The HVCC (Home Valuation Code of Conduct) law that became in effect on May 1 was designed to "protect" consumers by creating a process in which the appraisal reports are done based on unbiased opinions and without any influence from realtors and loan originators. Under this law, loan originators are no longer allowed to have any direct contact with appraisers during a real estate purchase transaction. The orders are processed through an independent 3rd party company.
With all its good intention, the real effects we have seen under this new process have been quite detrimental to consumers. The average cost for an appraisal has increased by about 40%. The average cost used to be around $375 for a property under $1mil value, an equivolent report today costs around $500. That's real cash taken from consumer's pocket.
For refinance borrowers, especially those whose equity in their house may have eroded to just around 20%, the new process has become an expensive exploration. In the past, we could at least call an appraiser to get a rough estimate of the approximate value without having to go through a full inspection (thus not incurring a cost to the consumers). Under the new law, because we can't have any direct contact with appraisers, the consumers will have to spend the $500 upfront to find out if refinance is a possibility.
There are many other holes in the new process that create new challenges during a transaction. I just hope that the regulators are listening to what people saying, and make some real senses out of this honorable idealistic quest.
Friday, June 19, 2009
Tuesday, June 16, 2009
Conforming Loan Limits for 1-4 units
I was just asked about the latest conforming loan limits for 1-4 units residential properties. I thought it would be helpful to post this for anyone else who may be looking for the same information. Here it is:
Units General High-Balance
Permanent Temporary (til end of 2009)
1 $417,000 $625,500 $729,750
2 $533,850 $800,775 $934,200
3 $645,300 $967,950 $1,129,250
4 $801,950 $1,202,925 $1,403,400
Units General High-Balance
Permanent Temporary (til end of 2009)
1 $417,000 $625,500 $729,750
2 $533,850 $800,775 $934,200
3 $645,300 $967,950 $1,129,250
4 $801,950 $1,202,925 $1,403,400
Saturday, June 13, 2009
Rising Mortgage Rates Eroding Affordability
Mortgage rates have been rising for the last 2 weeks. Rates are more than 1% higher than their lowest level. For example, we had seen conforming loans as low as 4.375% for a 30-yr fixed. This past week, they had been hovering in the high 5% range.
How has this change impacted borrowers? Well, many refinance clients who were trying to time the "lowest" market or were hoping for even lower rates (aka below 4%) are now jittery. Did they miss the boat? Maybe. While we may see some improvements in the coming months, it is unlikely that we'll see the same low level of rates that we had seen earlier this year. According to the latest news from the Fed, it doesn't sound like they are ready to purchase additional mortgage-backed securities. With Fed's buying winding down and more investors coming into the market, they will sure demand higher returns than a mere 4% on a 30-yr securities.
What about the home buyers who have been sitting on the fence waiting for the price to drop more and rates to go down further? What has happened in the last 2 weeks in the mortgage market should be a good reminder of the corrolation between home price and mortgage rates. Here's the numerical comparison: 1% increase in rates is equivalent to around 15% change in purchase price. So, here's the question: Rates can go up by 1% in a matter of days, based on what we have seen. How likely are the home prices to go down by 15% in a matter of days? The reality is that the rapid rising rates are eroding the affordability of home ownership. So, for all those buyers out who need to buy a new home this year, remember to focus on the big picture. The long term financing costs outweigh the cost of the purchase many folds.
How has this change impacted borrowers? Well, many refinance clients who were trying to time the "lowest" market or were hoping for even lower rates (aka below 4%) are now jittery. Did they miss the boat? Maybe. While we may see some improvements in the coming months, it is unlikely that we'll see the same low level of rates that we had seen earlier this year. According to the latest news from the Fed, it doesn't sound like they are ready to purchase additional mortgage-backed securities. With Fed's buying winding down and more investors coming into the market, they will sure demand higher returns than a mere 4% on a 30-yr securities.
