Happy Memorial Day Weekend... Open Houses

Let me wish all of you a very happy Memorial Day Weekend and Memorial Day. On Monday we celebrate the men and women that gave their lives for our freedom. An amazing sacrifice for our Country which deserves our deepest respect and recognition.

My godfather, a proud veteran of the Vietnam War and resident of Vista, CA always reminds me that Memorial Day belongs to these heroes, which is why Veterans Day is a separate holiday celebrating the living veterans of war.

I hope you have the opportunity to set business aside for the weekend and enjoy this blessing we call freedom by spending your time with your loved ones, but if you are committed to working, let me suggest the following.

American flags at open houses this weekend will go along way. How about grilling some hot dogs in the front yard for those that stop by. Show them the home, then take them out front for a cold Coke and hot dog. It'll give you a good five minutes to talk about there plans for buying a home. This will set you apart while giving you time to learn a little about what they are looking for while building rapport. While you wait for people, you can work on your tan out front, meet the neighbors (renters often become buyers, and owners will eventually become sellers) and enjoy the sunshine. Don't forget your radio to keep it fun.

Advertising VA financing is an option many agents holding open houses this weekend may want to consider. I demonstrates your commitment to veterans and our armed forces, while recognizing their service, on a respectful holiday.

All things considered... everyone have a wonderful Memorial Day weekend, whether working or not, be safe, and when it comes to preapprovals we look forward to assisting you.

Interest Rates Recover... Sort Of

Rates this morning have recovered slightly from yesterdays sell off. I am anticipating we make up about half the losses we took yesterday. Even if this is true, I do not expect lenders to be very forth coming on the rate sheets. My expectations today is lenders will hedge on their rates sheets pricing slightly worse than they typically would. The simple fact of the matter is yesterday we lost quite a bit of ground... rates went from 4.375% to 4.625% on a conforming 30 year. Because we are moving into a long holiday weekend, banks will price slightly worse than they typically would on your usual business day. This is an order of protection, and business as usual, just something most do not discuss.


If a client is happy with what is currently offered and will be closing soon locking is the play, don't contort my words above to read "float," locking is the play right now. However someone that is a little more exposed to risk, tolerant of market swings, and does not need to lock immediately, may want to float to Tuesday to see how the market opens. Those that do I recommend making sure both you and your loan consultant are willing to make it an early morning. Being up for opening rates sheets and potential reprices would be the smart thing to do.

Interest Rates Rising - The Makings of a Firsale

ATTENTION: This could turn into a really bad day for interest rates. Have a look at the graph on the right. As you can see we are experiencing a serious sell off right now. We have broken out of our recent range. The current published par 30 year fixed interest rate is still 4.375% for prime borrowers however I am anticipating reprices for the worse shortly. I highly advise anyone that is looking to close to lock there rate immediately. As in right now.

There are a couple of points to consider. Let me borrow a quote from economist and trader Adam Quinones:

Good Morning. Today we celebrate the one year anniversary of "Black Wednesday"

"BLACK WEDNESDAY". A day when "rate sheet influential" MBS were sold by accounts of all types. Banks, Servicers, Pension Funds, Money Managers, and Hedge Funds...Real Money and Levered Accounts alike. After all was said and done, over $10bn in "current coupon" MBS was dumped by mortgage market participants. An amount not even the Federal Reserve could stand up to...

The fact that this sell of is occurring on the anniversary of Black Wednesday is very interesting and troubling. Moving into a long holiday weekend and a very uncertain market I think it is clear investors are looking to shore up funds. In doing so they do not have to concern themselves with "worrying" about the markets over the weekend, and they can reassess come Tuesday.

This may very well be the case, but that does not mean the the week is over. Point in fact we have a 7 year treasury auction going off today (don't forget about the 5 year auction yesterday which was nothing special). It will be very interesting to see how it is received. At this point in time, we need a strong auction to bring some investors back into our market. If on the other hand the auction is weak we could see further losses today leading to even higher rates.

I could continue to discuss reasons for this sell off, our being up 190 points on the DOW, the drop in jobless claims, etc... the bottom line is now would be the time to LOCK and secure a low rate for closing. There are storm clouds on the horizon - batten down the hatches and stay dry. This is the message I would be instilling on any buyers you have right now.

New Home Sales Jump in April 14.8 Percent

That's a pretty impressive rise in sales... regardless I do not think this number is sustainable or accurately represents the market moving forward...

