What Will the Loan Amount Reduction to $625,500 Do to Local Markets?

Today I was contacted by a Los Angeles Times housing market reporter covering the market on new loan amounts coming into effect soon.  It's really hard to say exactly what the outcome will be, but one thing is certain: California really doesn't need any more uncertainty or instability in its housing market.  Legislators elsewhere really do not seem to be very concerned, probably because the vast majority of them do not have a home to sell in California.

Single family homes in the high end market of 90803 and 90814 may feel the cut in loan amounts to $625,000. Currently there are 145 active listings, 113 of which are over $625,500 (the new loan amount starting October 1st).  Between June 1 and August 31, 26 homes sold over $729,750 (the current limit on conforming loans), and 24 sold under $625,500, while 16 sold between the two loan amounts.  That represented 25% of the total 66 homes sold in that time period.

Currently, of the 145 active listings, 113 are listed over $625,500 (just using the loan amounts as the dividing line for the sake of discussion), 95 are listed over $729,750--meaning 18 are in the critical area in between.  Currently, 26 homes are in escrow, all over $625,500--but would the 8 in the critical area under $729,750 be buying in the future at a higher interest rate?  The homes in escrow (26) of the 145 active listings shows that the seller in this area currently has about an 18% chance of selling in the current loan market. 
Now, along with an already competitive situation in the high-end market, what will the future bring with a jump up in interest rate for the new jumbo loan amount?
See more at http://longbeachrealestate.blogspot.com/2011/07/change-may-be-coming-in-loan-amounts.html

But, there is more, not to be discussed here: the QRM, or qualified residential mortgage which basically could turn the conventional loan market at all levels into a one-size-fits-all 20% down payment.

Buyers of Long Beach Condominiums Are Using More Conventional Loans--or All Cash

In Long Beach, condominiums tend to be concentrated in several specific areas, and two of these are in the downtown and shoreline area zip codes. Condominiums are a wonderful homeowner opportunity, also attractive to many segments of the buying population for investment/rental reasons as well.

A total of 105 condominiums sold in 90802 zip code (downtown Long Beach, Alamitos Beach and Ocean Blvd.) between June 1 and August 31 in prices ranging from $60,199 to $775,000:

As reported in the MLS, all-cash buyers represented 28 (or 27%) of these sales, most for units under $200,000; 30 units were listed as REO (bank-owned) properties; 35 units were listed as subject to short pay approval; 35 units were listed as standard or equity sales (33%).  Per the MLS, 58% were financed: only 12 were reported as purchased with FHA financing, 2 with VA loans, while 47 units were purchased with conventional financing.

A total of 29 condominiums sold in 90802 zip code (Marina Pacifica, Bluff Park, Belmont Heights, Naples, Belmont Shore) in the same time period, from $134,000 to $665,000.

As reported in the MLS, all-cash represented 7 sales(or 24%); only 1 FHA financing, 19 conventional loans (69%); 16 units were standard equity sales (50%); while 8 were closed as short sale properties and 4 were listed as REO properties.

FHA financing, which used to be the great introduction to the first time buyer's purchase is increasingly a very limited vehicle for financing a condo.  Why? Because homeowner associations are not renewing their FHA project approvals, without which there is no FHA financing in that association. In a check of the HUD project approval list for Long Beach, the associations are dropping off the active list at an alarming rate. For some, it's a problem of having too many delinquent dues--but surprisingly, some HOAs may not even know they have expired as the old Board members have long since left the scene.  For others, they do not know that since 2008 FHA no longer does "spot" approvals, as they once did financing on a unit-by-unit basis, so they are not aware that they are limiting the ability to attract new homeowners. If you are a current condo owner, you should investigate what your association can do to obtain FHA approval--if only to enhance the prospect of obtaining a reverse mortgage if you are in the over-62 age bracket. Reverse mortgages are generally FHA loans, but if your project isn't approved, you will not be able to obtain one.

Both buyers and sellers need to be actively aware of these condo financing issues and investigate in advance their loan options with both FHA and conventional loans. While FHA is 3.5% down, it also has some other expenses rolled into the loan which a conventional loan does not.  There are some sources for 5% down conventional financing, which is more likely to be a better fit. If FHA is your only option because of your overall loan qualification circumstances, be prepared for a very diligent and patient search for the right homeowner association that is FHA approved before you make the offer.  And as we see above, all-cash buyers make up about one-quarter to one-third of the condo buying market in these areas.

Please contact me or visit my website for more information.

Cut Your Electric Bills with Solar Energy -- Is It For You?

Solar energy panels may warm your water, which can lower your water heating costs, or cut your overall cost of electricity.  Solar panels collect solar radiation from the sun and convert that energy to electricity. At first blush, the panels sound great, but look further--buying them outright would be a pretty big investment for most homeowners, and then there's the leasing option, which cuts upfront costs but has other features.

the City of Los Angeles is starting up its rebate program again tomorrow, which will cover about 30% of the total cost, down from the earlier 50% coverage.  Per a recent Los Angeles Times article, a 5-kilowatt system costs about $35,000--with a 30% rebate, the owner will recoup the cost in 13-15 years.