What about the home buyers who have been sitting on the fence waiting for the price to drop more and rates to go down further? What has happened in the last 2 weeks in the mortgage market should be a good reminder of the corrolation between home price and mortgage rates. Here's the numerical comparison: 1% increase in rates is equivalent to around 15% change in purchase price. So, here's the question: Rates can go up by 1% in a matter of days, based on what we have seen. How likely are the home prices to go down by 15% in a matter of days? The reality is that the rapid rising rates are eroding the affordability of home ownership. So, for all those buyers out who need to buy a new home this year, remember to focus on the big picture. The long term financing costs outweigh the cost of the purchase many folds.
Monday, February 09, 2009
Can Mortgage Rates Stay Low?
The Fed's been at it again, offering words that sound encouraging at first blush, confirming that their buying program of Mortgage Backed Securities is in full swing and will continue as needed. Of course, the media will pick this up and offer their own interpretation, saying "Good news, the Fed's words on continuing their purchasing program mean that rates will continue to drop lower, and remain low into the summer..." But is this really what that means? Not so.
Here's the truth:
Yes, the Fed has been buying Mortgage Bonds, but if you look at what they are purchasing, they are buying a lot of FNMA 30-yr 5.5% and 5.0% Bonds...which won't have much of an impact on present interest rates. Why? First, see the Fed's purchases for yourself by hitting this link: Direct Link to View Fed Mortgage Bond Buying - http://www.newyorkfed.org/markets/mbs/index.html.
So why is the Fed buying these Bonds? Well if you think about it, it's very smart of the Fed...and maybe even a little sneaky...because 5.5% Bonds actually represent outstanding mortgages with rates of 6 - 6.50%, which are precisely the loans being refinanced at today's great interest rates.
Stay with me here...
With rates at present low levels, many of the mortgages in these FNMA 5.5% pools being bought up by the Fed will be refinanced and paid, thus giving the Fed a quick recoup on some of their investment. And this is likely a big reason why the Fed said they could continue this purchasing program beyond June, if necessary. Bottom line, the Fed buying these higher rate coupons will not necessarily help rates to move lower, as their actions do not impact the loans being originated at today's low rates. In other words, in order for the mortgage rates to go lower to a level where as the news said, "everyone gets 4% - no question asked", the Fed would need to be buying coupons with 3% - 3.5%. Hmm.....
Here's the most important part:
Sometimes I talk to clients who are in a situation where it makes sense to refinance right now, and save $250 per month for example. But when they hear the media throwing around teases of lower rates ahead, they decide to hold off on making the decision to save the $250 per month right now, in the hopes of gaining another $30 per month in additional savings with a lower rate than where we stand presently. Now clearly, rates could turn higher, and this window of opportunity could pass them by entirely.
The clincher is this:
Even if those clients ultimately are correct in timing the market, and eventually grab that lower rate and save another $30 per month - think of what they have lost by waiting. While they delayed, they lost the savings they could have gained by taking action sooner - or in the example used, $250 - for every single month they waited. So even if they got lucky and obtained the rate they were looking for, it could take years to make up what they lost by waiting.
Bottom line is rather than trying to time the market, it's more crucial to evaluate your scenario within the whole context of your overall financial well being.
Here's the truth:
Yes, the Fed has been buying Mortgage Bonds, but if you look at what they are purchasing, they are buying a lot of FNMA 30-yr 5.5% and 5.0% Bonds...which won't have much of an impact on present interest rates. Why? First, see the Fed's purchases for yourself by hitting this link: Direct Link to View Fed Mortgage Bond Buying - http://www.newyorkfed.org/markets/mbs/index.html.
So why is the Fed buying these Bonds? Well if you think about it, it's very smart of the Fed...and maybe even a little sneaky...because 5.5% Bonds actually represent outstanding mortgages with rates of 6 - 6.50%, which are precisely the loans being refinanced at today's great interest rates.
Stay with me here...
With rates at present low levels, many of the mortgages in these FNMA 5.5% pools being bought up by the Fed will be refinanced and paid, thus giving the Fed a quick recoup on some of their investment. And this is likely a big reason why the Fed said they could continue this purchasing program beyond June, if necessary. Bottom line, the Fed buying these higher rate coupons will not necessarily help rates to move lower, as their actions do not impact the loans being originated at today's low rates. In other words, in order for the mortgage rates to go lower to a level where as the news said, "everyone gets 4% - no question asked", the Fed would need to be buying coupons with 3% - 3.5%. Hmm.....