It makes sense that home sales surged in the month of April. We may even see healthy numbers in the month of May, slowly tapering off in the month of June. Come July these numbers will most likely fall to much lower levels... This surge is fueled by the tax credit - plain and simple. As the tax credit was written you had to be in contract by April 30 and close contract by June 30. The saving grace of the real estate market right now is interest rates... some of the lowest in recorded history. With equities markets in question, a flight to safety has lead investors into long term markets namely treasury and mortgage backed securities. It is the influx of capital into the mortgage backed securities market that has brought rates down. This fact is troubling because if Europe gets there act together across the Atlantic and stabilizes, we will see less demand for treasuries which will bring the yield back up, which will indirectly encourage a sell of of mortgage backed securities which will lead to higher interest rates for home buyers... People need to forget about the tax credit. It is over (unless you are in the armed forces - then it has been extended until April 2011 with certain contingencies in place that must be met), you should not be buying a home for a tax credit anyway, it is first and foremost shelter, then an investment. Securing a low fixed interest rate now on you home is probably one of the smartest decisions one can make. When inflation hits, and it will with a vengeance, those with fixed rates will find themselves in a very lucrative position. It is a buyers market regardless of this expired tax credit.

Interest Rates Hold at Year Lows

Difficult to say what exactly is fueling the gains in the mortgage backed securities market; it could be the calamity across the Atlantic, it could be the DOW falling below 10,000 and reaching the lowest points in 2010, or perhaps the 10 year treasury yield falling below 3.200% (currently 3.14%)... whatever the reason, home loan interest rates are currently at historic lows. For conforming loans under 417,000, 4.375% can be secured on a 30 year fixed, and is actually paying a small rebate. Jumbo conforming 30 year fixed rates are around 4.75% also paying a rebate.

Considering the Case Schiller index is currently reporting home prices are currently at their lows, and we have recognize that a perfect storm has formed for home buyers. Anyone in need of a fast preapproval - don't hesitate to contact us.

Home Sales Moving Forward

Home sales were better than expected in April according to home sales numbers released, showing a gain of 7.6 percent for a seasonally adjusted annual rate of 5.77 million, better than the 5.63 million economists had been expecting. This boost was clearly due to the tax credit offered (and now expired for everyone but armed forces, intelligence and foreign service members) earlier this year.

This number suggests our market is recovering, however this figure is riddled with innuendos... the tax credit incentive, for example suggests this figure is bloated and will fall sharply now that the tax credit has expired. In addition mortgage applications to purchase homes fell sharply to the lowest level seen in 13 years. Add the foreclosure inventory to this equation, consider the defaults currently playing out and it is clear this figure is not as strong as we would all like. In fact the current estimated time it takes to move inventory 8.4 months.

Interest rates are the saving grace right now, but with California unemployment around 12 percent, finding home buyers is becoming a harder and harder feat.

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The title of this article was home sales moving forward.... now that we are on the same page, share your thoughts on the real estate market.

My thoughts specifically are rates despite being very low right now, will be rising soon, probably after the mid term elections. When rates do start to rise, the potential for substantial increases is serious. Inflation will inevitably set in leading to sell offs and high offered rates. Due to the nature of the problem these increases could be substantial. When considering this in light of inventory, which I anticipate will not subside anytime soon and future home sales may remain subdued moving forward.

Lenders In Open Houses

Having long standing relationships with a number of real estate agents, there have been times when they have asked me to assist them at an open house they are hosting. If my schedule is open, I have yet to turn down one of these invitations, however a question is raised in my attending; does having a lender at an open house with a real estate agent add to the allure of that open house complimenting the listing agent, or do they simply end up stepping on each others toes?

When I participate at an open house I discuss my roll with the listing agent so we are very clear as to who steps in where to answer what questions. Generally speaking, unless otherwise agreed, I take a side seat to the agent, allowing them the opportunity to answer the question they viewer may have about the home and area. Inevitably the listing agent will casually inquire as to whether or not they have discussed their financing options with a lender. Regardless of their answer (yes or no), it is at this point in time, I am introduced as someone that can handle financing.

Typically this will lead the conversation in a different direction which I then shine, discussing current financing options available and everyone's favorite topic, interest rates...

You may not think it, but this formula is successful for one reason, it provides both of us (the listing agent, and me) to carefully study the potential buyer to see how serious they actually are. Typically when we are in a conversation, the unfortunate fact is why spend most of the time thinking about what we are going to say next not what is being said to us.

