Notes and Opinions from one of Arizona's Most Trusted Loan Teams

Mortgage underwriting is so tight it squeaks.

Even Federal Reserve Chair Ben Bernanke has recently complained that over-strict underwriting is cramping the housing recovery. We couldn't agree more.

The root of the problem exists behind the mortgage scenes. As losses on foreclosures continue to mount, FannieMae, FreddieMac, FHA, and most of the banks continue to send out "buy back" demands to mortgage companies for technical issues on loans that performed well for 3 or 4 years but have since been foreclosed and experienced a loss. All of a sudden, the originating company (if still in business) gets a letter demanding $150,000 that FannieMae lost when they foreclosed. It is usually based on something so technical that the first response is "Are they kidding?" They are not kidding, they want the money and they want it now.

In this environment, any small oversight can cost the originating company millions. Underwriters lose their jobs when that happens, so they are very, very careful.

Gone are the free-wheeling days when increasing values covered everyone's smaller mistakes. "CYA" is the new rule and it's going to continue for a while.

What can we all do to make it better?

1. Set the standard for professional behavior for everyone in the transaction. If they can't do the job, fire them. Make sure you are always looking for a solution, not someone to blame. Everyone involved wants a successful closing. Work toward that goal.

2. Manage the seller's and buyer's expectations. Alert them that they need to be flexible, things are very different than they were a few years ago. Set reasonable close of escrow dates and manage them.

Our 60 years of combined experience is backed up by a company more than 27 years old. We've learned to adjust to the new real estate market and we want to help you succeed.

Sincerely,

Last week Fed Chairman Ben Bernanke finally put something into words the rest of us have known for 2 years. Mortgage credit underwriting is too tight! Chairman Bernanke's comments came at a time when increasing government oversight and direct involvement in the mortgage industry have made it harder than ever to obtain mortgage financing, even as rates hit all-time lows.

The last two years have seen a system evolve that is picky to the point of silliness, non-responsive, inflexible, and pretty non-caring. Pummeled by the backlash of the mortgage meltdown, banks are looking for the "perfect" borrower. Professional borrowers (Doctors, Lawyers, etc) with 780+ credit scores are being asked for narratives to explain why their income went down last year, even though the reduced income still qualifies for the loan. Duh! Anyone out there hear about this recession thingy we've been dealing with?

Not only are underwriters asking for explanations of the obvious, they are minutely reviewing credit reports for inquiries, new debts, disputed accounts and the like. By the way, if you have a disputed account on your credit report, you may want to finish that up before applying for a mortgage. It's going to be required.

Does this mean it's a bad time to buy a home? Heck no! Rates and prices are the lowest in a decade or more. What it means is that you are going to need a top professional to help you with the process. It means you need to plan more than you might have in earlier years. And, it means you better be aware of the rules before you sign a purchase contract.

We can help with all of these issues. Call us when you need us.

All indicatioins are that rates will not rise significantly this year as was predicted earlier. Continued lackluster performance of the economy, along with other factors have kept mortgage rates very low. Even in Arizona, where there is a small premium, we are currently quoting rates in the 4's for well-qualified borrowers, and down into the 3's on some shorter term loans.

If you are buying, this is a great thing to have going along with today's very low prices. Home affordability is much better than it's been in many years.

Those lower values can make it harder to refinance, but it's worth looking into if you have a rate over 5.5%. If you have questions, give us a call.

Most of you heard some news or another about improvments in home sales over last year. We wanted to take a minute to refine the information for you because the difference is not just the number of sales, but who is buying and what did they buy. 

One of the most important factors in last year's market was the huge influx of investors and first-time buyers taking advantage of bargain-basement prices and tax credits. That trend did not continue into 2010.

According to the Arizona Regional Multiple Listing Service (ARMLS), Maricopa County home sales for single family homes rose from 5922 sales in March 2009 to 6507 homes in March 2010. That 10% increase in homes sold was widely reported. Average home prices increase from around $124,000 to $134,000 and that was also reported.

What wasn't so widely reported is the price range of the new sales and what the implications are of that change. Of the 585 additional sales in 2010, a full 490 of them were sold for more than $200,000. (up to $3 Million) This is not the price range of "starter homes" or rental properties. This price range was one of the worst performers in 2009.

Our take on this is pretty simple. The home buyers who didn't lose their jobs in 2008 or 2009 began to relax about their prospects for the future. They still have good credit and income and they have jumped back into the market in a big way. After all the market changes of the last 2 years, they bought bigger homes at half the 2006 or 2007 prices.

We welcome them back. This activity will go a long way toward stabilizing the real estate market in Arizona.

We were very pleased to obtain a rare approval to do conventional loans with only 5% down. Most companies are not allowed to participate in this program.

The program requires mortgage insurance, but unlike FHA, this mortgage insurance will go away when the loan pays down or the property value rises. This is an advantage. Additionally, these loans are available up to $417,000. That loan amount exceeds what FHA is able to do anywhere in Arizona.

Good credit and income are required. Feel free to talk with either of us if you have questions. We can also prequalify you for this program before you commit to buying a new home.

The program is also available for rate and term refinances.

Two big deadlines are approaching that make this the best time to buy or refinance.

1. The government has announced that the Treasury will quit buying Mortgage Backed Securities at the end of March. This practice has been holding rates down. Once these important mortgage financing instruments are back in the regular market place, rates are expected to rise for the balance of 2010.

2. First time buyers and move-up buyers wanting to take advantage of the tax credits for home purchases need to have an accepted contract in place by April 30th and close before June 30, 2010.

Call us today and make a move before it's too late!

Jon: 602-354-0526   Carolyn: 602-354-0534

This is from the National Association of Realtors:

Washington, January 05, 2010

Contract activity for pending home sales fell after a surge of activity in preceding months to beat the original deadline for the first-time home buyer tax credit but remains comfortably above a year ago, according to the National Association of Realtors®.

The Pending Home Sales Index,* a forward-looking indicator based on contracts signed in November, fell 16.0 percent to 96.0 from an upwardly revised 114.3 in October, but is 15.5 percent higher than November 2008 when it was 83.1.

Lawrence Yun, NAR chief economist, said a drop was expected. “It will be at least early spring before we see notable gains in sales activity as home buyers respond to the recently extended and expanded tax credit,” he said. “The fact that pending home sales are comfortably above year-ago levels shows the market has gained sufficient momentum on its own. We expect another surge in the spring as more home buyers take advantage of affordable housing conditions before the tax credit expires.”

To say that we're sorry to see the end of 2009 would be a stretch. All real estate related businesses have continued to struggle with a market unlike any we've seen in the last 30 years. Homeowners have also faced unprecedented challenges.

That being said, the year is ending with a couple of good notes. Home sales have been increasing for the last 5 months in a row. Interest rates remain low, mostly due to government intervention. We closed a 5 year ARM recently at 2.75%, the lowest in our history. It was a perfect loan given the borrower's plans for the property and we were happy to offer it. They will save nearly $25,000 over the fixed rate period of the loan.

We continue to offer a wide variety of loans including FHA, Conventional, and JUMBO loans. It's not unusual for us to handle loans of $100,000 and $1,000,000 or more on the same day.

We wish you a very happy and prosperous New Year in 2010. We expect the markets will continue to improve and we are looking forward to a much better business climate for all of us. All the best to you and your family.