New 2008 Conforming Jumbo Loan Guidelines

The long awaited guidelines have been released.
In our opinion very few loans will qualify and few people will want the financing. Fannie Mae is cherry picking the very best jumbo loans. Deal breakers for high-cost areas are the fact that 2nd mortgages can't be paid off using this program(item 7).

1. Fixed rates can be sold to Fannie on or after April 1; ARMs on or after May 1. The loan has to be closed on or after March 1 to be subject to the following rules; inventory loans (closed from last July to March) have to be subject to a "negotiated commitment."

2. No AUS approvals. It seems they plan to update Desktop Underwriter (their automated underwriting system) before the year is out, but they haven't done so yet and they're rollin' without it.

3. For principal residences, fixed-rate loans are limited to 90% LTV/CLTV for a purchase, and 75% LTV/95% CLTV for a no-cash-out refi. ARMs are limited to 80%/80% on a purchase and 75%/90% on a no-cash-out refi. CASH OUT REFIS ARE NOT ALLOWED. LTV is loan to value. CLTV is combined loan to value. 1st plus any 2nd mortgage.

4. For second homes and investment properties, the maximum LTV/CLTV is 60% in all cases for purchases and no-cash-out refis.

5. Minimum FICO for any loan is 660, with a minimum of 700 for LTVs greater than 80%.

6. One-unit properties only.

7. On a primary residence, existing subordinate liens(HELOCs) must be resubordinated. The new loan cannot "cash out" an existing subordinate lien. Most banks are refusing to resubordinate for clients with little or no equity. They are forcing the hand of the borrower to pay the loan off if they want/need a new first mortgage.

8. No late mortgage payments in the preceding 12 months.

9. 45% maximum DTI, with ARMs qualified at fully-amortizing fully-indexed rate.

10. Full doc only.

11. For purchases, the borrower must make at least 5% of the down payment from his or her own funds.

12. A full appraisal with interior inspection is required on all loans; if the property value is more than $1 million, a field review appraisal is also required.

13. Loans are subject to all current pricing adjustments, plus another .25 for FRMs and .75 for ARMs. Fannie is charging more for this program over any other.

The traditional jumbo loan market is serving good credit clients well and the addition of this program is helpful but it is not the savior of the home owner politicians billed it to be. Why am I not surprised?

You Don't Understand Mortgage Rates....

unless you are a seasoned Wall St professional, a mortgage banker or a CNBC junkie. Repeat after me:The FED doesn't move mortgage rates. This widely held belief came about over the last decade when the FED's moves would cause other debt instruments to move up or down.

Mortgage rates are set by the investors who buy the debt. Fannie and Freddie Mac who handle the conforming market repackage mortgages into 1 billion dollar pools. These pools are bid on and purchased by pension funds, insurance companies, banks, mutual funds, and foreign investors. Basically, any entity with a need to invest in safe debt instruments.

The investors are having a bit of a revolt right now because of inflation(out of control), the falling dollar, an ineffective FED that can't cut it's way out of the deflation and deleveraging that is happening in every sector of the credit markets. Credit is the life blood of the economy. Credit is dramatically contracting because investors are losing faith in the debt and US government policy in general. As an easy example, the FED is at 3.00% right now, since they cut, the national average rate on a 30Y conforming mortgage has moved up to 6.75% from 5.875%. On the jumbo mortgage side the rates for a 30Y fixed jumbo have moved from 7.00% to 7.875%. The adjustable mortgage products continue to be much more attractive.

Be careful in wishing for FED cuts. They are trashing the dollar, creating hyper-inflation and investors aren't stupid. They see the FED can't do anything to stop the credit/leverage meltdown. The easy days of having an 800 FICO and confidently knowing you could get a loan have passed. Credit is tightening daily. Until the losses stop we expect guidelines to get tighter. I encourage you to explore your loan options now if you need to refinance anytime in the next 2-3 years. The investors may not be around when you need them to fund your loan or the rates will be well north of your expectations. The money comes from somewhere and that money is running scared.

Here is the Bloomberg piece that inspired this lecture.

