Great News For The Higher Limit Conforming Loans!

There have been some recent positive changes in the
FNMA and FHLMC higher limit conforming loans that
are in effect at least through December 31, 2008.

**The interest rates and fees for the loans between
$417,000 and $697,500 (in San Diego) are now much
closer to the traditional conforming rates and fees.

**There now is an option to refinance and take cashout
to a maximum of $100,000 (based on loan-to-value
guidelines). Initially, they would not allow this or
even allow the payoff of a second loan through a
refinance on this program.

**Loans can now go to 80% of the value of the property
in certain circumstances. At the beginning, 75% was
the maximum.

You may recall that when the Economic Stimulus Bill
first became law, FNMA and FHLMC had the ability to
purchase loans above the standard $417,000 limit for
a single-family property.

The maximum that went into effect was now $729,750,
based on a county's median home price. In San Diego,
the computation created a limit of $697,500.

The initial guidelines were very conservative. Since
FNMA and FHLMC were now taking on the risk of higher
loan amounts that the private sector used to absorb,
there was a reluctance to open the floodgates.

They have had a couple of months now to assess how well
their guidelines were working. I think it was fair to
say that because their guidelines were so restrictive
that they did not receive as many new loans as they
may have been anticipating.

There is no question that this element of the Stimulus
Bill failed to produce much stimulus.

With these new changes, however, many borrowers are now
going to get the opportunity to purchase homes with
significantly lower interest rates and fees.

Many borrowers are going to be able to refinance from
an adjustable rate loan to a fixed rate loan and have
predictable payments going forward.

Many borrowers will be able to refinance their loans
which were fixed for the first 3 or 5 years and not
have to face the resets of those loans to possible
higher interest rates or have them become adjustable
rates.

Many borrowers will now have a chance to improve the
terms of their loans, which started as jumbo loans,
by refinancing them to terms that are very close to the
traditional conforming rates and fees.

Now is the time to put a strategy in place. If you, (or
anyone you know), has a loan below $697,500 in San Diego,
investigate your possibilities. Rates may be attractive
enough right now to want to take action.

If rates are not quite where they need to be right now,
we can agree on a game plan going forward.

Remember, all we can count on right now is that these
temporary conforming limits will be in place through
the end of the year. There are no guarantees (or even
any indications at this time) that this time limit will
be extended.

We are finally getting to see some of the possibilities
promised by the Stimulus Bill. Don't procrastinate and
miss out on any opportunities that this may present.

The Top Four Factors In The Mortgage Process

In a survey conducted with mortgage borrowers, there were
four factors that were determined as the most important.

In order of importance, they were:

1. Communication
2. Integrity
3. A Smooth and Complete Process
4. Competitive Products and Rates

Let's take a look at each of these and how they fit
together to help you have the best possible experience
in obtaining your new home loan.


COMMUNICATION
It has often been said that most people can deal with
what needs to be done, if they are only told what the
rules are.

In the mortgage lending field, it is so important to know
what to expect, how the process works and the details of
the specific proposals that you are asked to consider.

Your mortgage originator should be able to tell you
the steps and timing of their application process. From the
initial interview or submission of the loan application,
you should understand the time line for obtaining the
credit report, appraisal, escrow and title paperwork,
verifications of income and asset and for the submission
of the loan file for approval.

From there, you should know the turn-around time on a
submitted file in the lender's underwriting process. If
the file has been put together well and is complete, there
should not be many conditions to be satisfied on the loan
approval prior to the lender preparing the final loan documents.

Once the loan documents are signed and returned
to the lender, you will need to know how long it takes for
the lender to do their final quality control and to authorize
the funding of the loan to complete the transaction.

In addition to these procedural and timing expectations, your
mortgage originator should also be able to explain how their
process ties together with the escrow company, the title
company, your home inspector and termite clearance, and the
appraiser.

