As most of you have heard, the government is attempting to create solutions for what they term the "Subprime Meltdown". One of the steps taken was to raise conforming loan limits that qualify for Fannie Mae and Freddie Mac government backed loans, and the FHA Loan Limits. Southern California has not been able to use FHA loans for years because the past maximum loan amount was $417,000, much less than our "Old" average home price. The new limit for our area 697,500, is being put in place by most lenders and several lenders are geared up to start this new limit on Monday March 17.
While these changes will help out "some" homeowners, it is definately not the solution to the housing problem. Reasons that I feel this:
A lot of markets, including Southern California, are considered 'declining markets'. In this case almost all lenders are automatically deducting 5% of the value from the appraisal value- so, not only do you have to come up with 5%-20% down payment (depending on credit score, loan type etc) but also another 5% due to declining market deduction taken off the maximum loan amount.
A very large number of homeowners either purchased or refinanced in the past 2-3 years with adjustable loans and at 80% or more of their home value at that time- which turns out to be the absolute height of a frenzied market. Most areas have declined in value by double digit numbers and there is NO equity or even the situation of what we call 'upside down' value on homes. So what is owed is more than what the house is worth. There are plenty of A paper, high credit scored borrowers that got caught in this situation. This is certainly not just a 'subprime loan' problem.
IF the banks don't work with borrowers in the above situation, there is no other option other than to short-sale the house (meaning: sell if for LESS than what is owed) or letting the bank foreclose on the house or just handing the bank the keys and deed. When a glut of these homes come on the market- and we are just at the tip of the iceberg on the number of these homes that are getting ready to face this situation- then you have the other homeowners in the neighborhood that realize their homes are not worth what they owe, and even though their payment is not adjustable, and they can still afford the home loan payments, there may be a point when they realize that the cost to stay is just not worth it and they too will give the bank their keys and walk. There is an area in Corona where homes sold for $1.2M two years ago, now more than half the homes are bank owned and foreclosures and the values are now $650,000!! Kind of hard to imagine that someone oweing even $850,000 and in a loan they can afford would stay and pay waiting God knows how many years for the market to hit bottom and then to rise again to the point where it was.
Finally, even if someone has a bit of equity to be able to refinance out of their adjustable loans the banks have severly tightened up their lending standards. Now you MUST come in with some money to create some kind of equity in the home- no more 100% home loans (FHA requires 3% down plus .55% of the loan amount per year to pay mortgage insurance- the plus for FHA is that they are not YET taking the 5% declining market value hit off the appraisal), depending on your credit a 95% loan-to-value may be possible. Also you must have documentable income, assets that are liquid (cash) and have value of at minimum, 3 months of your monthly payment (principal, interest, taxes, and insurance- PITI), and your debt ratio (income vs expenses) has to be reasonable. Stated income loans are very hard to qualify for. Basically lenders want proof you can afford the loan.
In my opinion this housing disaster will last until late 2010 into 2011. Bank owned homes will be more than half of all the homes for sale, the auction companies will not be able to keep up with the amount of homes that the banks need to get rid of. The market will come back, but at a more reasonable steady pace. Looking back home prices rose 200% along with wages at about the same amount over almost 20 years. Over the past 5 years houses again rose almost 200% and wages rose less than 5%; not realistic in affordability of homes is it?? So, hang on for the ride- real estate is still a great investment. If you are looking to buy a home you are one of the lucky one! Congratulations! You will get in at the right time and have an excellent long term fixed interest rate on your loan.
Four things I can help you with:
1. Did you purchase at the height of the market and need to have your property taxes re-assessed? I can get you comparable homes to send in with your request to the Tax Collector that show the new lower value of your home.
2. Looking to buy a home at this BEST time in the market? Go into my home search on the web site and input your perameters- Or shoot me an email and I can put you directly into my MLS search and everytime a home meets your criteria you will receive an email with all the information about the home and when you see one you want to look at let me know and we can schedule a viewing.
3. Need to clean up your credit? I can help you get your credit score up so that you can qualify for the best loan rates and terms saving you thousands of dollars over the life of your loan.
4. Need help working with your current lender in negotiating your adjusting loan? I have experience in what they will and won't do and how to approach them in getting the best results of a loan work out so you don't lose your home. At any cost- do not just ignore the problem, it is in the bank's best interest to help you. They really DO NOT want your home back, that is not their business :-) I can at least help you to discover your options.
Comments, Questions: DebEspo@aol.com