NELA Live

2010 VA Jumbo Mortgage Limit Drops in Los Angeles County

Los Angeles VA jumbo loan limits will be reduced to $593,750, from the 2009 limit of $737,500, in response to the lower median home prices.  Los Angeles veterans looking for a VA home loan above that limit will be required to put down 25% of the difference between the new loan limit and the higher sales price.

EXAMPLE:

An eligible veteran, looking to purchase a home for $693,750, will need a down payment of $25,000 which equals the 25% of the $100,000 difference.

An eligible veteran, purchasing a home for $993,750 will be required to put down $100,000 which is 25% of the difference between the sales price and 2010 loan limit.

Median prices across Southern California stabilized in 2009 in response to the high balance loan program, foreclosure stays, and home buyer tax credits.  Los Angeles County's median price dropped from $355,000, in October, 2008 to $325,000, in October, 2009.  It is anticipated that the 2010 VA loan limit should facilitate approximately 75% of the sales prices for 2010.

2010 VA loan limits in Southern California:

San Diego ..................$437,500

Los Angeles................$593,750

Orange ......................$593,750

Riverside.....................$417,000

San Bernardino............$417,000

Imperial.......................$417,000

Phillies-Dodgers 2009 NLCS Preview

No love is lost between the Philadelphia Phillies and Los Angeles Dodgers. Most NELA readers know that the Dodgers ruined my childhood so I won't spend too much time denigrating the Blue Crew.  Both teams were pugnacious in last year's playoffs but the Phillies, aided by Matt Stairs' Gibson-like homer, advanced to eventually win the World Series.

That's all ancient history.  Tomorrow night, the 2009 NLCS starts at Chavez Ravine.  Here's a breakdown of both teams and my prediction for the NLCS:

Pitching:

The Dodgers have suffered with their starting rotation while The Phils have gotten stronger.  Starters Cole Hamels and Pedro Martinez should provide an edge over Kershaw and Vicente Padilla.  Kershaw is undefeated at Dodgers Stadium but the Phillies have his number.  Padilla is red-hot but so is Pedro at this point. 

Phillies pitcher Cliff Lee should be unbeatable in Game Three.  Edge:  PHILLIES

Bullpen:

The Dodgers excel out of the bullpen while the Phillies have had their trials and tribulations with Ryan Madson and Brad Lidge.  Both performed well against Colorado but the ghost of 11 blown saves continues to haunt the Phils.  Brett Myers just can't pitch on the road and LA has the home field advantage. If it comes down to the late innings, Jon Broxton is about as good you can have on the hill.  EDGE: DODGERS

Offense:

Manny Ramirez is the best hitter of this generation but continues to be a head case.  Phillies slugger Ryan Howard is all business.  The Phillies have perhaps the best offensive punch in baseball unless facing a dominant pitcher.  If the Dodgers get behind early, and can't produce runs, the Phillies should be able to hold on.  EDGE:  PHILLIES

Defense:

The Phillies oufield and right side of the infield matches up better than the Dodgers.  The Dodgers edge the Phillies behind the plate and on the left side of the infield.  The Phillies bats are mostly left-handed so this could be a slight edge to the Phillies.  I'll call it a push.

Bench:

On paper, the Dodgers are much deeper than the Phillies but the bench shouldn't be a factor in this series.  If we have extra inning games, expect the Dodgers bullpen and deep bench to prevail.  EDGE: DODGERS

Grit:

Hands down, Phillies.  While the Dodgers were all business against the Cardinals, the Fightin' Phils earned their nickname in the Rockies series.  That intangible called heart is the one thing that can keep the Phillies alive if the games come down to the late innings.  As good as the Dodgers bullpen is, the defending World Champions find ways to win ball games when the title is on the line.  EDGE: PHILLIES

Environment:

Phillies fans are known for their no-nonsense passion but Dodgers fans of today are not the sushi-eating dilletantes of years past.  Dodgers baseball is a WAY OF LIFE to today's fans.  With no football team, Los Angelenos have nothing other to distract them from their mission to make the Phillies players as miserable as possible when in Chavez Ravine.  Considering the bean-ball war of 2008, both fans will be trying to give their team the edge.  As the Dodgers have home field advantage-  EDGE: DODGERS

In my opinion, these teams are evenly matched with unique strengths.  The secret to the Dodgers success will be to keep the Phillies early-inning run production down while building up leads to take to the late innings.  Consequently, the Phillies will have to get to the Dodgers pitching early and often.  I expect the Phils to pull one late-inning victory out of their hats on pure heart which is why I predict:

Phillies in 7

 

VA Jumbo Mortgages Help Finance Million-Dollar LA Properties

I stated at the beginning of the year that VA jumbo mortgages could very well be the product that helped stabilize the middle-market ($500,000- $1,000,000) in Los Angeles real estate.  Let me share with you how they work and give you some cases where we were able to fund loans this year.

The current zero-down VA jumbo mortgage limit is $737,500.  This means that a qualified veteran is eligible to purchase a a home, up to that limit, with no down payment required.  That's pretty straightforward.  Did you know that VA loans go up to $1,080,000 with a down payment?  The down payment requirement for a VA jumbo mortgage is essentially 25% of the difference between the purchase price and the county loan limit ($737,500 in Los Angeles County).  

Here are some examples of funded VA loans, in LA county, this year:

• We funded a purchase for $1,080,000 in Rancho Palos Verdes.  The down payment requirement, combined with closing costs, was less than $100,000.  The rate was 6% (which is typical for jumbo mortgages). What made this transaction unique was that the loan amount was 92% of the purchase price and VA loans have no mortgage insurance.
• We funded a three-unit transaction for about $700,000 with no down-payment requirement, in Los Angeles. That rate was 5.5% for a 30-year, fixed rate loan.
• One veteran and his wife bought a townhouse in Redondo Beach for $800,000.  Their downpayment and closing costs were just under $40,000.  The rate was 5.75% for a 30-year fixed rate loan.

Most veterans who served after 1980 are eligible for the VA home loan benefit.  While eligibility doesn't guarantee approval, if the veteran's credit and income supports the loan, a VA jumbo mortgage might very well be the loan solution that allows for a low down payment for a seven-figure purchase price.

Many Californians are eligible for VA home loan benefits.  Some of the more famous veterans include Easy Rider Dennis Hopper, Kirk Douglas, Sidney Poitier, Chuck Norris, ER's Troy Evans, and Pat Sajac.  All are eligible for a VA home loan (although I doubt they need one).

FHA Mortgages Can Be Assumed By The Buyer

One overlooked benefit of FHA financing is that the buyer can assume a current FHA loan from the seller.  Essentially, this means that the existing mortgage payments can be "taken over".  I explained how an assumable FHA loan could help a seller sell a home, in the future:

Today, a FHA loan rate will be around 5%.  I believe that inflation will kick in, sometime in the next 6-18 months, causing mortgage rates to skyrocket to 6.5% or higher.  Left unchecked, inflation could drive mortgage rates into double digits by 2012.  The good news is that home prices will probably jump up, too (if runaway inflation is present).

How hard will it be to sell a house in five years, with mortgage rates at 10% ? 

Pretty tough...unless you can offer the buyer a below market interest rate.  Let's assume a Los Angeleno buys a $300,000 home today and finances $290,000 with a 5% FHA loan.  His payment will be $1,556

That same person looks to sell that home, in 2014, for $400,000 but FHA loan rates are at 10%.  The new buyer, looking to finance $385,000 at the market rate of 10%, would have a payment of $3378; that's over twice the original payment.

