files to lenders
quickly enough before they tightened their criteria.

4. FHA and VA lending is becoming more common.

Because conventional loans no longer allow for
minimal down payments of zero or 5% cash, many
borrowers are seeking traditional loans that
allow for these lesser down payments.

FHA loans allow for down payments as low as 3.5%.

VA loans allow for 100% financing, and no down
payment, but does require that the borrower have
earned VA eligibility by their military service.

With home prices experiencing their drop, many
more homes now fit within the FHA and VA loan
limits. Contact me if you are interested in
exploring these options.

5. Jumbo loans (traditionally those above $417,000
but soon those above $697,500) are slowly being
offered again.

The maximum loan amounts and the loan-to-value
ratios are not as aggressive as they once were,
but the lenders are recognizing that there is
a way to make these loans with high quality and
manageable risk.

There has been a void in the market serving this
jumbo category because so many of these loans were
bundled in with the mortgage-backed security pools
that went bad. Investors were very leery of buying
large mortgages that were secured by homes that
were losing value, making their risk even greater.

The fact that lenders are putting their toes in the
water gives further credence to the idea that home
prices are starting to stabilize and maybe move
upward.


If you are interested in buying or refinancing,
take the time to explore your options and develop
a game plan for taking advantage of this convergence
of low home prices and low interest rates.

There are some great opportunities available right
now!

Government To The Rescue

Congress just passed, and the President signed,
a new law titled Making Home Affordable.

According to their web-site, there are two
separate programs. The Home Affordable Refinance
and the Home Affordable Modification. Details
can be found at www.makinghomeaffordable.gov.

Let's take a look at some of the features.

The Home Affordable Refinance will be available
to 4 million to 5 million homewoners who have a
solid payment history on existing mortgages owned
by Fannie Mae (FNMA) or Freddie Mac (FHLMC).

The targeted homeowners normally would be unable
to refinance because their homes have lost value,
and pushing their current loan-to-value above 80
percent.

Under the Home Affordable Refinance program, many
of them will now be able to refinance to take
advantage of today's lower mortgage rates or to
refinance an adjustable-rate mortgage into a more
stable mortgage such as a 30-year fixed rate loan.
Owner's can refinance up to 105% of the new value
of the home.

This program will end in June 2010.

Eligibility requirements include the following:

1. You are the owner and occupant of a one- to
four-unit home.

2. The loan on your property is owned or secured
by FNMA or FHLMC. To see if FNMA owns your loan try http://www.fanniemae.com/homepath/homeaffordable.jhtml
or 1-800-7FANNIE. For FHLMC use 1-800-FREDDIE or
go to https://ww3.freddiemac.com/corporate/.

3. At the time you apply, you are current on your
mortgage and that you have not been more than 30
days late in the last 12 months.

4. You believe that the amount you owe on your first
mortgage is about the same or slightly less than the
current value of your home.

5. You have sufficient income to support the new
mortgage payments.

The refinance improves the long-term affordability or
stability of your loan. The objective of the Home
Affordable refinance is to provide creditworthy
borrowers who have shown a commitment to paying their
mortgage the opportunity to get into a mortgage with
payments that are affordable today and sustainable
for the life of the loan.

You can contact me to see if you are eligible and
about how this program may work for you

The Home Affordable Modification program will help
up to 3 million to 4 million at-risk homeowners
avoid foreclosure by reducing monthly mortgage
payments to no more than 31 percent of the borrower's
gross monthly income.

Banks and other mortgage providers can begin to
modify eligible mortgages immediately under the
modification program so that at-risk borrowers can
better afford their payments.

Eligibility requirements include the following:

1. The mortgage loans must have originated before
January 1, 2009.

2. They must be first lien loans on owner-occupied
properties with unpaid balances up to $729,750 which
may vary by county.

3. The mortgage payment including taxes, insurance,
and homeowners association dues must be more than
31 percent of your gross monthly income.

4. All borrowers must fully document income. This
would include recent pay stubs, most recent tax
returns, allow for the lender to cross-check the IRS
information, and sign an affidavit of financial
hardship.

5. Property owner occupancy will be verified through
the borrower's credit report and other documentation.

6. Modifications can start from now until December 21,
2012. Loans can be modified only once under the
program.

Be prepared to provide paperwork on the gross monthly
income for all borrowers, information about any
second loans on the home, balances and minimum
monthly payments for car loans, personal loans,
student loans and credit cards.