When you are placed in a situation where you are allowed to simply listen and watch a conversation, subtle nuances are picked up that are otherwise overlooked, fidgeting, breaking eye contact, specific words used ("will be buying", as opposed to "may be buying"), etc...

After the potential buyer has left, we then have the opportunity to discuss what we thought of them as potential buyers, and come up with a specific action plan to follow up.

This type of meeting can also end a very different way. If the potential buyers are seriously looking and without an agent, there is no reason why the listing agent cannot leave the open house and take the clients to some other homes that they may want to look at, that are listed but not "open" that particular day.

In the meantime, I a licensed broker, can hold down the open house, greeting any other potential buyers that may show up.

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I am interested in your thoughts. Agents, what has your experience been having a lender present at open houses? Are you for it? Against it? Do you find it useful? Problematic? Do clients like it? Feel more pressured? Time to leave your thoughts.

Lawmakers Claim to Have the Votes for Financial Reform

Cloture on financial reform may happen today as lawmakers on the hill are touting that they now have the 60 votes required to move financial reform forward. This clearly will effect the real estate market considering how closely tied it is to finance institutions. Point in fact there are rumors circulating that suggest the new reform would require all home owners to come in with at least 5% down. In other words, financing vehicles offering options over 95% financing would no longer be available.

This would create a ripple effect on our market as FHA and Homepath are forced to rewrite their guidelines. The question remains what about VA loans, and USDA home loans, would they too fall under this new lending requirement? If so it would spit in the face of two programs that have been relatively successful when reviewed side by side to other financing vehicles, namely agency and FHA home loans.

Personally I think this would be misguided legislation if lawmakers start requiring homeowners to come up with a minimum of 5% down.

All things considered, this is an important bill that we all should be paying attention to. Passing this bill could force rates higher while limiting future financing options.

In my humble opinion I think this is misguided legislation... financial reform is a clever mangling of letters that actually spell financial regulation. A more noble effort and better way for lawmakers to spend their time would be overhauling Fannie and Freddie. Yet again we're putting sunscreen on a sunburn when we have a much deeper problem, skin cancer.

Rates Break Through Range... New Year Highs... bringing Rates LOWER

This is unprecedented. I don't know any other way of explaining our market. This is clearly a flight to safety. Fear of international markets, questions about our own economic recovery, our national debt skyrocketing; investors are beginning to see equity markets as overvalued. Consequently, the long term markets are the primary beneficiary.
As the mortgage backed securities market climbs leading us to lower interest rates, its benchmark competitor, the ten year treasury's yield is steadily falling. It is important to understand that these are typically inversely related. That is, when the treasury yield climbs, the mortgage back securities falls, when the treasury yield falls, the mortgage backed securities rises.

Let's take a look at our market...

A one month graph of the mortgage backed securities market... the red dashes highlight our old range, the blue dashes highlight our new range... as you can clearly see we have broken out of our new range leading once again to the best rates of the year. Is this sustainable?


Here is a look at our last five days of trading... let's take a close look at the arrows... the green arrows clearly demonstrate the bulls are gaining momentum on the bears... the green arrows consistently grow in size and get steeper, while the red arrows representing the bears continue to get smaller and flatter... Until the international markets stabilize, I think these gains may actually hold.

Tomorrow will be an interesting day, options expire next tomorrow suggesting a slow and conservative trading day in equities market which is good news for us, however Friday's usually a profit taking day as investors shore up funds moving into the weekend. All things considered, I expect tomorrows trading to be much calmer than that we have recently been experiencing.

320,000 Homeowners Yet To Be Foreclosed On

An amazing story broke today in The Wall St. Journal that stated there are currently 320,000 homes backlogged to be foreclosed on that are over a year late in payments. Let's do some quick math and divide by 50, that's 6,400 homes per State. Simple math suggests significant inventory will be coming onto the market in the near future. Now I will be the first to admit that this math is inaccurate, certain parts of the country were hit harder than others.

Be that as it may, California currently at 12% unemployment certainly has its share of homeowners currently in trouble.

This will make for an interesting move forward... clearly bank owned inventory is likely to continue to dominate the marketplace. This suggests home values will remain somewhat static moving forward.

Rates Holding in New Range

One word - volatility. Regardless we are still trading within the new range. With that said we started today's trading day off with a sell off before bouncing back to the high side of our range. This is an important distinction that needs to be made because opening rate sheets will have priced in these losses. It makes sense to wait for afternoon rate sheets which will offer better pricing reflecting these recent gains. If you're looking to lock a loan - I'd wait about 4 hours... maybe sooner. New rate sheets will most likely be published moving into the afternoon. Depending on where the headquarters of the lender is located, afternoon is a relative term. Reprices from various lenders will begin to be offered around 10 am Pacific Standard and should continue throughout the day or until the market makes a downward correction.