Leasing agreements account for about half of the California market, and California accounts for about half of the country solar installations.  The lowered rebates, however, have also caused upfront costs for leases to increase to $4000 and $5000, so it's not so attractive for many potential customers. To reduce that upfront cost, leasing companies would have to increase their leasing fees, which will have the total effect of a monthly increase in montly electric bills, not a decrease. Solar panel leasing companies have a less exciting outlook in some cases.

Over time more companies in the business in California selling more panels will eventually make costs lower--already the panels are less expensive than in 2010, but labor costs have not come down from 2010.

Another option are thin-film solar panels which generate half the electricity and cost abouty 10% more than the standard flat panels, but have the advantage of being lighter and being more flexible in shape.

For now, research the sources offering solar panels and program costs. Going Green is good for the environment, but it does have costs attached.

Rebates - City of Long Beach for solar water heat
                City of Los Angeles for solar panels
Southern California Edison also offers a program for its customers for home or business use.
For additional federal tax credits and additional savings, see the information at U.S. Department of Energy.

Saving Water is Saving Money, Also, Its Not Wasting Water

Since we're watching TV ads about honest talk about what goes on in the bathroom, this seemed like another good conversation to have. 

A typical household uses 185 to 300 gallons of water a day and the majority of it goes down the drain from the toilet and the shower. One person alone may use about 80-100 gallons per day.  The toilet can consume about 26% of total daily water usage. Updating your commodes will serve as a conservation effort while also lowering your water bill.

If your toilet flushes 3.5 gallons per flush, one person may use as much as 19.5 gallons per day. But if your toilet flushes 1.6 gallons, that usage may be reduced to 10 gallons per day. Today's toilets use less water, prevent staining and resist clogging better than the older toilets--which saves on plumber's visits--and they are easy to install (although I recommend using a plumber to do it).  Good replacements generally cost from $150 to $300.

Until recently, I was one of many households with pre-1992 appliances, but I have just completed a replacement of a 5 gallon-per-flush toilet with a 1.6 gpf, and a new reduced-flow water faucet, so I know I'll be saving water!  Many older homes have older fixtures which, if replaced, will save a lot of water and reduce water bills. The early 1.6 gpf models were problematic in the 1990s, but those made today are much improved, and are easily found at the large home supply stores, you know the ones.
Toilets made in the 1950's used, on average, seven gallons per flush. Compare that with one that only uses 1.6 gallons per flush and it's a big saving. Multiply by the times a toilet is flushed in a year and the number of toilets in your home and it will save a lot of water.  The chart shows how usage changes depending on type of commode.  (1 gallon = 3.785 liters.)

Handling the Stress of an Unaffordable Mortgage Payment

Whenever I research the latest foreclosure and distressed property statistics, the sheer number of Americans facing the stress of losing their homes amazes me. For the month of June per the MLS, 148 single family homes and condos sold as an REO or short sale property in Long Beach, out of a total of 316 sales for the month.

It is my goal to help as many homeowners I can either stay in their homes or relieve the burden of their mortgages. Knowing that there are so many that need my help is a driving force for me to continue doing what I do.

In fact, I just released another report that I’ve made available on my website today. It explains the CDPE designation and lists 10 options that homeowners can take advantage of to relieve the stress that comes with owing their mortgage lenders more money than they can afford to pay.

The report also draws a contrast between short sales and foreclosures. Unfortunately, there’s a growing trend of “strategic defaulters” who think it’s smart to let their home go into foreclosure. As any one who follows this blog knows, there is nothing strategic about foreclosure; it’s one of the most long-lasting, negative financial challenges you can go through. A short sale seller who can legitimately show a hardship will avoid the post-foreclosure consequences.  Just recently signed into law in California was SB 458 which took effect immediately and which "extends the protections of SB 931 (2010), to ensure that any lender that agrees to a short sale must accept the agreed upon short sale payment as payment in full of the outstanding balance of all loans," so that no first mortgages (signed into law earlier) and now no junior liens can be pursued later if the lender agreed to the short sale. This makes it even more worth it to examine the possibility of pursuing a short sale.
I’m excited about acting as a resource for more homeowners who have questions about what they should do. As always, if you know homeowners who may need my help, have them contact me immediately! Together, we can put them back on the path to financial stability.

Good News for Short Sale Sellers and Junior Mortgages (and How Jerry Brown Used to Look)

Finally, short sale sellers in California and the Long Beach/Los Angeles County area have more protection against deficieincy judgments.  Senate Bill 458 was signed into law on July 15th by Gov. Jerry Brown, effective immediately. This was previously turned down by former Governor Schwarzeneggar, but is now made part of the protections of SB 931 which was passed into law as of 1/1/2011.

This means that if you have a second loan on your principal residence and the holder of the junior lien agrees to a short sale, there is no "deficiency judgment to be requested or rendered for senior or junior liens after a short sale of one-to-four residential units", per the California Association of Realtors. Additionally, this law does not appy in situations of fraud or waste (deliberate damage), it applies to residences, and does not apply to corporate owners, LLCs, and a few other exceptions. Previously, the protection was against first mortgages only, but is now extended to the seconds and other junior mortgages.