For information on whether your situation is eligible
for the Home Affordable Modification program, you
will need to contact your existing loan servicing
provider. You should be able find the contact
information on your mortgage statement.

Adventures In Mortgage Lending

As we have been working our way through loan
approval guidelines becoming tighter over the
last year or so, we are encountering some
interesting processing situations that can
serve as learning experiences.


Paperwork? More Paperwork?


When I meet with a client initially, I do
my best to ask for as much paperwork to support
their loan application as I can foresee.

In most cases this would include paystubs, W-2
forms for the last two years, bank statements,
brokerage statements and retirement statements,
and in some cases tax returns for the last two
years.

One client I worked with recently very computer
savvy, and did not collect paperwork. He made
it clear that pulling those items together was
a chore for him. But I was able to get the
most recent paystubs and statements to get the
file into the processing queue, and work toward
loan approval for him.

Processing times have lengthened as the lenders'
work loads have increased. We were previously
able to process a loan to completion in about
30 days, but now it takes closer to 45 days or
more to conclude.

The lenders are now expecting the file to be
completely up-to-date when it is ready to close.

This means that even after the loan is approved
that the lender wants the paperwork to be the
most recent possible. The last paystub, the
last bank statement, the last brokerage statement
that was received between the initial application
and closing was required.

My borrower was not pleased with the request. He
had borrowed several times in the past, but was
surprised by how stringent the documentation
requirements had become. And since he was not
the type to keep this kind of paperwork readily
available, it became an issue to get his loan
closed before his rate lock commitment was due to
expire.

THE LESSON: Understand that the lending business is
not as forgiving as it has been in the past. The
lender will want every last piece of paper so that
they don't have to assume anything. If a bank or
brokerage statement has a summary page and followed
by 10 pages of detail, the lenders are asking for all
11 pages.

It helps if we look at as a puzzle. The underwriter
is putting together a lot of pieces to paint the
picture of an approved loan. If there is a piece
missing, or incomplete, it keeps them from putting
the picture together. And, in the end, we need to
get them what they need to finish the picture.


I Didn't Mention It, But That Was Really Important
To Me!


I recently closed a refinance for a client. Through
the process, the borrower actually skips a formal
payment to the old lender or the new lender. But
the interest that was owing for the month in which
it closes is divided between the payoff of the old
loan for a portion of the month, and prepaying the
interest on the new loan to the first of the next
month.

My borrower had refinanced in the past and knew
the mechanics of how this worked. In his previous
transactions, he was able to finance the month's
interest, so he was able to keep the monthly
payment in his checking account.

This time however, he was reaching the maximum
loan in relation to the value of the home. The
loan amount was just sufficient to pay off his
existing loan and cover his closing costs, so
there was no room to finance the month's interest.

As we approached the closing, and again had a
time limit due to the rate lock expiration, we was
asked to deposit the month's interest into the
escrow so that they could close the transaction.

He looked at this as a "last-minute" surprise,
because he had assumed that the loan amount would
work out as it had before, and he could keep the
payment in his pocket.

After we had an opportunity to discuss it, he
understood what had happened and he was able to
pull the funds together and close the transaction.

THE LESSON: There can never be too much communication
about what is important to you. And, don't assume
what has worked before will work again in this
environment.

I prefer to have my clients ask as many questions
as they can early in the process, and I try to
ask probing questions to find out what is important.

It is always an uncomfortable situation to deal with
unexpected developments late in a transaction. Make
a list of mortgage-related questions and make sure
you get satisfactory answers as early as possible.

Expansion of Loan Limits to Help Borrowers

The American Recovery and Reinvestment Act (ARRA)
was signed into law on February 24, 2009. This
act increased the maximum conforming limits for
loans eligible to be purchased by Freddie Mac
(FHLMC) and Fannie Mae (FNMA).

Last year, the Stimulus Act allowed FHLMC and
FNMA to purchase loans above the traditional
conforming limit of $417,000. In San Diego
County, the limit for a single-family home
was $697,500. Some counties had maximums of
$729,750 which was the absolute limit for all
states other than Alaska and Hawaii.

Then in late 2008, the limits were re-assessed,
and the San Diego County limit for 2009 was
set at a maximum of $546,250.

And now, in an attempt to loosen up lending,
and make some more opportunites available to
borrowers, the ARRA is now allowing the higher
of the Stimulus Act limits and the revised
limits for 2009 to be in effect.