They also need to be mindful of the specifics of your contract,
so that they can meet any deadlines that have been agreed
upon by you and the seller. In California, there is a common
clause in the contract that calls for the buyer to
remove their financing contingency within 17 days of the
seller's acceptance. It is imperative that you have a
mortgage originator who gets the paperwork started quickly,
who puts a quality loan package together and gets a loan
approval that has few conditions.

When you are asked to remove your financing contingency and
put your earnest money deposit at risk, you want to be as
sure as you possibly can that there is not something to
prevent you from obtaining your home loan.

And, of course, you need a mortgage originator who can
listen, who can understand what is important to you, who
understands your risk tolerances and time horizons, so that
the loan programs that are presented to you are suitable
matches for your qualifications and needs.

It takes an experienced professional to present options to
you that are clear and thorough. You want someone who can
speak in language that you understand and makes sure that
you are comfortable with the final recommendations. You
will also want to have someone who can point out the positives
of various loan programs, and any negatives as well, so that
you can make an informed decision.


INTEGRITY

There are so many opportunities in the mortgage industry
for a person of low integrity to make a handsome living
and not serve their clients well.

As we saw, above, a person who wants to distort some
timelines, some facts, some attributes of loan programs - and
we haven't yet talked about rates and fees - to draw a
borrower to them has plenty of chances.

The best advice I can give is modeled after Ronald Reagan's
statement of "Trust, but verify".

If a mortgage originator makes representations, find out
how you can get some additional information to support the
statements. You can request a copy of the credit report,
a confirmation from an escrow officer or appraiser that
things were done in the timely manner promised, or a copy
of the final loan approval that outlines all of the conditions
of the loan approval. There are ways that you
can be more assured that your loan request is on track to
be completed as proposed and in the time frame that you
expect.

In my opinion, integrity and communciation go hand-in-hand.
If you have your mortgage originator go through the steps
of the application process and the escrow process and the
details of the various mortgage programs, you will get an
excellent idea of the integrity of the person with whom
you are dealing.

If the mortgage originator is unskilled, they may honestly
answer "I don't know, but I will find out". If they try
to bluff their way through an answer, you will probably be
able to detect irregularities in what they have said, and
that may point to an integrity issue.

If you are trying to understand details and you keep getting
vague answers in return, that may also point to an integrity
issue. It may be an unwillingness to give you the correct
information that is not favorable to their outcome.

If you find that a particular loan program is being touted
that does not seem to be suitable to you, you need to
understand whether that is the only solution that they have.
If there are additional choices, the presentation of an
unsuitable product may point to an integrity issue.

In my opinion, the more transparent the mortgage originator
is regarding how the process works, how the programs work,
how much you are paying in fees and who receives those, and
the willingness to admit if you have better choices else-
where goes a long way to proving their integrity.

Be sure to ask around about the person you are working with,
or to ask for referrals and testimonials from happy clients
and real estate agents. A person who has been originating
loans for a long time, and who has happy repeat and referral
clients says a lot about them being a "straight shooter".


A SMOOTH AND COMPLETE PROCESS

We've already alluded to this, especially in the Communication
section, but a skilled mortgage originator knows how to put a
package together and how to anticipate foreseeable problems.

It all starts with the loan application and collection of
supporting paperwork. I still prefer to interview my clients
whenever possible, and meeting them in person is the best
way to get things started.

In an efficient one hour meeting we can go through the data
gathering and really probe as to what is important to my client.
Knowing this information allows me to brainstorm
solutions to their individual situation and to strategize
about making their home ownership dreams come true.

I have developed systems that allow me to make a comprehen-
sive request for supporting paperwork that fits their
profile. It could be paystubs, W-2 forms, tax returns,
bank statements, brokerage statements, retirement account
information, divorce or bankruptcy paperwork, or explanatory
letters regarding special situations. Getting all of this
information up-front, rather than going back repeatedly to
the borrower for yet another piece of paper, is integral
to a smooth process.

