Gabe's Blog

C.A.R. LAUNCHES MORTGAGE PROTECTION PROGRAM

To help provide first-time home buyers with peace of mind when purchasing a home, the C.A.R. Housing Affordability Fund (C.A.R.H.A.F.) is offering a new mortgage protection program to first-time home buyers.

Through the Housing Affordability Fund's Mortgage Protection Program, 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 monthly benefit of $750 per month for up to six months. 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 toward its Mortgage Protection Program this year, and estimates that up to 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)

First-time home buyers must request an application for the H.A.F. Mortgage Protection Program from their REALTOR®. For applications and other information on this exciting new program, go to www.car.org/aboutus/hafmainpage/ or contact Monica Rodriguez at (213) 739-8380 or monicar@car.org.

More info: www.car.org/aboutus/hafmainpage/ 

Tax Break For First-Time Buyers

Please click the link below to see a chart on the new tax credits for home buyers in 2009.

Tax Credit.bmp

FHFA 2009 Loan Limits.pdf

Here is a good clip on the history and partial definition of the conforming loan limit:

Fannie Mae and Freddie Mac are restricted by law to purchasing single-family mortgages with origination balances below a specific amount, known as "the conforming loan limit." Loans above this limit are known as jumbo loans.

The national conforming loan limit for mortgages that finance single-family one-unit properties increased from $33,000 in the early 1970s to $417,000 for 2006-2008, with limits 50 percent higher for four statutorily-designated high cost areas: Alaska, Hawaii, Guam, and the U.S. Virgin Islands. In 2008, legislation was passed that temporarily increased the one-unit limit to up to $729,750 in certain high-cost areas in the continental United States. That legislation, the Economic Stimulus Act of 2008 (ESA), applied to loans originated between July 1, 2007 and December 31, 2008.

Loan limits for mortgages originated in 2009 are set under the provisions of the American Recovery and Reinvestment Act of 2009. Under that legislation, loan limits for 2009-originated loans are set at the higher of the 2008 limits and those that were originally announced for 2009 under the terms of the Housing and Economic Recovery Act of 2008.

cited from, http://www.ofheo.gov/Regulations.aspx?Nav=128 

You may have heard that the House of Representatives passed the American Recovery and Reinvestment Act of 2009 (i.e. the Stimulus Bill).

The bill does include provisions to re-establish the 2008 mortgage limits for the remainder of 2009 for both FHA and Fannie Mae and Freddie Mac. Accordingly, if and when the final Stimulus bill is passed, the 2008 limits will be in effect again. This would mean that the High Balance Conforming Loan Limit should be increased from $625,500 to $729,950 in the Bay Area (at this point in time, I am not sure how areas like Napa, Monterey and the Central Valley counties will be handled - as you may recall, those counties had loan limits under the High Balance program that were less than the maximum of $625,500 - so I am not sure if their respective limits will be increased to $729,950 or some percentage thereof).

The next step in the process is to gain approval from the Senate; barring an unexpected surprise, we expect this bill to pass by mid-February and the 2008 limits should be effective virtually immediately. I do not believe lenders will begin to accept applications for the "new" (or would it be the "old") loan limits until such time as the bill is signed into law by President Obama. That being said, I would not expect the increased loan amounts to have any real affect in our marketplace until March 1.

We will probably see some messages in the next few days from banks and brokers announcing the higher limits as being a foregone conclusion. Just note, that this is not yet passed into law and many lenders will most likely not accept any loans into the system at any amounts over $625,500. I will be passing along more information as the situation gets closer to a resolution. If you have any questions, please don't hesitate to give me a call.

I wanted to share some information with you, as I have been receiving many questions surrounding the pending changes to Agency (aka Conforming) & FHA Mortgage Limits. In the summary below you will find the information I know so far. Additional loan limit details from the agencies (Fannie Mae and Freddie Mac) is anticipated in mid-November 2008. I will communicate these changes to you as they become available.

