6 mortgage myths that can cost you money

MSN Money has a great article on 6 "myths" of getting a mortgage. While these aren't myths per se, they are closer in nature commonly accepted wisdom. They may not be true for your financial situation, it depends on your financial needs on which mortgage is best for you.


Do you believe that you can't borrow money to buy a house if you have some dings on your credit? Do you think it's always best to pay off the mortgage early, if you can? If so, you subscribe to mortgage myths that can cost you money. Here are six common myths.

Myth 1: A 30-year fixed mortgage is always best.
Myth 2: Pay off that mortgage as soon as possible.
Myth 3: You need a big down payment.
Myth 4: You're stuck with PMI.
Myth 5: Dinged credit? No mortgage for you!
Myth 6: Refinancing means a new 30-year countdown.

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Mortgage Myths

Mortgage Rates Rise Again - 4th straight week

Everyone seems to be covering this latest interest rate rise, namely from 5.73% to 5.77%. These are historically low mortgage rates so I wouldn't fret too much. The real question is what affect this will have on home buyers. Will we see a last minute dash to buy a home before rates rise again? Will the slowly rising rates spark a price bump as people rush into the market before rates rise again? Time will tell.

Zoning - The Hidden Cost of Homes

There's interesting article at Slate on the impact of zoning laws on housing prices. I largely think this effect is non existent. Why? Because permitting and zoning is a variable expense, as a home builder get experience in the specific local market, they will be able to minimize and reduce the overall zoning example through institutional knowledge of the process.

"Elementary economics tells you that in a competitive environment, the price of a new house should equal:

the price of land + construction costs + a reasonable profit for the developer

But in most cities, that sum is not even close to what buyers are paying.

Take Dallas, for example. If you live in central Dallas, and if you could magically add a quarter of an acre to your lot size, you'd add (on average) about $2,200 to the value of your house. (We know this from comparisons of similar houses on different-sized lots.) Do the same in central Philadelphia, and your house value increases by $8,400; in central Houston, it's more like $17,600. In that sense, central Dallas land is just about the cheapest urban land you can find in this country. Among large cities, only Atlanta, Boston, and St. Louis rank lower. In theory, that should be great news for Dallas housing prices. But it's not. A house that costs $100,000 to build typically sells for $140,000 in Dallas, maybe $120,000 in Houston, and under $90,000 in Philadelphia.

Aha! say the commentators. Housing prices must be driven by something other than fundamentals. Speculators, of either the rational or the irrational variety, are the obvious culprits.

Here's what's wrong with that analysis: Housing prices have to make sense on both the demand side and the supply side. No matter what you do or don't believe about the ability of crazed demanders to bid up prices, you still have to explain why competitive suppliers don't bid those prices right back down. In other words, if the housing market is so tight that builders are making a fortune, they ought to be flooding the market with new houses—and driving down prices."

So what's the magic ingredient driving up home prices?

Edward Glaeser of Harvard and Joe Gyourko of the University of Pennsylvania have computed these mystery components for about two dozen American cities. They speculate that the mystery component is essentially a "zoning tax." That is, zoning and other restrictions put a brake on competitive forces and keep housing prices up."

If the theory is correct, that length of time should be a good but imperfect predictor of the mystery component in housing prices. The data largely support this theory. About half of all cities are rated 2 (on a scale of 1 to 5) in terms of how long it takes to get a permit; these are, without exception, the cities with the lowest mystery component in housing prices. Cities rated 3, 4, and 5 all have higher mystery components. (A bit disconcertingly, so do the three cities—Minneapolis, Chicago, and Anaheim—that are rated 1. Peculiar as these exceptions are, there are at least only three of them, and we should expect some anomalies given that Glaeser and Gyourko's measure of zoning costs is rather crude.) You can talk all you want about crazed speculators and bubbles in housing prices, but you still have to explain why competitive forces don't bring prices right back down. According to Glaeser and Gyourko, it's ever-expanding zoning laws that get in the way. If you want to lower prices, that's the bubble you've got to burst.

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Home prices more apt to drop; Santa Clara county at 51% risk of home prices dropping.

This is a study by PMI Mortgage Insurance indicates that Santa Clara County is the fourth riskest market for price declines in the United States. Mortgage insurance is required by any home owner who doesn't put down 20% or more for a down payment. Give the rise of prices in Santa Clara County combined with the spread of ARMS this represents a risk. Insurance companies like PMI are more likely to be dispassionate about the real estate market. They bear a great deal of risk if owners cannot make payments.
"In its quarterly ``market risk index,'' Walnut Creek-based PMI Mortgage Insurance calculated a 51.3 percent likelihood that home prices in the San Jose-Sunnyvale-Santa Clara will drop over the next two years."
Boston, Long Island, N.Y., and San Diego were the top three, with Boston home prices judged 55.3 percent likely to decline before 2007.

PMI, a major seller of private mortgage insurance, did not predict the depth or longevity of price downturns. Mortgage insurance protects lenders from financial loss in the event that homeowners default on their loans. Many home buyers who make down payments of less than 20 percent must pay for such insurance to qualify for mortgages.

The company's risk survey relies on federal labor-market and home price appreciation data, and on the company's own affordability calculations, which measure local home prices against local median incomes and the price of 30-year mortgages.

``What we see in a lot of California markets, and certainly San Jose . . . is prices are outstripping incomes,'' said Beth Haiken, a PMI spokeswoman.

Outstripping incomes means the affordability index is dropping like a rock. The affordability index in regional markets like San Jose or San Francisco must be around 5% and that is not sustainable.

Related Links:
Market Risk Report

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Mortgage Bubble? Investors Want to Know

Warning - Minor registration required at the above link. While much of the discussion in the blogosphere has been about the housing bubble in California and other. This article discusses how the spread of negative amortization mortgages has created a mortgage bubble.

Along with Golden West, publicly traded lenders with big exposure to these products include Countrywide and Washington Mutual and smaller California banks such as Downey, First Fed and Indymac. Golden West has been selling them for 25 years and has a solid track record with them, even in recessions and rising-rate environments. When fully explained to the right customers, such as a Porsche salesman who makes plenty each year but doesn't know how much he'll score from month to month, "it's a terrific borrower loan," says Mr. Sandler. "We have never had a delinquency, much less a foreclosure, due to the structure of the loan."

But some banks are lowering their credit standards, sometimes qualifying borrowers based on their ability to make the minimum nut, not whether they can afford the whole deal. "That is an outrage," Mr. Sandler says.

t gets better: The unpaid interest gets tacked on to the bank's outstanding loan total, allowing the bank to display loan growth, which investors love. "You get earnings and growth. What more can you ask for?" says Keefe, Bruyette & Woods analyst Fred Cannon.

But there could be credit problems down the road. And at some point, it's plausible regulators might fret about the bank's capital.

Last week, Golden West's stock took a hit after it disclosed how much its exposure to option ARMs has increased. The company reported that $160.2 million of its loans was actually unpaid interest tacked on to borrowers' principal - that negative amortization I mentioned. That's a huge leap from last quarter's $90.2 million and $27 million in last year's second quarter."

So with the growth of ARMS, that negative amortization is reported as loan growth by the bank. So the bank instead of showing growth through origination of new loans is actually growing on the back of consumer spending. Consumers are very vunerable to interest increases. Currently banks don't report how much of their loan growth is due to negative amortization of ARMS. Golden West (the bank cited) does and it reveals a scary picture. I wonder what the situation looks like at Countrywide?

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30-year fixed rate up at 5.31%; 10-year Treasury down at 4.22%

Long-term mortgage interest rates continued rising Friday, and the benchmark 10-year Treasury bond yield fell to 4.22 percent.

The 30-year fixed-rate average rose to 5.31 percent, and the 15-year fixed-rate gained to 4.91 percent. The 1-year adjustable was up at 3.74 percent.

The 30-year Treasury bond yield sank to 4.44 percent.

Rates are current as of 7:15 p.m. Eastern Standard Time.

Mortgage rate figures are according to Bankrate.com, which publishes nightly averages based on its survey of 4,000 banks in 50 states. Points on these mortgages range from zero to 3.5.