There are situations that arise that are not foreseeable,
and we all need to make allowances for that possibility.
This has been even more true in the last year as the
mortgage industry tries to get back to more conservative
underwriting of loan files. However, there are many
obstacles that need to be recognized and discussed and
strategized over.

A smooth process is also a result of knowledge, experience,
skill, communication and integrity.


COMPETITIVE PRODUCTS AND RATES

Interestingly, this is not at the top of the list.

I think it is interesting because so many borrowers call
up for information and the only thing that they are interested
in is "What are your rates?"

Accepting a direct answer to that question is naive on the
borrower's part. There are so many factors that go into
determining the right program for a borrower, and the
interest rate and fees to be quoted, that the information
provided is not appropriate or possibly a deliberate lie.

In order to do a good job for our clients, and to treat
them properly, we need to remember an old adage: Prescription
without diagnosis is malpractice. Simply put, if we don't
ask the proper questions and just offer a "one size fits all"
solution, we are not doing the best thing for our clients.

We should know if the new property is going to be their
home and how long they intend to own it.

Are they salaried or self-employed?

Do they qualify by proving all of their income, or do we need
to consider stated-income alternatives?

What are the credit scores?
What is the purchase price, how much down payment, and is any
of it coming from a gift?

In addition to the new housing debts, how much do they owe in
other obligations?

These are some of the questions that are important to know
the answers to so that a proper loan program and accurate
interest rate and fee quote can be presented.

I know that I have lost the opportunity to help a lot of borrowers
because when they shop rates and fees only, the
person that tells them the lowest numbers will get the
opportunity to do the business.

The mortgage originators who deliberately deceive a borrower
to get the loan application process started with them know
that there will be a point where the borrower will continue
with them despite what the final terms are. And the final
terms are almost never the low quoted rates produced at the
beginning.

The pain of starting a new application process with someone
new and the time that it takes will jeopardize most purchase
transactions. And the deceptive originators know this. And
the borrowers usually fold. And the borrowers develop the
thought that all mortgage originators are the same, so what
difference does it make?

Nothing could be further from the truth.

The survey answers provide a solid basis for anyone shopping
for a new home loan.

The progams and rates need to be competitive, but they will
rarely be the lowest. Getting the lowest rates is more good
fortune that by scientific design.

If the process is not smooth and complete, it will leave you
with a bad feeling- possibly forever.

If you are working with someone without integrity, there is
no basis for anything else working well.

And if communication is poor or non-existent, you can expect
nothing but problems in all areas of the transaction.

Getting a home loan is a big decision. You have a lot to
lose if you don't try to maximize these four factors when
you decide with whom you want to work.

YSP - Why Is it Important In The Mortgage Process?

YSP is an abbreviation for Yield Spread Premium. Like most
"verbal shorthand" that is industry shop talk, it's not immediately
obvious what is stands for, or why you would care.

Let me take a moment to set a foundation regarding mortgage
rate and fee pricing.

Lenders will typically offer interest rates that cover a range of
roughly one to two percent. For example, in today's market,
lenders may have quotes in 1/8% increments from 5.5% to
7.25%.

So, if lenders are offering 5.5% and 7.25% loans, why would
anyone ever take a 7.25% interest rate?

Lenders (and investors) want to achieve a particular yield or
rate of return on putting their money to work. In order to
achieve this yield they may charge loan points with the lower
interest rates (discount points) or credit loan points with the
higher interest rates (rebate or yield spread premium). As
a reminder, one loan point equals one percent of the loan
amount paid as a fee.

Here's an easy way to think of this: If the lender get something
of lesser value (a lower interest rate) they will charge fees to
increase the value. If the lender gets something of higher value
(a higher interest rate) they give something back to create a yield
equivalency.

A rough rule of thumb for a 30-year fixed rate loan is that a
1/8% change in interest rate corresponds to a 1/2 point change
in loan fee. So if you want an interest rate that is 1/4% lower,
it would cost you approximately one point in loan fee. This
gets a little distorted as you move away from the center range,
like a bell curve.