What would happen if the seller, held a $100,000 second mortgage, for 25 years, at 12%, and allowed the buyer to assume his 5% FHA loan?

The payment on the second mortgage would be $1,053. Add the (now) 25-year, original FHA loan, at 5% payment of $1,556 and you have a financing package that is about $900 cheaper than a $385,000 FHA loan.

Pretty slick, huh?  There are risks involved,  I outlined them further:

Even with a formal assumption, the seller is still responsible for the original loan payments for the first five years.  You had better be certain that the buyer is credit-worthy.

The seller is stuck with a note, not cash.  That note could be sold on the secondary market but prices are typically about 70 cents on the dollar; that could cost the seller some $30,000 in profit.

On balance, the FHA loan assumable feature could benefit today's buyer, looking to have "a little something extra to offer" when selling his/her home, in the future.

Dreaded, Hated Dodgers Start 2009 Season Off With A Win

Maybe the first two words of the title show my bias.  I told you two years ago that I hated the Dodgers.  Growing up in Philly, the 70's Dodgers wreaked havoc on the Phillies.  When I lived in Phoenix, the Dodgers always presented problems for the Diamondbacks.  This decade, Dodger fans take great delight when they roll into Petco Park and beat up on the Friars;

Why should it be any different tonight?  The Dodgers won the Season against the Padres 4-1:

Joe Torre’s trust in Hiroki Kuroda paid off with an opening-day win for the Los Angeles Dodgers.

Kuroda outpitched San Diego Padres ace Jake Peavy, leading the defending NL West champions to a 4-1 victory Monday without a hit from Manny Ramirez.

The enigmatic slugger went 0-for-3 with a walk and a run on his first opening day with the Dodgers. Matt Kemp drove a 418-foot homer to straightaway center field off Peavy, and James Loney had three hits, including a two-run single.

The crowd of 45,496 was the largest in Petco Park’s six-year history.

The Dodgers franchise should be poised to win the NL West this year.  Adding Joe Torre to the skipper's role was brilliant.  Torre knows how to handle egos and he did a pretty good job with "Manny" last year.  Their offense is explosive but their pitching seems to be the wild-card this year.  A young staff could be hard-throwing or it could be wild:

"We've obviously come into spring training knowing we needed to upgrade our pitching, and we either had to do it by virtue of some of the veterans we signed to minor league deals or having some of our younger players graduate," Colletti said Sunday morning. "We've seen a little bit of both, but it's still a concern. It's my greatest concern as we sit here today, looking at our staff."

Offense wins you ball games but pitching keeps you from losing them.  If Torre can mature those young arms quickly, the dreaded, hated Dodgers will cause me a season of angst once again.  Look for Coletti to be aggressively looking to trade for some seasoned-hurlers to mature his young staff.

My Prediction:  Dodgers win the NL West with 98 wins

UCLA Grad Gina Elise Makes Good With PinupsForVets.com Project

A little over two years ago, I told you about Gina Elise and her PinupsForVets.com project.  Since then, Gina has been touring the country to promote her cause, raising money for and the spirits of our wounded veterans.  From her March, 2009 newsletter:

I just wanted to let you know that I made my very first hospital visit of 2009 (March 2nd)  to the Naval Medical Center in San Diego, CA.  I hosted a dinner for the Wounded Warriors and gave out your donated calendars, tee shirts, and posters with special messages of appreciation.  Everyone had a blast and the Wounded Warriors LOVED their gifts!!!  The project got lots of great feedback and they were just so appreciative.  The donated tee-shirts were gone within seconds!!! A big thank you goes out to these brave heroes for their service to our country!

I will be traveling to Texas in a few weeks and will be visiting with Wounded Warriors at a hospital there.  For all of you interested in donating calendars, posters and tee shirts for this visit, please go to www.pinupsforvets.com and click on ORDER NOW.  Then chose option #2- Calendar, Tee Shirt or poster for Hospitalized Veteran.  This will be my first time visiting this hospital in Texas and I would like to bring each and every one of these brave heroes a gift of appreciation.

Won't you lend Gina your support by purchasing a calendar or T-shirt for our boys and girls overseas?

Los Angeles Times Gets It Wrong On Mortgage Rates (Cuz They Ain't In Real Time)

Didjya ever pick up the Los Angeles Times to shop mortgage rates?

That worked way back in 2000 before the internet grew up.  Today, the Los Angeles Times is, well...a great opinion rag but the relevant information, you know, the stuff you want to know RIGHT NOW, ain't so relevant. 

Wanna know some inside poop about whether Manny will or won't wear Dodger Blue this year?  Read the Times.  Wanna know how many points Kobe put up before you go to bed?  Type in Lakers.com.

Want expert opinion about the art exhibition tonight, in Northeast Los Angeles?  Run down to the store, buy the Times, and browse through the Neighborhoods section; the analysis will be superb. Of course, you already Googled "art exhibitions in northeast los angeles" to find out who WAS showing, before you wanted that expert opinion.

I'm not EXCLUSIVELY pickin' on the Times, I'm an equal opportunity picker-onner.  My hometown fish wrap, the San Diego Union-Tribune, is equally as irrelevant when it comes to real-time information.

Are mortgage rates THAT volatile and the mortgage market THAT confusing that the information the Times offers irrelevant?  Yup.  Today, the mortgage rates are changing as much as 2-3 times daily but you already knew that.  How can a potential home buyer get real-time information about the mortgage market?  Try entering a loan request to the Zillow Mortgage Marketplace.  There, lenders will size you up and compete for your business without having to relinquish your personal data.  No phone calls, no e-mails, just a straightforward loan quote...from lots of lenders.

You wouldn't wait for the Times to publish the box score and now you don't have to wait to get real-time mortgage rate quotes from credible sources.  The Times is best for opinion and analysis (well, maybe for Sports- you can get expert mortgage market analysis here).

PS:  I purposely wrote this article in the vernacular, slang and all.  San Diego Union-Tribune columnist, Logan Jenkins described us "citizen journalists" this way:

No way can a loose network of bloggers in pajamas – or, for that matter, time-challenged broadcast outlets – match our concerted effort to inform in detailed depth.

I didn't want to rain on his self-adulatory parade so I tied one hand behind my back.

Los Angeles homeowners can get a 4.5% mortgage rate in March

  ...if you like the terms. Here's the rub:

• it's for a fifteen-year, fixed-rate mortgage and...
• it costs 1.25% in points and...
• the loan amount has to be for $250,000 to $417,000 and...
• you have to have a 700 credit score or higher and...
• all of your monthly debts (including the new payment) can't exceed 40% of your documented income and...
• you must have at least 20% in equity if it's a purchase transaction or....
• you must have at least 20% in equity if it's a refinance of your purchase loan (no cash out) or...
• you must have at least 40% equity if it's a refinance where you took cash out of the house.

Lots of restrictions but it's here.  Contact me if you want to give it a go.

PS:  This might not be that bad of an idea if your rate is 6% or higher.  If you took out a $300,000 loan, at 6%, for thirty years, your payment is $1798. Refinancing your mortgage to a 15-year loan, at 4.5% would raise your payment to $2294.  That's only $500 a month. 

That's an extra $90,000 that you'll pay towards your mortgage over 15 years.  If you bought your home in 2006, you still have 27 years left.  If we could knock off 144 payments at $1798, you'd save $259,000.  So...

It costs you $3750 in points PLUS another $3000 in closing costs PLUS the $90,000 extra (the higher payments).  Pay out $97,000, over fifteen years, and save $259,000?  Hmmm, maybe you'd do better in your 401-k.

