Here is a link to the article, courtesy of Realty Times: http://realtytimes.com/rtpages/20091105_restrictive.htm

In essence, the Cato Institute study found that the bubble wasn’t really national, it was mostly confined to about a dozen states, all of whom were practicing some form of what urban planners call ‘growth management’ – basically pushing the bulk of housing growth into limited urban areas (sure sounds familiar). The effect of that practice was to boost the price of land inside the urban area, and make housing more expensive – and incidentally increase the tax revenues and job growth of cities in preference to counties – hmm.  That same restriction also allowed the cities to impose more and more permitting restrictions that caused more expense and longer lead times for developers – and thereby both restricted supply and raised prices to consumers even further.

My favorite example of some of these practices is the number of brand new houses built in Kirkland in the past few years that have a detached garage with a qualified accessory dwelling unit above it.  How many buyers qualified to buy a $1.5 Million house would want a detached garage, let alone a large ADU they have no intention of renting to a stranger on their property?  But it sure helps the city of Kirkland meet their growth management requirement for additional ‘housing’ units.

There’s a lot more more interesting analysis and discussion in the article – well worth reading.

Don’t forget, Wednesday, November 11, 2009 is Veterans Day with many companies closed to honor those who serve our Country.   There will be no recordings taking place on next Wednesday.

Conforming Mortgage Rates (loan amounts up to $417,000 for 1-unit properties). The conforming rate quote below is based on owner occupied with a mid-low credit score of 740 or higher, “full doc” purchase with a sales price of $500,000 and a loan amount of $400,000 single family dwelling (non condo). This scenario includes reserves (taxes & insurance) not being waived. Rates quoted are priced based on a 30-40 day closing with no prepayment penalties on any of the rates quoted below.

30 Year Fixed @ 1 Point: 4.750% (APR* 4.904%).  Same rate as quoted on last Friday’s rate post.

15 Year Fixed @ o.50 Pt: 4.25% (APR 4.435%).   0.50 point in fee.

10/1 ARM** 5/2/5 CAPS w/1 Pt: 4.125% (APR 5.580%).    0.125% in rate

7/1 ARM 5/2/5 CAPS w/1 Pt:  3.750% (APR 5.899%).   0.125% in rate

5/1 ARM 5/2/5 CAPS with 1 Point: 3.375% (APR 6.205%).   Same.

Conforming High Balance Rates. Pricing is based on the same criteria above except where the loan amount is $417,001 – $567,500 for properties in King, Snohomish or Pierce Counties; specifically priced for a sales price of $625,000 and a $500,000 loan amount.  

30 Year Fixed @ 1 Pt: 4.875% (APR 5.021%).   Same rate as quoted on last Friday’s rate post.

Jumbo/Non-Conforming. Loan amounts up to 1 million for ARMs and 1.5 million for the 30 year fixed. The quotes below are based on 740 or higher credit scores with 80% loan to value with a loan amount of $700,000.

30 Year Fixed at 1 point: 6.125% (APR 6.276).  Same as the last rate quote.

7/1 ARM 5/2/5 CAPS @ 1 Pt: 5.250% (APR 6.609%). Same.

5/1 ARM 5/2/5 CAPS @ 1 Pt: 4.625% (APR 6.654%).  Same.

FHA. Pricing based on credit score of 620 or better and loan amounts up to $417,000 for FHA in King, Snohomish and Pierce Counties.   The scenario below is based on a sales price of $400,000 with 3.5% down payment.

30 Year Fixed @ 1 Pt: 4.875% (APR 5.515%)   0.125% in rate

FHA-Jumbo/High Balance. Pricing based on loan amounts from $417,001 – $567,500 for King, Snohomish and Pierce Counties with a 660 or higher mid-credit score.   This scenario is based on a sales price of $585,000 with 5% down payment.

