Wednesday, June 20, 2012

Historic Jumbo Mortgage Rates: Prudent Borrowers Rewarded

Jumbo Mortgage Rates continue to hover at historic lows but we have noticed a trend among investors of extreme diligence on ensuring ultra high loan quality. This weighs heavily on a client that has a complex financial picture as the time and paperwork required is a few steps removed from an IRS audit. Especially if a client owns a few companies or has creative accountants. Here are the charts that tell the story of where mortgage and select real estate markets are currently at:

Wednesday, May 23, 2012

HARP and Other Home Refinancing Options

HARP and Other Home Refinancing Options
The housing bubble of 2008 placed many homeowners in an underwater position where mortgage balances greatly exceeded a home’s actual market value. In response to these conditions, the federal government started the Home Affordable Refinance Program, or HARP.

And while HARP provides a convenient option for homeowners stuck with underwater mortgages, some homeowners may not be eligible for the program. Fortunately, there are other refinancing options available for those who don’t qualify for the Home Affordable Refinance Program.

HARP Refinancing

Homeowners unable to obtain financing due to a drop in home value may want to consider the HARP as a refinancing option. The effects of the housing bubble and resulting drops in home value left many homeowners paying considerably more in mortgage payments than before. This happened in cases where mortgage contract terms involved interest-only payment options or balloon payment arrangements.

The Home Affordable Refinance Program is designed to make mortgage payments more affordable while setting homeowners up in stable mortgage contracts. Refinancing through HARP involves an application process and underwriting review process. Applicants must also pay refinancing fees.

In order to qualify for HARP refinancing, applicants must meet the following requirements –
· Homeowners must be current on their mortgage payments and show a 12 month history of timely payments made
· Existing mortgages must be underwritten through Fannie Mae or Freddie Mac
· Existing mortgages must have been sold no later than May 31, 2009
· HARP requires a loan-to-value (amount owed vs. actual market value) ratio of 80 percent or more.

HAMP Options

The federal government offers the Home Affordable Modification Program, or HAMP as an alternative financing option for homeowners with underwater mortgages. Homeowners who have missed payments on their mortgage due to a financial hardship may qualify for HAMP assistance. Much like with HARP requirements, a person’s current mortgage must be held by Fannie Mae, Freddie Mac or any other U. S. Treasury-sponsored lenders.

In order to qualify for HAMP refinancing, homeowners must meet the following requirements –
· Current monthly payment amounts must exceed 31 percent of the homeowners gross income
· Applicants must provide proof of financial hardship
· The home must be the primary residence
· The total amount owed on a mortgage must be less than $729,750

Lenders can offer several different modification plans depending on a person’s financial situation. In most cases, a HAMP agreement includes a 90 day trial period. After the 90 days, lenders reassess the homeowner’s’ situation to see if other long-term modification arrangements are warranted.

FHA Refinancing Options

FHA refinancing options may come in handy for homeowners who can’t qualify for HARP refinancing because they’ve built up considerable equity in their home. Homeowners with existing FHA- or VA-backed mortgages loans can easily qualify for FHA financing provided they are current on their monthly mortgage payments.

The FHA actually has a streamlining process that allows homeowners with existing FHA or VA mortgages to qualify for refinancing without going through the usual credit score checks, appraisal process or proof of employment requirement. Borrowers can qualify for FHA refinancing as long as they have remained current on their mortgage payments for the past 6 months, with a limit of one late payment within the past 12 months.

With FHA loans, homeowners can finance as much as 96.5 percent of the existing mortgage amount. Lenders also lump the mortgage insurance premium costs in with the total loan amount. So, an FHA refinance can convert a mortgage with 20 years left to pay into a new 30-year loan. By doing so, homeowners can considerably lower their existing interest rates.


When comparing HARP versus HAMP options, the terms of a HAMP mortgage agreement are actually a modification on an existing mortgage and not an actual refinancing arrangement. A HAMP loan modification lowers the monthly mortgage payment for the first five years of the loan. As of the sixth year, the mortgage interest rate increases by up to one percentage point per year. Once the mortgage interest rate reaches the market rate at the time when the agreement was prepared, the mortgage payment amount levels off for the remainder of the loan period.

Homeowners considering the FHA refinancing option may want to pay particular attention to how the upfront fees and mortgage insurance costs affect the total mortgage loan amount. In some cases, borrowers may end up paying more in interest costs by refinancing than sticking with the terms of their existing mortgage.

Provided by

Friday, February 3, 2012

Real Estate Deflation Machine Speeding Up?

Housing continues to fall in the majority of cities across the country. Here is a way back price drop in a premium community in Orange County, CA

This home was purchased in March 2001 from Lennar(builder) for $875k. It went pending this week at $899k.

Here is a financial profile of Coto De Caza, CA. Clearly this is a high earning and high networth area of Southern California. Yet prices keep falling....

The value of housing in most markets will continue to fall and this is despite absolute record low jumbo loan interest rates.

As always have a great weekend.

Monday, January 16, 2012

Costs Flying Sky high While Others Nearly Plummet

One way of measuring inflation is to gauge how prices for an assortment of goods and services have varied over time. Another approach involves looking at changes in how much things cost relative to what the average worker earns (the flaw with this latter method, of course, is that those who don't have jobs may find that many, if not most, of the things they might want or need to buy are unaffordable).

In searching for airline tickets over the last six months for an upcoming family vacation to Italy I have seen the broad impact of fuel costs on ticket prices since a trip two years ago. Obviously, ticket prices move on hundreds of factors but the most influential input is the cost of jet fuel. In the last decade jet fuel cost per gallon is up 3.5x from 0.87 cents a gallon to 3.01 on average globally last month. Up to 70% of an entire airlines operating budget is fuel costs.

Click image for source and up to date index information.

Be that as it may, if one assumes that data from the Bureau of Labor Statistics is even remotely close to the mark, it would appear that the purchasing power of the average worker has improved over the past 10 years, which is contrary to popular wisdom (see dotted line in the chart below).
There could be any number of reasons why perceptions differ from the reported data. Among other things, the composition of the basket of goods that the BLS uses to construct its index might not be realistic, especially in today's fast-changing economy. Or maybe the pricing information they rely on doesn't jibe with consumers' experience on the ground. Then again, a cynic might note that authorities have an incentive to underestimate inflation and overestimate wage growth for pollitical gain.
Regardless, I thought it interesting to highlight those categories that have become the least and most affordable for the average worker over the past decade. Not surprisingly, gasoline and other energy-related products are a lot more expensive in relative (and absolute) terms than they used to be, which goes some way towards explaining  the heightened demand for fuel efficient cars and why people are driving fewer miles than they used to. In contrast, it's easy to see why sales of flat screen TVs and other modern gadgets have jumped -- the products are much more affordable than they used to be.