Mortgage Rates Report

The National Association for Realtors convinced FNMA to lift its "declining market" down payment policy:

 

Fannie Mae is scrapping a "declining markets" policy that required loan underwriters to boost minimum down-payment requirements by 5 percent in areas where home prices are falling or difficult to determine.

Beginning in June, Fannie Mae will instead require 3 percent down payments for conventional, conforming mortgages processed through its Desktop Underwriter automated underwriting system, and 5 percent minimum down payments for loans processed manually. Larger down payments may be required depending on occupancy, property and transaction types.

The new single national down-payment policy will retire a controversial declining-market policy announced in December. The policy, implemented Jan. 15, boosted the minimum down payment required by 5 percent when Desktop Underwriter flagged a property as being located in an area of declining home prices or where it was difficult to assess home values. The policy also applied if an appraiser determined a property was in a declining market.

 

Californians rejoice, right?  Not so fast.  There are a few more moving parts in the mortgage industry and the NAR lobby can't provide enough lubricant to remove the rust.  Mortgages with a down payment of less than 20% can't be funded without:

 

a) a corresponding second mortgage for the amount over an 80% loan; NOBODY is making second mortgages at the 95-97% level.

 

b)  private mortgage insurance; the PMI insurers just aren't playing ball.

 

MGIC, the big private mortgage insurer, has their own "restricted markets list".  If the property falls in a restricted market,  down payment and credit requirements are more onerous than the FNMA policy.

 

FNMA threw a party but nobody showed up.

Canadian investors, seeking American mortgages, may be in for a shock when "shopping".  The American mortgage banking and brokerage system is different than the Canadian banking system.  In Canada, there are 5-7 major banks or lenders and a variety of mortgage brokers.  Both lenders and mortgage brokers, in Canada, are heavily regulated.  Loan programs, in Canada, are fewer than the loan programs offered in the States.  The American mortgage industry relies heavily on the seciritization of mortgage loans.  As such, there are big banks and small mortgage brokers who may very well offer identical loan programs.

 

Should Canadian investors then deal only with large American banks?  Ask Canadian investors, with properties in escrow, this past week.  Two major American banks cancelled their loan programs, on April 1, 2008, for Canadian citizens buying properties in Arizona, California, Florida, and Nevada.  I have fielded 5-7 calls each day, since Friday, from frustrated Canadians.

 

Consider this question, posed by a Canadian borrower (about a Canadian mortgage):

Mortgage broker or big bank, and does personality count?

 

Do I let them compete against each other until zero hour? Hang it all and go with Broker Billy? Is there some advantage to having one's mortgage with a big bank? How important is it that I like who I'm dealing with? (If that's important, it looks to be particularly so here. Bob and Barbara irritate; Billy, I like, and he/his assistant are top-notch at quickly giving good answers to questions.) What sort of "what else is involved vis-a-vis your brand of mortgage" questions should I be asking?

 

Personality, I'll admit, is important for investors dealing with a "foreign" mortgage originator.  The reason is that the American mortgage market is in turmoil.  Loan programs change constantly.  An American mortgage broker, experienced at financing "foreign nationals", offers a much better alternative than relying on an American bank.  American banks are extremely risk-averse today.  The banks tend to honor commitments made to American mortgage brokers because of the repeat business we give them.  American mortgage brokers deal with hundreds of lenders and can be nimble if one bank decides to break its loan commitments to Canadian investors.

 

Rate is important, no doubt.  Selecting the proper loan program is equally as important.  While Canadian mortgage money is offered at the 5-5.5% range, it typically has a five-year term attached to it.  Thirty year fixed rate options, at 7.0% (7.3% apr) are available for Canadian investors.

 

Reputation is of paramount importance.  Your American REALTOR can direct you to a knowledgeable mortgage broker.  That mortgage broker should be able to give you names and telephone numbers of happy customers, from foreign countries, whom she financed.

 

Ask me for references should you need an American mortgage.

 

Canadian investors, who need American financing, can apply online, call me at 858-777-9751, or e-mail me.  My contact information and resume is here.

Canadian investors have been flocking to the California coastline and Arizona desert to buy prime American real estate at a bargain.  The strong Canadian dollar, while inopportune for Canadian manufacturing firms, is giving Canadian investors built in downside protection when they buy American real estate.  I explain that here:

 

In January of 2007, a Canadian investor, buying a $300,000 (US)  property in Long Beach, CA, , would have to pay $352,600 (Canadian).  That was based on an exchange rate of $1.17553 Canadian to $1.00000 (US).  Today, the exchange rate has dropped to $.98188 Canadian for one US dollar.  That means that the same property in Long Beach, would costs $294,300.

 

The vacuum, however, lies in the mortgage financing for Canadian investors.  Mortgage companies require as much as 35% down payment for Canadian citizens buying a vacation home in America.  In some areas (California, Arizona, Nevada, and Florida), that financing is about to be suspended.  The leading bank suspended its loan programs, for Canadian investors, in those four states, as of April 1, 2008.