This downward correction could happen very quickly... See the downward trend on the ten year treasury... should the treasury yield rise (3.5 is a primary marker), our market, will suffer... think of an iceberg breaking off a glacier and falling into the ocean. It can be that quick.

Price vs. Value - Terminology Matters

Okay... today we switch gears a little bit and discuss two terms that many mistakenly use interchangeably. When discussing a home with a potential buyer or you're looking to secure a listing from a seller, it is important to understand the difference between the words that we choose to use. Price and Value are two words that agents often confuse.

Price - the listed or advertised cost of something.

Value - the underlying worth of something.

If we look at these terms and their specific connotations we begin to understand the difference. A price is static and impersonal. The value is personal and definable.

Someone's home, whether buying or selling, is very personal.

Therefore we start with value to determine the final price. Ultimately this is where agents begin to make the mistake. They neglect the term "value" and use the term "price" throughout their presentation. In doing so the client is conditioned to assume the price and value are one in the same. Separating these terms in your initial presentation will not only separate you from other agents that do not make this distinction; it preps your client for the negotiation stage while ensuring their expectations are realistic.

For example if a seller insisted their home's value was 500,000 dollars, when the market supported prices of 400,000. It would be safe to say these particular clients are not realistic in their expectations. Even if you do successfully take the listing, and sell the home for 450,000 dollars, they will deep down, still be a little spiteful... and although this is not any fault of yours, it is your fault they didn't get the 500,000 they thought their home was worth.

Here's another example... a couple thinks their home's value is 500,000, while the market supports a sale price of 600,000. Setting the list price at 620,000 and negotiating down to 590,000 for a final sales price is still going to produce a happy seller. You just sold their home for 90,000 dollars more than they thought it was worth.

Use these terms to your advantage... when used correctly they are excellent qualifiers, they will separate you from other agents that are not as thorough in their analysis and market representation, and you setting realistic expectations for your clients.

After all the home's "value" is what it is worth... the "price" is a subjective number based on a marketing strategy.

Home Loan Rates Settle into New Range

Despite yesterday's late sell off, the secondary market and mortgage rates have improved this morning re-establishing our new range. With that said this will be tested based on the international markets starting to find their foothold. There is talk over the pond that the Euro is stabilizing. These recent gains resulting in the lower rates are primarily due to the uncertainty of markets overseas which brought investors to our long term markets. Should the Euro situation work itself out we could see a retraction. Although this is on the back of my mind, it is not my real fear.


Moving forward my real fear is inflation. The Fed is meeting today and eventually one of these meetings will result in their pointing out an underlying concern about inflation and when that happens rates will rise, and they will rise quickly. Inflation is our nemesis when it comes to offered rates.

Here is this mornings graph illustrating five days of trading and our new range. Some agents out there may be wondering why I am so focused on interest rates right now. After all the last five posts or so have been about rates. Point in fact this is a major selling point right now that you should be confident talking about with your clients. Of course I am happy to field the bulk of questions addresses rates and finance markets for you, but that does not negate the fact that these low rates support a buyer or a seller accepting an offer. A buyer, so they can lock in these low rates, a seller because an offer may be taken off the table as rates rise and borrowers begin to have more and more trouble qualifying for home loans (higher rates after all mean higher monthly payments which they must qualify for).

Retraction from Highs this Afternoon....

Market update... we have seen a retraction off recent highs bringing us back down to opening levels. Point in fact we actually closed one tick down. This will inevitably lead to worse pricing on rate sheets. Cross your fingers for a bounce tomorrow at open.

Regardless of this slide, profit taking is a part of investing. All things considered we have a lot to be thankful for. We are after all still within the new established range. Here's a snapshot for all you eye candy junkies.


This retraction is primarily due to the high treasury yields evidenced by the yellow graph below which illustrates the 10 year treasury yield.

Questions and comments welcome.

Also... we just published our first news letter for real estate agents which we are very excited about. Here is a link to that newsletter... don't forget to subscribe and share it with fellow professionals.

Agent Newsletter

Rates Continue to Improve

It's a picture day...

The end of last week left us questioning what was going to happen this morning as markets opened and investors had time to think about their portfolios over the weekend. Opening bell clearly demonstrated that they determined long term markets are the smart investment right now. Below is a five day snapshot of our market, which demonstrates the gains we are already enjoying this morning.


