You can buy a house and you can get a mortgage

Here is what we have been able to do in the mortgage world lately:

• More and more lenders are making appraisals easier.  We are able to use AXIS appraisals, which are based in the Bay Area (fewer Fresno- and Martinez-based appraisers doing appraisals in San Francisco).
 
• We have a lender that will do 90% loans to $979,750!!  That means we can do a purchase of a $1,088,000 home with 10% down.
 
• Rates are still low.
 
• Lenders are still lending on live-work lofts.
 
• Lenders are still doing recent condo-conversions (TICs to condo).
 
• We have lenders that will still fund in the name of an LLC or corporation.
 
• We have two banks that will underwrite and approve a borrower based upon his/her assets and derive an analytical income for qualifying for the loan versus using income derived from tax returns.  This is like a stated-income loan for those with lots of liquid assets.
 
• We have banks that will allow for a community second mortgage or an employer second mortgage, such as the SF Mayor’s Office of Housing program or Kaiser employee loans.
 
• Most condos can be FHA approved by sending in FHA approval packages to the California office or HUD.  Turn-around time is 2-4 weeks.

The rest of the market?  Just as tedious as it’s ever been.  If you have to get a mortgage, hang in there.  The paperwork is oppressive and the conditions are often silly, but it will happen. Call us if you need some help.

A better economy usually means higher rates

Remember, this is a blog—oversimplification will prevail.

Lesson #1:  Rates are driven by the mortgage-backed securities (MBS) market.  MBSs are more similar to bonds than stocks.  Money managers who have to produce returns for their clients invest in stocks (more risky but higher returns) and bonds (less risky but lower returns).  When money managers think companies will produce higher stock returns, they invest in stocks. When the economy shows signs of improvement, company stock prices tend to rise.  So, said another way, when the economy shows signs of improvement, that generally means stock prices will rise, which will cause money to flow to stocks and not bonds (or MBSs).

Lesson #2:  When bond prices decrease, mortgage interest rates worsen.  A bond’s price and its yield are inversely related. That means that when the bond price goes down, the yield goes up (and vice-versa).  Mortgage interest rates track with the yield.  So, as bond prices go down, the yield goes up, mortgage interest rates go up.  The price of a bond will go down when there’s less demand for it.  If money flows to stocks, that means it moves away from bonds.  As bonds are in lower demand, the price will drop, and the yield will increase.  Remember, mortgage interest rates track to the yield.  To review: the less demand for bonds (or MBSs), the lower the price, the higher the yield, the higher mortgage interest rates will go.

The Million Dollar Question: Will the economy improve that much this year?  This is where my crystal ball gets fuzzy.  I think the nightmare of the financial crisis of 2008 is over.  We’re stabilizing.  High unemployment is a problem, and I see it getting slightly better.  I’m a believer that the consumer tends to drive the economy and if they have money to spend, the economy picks up.  I’m a believer that until we start to support the small business person, who employs most of the people in this country, unemployment will remain stagnant and the recovery will be sluggish.  The Fed’s quantitative easing (QE2) and the financial stability of the European countries are the wildcards here.  Given all that, I’m predicting that the economy has a good year and rates will increase a bit to 5.5% on the 30-year.

And by the way, let me put this back into perspective for you.  5.5% is still historically pretty doggone good.  So, if you’ve been “left out” of this past year’s refinance opportunities, this will still be a great year to get it done.  Give us a call.

Review your refinancing opportunities

What we’re talking about here is loans over $730,000, which are those that are not bought by Fannie Mae and Freddie Mac.  Just because the loans are available doesn’t mean that everyone gets one.  You still have to go through the relatively stressful process that loan underwriting is these days and prove that you can pay the loan back (and then some, it seems).  Expect to produce documentation over and over again, expect your appraisal to come in low, expect the lender to want to see 20-40% in equity.  It’s a tedious process and potentially worth it.

These conditions are strict compared to five years ago, but the fact that more loans are being made is a good sign.  While perhaps not a loosening of credit standards to something more reasonable, it is a loosening of credit.  The reason that is significant is that it means the secondary market for mortgages is starting to show signs of life again.

