Week in Review (actually 2 since I was gone last week)
by Tom on April 18, 2008
in Uncategorized
Well, it’s been a little while since I’ve sent my weekly update out, so I thought I’d better fill you in on what’s going on in the mortgage world. Here’s the latest:
1. We’ve actually seen some fairly good economic/earnings reports. Google, Caterpillar, JP Morgan all reported earnings that were at a minimum better than their “peers” (JP Morgan actually MADE money) and in some cases, they were better than the market expected.
2. We’ve seen some not so good economic news as well – inflation remains an issue (have you filled up your car with gas lately?). The Fed’s Beige Book report showed slowing economic activity in many areas. There were a couple of manufacturing reports that showed a slowing economy.
3. There were a number of reports about housing starts, home sales, etc. and they were all down from last year.
I want to throw in a couple of thoughts about housing starts, home sales etc. Let me lay out my thinking, and then you can tell me if you think I’m wrong:
1. It’s apparent that the housing market was growing too fast and at a substantially faster pace than incomes were growing.
2. We are now in a period of readjustment. The markets are attempting to find a price point and a sales volume were the demographics (population growth and income) can reasonably expect to be able to afford to buy a house in that market. 2 year ago, someone making an “average” income in San Francisco couldn’t afford to buy a house. Can they yet? I don’t think so, but it’s getting closer.
3. Because we are in an adjustment period, I frankly don’t think that comparing sales from last year to this year is even a relevant number. Instead of looking at the fact that things were down 20%, look at the fact that there are still homes selling. I read a report which said that in the Los Angeles area, sales were down in March 40% compared to last year. But guess what, 14,358 homes still sold in LA in March. That’s an average of 463 homes per day. Now is that going to keep all of the Realtors, mortgage lenders, title companies and builders busy who were busy last year, no I don’t think it will.
But we’re in a period of readjustment. The volumes that were done in the last few years were unsustainable and so, unfortunately, we need to adjust back to differing expectations.
What do you think?
Now a little update about the mortgage industry (particularly Fannie Mae and Freddie Mac) and declining market appraisals.
1. A declining market appraisal – that’s an appraisal where the appraiser indicates that the property is in a declining market (meaning the prices are dropping – or that the expected marketing time is over 6 months). Becoming more and more common as we see the readjustment happening in the market.
2. Fannie and Freddie require that if that happens, the maximum loan to value that a borrower can have is 5% less than it would be otherwise. That means if the program has a maximum loan to value of 95%, then you need to go to 10% down. If the maximum is 80%, then it needs to drop to 75%. Does that make sense?
3. We’ve been able to work out a few differences from that. Starting immediately, here’s how our policy with declining markets works:
For purchases and rate and term refinances – not cashout refis.
1 unit owner occupied primary residences – not rentals, not cottages
with a credit score of above 680
and on conventional fixed rate loans (10 to 30 year terms)
where the borrower has 5% of their own money into it – if it’s a purchase, they can’t be getting the 5% downpayment as a gift.
Then the declining market policy doesn’t apply.
Call me if you have any questions on that or if there is anything else I can help you with. Have a great weekend!