30 Year Fixed @ 1 Pt: 5.000% (APR 5.631%).  Same.

FHA 203 (k) Rehab-Streamline. Pricing criteria same as FHA above with loan amounts up to $417,000. This scenario is based on a $400,000 base loan amount with a 3.5% down payment.   NOTE: my source for 203k loans is taking approx. 60 days to make the first disbursement of funds following closing.

30 Year Fixed @ 1 Pt: 5.250% (APR 5.999%).  Same.

VA. Pricing based on credit scores of 620 or better based on loan amounts up to $417,000. VA loan amounts over $417,000 are also available.  Based on a sales price of $400,000 with 0 down payment.

30 Year Fixed @ 1 Pt: 4.875% (APR 5.185%).   0.125% in rate

USDA Rural Housing. 100% financing with income limits and properties must be located within a specific area (this program is generally available in rural towns with populations of 10,000 or less). For eligibility, click here.   60 day lock is quoted as USDA is a longer transaction to close.   This scenario is based on $400,000 with 0 down payment.

30 Year Fixed @ 1 Pt: 5.000% (APR 5.312%).  Same.

Prime Rate (what HELOCs are based on): 3.25%

This is just a small sample available of rates and products. This is not a guarantee nor is it a commitment of interest rate. Rates are as of November 6, 2009 at 8:30 a.m. and may change at any time. Available programs may change at anytime as well. To see rates that I’m quoting “live” click here.

For purposes of this post: “1 point” is 1% of the loan amount and would be reflected in line 801 or 808 (depending on whether the loan is brokered or not). Unless the rate is bought down; there are zero discount points referenced which would be reflected on line 802 of the GFE/HUD-1 Settlement Statement. Zero points means no points are paid on lines 801, 802 or 808 (this applies to all rates quoted on this post).

*APR = Annual Percentage Rate

**ARM = Adjustable Rate Mortgage.   With adjustable rate mortgages, your rate may increase after the initial fixed period is over.

NOTE: Rhonda Porter and Mortgage Master Service Corporation are not affiliated with any real estate brokerages.

I am not going to call it an extension of the $8,000 credit, for fear that too many will miss the added $6,500 credit for *move up buyers. Two credits in one bill.

We won’t have the IRS links until after the Bill is passed, of course, but I updated my post of last week to reflect all of the things I expect this bill to have. Very little change from what was expected.

On the $6,500 credit start date, so far my info suggests contract date is not an issue, but to get the $6,500 credit you cannot close before Dec 1. Still waiting for some verification on this point.

So there it is…a two for one special. $8,000 First Time Buyer per the definition in the current bill PLUS a $6,500 credit for move up buyers *who have owned their current home and lived in it consecutively for 5 of the last 8 years.

Jay Ryan, Vice President of Fannie Mae says:

“This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities.” 

  For homeowners to qualify for the Deed for Lease Program:

• The home must be occupied as a primary residence.  Investment properties may be eligibile as long as there is a tenant occupying the propert and willing to participate in the Deed for Lease Program.  
• This program is not available for second homes or vacation homes.
• Available for 1-4 unit properties where Fannie Mae owns the mortgage (not available for government guaranteed or insured loans: FHA, HUD, VA, USDA).
• Second mortgages/liens on the property are not allowed;
• Borrower/tenant must be able to document that the new lease payment does not exceed 31% of their gross monthly income.
• At least three mortgage payments must have been made since the last origination/loan modification.
• Borrower may not be more than 12 months past due on the mortgage.
• Borrower/tenant may not be actively involved in a bankruptcy.
• Rental insurance may be required if there are pets.  (You probably want rental insurance regardless).
• Borrower/tenant will need to pay a lease application fee of $75 fee per unit.

I’m wondering if this will be considered a taxable sale — will there be excise tax due?   A title insurance policy will be required to prove the title is “marketable”.    The properties will be inspected to make sure the occupants have kept the home in good condition and to permit the marketing of the property for sale.  I would hope that the Deed for Lease tennant would have the first right to re-purchase their home during the 12 month period.   According to Fannie Mae’s announcement: 

“A Deed for Lease property that is subsequently sold includes an assignment of the lease to the buyer.”  