Agency Mortgage-Bond Spreads Rise; Markets `Utterly Unhinged'
By Jody Shenn
March 6 (Bloomberg) -- Yields on agency mortgage-backed securities rose to a new 22-year high relative to U.S. Treasuries as banks stepped up margin calls and concerns grew that the Federal Reserve may be unable to curb the credit slump.
The difference in yields, or spread, on the Bloomberg index for Fannie Mae's current-coupon, 30-year fixed-rate mortgage bonds and 10-year government notes widened about 21 basis points, to 237 basis points, the highest since 1986 and 103 basis points higher than on Jan. 15. The spread helps determine the interest rate homeowners pay on new prime mortgages of $417,000 or less.
The markets have become ``utterly unhinged,'' William O'Donnell, a UBS AG government bond strategist in Stamford, Connecticut, wrote in a note to clients today. A lack of liquidity has ``led to stunning air-pockets in price levels.''
Investors are realizing that banks have little room to make new investments amid rising losses and a flood of unwanted assets, said Scott Simon, head of mortgage-backed bonds at Pacific Investment Management Co. The world's top banks have reported more than $181 billion in asset writedowns and losses, been stuck with $160 billion of leveraged buyout loans, and bailed out $159 billion of structured investment vehicles.
``Everything is telling you the financial system is broken,'' Simon, whose Newport Beach, California-based unit of Allianz SE manages the world's largest bond fund, said in a telephone interview today. ``Everybody's in de-levering mode.''
Agency mortgage securities outstanding, which are guaranteed by government-chartered Fannie Mae and Freddie Mac or federal agency Ginnie Mae, total almost $4.5 trillion, about the same size as the U.S. Treasury market
No Savior
The widening spreads prompted speculation the government may step in to support securities guaranteed by Fannie Mae and Freddie Mac, said Tom di Galoma, head of U.S. Treasury trading in New York at Jefferies & Co., a brokerage for institutional investors. The Treasury Department said the rumor isn't true.
``The Fed can't really save the mortgage market,'' di Galoma said. ``As they keep cutting, mortgage rates aren't going lower.''
The spread of current-coupon fixed-rated securities guaranteed by Ginnie Mae against 10-year Treasuries has climbed 55 basis points this month to 205 basis points, also the highest since the 1980s, according to Bloomberg data. Debt guaranteed by Ginnie Mae is explicitly backed by the U.S. government, and based on loans already insured or guaranteed by its agencies. A basis point is 0.01 percentage point.
Carlyle Margin Call
Carlyle Group's publicly traded mortgage bond fund, which raised $300 million in July and used loans to buy about $22 billion of agency mortgage securities, failed to meet margin demands and has received a notice of default. In margin calls, banks demand more collateral on their loans because of falling prices. Lenders have been imposing ``additional collateral requirements'' outside of margins call, Carlyle said today.
``The capital issues at commercial banks are making them, in general, reluctant to lend, so lending is either harder to find or when you do find it, it's more expensive or the other terms are more-limiting.'' Steven Abrahams, an analyst with Bear Stearns Cos., said in a telephone interview yesterday.
``If there's less money to finance positions and less balance-sheet available to warehouse positions, the markets are going to become more volatile,'' he said.
Carlyle Capital Corp. missed four of seven margin calls yesterday totaling more than $37 million, the Guernsey, U.K.- based fund said today in a statement. Thornburg Mortgage Inc., the Santa, Fe, New Mexico-based owner of ``jumbo'' mortgages and securities backed by adjustable-rate loans, said yesterday it received a default notice from JPMorgan Chase & Co.
Next to Blow Up
``The single biggest concern right now is who's the next hedge fund to blow up, and how big are they,'' Arthur Frank, the New York-based head of mortgage-backed-securities research at Deutsche Bank AG, said in an interview today. ``The more the market widens, the more likely it is that another leveraged player has to sell, so it does feed on itself.''
Bloomberg current-coupon indexes represent the average of yields for the two groups of bonds with prices just above and below face value, the ones that lenders typically package new loans into.
Prices for agency securities backed by adjustable-rate mortgages with five years of fixed-rates fell 0.63 percent this month through yesterday, according to Lehman Brothers Holdings Inc. index data. Fixed-rated securities fell 1.66 percent, according to the New York-based company. The various classes of collateralized mortgage obligations used to repackage agency bonds collectively have fallen 0.9 percent, according to Merrill Lynch & Co. index data.
``Traders are putting their phones down and backing slowly away from their desks,'' O'Donnell said today in a telephone interview. ``Relatively little'' agency mortgage-backed securities are being traded, Pimco's Simon said.

New Conforming Loan Limit Announced.