Then again, maybe not.  I'm just sayin'.

I'll run the numbers for you if you contact me.

  ...if you like the terms. Here's the rub:

• it's for a fifteen-year, fixed-rate mortgage and...
• it costs 1.25% in points and...
• the loan amount has to be for $250,000 to $417,000 and...
• you have to have a 700 credit score or higher and...
• all of your monthly debts (including the new payment) can't exceed 40% of your documented income and...
• you must have at least 20% in equity if it's a purchase transaction or....
• you must have at least 20% in equity if it's a refinance of your purchase loan (no cash out) or...
• you must have at least 40% equity if it's a refinance where you took cash out of the house.

Lots of restrictions but it's here.  Contact me if you want to give it a go.

PS:  This might not be that bad of an idea if your rate is 6% or higher.  If you took out a $300,000 loan, at 6%, for thirty years, your payment is $1798. Refinancing your mortgage to a 15-year loan, at 4.5% would raise your payment to $2294.  That's only $500 a month. 

That's an extra $90,000 that you'll pay towards your mortgage over 15 years.  If you bought your home in 2006, you still have 27 years left.  If we could knock off 144 payments at $1798, you'd save $259,000.  So...

It costs you $3750 in points PLUS another $3000 in closing costs PLUS the $90,000 extra (the higher payments).  Pay out $97,000, over fifteen years, and save $259,000?  Hmmm, maybe you'd do better in your 401-k.

Then again, maybe not.  I'm just sayin'.

I'll run the numbers for you if you contact me.

Los Angeles Mortgage Rates Report: February 13, 2009

Los Angeles mortgage rates look to trend up in the next week or so.  Ambiguity about the spending/stimulus bill, combined with a massive borrowing effort by the Government, is making it difficult for mortgage rates to stay below 5%.  Economic data are still bleak and that should act as a ceiling for mortgage rates in the near-term.

If you’re buying a home, with a conventional loan, you should be able to lock-in 4.875% this morning.  I’d take that rate if you plan to close in February.  I, like Bill Gross of PIMCO, still think we’ll see mortgage rates at 4.5% again; we might have to go through 5.375% to get there, though.

If you have the time and will, hold out for a better rate.  Otherwise, all February closings are best served by locking today.

Reduced Tax Credit To Penalize Los Angeles Home Buyers

In an eleventh-hour negotiation, the provision for a $15,000 home buyer tax credit, in President Obama’s “stimulus package”, is most likely dead as presented. Instead, the lobbying efforts of the National Association of REALTORs and the National Association of Home Builders will most likely result in a glass half-full:

Congress seems to be near a final stimulus bill that will slash a Senate provision to give home buyers a 10% tax credit up to $15,000. Instead, Congress appears likely to eliminate a repayment requirement on a more modest $7,500 credit.

Justin McHood covered a basic outline of the proposed legislation on Mortgages Unzipped.  Many comments and questions resulted in this closing advice from Mr. McHood:

Wait until the economic stimulus bill passes. And if it does pass, at that point, we can then analyze whether or not there is any kind of tax credit - and if so, how much and what the stipulations are.

While this is a blow for the real estate industry, the measure stands to save taxpayers some $32 billion.   The median price for Southern California home remains is 3.5 times the $75,000 limit so most SoCal home buyers will lose from this recent development.  No information was available about the July 1, 2009 deadline.

Buying a home makes economic sense in some areas of the country.  Low mortgage rates and diving prices have contributed to the sharp increase in number of existing home purchases in December, 2008.  A tax-credit, while a tasty dessert for hungry home buyers, may not be the necessary main course that the free market may already be serving.

In an eleventh-hour negotiation, the provision for a $15,000 home buyer tax credit, in President Obama’s “stimulus package”, is most likely dead as presented. Instead, the lobbying efforts of the National Association of REALTORs and the National Association of Home Builders will most likely result in a glass half-full:

Congress seems to be near a final stimulus bill that will slash a Senate provision to give home buyers a 10% tax credit up to $15,000. Instead, Congress appears likely to eliminate a repayment requirement on a more modest $7,500 credit.

Justin McHood covered a basic outline of the proposed legislation on Mortgages Unzipped.  Many comments and questions resulted in this closing advice from Mr. McHood:

Wait until the economic stimulus bill passes. And if it does pass, at that point, we can then analyze whether or not there is any kind of tax credit - and if so, how much and what the stipulations are.

While this is a blow for the real estate industry, the measure stands to save taxpayers some $32 billion.   The median price for Southern California home remains is 3.5 times the $75,000 limit so most SoCal home buyers will lose from this recent development.  No information was available about the July 1, 2009 deadline.

Buying a home makes economic sense in some areas of the country.  Low mortgage rates and diving prices have contributed to the sharp increase in number of existing home purchases in December, 2008.  A tax-credit, while a tasty dessert for hungry home buyers, may not be the necessary main course that the free market may already be serving.

Los Angeles Mortgage Rates Report: January 21, 2009

Shopping for mortgage rates might have become easier but shopping for a mortgage is still quite difficult. Did you know that half of the loan applications taken last month did NOT result in a funded loan?  The long desired 4.5% mortgage rate is hard to get.  We’ve been there twice and you received a 4.5% mortgage if you:

1- Have impeccable credit

2- Have lots of equity (many borrowers were surprised at how foreclosures stole their equity)

3- Have plenty of documented income and were prudent in your use of debt.

4- Only refinanced the loan amount you used to purchase the property (you didn’t extract any cash out from a previous refinance)

5- Dealt with an originator who understood that mortgage rates were VERY volatile, gathered your information, picked a lender who wasn’t swamped with loans, and executed a rate lock at the appropriate time.

Have you seen what happened to mortgage rates this past week? They shot up from the mid 4’s to over 5%; that’s a half-percentage point rise in eight days.  The mortgage bonds market is skittish about our new President.  His Economic Recovery Plan relies on huge government borrowing and that is inflationary.

I have no comment about his plan; that’s far above my paygrade.  I do, however, think this massive government borrowing will drive rates into the 6’s within 12 months.  Still, there should be a pinprick of light through this dark cloud (in the form of a low mortgage rate)

Listen to this 3 minute podcast to find out when we should see that light.

Los Angeles Mortgage Rates Report: January 14, 2009

The US Treasury Department has been supporting the mortgage bonds market, in order to keep mortgage rates under 5%.  I cited two reasons why sub-5% rates might not happen:

1- Capacity: Lenders don’t have the horses to ride since they laid off so many workers in 2008.

2- Greed:  Lenders typically made a loan at a rate and sold it for about a half a point profit.  The improvement in mortgage bonds allowed lenders to fatten up their margins and make as much as 3% of the loan when they sold it.

I think the real reason was more in line with my first guess; capacity.  What I didn’t realize was that the mortgage lenders were out of money.  Well, sort of.  To understand this concept you have to understand the “flow” of mortgage loans.  The big banks, like B of A, Citi, and Wells, loan direct or buy loans from other lenders and brokers.  We “commit” those loans to them and they sell the loans off to Wall Street.  If my company loans you $300,000, we’ll sell it to a bigger bank for $303,000, and they sell it to Wall Street for $306,000…except…

They don’t really get paid but once a quarter.  Loans made back in October have been COMMITTED to Wall Street, by those big lenders, but the transaction (sale of the loan) only happens every three months.  While they wait for that transaction day, their funding line gets filled up.  Imagine a funding line (sometimes called a warehouse line of credit) like a big credit card,  Normally, a big bank needs, say $100 Billion for its line.  The unexpected refinance volume filled up that line quickly.