 

Canadian investors are also learning that all American mortgage brokers are not created equal.  Rates for foreign nationals (which is what the American banks call Canadian citizens) are traditionally 1% higher than American residents receive.  That means that today, the mortgage rate for Canadians is between 7-7.5%; quotes from mortgage brokers, promising materially lower rates, generally don't pan out.  The result?  Frustrated Canadian investors are left at the altar like the husband in "The Runaway Bride".

 

The American mortgage crisis is causing banks and lenders to scrutinize every single loan application with a watchful eye; Canadian investors are losing out.    We advise foreign nationals to find an American mortgage broker, with a proven track record, rather than to jump at the "lowest" rate quote. 

 

Brian Brady finances investors from all over the globe.  References here.  Loan applications, for foreign investors, can be made online.

One from the archives:

I must admit that my heart finds for some strange affections. I love dingbats! Now..I better explain myself. I'm not referring to an "intellectually disinclined" woman. I'm talking about the multi-family building so prevalent to Southern California.

 

FROM WIKIPEDIA:

A dingbat (also called a stucco box or a shoebox), is a type of architecturally undistinguished apartment building that flourished in the Sun Belt region of the United States in the 1950s and 1960s. Dingbats are boxy, two- or three-story apartment houses with overhangs sheltering street-front parking.

Particularly popular in southern California, but also found in Arizona, Florida, Hawaii and Nevada, they are known for their downmarket status and inexpensive rents. They are currently experiencing a minor sentimental renaissance thanks to the mid-century modern design return to vogue. In spite of their serviceability as functional, affordable housing, and the niche appeal of their trappings and trim, dingbats are widely reviled as socially alienating visual blights; California historian Leonard Pitt said of them, "The dingbat typifies Los Angeles apartmentarchitecture at its worst".

 

Why do I love dingbats? These apartment buildings offer one of the greatest challenges to a real estate financier. They don't qualify for residential financing because they are usually greater than 4 units. They are "small commercial" deals that banks pick apart with a fine tooth comb. They generallly don't cash flow greater than 60% LTV in Southern California so it is hard for investors to leverage themselves. They do, however, provide a great opportunity to make money because they have been generally mismanaged and aren't receiving market rents.

 

Let me give you an example of a property I just financed. It is less than 500 feet from the sands of the beach in Imperial Beach, CA and was built in 1954. It is mostly studios and one bedrooms with monthly rents of $6600. The investor bought the property for $1.1 million. Banks wanted to finance him at a maximum of $500,000 with no subordinate financing; they were going off of his market rents. Now come on! $660/month for a beach apartment in Southern California..unheard of!

 

This investor plans to sink $100K-$150K into the building to upgrade the facade and interiors. Updated, an apartment this close to the beach can command upwards of $1,000/month. It is extremely close to Coronado Naval Base, home to over 5000 sailors. These sailors receive over $1,200 allowance for off base housing. He has a natural market less than five miles from his property. Now, what do you think the effect of future rents will have on the ability to service the loan? If you're thinking that it is positive, you are correct. We recognized that and made a hard money loan to purchase this building, allowing for seller-carryback financing of 30%.

 

One of my favorite things about dingbats is the kitschy names for them. The complex name is usually emblazoned across the facade in aqua or salmon and has names like "Palm Gardens" or "Beverly Palms". Dingbats are so retro cool, it makes you want to don a bowling shirt and fedora and have your picture taken in front of the property.

 

Yep...I love dingbats. I love the fact that they offer affordable rents to the masses and a great return for investors. Banks hate them, I love them. If you need financing for a dingbat...call me at 858-699-4590.

The 2008 Housing Outlook article for US Investors won the Odysseus Medal this week.  I've stated before that this is quite an honor as it is an anthology of the week's best real estate opinions on the internet.

 

Excellent articles about real estate :

 

Kris Berg — Real estate blogging, The Real Reason Your Agent Should be Blogging Michael Wurzer — Advertising, Everything Is Advertising Geno Petro — Serendipity, Serendipity, straight up Jay Thompson — NAR COE, 7,373 Words - The NAR Code of Ethics Brian Brady — Market outlook, 2008 Housing Market Outlook For U.S. Investors Chris Johnson — 2011, Why 2011 might not even be the end Jim Watkins — Foreclosure, Sad Story of a Family in Foreclosure: Some things You Hate to See Mariana Wagner — RE agent, You know you’re a real estate agent if… Jim Duncan — NAR speak, Why use a realtor - decoding nar-speak Robert Ashby — Credit crunch, What Should be Done About the Continued Credit Crunch? How About Nothing? Marlow Harris — Iggy’s House, Iggy’s House and B.S. Realty Jeff Brown — Lenders lend, Lenders Clearing Deck To Blink, Uh, Lend — What Will They Think of Next? Cathleen Colins — Memories, Memories of my Dad in the house he never got to see