Rates on Bigger Mortgages Should Come Down At Last

Fannie Mae and Freddie Mac recently issued loan underwriting criteria and will start buying loans of up to $729,750 from lenders on May 4, which some industry analysts believe will result in lower rates.
This week, Wells Fargo started offering conforming loans of up to $729,750, and Bank of America will begin offering them by mid-May
Historically, rates on loans higher than $417,000 – often referred to as jumbo conforming loans -- are one-fourth to one-third of a percentage point higher than rates on $417,000 or lower loans.. With Fannie Mae and Freddie Mac agreeing to guarantee loans of up to $729,750, rates on jumbo conforming loans likely will be comparable to the rates offered on loans of $417,000 and lower. It's about time. The impact on our area sales should be considerable. I just hope that our local inventory, which has been going down in recent weeks, will increase in time to give good choices to an influx of new buyers attracted by these new rates.

More on the Foreclosure Prevention Plan

A friend is concerned that the start-up where her husband works may not make it, and they have two loans on their house..the original first mortgage that is adjusting soon, and a second that they added to do some recent remodeling.
Maybe, just in time, the Obama administration announced yesterday additional efforts to stem foreclosures by offering lenders and homeowners incentives to cut payments on second mortgages, write down balances on first mortgages that are underwater, and repay loans in a timely fashion. The U.S. Treasury Dept. also wants lenders and their customer-service agents to agree to modify both first and second mortgages as part of a comprehensive solution.
Details of the foreclosure prevention plan include: Decreasing second-mortgage interest rates to as low as 1 percent for five years for some borrowers; and reviving a FHA effort to persuade lenders to reduce loan balances enough so that borrowers will have equity again in their homes.
Funding from the program will come from a previously authorized $50-billion allocation from the $700-billion Treasury Dept. rescue fund established by Congress last year. The plan would provide cash incentives to both loan officers and borrowers for successful second-mortgage modifications. A loan officer would receive $500 upfront, plus $250 annually for up to three years as long as the loan remains current. Borrowers who make payments on time will receive $250 a year for up to five years.

A New Gimmick

With so many homes being staged in this market...or at least, mini-staged...a vacant house feels cold and deserted in comparison. Now Realtors in Southern California have gone one better than that. They are hiring a "temp," in this case, an event planner and decorator whose business is slow, to live in the staged home.
This faux-homeowner keeps the house immaculate from 8:00am to 8:00pm, and adds the extra touches of turning on lights and music, lighting candles (and the fireplace on a cool day) and even baking cookies if there is time before each showing. Showcase Management is a franchise operation that has 350 live-in managers in high end homes in California, Illinois, Arizona and Florida, and says that this method sells houses that were previously unoccupied and vacant.

Recessed lighting - Energy Conservation or Waste?

I've been in so many homes lately that have a number recessed lights in various locations.
As recessed lights do not protrude down from the ceiling, they are very popular.
However, many recessed lights are holes in the ceiling where heated air goes.
According to Mr. Handyman, recessed lights come in two designations:
IC - Insulation Contact and AT - Air Tight
Insulation Contact means the exterior surface of the can in the attic remains cool enough that insulation can come into direct contact with it without fear of it being a fire hazard.
Air Tight means there is no air circulation from the room into the attic.
The issue with non IC cans is pretty obvious. If you can't put insulation near the cans, that part of your ceiling is less insulated.
The issue of non AT cans is not so obvious to most people. A recessed light is installed in a hole cut in the ceiling. You then install a heat source (the light) just above the hole. As the light heats the air around it, that air rises. It rises through openings in the can and helps heat the attic. This leaves a slight negative pressure in the can itself. That in turn causes cooler air from the room to rise into the can. That air in turn is warmed by the bulb and the process/cycle continues. This is called "the stack effect" and is in fact how chimney's work. So, when you install a non AT recessed light, you've installed a continuous "heat leak" in your ceiling.
For the past few months my source, Mr. Handyman, looked for an inexpensive solution to this issue with no success. Every solution he found was more expensive than just replacing the entire recessed can with an AT can. Then someone at HomeZ (a company that provides home energy and water reduction services) gave him the answer.
You can now buy an (almost completely) air tight recessed can trim piece. They are easily installed in 10 minutes or less.
There are two different models that are available. Halo has an air tight trim piece that is available from Amazon.com for $13.43, and a less expensive, and perhaps not quite as good trim piece is available from etoplighting.com for $6.50.
So, if you've got non AT recessed light fixtures, including the addition of these air tight trim pieces may be the most important part of your home weatherization project.