Homeowners will need to work directly with their mortgage servicer (who they make their mortgage payment to) in order to see if they qualify.  According to Fannie Mae, mortgage servicers can offer this program immediately–however, you can bet it may take a while for this program to become available.   Fannie Mae offers these instructions for homeowners who are considering this program.

I’m wondering if there is excise tax due on the sale of the property to the lender.

The intent of the program, which I applaud, is: 

“to minimize family displacement, deterioration of neighborhoods caused by vandalism and theft to vacant homes, and the effect these have on families, communities and home price stabilization”.  

I’m sure we all have abanoned homes in our neighborhoods and know families who have lost their homes.   Hopefully this will help make things a little better for all while our housing industry and our economy is trying to recover.

The client is looking at relatively lower priced homes. Without getting into too much detail due to confidentiality reasons, suffice it to say that the property purchased would end up back on market in a short time. While I am helping him purchase, and may or may not be helping him sell it later, I cannot move a step forward (for him) if I see a chink in the plan going ALL the way forward. Some will say that’s not my job, just write it up and let him buy the thing…but my brain just isn’t wired that way. But that’s the subject of another post.

It is very difficult to have a wide enough profit margin on a flip project to make it worthwhile. For that reason and many others, this is not a time when I accept investor clients without a lot of thought and penciling out of the numbers. That rules out most if not many investors except those “able” to do a lot of the work vs. hire it out. EXCEPT there is that problem of local laws that suggest, and buyers who want, ONLY a licensed contractor making those repairs and improvements.

But that is not the biggest current chink in the plan. The problem as I see it is balancing the timing of the soon to be buyer credits with The FHA 90 day seasoning rule.  Lower priced home sales over the next slightly less than 6 month period will most likely be supported by a new credit for buyers who are in contract on or before April 30 of 2010, this based on information available at present. What will happen at the end of that period is anyone’s guess, but my guess is that it will not be extended beyond that date in a meaningful way and that the market will react negatively come May 1, 2010. Even if the powers that be move to a phasing out stop-gap credit, I think that will be a total waste of money on all fronts, and that May 1, 2010 is D-Day anyway you slice it. It’s the day the carrot on the stick is no longer fit for consumption and a new carrot will not be forthcoming.

OK…moving on…why is this a problem? You write up the purchase, you close in 30 to 45 days…say mid December. Now, in order to get the property in escrow with a buyer before April 30, 2010 you rush a team of workers in there and get the whole thing done and back on market in 4 weeks by Jan 15, 2010. That gives you 105 days to get it into contract with a new buyer, right? Not so fast…maybe not.

Let’s assume that many if not most people in that area have been buying via FHA vs. 20% down or more Conventional. Each area is different and in this case FHA is the primary means of purchase in this price range for owner occupant buyers. In the instant case, the house specifics suggest the buyer will NOT be someone with lots of downpayment. Now let’s assume that if you can’t sell the house via FHA, you probably won’t sell it at all. Now let’s add one of the “newer” FHA restrictions (of many) The 90 day Seasoning Rule. This rule requires that the owner (my client) own the property for at least 90 days (seasoned ownership) before selling it. There are some exceptions to that rule, including banks who have foreclosed on the home:

On September 1, 2009, the rule was somewhat relaxed.  FHA now allows for a waiver when the property  is owned by a bank or some other foreclosing entity.  It also allows for a relaxation of the rule when a home is sold by a state or federal agency.

Now let’s go back to our timeline. He closes on the purchase on Dec. 15, 2009. He has to own it 90 days before the buyer can get FHA financing, that takes us to March 15th. Now his 105 days starts looking more like March 15 to April 30 or 45 days. There is no easy answer here and you can list it on January 15th and say “cannot close before March 15 IF the buyer is using an FHA loan”. But if you can’t get loan approval until March 15, you can’t close ON March 15 as a result….you see where I’m going here.