So, going forward, the limits for San Diego
County are as follows:

1-family property $697,500
2-family property $892,950
3-family property $1,079,350
4-family property $1,341,350

This means that loans which were previously
categorized as jumbo loans, and whose availability
have been restricted due to lack of investor interest
through Wall St., can now have more competitive
rates and terms. It also means that money is more
available for these loan amounts.

We are awaiting for the enabling regulations to be
formulated through FHLMC and FNMA, and for the lenders
to announce their willingness to create these loans
for ultimate sale to these agencies.

We have some experience with the underwriting guide-
lines for these loans from last year, but there could
be new guidelines, requirements and restrictions that
are different from what was previously established.

Borrowers can expect to see at least three tiers of
loan categories, pricing (interest rates and loan
fees), and guidelines:

Conforming loans: These would be the traditional
loans with a maximum of $417,000. This is the
mainstream product that FHLMC and FNMA were created
to facilitate and that offers the best pricing.

Conforming-jumbo loans: These are also known as
Agency Jumbo and High Balance Conforming loans. This
is what the new ARRA is allowing the increase from
$546,250 to $697,500 in San Diego County.

These loans tend to have higher pricing models, and
have more restrictions than the conforming loans. The
higher pricing and restrictions are indicative of the
fact that there is higher risk to FHLMC and FNMA for
purchasing these loans.

Jumbo loans: These will be the loans above $697,500 in
San Diego County. Availability of funds for these
loans will come from lenders who have the capacity to
create them for their own loan portfolio (meaning that
they do not intend to sell them to other investors), or
who are relying on outside investors to purchase the
loans from the lender.

Because of the losses that have occured in mortgage
investments, we have seen a reluctance of Wall St.
investors to purchase the mortgage-backed securities
that are created from jumbo loans.

This lack of availability has made for a very stagnant
market in the jumbo category, and when funds are
available, the pricing has been very high.

For those of you who have loans between $546,250 and
$697,500 in San Diego County, now would be a good time
to initiate a conversation about possibilities for
improving the terms of your mortgage.

Of course, if you are seeking financing for a new home
purchase, you can now expect better terms for loans
between those two loan amounts.

Give me a call to discuss what may be the best course
of action for you and how to take advantage of the
new lending programs and guidelines.

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.

Proposed Appraisal Changes You Should Be Aware Of

Kenneth Harney, who writes a syndicated column
for the Washington Post Writers Group penned a
column recently from which I am borrowing liberally.

During the "go-go" days of making loans without
much concern about the quality and qualifications,
the appraisal process at times was compromised to
some degree by various market pressures.

There is a new proposed regulation, called the Home
Valuation Code of Conduct (HVCC) that was part
of a settlement involving New York Attorney General
Andrew M. Cuomo, and Freddie Mac (FHLMC) and
Fannie Mae (FNMA). It is scheduled to go into effect
May 1, 2009.

This came into play because Cuomo wanted to
investigate FHLMC and FNMA for alleged appraisal
overvaluations, and evidence of illicit pressure on
appraisers to "hit the numbers" needed to close loans.
Appraisers found themselves facing the prospect of
delivering appraisals at predetermined values, or not
being hired again to perform appraisals by unscrupulous
loan originators.

Part of the standards was to create Appraisal Management
Companies (AMC) to insulate the appraiser from any one
having a direct interest in the valuation and the outcome
of the process, including lenders, mortgage brokers, or
real estate agents.

The HVCC will effectively eliminate all of the business
relationships that have developed over years of working
together. Instead, mortgage loan officers, who tradit-
ionally would be the one to make the appraisal assign-
ment, will be forced to shift the assignment to third-
party AMCs.

It actually bans brokers from any involvement in
selecting appraisers, or having conversations with them
that could be construed as trying to influence the value.
Even the innocent practice of asking an appraiser to give
a range of what the raw data indicates before asking the
borrower to pay for a full appraisal will not be allowed.

There are some significant consequences for borrowers
if the HVCC goes forward and is implemented.

* The fee that you pay for the appraisal will actually
be split between the appraisal management company and
the appraiser. A professional appraiser typically
earned about $400 for a single-family (non-custom)
home appraisal. Now, the AMC will receive a good
portion of the fee, and the appraiser will probably
be asked to work for about half of what they earned
before. Or, the AMC will add their fee on top of the
traditional fee and the cost to you, the borrower,
will go up.

* Experienced, career appraisers may be priced out of
the market if they are not willing to work for about
one half of what they normally earned. This will
put many more inexperienced appraisers on the rosters
for the AMCs to select from. Appraisers who are
less experienced may create less reliable valuations.

