Danny Salas

Archive for the 'Mortgage Industry Updates' Category

Statistics Merit: Best Time to Buy in 40 Years

 

Danny Salas on Real Estate Today Radio Explains why now is the most affordable time to buy.

Audio clip: Adobe Flash Player (version 9 or above) is required to play this audio clip. Download the latest version here. You also need to have JavaScript enabled in your browser.

 

The National Association of Realtors’ Housing Affordability Index recently shed light on something quite exciting:  A forty-year record level reading! 

The index has been reporting data, on housing, since 1970, and it’s never been more affordable to purchase a new home.  If you want to purchase a home, keep in mind I’m only speaking statistically; this is the time to buy! It’s imperative that you study your financial strength with a competent financial advisor, and mortgage banking specialist, to determine if you’re ready to buy.  Do you have your financing in order, or your housing budget at a comfortable level?  If you’re considering around a five-year, seven-year, or longer, investment, than it just might not get any better than the present.

The Composite Index of Housing Affordability read at 182.7.  This is, again, the highest level in the forty-one years of reporting the data.  In 1981, the index was the lowest it has ever been, at 68.9  Interest rates were at approximately 18%.  Think about that…it’s more than two and a half times more affordable to buy a home, than it was in 1981. 

Some of the data that is considered, regarding the Housing Affordability Index is the Median Sales Price, Interest Rates, monthly payments, and qualifying income.  Obviously, sales price and interest rates, determine payments, but what’s interesting is qualifying income.  With unemployment levels so low, nationally and locally, the surprising statistic might be qualifying income, however, bear in mind that with prices SO low, and interest rates SO low, as well…income simply doesn’t HAVE to be as high, to qualify for that median priced home.  Very exciting news! 

You will want to take somewhat of an urgent move, if you’ve positioned yourself structurally sound to buy.  Keep in mind that if rates move just one percent upwardly, home values would have to fall OVER ten percent in order for you to keep the same monthly payment.  If the United States’ debt ceiling issue creates more panic, in the markets, like Lehman Brothers’ panic, post mortgage credit crisis, and rates move to 7.5%, then you’ll need values to drop over THIRTY PERCENT, in order to keep your payments at the same levels.  This index is not going to stay at these level forever!  I did write about this, on my blog-page, back in November of 2009.  Even then, most experts felt that rates will steadily increase over that next twelve months, however, as European Countries struggled financially, mortgage-backed securities, and other bonds, were a safe-haven for investors, keeping our rates low.  This, also, will not last forever, and if you’ve determined that you’re ready to buy…BUY! 

Check out the Blog Article at:  http://accessloans.net/2009/11/11/why-buy-now-why-rate-outweights-price/

 

Where Are Interest Rates Going?

 First of all, QE II has ended.  There are mixed feelings regarding how this effected The United States.  First, you cannot ignore that since the announcement of QE II, Stocks have increased an average of 34%.  So, while QE I was primarily designed to purchase bonds, and keep interest rates low, QE II focused on pumping more money into Stocks and other commodities.  This is generally, not good for interest rates, however, again, with European concerns, bonds and Mortgage-Backed Securities remained a healthy, safe investment, for foreign markets, keeping our rates low.  The effect of QE II, on the economy, is also argumentatively, positive.  When you lift the market, you lift the spirit of investors.  When investors’ spirits are up, they spend.  However, it hasn’t done much for employment, or eighty, or more percent, of the nation.  So, the help in the economy really came indirectly.  QE III?  Perhaps.  If they announce another plan to print money, and buy stocks, or US Treasuries, Bonds, etc., it might just scare the market too much, and the value of the dollar could plummet.  So, the QE III plan, might just be a statement from the Federal Reserve that they are, “interested in keeping the markets moving, by a structured, secure purchasing plan of Stocks, Bonds, AND Commodities.”  Who knows?  If there isn’t a release of QE III, expect higher rates, to gradually occur, if there’s a release of QE III…and they print more money…expect higher rates when the result of more printed money, is inflation (interest rates’ worst enemy).