This weak market is not all about supply and demand. This weak market is not all about tighter lending standards as to income and downpayment needed to purchase. This weak market is not purely based on the rise and fall of the Homebuyer Credit.

Rather…this weak market going all the way back to August of 2007 (for the Seattle Area) is about the rules of the game constantly changing so much and so fast that sometimes waiting on the sidelines for the dust to settle becomes the best option. For flippers…well, it ’s a very, very tough time to be one and it is not for anyone who wants to put on rose colored glasses. Get out your crystal ball and look at all the chinks in the armor.

Similarly, so do title and escrow staff in dealing with lender funding conditions and other challenges that seemingly are for no other purpose but to drive us to the closet for our straight-jackets.

Unfortunately, some conditions cannot be easily met at the moment the request comes over the fax or e-mail.   Some require work that delays closings.  Or, in extreme cases a condition can completely shut down all other transactions you are working on for a couple of hours to work feverishly to meet conditions or do a workaround when parties to a transaction become completely uncooperative.

Here’s a couple funding conditions pulled from our short list posted on our blog:

• “Prove that the borrowers are not married.” (hmmm)
• “Slight variance in borrower’s signature from others of the same borrower, need borrower to re-execute documents.”  (can cause escrow people to find a new profession.  Who’s signature is the same after signing an FHA loan package that is 119 pages long and 1.375 inches thick?)
• “Borrower signed on the line adjacent to the one provided where the name appears.   Please re-execute the document.”  (resulted in a re-sign after tracking down the borrower).

While these are humorous after the fact it also paints a picture of what goes on behind the scenes.   Another thing that creates grins for title and escrow staff:  When there is a “rush” on a request and that request involves the collaboration and cooperation with a government agency.

30 Year Fixed @ 1 Point: 4.750% (APR* 4.904%).   0.125% in rate from the last Friday’s rate post.

15 Year Fixed @ 1 Pt: 4.25% (APR 4.511%).  same.

10/1 ARM** 5/2/5 CAPS w/1 Pt: 4.250% (APR 5.656%).    0.125% in rate

7/1 ARM 5/2/5 CAPS w/1 Pt:  3.875% (APR 5.959%).   0.125% in rate

5/1 ARM 5/2/5 CAPS with 1 Point: 3.375% (APR 6.205%).   0.25% in rate

Conforming High Balance Rates. Pricing is based on the same criteria above except where the loan amount is $417,001 – $567,500 for properties in King, Snohomish or Pierce Counties; specifically priced for a sales price of $625,000 and a $500,000 loan amount.  

30 Year Fixed @ 1 Pt: 4.875% (APR 5.021%).  0.125% in rate

Jumbo/Non-Conforming. Loan amounts up to 1 million for ARMs and 1.5 million for the 30 year fixed. The quotes below are based on 740 or higher credit scores with 80% loan to value with a loan amount of $700,000.

30 Year Fixed at 1 point: 6.125% (APR 6.276).  Same as the last rate quote.

7/1 ARM 5/2/5 CAPS @ 1 Pt: 5.250% (APR 6.609%). Same.

5/1 ARM 5/2/5 CAPS @ 1 Pt: 4.625% (APR 6.654%).  Same.

FHA. Pricing based on credit score of 620 or better and loan amounts up to $417,000 for FHA in King, Snohomish and Pierce Counties.   The scenario below is based on a sales price of $400,000 with 3.5% down payment.

30 Year Fixed @ 1 Pt: 5.000% (APR 5.635%)  Same.

FHA-Jumbo/High Balance. Pricing based on loan amounts from $417,001 – $567,500 for King, Snohomish and Pierce Counties with a 660 or higher mid-credit score.   This scenario is based on a sales price of $585,000 with 5% down payment.