This move does support the new range that the market is currently trying to establish, and is broken down in detail in my Friday post. Here is a graph showing the last month of trading... which as you can see has brought the MBS market to recent highs.


What the above graph does not highlight is the fact that these recent gains have pushed us to highs of the year (keep in mind high points on these graphs lead to lower interest rates for borrowers). Below you will find a 6 month graph breaking down our market over 2010.


If you look closely or enlarge this graph you will see two red arrows at the end of March beginning of April. This quick downtrend was due to the Fed leaving the Mortgage Backed Securities market after infusing 1.25 trillion over a 2 year period.

Needless to say, today is a day we can all enjoy with rates reaching lows of the year. However I have included these red arrows to highlight just how quickly the market can correct bringing rates back up. Despite these strong arrows leading up on all of these graphs, a shift in the economy could curb these gains, and bring our market down.

I am recommending locking right now. A bird in the hand after all... and it has been my experience that if borrowers get a taste of a low rate only to watch rates climb, they try to wait it out for that low rate to return. I cannot imagine a better sales point than rates being at their lows of the year.

Markets Improve for Home Loans

The continued problems overseas have supported our markets bringing home loan interest rates lower. More importantly it looks as thought the trend is going to hold - at least through the weekend to get buyers into contract so they look at locking first thing Monday.

I'm not necessarily suggesting locking Monday, however considering we are now at highs of the year, rates and locking is definitely something worth considering. This is a sale point for your clients currently considering making or accepting a counter offer. Bring this to their attention and if they have any questions we are of course available to explain this in detail.

What an incredible turn of events. Locking in a low fixed rate right now would make a lot of sense. If you are concerned about this trend falling short, I too am a little concerned which is why I suggest looking at locking. Ultimately my focus is on global markets and international news, primary concerning the Euro and its future. If the Euro stabilizes, we'll need to keep a sharp eye on the MBS to see how it reacts.

Stay tuned for updates.

Coldwell Banker $8,000 Credit Exposed

I have to admit, Coldwell Banker was smart in launching their new campaign offering an 8,000 dollar credit at closing to any new home buyers. The clear intention is to encourage potential buyers to get off the fence and buy a new home, something some have decided to put off now that the Federal $8,000 dollar first time home buyer tax credit has expired. The question is how is Coldwell accomplishing this for their buyers?

It's actually a rather simple solution that any agent can utilize as long as the seller is willing to cooperate, and a well trained seller that understands the marketing potential for this will agree to it. Ultimately the 8,000 dollar credit is a seller credit written into the contract that the buyer can then use to cover closing costs associated with the home loan.

I think it is a brilliant marketing campaign. I hope all listing agents encourage their sellers to consider this as an option moving forward into contract - it will entice buyers, and as long as the home appraises for the purchase price this is an acceptable lender practice.

Agents representing buyers, there is no reason why you cannot include this in every offer you write. In fact tomorrow I will be posting this information on my consumer blog encouraging homebuyers to take this action.

Prequalifying Buyer's and Preapproval Letters

Prequalifying homebuyers has taken on a new form in the last year or so as foreclosures dominated the marketplace. Since the boom lenders have been requiring borrowers to qualify at their bank in order for their offer to be considered and to make sure they are qualified borrowers. Although I can understand the banks motivation for this requirement, agents must understand that not all lenders are able to offer the same financing or terms associated with financing, so although one lender may not be able to to secure financing, another may.

Most agents believe a preapproval letter from one lender is the same as a preapproval from another and accept this as fact without question. I am here to shatter this assumption. Not all preapproval lenders are the same. Moreover some preapproval letters carry more weight than others. It is time agents recognized this fact and started directing their clients to lenders that offer the most favorable terms and have the most options.

This begins by understanding the difference between lending institutions. A direct lender is very different from a correspondent lender, which is different from a portfolio lender, which is different from a broker.

Of all these categories a broker offers the most options for any borrower. The reason is simple - because they are able to form relationships with all of the above, all options remain open. Moreover, brokers are offered wholesale interest rates from approved lenders opposed to retail pricing found at these other establishments. This is an important distinction that you should make clear to potential buyers who have not discussed their financing options with a broker. Point in fact most brokers offer a more beneficial price cost structure for the loan established than the lender's retail counterpart would. Considering this, you are actually doing your client's a disservice if you do not suggest they consider a broker for financing.