Those big lenders were “at their credit limit”…until today.

Today was this past quarter’s settlement day, which means, the big lenders sold off all of the loans to Wall Street and paid off their “super-sized credit card”. From Mortgage News Daily:

Tomorrow brings us the final day of Class A settlement, in which sellers of MBS deliver the loans in pools to satisfy the executed sale trades made over the last 3 months.  When this occurs, sellers will finally receive payment for the most action-packed month of originations in recent memory.  Up until now, the cost to originate these loans has been borne by MBS sellers, aka originators.  We have surmised that one of the several components that is causing a much-larger-than-welcome margin of MBS prices to lenders’ rate sheets is the funding constraint created by the gradual exhaustion of money to satisfy a rapidly increasing originationd demand.  As this money has dried up, it stands to reason that lenders must artificially raise rates to deter incoming business in order to avoid exceeding their funding sources.

Lenders have lots of cash to lend again. NOW is when we should see the lenders start pricing in line with the mortgage bonds market.  Mortgage rates should drop to 4.5% …IF the mortgage-backed securities market remains strong.

This is what the Treasury Department was waiting for.  Expect the Government to support mortgage bonds, so that lenders can lend out all this cheap money they have and still make a healthy profit.  It might take a few days and I don’t expect mortgage rates to stay this low for too long.

Listen to how this phenomenon might get you a mortgage rate as low as 4.5% on Radio Mortgage.

At the risk of sounding alarmist, you should be getting your ducks lined up and talking to a mortgage adviser….NOW…not later.  I’m not selling you, I’m TELLING you to…

…take action now.

 

The US Treasury Department has been supporting the mortgage bonds market, in order to keep mortgage rates under 5%.  I cited two reasons why sub-5% rates might not happen:

1- Capacity: Lenders don’t have the horses to ride since they laid off so many workers in 2008.

2- Greed:  Lenders typically made a loan at a rate and sold it for about a half a point profit.  The improvement in mortgage bonds allowed lenders to fatten up their margins and make as much as 3% of the loan when they sold it.

I think the real reason was more in line with my first guess; capacity.  What I didn’t realize was that the mortgage lenders were out of money.  Well, sort of.  To understand this concept you have to understand the “flow” of mortgage loans.  The big banks, like B of A, Citi, and Wells, loan direct or buy loans from other lenders and brokers.  We “commit” those loans to them and they sell the loans off to Wall Street.  If my company loans you $300,000, we’ll sell it to a bigger bank for $303,000, and they sell it to Wall Street for $306,000…except…

They don’t really get paid but once a quarter.  Loans made back in October have been COMMITTED to Wall Street, by those big lenders, but the transaction (sale of the loan) only happens every three months.  While they wait for that transaction day, their funding line gets filled up.  Imagine a funding line (sometimes called a warehouse line of credit) like a big credit card,  Normally, a big bank needs, say $100 Billion for its line.  The unexpected refinance volume filled up that line quickly.

Those big lenders were “at their credit limit”…until today.

Today was this past quarter’s settlement day, which means, the big lenders sold off all of the loans to Wall Street and paid off their “super-sized credit card”. From Mortgage News Daily:

Tomorrow brings us the final day of Class A settlement, in which sellers of MBS deliver the loans in pools to satisfy the executed sale trades made over the last 3 months.  When this occurs, sellers will finally receive payment for the most action-packed month of originations in recent memory.  Up until now, the cost to originate these loans has been borne by MBS sellers, aka originators.  We have surmised that one of the several components that is causing a much-larger-than-welcome margin of MBS prices to lenders’ rate sheets is the funding constraint created by the gradual exhaustion of money to satisfy a rapidly increasing originationd demand.  As this money has dried up, it stands to reason that lenders must artificially raise rates to deter incoming business in order to avoid exceeding their funding sources.

Lenders have lots of cash to lend again. NOW is when we should see the lenders start pricing in line with the mortgage bonds market.  Mortgage rates should drop to 4.5% …IF the mortgage-backed securities market remains strong.

This is what the Treasury Department was waiting for.  Expect the Government to support mortgage bonds, so that lenders can lend out all this cheap money they have and still make a healthy profit.  It might take a few days and I don’t expect mortgage rates to stay this low for too long.

Listen to how this phenomenon might get you a mortgage rate as low as 4.5% on Radio Mortgage.

At the risk of sounding alarmist, you should be getting your ducks lined up and talking to a mortgage adviser….NOW…not later.  I’m not selling you, I’m TELLING you to…

…take action now.

 

Los Angeles Mortgage Rates Report: January 6, 2008

Los Angeles mortgage rates are 4.75%…No, wait a minute.  They shot back up !

Welcome to January, 2009.  It looks to be a rocky ride through Inauguration Day.  After that, all bets are off.  Here’s the good news, though; mortgage rates, while just over 5% this afternoon (up from 4.75% this morning) are still excellent.

Sean Purcell and I discuss why the lenders are raising rates on Radio Mortgage.

Give this ten minute podcast a listen.

Will The 4.5% Mortgage Rate Craze Reach Los Angeles?

Last night, I speculated that Los Angeles mortgage rates would open in the 4.5% range because of the Fed’s post-market Press Release about its mortgage-backed securities market intervention:

Mortgage markets are responding with EXUBERANCE…joy…unbridled passion!  In post-market trading, the 4% coupons are trading at a premium, suggesting that  mortgage rates should open below 4.5% tomorrow.

That…didn’t quite happen. Mortgage-backed securities open higher, then fell off the table, then recovered, then fell again.  Lenders offered wholesale par rates (with no yield spread premium) at 4.625% and 4.75%, today.  My article moved over 20 people to call to find out about a potential refinance and most seemed frustrated that the 4.5% rate was not available, yet.

My hypothesis is that the mortgage traders were still on vacation, in Cabo, and didn’t see the Fed’s Press Release as sufficient cause to jump on a plane and get back to Wall Street.  I still think we’ll see a 4.5% mortgage rate…next week.  Here’s why most borowers will never get that rate for their refinance:

It won’t stay down at 4.5% for long. We saw this happen, for about three hours, about two weeks ago.  Borrowers who “had it tee-ed up” got that rate, with a 1% origination fee.  “Teeing it up” means you’re ready to lock your rate.  Lender require the following to lock a mortgage rate:

• Credit report pulled
• Loan application completed and entered into the system.
• Documentation for income, and assets, ready to fax, email, or send via overnight mail.

Lenders are cracking down on lock commitments.  The rate locks are coming with conditions, meaning that the loan file needs to be submitted to underwriting within ten business days.  This means that a title report needs to be supplied (3-5 days) and an appraisal needs to be uploaded (7-8 days).  That leaves very litle time for deliberation, if Los Angeles mortgage rates “just touch” 4.5%.

As such, deposits for appraisals, condominium certifications, and/or credit reports need to be supplied at rate lock commitment.  What this means is that your originator will collect about 4 or 5 hundred bucks from you.  I have no doubt that some of the originators who comment on my articles will try to “sell you” with the comment that “upfront fees are evil” or “take your time and decide”.  Others will say that I’m using fear to intimidate you.

Okayfine.  I’ve worked in financial services, both trading mortgage-backed securities and originating mortgages, since 1989.  It is my professional advice that you need to be prepared if you choose to take advantage of this opportunity.  These are unusual times with extraordinary benefits for the swift.  Banks know that they hold the upper hand with these low mortgage rates; they’ll only reward the prepared.