In other economic news, the Dow Jones Industrial Average gained 23.41 points, or 0.22 percent, finishing at 10,651.18. The Nasdaq rose 1.14 points, or 0.05 percent, closing at 2,179.74.

Stock and bond figures are current as of 7:30 p.m. Eastern Standard Time.
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Inland Empire home prices hitting a record of $373,860

"Inland Empire home prices continued their relentless climb last month, with the median price hitting a record $373,860. That's a 2.5 percent increase from May but up 22.7 percent from a year ago, according to the California Association of Realtors."

The Inland Empire remains an attractive place to live. Expect the median home price to climb above $475,000 as long as lending standards for residential mortgages remain relatively loose.

The inventory of homes has increased in the Inland empire which indicates that the market is cooling.
Tom Adams, co-owner of Century 21 Adams & Barnes, agreed.

"There are so many homes for sale today. ... It's almost as if people are thinking this is the last hurrah for a while and they need to get on board," said Adams, whose company has offices in Monrovia and Glendora.

Adams said he's still seeing multiple offers on houses, although some sellers make the mistake of "reaching too high."

"When a home is priced too high, that can eliminate any offers," he said. "We're not in the same market we were four or five months ago. Back then, anything that was listed got multiple offers, regardless of price. But the affordability index has fallen."

So this last $100,000 in increase in median price will probably take two years. But expect it.

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LA County Median Home Price Continues to Rise to $512,890

"Los Angeles County home prices continued their relentless in June, with the median price hitting a record $512,890. That's a 1.9 percent increase over May and up 15.2 percent from a year ago, according to the California Association of Realtors."

Indeed with today's looser lending standards and historically low interest rates, prices in LA County will undoubtedly CONTINUE to rise. Expect the LA County median home price to rise to roughly $550,000. At that price point however, affordability issues will begin to push to keep prices down.

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Countrywide misses revenue target

A number of news organizations are posting this morning that Calabasas, California based mortgage provider Countrywide missed it's quarterly revenue targets. Most attribbute it to the fact that Countrywide didn't sell off as many loans in it's portfolio. Normally Countrywide would sell these mortgages on the secondary market. The sale of loans generates quick profits. Why didn't Countrywide sell as many loans?

"Sales of loans generate current-period gains on sale, while the retention of loans is designed to provide a more stable stream of net interest income,'' the company said. "In making the determination of whether to sell or retain loans, management considers .... earnings growth, current market and economic conditions."

In other word Countrywide is banking that the mortgage market is going to cool down and having a steady stream of income is worth morth than selling the loans on the secondary market.

The Regulators Step In

The regulators are finally stepping in to make sure that real estate begins a soft landing rather than a hard crash.

"This fall, the Office of the Comptroller of the Currency and other financial regulators plan to issue guidance on mortgages for lenders under their supervision.

They'll focus on flexible-payment products, such as interest-only, adjustable-rate mortgages, which have become increasingly popular as families stretch to buy homes.

Analysts expect the upcoming regulatory missive will cause lenders to think twice about making no-interest mortgages to buyers who may already have a mountain of mortgage debt -- and just adequate income. That hesitance could remove some marginal buyers. Price slowdowns in the hottest metro areas may follow.

"Maybe this is the inflection point where appreciation stops," said Andy Laperriere, a managing director with the ISI Group, a New York-based economic research brokerage."

They even mention one of my favorites in terms of appreciation, Bakersfield.

"Meanwhile, fast-growing cities like Bakersfield, Calif., and Phoenix have seen a speculative surge, with homeowners buying second and even third homes on the gamble they'll be able to sell at a 20% to 30% profit in year.

Slowdown Already Apparent?

There have been a few signs that housing is close to peaking.

In California, price appreciation fell from 21% in February to 13% in May, says the California Association of Realtors.

Home equity loans, sometimes used to help borrowers cover the down payment, have also slowed. The annualized growth in home equity loans originated by commercial banks dropped from 16% in June to just under 10% in the first week of July, says ISI.

Independent of regulatory actions, shifting interest rates have affected buyers' behavior. Adjustable-rate mortgages, usually linked to short-term yields, have risen to a three-year high. But 30-year fixed rates -- tied to the 10-year Treasury note -- have fallen from a year ago.

As a result, the gap between a conventional 30-year mortgage and a one-year ARM has fallen to 109 basis points, near the lowest since late 2001.

A year ago, that spread was nearly twice as large.

That's made ARMs less attractive. These mortgages recently accounted for 28% of home loan applications, the least since March 2004, says the Mortgage Bankers Association.

If you have an ARM it's definitely time to think about refinancing.

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Strongest Sales in June - Talk of Bubble fueling sales

"The National Association of Realtors reported that sales of existing homes came in at an annual pace of 7.33 million homes in June, compared with the revised 7.14 million pace in May. Economists surveyed by Briefing.com had forecast that sales would remain little changed at the 7.15 million pace in June."

One unanticipated effect of the constant talk of a real estate bubble is that it might well be fueling panic sales. People wanting to get into the market to take advantage of some of that appreciation. In this regard this parallels the stock market when capital was flowing into the market even as signs of the collapase were apparent.

"The average housing price, which is typically higher due to the impact of upper-end home sales, was $268,000, again another record, and up 9.4 percent from a year ago and up 4 percent from May."

So prices nationally are continuing to rise as people are treating this market like the latest greatest boom and the huge number of people buying are obviously causing prices to rise.

Finding Bargains in an Over Heated Market Part Three

One of my main points in the first two parts of this series that in order to find your best deal in an over heated market you have to do more of the legwork yourself. You cannot rely on an agent to represent you. Most agents want to do the least work for the most gain. The great agents will be patient with you if they know you are bargain hunting. One thing about bargain hunting. It requires you to be dispassionate about the home buying process. You cannot get caught up emotionally in the process of looking for a home. In over heated markets there is a tendency to get caught up in the process and make rash decisions. How to do this?

1. Determine the monthly payment that feels comfortable to you. You do this by paying your new mortgage(if for example your mortgage payment is going to rise, simply pay the difference into a checking or savings account.)

2. Once you have determined your comfort zone payment stick to it. Resist the urge to increase it by thinking, "The market will certainly go up. Let's spend more."

3. Be patient. Look for the right opportunity. In an over heated market, you will be tempted to rush pell mell into the first property you qualify for. Make sure the property matches all of your criteria for a residence or investment.

4. Be ready. Get a mortgage pre-approval letter that is solid. In a previous post I covered how over 50% of home purchasers have poor pre approval letters. Having a solid pre-approval means that you are ready to buy.

Well this article is supposed to cover yet another source for finding homes. And as always is the case when buying in a over heated market you will find that you the buyer are gonna do the legwork. Especially with this next resource I am certain that no agent is going to show you these homes. The real estate industry takes care of its own so when home owners list their own homes with For Sale By Owner, they get ignored by agents. For Sale by Owner is a great way to find bargains as agents never show these homes. Why? Largely loyalty to the real estate industry as opposed to the home owner. Without the 6% commission for agents, owners have more negotiating room.Buy and sell real estate without paying a broker! Furthermore as you are negotiating directly with the home owner, you both have no interest in proping up a hot market. The seller wants the best price for his home with the minimum of work. If you followed the four steps I outlined above you should be ready to make the purchase.

Related Links:
Finding Bargains in a Heated Market Part One
Finding Bargains in a Heated Market Part Two
Find ing Bargains in a Heated Market Part Three


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For Sale By Owner

Ventura County Up - Median Price Point is $569,000n

I am interrupting my four part series on finding bargains in an overheated market to publish a quick note about Ventura county which experienced double digit gains to have the median price point come up to $569,000. This should slow growth as not as many people can afford the new median price point.

"For several straight months we have seen more inventory hit the market than leave. For example at today's writing there are 43 new listings while only 33 have gone sale pending and been placed into escrow. What this has done has been able to give buyers more homes from which to select and consequently give them slightly more time in which to make their decision. This as opposed to the same market last year where if you didn't make an offer on the house prior to walking back to your real estate agent's car, meant that you probably lost out on purchasing your first choice. Our market was very strong up until the beginning of the holidays last year where it historically slows a bit"

We saw a similar pattern with an increase of ARM loan products being used in the late 1980's prior to the collapse of the real estate market. However this cycle is a little different. For one this is the biggest boom market in history. While most cycles run approximately seven years we are already into our ninth year of terrific appreciation and sales. The bottom line is affordability once buyers realize that they can no longer afford the larger house payments they will hold off on their next home purchase. This will lead to a glut in the inventory, longer marketing times on fewer sales and inevitably lower home prices. Because of the strong economy and the creative lending programs, buyer's payments have remained relatively within affordability limits being only about five percent below their 1989 peaks. This is what is giving us, up to now, a "soft landing" instead of a sudden drop in prices. However once we hit the runway only time will tell what will happen next."

