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Most of California is considered by lenders to be a declining market.  What this means is that lenders put even greater restrictions on guidelines such as the amount of money that they are willing to lend to any given borrower. 

For example, one of the common practices that I am seeing today for the new Jumbo-Conforming loans (up to $729,950) backed by Fannie Mae and Freddie Mac (Government Sponsored Enterprises), which based on their new guidelines would lend up to 90% of a Purchase price (CLTV) for a Primary Residence household is an automatic 5% reduction due to a declining market, bringing it down to 85% CLTV.

Also, due to the declining market and high foreclosure rates, many lenders are putting a freeze on the Home Equity Lines of Credit (HELOC's).  Unlike a fixed loan, a HELOC is very much like a credit card and is therefore very flexible.  People use the HELOC to pay for many things such as credit cards, bills, home improvement, property taxes, etc.  Some even use their HELOC's as a down-payment for another property.  As another benefit, the interest paid on the HELOC's is tax deductable.

So, if you are using your HELOC on a regular bases, be AWARE that your may be receiving a letter from your bank letting you know that your HELOC is now frozen!  With the 2'nd installment of the property taxes due on April 10'th, don't wait to make that payment if you are planning on using your HELOC.

Finally, for those of you on the fence thinking that the home prices may continue to decline even further...consider a couple of points:

• Lenders are getting more and more stringent about their requirements and its getting harder and harder to qualify borrowers.  This is especially true if you are considering to purchase an investment property (non-owner occupied or NOO)
• Long-term Fixed Rates are likely to go up:
• The Fed has just recently cut an additional 3/4% but don't expect mortgage rates to go down too.  Consider recent history.  The Fed issued an emergency cut of short term rates in early January and then trimmed more just a few days later, but the 30 year fixed mortgage rate has responded by bouncing up from 5.6% to 6.4%. 
• Long-term mortgage rates are mostly tied to the 10-year Treasury yield, which is determined by bond traders worldwide. 
• Inflation drives long-term fixed rates.  When the Fed cuts short term rates, the intent was to lower borrowing costs for corporations so that they'll invest and hire.  But this economic growth can lead to inflation.  That in turn leads bond traders to demand higher rates on their long-term bonds, and that drives up mortgage rates too. 
• The Fed began a series of cuts on its key interest rate late September, taking the rate to 2.25% from 5.25%.

Bottom line, make the decision on what side of the fence you want to be sooner rather than later.

Good Morning,

Hope you had a great weekend!

Kick off the week by a review of our Newsletter to keep you up to date on Real Estate & Financing News.

Read about the 2008 National Association of Realtor's Forecast. Check out the New Homes Now Selling in Windemere. Review the Mortgage Rates as of today.

March 2008 Newsletter

Have a Real Estate or Financing Question?

Give Zia a call at (925) 984-7671 or Oleg at (925) 984-7734 today!

We look forward to hearing from you.

Have a Great Week.

Best Regards,

Oleg & Zia Chernyak 

FHA Releases New Mortgage Limits for California Counties

FHA Max Limits Include 14 CA Counties

* FHA Press Release *

WASHINGTON - Tens of thousands of California families could be eligible this year to purchase or refinance their homes using affordable, government-backed mortgages, thanks to the economic growth package signed into law by President Bush. The Economic Stimulus Act of 2008 will allow HUD's Federal Housing Administration (FHA) to temporarily increase its loan limits and insure larger mortgages at a more affordable price in high cost areas of the country.

"The Bush Administration is expanding the pool of eligible borrowers, enabling more American families to qualify for safe, affordable FHA-insured mortgage loans. These temporarily higher loan limits are a shot in the arm for communities trying to sustain property values, bringing much-needed liquidity to the mortgage market, while helping many current homeowners who desperately need to refinance," said HUD Secretary Alphonso Jackson at a forum on how to prevent foreclosure at the Operation Hope Center in Los Angeles and a Hope Now Alliance event in Anaheim.

Beginning tomorrow, HUD will offer temporary FHA loan limits that will range from $271,050 to $729,750. Overall, the change in loan limits will help provide economic stability to America 's communities and give nearly 240,000 additional homeowners and homebuyers a safer, more affordable mortgage alternative. The maximum amount of $729,750 will only be applicable to extremely high-cost metropolitan areas such as:

• Los Angeles County
• San Francisco County
• Orange County
• Santa Barbara County

Previously, FHA's loan limits in these very high-cost areas were capped at $362,790.