The Uneven Drop in Prices

First time buyers who came through my open house yesterday asked about the loss in value of area homes. I told them what we had been seeing "in the trenches," which is that most sections of Sunnyvale (except 94085) and Cupertino, including West San Jose, had not been affected as much because of larger down payments on resales and fewer sub-prime loans. I told them that values in our area had fallen 10-20% in the past year, and that the west Sunnyvale house where the open house property was located had come down about 15%. The Mercury News proved me right this morning.
In an article about the Valley's "Split Housing Market" they wrote that foreclosures were driving the major drops in value...in some areas as much as 50%. (In zip code95122...East San Jose...68 homes per 1000 were in foreclosure last year, and values declined 57%!) Abandoned homes are especially detrimental to local property values.
So unless foreclosures increase in our more affluent areas, we should continue to show less loss in value...much depends on the local employment situation.

Do We Refinance Now...or Wait?

Many of my clients are taking advantage of the low mortgage rates to refinance their loans. But if they have an adjustable-rate mortgage, which carries a fixed interest rate for a certain number of years and then resets annually to rates tied to market benchmarks, they have a problem. Many of the loans are at new levels that are even lower than their initial fixed rates, because yields on benchmarks, such as the one-year Treasury bond, have fallen to their lowest levels in decades.
So the question is...Should they refinance to lock in a good rate for the long term or keep their ARM's current rate that's even lower right now, but could rise sharply once the economy picks up?
Some brokers say borrowers should consider refinancing out of an ARM if they plan to live in a home more than two years. If increased government spending leads to runaway inflation in future years, that could drive up rates.
Adjustable-rate mortgages have been blamed for contributing to the subprime meltdown that helped spark the current housing crisis.
But many of the ARMs that are now resetting were made to prime borrowers, those with good credit, who had made down payments on their homes. Over the next two years, some 1.5 million prime adjustable-rate loans are expected to reset, according to First American CoreLogic, a research firm.
Deciding whether to refinance can be especially difficult for prime borrowers holding jumbo loans. Many lenders are making fewer jumbo mortgages, and requiring large down payments, of 20% to 40% or more, and high credit scores, and nearly half of all jumbo mortgages outstanding today are adjustable-rate loans.

What's Up With HELOCS?

Clients, friends, and agents in my office have all told me stories about home equity lines of credit that have been canceled or had their terms changed.
These home equity lines of credit (HELOCS) have been a popular financial tool for homeowners precisely for times like now...a monetary cushion in case of job loss or other unforeseen fiscal glitch.
These lines of credit replaced savings accounts as the fallback, with many financial advisers telling homeowners to keep a $50,000 line open at all times.
But that fallback is evaporating. Lenders in the past year have made it much more difficult to qualify for home equity lines of credit, and even those who do get them will pay much higher interest — higher than the average long-term mortgage.
Around the middle of last year, many banks began canceling unused portions of homeowners’ lines of credit, and banks more closely scrutinize the combined debt-to-income ratio, looking further into the borrower’s past credit card bills to determine whether he or she tends to spend freely. Fewer banks are offering HELOCS, so there is less competition. A 30-year fixed-rate mortgage has more profit potential for the lender.
If you borrowed against your equityline, be grateful, an if the bank hasn't cut your HELOC by now, you are probably safe.
Those homeowners who borrowed against their equity credit lines during the boom, meanwhile, should be thankful for the sub-3 percent rates they now enjoy.
And if your bank hasn't cut your HELOC by now, you're probably safe.