I love this. This run up has been nine years in length so the expect a soft landing instead of a hard landing. No one can tell. Given how frothy the market is in Ventura, I think we can expect a relatively hard landing. Please note this article is by a real estate agent.

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Finding Bargains In an Overheated Market Part Two

Part of the approach to find real estate bargains in an over heated market is to be a more active shopper. Relying on a buyers agent can be problematic as the agent's interest don't exactly match up with yours. The agent may show only you properties in areas where he represents the buyers or or where another sale with help with comps on properties he represents. So don't rely too much on your agent. If you want to find a deal in an over-heated market prepare to do some of the legwork yourself.

There are some tools to make that legwork a little easier. For example foreclosures exist even in heated real estate markets (Los Angeles, Bay Area, Sacramento, San Diego and Inland Empire) and represent a great buying opportunity. As many of these ARMS change their interest rates in 2-3 years you can expect the foreclosure market to be ripe. So for finding foreclosures in the California market I suggest you Click For Foreclosures!. You will find that you will be able to freely search and find foreclosure listings in even in a heated real estate market like California. Foreclosure.net provides some of the most comprehensive foreclosure listings in the market today.Click For Foreclosures!

Related Links:
Finding Bargains in a Heated Market Part One
Finding Bargains in a Heated Market Part Two
Find ing Bargains in a Heated Market Part Three

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Bargains in a heated California real estate market Part One

Finding a real estate bargain in today's heated market is next to impossible. In the California real estate market it's nearly impossible. However with a little bit of thinking outside the box, you can save even in today's California marketplace. There are a couple of places that you migh want to start off. With non traditional mortgages making up over
61% of the residential mortgage market in California as rates rise, owners are going to find themselves paying more and more on a monthly basis. One potential source on your home search is Homes for 1/2 Price which will help you navigate through thousands of potential homes at prices below market. Many of these homes are in pre-foreclosure, NOD, NTS, auction, HUD, VA, Government and bank homes. Start your search at Homes for 1/2 Price

Related Links:
Finding Bargains in a Heated Market Part One
Finding Bargains in a Heated Market Part Two
Find ing Bargains in a Heated Market Part Three

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San Franscisco Median Home Price Tops 600K

Well just when you thought San Fran had gone up all it could, it shoots up again.

"Housing analysts are split over whether California is forming a housing "bubble" as home prices in the state have nearly doubled since late 2001, pulling prices up in the San Francisco Bay area even while it struggled to emerge from the long high-tech slump.

California's rising home prices have been propelled by home buyers snapping up low long-term mortgage rates and adjustable-rate and interest-only mortgage loans."

This article also repeats the often cited yet clearly wrong conventional wisdom.

"Bullish analysts counter California's population is growing rapidly amid a persistent shortage of housing, which will add upward pressure to home prices."

Calfornia's population may be growing but California's home buying population is not. Given that 85% of the people in California cannot afford to buy in this market how can they put pressure housing prices? They cannot. More importantly the population growth isn't coming from people who will ever afford homes in California - Starbucks Baristas do not buy homes. They cannot afford it.

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Is Your Family's Bubble about to Burst?: OC Real Estate Investment Club Will Help Answer This Question and More!

IRVINE, Calif.--(BUSINESS WIRE)--July 22, 2005--On July 28th, please join and network with other OC homeowners, investors and real estate professionals to hear our keynote speaker, Delores Conway, Ph.D., Director of the Casden Real Estate Economics Forecast, University of Southern California, Lusk Center for Real Estate, at the 1st Annual Real Estate Forecast hosted by OC Investor.

Dr. Conway, widely respected for her research on financial pricing models, will discuss the OC market, both sides of the "bubble" debate and other "hot" markets nationally.

Jennifer Crisafulli, from the 2nd season of "The Apprentice" and a New York-licensed real estate agent, will be the Master of Ceremonies for the event. She will describe her experiences working for the world's most successful and renowned real estate investor, Donald Trump.

A panel of real estate professionals, including Cathy Haney from Cobalt Property Group, Geoff Zimpfer from Countrywide Home Loans and Jeff Crandall with Crandall & Associates Tax Specialists, will share their expertise in the fields of real estate investments, financing and taxes.

Whether you're a novice or a pro in real estate investing, the more information you receive will help you become a more successful investor. During the evening, information on OC trends and forecasts, as well as property listings and foreclosures, will be provided to help you make educated decisions on when to buy low and sell high. You'll learn why OC real estate values continue to rise and when they will slow down.

Find out how to get started in real estate investing, 1031 Exchange and other tax benefits, as well as how to find financing and foreclosures. Learn how to diversify and maximize your portfolio and protect your holdings from probate. Build your negotiation skills and create a positive cash flow. Lastly, because of the future of Social Security, a topic that's on most everyone's mind, hear how to use real estate investments to help fund your retirement years.

Colin Wallis, Executive Director of the Lance Armstrong Foundation, will be in attendance to receive the check and distribute yellow Live Strong wristbands to attendees.

After the meeting, speakers and members will have ample time to network.

Because seating is limited, an RSVP is required. Please register at www.ocinvestor.com.

About OC Investor

We bring Orange County real estate investors together (and nationally via the Internet) to educate and learn about their investing experiences.

Weekday Workshops, limited to twenty members plus guests, are held on the first, second and third Wednesday of every month in an intimate setting with a focused agenda. A business professional will guide local investors through a variety of real estate-related activities. Designated Awareness Beneficiaries will receive a $500 donation from OC Investor at every workshop.

On the last Wednesday of every month, we present The Real Estate Roundtable, a more formal event with an experienced investor, real estate agent, CPA, financial planner, mortgage banker or other business professional who will facilitate the meeting, depending on the topic and scope.

About Our Members

Don't worry about experience, as our goal for each event is to meet the educational needs of novice and experienced real estate investors alike. Members meet to learn, exchange and network. Beginners learn from experienced members who enthusiastically share their real estate investment successes.

Mission Statement: To provide an open venue and atmosphere of dialog, education, guidance and networking opportunities within the complex discipline of real estate investment.

NAME OF EVENT: 1st Annual OC Investor Real Estate Forecast

HOSTED BY: OC Investor, Inc.

DATE AND
TIME OF EVENT: July 28, 2005 -- 6:30 p.m. to 9:30 p.m.

LOCATION: Irvine City Hall, One Civic Center Plaza,
Irvine, CA 92618

INVESTMENT: $25 with on-line RSVP with coupon code found in OC
Metro. Fifty dollars ($50) at the door.

Gentle Slowdown of price increases

This is the third straight week of rate increases for 30 year fixed loans. They rose nearly a tenth of a point.

"Freddie Mac said the 30-year fixed-rate mortgage averaged 5.73%, up from 5.66% a week earlier.

The rate on 15-year fixed-rate mortgages averaged 5.32%, up from 5.25%. A year ago, the average rate on the 15-year was 5.39%.

The one-year Treasury-indexed adjustable rate mortgage averaged 4.42% vs. 4.39% a week earlier. A year ago, the one-year ARM averaged 4.12%. The last time the one-year ARM was higher was the week ending Aug. 2, 2002, when it averaged 4.45 percent.

The five-year hybrid ARM also rose to 5.26% from 5.15%.

The 30- and 15-year loans required the payment of an average 0.4 point to achieve the interest rate; the five-year hybrid needed 0.5 point and the one-year ARM needed 0.6 point. A point is 1% of the loan amount, charged as prepaid interest.

"We believe that the housing industry, although poised to ease a bit, will still continue to bustle as the economy continues to expand steadily and long-term rates remain affordable," Frank Nothaft, vice president and chief economist at Freddie Mac, said in a statement.