The Economic Stimulus Act of 2008 permits FHA to insure loans on amounts up to 125 percent of the area median house price, when that amount is between the national minimum ($271,050) and maximum ($729,750). The new minimum and maximum loan limits are based on 65 percent and 175 percent of the conforming loan limits for Government-Sponsored Enterprises in 2008, which is $417,000. The FHA used a combination of existing government data sets and available commercial information to determine the median sales price for each area. The change in loan limits are applicable to all FHA-insured mortgage loans endorsed after HUD publishes the increased loan limits tomorrow, and it lasts until December 31, 2008 .

By increasing loan limits nationwide, FHA will provide much needed liquidity and stability to housing markets across the country. Already, as conventional sources of mortgage credit have been contracting, FHA has been filling the void. From September to December 2007, FHA facilitated more than $38 billion of much-needed mortgage activity in the housing market, more than $15 billion of which was through FHASecure, FHA's refinancing product. By focusing on 30-year fixed rate mortgages, FHA helps homeowners avoid and escape the risks associated exotic subprime mortgage products, which have resulted in rising default and foreclosure rates.

"This is not an easy crisis to address, and there is no silver-bullet, but I know that we can help hundreds of thousands of people keep their homes, and we can calm the waters," said Jackson .

In January 2009, FHA's maximum loan limit will return to $362,790, unless the U.S. Congress approves bipartisan legislation to permanently increase loan limits as part of the FHA Modernization bill, which is still awaiting final approval on Capitol Hill.

"In January 2009 the loan limits will return to their previous setting," Jackson said. "That is why we need to permanently raise the loan limits to an acceptable level that more accurately reflect housing prices nationwide. We also need to make the minimum down payment more flexible and create a fairer insurance premium structure. This will allow more families to use FHA."

FHA loan limits are based on the county in which the property is located. However, for properties located in metropolitan or micropolitan statistical areas, the limit is set at that of the county with the highest limit within the metropolitan or micropolitan area.

The new temporary FHA loan limits for California are listed below. The full text of the Secretary's remarks can be found on the HUD website.

California County Limits

On February 13'th, 2008, President Bush signed a $170 Billion stimulus package to boost the economy. The envisioned plan focuses on cash rebates, business breaks and other proposals.

The Stimulus package will provide most individual taxpayers $600 and $1200 for married taxpayers filing jointly. There are income caps of $75,000 for individuals and $150,000 for couples. A $300 per child under 17 tax credit is also part of the rebates of the Stimulus package. To avail of the rebate, you have to file a federal tax return for 2007.

For businesses, the package includes tax breaks for equipment purchases, as well as, payments to some senior citizens and to disabled veterans. In less than 4 weeks, this measure moved through Congress from initial talks to enactment.

The Economic Stimulus Package also provides temporary loan limit increases for some high-cost areas for Fannie Mae and Freddie Mac loans and potentially all areas for FHA loans. This aims to stimulate more activity in so-called jumbo housing markets, where high prices means home buyers have to take out loans that exceed the "conforming loan limits" on mortgages that the two agencies may buy and sell in the secondary market from $417,000 to as high as $729,750.

Because these new loan limits fall outside current standard conforming conventional and FHA loan limits, many of the lenders do not yet have definitive guidelines or pricing. Before lenders can accept applications with the higher loan amounts, several issues must be finalized by the GSEs and FHA, and then communicated, including:

• Impacted Metropolitan Statistical Areas (MSAs).
• GSEs and FHA must determine the delivery approach they will require of mortgage lenders and investors.
• GSEs and FHA must communicate their requirements to mortgage lenders and investors.

HUD has 30 days from the day the President signed the package into law to identify the impacted MSAs. We expect the impacted areas to be announced simultaneously in mid-March to all mortgage lenders, and that they will remain in effect until Dec. 31, 2008.

Because of the changes in the mortgage industry, the median area sales prices may be dramatically different throughout the year. Thus, the timeframe used by HUD to determine the higher loan limits is key.

FHA Modernization Act

As a reminder, the proposed FHA Modernization Act, which has not yet been passed by Congress, contains many changes for FHA loans, including permanent higher loan limits and decreased down payments. Those are separate changes and are not part of the Economic Stimulus Package.

Stay tuned for more updates and feel free to reach out to us should you have any questions.