The current financial market is in a state of flux and is becoming more and more constrained. Lending is tightening up and it is becoming more and more tough for people to purchase a home. President Obama is signing into law today, February 17, 2009 the $787 Billion Stimulus Plan that the government will hope to turn this economy around. The white house has opened a website, http://www.recovery.gov, that will allow the people to track where the money will be sent.
This is a look into the current changes in the lending practices and where the lending standards are heading...
For The Buyer:
1. There are 71% fewer mortgages available than a year ago.
2. Tightening credit standards are now in place at 85% of our banks.
3. Buyers putting down less than 20% must have a FICO score of at least 720.
4. All assets and income must be verified and could be re-verified at closing.
5. Fixed rate mortgages account for 69% of funded loans.
6. New conforming residential loan amount for San Diego is $546,250.00
7. Short-sales are selling for 97% of list price, while foreclosures sell for 101% of list price.
FHA is the New Big Player.
1. Up-front insurance premium (MIP) is now 1.75%.
2. Over 95% financing, .55% monthly and .50% for less than 95%.
3. Down payment is 3.5% and the FICO score must be at least 580.
4. Down payment assistance programs have been abolished.
5. 45% front end and 55% back end debt ratios and 2 year employment history.
6. Must be greater disclosure to buyer on monthly payment changes.
7. Borrower must have a valid Social Security Number and be a legal resident of U.S.
8. Owner-occupied properties only, but "gift" is still available for down payment.
a. "Kiddy Condos" for kids in college.
9. Ch 7 BK - discharged 2 yrs. / 1 yr. Ch13 and foreclosure/short sale is 3 years.
10. FHA appraisers must be certified, which will cause a decrease in the number of appraisers.
11. New FHA Loan Limits for San Diego:
One Unit Two Units Three Units Four Units
$546,250 $699,300 $845,300 $1,050,100
For Lenders:
1. Some lenders may no longer use "in-house" appraisers.
2. Financial institutions will be held liable for any misleading advertising.
3. Adjustable sub-prime loans cannot have a pre-payment penalty for 4 years.
4. Fixed sub-prime loans cannot have a pre-payment penalty for 2 years.
5. Truth in Lending statement must be printed in the native language of the borrower.
The Investor:
1. No more than 4 investment properties can be financed. (Just changed to 10)
2. If investor puts down less than 20%, it introduces: PMI; higher rates; added approval by insurance companies.
3. Loan rates are usually 0.75% to 1.0% higher than owner-occupied financing.
4. Investor loans are more difficult to get, because 40% of foreclosures are investment properties.
Source: FHA, Mortgage Bankers Association, Federal Reserve
For The Seller:
1. Foreclosures and short-sales will continue to dominate the 2009 real estate market, as San Diego filed 7,062 notices of default in the 3rd quarter of 2008.
2. Listing prices must be competitive with these properties for a successful sale.
3. Regardless of sellers' expectations, their house will be appraised conservatively.
4. The buyers are still in control of pricing:
a. give careful consideration to a counter offer.
b. expect to pay for all termite and inspection report disclosures..
c. length of escrow will be the buyer's choice.
d. market conditions can push escrow periods much longer.
e. making repairs and improvements ahead of time will help the marketing.
Loan Modifications:
1. Must have authorization letter to communicate with lender.
2. New law allows borrower to have an intermediary to discuss situation.
3. Fannie Mae has a Streamline Modification Program (SMP) for its securitized loans.
It is a fast-track method for getting homeowners affordable mortgage payments, extending the term of the loan, lowering the interest rate and even deferring payments. Seller must be 3 months behind, live in the home and have no bankruptcy filings.
4. Obtain required information and help seller complete the package properly.
Short Sales:
1. Must have authorization letter to communicate with lender.
2. Expect the entire process to take approximately 4 to 6 months.
3. Be aware that after servicing provider gives approval, the investor may have to sign off.
4. Make sure to "pad" estimated HUD-1 and cover non-paid items such as taxes, association dues, transfer fees, county taxes, etc.
5. Escrow closes within 30 to no more than 45 days.
Foreclosures:
1. New law requires lenders to contact borrowers 30 days prior to filing a notice of default, but only on owner-occupied home loans.
2. New state law allows renters to have 60 days to vacate a foreclosed property.
3. Lender or investor acquiring the property must care for abandoned animals.
4. Law requires lenders or investors to maintain the properties or face $1,000 dollar-a-day fines.
5. Both Fannie Mae and Freddie Mac will now notify renters prior to property entering the foreclosure process, and will execute a short-term rental agreement until the property is sold.
6. California has followed the Federal laws, extending tax relief from any debt forgiveness.
IRS:
1. Will expedite release of tax liens on homes and paychecks.
2. In Offers-in-Compromise, equity in the property will no longer act as a deterrent.
3. Will postpone collections due to a loss of job, devastating illness or significant medical bills.
4. Will be more flexible on missed payments due to loss of job or hardship.
Source: FHA, Mortgage Bankers Association, Federal Reserve, IRS
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