Contact me if you have questions. The phone is the most efficient and reliable medium.

PS:  The requirements to get this “magical rate” will be steep.  You must have excellent credit, be refinancing the amount of the mortgage you had when you bought the home (meaning you didn’t take out any cash from the property), and have plenty of documentable income.  If you don’t meet those steep criteria, don’t fret.  While you may not qualify for that rate, you will still be offered an historical one.

PPS:  If you contacted me today, I’m still digging out from under.  I’ll be scanning and e-mailing promised documents on Friday.

PPPS:  I almost forgot; Happy New Year !

Los Angeles Mortgage Rates Report: December 22, 2008

Conventional mortgage rates, in Los Angeles, are currently 4.75% and people are still waiting for them to drop that last quarter point...THAT IS CRAZY!

There is SO much risk of mortgage rates popping back up to the 5.5%-6% range, if the US Treasury reverses course and stops buying mortgage-backed securities.  On a straight risk/reward analysis, holding out for that last quarter percent while the risk of a full percentage point spike is NUTS.

My RadioMortgage.net partner, Sean Purcell, was busy writing the draft of our new book so I was the guest on Radio Mortgage.  Rebecca Levinson, a real estate marketing consultant in Milwaukee, hosted Radio Mortgage and asked me:

What do the posted rates REALLY mean to a consumer?

Listen to my answers in this 12 minute podcast, hosted by Rebecca.

PS:  Expect to hear Rebecca a whole bunch more on Radio Mortgage.

Conventional mortgage rates, in Los Angeles, are currently 4.75% and people are still waiting for them to drop that last quarter point...THAT IS CRAZY!

There is SO much risk of mortgage rates popping back up to the 5.5%-6% range, if the US Treasury reverses course and stops buying mortgage-backed securities.  On a straight risk/reward analysis, holding out for that last quarter percent while the risk of a full percentage point spike is NUTS.

My RadioMortgage.net partner, Sean Purcell, was busy writing the draft of our new book so I was the guest on Radio Mortgage.  Rebecca Levinson, a real estate marketing consultant in Milwaukee, hosted Radio Mortgage and asked me:

What do the posted rates REALLY mean to a consumer?

Listen to my answers in this 12 minute podcast, hosted by Rebecca.

PS:  Expect to hear Rebecca a whole bunch more on Radio Mortgage.

Los Angeles Mortgage Rates at 4.875%...IF...

...you have LOTS of equity, in an owner-occupied property, stellar credit (over 750), documented income, and act quickly.

I locked a loan for a customer last night at 4.875%; no points, no origination fee.  It was for $417,000 and his home is worth $700,000 or more.  The third-party costs (appraisal, credit, lender fees, escrow, title, recording, etc) totaled about 1%.  This means that the cost to acquire that 4.875% rate was about $4,000, putting his APR around 5.199%.

No-cost loans, where the lender pays all the third-party costs, would be a FULL percentage point higher, at 5.875% for a 5.875% APR.  Mortgage markets are NOT rewarding higher rates.  This means that anyone with a conventional loan, with a loan amount under $417,000, and a rate over 6% should be considering a refinance to a no-cost loan, at the very least.

Rates are awesome and money is cheap...IF you don't really need it.

PS:  I'll be in a meeting until 1PM today.  There are SO many restrictions that come with the 4.875% rate that it's just plain silly but the money is available.  I caution you with the PS because you might not "fit completely in the box".  Nonetheless, if you don't get a 4.875% rate, you'll probably get one under 5.25%, if you have equity.  Call me after 1PM at (858)-777-9751- don't rely on e-mail

...you have LOTS of equity, in an owner-occupied property, stellar credit (over 750), documented income, and act quickly.

I locked a loan for a customer last night at 4.875%; no points, no origination fee.  It was for $417,000 and his home is worth $700,000 or more.  The third-party costs (appraisal, credit, lender fees, escrow, title, recording, etc) totaled about 1%.  This means that the cost to acquire that 4.875% rate was about $4,000, putting his APR around 5.199%.

No-cost loans, where the lender pays all the third-party costs, would be a FULL percentage point higher, at 5.875% for a 5.875% APR.  Mortgage markets are NOT rewarding higher rates.  This means that anyone with a conventional loan, with a loan amount under $417,000, and a rate over 6% should be considering a refinance to a no-cost loan, at the very least.

Rates are awesome and money is cheap...IF you don't really need it.

PS:  I'll be in a meeting until 1PM today.  There are SO many restrictions that come with the 4.875% rate that it's just plain silly but the money is available.  I caution you with the PS because you might not "fit completely in the box".  Nonetheless, if you don't get a 4.875% rate, you'll probably get one under 5.25%, if you have equity.  Call me after 1PM at (858)-777-9751- don't rely on e-mail

Los Angeles Mortgage Rates Report: December 5, 2008

If you’re a regular reader of my mortgage rates report, you’ll notice that I adopted a locking posture, late last month, for the rest of the year:

If the Fed’s thinking of cutting rates further, why aren’t mortgage rates going down? I think it’s because the Fed has done all it can do.  Future rate cuts are like that eighth scotch.  Drinking that eighth scotch isn’t going to make you feel any better than the seven prior.  It just might make you feel worse.

I advised folks, right after the election, to lock loans with rates under 6% if they were closing within 30 days. Today, I”m suggesting that you lock any loan that is closing this year.  Today, a 45-day lock for a 6.0% rate would costs 1.25%.  While you may see rates drop below 6% , in the next 45 days, the risk of them moving higher is greater.

Take 6% and run.

That was a colossal screw up, huh? That eight glass of scotch didn’t do anything but the injection of heroin did. The eight glass of scotch I referred to was a rate cut.  I feel that in a zero interest rate environment, no further rate cuts would have a marginal effect on Los Angeles mortgage rates; I was right.  What I didn’t see is the Fed-induced rumor mill (the shot of heroin) of buying mortgage-backed securities so as to drive down mortgage rates to a 4.5% level.

If you’re worried about the long-term affect on the economy, the Fed action is a pretty dumb idea.  The only way for them to really affect mortgage rates is to buy up about $1 Trillion in mortgages.  If you’re a would be home buyer, that could really benefit you.  Even if you’re closing in December, lenders called off all bets and gave you another chance to relock yesterday, at the lower rates.  They want your business so take that opportunity and lock that rate. When the MBS traders see that this idea is probably NOT feasible, mortgage rates could back up another .25-50%, putting us back in the high 5.75%-6.0% range.

Let’s pretend, however, that the silly little market manipulation might work.  How would we pay for this massive purchase?  Remember when I said that mortgage-backed securities trade higher than their treasury bond cousins? In banking we call that a “spread” and that spread was really fat last week.  Mortgages were trading at 5.75% while the 10-year Treasury bond was trading below 3%.  If the government was guaranteeing mortgages, why would that paper yield so much more?

Traders still think there is risk in the mortgage market. Homeowners continue to walk away from mortgages and that creates an inherent risk to the principal.  Since the explicit guarantee of MBS didn’t work, the only option is to buy those mortgages to drive rates lower; that’s what the rumor is all about.

Brother Can You Spare a Trillion or Two?

So, where are we going to get the money?  If the Treasury can borrow $1 Trillion, for 30 years, and they don’t drive the yields on that paper above 4.49%, they can buy mortgages in the open market down to a yield of 5.5%.  That’s called arbitrage and it’s how banks make money. They “buy” money cheaper than they sell it.