If the borrower accepts a higher interest rate, there could
be surplus YSP over and above the origination fee that could
be applied toward the borrower's closing costs.

This would be the major reason why someone would take a
higher-than-normal interest rate - to have the lender pay most
or all of their other closing costs.

The most common use of yield spread premium as a loan
pricing tool is to offer borrowers a "no-point" loan. If we
assume that the typical loan origination fee is approximately
one point, then the borrower would accept an interest rate
about 1/4% higher in order to have the lender pay the origination
fee. The other choice would be to accept a lower interest rate
and then the borrower would pay the origination fee as part of
their closing costs.

As a result of the "subprime crisis" mortgage meltdown, there
is a lot of discussion about the abuses of the yield spread
premium in the mortgage community, and how borrowers have
been taken advantage of by greedy mortgage originators. The
most common discussion point is that borrowers were put
into loans at higher interest rates than those for which they
qualified.

A borrower could have been victimized if they were poorly
counseled, lied to, or failed to shop around to know what was
available in the market. Their loan could have been created
at an interest rate that paid a yield spread premium to the
originator and the borrower may have paid loan points as
well.

If the compensation received by the originator was
excessive for the service they provided, then the borrower
did pay too much (in interest rate and/or fees) for their loan.
This would be especially true if the borrower did not under-
stand how much they were paying, or did not shop around
enough to understand what the prevailing interest rates
were.

The responsible use of yield spread premium is to clearly
disclose options to the borrower, and to have the compen-
sation received by the originator be fair in the marketplace
for the service provided.

There are proposals coming from government to eliminate
YSP's because some originators have been unfairly enriched
by using them. But if these proposals succeed, then borrowers
will not be able to negotiate "no point" or "no closing cost" loans.

This would create an increased burden on a borrower who
is strapped for cash to pay these fees, or who is refinancing
a loan that is at the maximum loan in relation to the value of
the property who cannot increase the loan amount to cover
the fees.

The more loan programs and tools that we have to create
customized solutions for a borrower is a good thing. It is
our responsibility at originators and the borrower's respons-
ibility as consumers to have all the important facts, all the
costs, the risk tolerances, time horizons, goals and priorities
identified and discussed as we work together.

Closing Costs -Fair or Excessive?

You are ready to buy your home. You've saved for the
down payment and you know that you have to have some
money left over for reserves. You also know that there
will be some costs for various services to support your
transaction.

Then you are presented with a long list of fees and
charges. You don't know if they are necessary. You don't
know if they are reasonable. They are confusing and
mysterious and unclear.

Even after you are able to determine that the charges
are acceptable, you still want to be as sure as possible
that you won't be presented with additional charges just
prior to close of escrow.

The best way to assure yourself of this is to work with
someone you trust. You should actively seek referrals from
others who have gone through the mortgage process recently
and from your real estate agent.

Despite the press coverage of the unhealthy relationships
between unethical real estate agents and unscrupulous mort-
gage originators, the vast majority of real estate agents
are interested only in successful closings with the buyer
being well-served with honest dealings, competitive loan
terms and no-nonsense communication.

The professional real estate agents will know the mortgage
originators who are able to deliver quality service.

When you interview your prospective mortgage originator,
prepare some tough, direct questions for them. Assess
how they answer the question. If they are evasive, you may
find that you have someone who is unknowledgeable or
worse, someone who is deceptive.

You should be looking for someone who is transparent
about the process and who isn't defensive or evasive.
Clear communication should be an item high on your list.

The lenders are required to send you a "Good Faith Estimate"
of closing costs shortly after you submit a loan application.

It will include charges that are called recurring closing costs
that will include pro-rated interest on the new loan, pro-rated
property taxes, property insurance costs and the premium
for private mortgage insurance if required. If you have an
impound account for collection of taxes and insurance as
part of the monthly payments, your initial deposit to create
that account will also be shown.