The benefits do not stop here. Preapproval letters come in all shapes and sizes. The work behind the preapproval letter is important and something I do not hear many people discussing. A preapproval letter can be drafted with a completed loan application and credit report. Point in fact I can have a completed application and credit report in 15 minutes of question and answering, 5 minutes later you could have a preapproval letter.

This letter can be drafted at this point in time because I know the lending guidelines and have confirmed the borrower based on their application fall into these guidelines. With that said, this is not where my preliminary work as a finance broker stops. From here we typically submit the file to our preferred lender for underwriting. Once the file is reviewed by the underwriter one of three decisions is issued: approved, suspended, or denied. Denied, is self explanatory and will come with an explanation why. Denials are few and far between if the broker has done their homework and the borrower has not misrepresented their situation on the loan application. Suspense simply means the underwriter needs more information before granted a decision and will include what exactly they require. Approved is naturally what we are looking for. A formal conditional approval is going to list everything still required to close the loan.

Formal approvals also come with a letter of intention, or commitment letter that demonstrates how long this formal approval is good for. By far this is the best type of preapproval and can be accomplished before the buyer has found a home to make an offer one. Imagine the advantage of having a formal approval when making an offer rather than starting the process with the bank owned representative. The time required to close is reduced significantly.

If you aren't, you should consider referring your buyers to a finance broker to secure their financing.

Condos and Financing

Looking to sell a condominium you have listed, or showing a condo to a potential buyer... if you think this is just another transaction, think again.... securing financing for a condominium has become a tight rope walk. This post will give you the ins and outs of condo financing so you avoid the pitfalls.

To our right is a sample HOA questionaire that is required to be completed for condominium financing. This is completed by the HOA association and is the building block for condominium financing. The simple reason, regardless of borrower strength, if this questionaire is answered incorrectly the lender will deny the loan. I should mention here the term "incorrect" simply refers to acceptable answers, under no situation should these answers be misrepresented (that would be mortgage fraud).

There is no one question on this questionaire that is more important than any other... all carry equal weight. With that said let me share with you some of the hang ups that are typical to condominium financing.

Litigation... pending litigation is one of the primary hang ups when it comes to condominium financing. Typically this litigation is against the builder for deficiencies in the common areas. Litigation because it potentially can result in serious liability will almost always end in a loan denial. Make sure the condominium association is free of all litigation before getting into contract. Regardless of how lovely the home is, pending litigation is a reason to find another home - especially if the buyer needs financing to buy the home.

Owner occupancy rate... This particular guideline is not something most agents consider an important factor, but it too can result in loan denial. Currently if a Condo association does not support a 51% owner occupancy rate, it is not considered eligible for financing. This number seems like it is easily obtainable - but there are overlays that can sometimes hang up financing that you must be aware of... these are considered ineligible projects regardless of occupancy rate: Condotels, timeshare or segmented ownership projects, multi-dwelling unit condominium projects that permit owners to hold title to more than one dwelling unit with ownership evidenced to units by a single deed and mortgage, condo projects that have a non-conforming land use, zoning regulations prohibit rebuilding, projects with leased back recreational facilities, projects with pooled insurance policies, and projects with excessive or ineligible concessions or contributions.

Misc Overlays... In addition, a maximum of 10% of the units may be owned by a single party, commercial use should not exceed 20% of the total square footage for the project, and no more than 15% of the units HOA dues can be delinquent otherwise the project is not eligible for financing.

This is but a taste of some of the overlays... we haven't even discussed insurance requirements or the fidelity bond.

This article is not designed to deter you from trying to sell a condo, but rather to prepare you and the buyer for what they are in store for. As you can expect this does result in additional costs to the borrower. First the HOA is going to charge fees to complete this questionaire and provide the supporting documentation that lenders will require. Not all HOAs are created equal so make sure the escrow period in contract provides enough time to get everything required from the HOA for closing. In addition to the fees these HOAs like to charge, depending on how the loan is structured unless the borrower is putting 25% or more down, the lender is going to increase the loan costs as well. To our left I have cut and pasted in conforming loan adjusters and highlighted the pricing adjustment for condos - a nasty .75% That is three quarters of a point... a substantial pricing adjustment that can be avoided with a shorter term (a 15 year fixed for example) or a larger down payment which I suggest above.

In conclusion let me share with you that what I am breaking down in this email are the guidelines for Fannie Mae and Freddie Mac financing. Agency loans as they are commonly referred to make up 95% of the marketplace right now. If you plan on working around these guidelines you are fighting an uphill battle. I represent approximately 80 different wholesale lenders of which maybe a dozen offer portfolio programs that may offer slightly looser guidelines.

