Now that Kris has documented her deteriorating physical condition to the world (see previous Post), the sympathy messages are pouring in. The least I can do is pitch in around the home-front while she is swimming in the depths of self pity and feeling really icky. The really sick part about this is what she would appreciate most from me right now - A substitute blog post. Off the bench I come.
I usually don’t do well under this kind of severe pressure, but I have about 15 minutes to pull this off before she drags herself back into our office and starts another post. If I am successful, I may get her to go back to bed and have a chance at tomorrow.
So this is my opportunity to throw my hat into the ring that is already full of hats from all those who have dissed the governments economic incentive/recovery plan. Let me be the 10 millionth person to say that the rebate concept sucks and won’t work. It’s pocket change, nothing more. But it’s politically “necessary”, especially in an election year. Who would oppose it, even though it will have no more beneficial value than the Doc telling Kris to take two aspirin and call him in the morning.
The increased conforming loan limits, now that’s another story. For San Diego it’s equivalent to an announcement that a couple of Fortune 100 companies have decided to move here (no wait, that’s nirvana). With an average sale price of over $712,000 last year (SANDICOR) it does not take a math degree to figure out that this will help a lot of people here. Which brings me to the mortgage issue.
According to the “Average rates and indexes” (Federal Reserve Statistical Release H-15, whatever that is) in the San Diego Union last Sunday, conforming loan rates last week were 5.51% w/1.2 points. Nonconforming loan rates were 6.53% w/1.2 points. It’s obvious that with an average savings of 1%, or more, many more buyers will be able to come off the sidelines, maybe just in time for American Homebuying Day.
What really amazed me, though, was that the FHA/VA rate was 6.58% w/1.9 points. Excuse me? Does any one else see the cruel irony? Here we have two government programs that were established first and foremost to help qualified but lower income borrowers and our veterans and they are offering loans at the highest rates around.
How about this? Maybe instead of sending $150 billion in meaningless checks out this spring, the government ought to take those funds and offer to subsidize/buy down the interest rates for the tens of thousands of veterans who have given up so much for the rest of us. BTW- In the interest of full disclosure, I proudly count myself among them. I have never been able to take advantage of my GI Bill - VA loan benefit because the rate has almost always been higher than prevailing rates. Now it’s higher than the rate for a non-conforming loan! That’s gratitude for you.
I would enjoy hearing from the mortgage experts out there who may be able to explain this. I would certainly be interested in knowing why the government is offering a “penalty” rate to our veterans. Disgraceful.
{ 9 comments… read them below or add one }
Sven
02.13.08 at 1:03 pm
“It’s obvious that with an average savings of 1%, or more, many more buyers will be able to come off the sidelines, maybe just in time for American Homebuying Day.”
Being able to and wanting to are two completely different things. It’s not like all the condos and homes under $417k were flying off the shelves. The days of no-documentation, no down-payment, interest only or neg-am loans are over. IndyMac just recently announced that unless you can prove you have over 250k in assets and 50k in liquid assets, they will require a full doc. Many of the other lenders are adopting similar policies. This means that a buyer will have to actually qualify with their income to make their mortgage payments. (imagine that)
The people who will benefit from the jumbo loan limit are people who are trying to keep their homes with a higher reset interest rate where they could make the payments at a lower rate (it’s a very small percentage of the people who are in trouble). The factors that drove the irrational exuberance of the past are no longer in place, and an opposite force is starting to take over.
Namely upside-down owners. I’m hearing reports that a growing number of people in high priced areas are simply walking away from their homes because they lost 100k+ in equity.
Here’s a quote:
“There’s been a change in social attitudes toward default. We’re seeing people who are current on their credit cards but are defaulting on their mortgages. I’m astonished that people would walk away from their homes.”
Bank of America CEO Kenneth Lewis
Patti
02.13.08 at 6:29 pm
There are still lenders who are willing to loan without having 250k in assets and 50k in liquid assets but the primary issue is that it has to make sense to the lender. Yes gone are the days when a waitress living in a trailer can borrow 500k to purchase a home or refi her loan. I currently represent 151 lenders and can place difficult loans.
Also the people who are walking away from their loans are the investors who got stuck with many properties and see no reason to pay on them, now that is what hurts the struggling borrower who wants to keep their home but the lender would rather (seemingly) take back the property through foreclosure. And yes some of those borrowers are walking away, but not through their personal choice. I hope the lender wakes up and sees that receiving Zero on a loan is less than receiving 4 or 5%.
Steve Berg
02.13.08 at 8:55 pm
Sven - Indymac continues (as recently as today) to redefine the meaning of stupidity. First they make a lot of dumb loans, then to correct things they lay a path of destruction so wide that it impacts the good people who are actually trying to honor their obligations. Indymac and others like them are their own worst enemies. Unfortunately, their reckless reactions end up hurting the entire neighborhoods around the people they are foreclosing on, many of whom, you guessed it, have Indymac loans and whose homes are now further devalued by, you guessed it again, their own actions.
Patti - I agree. What part of that simple math do they not understand??
Sven
02.14.08 at 2:34 am
Exactly why there really need to be much tighter federal restrictions on loan guidelines. This isn’t a new statement from me. I was beating this drum back in 2004 when something like 1/4 of the loans in San Diego were Interest only or Neg-Am. They really need to bring back the days of a 20% cash down payment and 30 year fixed mortgages. While that sounds absurd at today’s prices, it was quite achievable in the late 90’s. We just need prices to drop another 30% or so…
Steve Berg
02.14.08 at 7:57 am
Sven - You are getting your wish regarding underwriting guidelines, albeit in a 2008 version, which is to say that lenders, in reacting to their dumb underwriting of the past 7 or 8 years are being too careful now, causing more harm then they need to for well qualified individuals. We also know that there are less than 20% down loans available, but the 100% variety is pretty much gone the way of the dodo bird, as it should. Thanks.
Al French
02.14.08 at 6:42 pm
As for the FHA/VA loan’s being at a higher rate than the average jumbo loan - I think you’re comparing apples and oranges. What you need to do is compare the goverment FHA loan rate versus what the individuals applying for those loans would qualify for. Unfortunately, many of those vets might be deemed risky loans to the mortgage companies, and if they went to them would likely either not be offered a loan, or be offered a loan with much worse terms.
Al
Steve Berg
02.15.08 at 8:47 am
Al - Thanks for pointing out that possibility. You’re probably right. Too bad lenders don’t/can’t measure one of the most important characteristics of risk assessment when dealing with a veteran - Honor.
Don Reedy
02.19.08 at 10:14 pm
Steve,
I’m late with this, so forgive. I wrote another response to Kris about having “class”, why that’s important, and why it’s obvious to me you two have it.
I, too, am a veteran, and like yourself, rue the day when measuring worth came down to only factoids, scores, litmus testing, and algorithms. Honor. Now there’s a ruler that’s clearly marked, easy to measure with, and a tool it seems we’ve lost the ability to utilize.
Thanks for coming to Kris’ rescue, and thanks for honoring those whose honor you clearly reflect.
Steve Berg
02.19.08 at 10:35 pm
Thanks Don. It’s never to late to the game when remembering those who serve our country. You also used a magic word - Honor - For far too many, it seems to be missing in action in our society today.