A list of transactional costs, or non-recurring closing costs
will include loan points for discount and origination, escrow
fees, title charges, appraisal fee, credit report cost, loan
processing fees, underwriting charges, document prep-
aration fees, bank wire charges, courier fees, a charge
for notary/document sign-up and a few others.

When you receive this Good Faith Estimate, you should
review it right away. If you have questions or concerns,
contact your mortgage originator. They should be able to
answer your questions about the lender-related charges
at least. If they are experienced, they should be able to
give you a good overview of all the items on the Estimate,
the services that are being provided and an explanation
as to why they are necessary. Or, they should be able to
direct you to the appropriate escrow and title persons to
speak for their portion of the charges.

Once you have a clear idea of what to expect, let your
mortgage originator know that you expect to be informed
about any significant changes to the Estimate as soon
as they know. You can determine for your own purposes
what is significant, but make it clear to them what your
expectations are.

The escrow company will be pulling together figures from
all of the service providers as they approach the closing
date. You will be presented with a "Borrower's Estimated
Closing Statement" so that you know how much money
you need to bring in to close the transaction. Your escrow
officer can also tell you if the charges that are presented
are common for most lenders.

You will want to compare this to your Good Faith Estimate
to see how close the numbers are. If there are new line
items or if significant changes are now appearing, you will
want to contact your mortgage originator for explanation.

There are times when unforeseeable events occur that
affect closing costs. Contact your real estate agent as well
to determine that the new item was truly warranted
and unexpected. If it was foreseeable, or if the estimates
are not close, hold your mortgage originator accountable.

After all, they are the ones that deal with this every day and
they should be giving you a fair estimate at the beginning.

You do not want to have a request for additional money
to close presented to you just prior to your close of escrow.

If you follow this plan, you should be able to feel confident
that you have done everything you can to be prepared for
the closing. You will have a good idea of what to expect,
have a plan for being kept informed, been clear with your
originator that you will not tolerate significant inaccuracies,
and have found someone that you are comfortable with.

Update To The FNMA Higher Limit Conforming Loans

The initial program guidelines have been published for the
new "Conforming Jumbo" loans that FNMA will purchase above
the traditional $417,000 conforming limit and the new,
temporary San Diego limit of $697,500.

Here is a summary of some of the program parameters:

*Maximum Loan Amount: $729,750. San Diego's is $697,500.

*Loan Programs will include 15-year and 30-year fixed rate
loans and 5/1 ARMs (30-year loans fixed for the first five
years). The 5/1 ARMs will allow for interest-only payments
in the first 10 years.

*These loans must be originated by 12/31/2008 under the
current regulation. There is always a chance that Congress
may extend the time period, but there are no proposals to do
so at this time.

*Purchase loans can go as high as 90% Loan-to-Value (LTV) on
a primary residence. Up to 80% LTV requires a credit score
of 660 or higher, between 80%-90% requires a credit score of
700 or higher.

*Purchase loans on second homes or investor properties can be
included up to a 60% LTV maximum with a 660 or higher credit
score.

*Refinances can go to 75% LTV with a credit score of 660 or
higher on primary residences. They will not allow cash-out to
the borrower. Also, consolidation of any second loans into
the new first loan is not allowed. We would have to have the
existing second lender agree to subordinate their loan to
a second position behind the new loan, meaning that the
borrower will have a new first loan and the same second loan
after the refinance.

*Borrowers cannot have any late payments on their existing
mortgage in the last 12 months.

*All loan packages must be full documentation providing proof
of sufficient income and assets to qualify. "Stated income"loans
are not available.

*Property types can include single-family homes, planned unit
development units and condominium units that meet condo
guidelines.

When the announcement was made that FNMA was expanding their
loan purchase amounts as part of the Stimulus Package, we
were all hoping that many of the loans between $417,000 and
$697,500 would be able to improve their situation with tradtional
conforming interest rates and fees.

We are finding that the rates for these "Conforming Jumbo"loans
are being priced higher than the conforming loans, but
not nearly as high as the jumbo loans have risen.