More Drought Tips

Judging by this week's weather, we may be facing a "long, hot summer."The California Landscape Contractors Association has provided tips for use by homeowners.
. Do not use high nitrogen fertilizers during a drought. They encourage growth but the plants will need more water.
. Heavily mulch all flower and soil beds. Mulch helps keep water in the soil. Do not use rocks/gravel because they add heat to the soil and moisture evaporates faster.
. Mow grass higher to promote deeper root growth and hold more moisture. Aerate the lawn and fill the holes with compost so the water can infiltrate deeper.

Full Service Move or Container — Which is Better?

I have clients who are moving soon, and they asked me about this. My son used a container service when he moved many years ago, and it worked well for him, but he was a graduate student at the time, and had a small amount of household goods.
Move Advocates came up with this helpful advice:
Many consumers are turning to portable moving containers as an alternative to full service moving providers, but is it the best option? Usually a container is dropped off in the driveway and you have a period of time to pack and load your own belongings. When the items are loaded, drivers pick up the container and transport it to your new home where you unload and unpack. This might be a good option for you if you are storing items while the home is for sale, but is it the best option for the actual move?
What once was thought of as a cheaper solution is now very comparable. In fact, 3 out of the 4 moves were less expensive using a full service moving provider over a container shipment solution. A sample move was not comparable at all as the container option was not available in the market area. In fact many container companies are limited to major metro areas and a few locations within those metro areas resulting in additional fees and even no services in some cities.

To Rent or Buy in 2009?

Affordability for prospective first-time home buyers has increased in recent months, mainly due to favorable home prices and current low mortgage rates. Additionally, the $8,000 first-time home buyer tax credit enacted earlier this year as part of the stimulus bill has made the costs of owning a home comparable to renting a similar property.
The California Association of Realtors offers a great new resource. They have
analyzed the difference between renting and buying a home using current housing costs and tax implications in computing the analysis.
Based on C.A.R.’s calculations and assumptions, the monthly PITI (principal, interest, tax and insurance) for a first-time buyer purchasing an entry-level home would be $1,630. The monthly expense of renting a 3-bedroom, 2-bathroom apartment would be $1,875.
If you would like to see the full report, including graphs and charts, let me know, and I'll email it to you.

Are the Jumbos Back?

Jumbo mortgages became more expensive and harder to come by as the nation's credit crisis deepened. That might be starting to change.
"Jumbo" refers to mortgages that are too large to be bought by Freddie Mac or Fannie Mae. The "conforming loan limit" for those government-backed entities is $417,000 in many parts of the country, but goes up to $729,750 in high-cost areas like ours.
Bank of America recently began advertising its jumbo program, offering 30-year fixed-rate jumbo mortgages with rates in the high-5% range.
Although these are lower jumbo rates than competitors Wells Fargo, JP Morgan Chase and Citibank, the others may follow soon, but for now they are in the mid-6% area....still a lot better than in October, when the average rate on a 30-year fixed-rate jumbo mortgage was 7.9%.
Lenders no longer have many institutional buyers for their jumbo loans, forcing them to keep the loans they write on their books. Banks held back when cash was tight, but banks have more money to lend lately, as consumers have taken money out of the stock market and put it into less volatile investments.
Also with all the assistance from the federal government, and record-low conforming rates inspiring people to refinance loans, banks have more liquidity.
Borrowers in the market for this kind of loan shouldn't expect a simple process, however. Mortgage shoppers will find differences in price and availability from lender to lender, and these rates may not be around for long.
Availability may be increasing, but requirements are still stiff. Bank of America jumbo loans, for example, require at least a 720 credit score and a 20% down payment (or 20% home equity on a refinancing)...and borrowers need to have at least six months worth of reserves in the bank. ING Direct requires 25% down.
Make sure to draw fair comparisons that consider mortgage fees and costs....and shop around!

What Do I Consider "High End Sales?"

A reader called "Sunnyvale Resident" has left a new comment on my post "So Is the Bottom Near?":
How do you define "high end sales" i.e what price range do you include here? >2M?