One of the only factors that could keep rates lower, would be if the economy starts to heat up, enough, for investors, and banks, to start purchasing the US Treasuries that our government has already purchased…to keep the market moving.  When and if that ever happens…rates will stay low.  My money’s on one of the earlier comments, as when have you seen Banks come to the rescue of the United States?  Or, is that an oxymoron?

Short Sale Protection

In efforts to give home owners more protection, Govenor Brown has signed the Senate Bill 458 (Corbett), a bill sponsored by the California Association of Realtors. For escrows closing on or after July 15th, deficiency judgements after one-to-four residential short sales will be illicit. This applies to all lenders no matter if they are a senior or junior lienholder. Borrowers will not be necessitated to pay any deficiency for their short sale. Bill 458 also does not allow a deficiency judgement for senior or junior liens. Any supposed waiver for this rule will be invalid and against public policy.

While lenders cannot expect a borrower to owe or pay any added compensation for the approval, this law does not forbid the borrower from willingly presenting a monetary contribution to the lender in the hopes of receiving a short sale. Lenders are also allowed to arrange a contribution from anyone who is not the borrower (lenders, agents, relatives).

Exceptions include a lender seeking damages for a borrower’s fraud or waste; a borrower that is a corporation, LLC, limited partnership, or political subdivision of the state; a lien secured by a bond as specified; a public utility lien; and additional rules apply if a note is cross-collateralized by more than one property.

 

What to Subcribe To:

Get Our Twitter Updates
Get Our Blog Blast
Become A Fan On Facebook
Connect With Us On Linkedin

Navigating Through the Loan Labyrinth: Qualifying for Loans… What Happened, Where it Led, and Where We’re Going

If you’re not aware now, you’re in the dark.  Qualifying for a real estate loan has gone from the necessity of having a pulse, to documenting every little item you can think of.  However, there are signs that the industry is beginning to become flexibly fair, again.  And, it’s a welcome sign to many…as long as we don’t go back to the ridiculous requirements that led us into the financial turmoil that brought capitalism to its knees. 

While I was never much of a proponent of the Subprime lending world, there were still loans that Fannie Mae and Freddie Mac were purchasing that should have never been in the repertoire of the major lending bank institutions and the sale to the Guaranteed Security Enterprises (Fannie & Freddie).  To be clear, the 90% Financing Loans with Stated Income, State Assets, and Stated Employment Guidelines (with credit scores as low as 680) were the mastermind of the big banks, not Fannie & Freddie.  In essence, the banks told the GSE’s what they would buy.  The market simply supported the sale of these loans because values were supporting the investments.  So subprime lenders, in order to compete, had 100% financing loans with similar requirements, yet much lower credit risk score thresholds. A recipe for disaster.  In hindsight, an easy statement to write; but the lesson was learned…all over the world. 

After the Mortgage Credit Crisis, the real estate loan industry went through a transition like no other.  The Federal Government came in a took over the GSE’s in a receivership-like fashion, printed money in record amounts to give lending institutions the ability to stay in business, and kept the housing industry moving.  Loan Guidelines went through their own transition.  Processing a loan transaction became a specialty as experts in the industry fought to keep up with the current requirements, change the paperwork that was initially required, understand the differences regarding how to order an appraisal, and keep real estate agents and clients happy.  A daunting task!  My office changed the “Needs Checklist.”  Our list was now foreshadowing underwriting requirements and asking clients to do things we’ve never had to in the past: an example was the inquiry letter.  In the days of Pre-Mortgage Credit Crisis Lending, most of the time an inquiry letter wasn’t even asked for through the funding of the loan. 