As the one-year ARM reaches its highest rate level in nearly three years, he said, it should be no surprise that the ARM share, based on the number of applications for a mortgage, has fallen markedly since early June.

Still, long-term mortgage rates have remained stubbornly low as the Federal Reserve has boosted short-term rates over the past 13 months. Those rates are still below 6%, close to the exceptionally low rates seen in June 2003."

The drop in ARMs is a great sign that people are beginning to realize the financial consequences of ARMS namely that any change in interest rates means a much higher payment.

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Southern California housing prices rise will continue in regions.

There has been a lot of talk about the housing bubble in California. I think the talk of a "California housing bubble" is exaggerated. First off there is no such thing as Calfornia real estate market. Real estate markets are entirely regional. So there is a San Diego real estate market, a Los Angeles real estate market, a Sacramento real estate market and so. When trying to determine whether or not a market has a bubble is a difficult task. Homes are not as illiquid as stocks. You cannot quckly sell your house as you would a stock. When a stock drops, it drops rather quickly while in the housing market simply goes stale. It takes longer to sell, buyers push back on prices and there is more negotiation that goes on.

So in certain markets in California such as the Los Angeles market will remain stable for several reasons.

1. First off supply. Housing is in short supply in Southern California and always has been. Due to the build out of Southern California, many of the desirable neighboorhoods are simply not available for moving in. Gentrification is ongoing through out much of Southern California where people are moving into neighborhoods that were once undesirable. At this point Los Angeles is running out seriously bad neighborhoods.

2. Employment Data is strong. Monster just released it's employment index for Southern California. Its shows strong growth in demand for knowledge worker jobs which tend to be higher paying. This will help fuel prices as employment remains high.

3. Mortgage rates are still incredibly low. With these historic lows, this will continue to support prices at these new higher levels.

Median home prices in the Los Angeles area will continue to rise to roughly $600,00 before leveling at that price. Other markets in California might slow. We are already seeing signs that Sacramento is cooling and housing inventory is increasing. Other markets like the Bay area continue to be torrid. I also expect the high desert areas such as Bakersfield will continue to rise in price.

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Average Mortgage Payment for California is $1,934

"The typical mortgage payment that California home buyers committed to paying last month was $1,934, up from $1,899 in May, and up from $1,814 in June 2004. Adjusted for inflation, the June mortgage payment figure is about 6 percent below the 1989 peak."

Since the figure is just below the peak in monthly mortgage costs. It's interesting to note that,"Demand and attractive mortgage rates helped push the median price for a single-family home in the nine San Francisco Bay area counties to a record $644,000 in June, up 18.2 percent from June 2004.

Sales of all dwellings in the region reached 13,014, the second-highest tally for any month since 1988, DataQuick said."

The article concludes that much of the market is ready to cool. That seems reasonable give the percentage of income it take to support a mortgage of $600,000.

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California Housing Grants $162.9 million in Proposition 46 Grants

LOS ANGELES -- "More than 10,000 hardworking California residents and their families in 36 counties will have affordable housing opportunities thanks to the most recent award of $162.9 million of Proposition 46 funds," announced Sunne Wright McPeak, Secretary for the California Business, Tranportation and Housing Agency. Since the passage of Proposition 46 in November 2002 the Department of Housing and Community Development within BTH has awarded funds to create or provide incentives for more than 63,000 affordable rental or owner occupied homes and shelter spaces throughout California.

"Today's award continues the Proposition 46 promise to increase the supply of affordable housing for California's workforce and low income residents and the Governor's directive to expedite release of these funds," McPeak continued. Lucetta Dunn, Director of the Department of Housing and Community Development noted that with this current award 10,000 affordable homes will be provided for 10,000 families.

The $162.9 million will benefit the economies of the communities in the 36 counties through the construction activities and jobs the awards will generate:

-- $131 million in commitments through the Multifamily Housing Program will provide permanent low-interest loans for the construction of new affordable apartment homes and rehabilitation of existing affordable units. Californians who make up the vital workforce that is the backbone of our economy, seniors, the disabled, veterans and those transitioning from homelessness are among the beneficiaries of the homes that will be constructed or rehabilitated. The awards will help 1,862 California individuals and families realize the dream of an affordable rental home.

-- $8.9 million in commitments through the Joe Serna, Jr. Farmworker Housing Grant Program which offers loans and grants for construction and rehabilitation of affordable owner-occupied and rental apartment homes for farm workers and their families. These funds will help 608 farm worker families secure affordable housing. Activities funded include land acquisition, site development, construction and rehabilitation.

-- $23 million is awarded through the Workforce Housing Program which provides financial incentives to cities and counties for issuance of building permits for 7,874 new homes affordable to lower income households. Cities and counties approved 7,190 new rental homes and issued permits for 684 homeownership units for lower income families. Of the 84 local governments receiving Workforce Housing Program awards, 36 also received bonus grant funds for their significant progress in meeting their overall housing need.

The California Department of Housing and Community Development (HCD) provides leadership, policies and programs to preserve and expand safe and affordable housing opportunities and promote strong communities for all Californians. The Department also supports increasing the supply of housing, especially affordable housing and works to improve the State's housing conditions and the health and safety of its residents. As the lead Housing Department, HCD is part of the State of California, Business, Transportation and Housing Agency.

Los Angeles Region
The Los Angeles Region was awarded more than $39.7 million to provide housing for 2,460 families in the greater Los Angeles Region. This includes $31.4 million to create affordable apartment homes through the Multifamily Housing Program, $6.3 million in Workforce Housing Grants, and $1.9 million to create apartment homes for farm worker families through the Joe Serna, Jr. Farmwoker Housing Program. (For details, see Editor's Note.)

Central Valley
The Central Valley applicants received $12.4 million to provide housing for 1,274 families in the Central Valley, including more than $4.1 million to create affordable apartment homes through the Multifamily Housing Program, $5 million through the Joe Serna, Jr. Farmworker Housing Grant Program, and more than $3.2 million through the Workforce Housing Grant program. (For details, see Editor's Note.)

San Francisco/Bay Area Region
The San Francisco/Bay Area Region was awarded $100.6 million to provide housing for 3,846 families in the San Francisco/Bay Area Region. This includes over $93.8 million to create affordable apartment homes through the Multifamily Housing Program, $775,000 through the Joe Serna, Jr. Farmworker Housing Grant Program and $6 million from the Workforce Housing Grant program. (For details, see Editor's Note.)

Greater Sacramento/Stockton Region
The Greater Sacramento/Stockton Region was awarded $2.9 million in Workforce Housing Grants to reward jurisdictions for approving housing for 973 families in the Greater Sacramento/Stockton Region. (For details, see Editor's Note.)

San Diego Region
The San Diego Region was awarded more than $2.4 million in Workforce Housing Grants to reward local jurisdictions for approving housing for 913 families. (For details, see Editor's Note.)

Inland Empire
The Inland Empire applicants were awarded $22.2 million to provide housing for 946 families in the Inland Empire. This includes $18.9 million through the Multifamily Housing Program for 444 families, $1.6 million through the Joe Serna, Jr. Farmworker Housing Grant Program, and more than $1.6 million in Workforce Housing Program Grants. (For details, see Editor's Note.)

Other Regions
Other regions received more than $5.9 million in 16 different cities and counties throughout California, including $1.6 million to create affordable apartment homes through the Multifamily Housing Program, $1.1 million through the Joe Serna, Jr. Farmworker Housing Grant Program and more than $3.1 million through the Workforce Housing Grant program. Other regions will be serving 1,190 families. (For details, see Editor's Note.)

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Helping predict real estate trends

There's quite a bit of talk of a bubble in California real estate. It's very tough to tell when you are in a real estate bubble as you lack an outside perspectative. Here are some tips on predicting probable market trends.

How to tell if the real estate market is getting soft?

• Avergage selling time for houses has lengthend by 30% or more
  
• Widening gap between asking prices and final selling prices
  
• Vacancy rate in office buildings and other commercial real estate is increasing.
  
• Decline in the number of building permits issued
  
• Increase in inventory of homes on the market
  

How do you know if your local market is getting stronger?