30 Year Fixed @ 1 Pt: 5.000% (APR 5.631%).  Same.

FHA 203 (k) Rehab-Streamline. Pricing criteria same as FHA above with loan amounts up to $417,000. This scenario is based on a $400,000 base loan amount with a 3.5% down payment. 

30 Year Fixed @ 1 Pt: 5.250% (APR 5.999%).  Same.

VA. Pricing based on credit scores of 620 or better based on loan amounts up to $417,000. VA loan amounts over $417,000 are also available.  Based on a sales price of $400,000 with 0 down payment.

30 Year Fixed @ 1 Pt: 5.000% (APR 5.285%).  Same.

USDA Rural Housing. 100% financing with income limits and properties must be located within a specific area (this program is generally available in rural towns with populations of 10,000 or less). For eligibility, click here.   60 day lock is quoted as USDA is a longer transaction to close.   This scenario is based on $400,000 with 0 down payment.

30 Year Fixed @ 1 Pt: 5.000% (APR 5.312%).  0.25% in rate

Prime Rate (what HELOCs are based on): 3.25%

This is just a small sample available of rates and products. This is not a guarantee nor is it a commitment of interest rate. Rates are as of October 30, 2009 at 10:00 a.m. and may change at any time. Available programs may change at anytime as well. To see rates that I’m quoting “live” click here.

For purposes of this post: “1 point” is 1% of the loan amount and would be reflected in line 801 or 808 (depending on whether the loan is brokered or not). Unless the rate is bought down; there are zero discount points referenced which would be reflected on line 802 of the GFE/HUD-1 Settlement Statement. Zero points means no points are paid on lines 801, 802 or 808 (this applies to all rates quoted on this post).

*APR = Annual Percentage Rate

**ARM = Adjustable Rate Mortgage.   With adjustable rate mortgages, your rate may increase after the initial fixed period is over.

NOTE: Rhonda Porter and Mortgage Master Service Corporation are not affiliated with any real estate brokerages.

There are a lot of rumors flying around suggesting that the $8,000 credit has been extended. While that is not the case, as nothing has been signed yet, there seems to be strong support for:

1) Extending the $8,000 credit for 1st time buyers, including people who have not owned a home for 3 years

2) An added $6,500 credit for move up buyers who have owned their current home for at least 5 consecutive years of the last 8 years. (this provision is still under heated discussion and most subject to compromise before the bill is passed.) Updated 11/5/08

3) Expansion of the income requirement to $125,000 for an individual and $250,000  $225,000 for a married couple.

4) Extension to contracts entered into by April 30, 2010 that are also closed by June 30, 2010 (before July 1, 2010)

The most credible “rumor”/story going around [IMO] is CNN Money’s “$8,000 Credit Still in Play“.

In my opinion #1 and #4 make the most sense in that it seems senseless to drop the credit at the end of “Spring Bump” vs. just before 2010 “Spring Bump”.  Closing the door on the credit on Nov. 30th never made any sense, as seasonal factors will make it appear that the credit going away is having more of an adverse affect than it really is, given November through February sales are almost always lower as to price and volume.

Cutting the cord on the credit at the end of April (end of March even better) makes perfect sense, and gives the market the opportunity to compensate during its most robust season.  If the market can transition from 1st quarter 2010 with a credit, to 2nd and 3rd quarters without a credit on a flat market basis, it will be easier to get rid of it altogether. And yes…eventually…it really must go away. I certainly hope the industry isn’t going to keep lobbying indefinitely for its continuation. That would NOT be a good thing.

While it seems that “Senator’s Have Agreed” this credit is still not signed sealed and delivered, (Update 11/5/09 at last step, needs to be signed by the President) so stay tuned for the final version as I think the wheel may still be spinning with regard to the $6,500 move up buyer credit, as well as the expansion of the  income requirements.