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Latest California Mortgage Statistics: Fraud and Delinquencies Increase as Home Prices Decrease
Published
by
Heindrick
on December 5, 2008
in Refinance
. 0 Comments

Mortgage Fraud Increases as Lending Standards Tighten
According to the latest report from the Mortgage Asset Research Institute, California trailed right behind Florida when it came to mortgage fraud. As mortgage lenders tighten up qualifications, many individuals have resorted to fraudulent acts and other methods to get by. Compared to last year, the number of mortgage fraud related incidents has increased by about 42 percent according to the report.  The most common cases of fraud involved the misrepresentation of the borrower’s name, income, employment history, and assets.

A Few Tips to Help You Avoid Mortgage Fraud

  • - Be wary of lenders or mortgage brokers who promise results which sound too good to be true. These individuals could either be over promising you results to simply draw in your business, or may resort to fraudulent methods to deliver on these promises.
  • - Ask your mortgage lender what the qualifications are needed for the specific loan scenario; compare these requirements to your loan application and see if they match up.
  • - Don’t get talked into committing mortgage fraud. Don’t let your mortgage broker convince you it’s OK-more importantly, don’t let yourself convince you it’s OK.

Late Payments and Delinquencies Rise Throughout the Nation
According to the Transunion credit reporting agency, the amount of individuals late on their mortgage by at least 60 days shot up considerably in this third quarter compared to last year. Meanwhile, the statistics for California showed a 5.8 percent delinquency rate-the third highest in the nation (Florida and Nevada hold the top two spots respectively).

California Home to Some of Biggest Price Declines in Nation
Here is an excerpt of the top 10 areas with the steepest price declines (4 out of 10 spots belong to California):

#1)  Oakland-Fremont-Hayward, CA -29.07%
#2)  Riverside-San Bernardino-Ontario, CA -28.56%
#3)  Los Angeles-Long Beach-Glendale, CA -28.46% 
#7)  San Diego-Carlsbad-San Marcos, CA -24.90%
The full list can be seen here.

Although California is home to some of the largest price declines, we can’t forget that it also held some of the most inflated “bubble” prices seen in years. In the same manner, the delinquencies that we’re seeing are the combination of loose lending and anxious buyers who couldn’t really afford a home in the first place. As for the mortgage fraud, mortgage lenders and banks have tightened up their guidelines so much that individuals are more desperate than ever-but still certainly no excuse.

I know it must seem like all bad news, but something to consider is that all of this was expected in one way or another. On a positive note, the shift we’ve taken towards tighter lending guidelines may make it harder to refinance or purchase a home, but in the end, it will preserve homeownership to those who can actually afford it. As for the steep price declines in California, it’s unfortunate for current homeowners who have borrowed within their means, but it’s been a necessary move if we expect to return back to the realistic home prices of before.

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Home Equity Loans

Say It Ain’t So - Are Prime Borrowers Not Immune To The Housing Crisis?
Published
by
Heindrick
on December 3, 2008
in Home equity
. 0 Comments

In a recent article by the LATimes and a study by the Mortgage Bankers Association, the latest findings show that foreclosures and mortgage delinquencies have been “skyrocketing among prime borrowers”. It’s a daunting reality, but the current economy has shown no mercy to any homeowners, subprime and prime borrowers alike.

In California, we’re facing an even harsher reality as the rising unemployment rates have surpassed 8%. Combine this with the average 30-40% decline in home prices and we’ve got ourselves a real set of problems. While prime borrowers typically document their income and can actually afford their mortgages, the problems of a struggling housing market have no bias. Slipping values, troubled neighborhoods, and rising foreclosures affect everyone; even those labeled as prime borrowers by the mortgage markets.

In California, the situation among prime borrowers proves to be worse as 4.15% of prime loans are delinquent, compared to the nationwide statistic of 3.07%. These statistics were compiled by the Mortgage Bankers Association, and delinquencies were defined as mortgages late on their payments by at least 60 days or already in the foreclosure process.

An unfortunate problems remains that homeowners simply have less options to turn to when things go sour nowadays. In past years, if homeowners suffered a job loss or were tight on cash, many could turn towards refinancing and cashing out the home equity in their home for support. But with mortgage lending options severely cut back, even prime borrowers are having a hard time refinancing or taking out a home equity line of credit.

And even if these prime borrowers meet the qualifications for a mortgage, many still have to deal with the drastic home price reductions here in California. While toxic mortgages and loose lending have dealt their blow to these subprime borrowers, the overall economy has been taking its toll on the remaining homeowners.  The forecast for the subprime markets has already been realized, but the true worry is that the problem will spread further among Alt-A and Prime borrowers.

If you’re having trouble with your mortgage, one of the best resources you can find in California is CalHFA and the Hope Now organization supported by HUD and its approved members. You’ll find tips on foreclosure avoidance, loan modifications, as well as necessary contact numbers for lenders in your area.