• Local employment is rising 3% or more annually
  
• Stable or shrinking number of houses are for sale
  
• Are enjoys significant upgradind or expansion of retail business
  
• Extensive highway development or a new airport - improved transportation often brings growth to an area
  
• Major Land purchases are being made by expanding or relocating companies
  
• Many mew houses are of high quality
  
• High percentage of owner occupied housing in the neighborhood
  

As will all tips these note general trends. Hopefully you will be able to use these to your own advantage when making a real estate purchase.

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Interest Rate Shopping

This story from the Sacramento Bee covers the basics in shopping for the best interest rate.

"Interest rates can change several times during a day and usually change between days. You may check one lender on a day when rates are down and other lenders when the rates are up. It's possible all the lenders had the same rate - if you'd checked them at the same time."

"Also, remember that one lender may quote a rate with no points (a point is 1 percent of the loan amount) but charge one origination (1 percent of the loan). So compare apples to apples."

"With the prime rate steadily increasing since the end of summer 2004, the presumption has been that mortgage rates would follow suit. The rates have varied a little at times, but we have seen 30-year fixed-rate loans drop to the low 5s. By the time you read this, they may have climbed back up to the mid-to high 5s.

What's interesting is that the 30-year fixed rate has been so low that it was often the same as the five-or seven-year hybrid adjustable-rate mortgages. Hybrid loans are fixed for a given period - usually three, five, seven or 10 years - then roll into an adjustable-rate loan."

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Sonoma County face 45% chance of home prices falling

Sonoma County faces a higher risk of a real estate downturn than almost any other housing market in the country, according to a study by one of the nation's top mortgage insurers.

Why?

Steve Cochrane, an analyst with Economy.com, a consulting company that tracks Sonoma County's economy, said he agrees there's a good chance that housing prices will decline. Higher interest rates would trigger a drop in demand and send real estate prices falling, he said.

"This rapid rate of price appreciation has to come to a halt eventually," Cochrane said.

Marco van Akkeren, a PMI economist, noted that income growth in Sonoma County has not kept pace with the explosion in home prices, which have doubled in five years - jumping 21 percent last year alone - and hit a record median of $609,000 in June.

"The cost is not sustainable in the long run," said van Akkeren. "A lot will depend on economic conditions, not just this year, but next year."

Maybe Sonoma will drift back to affordable over the next five years.

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Regulators Begin to feel uncomfortable

Apparently bank regulators have issued new guidance to banks about home equity loans, warning them about homeowners borrow too much against their homes. Of course the impact on these practices is almost non existant.

"It's as easy to get these loans now as it was two months ago," said Michael Menatian, president of Sanborn Mortgage, a mortgage broker in West Hartford, Conn. "If anything, people are offering them even more than before."

Apparently guide lines have only been issued without concrete action. Why?

"We don't want to stifle financial innovation," said Steve Fritts, associate director for risk management policy at the Federal Deposit Insurance Corporation. "We have the most vibrant housing and housing-finance market in the world, and there is a lot of innovation. Normally, we think that if consumers have a lot of choice, that's a good thing."

In many ways this is a good thing as it allows competition for a borrowers business. This means a financial windfall for the consumer by tapping the equity in their home.

Led by the comptroller's office, which oversees nationally chartered banks, federal banking regulators published guidance in May that gave lenders more detailed instructions on how to evaluate the risks in home-equity loans.

The move was a warning shot to lenders. The value of home-equity loans shot up 40 percent in 2004, to $398 billion. Almost all of those loans are at adjustable interest rates, which could rise sharply, and many were extended to people who had just borrowed money to buy a house.

If you have a hybird ARM or an ARM it's time to think about refinance.

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Improve your credit score: Moniter it.

This article highlights something that we highlighted in an earlier post, namely that consumers don't get or understand credit. Here's some reminders for those of you looking for the best possible mortgage you can get.

• Start paying all your bills on time. The most common—and one of the most damaging—errors you can make as a borrower is to be late with routine debt payments. Yet the average 30-something has missed 1.4 payments over the past 12 months.
  
• Keep track of your debt-to-credit-limit ratio. It's not necessarily how much money you owe in loans and credit cards. It's how much you owe versus how much lenders are willing to lend you. This may explain why 70-year-olds score the best: They tend to use the least of their credit lines.
  
• Don't open unnecessary lines of credit. The more credit cards you open, the more other lenders think you need to borrow.
  

Folks it is EASY to improve your credit. Pay your bills even if they are just the minimums and don't spend too much. If you have already screwed your credit, then learn to repair it. Bad Credit costs you money in higher interest rates Click here to learn proven methods of repairing your credit.

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FHA Mortgage Warning

Holders of FHA mortgages are getting letter that look like a refund that even comes with a bogus check.

"Each homeowner is being told they will be refunded the same amount of money $3,144, but when people call to inquire about the refund, they receive a sales pitch to refinance."

So watch out that mortgage refund could be an attempt to refinance. Just don't get too excited about the check.

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Mortgage Rates Released

These are for the top 100 metropolitian areas in the United States.
Average mortgage rates for single-family homes in the 10 largest metropolitan areas as of July 13 as compiled by bankrate.com. The rates are for 30-year, fixed-rate mortgages for 80 percent of the value of the house. A point is a one-time fee equaling one percent of mortgage.

Boston 5.83 + 0.10 5.78 + 0.10
Chicago 5.91 + 0.02 5.82 + 0.03
Dallas 5.77 + 0.57 5.71 + 0.57
Detroit 5.79 + 0.25 5.68 + 0.30
Houston 5.70 + 0.75 5.63 + 0.75
Los Angeles 5.82 + 0.59 5.74 + 0.65
New York 5.76 + 0.18 5.73 + 0.20
Philadelphia 5.59 + 0.61 5.55 + 0.58
San Francisco 5.82 + 0.33 5.77 + 0.42
DC Metro 5.65 + 0.51 5.55 + 0.60
National Avg 5.76 + 0.39 5.70 + 0.42

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Mortgage Applications Decrease

This actually contains some good news for the California mortgage market. Applications for ARMs fell to their lowest in a year. This might signal the a cool down in over heated markets like California and Florida.

Applications for U.S. home mortgages fell last week amid a modest rise in rates on fixed 30-year loans, while demand for adjustable-rate mortgages (ARMs) fell to its lowest level in over a year, an industry trade group said on Wednesday.

The Mortgage Bankers Association said purchasing and refinancing activity dropped during the holiday-shortened week ending July 8, after surging the previous week.

The MBA's seasonally adjusted index of mortgage application activity decreased 7.2 percent to 791.9, nearly erasing all of the previous week's 9.6 percent gain.

On a four-week moving average, the index is down 2.9 percent from 826.4 to 802.6.

Fixed 30-year mortgage rates averaged 5.62 percent last week, excluding fees, up 4 basis points from 5.58 percent the previous week."

And in what will undoubted continue to cool the real estate market further. Rates are projected to continue rising slowly.

Applications for adjustable-rate products experienced an even steeper decline of 15.8 percent, according to Michael Cevarr, MBA's director of member surveys.

"As a result, the ARM share of applications, at 27.9 percent, is at its lowest level since March of 2004," he said in a press release.

The ARM share of activity stood at 30.7 percent the week before. The drop was also against the backdrop of lower rates on one-year ARMs, which fell to 4.56 percent from 4.60 percent the prior week.

Thank Goodness.
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California Housing Finance Agency's HELP Program Gives a Boost of $11 Million to Affordable Housing

California Housing Finance Agency's HELP Program Gives a Boost of $11 Million to Affordable Housing

The California Housing Finance Agency (CalHFA) announced that its award-winning program, Housing Enabled by Local Partnerships (HELP), has approved program applications from nine California Localities and will be committing a total of $11 million for affordable housing for the second half of fiscal year 2004/2005. HELP partners with California cities, counties, housing authorities, redevelopment agencies, community development commissions, and others to address unmet affordable housing needs as determined by each participating locality.

HELP funds are used to directly produce affordable housing units; however, there is virtually unlimited flexibility for local agencies to determine the specific housing activity and use of the funds in providing for the acquisition, development, rehabilitation, or preservation of affordable rental or ownership housing.