To oversimplify (remember, this is a blog), there are two major “consolidators” of mortgages—(1) the government agencies that buy loans at $730K and below and (2) private consolidators that buy loans at $730K and above.  When these “consolidators” buy mortgages from lenders and securitize them, they infuse the lender with cash to make more loans.  Expand your geographical horizons for a minute to remember that there are far more loans in the country made for less than $730K than there are over that amount.  In the recovery from the “financial meltdown,” the under-$730K consolidators have had more opportunity to re-establish confidence in the buyers of these mortgage securities, so the consolidators have had an easier time loosening up money for loans at $730K and lower.

The larger-loan consolidators have lagged behind simply because there is less of a secondary market in which to sell these loans.  To see that more of these loans are being made suggests that there are more confident buyers of larger-mortgage securities, which in turn gives the larger-loan consolidators money, which in turn allows them to buy more loans from lenders, which in turn allows those lenders to lend again to someone else that needs a loan for $730K or higher.

While the days of getting a mortgage by putting a fog on a mirror are nowhere close to returning, this sign of life in the jumbo market is a good thing.  If you couldn’t refinance before, you might want to see if you should refinance now.

The Law of Unintended Consequences in action?!  Sort of….

I have to admit that I didn’t see these kinds of opportunities coming.  Please understand that I have for many years been advising clients not to pay down their mortgages aggressively, to save their money, to keep multiple assets growing in different markets. I have been defining “financially secure” not as a home paid-off, but as having enough money in the bank to weather any financial storm or take advantage of any financial opportunity.

I would not have guessed that perhaps one of the greatest opportunities for that cash would have been to settle mortgage debt for pennies on the dollar, retain the asset, get a fixed rate loan, and continue on the original plan for keeping the property.  Or, for those who took great risk at the peak of the last economic boom and borrowed a truck load of money on credit cards to start a business, to have them be able to start again.

I’m not saying that any of these decisions to negotiate credit are what these investors planned or would have preferred or had an easy time making. Each of them got into their investments with the idea that it would pay off in the traditional way over many years of hard work and/or appreciation.  I’m not saying that their credit won’t be impaired.  What I’m saying is that because they kept cash on-hand, they now can take advantage of the financial “opportunity” that is sitting before them.  I won’t go so far as to call it the catbird seat, but it’s not such a horrible place to be.

March and April are the best months to set resolutions

We live in this world where we can get just about anything, anytime, shipped from anywhere.  Ecological issues aside, the point here is that our bodies and minds have long forgotten that NOTHING GROWS IN THE WINTER.  The focus of winter is fallowness—that is the time in which the ground is to take a break and repair itself from the fall’s harvest.  Instead what we do is throw big holiday parties and amp up the activity, physically and emotionally.  That kind of energy is counter to the energy of where we are on the Earth at that time.  We should be sleeping a lot.

If we wouldn’t put a seed in the ground in January to grow something for the year, why in the world would you expect a New Year’s resolution set on January 1st to stick?  Is it not the same thing?  Sure, there are people who are able to gut it out and make it happen.  But ask even them:  Is it not easier now that the days are longer and warmer?  This time of year is more conducive to cultivating and growing anything you wish to put in motion.

Reset your New Year’s resolution.  It might just stick.  If it has anything to do with getting your financial planning in order or taking care of your mortgage, give me a call.  I’ll make sure it does.

Mortgage Rates and Products

My prediction is that rates will remain relatively low for 2010 and probably 2011. There will the usual ups-and-downs of mortgage rates, but historically speaking, rates will remain low.  A few pieces of advice:

1. If you can’t refinance your adjustable rate mortgage and its getting ready to reset, don’t panic.  Your rate may be adjusting lower or very close to what you have now.  You might want to keep that loan for a while.
2. If you have an equity line of credit that allows you to do a “fixed rate partition”—that is, fix the interest rate on all or a portion of the loan—consider doing this when you see the prime rate bump up a quarter to a half percent. Call your lender.
3. If you want the 30-year fixed-rate loan and haven’t gotten it, get it now. Give us a call.