This is why you, as a home buyer looking for a mortgage, must NOT keep your eye on the wrong ball.  Follow the mortgage-backed securities market here; ignore the 10-year Treasury bill,  You could very well see yields rise on the Treasury bonds while Los Angeles mortgage rates decline…

…if they actually try to attempt this silly idea.

PS:  I think the traders on Wall Street will catch on to this ruse and sell of mortgage-backed securities, driving mortgage rates higher. You have to ask yourself if you’d be more upset watching rates rise to 5.75%, and missing a 5.25% mortgage rate, or watching mortgage rates drop to 4.75%, after you locked.

PPS:  My guess is that you could renegotiate your rate lock if the latter happens.  If you’re working with a mortgage broker, that broker will have the flexibility to re-lock you with another lender should that happen.

Los Angeles Mortgage Rates Report: November 19, 2008

The economy is really sick:

Today's CPI report signals deflation, or a prolonged price slide, may become another hazard facing Federal Reserve Chairman Ben S. Bernanke and President-elect Barack Obama. Deflation could worsen the economic downturn by making debts harder to pay off and countering the impact of Fed interest-rate cuts. 

   

``The economy's really just in horrific shape,'' said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York. Fed officials will ``take rates as low as they have to'' to avoid ``a deflation-type scenario, which now all of a sudden is very possible.''   

   

LaVorgna predicts the Fed will cut its main rate to 0.5 percent from its current 1 percent when it meets on Dec. 16.   

       

Fed Vice Chairman Donald Kohn said today that while the risk of deflation is ``still small,'' policy makers must be ``aggressive'' in fighting the danger. The economy ``is declining right now'' and will record a couple of quarters of contraction, he said in answering questions after a speech in Washington.   

   

Fed policy makers last month forecast the U.S. economy will contract through the middle of 2009, with some officials prepared to cut interest rates further in response, according to a record of the group's meeting.

If the Fed's thinking of cutting rates further, why aren't mortgage rates going down? I think it's because the Fed has done all it can do.  Future rate cuts are like that eighth scotch.  Drinking that eighth scotch isn't going to make you feel any better than the seven prior.  It just might make you feel worse.

I advised folks, right after the election, to lock loans with rates under 6% if they were closing within 30 days. Today, I"m suggesting that you lock any loan that is closing this year.  Today, a 45-day lock for a 6.0% rate would costs 1.25%.  While you may see rates drop below 6% , in the next 45 days, the risk of them moving higher is greater.

Take 6% and run.

The economy is really sick:

Today's CPI report signals deflation, or a prolonged price slide, may become another hazard facing Federal Reserve Chairman Ben S. Bernanke and President-elect Barack Obama. Deflation could worsen the economic downturn by making debts harder to pay off and countering the impact of Fed interest-rate cuts. 

   

``The economy's really just in horrific shape,'' said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York. Fed officials will ``take rates as low as they have to'' to avoid ``a deflation-type scenario, which now all of a sudden is very possible.''   

   

LaVorgna predicts the Fed will cut its main rate to 0.5 percent from its current 1 percent when it meets on Dec. 16.   

       

Fed Vice Chairman Donald Kohn said today that while the risk of deflation is ``still small,'' policy makers must be ``aggressive'' in fighting the danger. The economy ``is declining right now'' and will record a couple of quarters of contraction, he said in answering questions after a speech in Washington.   

   

Fed policy makers last month forecast the U.S. economy will contract through the middle of 2009, with some officials prepared to cut interest rates further in response, according to a record of the group's meeting.

If the Fed's thinking of cutting rates further, why aren't mortgage rates going down? I think it's because the Fed has done all it can do.  Future rate cuts are like that eighth scotch.  Drinking that eighth scotch isn't going to make you feel any better than the seven prior.  It just might make you feel worse.

I advised folks, right after the election, to lock loans with rates under 6% if they were closing within 30 days. Today, I"m suggesting that you lock any loan that is closing this year.  Today, a 45-day lock for a 6.0% rate would costs 1.25%.  While you may see rates drop below 6% , in the next 45 days, the risk of them moving higher is greater.

Take 6% and run.

The economy is really sick:

Today's CPI report signals deflation, or a prolonged price slide, may become another hazard facing Federal Reserve Chairman Ben S. Bernanke and President-elect Barack Obama. Deflation could worsen the economic downturn by making debts harder to pay off and countering the impact of Fed interest-rate cuts. 

   

``The economy's really just in horrific shape,'' said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York. Fed officials will ``take rates as low as they have to'' to avoid ``a deflation-type scenario, which now all of a sudden is very possible.''   

   

LaVorgna predicts the Fed will cut its main rate to 0.5 percent from its current 1 percent when it meets on Dec. 16.   

       

Fed Vice Chairman Donald Kohn said today that while the risk of deflation is ``still small,'' policy makers must be ``aggressive'' in fighting the danger. The economy ``is declining right now'' and will record a couple of quarters of contraction, he said in answering questions after a speech in Washington.   

   

Fed policy makers last month forecast the U.S. economy will contract through the middle of 2009, with some officials prepared to cut interest rates further in response, according to a record of the group's meeting.

If the Fed's thinking of cutting rates further, why aren't mortgage rates going down? I think it's because the Fed has done all it can do.  Future rate cuts are like that eighth scotch.  Drinking that eighth scotch isn't going to make you feel any better than the seven prior.  It just might make you feel worse.

I advised folks, right after the election, to lock loans with rates under 6% if they were closing within 30 days. Today, I"m suggesting that you lock any loan that is closing this year.  Today, a 45-day lock for a 6.0% rate would costs 1.25%.  While you may see rates drop below 6% , in the next 45 days, the risk of them moving higher is greater.

Take 6% and run.

Lower Los Angeles County Loan Limits in 2009

In my 2009 San Diego Real Estate Outlook, I suggested that lower loan limits could cause a convergence of home prices.  I expect the mid-priced homes ($500,000 to $1,000,000) to decline towards the loan limits while lower priced homes (under $500,000) already dove in 2008.

Southern California Loan Limits For 2009:

Loan Type         San Diego          Orange          Los Angeles

VA                    $697,500           $729,750       $729,750      

FHA                  $546,250          $625,500        $625,500

Conforming        $546,250          $625,500        $625,500

Originally Posted on Millionaire Real Estate Lender

In my 2009 San Diego Real Estate Outlook, I suggested that lower loan limits could cause a convergence of home prices.  I expect the mid-priced homes ($500,000 to $1,000,000) to decline towards the loan limits while lower priced homes (under $500,000) already dove in 2008.

Southern California Loan Limits For 2009:

Loan Type         San Diego          Orange          Los Angeles

VA                    $697,500           $729,750       $729,750      

FHA                  $546,250          $625,500        $625,500

Conforming        $546,250          $625,500        $625,500

Originally Posted on Millionaire Real Estate Lender

Los Angeles Mortgage Rates Report: November 5, 2008

We have a new President and his name is Barack Obama. Is that good for mortgage rates?

I think either man being elected would have been good for mortgage rates provided the victory was decisive.  The Obama victory was clearly decisive and markets should reward that.  In anticipation of this decision, mortgage-backed securities rallied today bringing mortgage rates to the 6% level  I thought we might reach this week.

On Wednesday, conforming mortgage rates should be offered at 6% or below; take any rate under 6% if you're closing in the next 45 days.  While the euphoria of an Obama victory may bring mortgage rates even lower, the risk of a quick reversal still exists.

Mortgage rates under 6% are about as good as it gets.

Originally posted on Mortgage Rates Report

We have a new President and his name is Barack Obama. Is that good for mortgage rates?

