MARKET UPDATE – MAY 2009

Foreclosures Hardest Hit Markets – Top 10

1. Las Vegas, Nevada: 1 in 22 homes
2. Merced, California: 1 in 24 homes
3. Fort Myers, Florida: 1 in 26 homes
4. Stockton, California: 1 in 27 homes
5. Ontario, California: 1 in 28 homes
6. Modesto, California: 1 in 29 homes
7. Bakersfield, California: 1 in 37 homes
8. Vallejo, California: 1 in 37 homes
9. Phoenix, Arizona: 1 in 40 homes
10. Port St. Lucie, Florida: 1 in 46 homes

Total foreclosure filings reached 803,489 in the first three months of the year, the highest monthly and quarterly totals since RealtyTrac began reporting in January 2005.

342,000 home owners received a notice of default in April. -Source: CNNMoney.com

Home Values Fall

Home sales in March were down from April, which saw an increase in sales and value.

“The National Association of Realtors said that existing home sales fell last month to a seasonally adjusted annual rate of 4.57 million units, 3% lower than the downwardly revised rate of 4.71 million in February. “

The report said first-time buyers made up 53% of existing home sales in March. And sales of "distressed properties" accounted for just over half of all transactions in the month. Foreclosed homes typically are selling for 20% less than traditional homes, according to NAR.

"The share of lower-priced home sales has trended up, indicating a return of many first-time buyers," said Lawrence Yun, NAR chief economist, in a statement. "Sales in the upper price ranges remain stalled because of higher interest rates on jumbo loans."

The national median existing-home price was $175,200 in March, up 4.2% from $168,200 in February. Still, the median existing-home price was down more than 12% since March 2008, when it was $200,100.

HR 1728 Mortgage Reform and Anti-Predatory Lending Act

HR 1728 passed the House on May 7th. Although the bill has many constructive elements, the bill also has the potential in its entirety to put undue pressure on the mortgage industry and increase borrowing costs to all potential borrowers. Below are some of the most controversial aspects of the bill.

Steering Incentives/Yield Spread Premiums: Yield spread premiums and other compensation that could cause mortgage originators (i.e., mortgage brokers and bank loan officers) to “steer” applicants toward more costly mortgages are banned for all mortgage loans.

Sounds good on the surface, but only to those that do not understand the function of yield spread premiums and the potential benefit to the customer. Yield spread premiums (YSP) is paid to the mortgage banker/broker when an interest rate is increased over the “par” rate. Example: 4.50% is the par rate (which nets $0 to the broker), 4.75% will pay 1% of the loan amount to the broker by the lender. If the customer chooses the higher rate, the mortgage broker can reduce loan fees or offer a no “points” mortgage. This may benefit the borrower by paying lower closing costs if they intend on living in the property a shorter period of time (in most cases < 5 years). By eliminating yield spread premiums, all borrowers will pay higher fees, and points. Consumer options would be limited.

Ability to Repay/Net Tangible Benefits: Every residential mortgage loan will subject to two new Federal standards that apply to creditors, assignees and securitizers. At the time the mortgage is entered into, the creditor must make a reasonable, good faith determination:
1. that the consumer has a reasonable ability to repay the loan at a fully indexed fully amortizing rate, based on verified and documented information including the consumer’s credit history, current and expected income, debt-to-income ratio, and other financial resources; and
2. for refinancings, that the loan will provide a net tangible benefit to the consumer, based on information known or obtained in good faith by the creditor.

David G. Kittle, CMB, Chairman of the Mortgage Bankers Association, while testifying before the House Financial Services Committee at a hearing on H.R. 1728 on April 23rd stated, “The bill’s provisions empowering the federal banking agencies to establish net tangible benefit rules for refinancings should require that these standards comprise bright-line tests such as a specific percentage decrease in loan payment or percentage increase in loan amount. If these standards remain subjective, credit will be far more costly, if it is available at all.”

Credit Risk Retention: Requires the Federal banking agencies jointly to issue regulations that require creditors, with respect to loans other than qualified mortgages to retain an economic interest in a material portion (at least 5 percent) of the credit risk of each such loan that the creditor transfers, sells, or conveys to a third party. A creditor may not directly or indirectly hedge or otherwise transfer the credit risk it retains under these regulations.

“We are just as concerned about the requirement that lenders retain at least five percent of the credit risk presented by non-qualified mortgages.”- David G. Kittle, CMB, Chairman of the Mortgage Bankers Association

According to Kittle, the risk retention provision would make it impossible for many lenders to compete, especially non-depository lenders who do not keep significant cash on hand but rather rely on warehouse lines of credit. This idea would ultimately narrow choices, lessen credit and significantly increase costs to borrowers. – mortgagebankers.org

The definition of “qualified mortgages” is so vague that it could eliminate most if not all mortgage brokers and mortgage bankers that do not have the capital to retain a 5 percent interest in loan originations.

According to Kittle, H.R. 1728 would raise costs on broad categories of safe mortgage products, including loans with adjustable rates, many jumbo loans, fixed 15, 20, 25 and 40-year loans, FHA, VA and Rural Housing loans, as well as some Fannie Mae and Freddie Mac mortgages. – mortgagebankers.org

“Lenders already have skin in the game by virtue of their representations and responsibilities to investors,” Kittle pointed out.

To view the bill in it’s entirety go to: http://www.house.gov/apps/list/press/financialsvcs_dem/1728.pdf

There are already 15 proposed amendments to the bill which still have to go before the Senate; who is working on a similar bill.

Financing Options for Home Buyers / Owners

Upside Down: If you currently have a mortgage that is more than your homes value, you may be able to refinance if you owe less than 105% of the homes value. If you exceed 105%, or have a Jumbo mortgage, you may not have any refinance options available at this time.

1st Time Home Buyer: $8k tax credit is still available. There are also rumors that HUD will allow this to be used as a down payment in the form of a bridge loan in the near future.

Currently have a FHA mortgage: If you currently have a FHA mortgage with a rate of 6% or greater, you may be able to do a streamline refinance to lower your payment, with little or no fees, and no appraisal.

Interest Rate Update:

Mortgage Type Interest Rate APR

30 Year Fixed 4.500% 4.780%
15 Year Fixed 4.250% 4.735%

Call today for your individual scenario rate quote.

*Interest rates as of 05/14/09. Interest rates and APR based on loan amounts not to exceed $417,000. Loan to values not to exceed 80%. 740+ credit score. Owner occupied only. Purchase and rate in term refinances. Not all applicants will qualify.

Aaron VanTrojen
President
Geneva Financial, LLC.
480-368-2000
aaron@genevafi.com