Right now, lenders simply do not want to finance condos, and they have put these guidelines in place to make securing financing for condos as difficult as possible. It is definitely obtainable, I do not want anyone to think otherwise, I simply want everyone to know what they should be prepared for moving forward on a condo purchase.

Any particular questions I am happy to answer.

Is Homepath the Future

Most have heard of Homepath - for those that haven't - Homepath is a financing solution offered by Fannie Mae for homes that are distressed properties that would have trouble qualifying for typical financing solutions due to their distressed nature.

With that said this program is not a fix all solution for a singular reason, Homepath financing solutions are only available to homes that have been Homepath approved. This means many homes will not be eligible for for this type of financing, regardless Homepath does present a significant opportunity that we should all be aware of.

First and foremost Homepath financing is for foreclosed Fannie Mae homes, so you will not find these properties on every block in town. Homes that are qualified for Homepath will have the "Homepath"logo attached to their listing. If a home is Homepath approved here are some of the advantages this financing solution offers:

Low down payment (3%) that can come from personal savings, a gift, a grant, a loan from a non profit (down payment assistance programs), state, government, employer. Point in fact, the down payment options are significant and the required down payment is less what FHA now requires.

Fixed, Adjustable, and interest only financing options are available - flexible final loan terms mean borrowers can fine tune their final loan to meet their personal goals.

Less than perfect credit is allowed... this is not designed for only prime borrowers to qualify.

Is available for both primary residences and investment properties - investors this is a significant opportunity.

No mortgage insurance. That's right there is no mortgage insurance associated with this program even if your loan is over 80% loan to value. All I can say about this is WOW!

No appraisal fees. A lot of people will see this as the final selling point. Although buyer's agents you may still want to recommend having you clients get an appraisal to confirm they are not over paying for the home.

And finally Homepath also offers a light renovation option for homes that need work to be completed before they are truly livable. Imagine funding your renovations inside your purchase loan. Years ago this was a common occurrence with financing vehicles like construction to permanent, but since the credit crisis these loans have all but disappeared. This is not the case anymore.

Needless to say Homepath is a significant opportunity. and I am proud to offer it as a financing solution to borrowers... agents, keep a close eye out for these properties. Distressed homes are not that much fun to list, however a Homepath approved home for sale does not have the headaches that use to come with this type of listing. The benefit for buyer's is obvious - those looking for a true fixer-upper can now secure financing for their new fixer-upper.

Leave your questions and comments about Homepath - share your current experiences - and if you have specific questions about a case you are trying to secure financing for we are of course available for confidential consultation.

Interest Rates Improve and Reach This Year's Lows

So if you pay attention to the news it is hard to ignore the fact that the World is having a tough go around right now. Greece does not have a working economy and is looking for a bailout from, well just about anybody. Yesterday Union protesters stormed parliament demanding, well probably a whole lot of things considering it was a riot. Today, the Greek parliament is meeting (kind of curious how they managed to survive the riot and take back the building) and trying to determine a resolution that will ensure Greece remains Greece... in the meantime the real country that will answer that question - Germany - is screaming "why are we on the hook, screw Greece!"

The IMF is offering a bailout (which we, the United States, fund 17% of) but countries like Germany are protesting, tired of being the patsy with open pockets. I know, what in creation does this have to do with rates? Everything.

With the collapse of Greece the Euro has fallen in value against the dollar. Our short term equities markets (stock market) are experiencing a sell off as investors pull out anticipating a retraction in future demand (see yesterdays post and graph). To keep their money active investors are now looking at long term markets, one of which is the MBS, or mortgage backed securities market. As they invest in the MBS market, interest rates offered to consumers improve because there is more money in the market to lend so the cost of borrowing that money comes down (rate of interest). Essentially Greece has created a perfect storm sending investors to our market in droves and we're a tasty watering hole for those parched.

What is happening across the pond is a big deal! Make no mistake about it, Greece may no longer exist, and it will definitely not exist as it does today. What is scary is Greece may not be the only Country to fall... Spain, Portugal, and Italy are all close to the tipping point. Ever play dominoes?

Interest rates for prime borrowers are currently 4.625% par on a 30 year fixed conforming loan and 4.5% at around a .5 point in up front cost. Of course I'm talking 20% or more down on a primary residence purchase loan. Share this tidbit of information with your clients and see if these lower rates can't convince them now is the time to submit that offer they have been considering.