Normally, I reply to comments in the "comments" section, but I thought that I would write a post on the subject, especially since the Mercury News agrees that the market is leveling off...in a headline article in this morning's paper.
When I refer to high end properties, I usually mean those in the $1 to $2 million price range, which is the higher end for Sunnyvale and Cupertino. Lately, however, with the median price of sales in the Valley at $425,000 last month, I include sales in the Jumbo loan category...anything over $800,000. These are the properties that could be affected by job losses and tightening in financing for loans over $729,750. With only three months of inventory in the county's supply of homes in all prices, there is still a big contrast with properties in the $1-2 million range, which had nearly a year's worth of unsold inventory in March. Inventory in this price range is now down to 10 months' worth, and pending sales are up. Good news for our local market.

So Is the Bottom Near?

More Bay Area homes changed hands last month than in March 2008, marking the seventh consecutive month that home sales have outstripped their prior-year levels — a sign that the region's housing market may be bottoming out in some sectors,according to MDA DataQuick, a real estate information firm.
Our local inventory is down, and sales are up...unusual for early Spring, and in
Santa Clara County, a total of 1,288 resale and new houses and condos sold in March, nearly 17 percent more sales than in March 2008. The median price of the resale houses was still quite low, reflecting more the sluggishness of high-end sales than a decrease in value...Selling prices were actually up somewhat from February.
With the volatility of the stock market and rising job losses in the tech sector, sales of the valley's more expensive homes slowed abruptly beginning last fall.
With that part of the market stalled, a greater portion of the area's home purchases are now being made by budget-minded first-time buyers and investors seeking deals on homes that have previously been foreclosed upon.
More than 44 percent of Santa Clara County sales in March were of homes that had been foreclosed upon in the previous 12 months, DataQuick said.
Prices may have bottomed in the foreclosure-resale part of the market, where buyer demand is fierce. But it's hard to gauge how much prices have changed in the high end, because those homes are not selling as well yet.

Water Trees First

In February Governor Schwarzenegger declared a state of emergency because of a severe drought and warned of possible water rationing in California this summer.
In response, the California Landscape Contractors Association has provided the following tip for use by homeowners and businesses: Water trees first.
If trees are lost, it increases the surrounding temperature, making everything hotter. Trees also are expensive to replace. Many surrounding plants depend on them, because trees offer shade and protection for some lawns and other plants that may not survive the hot sun without them. In addition, trees often are homes, shelter and/or food to birds and animals, which could possibly die if they perish. For 100 water-saving tips for use by you, your business, and your clients, visit the Water Use It Wisely Web site.

Does it Make Sense to Underprice a House?

This morning, the buzz at the office meeting was a house listed in a good area of West San Jose that was at least $200,000 undervalued. The listing agent was from out of our area, and we had heard that there were over 350 groups through last weekend's open houses. There were also an unheard-of number of agent showings. Of course, there are huge numbers of offers expected, and the house should sell for its true value. If this were deliberate, it might be seen as a clever ploy, but if not, it shows the importance of using a local Realtor who knows the area and its values.

April is Tackle Your Clutter Month

About the time I was searching all over the house for a paper that I had put in a "safe place," I had an email from my friend, Lynn Gross Cerf, from Organization and More, reminding me that April is Tackle Your Clutter Month and also Stress Awareness Month. When you stop to think about it they really do go hand in hand!
The whole purpose behind Tackle Your Clutter Month is to encourage people to deal with their clutter and bring order back to their homes – in every room of their home including the garage and basement (and in the back yard now that the weather is starting to get nice). If you weren’t tripping over things and had things where you could find them when you needed them that would certainly reduce your stress – and be a whole lot more fun.
Some questions to ask in mastering your clutter would be:
-How long has it been since I have used this? If it has been a while – toss it.
-How will I be using this in the future? Put it in a logical location.
-Do I have duplicates of this? Sometimes it is useful to have duplicate (like a set of markers, scissors, tape, etc) in multiple locations but most of the time duplicates are just more “stuff”.
-Is this helping me be who I am today or who I am trying to become? If not, give it away or get rid of it.
-Does this still fit? Still work? Is it age appropriate?
And when you tackle your clutter, don’t attempt to do it all at once. Begin in one location and work your way through the house...and be aware so that you aren’t creating more clutter as you go.
Picking up your clutter is only one way to help reduce your stress.
Another way to reduce your stress would be to exercise “the magic word” more often. The magic word I am referring to is “NO”. If you were more realistic about what you could actually accomplish – and finish – that would definitely reduce your stress. Try it – say “no” once in a while – don’t take so much onto your plate... and keep it FUN!