Beginning tomorrow, the new conforming limit on loans insured by the Federal Housing Administration will be temporarily raised to $729,750, more than double the current limit of $362,790, the U.S. Department of Housing and Urban Development announced today.
The limit, which is good until the end of the year when it reverts back to $362,790, will apply only to loans insured under a program administered by FHA, which targets low to moderate-income home shoppers.
HUD will announce tomorrow the new conforming loan limit for all markets, a spokesman said. Conforming loans are sold to government-sponsored buyers such as Fannie Mae and Freddie Mac and have a current limit of $417,000 in California and most states.
The FHA and conforming limit increases could give the housing market a boost. Rates on jumbo loans, which are above the limit, have risen to about a percentage point above conforming rates.
The average rate Tuesday on a 30-year fixed conforming loan in Orange County was 5.841% with a one-point fee, while the average jumbo rate on a 30-year fixed was 6.908% with a one-point fee.
But Fannie Mae and Freddie Mac have yet to say when they will begin buying larger loans or if they will impose any restrictions, such as requiring larger down payments. Some housing watchers say rates on loans up to $729,750 might not drop as much as government officials hope.
President Bush signed a stimulus package into law last month that included granting HUD the power to raise the conforming limit based on 125% of the median home price in high-cost areas. HUD said today Orange County’s median home price is $710,000. That’s much higher than DataQuick, which pegged the median home price in January at $520,000 for all houses and condos, and $583,250 for just resale houses.
HUD said it calculated median prices based on government and commercial data.
From HUD’s release, here is a list of each county in California, with the median home price and the new FHA limit on the far right. HUD tomorrow is expected to release limits for areas in other states. To find the new limits for your county visit the direct HUD search tool here.

Alameda County 995000 729750

Alpine County 438000 547500

Amador County 355000 443750

Butte County 320000 400000

Calaveras County 370000 462500

Colusa County 318000 397500

Contra Costa County 995000 729750

Del Norte County 249000 311250

El Dorado County 464000 580000

Fresno County 305000 381250

Glenn County 230000 287500

Humboldt County 315000 393750

Imperial County 260000 325000

Inyo County 350000 437500

Kern County 295000 368750

Kings County 260000 325000

Lake County 321000 401250

Lassen County 200000 271050

Los Angeles County 710000 729750

Madera County 340000 425000

Marin County 995000 729750

Mariposa County 330000 412500

Mendocino County 410000 512500

Merced County 378000 472500

Modoc County 125000 271050

Mono County 370000 462500

Monterey County 599000 729750

Napa County 615000 729750

Nevada County 450000 562500

Orange County 710000 729750

Placer County 464000 580000

Plumas County 328000 410000

Riverside County 400000 500000

Sacramento County 464000 580000

San Benito County 790000 729750

San Bernardino County 400000 500000

San Diego County 558000 697500

San Francisco County 995000 729750

San Joaquin County 391000 488750

San Luis Obispo County 550000 687500

San Mateo County 995000 729750

Santa Barbara County 615000 729750

Santa Clara County 790000 729750

Santa Cruz County 719000 729750

Shasta County 339000 423750

Sierra County 228000 285000

Siskiyou County 235000 293750

Solano County 446000 557500

Sonoma County 530000 662500

Stanislaus County 339000 423750

Sutter County 340000 425000

Tehama County 250000 312500

Trinity County 200000 271050

Tulare County 260000 325000

Tuolumne County 350000 437500

Ventura County 599000 729750

Yolo County 464000 580000

Yuba County 340000 425000

Countrywide admits:Ticking Time Bombs

I know it seems like a decade ago but people used to get a big head about their recent investment property purchase or their great 1% rate on their 1.3m condo in the city. WAMU, Countrywide, INDYMAC, World Savings(bought by Wachovia) and countless bankrupt lenders did these loans all day long. They allowed the borrower to have a payment that was less than the interest on the underlying mortgage. The "teaser rate" allowed people to qualify for a lot more home than they could possibly afford. Up until mid 2007 borrowers would be qualified based on the teaser rate that typically lasted for 5 years or until the loan had negativly amortized to 105% or 110% of the original balance. Then the loan would fully amortize. Meaning a HUGE spike in the payment. Let's not even mention the people that believed the loan officer or broker who swore on his/her upcoming BMW payment that the 1% was fixed. Yes, it is fixed but they were placing a serious bet about their income and the property market overall. Overall industry standard performance on these loans is that around 75% of people make the 1% negative amortization payment on their pick-a-pay. More like pick-your-poison.

I am all for financial innovation and creative financing but this product was heavily pushed to the point of terrible underwriting. The banks placed bets as well that property would continue to appreciate and/or the borrower would make a lot more in the future. During 2006, 60% of the loans done in Los Angeles/Orange County CA were interest only. A great percentage of the loan volume in CA done between 2004-07 were the option arm variety. The radio jingle ran" No points, no fees, lower your mortgage payment today 1% call today 1-800-...."