Summary:

The Housing & Economic Recovery Act of 2008 (HERA) outlines the following:

The Agency (GSE) loan limit cannot decline below the current limit of $417,000

The FHA loan limit floor will not decrease below $271,050 (or 65% of the GSE nationwide limit)

The 2009 Loan Limit Calculation for both Agency Jumbo & FHA Jumbo loans in high cost areas will be calculated at 115% of the Median Sales Price (down from the 2008 calculation of 125%)

The 2009 Maximum Loan Amount is anticipated to be $625,500 or 150% of the GSE nationwide limit allowance (down from the 2008 maximum of $729,750 or 175% of the GSE limits)

See the below sections for specific details on the Agency & FHA Jumbo Changes:

Agency Changes:

Current - 2008 Agency Jumbo Economic Stimulus Limits

Floor : 1-Unit: $417,000

Loan Limit Calculation : 125% of Median Sales Price

Maximum Loan Amount : 1-Unit: $729,750

Proposed - 2009 HERA (Housing and Economic Recovery Act) Agency Jumbo Limits

Floor : 1-Unit: $417,000 (No change)

Loan Limit Calculation : 115% of the Median Sales Price (down from 125%)

Actual 2009 HERA Jumbo Loan Limits and Guidelines will be communicated when they are received from the agencies (expected mid-November 2008)

Maximum Loan Amount : Anticipated to be $625,500 (down from $729,750)

I hope this information helps clarify what the Conforming loan and FHA loan limits are expected to be starting January 1, 2009. As always, please let me know if you have any questions at all and if there is anything that I can do to assist you with your home financing.

Thanks,

Gabe

408-426-4416

Due to all of the economic news and happenings over the last month, I wanted to pass on a very informative piece that I feel you might appreciate and find valuable. We are all uneasy given the current economy but I would like to point out that this article explains that in every market there is opportunity:

“However, prices are much lower than they were one and two years ago. A patient investor will seize on this opportunity and profit in the future just like Buffett and his crowd. This is why we constantly reinforce that there is always opportunity in the marketplace. However, instant gratification is not part of this equation.”

In our current housing market there are certainly opportunities but you must keep in mind a long-term investment mind set. Please read the article below and take note of the 5 investment tips at the bottom.

Special Market Update by William F. (Ted) Truscott, Chief Investment Officer, Ameriprise Financial on Sept. 15, 2008

The landscape of financial services is being radically altered and bringing to a rapid end the golden age of financial services that has been in place for almost 25 years. Just two major U.S. investment banks remain independent today — Morgan Stanley and Goldman Sachs. Lehman Brothers is reorganizing under Chapter 11 and will be a shadow of its former self. Merrill Lynch will now become a part of Bank of America and Bear Sterns has already become part of JP Morgan. As we have written in earlier updates, the chief culprit is excessive use of debt or leverage in an attempt to turn low returns into high returns. It all works fine until it doesn’t anymore. The merger of banks and investment banks brings us full circle — back to predepression era times when these two businesses were unified. While Citigroup started the trend a few years back, these more recent pairings are at best hastily arranged marriages.

There is more bad news on the horizon, barring the arrival of an unforeseen solution that comes out of nowhere — unlikely in our opinion. A major insurer is on the ropes and is in desperate need of capital. There is also more bad news to come for several commercial banks and thrifts.

What does this all mean from an investment point of view?

1. It is very clear that there will be additional mergers of financial firms. This is somewhat reminiscent of the early 1990s when many major banks merged in the wake of the commercial real estate and Latin American debt crises. While mergers may not salvage the value lost in the last year’s downturn, they do make some sense. Vicious cost-cutting will be the source of future profits as firms rid themselves of redundant employees, back-office technology and businesses that no longer make sense. It is no secret that there are entire lines of business on Wall Street that no longer make sense, since there is no longer any funding to support them.

2. Credit will continue to tighten and be scarce. The Federal Reserve is likely to ease further tomorrow in response, but tight credit will continue for consumers and businesses. This will affect firms on Main Street as well as Wall Street. The strong and well-capitalized firms will prosper, while weaker firms will continue to fail. This is one reason that we do not recommend high-yield debt as an investment yet. Default rates are set to go higher and yields will need to go higher as well. When yields further reflect anticipated default rates, high-yield debt will be a very good opportunity.

3. Capital is in short supply. Those who have plenty of it will prosper, while those who do not will suffer. Those who can obtain access to capital will do better than those who cannot. It’s always a good idea to invest where there are shortages and right now capital is in short supply and being priced at a premium. Legendary investor Warren Buffett has always had plenty of capital at his disposal. His companies and others like them will make a fortune buying businesses at distressed prices. This holds lessons for the individual investor and this is likely the only good news they will find. Financial assets are on sale! We are a remarkable society in that we will buy almost any good on sale, except financial assets. This is because we all fear financial loss and will do just about anything to avoid it. However, prices are much lower than they were one and two years ago. A patient investor will seize on this opportunity and profit in the future just like Buffett and his crowd. This is why we constantly reinforce that there is always opportunity in the marketplace. However, instant gratification is not part of this equation.

