$625,000 is a very important number

Towards the end of 2011 there will be a major structural change to available home loans.

The current high-balance loan limits are set to decrease from $729,750 to $625,000.  Starting three years ago the Government, via Fannie Mae and Freddie Mac, increased the maximum conforming loan limit to $729,750 in high-cost areas such as Southern California.

In an attempt to kick-start the economy and allow more Americans to refinance their existing mortgage debt at a lower rate, the Government increased the conforming loan limit to these higher levels.  Unfortunately, with the Federal Government out of money and Fannie/Freddie under attack by politicians from both sides of the aisle, it is very unlikely there will be another extension of these conforming loan limits (like we saw at the end of 2009 and 2010).

When the max loan amount for a conforming loan returns to $625,000, many consumers will lose over $100,000 of purchasing power.

The max loan amount for FHA borrowers will be $625,000.  The max purchase price for clients putting 3.5% down will drop by over $100,000.

Anything over $625,000 will be considered a “jumbo loan”.  Generally speaking, jumbo loans are more expensive, require a 20% down payment and are harder to obtain than conforming loans.

If you are a home-buyer looking in the $625K – $730K range, you may want to intensify your search and plan on closing escrow prior to November 30th.

If you are are thinking of listing your home in the $625,000 – $800,000 range, it’s important for you to know that your pool of available buyers will decrease significantly once these changes go into affect later this year.

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From Hardass to Pussycat

Recently some of my clients have been experiencing an interesting phenomenon while trying to purchase a bank owned or ‘REO’ property.

Real-estate agents, asset managers, and bank representatives of foreclosed properties are trying to make it very clear up front to prospective buyers that the property is being sold “as is”.

I’ve seen comments in the MLS, had conversations with listing agents, and seen emails forwarded to Realtors from bank representatives explicitly stating that no repairs will be made to the property.  FHA required repairs, health & safety concerns, or issues pointed out by a licensed inspector will all have to be handled by the buyer.

This hard-nosed approach to selling REO properties has been a turn-off to a lot of real-estate agents and potential buyers.

But here is the funny thing… some of my clients have taken a chance on these type of listings and the process has gone very smoothly.  Once the listing agent has thoroughly verified with the lender and buyer’s agent that the client can actually close escrow, and an offer is accepted, the mood of the transaction gets much more pleasant.

It’s amazing how the deal switches from an adversarial process of negotiations, to a very mellow and cooperative escrow transaction.

Recently, after getting into escrow on a bank owned property where NO repairs were to be made, here is what the selling bank ended up paying for:

-New water heater (it has been ripped out by the previous owners)
-Updated plumbing in certain areas to accommodate the new hot-water heater
-New tile in a bedroom that had flooded
-Repairs to a leaking deck

Needless to say, my buyers weren’t expecting these repairs, and they had it in their budget to pay for them themselves.  However, it was a pleasant surprise to see the selling bank step up and deliver the house in good condition.

It may be that listing agents (or the banks they represent) are sick of accepting offers from buyers that expect to receive a large credit for repairs after the deal is already in escrow.  Many property investors have recently employed the following strategy to get their offer accepted; offer $50,000 over the asking price just to get their deal accepted, then expect to negotiate a $60,000 repair credit or price reduction once the deal is in escrow.  Have these type of buyers jaded sellers of foreclosed properties and forced them to take this approach upfront?

Whatever the reason for this hard-ass approach to selling real-estate, buyers shouldn’t be completely turned off by a listing that happens to be bank-owned.

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In the wake of the tragedy in Japan

The Wall Street journal is reporting on what they do best, finance.  The link to the article is below.

As the waters from the tsunami recede, Japan will face a massive rebuilding effort.  New home construction, rebuilding airports and factories, providing for families who lost their primary wage earner.  The need to borrow ‘cheap’ money will be very important for the citizens of Japan.

Unfortunately, with Japan being so deeply in debt, it is unclear as to whether the country will be able to secure the cheap financing it needs to rebuild.

“The problem facing the government is that Japan’s debt burden is already the worst in the industrialized world, at nearly 200% of annual economic output.” – writes William Sposato.  With such brutal debt loads, it will be hard for foreign countries to invest in the rebuilding process.

Hopefully we can count on the US to step up and help subsidize emergency financing to the country of Japan.

Read the entire article here.

What I learned from my most recent loan

I just got docs out on one of the most complicated loans I have ever worked on.

At the end of the day, it was no ones “fault” that this was such a difficult deal… there was just a unique set of circumstances surrounding the sale of the property and the uniqueness of my borrower.  Personally, I feel 100% confident that this client will have a perfect loan repayment history and I’m very comfortable with the loan package we put together.

After sorting out a non-traditional income situation, side-stepping a few land-mines, rushing through the deal to meet a short-sale deadline, and putting the client through the ringer… we finally got final loan approval and moved to docs.

But a troublesome thing happen on the way to loan docs.  The borrower’s employer refused to sign a Verification of Employment (VOE).  A VOE is a document all lenders have completed by the employer of their borrower within 72 hours of closing a loan.  This document helps ensure that the borrower is still employed and that their job is likely to continue.

Unfortunately, the small HR department at my borrower’s employer was hesitant to sign and return this document.  Without it, the deal would have died a horrible death at the 11th hour.

Luckily we got it resolved and the client is signing loan docs as I type.  However, this potential deal-killing loan condition has made me reevaluate what I tell my clients regarding their loan approval.  From now on I will ensure my client has a cooperative HR department prior to having them remove their loan contingency.

As always, if you have questions, please contact me at TrustYourLender@gmail.com

New 80/10/10 program available

Don’t get too excited, 80/10/10 mortgage programs are not coming back to the market for everyone.

An 80/10/10 is mortgage finance strategy where a buyer brings in 10% of their own money for the down payment, gets a traditional 80% 1st mortgage, then secures the additional 10% of down-payment or additional financing from another source.

In the run-up to the housing bubble, every bank in America was offering some version of the 80/10/10 program.  Many banks got even more aggressive and offered 80/15/5′s or 80/19/1′s whereas the borrower only had to come in with 5% (or even 1%) of their own money for the down payment.

Banks were happy to take the risk of financing this additional 2nd mortgage or down payment assistance program because they knew that property value always went up…. oooppps.

When the bubble burst, banks abandoned these programs and had to inform consumers that FHA loans were the only program on the market if you wanted to put less than 20% down.

Unfortunately FHA loan come with pricey mortgage insurance premiums and additional up-front costs when obtaining the loan.

An 80/10/10 program, underwritten responsibly, is a great program.  It’s helps decrease a buyer’s monthly costs, limits the amount of fees a the point of origination, and allows buyers to maximize their purchasing power.

Recently one of the lenders I work with did re-introduce a version of this program for loan amounts up to $1,500,000.  Unfortunately, this lender will only finance the first 80% of the loan amount.  The buyer must secure the other 10% of financing from the seller or a 3rd party entity (such as a hard-money lender).

This program is only available to highly qualified individuals… but it seems like a step in the right direction.

As always, if you need information, please contact me at TrustYourLender@gmail.com