I think either man being elected would have been good for mortgage rates provided the victory was decisive.  The Obama victory was clearly decisive and markets should reward that.  In anticipation of this decision, mortgage-backed securities rallied today bringing mortgage rates to the 6% level  I thought we might reach this week.

On Wednesday, conforming mortgage rates should be offered at 6% or below; take any rate under 6% if you're closing in the next 45 days.  While the euphoria of an Obama victory may bring mortgage rates even lower, the risk of a quick reversal still exists.

Mortgage rates under 6% are about as good as it gets.

Originally posted on Mortgage Rates Report

Los Angeles Mortgage Rates Report: Lower Mortgage Rates Into November?

We analyze mortgage rates by examining the mortgage-backed securities market and its reaction to economic data and events.  Today, the Federal Reserve cut the Fed Funds rate to an historical low of 1%:

The Fed funds rate target is now 1%, the lowest level in more than four years. In announcing its decision, the Federal Open Market Committee cited a drop in spending by consumers and businesses, and predicted that consumption may slow further due to tighter lending standards.

"The pace of economic activity appears to have slowed markedly," the FOMC said in a statement, "owing importantly to a decline in consumer expenditures."

Why's the economy in the tank?  You just aren't spending enough money, Joe the Plumber.  Of course, you can't borrow any either so you're hesitant about spending.   Hence, the Fed cut in rate.  Normally, a Fed cut should be followed by a RISE in mortgage rates but it looks like the mortgage-backed securities market anticipated the cut a week ago. 

Let's take a look the crystal ball (market chart):

See what's happening here?  Two weeks ago, we had a six day BIG drop, which caused rates to rise from 5.875% to 6.5%.  That drop was followed by a 5 day rally, which brought rates back down to 5.875%. Then, we had a six day BIG drop, driving mortgage rates back up to 6.5% (today)...

...and I think the market overreacted which means I think we'll see lower mortgage rates into the beginning of November.

This is the kind of volatility we've come to expect.  Mortgage rates should drop to 6.25%, pause, then drop again to the 6% level or below. No guarantees but November closings should get a peek at 6% or better rates soon.

We analyze mortgage rates by examining the mortgage-backed securities market and its reaction to economic data and events.  Today, the Federal Reserve cut the Fed Funds rate to an historical low of 1%:

The Fed funds rate target is now 1%, the lowest level in more than four years. In announcing its decision, the Federal Open Market Committee cited a drop in spending by consumers and businesses, and predicted that consumption may slow further due to tighter lending standards.

"The pace of economic activity appears to have slowed markedly," the FOMC said in a statement, "owing importantly to a decline in consumer expenditures."

Why's the economy in the tank?  You just aren't spending enough money, Joe the Plumber.  Of course, you can't borrow any either so you're hesitant about spending.   Hence, the Fed cut in rate.  Normally, a Fed cut should be followed by a RISE in mortgage rates but it looks like the mortgage-backed securities market anticipated the cut a week ago. 

Let's take a look the crystal ball (market chart):

See what's happening here?  Two weeks ago, we had a six day BIG drop, which caused rates to rise from 5.875% to 6.5%.  That drop was followed by a 5 day rally, which brought rates back down to 5.875%. Then, we had a six day BIG drop, driving mortgage rates back up to 6.5% (today)...

...and I think the market overreacted which means I think we'll see lower mortgage rates into the beginning of November.

This is the kind of volatility we've come to expect.  Mortgage rates should drop to 6.25%, pause, then drop again to the 6% level or below. No guarantees but November closings should get a peek at 6% or better rates soon.

Los Angeles Mortgage Rates Report: October 27, 2008

Friday, Los Angeles mortgage rates jumped from 5.875% to 6.25% as mortgage-backed securities traders joined the world wide sell-off. Global stock markets plunged Friday and the Asian markets were weak for Monday.  Investors world wide don’t want to be invested in ANYTHING.

When the world panics, we FLOAT mortgage rates.  So, roll the projectors!  The movie “Float Club” is playing all week.

Interestingly enough, gold isn’t skyrocketing in price.  Long held as a “safe haven” during times of turmoil, investors are opting to hold their portfolios in cash instead:

Bullion is down 15 percent this month as the dollar climbed to a two-year high against the euro and the Standard & Poor’s 500 Index headed for its steepest monthly loss since 1938.

`We’re seeing some consolidation in the market today as investors pause for breath following the roller-coaster we had last week,” Zhu Lv, research manager at Shanghai Tonglian Futures Co., said from Shanghai today.

Gold for immediate delivery gained as much as 1.7 percent to $746.91 an ounce, and traded at $735.33 at 10:29 a.m. in Singapore. The metal fell below $700 on Oct. 24. Silver for immediate delivery was up 1 percent at $9.4575 an ounce.

Gold still benefits from its safe haven properties, although these days, more and more are choosing to hold just cash instead, so it won’t be surprising to see gold below $700 again,” said Zhu.

What’s that mean?  It means that while investors are cautious, they aren’t completely terrified and that bodes well for mortgage-backed securities.  When investors buy mortgage-backed securities, Los Angeles mortgage rates drop; that’s what we think will happen in the next 7-10 days.

I cautioned borrowers to lock in all October closings last week when mortgage rates dipped below 6%.  That opportunity had a short-lived window.  Like all panics, reason eventually prevails. Central banks world wide are slashing interest rates to avoid an economic recession.  This make US dollar denominated investments, especially mortgage-backed securities more attractive.

Hold out for a mortgage rate below 6% if you’re closing in November.

Originally posted on Millionaire Real Estate Lender

Friday, Los Angeles mortgage rates jumped from 5.875% to 6.25% as mortgage-backed securities traders joined the world wide sell-off. Global stock markets plunged Friday and the Asian markets were weak for Monday.  Investors world wide don’t want to be invested in ANYTHING.

When the world panics, we FLOAT mortgage rates.  So, roll the projectors!  The movie “Float Club” is playing all week.

Interestingly enough, gold isn’t skyrocketing in price.  Long held as a “safe haven” during times of turmoil, investors are opting to hold their portfolios in cash instead:

Bullion is down 15 percent this month as the dollar climbed to a two-year high against the euro and the Standard & Poor’s 500 Index headed for its steepest monthly loss since 1938.

`We’re seeing some consolidation in the market today as investors pause for breath following the roller-coaster we had last week,” Zhu Lv, research manager at Shanghai Tonglian Futures Co., said from Shanghai today.

Gold for immediate delivery gained as much as 1.7 percent to $746.91 an ounce, and traded at $735.33 at 10:29 a.m. in Singapore. The metal fell below $700 on Oct. 24. Silver for immediate delivery was up 1 percent at $9.4575 an ounce.

Gold still benefits from its safe haven properties, although these days, more and more are choosing to hold just cash instead, so it won’t be surprising to see gold below $700 again,” said Zhu.

What’s that mean?  It means that while investors are cautious, they aren’t completely terrified and that bodes well for mortgage-backed securities.  When investors buy mortgage-backed securities, Los Angeles mortgage rates drop; that’s what we think will happen in the next 7-10 days.

I cautioned borrowers to lock in all October closings last week when mortgage rates dipped below 6%.  That opportunity had a short-lived window.  Like all panics, reason eventually prevails. Central banks world wide are slashing interest rates to avoid an economic recession.  This make US dollar denominated investments, especially mortgage-backed securities more attractive.

Hold out for a mortgage rate below 6% if you’re closing in November.