The time bomb begins to go off starting in 2009. These loans will be like a neutron bomb. Kill the formerly happy home owner/investor and leave the house standing in line for a foreclosure. Granted a great percentage of these will be fine, but if you think defaults were interesting from a perspective of that only happens in "working class"(read:poor) neighboorhoods then you have seen nothing like the upcoming disaster of 2009-2011. As an example here is the breakdown on a 750k loan with a 1.25% teaser and a fully indexed rate of 6.826% which is an excellent rate for a super prime borrower:

Minimum Payment Rate: 1.250%
Fully Indexed Rate (FIR): 6.826%
Minimum Payment: $2,499.39 ( Deferred Interest: $1,766.86 )
Interest Only Payment: $4,266.25
Fully Amortizing 30-Year Payment: $4,902.44
Fully Amortizing 15-Year Payment: $6,668.46
Fully Amortizing 40-Year Payment: $4,566.25 (not available)
Possible Minimum Payment Changes (based on a 30-year loan term)
Year 1
$2,499.39
= Base of Minimum Payment
Year 2
$2,686.84
= $2,499.39 + 7.50%
Year 3
$2,888.36
= $2,686.84 + 7.50%
Year 4
$3,104.98
= $2,888.36 + 7.50%
Year 5
$3,337.86
= $3,104.98 + 7.50%

When the loan hits 105-110% of the original balance they go fully amortizing. That big old 5k payment you see above. Hmm, maybe that will impact Cheese Cake Factory, Coach, Starbucks and the local car dealer. Funny how they are already slowing down now. Wait until the big resets occur. We are in the first quarter of a long drag out football game.

If you like the math misery done for you on a negam visit the calculator here. Also if you would like to read a previous post on the topic and watch a video of the time bomb click here.

FROM CNN&AP:

As of the end of December, Countrywide had nearly $29 billion in pay-option loans, with about $26 billion of the total having grown beyond their original loan amount, the company said in a filing late Friday with the Securities and Exchange Commission.
"Our borrowers' ability to defer portions of the interest accruing on their loans may expose us to increased credit risk," the company said. It added that its risk could be greater because the amount of deferred interest on pay-option loans was on the upswing.
The company noted some 81 percent of the loans were made out to borrowers who provided little or no documentation on their income. As of the end of December, 71 percent of borrowers with pay-option loans were electing to make less than full interest payments.
Even though borrowers with such loans had the option to just make interest payments, many were increasingly missing payments, the company said.
Some 5.71 percent of the loans based on unpaid principal balance were at least 90 days late as of Dec. 31, up from 0.65 percent a year earlier.
Like other lenders, Countrywide has since tightened its lending criteria and curtailed lending of so-called no documentation loans. It has also ramped up programs aimed at modifying loans for borrowers before their loans reset to higher rates.
At the close of last year, Countrywide's total loan servicing portfolio was valued at about $1.5 trillion.
Total delinquencies as a percentage of the number of loans was 6.96 percent, up from 5.02 percent at the end of the prior year. Some 1.04 percent of loans were facing foreclosure, up from 0.65 percent a year earlier.
California accounted for the highest portion of Countrywide loans, according to unpaid principal balance, of any state, the lender said.
The state had around $389 billion in loans, followed by Florida, with loans totaling around $113 billion. Texas, New York and New Jersey rounded out the list.
The company's banking unit, which also funds some of Countrywide's home loans, had $87.1 billion loans held for investment on its books at the end of the year.
A large portion of that stemmed from loans made in California and Florida, once-hot housing markets that have now been battered by falling prices and rising mortgage defaults and foreclosures. About $37 billion in loans were made to borrowers in California. Another roughly $6 billion pertained to loans in Florida.

Can you be a successful Real Estate Flipper?

Can You Be a Successful Real Estate Flipper?

The idea is not to catch a shooting star in a rapidly appreciating market. Rather, the real plan lies in finding undervalued properties, rehab them, present them in an attractive manner, and sell them for a reasonable profit. Home flipping is an art. It's a business, which reveals your mind - the smartest wins - and your inner world - charisma and the ability to present your property in an attractive manner. If you think you cover these two characteristics, follow this article to the end to see what else is required from the successful house flipper.

1) A varied skill set. During the project of real estate flipping, you'll wear a number of masks, or so called 'hats'. Their role's to present you as a project manager, accountant, designer, problem solver, contractor, real estate professional, PR consultant, marketer, etc. While wearing all these 'hats' you have a better chance of success.

2) Ability to approach the flip strategically and with integrity. Smart is always the shortest and most effective way. And smart flippers know perfectly well what the value of approaching a project in a strategic manner truly means. If you're a calculated flipper, you have a plan in your head, you keep a tight reign on your budget, you only do the necessary fixes, immerse yourself in the local real estate market, have a clue in how to market and position your flip and you're constantly aware of how time can impact your project.

3) Time consciousness. They say "time is money", and they say it for house flipping industry. Not only do cosmetic updates or structural changes take time and resources, but every month, passing another mortgage payment is handed over to the bank.

