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    The prognosis for the mortgage industry for 2008 pretty murky, but there are several things that are clearly going to occur, and are starting already. There is a lot of legislation on the Federal level, and in California that is already having a big impact on consumers’ ability to get home loans. Politicians have been under fire from constituents and consumer groups to “Do Something” about the mortgage meltdown, and all sorts of proposals are being written into new laws and regulations, that may very well have the effect of “overreacting” and chilling the mortgage market (and housing) recovery. After all, it stands to reason that if fewer people can get loans to buy or refinance homes, fewer new and resale homes will sell, dragging out the eventual housing prices recovery. It’s all about the financing.

    Like all legislation and regulations, there are some very good things occurring, and some things that are actually bad for the consumer and are not well thought out. One of the good things happening is the greater Federal control and regulation of who can be a mortgage loan originator (loan officer or mortgage broker). On January 1^st, there is a new federally based system being put into place a standardized and mandatory process to more thoroughly license and track mortgage brokers and loan officers. 7 states have joined this system immediately, and 42 are expected to be included by the end of 2008. The new system creates a uniform application for mortgage brokers and a database that banking regulators can use to track down loan officers who have been banned from one state from moving to another. This registration covers all loan officers(originators) for state chartered banks and financial institutions, independent mortgage brokerages, credit unions, but does not include those who work for federally chartered banks ( their lobby was too powerful). This system is being put into place and managed by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators (CSBS/AARMR). The Anti-Predatory Lending Bill passed by the House of Representatives in November goes further by requiring that loan originators (except federal bank employees) pass a written test, take continuing education courses every year, pass an FBI criminal background check, have their personal credit reports checked, and declare the predominant color of their spouses underwear (just kidding on that last one). There will be even more restrictions developing in California as the year progresses. There is talk in Sacramento about the Dept of Real Estate (DRE) developing a new, separate license for mortgage loan origination from the current Broker or Salesperson license, for example.

    What this even means for the consumer and loan originators, is that far fewer loan agents will be able to get in the business, far fewer will be able to stay in the business and will have to go out of business. I’m ok with this, because I believe the net result will be far fewer competitors in the business, which always had a very low barrier of entry to it, allowing all sorts of amateurs and others who really shouldn’t have been in it. The survivors of the Mortgage Meltdown and these new regulations should be of a much higher caliber, and more professional, thereby being able to render a greater quality of mortgage loan service to consumers, rather the “rate hacks” who just sold the lowest rate and payment regardless of the consequences, as we have seen.

Other Big Changes that will affect consumers-

    There will be reduction and elimination of loan programs, especially “stated income” and “light doc” loans, that will seriously impact self employed borrowers, and others of unconventional or hard to document income.

    There will be much tighter underwriting guidelines- higher credit scores, more cash reserves required, qualifying at fully indexed rates on ARMs, higher down payments, restrictions on cash out amounts, lower debt ratios, etc.

    Pre purchase planning is more critical than ever-More on these subjects in the next installment.

George L. Duarte

“The Real Deal Guy”(SM)

CONFORMING LOAN LIMITS PROPOSED TO RISE TO $729,750 AS PART OF THE ECONOMIC RELIEF PACKAGE FOR HIGH COST STATES!

    The White House and bipartisan Congressional Leadership has agreed to raise the FNMA/FHLMC (Fannie Mae and Freddie Mac) conforming loan limits from the current $417,000 to $729,750. The formula is the new “high cost” state loan limit is 125% of an area’s average median cost, which here in Alameda County is currently above $600,000. This is a huge development for California in particular, and will have a dramatic and immediate effect in helping to alleviate the real estate and mortgage crisis here. As I’ve mentioned before, there are severe problems currently with people who need to get jumbo loans refinanced, or to purchase a home – the jumbo investors have fled the market, and those that are still in it have tightened their underwriting guidelines, and raised their rates

    In the Bay Area, almost two-thirds of the homes were purchased using Jumbo mortgages last January-July 2007, but at the end of the year this percentage dropped dramatically, reflecting the lower sales activity.

    Now that the White House and both houses of Congress have agreed on the general terms of the stimulus package, a bill has to be introduced, first to the House, then the Senate. The legislators plan on fast-tracking the bill so it gets to the President for his signature by mid-February. At this time, this proposal has only a one-year window, then the loan limits revert back to the way they are now. There is speculation, however, that once this higher loan limit is in place, there will be great pressure to keep it permanently in the higher cost areas, simply because it makes sense to do so, and it helps consumers.

    This will help a lot of people who have jumbo loan amounts who need to refinance out of their ARM loans or their subprime loans that have adjusted or will be adjusting. However, these are still prime loans requiring good credit and equity, documentation of income and cash reserves. If these factors are not available, even these loans may not help some people. Fannie Mae and Freddie Mac have automated underwriting engines that make decisions on a borrower’s circumstances, and there are three different levels of pricing decisions that can occur depending upon how the risk factors are judged. This won’t help people of marginal credit who bought properties with no down payment in the last 2 years, with property values eroded in many places.

Stay tuned for more developments-

George L. Duarte, MBA, CMC

“The Real Deal Guy” (SM)

End of the Year Housing Report for Alameda County, California

Report from the Bay East Assn. of Realtors®, Pleasanton, California

    For single family residences, the median price for an existing single family detached home increased slightly compared to the same period a year ago in Southern Alameda County, according to statistics compiled by the Bay East Assn. of REALTORS ®. The October 2007 median price was $645,750, an increase of $5,750. from the October 2006 median of $640,000. For Condos and townhouses, the October 2007 median price was $497,000 an increase of 2% over the $488,000 median of October 2006.

    Single family dwelling sales year to date declined 26.3% from the same period as last year. Sales were down from 5,662 in 2006 to 4,167 for the same period in 2007.

    Days on Market (DOM) continues to increase for existing homes in comparison to last year. The average year to date DOM for a single family detached home was 58 days, an increase from 31 days in 2006.

    What, the average home price ROSE in 2007? That’s not what the pundits and doomsayers have told us! Property marketing times have increased, true, but the values have, on the average, gone up this year.

    In this type of market, in order for properties to sell, it is imperative that they are spotlessly clean, uncluttered and “staged” both inside and out, curb appeal is critical; priced very well and realistically for the market; available for open houses, have a lockbox for convenient showings; and some patience.

    A famous politician once said “all politics is local”, and the same is true for Real Estate. There are many places in the US that have strong housing markets that are appreciating, all due to the factors of their local economies, especially employment. Here in Alameda County, we are well located close to the major employment markets of the Silicon Valley in the South Bay, and San Francisco, both places having strong employment for some time now. High Tech in particular is expected to continue to do well, and be one of the bright spots in the economy for the foreseeable future. History has proven that strong employment almost always equals a strong housing market. Further good news is that we are coming soon into the prime Real Estate sales season- the Springtime. It is well known that buyers are very interested in the home buying process throughout the Spring, so that they can be settled in their new homes in the summer, with the kids all set for their new schools in the fall.

    What factors can cause the wheels to fall off this cart? There is much uncertainty in the economy right now- overreaction in the mortgage markets causing elimination of loan programs, and greatly increased restrictions on the loan programs that are left; possibility of a recession, caused by inflationary pressures on oil and other consumer prices; consumers just getting burned out and feeling overburdened with their debt loads.

Till next time,

George L. Duarte

The Real Deal Guy(sm)