Originally posted on Millionaire Real Estate Lender

Los Angeles Mortgage Rates Report: October 14, 2008

If you're closing your loan after Friday, I left you naked (not locked).  I told you that the fundamentals of the economy would bring Los Angeles mortgage rates lower after the bailout was announced.  Rates were at 5.875%, today they're at 6.5%.  What's in store for the rest of the month?

Eric Holloman of Rate Link offers this two-minute research report about why "headline risk" should be replaced by economic data as a determination of mortgage-backed securities pricing.  If he's correct (and I think he is), the next three days will be important for the direction of mortgage rates through the end of the year.

I'm still recommending that you float your mortgage rates; I believe we'll see rates come back down under 6% within the next 7-10 days.  If the economic data suggest that we are NOT headed for a recession,mortgage  rates will stay in the 6.25-6.75% range.  If the data are as indicative of a downturn as I think they will be, lower rates should be on the horizon.  As always, keep checking back.

Originally posted on Long Beach Real Estate Home

If you're closing your loan after Friday, I left you naked (not locked).  I told you that the fundamentals of the economy would bring Los Angeles mortgage rates lower after the bailout was announced.  Rates were at 5.875%, today they're at 6.5%.  What's in store for the rest of the month?

Eric Holloman of Rate Link offers this two-minute research report about why "headline risk" should be replaced by economic data as a determination of mortgage-backed securities pricing.  If he's correct (and I think he is), the next three days will be important for the direction of mortgage rates through the end of the year.

I'm still recommending that you float your mortgage rates; I believe we'll see rates come back down under 6% within the next 7-10 days.  If the economic data suggest that we are NOT headed for a recession,mortgage  rates will stay in the 6.25-6.75% range.  If the data are as indicative of a downturn as I think they will be, lower rates should be on the horizon.  As always, keep checking back.

Originally posted on Long Beach Real Estate Home

FHA Hope For Los Angeles Homeowners

The FHA Hope for Homeowners loan program was released this month. The stated goal of the plan is to help homeowners, who are paying mortgages that are significantly more expensive than when they bought the home (due to rate adjustments), get a home loan they can afford.

Key components of the FHA Hope For Homeowners loan program are not limited to but include:

• An appraisal will be performed and the maximum loan amount will be 90% of that appraised value.  All subordinate liens will be extinguished and the exiting lienholder will have to agree to a loss of principal.
• The current housing payment must be more than 31% of the homeowner’s gross monthly income.
• The homeowner must not have misrepresented his/her income on the original loan application.
• The homeowner must get a new 30-year fixed rate loan and qualify based upon documented income.
• The homeowner must agree to an declining equity sharing agreement (for the existing equity), with the FHA, for a specified period of time.
• The homeowner will share in future appreciation with the FHA.
• The program is completely voluntary; existing lienholders don’t have to participate.

Mary Miller compiled some comments from Mortgages Unzipped authors which demonstrates the difficulty of the program. Loan originators may be hesitant to work with you because of the low probability of a successful funding.  That low probability is due to the fact that existing lienholders may have to take significant writedowns.  I wouldn’t blame an originator who refuses to participate in the FHA Hope For Homeowners Program; loan originators aren’t paid on unsuccessful fundings.

Nonetheless, we welcome loan applications, under the FHA Hope for Homeowners, for Californians in “upside-down mortgages”.  We recently hired a team member with the skill set to work with lenders’ loss mitigation departments.  That specific expertise, combined with our long history as a HUD lender, leads us to believe that we can assist folks who desperately want to retain their California home.  We offer this program with a few conditions:

• We must determine your maximum qualified loan through full income documentation at application.  If you can qualify for a loan amount that might be a reasonable offer to the existing lienholder, we’ll proceed to an appraisal.
• You must pay for the appraisal and credit report upfront; that should be about $500.  The appraised valuation is a key component of the program so that valuation must be established prior to the offer to the existing lienholder.
• We expect to earn a 2% fee, whether paid by you or the new lender ( through yield spread premium). That’s twice the amount we earn for new loan originations.  We think this higher fee is reasonable considering the amount of work required and the low probability of loan funding.  We only receive this fee if we are successful in funding your new loan.

The FHA Hope for Homeowners Loan program offers Californians a chance to stay in their homes at a reasonable price.  If your intention is to live in your home for 5-10 years, this may be a workable solution for you.

While the plan isn’t perfect we know that certain sub-prime lenders have sold their loans at a significant discount and will welcome any and all offers that allow them to make a profit.  For example, if you have a loan with First Franklin, this program might make sense for you.  First Franklin was purchased by Merrill Lynch, in early 2007.  Merrill Lynch sold these loans, for 33 cents on the dollar, this past summer.  What that means is that they sold your $500,000 loan to an investor for $165,000.  If we have to approach First Franklin’s loss mitigation department with a $350,000 payoff for that $500,000 loan, the new investor stands to more than double his money in a few months.  That’s a reasonable proposition to entertain.

Not all loan servicers will be that cooperative, though.  We believe that our connections with Wall Street and secondary mortgage market investors will be a distinct advantage to you, the beleaguered California homeowner.  The FHA Hope for Homeowners Loan program isn’t perfect but it may offer you significant relief.  Please contact me if you have questions about it.

Originally posted on Mortgages Unzipped

Los Angeles Mortgage Rates Report: October 3, 2008

The bailout bill passed the House after a decisive victory in the Senate; it is certain to be signed into law by President Bush.  From Bloomberg.com:

These steps represent decisive action to ease the credit crunch that is now threatening our economy,” President George W. Bush said at the White House after the vote. He said he will sign the bill into law when he receives it. House Speaker Nancy Pelosi said the measure has been sent to him.

The House approved the measure in a 263-171 vote, four days after rejecting an earlier version. The bill’s defeat on Sept. 29 caused a 778-point drop in the Dow Jones Industrial Average, prompting dozens of lawmakers to reverse their vote on the legislation, the government’s largest intervention in the markets since Franklin Roosevelt’s New Deal.

I expect the mortgage-backed securities market to gradually improve.  The euphoric response that followed the Nationalization of Fannie Mae and Freddie Mac was a result of pent-up anxiety about the explicit government guarantee of their debt.  This “bailout” is different than the Fannie/Freddie bailout.  While this bailout will provide support for battered mortgages, which should result in lower mortgage rates, it is clearly a signal that the Federal government will assume a lot of losses.

What worries me (and mortgage-backed securities traders) is the propensity for other governments to stick their hand out and ask for help:

California Governor Arnold Schwarzenegger today warned that his and other states may need emergency loans if a $700 billion financial-rescue package isn’t passed by Congress soon.

If this bailout restores order to the credit markets, California should be able to raise money through tax-advantaged municipal bond offerings.  If this bailout is insufficient to cure the credit crunch and states need to turn to the US Treasury to solve their cash flow problems, credit markets have seized to the point of financial Armageddon.

You can safely delay mortgage locks if your closing after October 17th.  Delaying your lock is a bit different from a “float” recommendation.  It means that you should expect lower rates and jump on one when you feel it’s “good enough”. The market should remain volatile.  The par rate (with no yield spread premium to the originator) should drift as low as 5.625% in the next 60 days but it may have to go through 6.125% to get there.  If you’re planning on refinancing your home loan, get your documentation in line, watch the mortgage rates reports carefully, and jump on the opportunity when it presents itself.

MBS traders know in their heart that the bailout package and weakened employment data will lead to lower mortgage rates but every bump in the road (like the California request) will give them reasons to sell.

Delay your lock if you have time; lock those rates if you’re closing in 14 days.

Originally posted on Millionaire Real Estate Lender