4) Detailed vision. Always keep in head, that you're preparing to sell a project that's move-in ready. That requires you to stage your flip. Presenting your product means seeing every scratch, hiding it and creating a warm and welcoming appeal. Subtle sounds, smells and sights make people feel comfortable and your house, and further buying process, cozy. Only in case you don't forget to put down the toilet seat, of course.

5) A 'non-personal' approach to everyone and everything. Your potential buyer is your greatest aim as a house flipper. And you must be in tune with him. That means knowing the character, so you use the exact materials and design required. You also decide whether to position your project as entry-level or more high-end. You should interpret your target market in the right way so as not to over or under-do a renovation. Although it is tempting to go ‘all out’ when updating a flip, at the end of the day, flipping is about only doing what’s needed to get a place structurally and visually ready to sell. Don't let your project be personal, unless you want to lose extra money.

6) A perfect handle on the budget. A successful house flipping project has to be entered into with a budget, the realistic idea of the forecasted costs. This will help your flip not to run over your budget and negate the whole idea of house flipping for you and, in the first place, the profit. The careful research, related to costs involved in flipping such as mortgage payments, mortgage insurance, cost of materials and labor, whether labor is readily available and other researches prior to flipping turn you into a savvy house flipper.

7) The first thought is of the target market. A good house flipper is a person who has a firm handle on the market fluctuations with the local real estate area. This knowledge helps him to spot a deal. Moreover, there's no news for knowledgeable flippers that design plays sometimes the biggest role in the final product. And the decision must be smart: simplicity. Focus more on basic things, not on your personal preferences. Trying to appeal to the masses within your target market means you shouldn't go with materials or color schemes that most people won't relate with. Tasteful yet neutral design will create a comfortable image for your potential buyer.

Conforming Jumbo Limit Changed, but wait.......

Congress' plan to help the jumbo loan market -- passed two weeks ago as part of the Economic Stimulus Act -- still is a work in progress. Key details of the plan were left to the Department of Housing and Urban Development to nail down, which may take until next month. What's more, the securities industry's biggest trade group last week surprised lenders when it recommended that larger loans be in effect isolated from smaller mortgages in the "secondary" market, where loans are packaged into securities for sale to investors.That could keep interest rates on jumbo loans higher than some borrowers had hoped, analysts say. All of this has many homeowners who want to refinance, as well as would-be buyers, on edge -- particularly in the high-priced markets. The market for large jumbo mortgages has been a major casualty of the credit crunch that has slammed the economy since late summer.

As loan delinquencies have soared and scores of mortgage lenders have folded, many remaining lenders have become unwilling to make loans unless they know they can sell them to Fannie Mae and Freddie Mac, the government-sponsored mortgage finance companies.But under federal rules, Fannie Mae and Freddie Mac couldn't buy loans larger than $417,000 -- the limit for what was labeled a "conforming" mortgage.The Economic Stimulus Act gave HUD the ability to boost conforming loan limits in high-cost areas to as much as $729,750 through the end of this year.The hope was that that would quickly help support refinancings and home purchases in expensive markets hit hard by the housing downturn. But Congress left it to HUD to set new conforming-loan limits by region, based on a formula that takes into account the median home price in each region. The department has 30 days from Feb. 13 -- the date President Bush signed the act -- to revise the jumbo conforming loan limits. HUD officials said this week that they had not yet come up with numbers. The department is expected to set new conforming limits on a county-by-county basis, just as it does for Federal Housing Administration-insured loans. If HUD's home-price data are similar to recent figures published by DataQuick Information Systems, analysts say conforming-loan limits would skyrocket through much of California, from the current $417,000 to at least $572,500 in Los Angeles County and $650,000 in Orange County.

Loan balances, however, are just one component of what makes a loan conforming. Other issues include the type of income documentation provided and a borrower's credit score. At Freddie Mac in McLean, Va., spokesman Doug Duvall said the company was discussing what the standards should be for larger conforming loans."We are going to be defining the loan-to-value ratios, how much down payment the person needs and the credit score of the borrower," Duvall said. "These are some of the things that we measure. We are wrestling with how different those will be from the traditional conforming" loans.Even if Freddie Mac and Fannie Mae begin buying significant numbers of larger loans, it isn't clear how significant an interest saving that will mean for borrowers.

Since the bad inflation reports and government intervention in the mortgage market three weeks ago the rates for 30Y fixed jumbo loans has moved up .50%. Th best value for clients is the 5Y and 7Y jumbo interest only loan. We have seen various information that possibly fifteen counties in the whole country would see a boost. Your neighborhood might be expensive but HUD is using the median for your county. The Hollywood Hills Real Estate you've haid your eye on and that condo in South Beach might be 1.5m but both counties have a median value in the mid 500's.