4. Markets will bottom at some point. As we have said in the past — everyone is always wrong at the turn. We cannot predict when this will happen but we are fairly certain that the government has decided to try and let markets settle without interfering any further. This may just be the beginning of that final “I can’t take it anymore” sell-off that usually marks the bottom.

5. As stated previously, the housing crisis, which is at the root cause of many of today’s problems, is not over and will not be over for at least another year. Look for an end to the decline of real estate prices as an indication that markets have bottomed.

6. Finally, we must emphasize that these are truly unprecedented times. It is fair to say that most people in the financial services business today have never seen anything like this in their working lifetimes. The lack of liquidity, dislocation in the system and general uncertainty will mean that stomach-churning volatility will continue until markets eventually reach bottom.

We will continue these updates as this situation unfolds. In the meantime, we also suggest that you meet with your financial advisor to review your plan and make adjustments as a result of the last year’s market declines, if needed. To some extent, we are all prisoners of what markets will give or take away from us, and just as we need to adjust to rising or falling paychecks, the same is true for rising or falling markets.

As always, the best advice we can give you is to stay focused on your long-term goals and objectives, and consider the following five tips for investing:

1. Review your financial plan — now is the time to make sure that your financial plan addresses the current volatility as well as your long-term goals, and to make adjustments if necessary.

2. Don’t let emotions affect your financial future — market ups and downs will always occur and the turbulent markets we have seen are likely to continue in the near term. Keep your long-term focus in mind and don’t let emotions drive your decisions.

3. Diversify, diversify, diversify — proper diversification and asset allocation is more important than ever during times like these. Don’t forget the importance of product diversification along with asset diversification.

4. Be disciplined — over time, disciplined investment strategies like dollar-cost averaging can help smooth out market fluctuations and help you weather these volatile markets.

5. Avoid market timing — being out of the market for even a short time can cost you significantly. Trying to predict the exact times the markets will rise and fall is almost impossible and creates undue risk. Simply put, market timing does not work.

This week President Bush signed H.R. 3221 into law on July 30, 2008. This bill is about 700 pages long and extremely complex and covers many issues associated with home ownership and home financing. Therefore, I am only including a few highlights on topics which I feel are extremely important to be aware of. Enjoy the reading below and as always, feel free to contact me for more information:

First-time homeowner tax credit

The law will extend a tax credit of up to $7,500 to first-time homebuyers. A first-time homebuyer is defined as someone who hasn't owned a home in the last three years.

The tax credit is for 10 percent of the purchase price, up to $7,500, but phases out for higher-income homeowners. Homeowners are eligible for the tax credit if they bought between April 9 of this year and before June 30, 2009.

This is a tax credit, not a deduction. It reduces the homeowners' tax bill by up to $7,500 for the tax year in which the purchase was made. If you buy a house this year, you get the tax credit for the 2008 tax year -- the one with a filing deadline of April 15, 2009. If you buy a house next year by the end of June, you get the tax credit for the 2009 tax year. It's a one-time credit; you don't get to keep taking it year after year.

There is a catch, and that is that the money has to be repaid over 15 years, starting two years after you buy the house. That makes the tax credit an interest-free loan. If you take the full $7,500 tax credit, your income tax bill will increase by $500 a year for 15 years. If you sell the house before then, you'll have to pay Uncle Sam the remaining balance.

Complex issues, such as divorce, death, sale of the house at a loss and conversion of the house into a vacation home are accounted for in the law.

Forgiveness to allow refinancing into FHA

A lot of people have fallen behind on their mortgage payments after the rates went up on their adjustable-rate mortgages, or ARMs. And they can't refinance into fixed-rate loans because their homes have lost value, and they owe more than their houses are worth.

The housing rescue law seeks to help these people get out of trouble. It encourages lenders to forgive some of their debt so they can refinance at lower amounts into mortgages insured by the Federal Housing Administration, or FHA.

It works like this: The lender has to forgive all the debt above 90 percent of the home's current appraised value. If that leaves you scratching your head, here is a hypothetical example, using round numbers:

Sometime before Jan. 1 this year, you bought a house for $125,000 and got an ARM for $110,000 after making a $15,000 down payment. But the house lost value. Now it's worth $100,000, based on an appraisal. Meanwhile, the ARM's rate went up and you can't afford the full payment every month.

Under this law, the lender would forgive everything you owe above $90,000.

Let's say that you owe $105,000 of that original $110,000 loan. The lender would forgive $15,000, and let you pay off the loan for $90,000. The lender would not be allowed to seek any of that $15,000 later.

That allows you to find another lender who would underwrite a $90,000 mortgage to be insured by the FHA. That loan amount would include the upfront FHA insurance premium of roughly $2,700.

