Arn Cenedella

Archive for the 'Credit Information' Category

Potential Change in Fannie Mae Freddie Mac loan limits

The House of Representatives has just passed a bill raising the Fannie Mae Freddie Mac loan limit from $417,000 to $625,000. The bill is on its way to the Senate and President Bush has indicated that he will sign the bill should the Senate pass it.

This is a potentially promising development for home buyers and home owners in high cost areas like the San Francisco Bay Area.

At the current time, conforming loans (i.e. those currently under $417,000) carry interest rates about 1% below jumbo loans (i.e. those currently over $417,000).

If this bill passes, it will be a big benefit to buyers who wish to borrow up to $625,000 or current homeowners who have existing mortgages up to $625,000 who wish to refinance.

Let’s take a look at what this may mean from a dollars and cents point of view.

Let’s take a $600,000 loan.

At 7%, the monthly payment for a 30 year fixed rate loan is $3,991.81.

At 6%, the monthly payment for the same loan would be $3,597.30 or $394.51 less per month.

In terms of qualifying for a loan, this $394.51 reduction in payment will reduce the income needed to qualify for this $600,000 loan by nearly $1,200 per month.

Smart Money provides further details on this exciting news. In addition, the bill passed by the House includes a provision for a 1 year increase in the limit to $729,750.

David Blockhous a long-time Los Altos resident and real estate agent with Coldwell Banker correctly points out that even if the increase in loan limit is passed it will not have a large effect on the Los Altos Palo Alto Menlo Park market since average prices are over $1.5M so even a $625,000 loan is well under 50% of the normal house price. Of course, the Los Altos Palo Alto Menlo Park real estate market is doing just fine. It is the lower price range that needs help. In the $600,000 to $800,000 price range, the proposed increase will help home buyers.

Marian Bennett living on the San Mateo Coastside and working as a Half Moon Bay real estate agent wonders whether these proposed changes will be a long term benefit to our economy. Marian also wonders how much of this activity is politically motivated. Per the RE Guru: Yes Marian it is ALL politically motivated – just about everything that goes on in Washington is. Most if not all of those Washington politicos sit around and yak yak yak – sit around and do nothing – and then when a problem hits – look for someone to blame – look to profit from it politically – and then try to get on TV and talk about how they feel the pain of the common man and woman while being driven in their limo to a five start restaurant which we the taxpayers pay for. So typical……….

 OTHER SOURCES OF INFORMATION ABOUT THIS ISSUE:

The Office of Federal Housing Enterprise Oversight indicates that nearly 50% of jumbo mortgages are originated in California. This office appears to be against passage of the new bill.

The SF Chronicle finally gets a real estate article right !

Carol Lloyd of the SF Chron, in an insightful article, talks about her friends who are first time buyers with a big down payment and how they can’t find a house to buy in San Francisco. Carol talks about how her friend’s experience – actually being out there in the market, looking at houses, trying to find a house, making offers and still being unable to buy a house – is SO DIFFERENT than what most of the media would have you believe about the current market.

Insightfully in her tale of San Francisco’s two cities, Carol writes:

Far from the Nob Hills and Noe Valleys, the Pacific Heights and Outer Sunsets, there are neighborhoods stretching across the southern and eastern quadrant of the city that tourists have never heard of and many San Franciscans have never visited. And it is these areas – Portola, Ingleside, Ocean View, Mission Terrace, Outer Mission, Bayview, Excelsior – that have been hit hardest by the real estate downturn.

A local agent tells Carol: “For the whole city, the supply of homes is about 3.7 months,” he says referring to a common measurement for predicting how long it will take to sell the homes on the market. “But if you take out those (southeastern) neighborhoods, the supply is closer to two months. If you look only at the (southeastern) neighborhoods, the supply of homes is closer to 20 months.”

Why would one part of San Francisco experience the housing bust while other neighborhoods seem immune? “We really started to see it during the whole subprime mess,” adding that buyers have become more scarce in part because low-down-payment loans have become more difficult to obtain.

The agent continues: “The banks got much pickier. The people in Pacific Heights never had to lie for a loan – never had to do stated income, they have sizable down payments. But the people buying in the lower end of the market – up to, say, $700,000 – often had no-down-payments with adjustable loans.”

Indeed, an inordinate number of the single-family homes coming on the market in recent weeks are located in these neighborhoods. 77 percent of December’s SFNewsletter’s list of houses that have been on the market for more than 100 days come from these (southeastern lower -priced) neighborhoods. ”

This pattern of two markets is demonstarted again and again up and down the Peninsula.

Above about $800,000 market is strong.

Below $700,000; the market is weaker.

2008 will bring change to FICO score calculations

The Wall Street Journal reports that Fair Issac will change the way their credit scores are calculated. The new system will be more forgiving on an occasional late payment but will be harder on repeat offenders. The FICO score developed by Fair Issac is used overwhelmingly my most real estate lenders.

Bay Area Foreclosures

The San Francisco Chronicle ran an informative and illiminating article Sunday on Bay Area Homes in Foreclosure.

6,557 Bay Area homes and condos were foreclosed on my lenders in the first 9 months of the year.

Of these, nearly 1 and 6 (a little under 1,000) were owned by individuals who lost more than 1 property to foreclosure during this time period. Additional almost another 350 were lost by owners who did not live in the property – i.e they were investment (speculative????) purchases. Based on my experience, I would say many of these other properties lost in foreclosures were in fact investment/speculative purchases. Often times buyers will tell lenders they intend to live in the property as thier primary residence in order to get a more attractive interest rate and terms when in truth they have no intention of living in the property as their residence.

Almost 7 out of 10 properties lost in foreclosure were purchased with no money down. This means all of these owners (about 4,500) lost no money because of the foreclosure. Another 325 owners made a downpayment of less than 5% of the purchase price.

It is interesting to note the geographic distribution of these foreclosures.

There have been few foreclosures in established Peninsula neighborhoods.

Most foreclosures have and are occuring in areas with significant new construction.