In our opinion this proposal was created to address the home owner with a jumbo loan balance in the 417-600k range. This is a bandaid on a large wound. Credit markets will continue to contract until the losses stop and the loans begin to perform again.

Waking Up to The Problem Most Americans Face

Mort Zuckerman of U.S. News and World Report gave a gloomy assessment of the housing market yesterday: he gets it. This is a housing depreciation problem not a "contained subprime" issue.

How much longer will house prices keep falling? That collapse is a larger threat
to our economic well-being than even the headline-grabbing problems of our
increasingly frozen financial system. We’ve had half a century of rising home
values, capped by an inflation-adjusted rise of 85 percent from 1997 to 2006.
Now the loss of value tops $1 trillion, and the financial world has incurred
hundreds of billions of dollars of losses on the premise that U.S. home prices
would never fall. The median price of a new home is at $206,500, receding to
where it was in November of 2003, thus wiping out more than three years of price
appreciation. It takes 6.3 months to sell a finished home compared with 4.3
months a year ago. The ratio of inventory to sales is the highest since October
1981—there’s an unsold extra backlog of a million single-family homes and
condominiums. Builders have cut their housing starts by approximately 40 percent
over the past year. David Rosenberg of Merrill Lynch estimates construction will
fall from a million units to approximately 700,000 units, an all-time low since
World War II.
House prices, though, haven’t fallen enough to tempt buyers,
despite sales incentives and rebates. According to the Conference Board, fewer
Americans plan to buy in the next six months than at any time since 1994. The
decline in conventional mortgage rates has failed to spark sales because it has
been trumped by tighter lending standards. Speculators, who helped fuel the
bubble, have virtually disappeared from the market.

The rest of the article is also interesting, and he did a good job of discussing the problem of fighting a deflating bubble with lower interest rates:

Lower rates can help those with adjustable-rate mortgages, but they cannot stop
the deflation of the housing bubble or prevent a tidal wave of mortgage
defaults. This is partly because mortgage rates reflect the 10-year treasury
bond yield more than the federal funds rate. That rate has dropped, but the
spread of both fixed- and adjustable-rate mortgages over treasuries has widened,
which means smaller declines in mortgage rates. Then there are those many
borrowers who got mortgages in 2003 and 2004 when the federal funds rate was 1
percent; they’re not going to get a better deal than that. And if they now have
zero or negative equity in their home, they won’t be able to refinance in any
event.
Zuckerman made this recommendation:
There is no time to delay in
combating the trends. Monetary policy cannot make bad investments turn good.
Cheaper mortgages won’t cure the market where properties are plunging so much in
value. The collapse of value will affect all homeowners and, through them, the
whole economy. It’s bound to be the most pressing issue in this presidential
election year. Voters in the primaries and general election should look to
candidates with credible policies in mind to address this downturn.

Too bad "candidates with credible policies" are in short supply. Too many of our politicians seem to believe that government can somehow stop the trainwreck if enough money is thrown at the problem. The FED and ECB have injected north of $500B into the markets in the last few weeks and mortgage rates have gone higher in the last few days. The FED is pushing on a string. Don't wait for the FED or a politician to handle your mortgage situation. Be proactive and review your options today as the programs, rates and/or your home value may be much worse tomorrow. We have spoken to dozens of people recently who can't refinance because they have little or no equity. The recent bill passed does nothing for these folks. The effects of the downturn can be addressed, but the downturn itself cannot be stopped. Policy can’t combat gravity.

New Conforming Loan Limit Becomes Law.

President Bush on Wednesday signed H.R. 5140, the Economic Stimulus Act of 2008, making official a temporary boost to both conforming and FHA loan limits. This might be the stiff drink the real estate market needs. The new law boosts the GSE conforming limit to as much as $729,750 through the end of this year, and also raises FHA lending limits to the same level for high-cost areas.

“I know many Americans are worried about meeting their mortgages,” President Bush said prior to signing the bill. “My administration is working to address this problem.” Bush cited HOPE NOW and the recently announced Project Lifeline initiative as examples of ongoing work by the administration to address the housing crisis.

A White House-produced fact sheet covering the new growth package is available here.
The U.S. Department of Housing and Urban Development now has 30 days to publish a database of house prices that will be essential in determining which markets get access to the new ‘jumbo conforming’ or ‘expanded FHA’ loan products.

Of course, that could prove to be bit of a problem in and of itself, given that HUD doesn’t currently independently gather or otherwise publish home price data. Bankrate’s Holden Lewis was on this right from the start when Congress first passed the bill:
The Office of Federal Housing Enterprise Oversight, or OFHEO, compiles periodic indexes of home prices. Fannie Mae and Freddie Mac use the OFHEO data each November to update the next year’s conforming limit.