New numbers suggest Second Wave of Trouble on Horizon

Well I wish I could follow up this morning's post with gumball rain drops and chocolate for everyone, but unfortunately Candyland is not real and we must objectively evaluate the market for better or worse, and right now worse looks prominent. To the left is a breakdown of industries and the estimated value for March of last year and April of this year.

These projections are to say the least not good. Considering real estate financing is currently dependent on full income documentation and verification of assets, assuming these projections are accurate we will see a significant retraction in the stock market, which could lead to additional unemployment (companies no longer have the capital to support staffing) which would lead to less qualified buyers while putting additional stress on current listing due to the possibility of a new wave of foreclosures.

Now some of you may be thinking, but Obama's new plan will help people unemployed make their mortgage payments, and even reduce the principle balance on their home relieving some of the pressure the real estate market now faces keeping new foreclosures from reaching the market. Let me be clear about this Obama plan... banks are NOT participating; to date I have not been able to find one lender that is offering this to borrowers.

What does this all mean moving forward? We're not out of the woods. A solid marketing plan and a reliable follow up system for your current clients is going to be a must have if you want to succeed in this coming market. I do not see lending guidelines loosening any time soon so the name of the game is going to be client retention. Unparalleled service is going to be critical because retaining qualified borrowers looking to buy will mean going above and beyond expectations. Are you prepared to WOW your next client?

Your comments and feedback are welcome.

San Diego Real Estate Agents

So, yesterday my business partner and I got to talking about our blogs and what exactly we were trying to accomplish. Currently we are publishers and authors of two blogs "Mortgage Insiders" which you will find a link to on the left and of course this blog "San Diego Home Finance."

I know, I know... you're thinking the same thing we were, wouldn't one blog on finance (Mortgage Insiders) address the questions of borrowers in San Diego, and if so what's the need for a second blog about finance?

That's when it dawned on us; the real estate agents we currently work with love the information we're able to provide them - why not use our second blog to deliver the same material to any agent looking to expand their knowledge base. In other words create an informative resource for real estate agents.

Similar to the big bang - this simple revelation has produced this brainchild - a comprehensive blog about our San Diego market, real estate financing, pitfalls, sales strategies, etc...

I am personally very excited because I have not been able to find anything of the likes and know agents that subscribe or regularly view this blog will find it incredibly helpful and we have made it as easy as possible for new agents to link into this blog by either joining at the bottom or subscribing to an RSS feed which will email each new post directly to them.

Please NOTE: this is not intended for consumers however we expect them to find this site from time to time and if you do encounter comments or posts that seem a little unprofessional, please respect their inquiry and answer it appropriately. We were not always the authority on information, and still have a lot to learn - we are looking to create a community where the learning curve of each individual is respected. With that said if there is something posted that is over your head and do not fully grasp please do not hesitate to leave a comment with a question. We look forward to having an interactive blog where agents share their experiences and learn from one another not just what we have to share on our market.

What an exciting day. We look forward to making this a valuable resource for all real estate professionals.

When Our Troops Come Home

A relatively frequent question I hear inside our community is whether or not I see an correction occurring in the housing market, or if our current situation (home prices and financing solutions) is stagnant and will not change for some time.

This is a difficult question to address - after all different regions of San Diego will have different reactions to market changes, and we are all susceptible to rising interest rates which could curb home buying faster than you can check my spelling. Unfortunately market changes like rate fluctuation we will have to take in stride. Other market changes however we can plan for, and look to take advantage of.

One such change I believe will benefit the San Diego community are our overseas troops returning from their international stations. If you think about it San Diego has the largest Naval Base (Naval Base San Diego) on the Western seaboard, and the largest Marine Base (Camp Pendleton) on the West Coast. When our troops come home from overseas we could see a surge in the housing market as our armed forces members look for places to live. With overseas pay being nontaxable, the vast majority of our armed forces members should be coming home with a decent nest egg that could be used as a down payment for a new home purchase.

Then again there is VA financing up to 100% without mortgage insurance for those that decide to buy a a new car instead of using the money to put down on a home. The point is our armed forces members make a good living and are going to be needing homes. Whether they rent or buy, this influx will be good for the San Diego economy, and in my opinion will help our housing market.

We owe tremendous gratitude to our troops for serving. A sincere thank you. I truly look forward to the chance of serving our men and women in uniform upon their return with any home financing solutions they may need. What can you do to show your thanks? What are your thoughts on our troops returning home and their impact on our local economy? Your comments are welcome.