The Interest Rate Roller Coaster

If you've been waiting for interest rates to go
lower, you may not want to wait much longer.

As you probably know, interest rates have been
very attractive for several months.

After dropping below 5%, they have predominantly
been in the 4.5% to 4.75% range with a one point
loan origination fee.

Then suddenly last week, interest rates rose
dramatically. Within the course of 1-2 days,
the comfortable range to which we had become
accustomed blew up and started to hover above
5%. That is quite an upward move in only a couple
of days.

Now, by all historical standards 30-year fixed
rates in the 5% range are still very desirable.
But, because there had been such good opportunities
in the sub-5% levels for quite some time, it feels
like something has been lost.

It's always difficult to determine if market moves
like this are a blip on the radar screen, or if in
fact we have reached the bottom and rates are only
moving up from here.

There is little doubt that at least for the time
being, the investors in fixed interest rate issues
like mortgage-backed securities reached a level of
saturation last week.

There is a big concern about long-term inflation,
especially with all the debt that the country is
taking on. One of the strategies for paying back
the debt is to have the Treasury print money, and
that is inflationary.

If investors are going to be paid back with cheaper
dollars in the future, they want a higher rate of
return, so that they have some chance to get repaid
the yield that they were expecting.

There is no shame in obtaining a loan that is hovering
near 5%, but if you have been watching rates in the
4.5% - 4.75% range you may feel that you have missed
an opportunity.

My suggestion would be to assess your options and consider
locking in an interest rate before they have a chance
to go higher. Some lenders will allow a renegotiation
of an interest rate lock-in if rates go lower.

As they say in the medical profession "First, do no
harm." I have seen many borrowers miss out on something
good, hoping for something better.

Don't miss out on the property you want, or a better
interest rate on a refinance in hopes that rates will
drop again to where they were. It may happen, but
the risks are significantly greater if rates continue
to move up.

Call me to discuss your situation and we can strategize
as to the best course of action for you.

FHA And VA Are Back

For the longest time, FHA and VA were not useful
tools in the San Diego market. Sales prices
were too high to allow FHA and VA financing to be
viable alternatives for borrowers.

With the drop in home values, they are back and
many borrowers can now use them as effective tools
to finance their home purchases.

Let's take a look at some of the features and
benefits of these two programs.


VA

These loans are available to eligible veterans.
They require that the veteran obtain a Certificate
of Eligibility from the Veteran's Administration
that shows they have met the minimum service
standards of 181 days of active service and have
not had a dishonorable discharge.

VA loans are available for single veterans, a
veteran and spouse, or two unmarried veterans
buying together. There is no provision for a
veteran/non-veteran loan unless for a married
couple.

VA loan limits currently allow a qulaified veteran
with full eligibility to receive a loan with no
down payment up to a loan amount of $417,000.

At times, and subject to market conditions, VA
loans may exceed $417,000 with some down payment
required. VA guidelines allow for these higher
loan amounts, but the appetite by GNMA (Government
National Mortgage Association) to purchase these
loans is the determining factor for them to be
offered.

VA does require a funding fee from the veteran,
which helps defray some costs of administering the
program. For a first-time user of their eligibility
and with 100% financing, the funding fee is 2.15%
of the loan amount. Instead of the veteran having
to pay this in cash, VA allows for it to be financed
on top of the 100% loan.

For example, a home price of $400,000 would allow
for a no-down VA loan of $400,000 to a veteran with
full eligibility. The final loan amount would be
$408,600 after financing the VA funding fee.

VA does help protect the veteran by limiting some
of the closing costs that they are allowed to pay,
and makes broad allowances for a seller, or other
party, to pay expenses on the veteran's behalf.

VA's goal is to help as many veteran buyers as
possible succeed with home ownership by guaranteeing
the loan for the lender through the VA program.

If you think you are eligible for a VA loan and
want more details, get in touch with me so we can
discuss your individual circumstances.


FHA

FHA loans allow borrowers with good qualifications
purchase homes with a lower down payment than
conventional loans require.

FHA loans are generally available to any qualified
buyer and property, and are not limited like the VA
program is.

The basic FHA program allows a borrower to buy a
home for their residence with as little as 3.5%
down payment.

Similar to VA, there is a requirement for the payment
of Mutual Mortgage Insurance to help cover the costs
of the program. These loans are insured by the FHA
program to the lender.

The cost of the MMI is 1.75% at closing, which can
be financed, and .50% per year. The loan limits are
similar to VA. FHA allows for loans up to $417,000
and at times may exceed that amount if GNMA will
purchase the loans. Availability changes from time
to time.

Let's look at an example of a purchase price of
$400,000. This would require a down payment of
$14,000 (3.5%). The up front mortgage insurance
premium of 1.75% can be financed, bringing the
final loan amount to $392,755.

The mortgage payments will include the principal
and interest payment, an amount for property
taxes, property insurance and the mortgage insurance
premium (which comes to $163.65 in this example).

There are many details in obtaining an FHA loan.
They are in many ways easier to qualify for, but
attention to all the fine points is a must.

If you are hopeful to find a home, and have limited
funds for down payment and closing costs, let's talk
about how FHA might work for you.