The Federal Housing Finance Board and the National Association of Realtors both collect and publish home prices. The FHA takes information from both entities to calculate the FHA limits for each metro area.

Congress could have pegged the conforming and FHA limits to data collected by OFHEO, the Federal Housing Finance Board or the Realtors. But it didn’t. Instead, the law says: “The secretary of Housing and Urban Development shall publish the median house prices and mortgage principal obligation limits … for all areas as soon as practicable.” The law gives HUD 30 days to publish the database of house prices.

The simplest solution would be for HUD to use the same house price information it uses to calculate FHA loan limits. But a HUD spokesman says: “We have not yet determined if the same data will be used to make the new calculations.” That leaves lenders in the dark until HUD makes a decision.

While price designations aren’t yet known, a few industry sources close to the process have suggested that the new conforming limits won’t be as broadly applied as many might expect; just 15 counties in California might be designated as eligible for the loan limit increase, for example.
That’s not the only grey area out there, of course — there’s also the as-of-yet unclear issue of TBA trading in the secondary market that will need to be settled. Mortgage bonds are sold before the loan are completed and funded. That's why you lock in a rate. (The unconfirmed word from our sources today is still that the industry agency SIFMA wants to keep the new ‘jumbo conforming’ loans out of TBA pools.)

It’s also unclear exactly how the new jumbo conforming will price, given that neither Fannie nor Freddie have experience underwriting within the jumbo mortgage market.

Similarly, it isn’t exactly clear what the initial underwriting criteria will be, although most expect it to at least sit close to existing ‘traditional conforming’ guidelines — if not ending up more restrictive. “OFHEO has already gone on record saying that jumbo loans are more risky, so I wouldn’t be surprised if the underwriting guidelines end up being tighter than what you’d see for usual conforming products,” said one executive at a large lender, who asked not to be identified.

GOV:Worst is yet to come in housing and foreclosures.

From today's Lifeline Meeting In Washington.


Remember for every distressed seller there is an ecstatic buyer that is getting a bargain.

Diverging Jumbo Rates, should you take an ARM?

Jumbo Mortgage rates are highly sensitive to expectations for the U.S. economy.
When the economy is expected to sag, mortgage rates tend to fall
When the economy is expected to surge, mortgage rates tend to rise

Currently, the economy is expected to sag and surge in the later half of the year. I disagree but what live with what the market gives us. This is why adjustable-rate jumbo loan mortgage rates are holding their ground as fixed-rate jumbo mortgage rates increase.

Fixed-rate and adjustable-rate mortgages are not as interchangeable as in the past and it's mostly because the Federal Reserve's routine has created expectations of runaway inflation later this year.
The "Fool in the Shower" bit goes like this:
A fool gets in the shower and it's freezing cold
To get warm, he flips the hot water on to full blast
Before long, the water goes way past warm and into hot. It burns him.
The fool turns the water back to cold and repeats the process in reverse.

The Federal Reserve is following the same pattern. The economy showed signs of weakness (i.e. being cold) last year so the Fed took steps to warm it up. Since September 2007, the Federal Reserve has shaved 2.25% from the Fed Funds Rate. With each successive cut, though, the Fed is turning the proverbial water farther towards "hot". This makes it more likely that the economy will go from "ice cold" to "scalding hot" sometime later this year.

Overheated means inflation comes back and now investors are taking notice and a quarter of all jumbo mortgage loans are owned by foreign investors and they don't like our falling dollar.
The growing likelihood of inflation is now priced into longer-term mortgage rates. Inflation erodes the value of mortgage bonds so it's causing long-term mortgage rates to rise.
Meanwhile, short-term rates are still reflecting the short-term economic weakness to which the Fed is responding. In the near-term, the absence of inflation is holding rates low for a host of products, including:
The 1-year ARM
The 3-year ARM
The 5-year ARM

And that's where it ends. There is a increase right at the 7-year marker. The 7-year ARM along with the 10-year ARM and the fixed products are all priced for the Fool in the Shower bit, jacked higher for inflation and the eroded dollar. Of every client is different, you should match your time frame for the home with your mortgage as best as possible. With all the consumer choice comes enormous responsibility.

Two months ago, the spread between a fixed-rate mortgage and a shorter-term adjustable-rate mortgage was .125%. Today, the gap is 0.625%. We are currently advising clients to consider the 5Y and the 10Y jumbo loan interest only. We often advise to go interest only and max out all retirement accounts with the funds otherwise allocated to the mortgage principal. For a customized proposal from a banker contact us anytime.