GFCI Protection Explained

One minor comment in a recent property inspection was that one of the GFI 0units wasn't working. I thought, "No big deal...an inexpensive fix." But I just received this information on GFI's from Insight Home Inspection.
You know them - they are those electrical outlets in the bathroom and the kitchen with the little red button in the middle of them that say "Test" and a black one for "Reset". Ground Fault Circuit Interrupters are the formal name. We usually call them GFCI's or GFI's. These little guys are designed to shut power off if there is a very small leak of electricity (a ground fault) which ordinary outlets wouldn't notice. Normal outlets are shut off by a breaker or fuse if more than 15 amps flows. GFI's can detect a leak as small as .005 amp and respond by shutting off the circuit. This can prevent electrocutions, burns, shock injuries and house fires.
GFCI protection was required in new construction in the 1970's. There are three types: outlets, breakers and portable units. Outlets are easily installed by electricians, handymen, or a good do it yourselfer.
Breakers should be installed by Licensed Electricians. The outlet type are relatively inexpensive ($15-$20) so upgrading older homes is a good idea. They should be installed in all outlets that are near water such as the kitchen, bathroom, bar area, outdoor outlets, garages and in crawl spaces.
Testing of GFCI's should happen monthly. Simply plug in a lamp or hair dryer to the outlet and hit the test button. The appliance should turn off and the Reset button should pop out. If either of these don't happen, you may have a faulty outlet or bad wiring. Hitting the Reset button will reconnect the outlet.

New Appraisal Guidelines

In the last couple of days, Ive talked to a couple of appraisers who called with questions. They sounded unusually harried, and now I realize why. There are new and much more stringent FHA and conventional appraisal guidelines in effect for appraisals done after April 1, 2009.
10 things that appraisers must do or provide for all FHA appraisals done after April 1, 2009:
1. The Market Conditions Addendum (Fannie Form 1004MC/Freddie Form 71).
2. At least 2 comparable sales within 90 days of appraisal date.
3. A minimum of 2 active listings or pending sales in addition to the 3 closed comparables.
4. Bracketed listings using both dwelling size and sales price when possible.
5. Adjust active listings to reflect the List To Sales Price Ratio.
6. Adjust pending sales to reflect contract sales price when possible.
7. Include original list price and any revised list prices.
8. Reconciliation of adjusted values of active or pending sales with adjusted values of closed comparable sales.
9. Absorption Rate Analysis.
10. Known or reported sales concessions on active and pending sales.
FHA also is restating its warning that..."Direct Endorsement Lenders are reminded that if the appraiser they selected provides a poor or fraudulent appraisal that leads FHA to insure a mortgage at an inflated amount, the lender is held responsible equally with the appraiser for the integrity, accuracy and thoroughness of an appraisal submitted to FHA."

Finding the Right Workmen

This morning,I ran into a neighbor in the parking area, and he asked if I could recommend a good, reasonable granite installer for kitchen updates he was planning. My clients all know that I keep a list of qualified workmen (and women) for most household jobs. This was not one of them, so I put out the request in the "wants and needs" part of this morning's office meeting. A colleague had several recommendations, which I emailed to my neighbor. Coincidentally, a friend had called over the weekend to rave about an electrician...and she is fussy. I passed that name on to my co-worker, as a thank you for her help. What a great office!

Get the Best Refinancing Deal

I sat next to a couple in Starbuck's today who were trying to set up a refinance on their existing loan.
The recent declines in interest rates on 30-year, fixed-rate mortgages have resulted in many homeowners seeking to refinance. Due to the large number of requests to refinance, some homeowners are experiencing difficulty in trying to reach their lender. According to Fannie Mae’s chief economist, it may take as long as three months for the mortgage industry to start working at full capacity.
To ensure they receive the best refinancing deal possible, consumers should be patient and follow a few tips from industry experts:
First, consumers should recognize there is opportunity for significant savings by refinancing. Rates currently are hovering around 4.6 percent, but historically are around 8 percent.
Second, homeowners should be aware that Fannie Mae and Freddie Mac have increased their fees, so borrowers could be paying extra fees of 1 percent or more of the total loan amount.
To qualify for the best rates, most borrowers must have at least 20 percent equity in their homes and FICO scores of 720 or higher.
...and above all, work with a recommended loan agent who knows the market.