Here's the most important part:
Sometimes I talk to clients who are in a situation where it makes sense to refinance right now, and save $250 per month for example. But when they hear the media throwing around teases of lower rates ahead, they decide to hold off on making the decision to save the $250 per month right now, in the hopes of gaining another $30 per month in additional savings with a lower rate than where we stand presently. Now clearly, rates could turn higher, and this window of opportunity could pass them by entirely.
The clincher is this:
Even if those clients ultimately are correct in timing the market, and eventually grab that lower rate and save another $30 per month - think of what they have lost by waiting. While they delayed, they lost the savings they could have gained by taking action sooner - or in the example used, $250 - for every single month they waited. So even if they got lucky and obtained the rate they were looking for, it could take years to make up what they lost by waiting.
Bottom line is rather than trying to time the market, it's more crucial to evaluate your scenario within the whole context of your overall financial well being.
Monday, October 13, 2008
Market Timing or Long Term Planning? How To Buy Your Next House In This Market
Life has been interesting being a mortgage professional in the past 12 months. Most people I run into seem to have the same curious question: “how are you doing? How’s business?” Maybe secretly, deep down inside, they were expecting to hear me crying and spilling out horror stories about how the sky is falling - just like the rest of the reporters you hear in the media. But the truth is “It’s not that bad”. Actually, I should qualify it by saying “It’s not that bad for people who can truly afford to buy”.
The credit crisis has certainly changed the landscape of the lending industry, but for the better! While it may be more difficult to get a loan these days, it’s becoming an easier market for buyers who are financially positioned to buy. For one, people with 20% down payment don’t have to compete with other buyers with no money down. The economic downturn that we are experiencing right now truly underscores one thing that we believe to be the core of what makes people successful – Planning!
Looking for that perfect house (one that fits your commute requirements, the right school district for your kids, long term appreciation concerns, and maintenance issues, etc) is one thing, but how does such a purchase fit into your overall long term financial planning is another. Culturally, we have not been trained to think that way. For example, for a younger couple who may have had a couple of kids and progressed through their careers, at some point, they get “the hunch” that they can/need/should move up to a larger home. So, the buying process is generally around finding a house that meets their logistical needs. But, what about the financial needs? With increased income, they can probably qualify for more now. But as I always tell my clients, Qualification is different from Affordability – there is a big difference. For most people, signing up for a bigger mortgage payment often means needing to cut back on something else. It is a perfectly fine thing to do, as long as that honest conversation is taking place, and a specific plan is put into place.
Because I often get asked the same kinds of questions from different buyers and the lending guidelines constantly changing, I thought it’s time to do another seminar to specifically address the important questions that home buyers should be asking, especially in this market. It’s on Thur Oct 16th, at 6:45pm at my office in Palo Alto. If anyone is interested, feel free to contact me at blogposts@yulinlee.com or 650-799-8768.
The credit crisis has certainly changed the landscape of the lending industry, but for the better! While it may be more difficult to get a loan these days, it’s becoming an easier market for buyers who are financially positioned to buy. For one, people with 20% down payment don’t have to compete with other buyers with no money down. The economic downturn that we are experiencing right now truly underscores one thing that we believe to be the core of what makes people successful – Planning!
Looking for that perfect house (one that fits your commute requirements, the right school district for your kids, long term appreciation concerns, and maintenance issues, etc) is one thing, but how does such a purchase fit into your overall long term financial planning is another. Culturally, we have not been trained to think that way. For example, for a younger couple who may have had a couple of kids and progressed through their careers, at some point, they get “the hunch” that they can/need/should move up to a larger home. So, the buying process is generally around finding a house that meets their logistical needs. But, what about the financial needs? With increased income, they can probably qualify for more now. But as I always tell my clients, Qualification is different from Affordability – there is a big difference. For most people, signing up for a bigger mortgage payment often means needing to cut back on something else. It is a perfectly fine thing to do, as long as that honest conversation is taking place, and a specific plan is put into place.