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Home Equity Loans

Changes Coming in 2009 For Mortgages in California
Published
by
Heindrick
on November 11, 2008
in New Home loan
. 0 Comments

Aside from the new Obama Presidency, there are going to be a number of changes made in the mortgage industry coming in 2009; many of which will already start affecting potential homeowners and borrowers. In the upcoming weeks, you’ll start to see lenders preemptively limiting loan guidelines to prepare for the changes to come next year. Since the average mortgage loan process ranges anywhere from 3-6 weeks, you can expect lenders to make the necessary changes to ensure these loans fund in time before the changes are made. In particular, the two changes worth mentioning are the increase of larger down payments requirements and expiration of increased loan limits here in California.

Increased Loan Limits To Expire - Conventional and FHA Mortgages
The temporary increase of loan limits to $729,750 has been welcomed here in California because of our higher media home prices, especially in regions such as the Bay Area and parts of Southern California. In particular, these higher loan limits allowed people to finance more of their home without having to suffer the penalty of typical “jumbo” loans.  By 2009, the highest loan limit for California backed by the government will be $625,500 in specific high cost areas. The same will go for FHA insured loans, with the high cost limit set at $625,500.

Although the changes will be made nationwide, residents of California should pay special attention to these changing mortgage limits.  Even with declining home values, it can still be quite easy to surpass this cap of $625,500. If you happen to exceed these limits, you’ll face a few troubling issues. First of all, you’ll have a harder time securing a home loan in general since your loan is simply beyond the government limitations. More importantly, when you do find a loan, you’ll be paying more on your monthly mortgage payment. Lenders place greater risk on these jumbo loans and typically increase the mortgage rate to make up for this risk. Quite soon you may find yourself paying in the range of 7% for a 30 year fixed loan where you might have only paid 6% currently.

FHA Larger Down Payments Requirement
Another change that we can expect is the increase of FHA down payment requirements to 3.5% as opposed to the current 3%. The difference of .5% may be marginal, but it is another thing to keep in mind. You may find lenders expecting 3.5% from potential homebuyers quite soon as they factor in the time it takes to find a home.  Recently, the FHA has also done away with their down payment assistance programs as analysts concluded these loans were more likely to default.

Dropping home prices and already tight guidelines make some of these changes seem less of a big deal, but for those looking to squeeze by, now may be the time to get their foot into the door.  There are likely to be even more changes expected by next year, but for the time being these two were the most anticipated changes for 2009. For more information, you can find a lender in your area by using our mortgage broker and lender directory.

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Home Equity Loans

California Mortgage Rate Weekend Roundup
Published
by
Heindrick
on November 1, 2008
in Home equity
. 0 Comments

Federal rate cut
Earlier this week, the fed initiated another rate cut of 50 basis points to the federal funds rate, bringing it to a 5 year low of 1%. Remember, a drop in the federal funds rate means that it will be cheaper for banks to borrow money from other banks and the government. For you rate watchers, this rate cut has a stronger correlation with short term loans rather than long term loans such as 30 year fixed mortgages.

While dropping rates are usually good news for consumers, a drop in the fed rate cut is unlikely to guarantee any drops in traditional mortgage rates. Instead, consumers will most likely notice these rate cuts to affect the interest rates on short term loans such as car loans, credit cards, home equity lines of credit. In addition, the fed rate cut also impacts consumer cash such as the interest paid on savings accounts, money-market accounts, and certificate of deposits.

Bottom Line: The Federal Reserve issued this funds rate cut in hopes of stimulating our economy by making credit available at even lower rates.

Woman Chains Herself to Foreclosed Home In California
Down south, a struggling homeowner chained herself to her home after living there for 19 years.  Her story echos many of the problems homeowners have had with adjustable rate mortgages in California. During the housing boom, ARM mortgages were rampantly advertised as low rate & low payment monthly mortgage options; with many unaware of the possible consequences in the future. Unfortunately, this woman is facing foreclosure because of her adjustable rate mortgage and has responded with a desperate move to save her home.

Bottom Line: If you are having trouble with your mortgage, your best move is to speak with your lender as early as you can. In addition, there are helpful foreclosure avoidance resources on CalHFA , HopeNow, and even CMR.

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Home Equity Loans

Peak Time Home Purchases In California Struggle For Help
Published
by
Heindrick
on October 27, 2008
in Home equity
. 1 Comment

DQNews’ last quarter report had some pretty interesting numbers on mortgage statistics in California.  In the report, mortgages that were made during the height of the market, or at their peak price, proved to be harder for lenders to work out. Due to the higher loan amounts and lower home equity, loan modifications and general negotiations were more difficult to work out with these struggling borrowers. In addition, multiple financing was at an all time high during this peak period. Unfortunately, this only adds further difficulty as lenders need to cooperate with each other to reach an agreement.

While the mortgage default filings did drop in California, many of the troubled mortgages were found to be originated from October 2005 to February 2007. Another interesting statistic was that of those homeowners in default; only 20 percent were able to escape the foreclosure process by refinancing, selling, or bringing their payments current. A year ago, this number was at 46 percent, and these peak-time purchases are likely responsible for the significant drop in numbers. While lenders and programs are working towards helping homeowners throughout the nation, the peak time purchases in California just don’t give lenders enough room to work with.

