What I learned today

3/25/08 Here’s what I learned today…The surfeit of Real Estate financing programs, which has sustained the market for the past decade has come to an abrupt end. Imagine, if you will, a pot luck birthday bash, to which hundreds of friends are invited. Too late it’s discovered that among the guests are an abundance of rival start-up caterers. Vying to out do each other, the guests arrive laden with rich entrées, an unending abundance of lavish desserts and bottles upon bottles of extraordinary vintage. A few circumspect guests nibble the scant plate of veggies and dip, swirl a wine spritzer and leave. Several more, eat a plate of salmon or beef, enjoy a tumbler of merlot and depart regretfully, having to relieve a baby sitter at home with an exam the next day. Those who stay find their appetites redoubling. The convivial conversation becomes self-congratulatory. Oddly more guests arrive some with covered dishes and second cousins the host must meet. Several bus loads of foreign tourists swell the ranks. By this time everyone is expansive. Food is tucked in pockets and purses, some intended for the foreigner’s luggage. Those with no room in their luggage exchange recipes and attempt to top one another. The help, the guests, the cousins, the foreigners, the camera crew from a Fellini film remake and the day-labors from the nearby Seven Eleven parking lot, all indistinguishable from one another, party on. The music ratchets up and more deserts arrive. Guests dwindle while the day laborers flock from one table to the next. Each dish is proclaimed tastier than the last. Perhaps it was too many rich foods, perhaps something was tainted, that last cream pie, or maybe the parfait? A malaise spreads like a contagion, to job sites, home to families asleep in their beds, across the pond to Britain and Romania. Soon, the mention of the recipes, sicken even those who left the party early. They are ashamed and embarrassed by their excess. An emergency cleaning crew must be called in wearing protective gear to avoid contamination. The host and a few stalwart guests are left reeling but still standing. They have among them only a cautious appetite for a nibble of dry toast, an alka-seltzer, and a cup of scalding coffee. “Black, please”. Two weeks into the post cleanup era Conventional loan limits have been increased to $729,750, however mortgage insurers are hard to come by. As per Clara Sachs at National City Mortgage (clara.sachs@ncmc.com) at the moment 80% financing is the maximum available for those with credit scores above 660 and 90% financing for those blessed with scores above 700. (If your score is lower skip to FHA financing below ). Further, Clara tells me, National City is charging a 2.625 point premium above the normal charged for conforming loans of $417,000 or less. Seller may assist borrowers with 3% closing assistance maximum, but with points at 2.625 this leaves the borrower needing approximately an additional 4% (over and above their 10-20% down payment) to close. In essence, jumbo conventional financing is temporarily off the table. FHA financing will fill the gap for a while. It to has been raised to $729,750. National City requires a 585 credit score. FHA requires a minimum 3% contribution from borrowers but that does not cover the closing costs which include a hefty mortgage insurance premium of 1.5%, and (take a deep breath) 3.25 points above those charged previous loan limits of $362,000 Sellers may contribute a maximum of 6% closing help on the borrower’s behalf. Adding the mortgage insurance and points totals for the moment, all but 1.25% of the Seller’s contribution to closing leaving the borrower still with an approximate 3% shortfall. Under this scenario the borrower will need to have approximately 6% total cash. The buyers initial 3% down payment may be a gift from family or, if no family gifts are available, there is a charitable organization (Neiamiah) to which the Seller can contribute an additional approximate 4% in exchange for which the borrower is then gifted the needed 3% down payment. This would increase a Seller’s costs to 10% (6% closing help for Buyer plus a 4% charitable donation) over and above the sales commission and other selling expenses The Buyer even with charitable contributions and/or gifts will still need to contribute approximately 3% of the sales price. Second Trust Lenders appear to have been benched indefinitely. Appraisals are being scrutinized to find fault. Higher Conventional and FHA loan limits of $729,750 are scheduled to revert to their earlier limits of $417,000 and $362,000 respectively come December 31st 2008 unless extended. Once the mortgage market digests what remains of the party platter and the alka-seltzer begins to take effect, these restrictions should ease and something of a normal mortgage market return. Until then…. Hold on! AF PS My thanks to Doug Levy for his editorial work on this.