Home buyers now have until April 30th, 2010 to execute a purchase contract, and June 30th, 2010 to close escrow.

For sales occurring after November 6th, 2009, income limits have been raised to $125,000 for single taxpayers and $225,000 for married couples.

-MC

Congress recently acted to keep the existed loan limits through 2010:

Regular Conforming Loan Limits: $417,000

Temporary Conforming Jumbo: $729,750

For high cost cities such as San Clemente, this is especially good news.  According to Dataquick, the average sale amount was $638,875 for October, 2009.  Since Jumbo mortgages vary in interest rate and underwriting requirements, this should help keep some stability in the market for home buyers and those looking to refinance.

MC

Bills such as this seem counterproductive to our economic recovery.  One of the reasons for this bill is the rising delinquency rates on FHA loans, resulting in losses, and depleting FHA’s reserve’s (see: FHA’s Delinquencies are up).  The thinking is that the larger the down payment, the less likely the homeowner is to default.  Also, the more someone puts down, the less the loss is to the lender if the loan does default.

But what are some of the reasons that loans default?  The biggest reason is the loss of jobs.  Though it is true that people are more willing to let their house go when they’re upside down instead of accessing emergency funds.  So how does raising the down payment requirements that have been in place for decades prohibit people who lose their jobs from defaulting on their mortgage?

I think we should keep what we have in place.  The sooner the housing market bottoms and begins to rebound, the less likely FHA is to continue running through its reserves.  Not allowing people who have saved the down payment, have the credit, and make enough money to buy is counterproductive to our recovery.

-Matt Cady

Maryland Sen. Benjamin Cardin has introduced S.B. 1678, and is co-sponsored by senators John Ensign (R-Nev.), Johnny Isakson (R-Ga.), Senate majority leader Harry Reid (D-Nev.) and Debbie Stabenow (D-Migh.).

This proposal is merely an extension of the tax credit set to expire, and does not change any of the other rules and restrictions (like opening it up to all homebuyers).  If the bill passes, it would extend the credit until June 1, 2010.

As of mid September, the Treasury reports that nearly 530,000 Americans have applied for the tax credit.  With defaults continuing to rise it seems likely that S.B. 1678, or a similar bill will pass.

-Matt Cady

HVCC rules have to be obeyed on every Conventional loan originated.  So this is obviously an important rule that effects both homeowners and potential homebuyers as well as the overall housing industry and economy.  So if HVCC is flawed, how did it ever pass Congress and be signed by the President?  Because it never went to either!  So how does a rule that effects millions of American’s never receive a single vote from our elected officials and still become law?

Meet Andrew Cuomo, the New York State Attorney General.  Formerly a regulator for Fannie Mae and Freddie Mac, and eventually become the youngest HUD secretary in history.  All without a finance background.  It doesn’t take a history lesson to understand that a lot of the issues we are facing today are a result or poor regulation of years past.  Now as New York’s State Attorney General he is looking to play a different role in the foreclosure crisis.

During an investigation on Fannie Mae and Freddie Mac, Cuomo threatened to subpoena the personal records of both CEO’s.  What leads to the agreement is not made public, but eventually the investigation ends, the personal records are never revealed, and the 2 companies write a $24 million dollar check to fund the Independent Valuation Protection Institute.  On May 1st, 2009 HVCC went into effect.

When an appraisal is ordered through an AMC, they select an appraiser in the area, and send them the order.  When the appraisal comes back, they send a copy to the bank along with a certificate stating the appraisal is HVCC compliant.  For this service, they receive 40-50% of the roughly $400 appraisal fee.  So the appraiser that does the inspection, and writes the report only receives 50-60 cents on the dollar while the middle man makes in some cases an equal share.  This has caused some appraisers to go out of business, and many veterans to refrain from conventional appraisals (and only doing FHA appraisals).  So you can understand how the quality of appraisals has gone down.

Most rules are supposed to create transparency and also protect the consumer.  It’s hard to see the transparency here when you can’t select a qualified appraiser, or hold them accountable for their work.  It also seems that borrowing costs continue to go up for the consumer.  In situations where a mortgage broker is involved, the report is written in the banks or wholesalers name.  So if rates go down at a competing bank, the customer would have to spend another $400 on an appraisal instead of the broker providing the appraisal they already have on their house.  Appraisals were previously assigned to the broker, who would have the rights to submit it to as many wholesalers as needed to fund the loan at the best cost to the customer.  If the appraisal was done from a licensed individual, and has a certificate that it’s HVCC compliant, why should it only work at one bank?  Doesn’t this seem protect the bank from fair competition, instead of protecting the consumer?

So what can be done to undo HVCC?  There is currently a bill called HR 3044 that proposes to put a 18 month moratorium on HVCC.  You can write your elected official and ask them to support the bill.  There is also a petition you can sign by clicking here.

-Matt Cady

By the way, if you would like to read a more in depth article you can read Cuomo’s Crossing.

FHA’s popularity has increased tremendously over the past 2 years (although it should be noted that it was at an all time low during the subprime era).  Offering the lowest down payments and m0st consistent underwriting guidelines has helped with the resurgence.

-Matt Cady

Affordable terms and financing have helped to stabilize what was before a free falling real estate market.  The report did mention that even though we are in the process of stabilizing a price point, an increased number of short sales and foreclosure could create some downward pressure.

For home shoppers that are all to familiar with submitting offers over asking price only to be outbid, an increased number of homes on the market could be just what the doctor ordered.

MC

Rising FHA delinquencies and foreclosure rates are pushing the required reserve into the red zone.  The reserve level was 6% a couple years back, and is now approaching it’s statutory minimum.  David Stevens, the commissioner of FHA commented on a Wall Street Journal report that “FHA will not need a congressional subsidy even if the congressional capital reserve ratio falls below 2%”.  Nearly 7% of FHA’s single family loans are 90 days or more past due.  FHA foreclosures are up 17% year over year.

Last year the minimum FICO score for an FHA loan was increased from 580 to 620 for most lenders.  With rising losses related to past due mortgages, are we going to see more tightening?  There have recently been rumors of some lenders increasing their minimum credit score requirements to 640.  FHA also modifies it’s guidelines at the end of the year.  I would speculate that they will continue to make lending more conservative, and close the door on a few potential homebuyers in the process.

If you’re a potential homebuyer on the fence, this may be something you want to consider.  You’re idea of a perfect time for the real estate market might be adversely affected by the mortgage market.  Good luck out there!

Best,

Matt Cady