Again, there is a catch. If you take refuge in this program, you'll have to share your home-price appreciation with the FHA. If you sell the house (or refinance the loan) less than a year after refinancing into the FHA loan, the FHA gets all of the house price appreciation. The FHA's cut decreases over the next five years -- but never goes below 50 percent.

What does this mean to the borrower? Take the example above. You refinanced when the house was appraised at $100,000. A little over two years later, you sell the house for $120,000. You split that $20,000 difference with the FHA.

In this case, because it's between two and three years later, the FHA gets 80 percent. The FHA would get $16,000 and you would get $4,000.

The equity-sharing arrangement goes like this: If you refinance or sell less than a year after getting the FHA loan, the government gets 100 percent of the home price appreciation. If it's more than a year but less than two years, the FHA gets 90 percent. The FHA's cut then decreases by 10 percent until the five-year mark. Anytime after that, the FHA gets half of the appreciation, no matter how long you have the loan or own the house.

This arrangement will encourage homeowners to keep their FHA-insured mortgages for at least five years, but to refinance before home prices zoom upward again.

Working with home equity debt

The government has been trying all year to encourage lenders to forgive debt so homeowners can refinance their loans for lesser amounts and remain in their houses. Lenders have been reluctant to forgive the debt. The FHA-refinance plan is another way of encouraging debt forgiveness.

Among the sticking points: Many homeowners have home equity lines of credit or home equity loans. In most cases, these lenders will lose that entire loan balance under the FHA-refinance plan. The new law is low on specifics, but it gives the FHA permission to give second lienholders a cut of the home price appreciation proceeds that the FHA collects.

Down payment assistance soon to be a thing of the past

The new housing rescue law bans down payment assistance programs such as the ones offered by Nehemiah and AmeriDream. The ban goes into effect Oct. 1.

Down payment assistance programs took advantage of a loophole in the way the FHA treats down payments. To get an FHA-insured mortgage, the homeowner has to make a down payment of at least 3 percent. Homeowners don't have to save even that much; the 3 percent can come as a gift from family members or nonprofit organizations.

Regulations don't allow the home seller to provide the down payment money.

That's where down payment assistance programs come in. They are nonprofits.

That allows the seller to give the 3 percent down payment money to Nehemiah or AmeriDream, and then Nehemiah or AmeriDream can turn around and "give"

the down payment to the homebuyer as a "donation."

Fannie Mae and Freddie Mac don't allow sellers to indirectly give down payments to buyers. But the FHA has allowed this type of transaction for years. The FHA has long complained that down payment assistance programs artificially inflate house prices, and that loans using down payment assistance are more likely to default. But prominent congressional democrats have protected the down payment assistance programs on the grounds that they allow many minority families to become first-time homebuyers.

House Democrats wanted to keep the loophole open, and Senate leaders wanted to close it. With this law, the Senate won.

Property tax deductions for all homeowners

Under current law, you can deduct your property taxes from federal income tax -- but only if you itemize deductions on Schedule A. That leaves out people who don't have enough deductions to justify filling out Schedule A.

They have to take the standard deduction -- and that means they can't deduct their property taxes.

The housing law changes that. For homeowners who pay property taxes, it increases the standard deduction by $500 for single filers and $1,000 for couples filing jointly. This will be a benefit to people, such as retirees, who own their houses outright, and therefore don't pay any mortgage interest, so they can't itemize.

You can't increase the standard deduction by more than the property-tax bill. So if you're married filing jointly and you pay $800 in property taxes, you get an $800 deduction, not a $1,000 deduction.

Loan limits extended permanently, but…

There are maximum amounts for loans that the FHA will insure, and that Fannie Mae and Freddie Mac will guarantee. Those limits were raised temporarily this year. The new law raises limits permanently.

For FHA-insured mortgages, the new limit will be 115 percent of the median home price in that area, up to $625,500. That provision will affect loan limits in higher-cost areas. In lower-cost areas, the current FHA limits won't decrease. However, FHA will also be requiring a minimum down payment of 3.5% versus the current 3% down payment.

For conforming mortgages -- those eligible to be bought by Fannie Mae and Freddie Mac -- the conforming limit will remain at least $417,000 for a single-family home. It can be higher than that. Starting next year, the new limit is either $417,000 or 115 percent of the area's median home price, whichever is higher -- up to $625,500. In our area we are expecting the new conforming loan limit to be $625,500 starting January 1, 2009. Therefore, the $729,750 conforming-jumbo loan will be a thing of the past after December 31, 2008.