The $11 million in CalHFA's HELP financing was awarded to the following entities:

Local Government Entity Commitment
----------------------- ----------

Emeryville Redevelopment Agency $1,500,000

City of Fremont Redevelopment Agency $1,500,000

City of Livermore $1,500,000

Madera Redevelopment Agency $1,500,000

Town of Mammoth Lakes $1,500,000

City of Pleasanton $1,500,000

City of Rialto Housing Authority $1,000,000

Housing Authority of the City of
San Luis Obispo $1,000,000

These commitments are for ten-year loans to local government entities that will be repaid at 3% interest.

The $11 million allocation will support the financing of nearly 600 housing units for Californians with low to moderate incomes.

"The HELP program has gained popularity among local governments due to its tremendous flexibility," says CalHFA Executive Director, Theresa Parker. "It allows them to develop innovative strategies and options for the maintenance of existing affordable housing stock, as well as for new housing production that they would otherwise not have the opportunity to facilitate using typical government fund resources."

All About Mortgage Lock Ins

When you’re looking for a mortgage, you’re likely to shop among lenders for the most favorable interest rate, and the lowest points and other up-front charges. When you find the most favorable terms and the lender that you want, you’ll apply to that lender. But when you get to settlement, will you actually receive the terms you applied or bargained for? Or will you find that the rate has changed -- and that your costs have gone up?

Lock-ins on rates and points might offer you a way to ensure that what you shop for is what you get. This brochure explains what these arrangements mean.

All About Lock-Ins

In most cases, the terms you are quoted when you shop among lenders only represent the terms available to borrowers settling their loan agreement at the time of the quote. The quoted terms may not be the terms available to you at settlement weeks or even months later. Therefore, you should not rely on the terms quoted to you when shopping for a loan unless a lender is willing to offer a lock-in.

What Is a Lock-In?

A lock-in, also called a rate-lock or rate commitment, is a lender’s promise to hold a certain interest rate and a certain number of points for you, usually for a specified period of time, while your loan appli­cation is processed. (Points are additional charges imposed by the lender that are usually prepaid by the consumer at settlement but can sometimes be financed by adding them to the mortgage amount. One point equals one percent of the loan amount.) Depending upon the lender, you may be able to lock in the interest rate and number of points that you will be charged when you file your application, during processing of the loan, when the loan is approved, or later.

A lock-in that is given when you apply for a loan may be useful because it’s likely to take your lender several weeks or longer to prepare, document, and evaluate your loan application. During that time, the cost of mortgages may change. But if your interest rate and points are locked in, you should be protected against increases while your application is processed. This protection could affect whether you can afford the mortgage. However, a locked-in rate could also prevent you from taking advantage of price decreases, unless your lender is willing to lock in a lower rate that becomes available during this period.

It is important to recognize that a lock-in is not the same as a loan commitment, although some loan commitments may contain a lock-in. A loan commitment is the lender’s promise to make you a loan in a specific amount at some future time. Generally, you will receive the lender’s commitment only after your loan application has been approved. This commitment usually will state the loan terms that have been approved (including loan amount), how long the commitment is valid, and the lender’s conditions for making the loan such as receipt of a satisfactory title insurance policy protecting the lender.

Will Your Lock-In Be In Writing?

Some lenders have preprinted forms that set out the exact terms of the lock-in agreement. Others may only make an oral lock-in promise on the telephone or at the time of application. Oral agreements can be very difficult to prove in the event of a dispute.

Some lenders' lock-in forms may contain crucial information that is difficult to under­stand or that is in fine print. For example, some lock-in agreements may become void through some unrelated action such as a change in the maximum rate for Veterans Administration guaranteed loans. Thus, it is wise to obtain a blank copy of a lender’s lock-in form to read carefully before you apply for a loan. If possible, show the lock-in form to a lawyer or real estate professional.

It is wise to obtain written, rather than verbal, lock-in agreements to make sure that you fully understand how your lender’s lock-­ins and loan commitments work and to have a tangible record of your arrangements with the lender. This record may be useful in the event of a dispute.

Will You Be Charged for a Lock-In?

Lenders may charge you a fee for locking in the rate of interest and number of points for your mortgage. Some lenders may charge you a fee up-front, and may not refund it if you withdraw your application, if your credit is denied, or if you do not close the loan. Others might charge the fee at settlement. The fee might be a flat fee, a percentage of the mortgage amount, or a fraction of a per­centage point added to the rate you lock in. The amount of the fee and how it is charged will vary among lenders and may depend on the length of the lock-in period.

What Options Are Available for Set­ting the Mortgage Terms?

Lenders may offer different options in establishing the interest rate and points that you will be charged, such as:


Locked-In Interest Rate--Locked-In Points. Under this option, the lender lets you lock in both the interest rate and points quoted to you. This option may be considered to be a true lock-in because your mortgage terms should not increase above the interest rate and points that you’ve agreed upon even if market conditions change.


Locked-In Interest Rate--Floating Points. Under this option, the lender lets you lock in the interest rate, while permit­ting or requiring the points to rise and fall (float) with changes in market conditions. If market interest rates drop during the lock-in period, the points may also fall. If they rise, the points may increase. Even if you float your points, your lender may allow you to lock-in the points at some time before settlement at whatever level is then current. (For instance, say you’ve locked in a 10½ percent interest rate, but not the 3 points that went with that rate. A month later, the market interest rate remains the same, but the points the lender charges for that rate have dropped to 2½. With your lender’s agreement, you could then lock in the lower 2½ points.) If you float your points and market interest rates increase by the time of settlement, the lender may charge a greater number of points for a loan at the rate you’ve locked in. In this case, the benefit you might have had by locking in your rate may be lost because you’ll have to pay more in up-front costs.


Floating Interest Rate--Floating Points. Under this option, the lender lets you lock in the interest rate and the points at some time after application but before settlement. If you think that rates will remain level or even go down, you may want to wait on locking in a particular rate and points. If rates go up, you should expect to be charged the higher rate.

Because practices vary, you may want to ask your lender whether there are other options available to you.

How Long Are Lock-Ins Valid?

Usually the lender will promise to hold a certain interest rate and number of points for a given number of days, and to get these terms you must settle on the loan within that time period. Lock-ins of 30 to 60 days are com­mon. But some lenders may offer a lock-in for only a short period of time (for example, 7 days after your loan is approved) while some others might offer longer lock-ins (up to 120 days). Lenders that charge a lock-in fee may charge a higher fee for the longer lock-in period. Usually, the longer the period, the greater the fee.

The lock-in period should be long enough to allow for settlement, and any other contin­gencies imposed by the lender, before the lock-in expires. Before deciding on the length of the lock-in to ask for, you should find out the average time for processing loans in your area and ask your lender to estimate (in writ­ing, if possible) the time needed to process your loan. You’ll also want to take into account any factors that might delay your set­tlement. These may include delays that you can anticipate in providing materials about your financial condition and, in case you are purchasing a new house, unanticipated con­struction delays. Finally, ask for a lock-in with as few contingencies as possible.

What Happens If the Lock-in Period Expires?

If you don’t settle within the lock-­in period, you might lose the interest rate and the number of points you had locked in. This could happen if there are delays in processing whether they are caused by you, others involved in the settlement process, or the lender. For example, your loan approval could be delayed if the lender has to wait for any documents from you or from others such as employers, appraisers, termite inspectors, builders, and individuals selling the home. On occasion, lenders are themselves the cause of processing delays, particularly when loan demand is heavy. This sometimes happens when interest rates fall suddenly.

If your lock-in expires, most lenders will offer the loan based on the prevailing interest rate and points. If market conditions have caused interest rates to rise, most lenders will charge you more for your loan. One reason why some lenders may be unable to offer the lock-in rate after the period expires is that they can no longer sell the loan to investors at the lock-in rate. (When lenders lock in loan terms for borrowers, they often have an agreement with investors to buy these loans based on the lock-in terms. That agreement may expire around the same time that the lock-in expires and the lender may be unable to afford to offer the same terms if market rates have increased.) Lenders who intend to keep the loans they make may have more flexibility in those cases where settlement is not reached before the lock-in expires.

How Can You Speed Up the Approval of the Loan?

While the lender has the greatest role in how fast your loan application is processed, there are certain things you can do to speed up its approval. Try to find out what documentation the lender will require from you.