Before the Subprime Crisis and the lack of performance of the
mortgage pools that investors had purchased, the spread
between conforming loans and jumbo loans was only about
.25% to .50%. In other words, if conforming loans were 5.5%,
jumbos were about 6.0%.

Because the investors have no confidence in the quality of
the mortgages that they are purchasing, the spread now between
conforming and jumbo loans has been about 2.0% to 2.5%.

Based on today's pricing with one of our major lenders, conforming
loans were at 5.625%, conforming jumbos were at
6.5% and jumbo loans were at 8.125%. All of these were with
a loan fee of one point.

We are fully expecting some of these guidelines to change
as the lenders/invetors discover the level of risk that they
are willing to accept. If they get too many requests in a
particular category, we may find that they cut back. If they
find that response is less than expected, they may loosen up
the guidelines to accommodate more borrowers.

If you are one of the borrowers that fall in the new loan
limit category, or if you know of others that need to find
out what they can do, please get in touch with me. It is
important to take a look at every request individually and
to research it in light of the current guidelines (and as
they may change from time to time).

That is the only way to make sure that we are not making
assumptions that may cost you the opportunity to improve
your situation.

The Fed Lowers Rates, But Mortgage Rates Go Up. What's Happening?

Whenever the Fed lowers interest rates, there is always a lot of anticipation, publicity and reaction in the markets.

Most consumers think that the drop by the Fed means that mortgage rates will be lower. There is not a direct cause and effect relationship between these two.

Here are some of the reasons:

The Federal Reserve exerts some control over the interest rate paid by U. S. banks for overnight loans from the Federal Reserve or between banks. These are the Fed Funds rate and the discount rates that get all the press coverage and commentary in the financial news.

The cheaper supply of these funds help banks with liquidity, but it would be very risky for a bank to make a long-term, 30-year mortgage loan that is tied directly to this overnight rate. These rate changes most often will affect the prime rate, and short-term consumer loans and credit cards.

If a bank takes out a short-term loan of $300,000 from the Fed and lends it to a homebuyer for 30 years, the bank still would need to come up with $300,000 to pay the Fed back right away. They could repay by borrowing another $300,000 on a short-term loan, but then it has to continually roll this over. If short-term rates go up, the bank loses money because it has a contract with the borrower for 30 years.

Mortgage lenders that make long-term loans negotiate with the capital markets that include banks, corporations, institutions, pension funds, governments and other investors who buy and sell money. Many times lenders will bundle many mortgages into a package called a Mortgage Backed Security and sell it through Wall Street.

These investors are lending for the long term, so they agree to be paid back in installments which includes an interest rate that is fixed for the life of the loan. As long as the money that the mortgage lender is paying to the investor is lower than the rate it is charging its borrower, the lender will make money.

Long-term lending is based largely on rates paid by the U.S. Treasury when it auctions off new issues. Treasuries are considered very safe - mortgage products would be considered riskier - so the rates on home loans will be higher than the Treasury rates.

In the past, the change in mortgage rates were pegged to changes in the 30-year bond. In recent years, the 10-year bond has been more indicative of investor expectations because a majority of loans get repaid in the first 10 years.

The investors must gauge the risk that they are taking by investing in mortgage products vs. buying the safe Treasury issues. In the past, there was a fairly predictable risk premium over the Treasury values that the investors felt comfortable with.

Recently, because of dropping property values, and the poorer performance on mortgage loans by borrowers, investors have widened the risk premium that they are expecting over the safe Treasury bond yields.

The bond yields are largely influenced by fear (or lack of fear) of inflation. When inflation is forecast, Treasury yields will move higher because investors do not want to buy a Treasury bond today that will will be worth substantially less in the future because inflation has eroded the value of the dollar. When inflation is less of a concern, we see that the Treasury yields go lower and mortgage rates follow that pattern.

So, when the Fed eases interest rates, it has the tendency to make the money supply increase, which will fuel inflation concerns. This money will leave the bond market with its fixed rate of return and go into the stock market where growth, stimulated by the new money supply, is anticipated.