More regulations on reverse mortgages

A reverse mortgage is an advance against home equity. It's for homeowners age 62 or older, and the reverse mortgage doesn't have to be repaid until the borrowers die or move out.

Because reverse mortgages are for elderly borrowers, there is concern that dishonest lenders and brokers take advantage of borrowers. Borrowers are required to get counseling first, to learn the pros and cons of reverse mortgages. The law will result in strengthened qualifications for counselors.

The law bars insurance salesmen from originating reverse mortgages and prohibits originators from requiring homeowners to buy annuities or insurance products. (There's one big exception: The FHA insures reverse mortgages, and borrowers will buy that coverage.)

Finally, the law limits origination fees on reverse mortgages. They can't exceed 2 percent of a reverse mortgage of up to $200,000. For a reverse mortgage amount above that, the limit is $4,000, plus 1 percent of the loan amount above $200,000. Origination fees can't exceed $6,000 in any case. In future years, this upper limit is indexed to inflation.

Veterans

Service members returning from active duty abroad will be given breaks, effective immediately now that the bill has been signed into law.

Some protections apply to service members whose military obligations affect their ability to repay debts -- primarily, reservists and members of the National Guard who are called to active duty. They have to leave their jobs and, in many cases, take pay cuts.

For these service members, there are protections having to do with foreclosures and interest rates. If a service member had a mortgage before entering active duty, a lender can't start foreclosure proceedings until nine months after the service member returns from active duty. Formerly, the protection period was 90 days.

Also, when someone with a mortgage is called up to active duty, the interest rates on all previously existing debt are capped at 6 percent. That goes for mortgages -- and for home loans, that 6 percent cap extends until one year after the service member returns from active duty.

The Defense Department will be required to provide foreclosure-prevention counseling upon request to service members who are returning from active duty abroad.

To read HR 3221 in its entirety, click on the link shown below:

http://www.house.gov/apps/list/press/financialsvcs_dem/hr3221_bill_text.pdf

Many clients are asking me the question, "So what financing options are still available with less than 20% or 25% as a down payment?"

It is true that many lenders are requiring 20-25% as a minimum down payment on loan amounts above the conventional conforming loan limit of $417K. However, if you are financing between $417K and $729,750 in the bay area, there are still options for you to buy a home with less than 20% down.

First, there is FHA financing up to $729,750 with as little as a 3% down payment. However, on all FHA loans you are required to pay MI (Mortgage Insurance) monthly and an up-front MI premium (at the time of closing your loan) of 1.5% points.

Additionally, there are a few other options available today for financing up to $729,750 with as little as 10% outside of an FHA loan. Here are the tricks:

1. If you finance up to $729,750 with 10% down, you can do (1) loan with Mortgage Insurance (MI). MI has been viewed as an added cost that nobody wanted to pay in the past but it is certainly a viable option today. Given this scenario, MI is about $372 per month.

2. If you are putting 10% as a down payment, we can do 1 loan up to $729,750 without monthly MI. This option is called LPMI (Lender Paid MI). The way this works is that the lender charges an extra 0.625% on top of your interest rate which alleviates the need to pay monthly MI.

Example-

$720K loan at 6.5%= $4550.89 per monthly for principal and interest plus roughly $372 per month for MI. (MI is not tax deductible if your household taxable income is over $110K per year. Please consult your tax advisor for more info.)

$720K loan at 7.125%= $4850.77 (no MI necessary). This is $72.12 less per month even with 0.625% higher interest rate and you have a larger tax deduction than the above if your income is above $110K per year.

3. The last option is to pay a one time MI premium up front and not pay MI monthly. This is called "Life of Loan" MI aka single premium. If you are putting 10% as a down payment with a loan amount up to $729,750 you will pay 1.6% points up front.

Example.....$650k loan x 1.6% = $10,400.00 life of loan single premium.

This premium can be paid for by the seller/builder and you would have your MI paid for for the life of the loan by seller/builder. If the loan is paid off (whether the property is sold or refinanced), the unused portion of MI will be deducted from principal balance owned.

I hope this information helps you understand what financing options are still available today with less than 20% as a down payment. These are definitely uncertain times in the banking and lending industry but rest assured there are still many banks and financial institutions who are making loans and who are committed to staying in the business. As always, if you or anyone you know has any questions regarding financing, please feel free to contact me at 650.492.4071.

Thanks,

Gabe

A: No. For drivers under the age of 18, this is considered a SECONDARY violation meaning that a law enforcement officer may cite you for using a hands-free wireless phone if you were pulled over for another violation. However, the prohibition against using a handheld wireless telephone while driving is a PRIMARY violation for which a law enforcement officer can pull you over.