Much of the information required by your lender can be brought with you when you apply for a loan. This may help to get your application moving more quickly through the process. When you first meet with your lender, be sure to bring the following documents:


The purchase contract for the house (if you don’t have the contract, check with your real estate agent or the seller).


Your bank account numbers, the address of your bank branch and your latest bank statement, plus pay stubs, W-2 forms, or other proof of employment and salary, to help the lender check your finances.


If you are self-employed, balance sheets, tax returns for 2-3 previous years, and other information about your business.


Information about debts, including loan and credit card account numbers and the names and addresses of your creditors.


Evidence of your mortgage or rental payments, such as cancelled checks.


Certificate of Eligibility from the Veterans Administration if you want a VA-guaranteed loan. Your lender may be able to help you obtain this.

Be sure to respond promptly to your lender’s requests for information while your loan is being processed. It is also a good idea to call the lender and real estate agent from time to time. By calling occasionally, you can check on the status of your application, and offer to help contact others such as employers who may need to provide documents and other information for your loan. It is also helpful to keep notes on your contacts with the lender so that you will have a record of your conversations.

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Ask About Lock-Ins

When you’re ready to settle on your loan, you’ll want to get the loan terms that you’ve locked in. To increase that likelihood, it is important to learn as much as you can about what the lender is promising you before you apply for a loan. Ask for the following infor­mation when you shop for a loan:

Lock-Ins and Fees


Does the lender offer a lock-in of the interest rate and points?


When will the lender let you lock in the interest rate and points? When you apply? When the loan is approved?


Will the lock-in be in writing? If the lock-in is not in writing, you will have no record of the lender’s agreement with you in case of a dispute.


Does the lender charge a fee to lock in your interest rate? Does the fee increase for longer lock-in periods? If so, how much?


If you have locked in a rate, and the lender’s rate drops, can you lock in at the lower rate? Does the lender charge you an additional fee to lock in the lower rate?


Can you float your interest rate and points for now, and lock them in later?


Loan Processing Time


How long does the lender expect to take to process your loan?


What has been the lender’s average time for processing loans recently?


Has the lender’s loan volume increased? Heavy volume might increase the lender’s average processing time.


Expiration of Lock-ins


What rate will be charged if the lock-in expires before settlement-the rate in effect when the lock-in expires?


If you don’t settle within the lock-in period, will the lender refund some or all of your application or lock-in fees if you decide to cancel the loan application?


If your lock-in expires and you want to get another lock-in at the rate in effect at the time of the expiration, will the lender charge an additional fee for the second lock-in?


Complaints About Lock-Ins

Knowing what to look for puts you in a better position to decide whether, when, and how long to lock in mortgage terms. Also, by helping to keep the loan process moving, you can lessen the chance that your lock-in will run out before settlement.

But what if your lock-in does lapse? If you believe that the lapse was due to delays caused by the lender or someone else involved in the loan process, you should try first to reach a mutually satisfactory agree­ment with the lender. If that effort fails, con­sider writing to the appropriate state or fed­eral regulatory agency.

Some lender actions, such as offering lock-­in terms which are impossible to fulfill, fail­ing to process your loan diligently, or caus­ing your lock-in to expire are improper-and may even be illegal. In addition, because you may have contractual rights under your lock-­in or loan commitment, you may want to consult with an attorney. Be aware, though, that complaints may not be resolved as quickly as may be necessary for a home purchase.

Depending upon their authority under applicable state or federal law, regulatory agencies may either attempt to help you resolve your complaint directly or record your complaint and recommend other action.

The Horror, The Horror (of re-financing)

Hopefully the HUD's efforts to change the on the Real Estate Settlement Procedure won't be derailed this time. In the mean time here are some tips to minimize the horror of re-financing based on the current rules.

• "Shop around. When you apply for a home loan, the lender or mortgage broker is required by law to give you a good-faith estimate of your settlement costs. Trouble is, there's no penalty for low-balling. Many borrowers say their actual costs have no earthly connection to the good-faith estimate."
  
  
• Look for ways to save on title insurance. Title insurance protects the lender if there's a dispute over ownership of the property. If the house you're buying was owned by the seller for just a few years, ask the seller's title company for a re-issue rate. The premium will likely be lower. You may also qualify for a re-issue rate if you're refinancing.
  
  
• If you're refinancing, go to your existing lender and ask for a streamlined refinancing. These typically require less paperwork, which translates into lower fees. Alternatively, ask your lender if you qualify for loan modification. With these deals, you keep your existing loan and pay your lender a fee in exchange for a reduction in your interest rate.
  
  
• Ask to see the HUD-1. This is the official name of your settlement statement, which lists all your actual closing costs and charges. Borrowers have a right to review a draft of this document one day before closing, but hardly anyone ever asks for it. That's a mistake, because when it's time to close, it's usually too late to challenge inflated costs
  

Important Links
A Consumer Guide to Settlement Costs from the Federal Reserve

Consumers Don't Get Credit

It appears that most consumers are not as credit aware as they should be. A recent GMAC survey highlights that,

"A reported 62 percent of more than 1,000 consumers polled nationwide did not know that a score above 620 out of 850 is necessary to get the best mortgage interest rate and more than 50 percent thought credit scores increase as income increases, according to the GMAC Mortgage Second Quarter Consumer Survey."

What should people do then to begin to prepare to home shop in order to get the best rate?

"Having good credit is critical to getting a favorable mortgage rate so it's extremely important that consumers understand their credit score. With proper long-term planning, consumers can improve their credit rating to avoid higher interest rates, and as a result larger monthly payments on their home," said Paul Fein, senior vice president and southeast divisional manager, GMAC Mortgage.

According to Fein, consumers should start reducing their debts and outstanding revolving credit before they even begin the mortgage process.

Only 42 percent of the consumers polled knew that payment history was a critical determinant to a credit score, GMAC said."

Feds target mortgage-elimination scheme

This is an interesting scheme. Home owners should beware of anyone who says they can eliminate your debt associated with your home mortgage. Here's what the fraudsters do.

"According to Web sites that have promoted the Dorean Group process, homeowners pay an up-front fee of about $3,000 to begin the debt elimination process. The Dorean Group process has been promoted through a network of affiliates in many states who have set up Web sites and published comments about the process in Internet forums.

These mortgage-elimination Web sites have promoted anti-bank philosophies that question the validity of the nation's mortgage process and overall financial system, and some Dorean-affiliated Web sites have described intricately detailed conspiracy theories involving the Federal Reserve, the military industrial complex and a vastly powerful New World Order, for example.

Through some creative paperwork, the Dorean Group process attempts to dismiss loans by fighting the legitimacy of those loans.

"After receiving a homeowner's application and fee, defendants begin the 'mortgage elimination' process by recording various false documents with the county recorder's office in the county where the property is located," according to the U.S. Attorney's Office complaint."

They also recommend the owner refinance the home and split the proceeds with them.

Flimsy Pre Approval Letters

A pre approval letter is often your best weapon in getting the home that you want. What is a pre-approval letter? A letter from your mortgage broker that has pre-qualified you for a specific amount. This can expediate the buyer accepting your offer as you are already pre-qualified. Getting pre-approved is an important step in home shopping. It's step however that many home shoppers are not taking seriously.

"More than half of the participants in a nationally representative statistical sample of realty agents identified unreliable or bogus preapproval letters as a key cause of breakdowns in transactions."

What's the reason for these flimsy pre-approval letters?

"That's because larger numbers of buyers either have dings on their credit files or are using low-documentation and no-documentation loans when they purchase houses. Low- and no-document loans permit borrowers to simply state their incomes and assets with little or no verification by the lender."

The easing of credit standards and more creative financing are the main reasons. So when getting a pre-approval letter make sure to do the following:

"Sharon Wilson, executive vice president of Combank Mortgage Co. in Homestead, Fla., said pre-approval letters can be valuable, but they have to meet basic standards. Any valid pre-approval letter must be explicit about its limitations and conditions. It must disclose, for example, that the loan amount offered is subject to a full appraisal, formal underwriting and receipt of an acceptable contract. It should state that the interest rate quoted is not locked and could change. No pre-approval letters are worth looking at, Wilson added, if the lending institution has not thoroughly checked credit files, income and cash on hand."

Don't open any new credit lines. Don't change jobs. Don't go on spending spree.