However afterward, banks were pooling up their loans to sell to the GSE’s, selling those loans, and months later (and even a year or more, in some instances), the GSE’s were calling clients and asking if they wrote the inquiry letter explaining any inquiries on their credit report.  “Well, no, my loan officer wrote that letter for me, and we just signed it,” may have been a common response.  The GSE’s were making the originating office (the office in which the loan officer that took that initial application was working) buy that loan back.  So, our office learned that we would put on our “Needs Checklist,” ‘Write an explanation into each inquiry on your credit report (attached)’.  We would send a letter with the inquiries on it, with space after each inquiry for the client to write a little statement regarding those inquiries, and if there was any new debt associated with those particular inquiries…in their own handwriting!   Another major change was the processing of the 4506-T form, and NOT having the ability to close a loan until that form was processed.  The 4506-T form is a Federal Tax Return Processing form.  It allows lenders to receive an electronic print-out of a client’s 1040 Federal Tax Returns.  Line-by-line, each tax return must be processed and MATCHED with the tax returns supplied for the loan approval.  Every line may not be off - by even one dollar - or the loan cannot move forward.  A positive spin to the state income loans of yester-year however, a time-consuming and tedious aspect of closing a loan. 

 

Now, we’re starting to see the GSE’s relax on some of their lending guidelines.  The first example, I’ll share, is regarding the ability to only use one year of 1040 tax returns, as opposed to two.  This obviously, can be helpful to the self-employed borrower, which has been suffering over the 2008 and 2009 tax seasons; however, in 2010, they started to recover from the recession.  If their net income has increased substantially in 2010, and lenders only need one year of returns, you don’t have to average 2009’s income with 2010’s income to qualify - therefore opening the door to many more buyers.  The determining factors are an automated approval that only asks for one year, and an investor that will fund that loan and sell it to a GSE.  Another very exciting change is the ability to use rental income to qualify a buyer buying an investment property for the first time.  Recently, we have HAD to have a buyer file a Schedule E on their federal tax returns, documenting that they have had rental properties for the past two years, in order to use ANY income on the subject property to purchase it, if it was an investment property.  Now we’re seeing that the GSE’s are allowing us to use the appraisers 1007 and 216 forms to qualify 75% of market rents, to offset the monthly payments on an investment purchase.  These forms are rental surveys and operating income statements, that accompany the Uniform Residential Appraisal Report, enabling more people to get out their and buy investment properties while rates and values are at record bargains. 

 

Keep in mind that there are many more exciting changes occurring, and many more right around the corner.  However, each bank has its own underwriting guideline, or overlay, that may or may not qualify a particular buyer to fit into each or every separating factor or changed qualifier.  Someone who’s automated approval may say only one year’s tax return is required, may have something interesting on their tax returns, which may require an underwriter to ask for another year’s returns to be sure it’s not something that could affect the files strength when the GSE’s go to purchase that loan.  So, even though we’re seeing some changes, we’re still going through tough times; and I’m telling you, when it comes to the labyrinth of loan closing requirements, particularly these days, it’s not over ’till it’s over!  But, know that there is a light at the end of this tunnel; and as long as we move forward responsibly, we’ll have more and more flexible underwriting guidelines, opening up the purchase market to more and more opportunities for all of us.

 

What to Subcribe To:

Get Our Twitter Updates
Get Our Blog Blast
Become A Fan On Facebook
Connect With Us On Linkedin

The Positives of the Local Market

Previously Owned home sales have decreased recently. However, listen to why Danny thinks there are positives in the local market.

Audio clip: Adobe Flash Player (version 9 or above) is required to play this audio clip. Download the latest version here. You also need to have JavaScript enabled in your browser.

 

Also, Access Real Estate  Lending is a proud sponsor of CSU Chico’s Adopt-A-Class Program. This past Wednesday, lucky classes got to go see School House Rock! Live Jr. The show was put on by Playhouse Youth Theatre and was a great time. Here are some pictures from the field trip.

  

For more Chico Performances, check out http://www.csuchico.edu/upe/performance/index.html

Information on Adopt-A-Class: http://www.csuchico.edu/upe/performance/Kids/adopt.html