Because I often get asked the same kinds of questions from different buyers and the lending guidelines constantly changing, I thought it’s time to do another seminar to specifically address the important questions that home buyers should be asking, especially in this market. It’s on Thur Oct 16th, at 6:45pm at my office in Palo Alto. If anyone is interested, feel free to contact me at blogposts@yulinlee.com or 650-799-8768.
Wednesday, September 17, 2008
Change is the Only Constant
Boy, just when we thought things may settle down a bit after Fed's takeover of Fannie and Freddie, the fiascals at Merill Lynch, AIG and Lehman just reminded me that we are still in the middle a major shift, not just in the financial industry and but also in the relationships between consumers and service providers. When companies like AIG with 150+ years of history and brand recognition go down in no time, you really start to wonder what the new paradigm will look like, and what kind of trust and relationship we will have with our service providers going into the future.
A year ago when the mortgage industry started experiencing the credit crunch, we started a marketing campaign called "A Scent of Change", which was a series of seminars that were meant to educate our clients about the major changes we were seeing in the lending industry. At the time, we had planned for that campaign to go on for about 6 months. But now, 12 months later, that theme still seems to be applicable. What does that teach me?
There are always external factors that will be thrown at us, which we can't control. But what we CAN do is focusing on the fundamentals so that we don't get blown away by the unexpected. For me, it's about taking care of my clients, building long term relationships, and keep working at my short-term and long-term goals - One Piece At A Time!
We can't time the market in stock prices or mortgage rates, but we CAN time progress in our own journey to success IF we have a plan!
A year ago when the mortgage industry started experiencing the credit crunch, we started a marketing campaign called "A Scent of Change", which was a series of seminars that were meant to educate our clients about the major changes we were seeing in the lending industry. At the time, we had planned for that campaign to go on for about 6 months. But now, 12 months later, that theme still seems to be applicable. What does that teach me?
There are always external factors that will be thrown at us, which we can't control. But what we CAN do is focusing on the fundamentals so that we don't get blown away by the unexpected. For me, it's about taking care of my clients, building long term relationships, and keep working at my short-term and long-term goals - One Piece At A Time!
We can't time the market in stock prices or mortgage rates, but we CAN time progress in our own journey to success IF we have a plan!
Monday, September 08, 2008
Mortgage Rates Lowered by Government Takeover
Another big day for the mortgage industry. On Sept 7, Treasury Secretary Paulson announced plans to place Fannie Mae and Freddie Mac in a conservatorship governed by their regulator, the Federal Housing Finance Agency (FHFA). As part of the announcement, both companies’ chief executives will be replaced and the government will provide up to $200 billion in capital to restore the firms to financial health.
What does this mean? Essentially, both Fannie Mae and Freddie Mac are effectively government agencies now, from being private companies that were established in 1968 and 1970 resepectively. What's the implication for the consumers? And, why did the mortgage rates go down are a result?
As the U.S. government steps up to gaurantee both Fannie & Freddie's maturing bond payments, more investors are becoming interested in buying their bonds. With more investors buying their bonds, there will be more liquidity into the market to extend mortgages to consumers. More liquidity = lower rates. Yeah!
With what has just happened to Fannie and Freddie, and the fact that the conforming Jumbo limit of $729,500 going away by the end of this year, it makes it a really good time to refinance or buy your next home, especially if your loan amount is in the range between $625K - $729,500. For more detail info and a free consultation about how to take advantage of the current situation, you know where to find me!
What does this mean? Essentially, both Fannie Mae and Freddie Mac are effectively government agencies now, from being private companies that were established in 1968 and 1970 resepectively. What's the implication for the consumers? And, why did the mortgage rates go down are a result?
As the U.S. government steps up to gaurantee both Fannie & Freddie's maturing bond payments, more investors are becoming interested in buying their bonds. With more investors buying their bonds, there will be more liquidity into the market to extend mortgages to consumers. More liquidity = lower rates. Yeah!
With what has just happened to Fannie and Freddie, and the fact that the conforming Jumbo limit of $729,500 going away by the end of this year, it makes it a really good time to refinance or buy your next home, especially if your loan amount is in the range between $625K - $729,500. For more detail info and a free consultation about how to take advantage of the current situation, you know where to find me!
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