Market Softening in Sacramento

But in large this is a good thing as the market has been over heated. There has been talk of a housing bubble for quite some time now. While I think the bubble talk is somewhat overly dramatic. In the California market this is not necessarily a bubble. There are a number of reasons that housing is at premium especially in Southern California. there still are not a lot of homes in a lot of areas. I imagine that California is going to slowly deflate as speculators are forced to leave the market.

"Everyone has to be careful. The old adage that 'past performance is no guarantee of future gain' is something you have to keep in mind in any situation, particularly when you're following the herd in investment decisions," said economist Steven Cochrane, managing director at Economy.com. "The easy decision to make now is, 'Well, real estate has gone up 20 percent in the last year, so I'll buy some real estate and realize that (gain) the next year.' But eventually that comes to a halt."

Here's one of my favorite quotes from this article though

"It really looks like price appreciation has to start slowing down in the next few months because we're not experiencing continuing innovation in lending products," said Newman, a research associate at Burlingame-based SPHERE Institute, a public policy research group.

The loans aren't creative enough!

Inventory Increasing in Sacramento

This article in the Sacramento Business Journal notes several trend in the Sacramento area. First off while sales are slowing down "Local new-home sales from April through June dropped 14.3 percent from the first quarter and 15.8 percent from a year earlier. But the average price rose, climbing 12.9 percent from a year ago to nearly half a million dollars today."

I think the 500,000 point is an important one to keep in mind. While the overal median price in California is over $500,000, further price growth beyond that is difficult as people simply cannot afford the homes. Investors have driven the price up to the point where roughly 83% of Californians cannot afford a home in the state. This means a great deal of outside investment money has frothed prices up to a pretty high level.

In the macro economic terms this is dangerous to local economies. Why? Because every dollar a home owner must spend on a house is money not spent elsewhere in the economy. So when outside investors drive up the price of California real estate it has the effect of extracting money from the local economy in the form of increased mortgage payments. Since affordability has suddenly become an issue in Sacramento, it indicates that while prices have increased somewhat (12.9% over the same period last year) buyers are more resistent to the higher prices. As the article notes Meanwhile, in the market for existing homes, "we have sellers who seem to have priced too aggressively," he said."
Here are the other counties in the article.

• Placer, $587,130, up 15.2 percent year to year
  
• Sacramento, $465,699, up 12.3 percent
  
• Yolo, $527,722, up 26.9 percent
  
• Sutter, $335,425, up 10.2 percent
  
• Yuba, $361,949, up 25.5 percent.
  

Great Article covering creative financing

The article has some relatively sane points to make about current financing practices. Orlando, like the California market, has rapidly appreciated in price. However the use of interest only loans is

"In Orlando, the use of interest-only loans increased from 1.7 percent to 23.3 percent from 2001 to 2004, making it the sixth-highest rate nationwide, LoanPerformance reported."

which compared to California's 61% is still somewhat sane.

"Consider the payment on a $200,000 loan. At 5.35 percent interest, the monthly payment would be $891.66, not including insurance and taxes. Five years later, a modest 2 percentage-point increase in interest rates would increase that payment to $1,460."

Just a small interest rate movement and the price nearly doubles.

San Diego Implosion

This article points out one of the real problems of current housing booms. Affordable housing is destroyed meaning that people that actually help run a city like firemen, police and teachers are priced out the market. This results in a decreased standard of living for everyone in the city.
"What are the reasons?

There is more true wealth than ever before, and it's loaded with dollars for speculation.
The volatility of the stock market has shifted attention into real estate.

Long-term interest rate mortgages have remained very low despite the Fed's hike in short-term interest rates, and banks have a lot of surplus to lend for purchase or re-financing.
The rise of demand for vacation and retirement housing, so people want to own more than one home or condo.

The major reason is the amount of speculation burdening marketplaces with condos and homes sold to non-users, who are just game-players."

Too much speculation investment.

Piggyback Loans = Credit Crunch

"Piggyback loans -- so called because a second mortgage is piggybacked on to a first to compensate for a smaller down payment -- have become common in recent years as housing prices have appreciated. Approximately 42 percent of home purchase mortgage loan dollars involved piggyback loans during the first half of 2004, up from 20 percent in 2001. Piggybacks are particularly popular in high-cost areas such as California, where prices have outstripped incomes and borrowers are increasingly stretching to purchase properties."

Once again loosening of credit standards is a crazy thing.

"In fact, among the MSAs ranked in the top 10 in terms of market risk, 7 regions -- all of them in California -- had more than half of their mortgage lending for home purchases in piggybacks during the first half of 2004." Information on the likelihood of house price declines was taken from PMI's Economic and Real Estate Trends report, published quarterly and available at pmigroup.com/newsroom/publications.html."

These types of loans also contribute to the overheating of the local real estate markets. The fact that lendors are making them is that they are speculating on the house rising in value and the mortgage lendor will be left with an asset of real value.

Fads in Lending

Here's good column on fads in lending. It's a good thing to remember that once upon a time loans like the 125% LVT were popular. Of course many of those vendors have now gone the way of the dodo.
"Back in 1998 the top high LTV lenders in the nation were FirstPlus Financial, Empire Funding, AMAXIMIS Lending, Life Bank and Master Financial. Now, how many readers can tell me which of these shops are still around? Hint: Life is (technically speaking) still around but under a different name. Send an e-mail if know the answer..."
Ah none is ths answer you are looking for . . .

KB Homes getting out of the Mortgage Business

Noted home builder KB Homes is getting out of the mortgage business after spending 40 years in it.

"What drove our decision is that the mortgage business has changed dramatically, whether in the competitive nature or in the system and technology that has to be as efficient as possible.

"As a homebuilder, we just aren't quick enough to keep up with it."

And apparently they cannot follow the rules either. In this LA Times article KB Homes has to pay 3.2 million dollars for violating FHA lending laws.

More consolidation in the mortgage market place in California is on the way. In order to sustain the housing boom, mortgage lendors need to get a lot more creative about their practices. As they have already loosened credit standards, we will see more innovative products such as 40 year fixeds or a 3/2 arm.

California Fueling Real Estate Investment in Other States

Since starting this blog I have noticed several articles about out town California investors driving up prices in other real estate markets. The above link is for the new boom in Hawaii. I have also notice similar articles in Kansas, Texas and Vermont. Here's a interesting notion. With Californians driving up the price of real estate in other markets by cashing out that equity and buying more affordable properties out of state. This has helped the surge in real estate prices nationwide. The question is how will the markets react when the California market begins to cool and Californians reduce their real estate investment?

No bubble, No correction in California

The Union Bank of California (once again consider the source as a major market investor) claims that the average California home owner will not feel the effects of the correction. One of the things I love is that the guy notes he owns a home he could barely afford 8 years ago. He then slides into how the national market alway rises and over time housing prices will rise in the US.

"Worried about the possibility of higher mortgage rates? Then re-read the section about what happened in 1982. With double-digit mortgage rates, home prices still rose 3% nationwide and were flat in California."

I cannot believe this guy is an economist. Flat home prices mean a fall in value to due to inflation. So houses did lose value.The funny thing about this press release is that it almost reads like a "Don't Panic Release." It has nice charts to show how things have happened in the past and everything is gonna be fine. What the article seems to gloss over is that the types of financial instruments used in the current housing boom. The current boom is sustained by loosing standards on credit, 100% financing and the highly flexible 5 and 3 year ARMS. During previous housing corrections, most owners didn't become upside down on their homes as they were required to have a 5% or 10% downpayment. This provided some cushion to sudden drop in prices. With current financial practices this will prove difficult. Since many homes have been bought on speculation and with the hope that they will rise in value. Another thing completely glossed over by the article is that while jobs are growing faster in California, wages are not keeping pace with rising home prices. While new jobs are being created these are not jobs which will result in home ownership. The new Starbucks barista is not gonna buy a home in California.

The article is right that most home owners will be unaffected by the deflation of the California market. Those that bought their homes with traditional 30 fixed or that haven't bought a house they could afford. I think it funny that he bought his home during the correction in California when prices were really low. Of course a down turn in the California market isn't going to affect you, you paid next to nothing for your home. It's going to impact those on the margins or have just purchased.