More Tales From the Trenches

Our Cupertino De Anza office of Coldwell Banker reports that we are hearing buyers say that it’s a good time to buy, rather than that they should wait and see how low things will go. Cupertino Stevens Creek concurs, noting that listings have decreased but sale pendings have increased. Los Gatos is also on board with the good news bug noting, “The market is hot right now. Lots of multiple offers and we are even having the low range of high-end moving." A good story of multiple offers on one traditional sale in Almaden: The first buyer tried to "low ball" it after two weeks on the market, and then walked away from it. A week later, the buyer came back with a slightly higher price that the seller countered and then another offer came in for close to asking price. The second offer got the house. The first buyer waited too long and is now sorry they missed it.

Market Watch

Excitement is brewing in our office, and change is abuzz in the real estate market and for the first time in a long time, we're truly invigorated!
This week was another week of milestones. Several weeks ago we wondered if all of these positive indicators were the start of a trend or if they would have a short shelf life. But after at least four weeks of some strong, positive gains things look really positive.
This week, NAR released its Pending Home Sales Index, a forward-looking indicator based on contracts signed in February, reporting that pending home sales rose 2.1 percent to 82.1 from a reading of 80.4 in January. Pending home sales have a way to go for there to be a meaningful increase, but recent increases in shopping activity are hopeful indicators.
NAR’s Housing Affordability Index also rose a little in February, and is 36.3 percentage points higher than a year ago. This measure of housing affordability shows that the relationship between home prices, mortgage interest rates and family income is the most favorable since tracking began in 1970!
With last week’s jump in mortgage applications, the historic drop in interest rates and the surge in new housing starts, we truly are seeing some very positive and indicative signs of recovery.
Now we’ll have to keep our eye on it and watch as the market continues to progress through our traditionally busy Spring selling season, but so far the signs are positive.

Another Buyers' Protection Plan

Yesterday, I wrote about the CAR insurance plan for home buyers who become unemployed. This morning, Steve Kim, a loan officer I know from B of A unveiled a similar program offered by Bank of America. The Bank of America Borrowers Protection Plan® can safeguard you and your family from sudden income losses from unexpected events, such as: Disability, Involuntary job loss,Hospitalization or Loss of life.
Bank of America can cancel your monthly loan principal and interest payments for up to 12 months if a protected event occurs. Steve said that enrollment is simple, and hassle free with no cost for the first full year. They also have plans for second mortgages, home refinance loans and home equity lines of credit.

A New Benefit for Buyers

This Thursday, April 2, C.A.R., the state association of Realtors, will launch a new program designed to provide peace of mind to first-time buyers who are hesitant to enter the housing market due to concerns about potential job loss, and subsequently being unable to meet their monthly mortgage obligations.
Through the C.A.R. Housing Affordability Fund Mortgage Protection Program (C.A.R.H.A.F. MPP), first-time home buyers who lose their jobs due to layoffs may be eligible to receive up to $1,500 per month for up to six months to help make their mortgage payments. A qualified co-buyer also can participate in the program, for a reduced monthly benefit of $750 per month. Program benefits also include coverage for accidental disability and a $10,000 death benefit. C.A.R.’s Housing Affordability Fund is dedicating $1 million to the program this year, and estimates that as many as 3,000 families will benefit from the program throughout 2009.
To qualify for the Mortgage Protection Program, applicants must:
. Be a first-time home buyer – someone who has not owned a home in the last three years
. Open escrow April 2, 2009, or later, and close on or before Dec. 31, 2009
. Use a California REALTOR® in the transaction
. Purchase the property in California
. Be a W-2 employee (cannot be self-employed or military personnel)