Should You Pre-Pay Your Mortgage

Have you recently considered taking action involving one of the following mortgage issues?

•  An increasing number of homeowners are opting for higher monthly mortgage payments on shorter loans, but with interest rates at record lows and property values still in flux, that may not always be the best decision. In other words, investigate the difference, for you, between a 15-year mortgage vs. a 30-year mortgage, or a 5-year fixed option if you plan to stay no more than 5-years.
• Choosing to pay down a mortgage ahead of schedule by paying extra money at a refinancing or by choosing a shorter-term loan may not be enough to offset what the money could have earned if invested in the markets, according to financial advisers.
•  Paying off a mortgage early, at the expense of other, more liquid savings and investments, could also stifle cash flow, especially in retirement. Once a house is paid off, in order to access its value, the owner would have to sell, get a line of credit, or take out a reverse mortgage to access the equity.
• Financial advisers recommend that home owners only consider pre-paying their mortgages if they already have an emergency fund of at least six months to a year in cash, have other retirement savings, and plan to stay in the house for at least five to 10 years.

Home Improvement Trends In Energy Efficiency and Exteriors

• 

  7 Hot Home Improvement Trends that Make Your Home Work for You

  Home improvement trends embrace energy efficiency, low maintenance exteriors, and double-duty space. Read

Visit houselogic.com for more articles like this.

Copyright 2011 NATIONAL ASSOCIATION OF REALTORS®

Is Your HOA FHA-Approved?

Many homeowner associations in Orange County and Los Angeles County are experiencing certain problems, and these problems could lead to more difficult-to-sell units in an already-soft condo market. For example, some loans are not getting approved for conventional Fannie Mae financing at the close of escrow due to too many owners being delinquent on monthly dues. As times become tough, and owners have to short sell, or go into foreclosure, the associations are not able to collect the scheduled income, and lowered reserves are a concern to lenders.

While associations are not required to have special approval for conventional loans, HUD now requires complete project approval before an FHA loan may be given. And the advantage is that sellers have more potential buyers with this approval, many more. FHA loans have made up 50% of the market in some areas, because they fit the 1st-time buyer's budget with 3.5% down payment, and 1st-time buyers are the majority of buyers in some markets, including condominiums.

If your association is up for renewal for FHA loans, or your association would like to be FHA approved, the following factors are essential for project completion:

1. Owner occupancy must be 50%.
2. No more than 15% of the units can be dues-delinquent over 30 days.
3. No one entity or person may own more than 10%--this is a problem in a 12-unit complex where 1 person owns 2 units, and this is not uncommon in areas such as Long Beach and San Pedro.

4. No more than 50% of the units may be FHA insured.

5. No pending litigation which adversely affects the entire association (collection and foreclosure litigation does not make the HOA ineligible).

HOAs must provide the condominium documents, along with certain information, and if eligible, the process may take about 60 days or more. This approval can help out owners who wish to refinance as well. You don't have to be selling in order to start the approval process, in fact, it's far better if the association obtains it before units go on the market, or an owners attempts a re-finance.

To be approved will usually cost about $1500 to $2000. For more information on documents HOAs provide, and help with finding a source, please contact me to find out where to get started. Some lenders will provide the approval if they are the source of your loan.

Will Lower Loan Amounts Hurt Some California Sellers?

July 1 was the cutoff date for loan limits that exceed the permanent loan limits. In case you've forgotten, the upper limit of $729,750 for conventional and FHA in California was a temporary accommodation. The permanent loan limit is $625,500 as of October 1, 2011.

This change is projected to have the biggest impact on the highest-end counties,  i.e., Marin and Contra Costa Counties, but also Riverside and San Diego Counties are not far behind, where 11 and 12 percent of the (non-FHA) home sales would be rendered ineligible. In Los Angeles County, about 2.3%  loans would be rendered ineligible, but Los Angeles County also represents 25% of the state's households.  The lower limits for FHA loan in Los Angeles County would impact about 5.4% of the loans.

All told, the changes could affect 30,000 California families. If liquidity in the high end market becomes slower than it already is, where do the move-up buyers move to if their eligibility is tougher, and where do the condo-to-house buyers move to in the lower range when fewer properties are put on the market?

One loan limit for the entire country cannot be right--the West Coast market rose above the national level years ago, and the current loan limits recognize that. We need to keep the high-end market moving, so the rest of the housing market does also.

Issues raised to Ben Bernanke, Federal Reserve Chairman, in a House Committee hearing July 13:

Ackerman then asked Bernanke how Congress should reconcile the possibility that many homeowners will not buy homes in this higher bracket when they would otherwise be qualified to do so.  "I don't have an answer other than to say that we have to get our housing finance system back into working order," Bernanke said. 

Researchers from George Washington University have said the FHA already exceeds the market share needed to serve its targeted demographic of low- to middle-income homebuyers. And, a separate report from the National Association of Home Builders suggests more than 17 million homes across the country will become ineligible for cheaper federal funding – at a time when the housing market continues to struggle.

The truth is, they're really not sure what works and what is needed, and getting the finance system back in order sounds good.