Senate Passes Conforming Loan Increase!

As part of the overall Economic Stimulus package the Senate voted and passed the provision within the bill to expand the conforming loan limits to allow Fannie Mae and Freddie Mac to buy conforming loans worth as much as $729,750 for loans made between July 31, 2008 and Dec. 31, 2008, an increase over the current $417,000 loan limit, a move that could help struggling homeowners to refinance jumbo loans at a lower interest rate. It will also allow the Federal Housing Administration to insure loans as high as $729,750 in expensive markets. To find your areas median home value visit the National Association of Realtors site. They have the most user friendly numbers.

This should be a welcome boost to home sales within the price range of the 125% upper limit for median value of a city. We don't expect a dramatic improvement in 30Y jumbo loan rates, most analysts are speculating that rates might improve by as much as .50% compared to where they are now. Historical low jumbo loan rates are available now on 5Y, 7Y and 10Y fixed most clients are locking in rates in the low to mid 6% area. This is down from the mid to high seven percent range over the last few months. The jumbo market most improved by the congressional action is likely to be the 30Y fixed as investors(banks, foreign investors, etc) don't have a great appetite for 30Y paper so they are demanding higher rates than what one would expect.

The conforming loan limit change doesn't happen till mid summer. For those in falling markets looking at their neighborhood drop in value it is wise to consider your refinance options now as equity is the most important factor in lending. To get the best loan terms your loan balance should be no more than 80% of the value of your home and of course having great credit gives you access to the best jumbo loan rates.

Confusion reigns as to FEDs Impact on Mortgage Rates.

Contrary to the conviction of deeply confused clients and reports by lazy news media, mortgage rates are unchanged, about 6.50 percent for the lowest-fee 30-year jumbo loan.

Yet, the media refer constantly to "dramatically lower mortgage rates." They are better, but ... drama? Freddie's average for the whole of 2007 was 6.74 percent. A quarter-percent drop is nice for buyers, and a help to a few jumbo loan refinancers, but no fire sale.

"How can it be the same ... !?!" says the client, after a cumulative 1.25 percent cut at the Fed in only eight days? Answers follow.

Brand-new January economic data are not that bad. They're not bad enough to justify the Fed's panic, let alone to anticipate more cuts. Payroll growth slipped to flat in January (negative 17,000 is within the huge range of error and revision), unemployment down to 4.9 percent in a workforce statistical quirk -- soft, but hardly a recession. The purchasing managers reported their first gain in six months, likewise soft, but with persistent strength in foreign orders. Fourth-quarter GDP grew by a mere 0.6 percent; however, aside from a temporary drawdown of business, inventories grew at 2 percent.

The Fed's form is disturbing to long-term investors. Central banking is not figure skating, but Fed Chairman Ben Bernanke has departed his predecessor's 17 years of gradualism for lurching on the rink. A Fed that will lurch down will lurch up. This causes 10Y jumbo loans and 30Y fixed jumbo mortgage rates to stay elevated as who knows when the cuts will be taken back.

Investors bought long Treasurys and mortgages at these levels 2002-2004 because former Fed Chairman Alan Greenspan said after every meeting into 2006: Excessive monetary stimulus most likely will be "removed at a measured pace." Translation: You're safe for now, and we'll give you time to get out before we kill you.

In those late Greenspan years, deflation was the problem. Today, inflation is rising all over the world: Australia at a 16-year-high of 3.8 percent core; Europe at a 14-year-high of 3.2 percent; U.K. at 2.6 percent core; China at 6 percent-plus; and an economy completely out of control beginning to export inflation to us. Each time the Fed has lurched to a catch-up ease, all the way back to August, it has rescued stocks, commodities, oil, gold, and tanked the dollar.
I have chewed on the Fed for its inaction and credit-wreck oblivion. However, this situation is NOT a monetary problem: It is a banking-system near-insolvency that may morph into a recession, each making the other worse. The crying need for six months has been transparency of credit loss and bad-asset firewall. Cuts in the overnight cost of money may intercept recession, but inflation means that these cuts cannot be maintained or removed at a measured pace.

Two non-Fed forces holding up mortgage rates: Credit fear about Fannie and Freddie has the spread between mortgages and the all-defining 10-year Treasury (3.57 percent today) over 2 percent for the first time ever. Second, somebody by accident may arrive at an effective credit-wreck bailout: The giant bond insurers, Ambac and MBIA, may be resolved in days. If no collapse, then credit fear will give way to inflation fear.
The Fed's cuts have had a dramatic effect on ARM adjustments, and should revise estimates of housing doom to the better -- also reducing bond-market fear. This month, common one-year Libor-floating loans will adjust DOWN to 5.125 percent.