The Home Valuation Code of Conduct (HVCC)

In January, I referenced an article by syndicated
columnist Kenneth Harney about the planned
changes to the appraisal process.

On May 1, the changes have gone into effect.

Here is a summary of what we are now facing when
coordinating your appraisal for your home financing.

The HVCC was part of a settlement involving New
York Attorney General Andrew M. Cuomo, and
Freddie Mac (FHLMC) and Fannie Mae (FNMA)and was a
result of an investigation of 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 promoting 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.

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.

Breaking News! & Differences Between Mortgage Banking and Mortgage Brokerage

First the News!

We finally got word today from one of our lenders
with whom we broker loans that they will start
accepting registrations for the new conforming-
jumbo loan limits to $697,500 in San Diego
beginning April 27.

The conforming limit is currently $417,000.
The Economic Stimulus Act of 2008 allowed FHLMC
and FNMA to purchase loans up to $697,500 in San
Diego. At the end of 2008, that figure was
reduced to $546,250 in San Diego.

The 2009 American Recovery and Reinvestment Act
(ARRA) was passed in February and allowed for
the reinstatement of the higher $697,500 limit
in San Diego. We have been waiting for two months
to see that the guidelines have been finalized
and that lenders would start accepting applications
for the higher limits.

The reason this is a big deal for borrowers is
because the jumbo loans - those above $417,000
traditionally - have not been readily available
and when they have been offered, it has been at
significantly higher rates and fees.

The conforming-jumbo loans at the higher limit
will allow more borrowers to finance at affordable
interest rates, and that is going to help a lot
of people.


MORTGAGE BROKERAGE AND MORTGAGE BANKING


As I work with clients and facilitate their
requests for home loans, there are a couple
of different ways I can represent their interests.

As a mortgage broker, I serve as an advocate for
you, the borrower, with the lender.

I help you complete the mortgage application,
educate you as to available loan programs and
costs, and counsel you on any concerns and
possible solutions that could affect your loan
approval.

The lenders make their loan products available
to us through what they call their wholesale
division. It is called that because they
offer their interest rates and fees at a
"wholesale" price to us and allow us to earn
our compensation for the work we do.

When lenders create loans directly, that is
commonly called their retail operation. The
rates and fees that they charge are competitive
with what we charge as mortgage brokers. They
then pay their staff for the work that they
do for the lenders as employees.

So, you should find that the quotes you receive
from the lenders directly or through mortgage
brokers to be very similar. If that were not
the case, one or the other would not be able to
compete and would cease to be a player in the
mortgage market.

Based on our knowledge, experiences and resources,
we package your loan for presentation to the
lender. We do not have any direct ability to
approve your loan, but we are well-versed in the
guidelines for your loan request and can often
persuasively influence the underwriter to approve
your loan if there are differences of opinion.
The lender will approve the loan, draw the loan
documents, and fund the loan.

If we are unable to gain approval with Lender A,
we can take the same package that we have put
together and submit the request to Lenders B, C,
D, etc. if necessary to work toward approval.

Although it may be maddening at times to have
lenders give us so many different opinions and
viewpoints when it comes to getting your loan
approved, it is also the major advantage that I
have in helping you.

If every lender gave us the same answer at all
times, there would be no need to have multiple
sources with which to place your loan request.
So, having some lenders who will say "yes" when
others say "no" is actually a good thing, and
we do our best to find the "yes" lenders as
early in the process as possible.

If you were to apply through a lender's retail
operation, and they said "no", you would have
to generate a new loan request with another
lender. This would take significantly more time
and effort on your part, since you would have
to regenerate the loan application repetitively.
Also, you may have additional fees for duplicate
appraisals of the home since most retail lenders
do not find another lender's appraisals acceptable.

Being able to assist borrowers as a mortgage broker
is a very valuable resource for you. My experience,
my knowledge, and my ability to match your qualifi-
cations to the available loan products saves you
time and trouble at competitive rates and fees.

In addition to mortgage brokerage, I also have
the resources to offer mortgage banking.

Mortgage banking is distinct from mortgage broker-
age because the banking operation allows me to
have the loan underwritten, loan documents prepared,
and the funding of the loan all under the control
of our company.

In this case, we have a select number of lender
relationships, currently about 5-10, that are known
as correspondent lenders.

This means that our company has developed the trust
and the relationship with these lenders for us
to make the loan decision on behalf of the lender.

We have arranged for lines of credit to create
these loans - these are commonly known as warehouse
lines, because after the loan is funded they are
"warehoused" until the lender for whom we created
the loan purchases the loan from our company.

Being able to offer loans within a correspondent
lending relationship gives me the added ability
to have your file move more efficiently through
the process. I have more access to the underwriter,
the document preparation person and the funder of
the loan to try to facilitate special situations
or timing issues.

In today's lending environment, many companies that
were previously able to offer mortgage banking have
had to give it up because their warehouse lines of
credit have not been renewed. Being able to main-
tain these lines of credit requires frequent re-
qualification, and as the mortgage business hit
so many obstacles in the last couple of years,
a lot of companies could not maintain their quali-
fications.

When you are ready to take action to purchase a
home or refinance existing home loans, be sure to
check in with me. My many resources, access to
competitive lending programs, and my 31 years of
experience can be of tremendous benefit to you.

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.