As a result, the Federal Treasury still needs money to operate and will offer new Treasury bonds at higher and higher rates until it attracts the money that it needs.

This dynamic creates the situation that seems so puzzling: the Fed reduces interest rates and mortgage rates go up.

As John Schoen of MSNBC summarized - "...the Fed could cut short-term rates to zero, and it wouldn't cut the cost of long-term mortgage rates".

If you want to monitor the direction that mortgage rates are anticipated to go, you can check the 10-year bond yield periodically. I use http://money.cnn.com/markets/bondcenter/.
It is important that you focus on the direction that the yield is going. Do not focus on the direction that the price is headed, because bond prices and bond yields work in opposite directions.

I'm sure that most of you don't want to become market technicians, but think how people will respond to you at your next cocktail party when you share this information!

Declining Markets - Risk Assessments By Lenders Limit Loans

When property values peaked in 2006, we began to watch
a slow decline in values. This was all part of the natural ebb
and flow of markets, and especially in California, it is a
phenomenon that we have gone through before.

In the first quarter of 2007, however, we started to see
the surfacing of the "sub-prime crisis" that fully evolved by
mid-year.

In addition to the natural softening of home values, we now
had an extraordinary number of loans going into default,
with foreclosure activity increasing in alarming percentages.

The foreclosures accelerated the decline of market values
as more and more homes were coming on the market
where a homeowner was "giving the home away" to get
out from under their mortgage obligation.

Also, many borrowers were trying to sell their home even
though the amount they owed on the mortgage was more
than they could ask from a reasonable buyer. These are
commonly called "short sales" requiring lender agreement
to accept less than what is owed on the home.

As lenders took the homes back through the foreclosure
process, they now were marketing the homes to get as
much as they could for them. But, they were more
interested in getting the homes off of their balance sheet
and were less concerned about holding out for a particular
price.

So, we had a tsunami of lower-valued homes flooding the
market place, bringing everybody's values down in the
process.

New loan requests typically require an appraisal of the
home to determine the value. One of the major items that
an appraiser is expected to evaluate is whether the
neighborhood is in an appreciating, stable, or declining
market. As you might expect, almost all of the appraisals
have been coming back that homes are in a declining
market.

Underwriters of loans are supposed to analyze the appraisal
of the home as part of their evaluation to approve a loan
request or not. Each loan request traditionally was
reviewed on its own merits with the quality of the borrower
and the quality of the home both integral to the decision.

What has developed recently is a decision to overlay a
valuation determination that removes the underwriter's
ability to assess each loan on its own merits. Many
counties in California have been assigned to the category
of "declining markets".

What this means is that if the lender normally would consider
a maximum loan of 100% of the value of the home to a credit-
worthy borrower, and the home is in a "declining market", that
they will now lend no more than 95% of the value of the home.

This 5% reduction in maximum loans in relation to the value
of the home (LTV) is being applied across the board, even if
it can be proven by market data that a particular neighborhood
does not suffer from the distress that many other communities
are going through.

As an example, one of our major lenders published a list of
counties in California. Out of the 34 counties, 20 were listed
as "Severely Distressed", 12 were listed as "Distressed", 1 was
listed as "Soft", and only 1 had no negative label.

Because of this, and the fact that these kind of designations
are being imposed by regulators and FNMA and FHLMC guidelines,
loan programs that used to be readily available are being cut back.

If you are anticipating seeking a loan that pushes some of the
traditional maximum LTV limits, be prepared to hear that you
need more down payment or a larger equity position to get the
new loan.

As the pendulum has swung away from the permissive under-
writing that we saw prior to the "sub-prime crisis" and back to
conservative underwriting, this is another element that we must
deal with to help borrowers get loans that meet their needs.

Keep exploring options, ask lots of questions, and work with
mortgage professionals who can help counsel you through the
changes in the mortgage business right now.