* The AMC is selling their value by expediting the process
and offering quick turn-around times. If Appraiser A
does not respond quickly to a request, they will move
down to Appraiser B, and so on until they find someone
who can get the job done within their time frames. The
appraisers who are the busiest, which may translate to
being the most experienced and in demand, may not get
the assignment. The appraiser waiting for the phone to
ring will get the business.

* The appraiser may be asked to complete their evaluation
more quickly and not have an opportunity to do all of the
research that is warranted to assess the comparable proper-
ties, sales contracts and local market trends. This
will not lead to a better valuation process.

* Professional appraisal groups have argued that the AMCs
place quality last while they press appraisers to finish
the appraisal quickly, many times within 24 to 48 hours
from the time of the assignment. If the appraiser does
not have time to verify the important details of their
assignment, the result will be unreliable.

* Low appraisals will reduce a borrower's ability to
negotiate an acceptable refinance, and force buyers
to come up with larger down payments. It is much less
likely that an appraiser will err on the side of being
too high on a valuation.

There are still steps being taken before the HVCC proposal
takes effect. The appraisal groups and the National
Association of Mortgage Brokers plans to appeal to
Congress to change what they find most objectionable.

The old system worked very well for honest loan originators
and appraisers. If the lender used their quality control
systems to discover a concern over the valuation presented,
they always had the opportunity to request a review
appraisal by someone that they trusted and compare the
results.

This new AMC system puts more barriers in place to have
business conducted with effective communication, and it's
hard to believe that any of us will be happier with less
communication about something as important as your home
financing.

Interest Rates Are Crazy Good Right Now!

If you have been subscribed to this newsletter
for a while, you know that I try to use it
keep you informed about the latest mortgage
trends, and educate you on the basics of the
mortgage business.

This edition, however, I am going to depart
from that pattern to let you know what is
going on with interest rates right now.

As you may recall, there are three categories
to conventional lending right now: conforming
loans, conforming-jumbo loans, and jumbo loans.

Conforming loans are those that conform to
Freddie Mac and Fannie Mae (FHLMC and FNMA)
standards and where the loan amount does not
exceed $417,000 on a single family home.

Conforming-jumbo loans are eligible for FNMA
and FHLMC to purchase, but the loans amounts
exceed $417,000. In San Diego County, the
conforming-jumbo loans will fit within $417,000
and $546,250. Other counties will have
different limits above the $417,000 amount to
a different maximum.

Jumbo loans, strictly defined, used to be those
loans above $417,000. But now that the conforming-
jumbo category exists, jumbo loans are those above
the conforming-jumbo limits based on the county
maximums. In San Diego, it would be loans above
$546,250.

The following loans were based on a loan request of
80% of value, a credit score for the borrower of
740 or higher, on an owner-occupied single-family
home purchase. If any parameters are different than
this, you may expect a different quote based on
risk-based pricing that I explained in my newsletter
dated December 17, 2008. If you would like to
review that material you can see it at
dougbrennecke.blogspot.com.

Conforming, 30-year fixed rate loan

4.625% Loan fee of 1 point. (1 point equals 1% of the
loan amount.)

Conforming, 15-year fixed rate loan

4.375% Loan fee of 1 point.


Conforming-jumbo, 30-year fixed rate loan

4.875% Loan fee of 1 point.

Conforming-jumbo, 15-year fixed rate loan

4.625% Loan fee of 1 point.


Jumbo loans have been more difficult to price
favorably in this market. There has been less
willingness for investors to purchase these
loans, and this lack of liquidity in the market
restricts the availability of these loans and
makes the pricing (rate and fee combination)
higher. These quotes go to $625,500.

Jumbo, 30-year fixed rate loan

7.375% Loan fee of 1 point.

Jumbo, 15-year fixed rate loan

7.375% Loan fee of 1 point.

Jumbo, 30-year loan term, 1st 10 years fixed

6.000% Loan fee of 1 point.

Jumbo, 30-year loan term, 1st 7 years fixed

5.750% Loan fee of 1 point.


Other programs are available, and the interest
rate and fee combinations can be modified to
obtain lower rates or lower fees.

Please contact me at 619-846-4322 to discuss your
particular situation. Rates can change at any
time, and right now they are as low as they have
been in about the last 40 years.

Make sure that you research what is possible for
you so you don't overlook a money-saving opportunity.