Of those in default, DQNews also found that California borrowers were on average 5 months behind on their primary mortgage and 8 months behind on home equity loans or lines of credit.  At the time, multiple loan financing peaked in 2006, accounting for almost 61 percent of all home purchases. As of right now, with credit markets tightened, multiple loan financing accounted for only 6.5 percent of purchases in California.

For those of you currently in the market for a home in California, it’s definitely tough to predict the best times to buy; and I know most of you are shooting for prices to hit rock bottom. But, one thing we can see from mortgages made in the past is that you need to make sure you aren’t getting in over your head. Granted that credit guidelines are more strictly enforced nowadays, it is always in your best interest to make sure you consider all the possibilities. This could include adjusting interest rates, slipping home prices, or various financial emergencies. By taking all of this into account, you stand a much better chance of dealing with any unknowns in the future. Of course, you can’t prepare for everything, but typical loan guidelines are calculated to give you some breathing room in case something does happen. Unfortunately for the folks who bought during the peak prices in California, one can only hope they find a way to manage with today’s struggling housing market.

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Home Equity Loans

Proposition 12 Will Support Veterans in California With CalVet Mortgages
Published
by
Heindrick
on October 20, 2008
in New Home loan
. 3 Comments

 Proposition 12 - Veteran Bonds Act of 2008
This measure will allow California to issue $900 billion in bonds to help veterans buy homes with low interest rate mortgages. Specifically, veterans will be able to qualify for these traditional fixed rate mortgages through the CalVet program.  Typically, these mortgages would carry rates below market and would cater to the needs of veterans.  While this measure will be voted for on November 4th along with the presidential election, the CalVet program is certainly no stranger to California.

What is CalVet?
The CalVet program began in 1921 and this November 4th will be the 27th time it has been on the ballot. As with most government program, the California Department of Veteran Affairs confirms that the CalVet program is “tightly controlled and heavily regulated“.  The program makes sure to verify the veterans eligibility as well as their ability to repay these loans. The department also keeps a close eye on the offered mortgage rates and may adjust these rates to make sure the bonds are paid back without assistance. Since 1923, the program has helped over 425,000 Californian veterans; veterans who have served from World War I, World War II, Korea, Vietnam, and most recently Iraq and Afghanistan.

 The programs offered by CalVet are quite traditional and provide a stark contrast to the trend of exotic and creative mortgages we’ve seen recently. As an example, CalVet would offer home loans at a simple 5.5% 30 year fixed mortgage while nationwide averages might be at 5.87%. Interestingly, the CalVet program has not costs taxpayers a single dime since its origination in 1921-so far, veterans have paid back every loan.

Supporters of Prop 12
In Sacramento, the Assembly and Senate voted unanimously for the legislation; quite an unusual surprise not often seen in Sacramento legislation. Supporters of the proposition hope to show their support for these brave veterans by extending this program to ensure their housing needs. If the veterans payback their loans, the measure would come at no cost to taxpayers; a likelihood when compared to the significant trend since its origination.

Opposition of Prop 12
There is some opposition of Prop 12 and the most common arguments come down to eligibility and money. First of all, some argue that the program should be strictly limited to veterans who saw combat during these wartimes, instead of all veterans including noncombat individuals. Financially, while the trend has been promising, there is still a chance for taxpayers to end up paying for such a measure. While the costs are supposed to be paid back by borrowers, there is always the slight chance that taxpayers could foot the bill in the future.

There’s almost a general expectation that this measure will pass, but if you’re looking for a way to support your troops, Proposition 12 is a great opportunity for you to do so. On a side note, I couldn’t help but observe the spectacular streak of non-default within the CalVet program myself; if only more would have stuck to the traditional 30 year fixed mortgage. If only.

 Full Story @ SFGate & PasadenaNews

CalVet Website

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Home Equity Loans

Mortgage Tip – Pay Attention to Your Debt to Income Ratios
Published
by
Heindrick
on October 15, 2008
in New Home loan
. 3 Comments

Aside from the great weather and beautiful views, one thing residents of California can expect is higher median home values. Although our median incomes are adjusted to meet these higher prices, the penalty for error when managing your debt to income ratios increases as well.  As lenders realize the importance of filtering out those who cannot truly afford their homes, debt to income ratios are once again strong indications of ones financial ability.  During the housing boom days, debt to income ratio standards weakened as stated loans emerged as the popular method of “verifying” ones income.

Well, earlier this month, the Mercury News put into perspective how poorly homeowners in California are keeping these debt to income ratios in mind. In fact, according to the U.S. Census Bureau of 2007, all nine Bay Area counties ranked in the top 40 spots with the highest percentage of homeowners spending more than 50% of their income on housing. 

More than 50%. The problem is that the more you spend on your housing, the less income you have for other expenses, and the less financial flexibility you have. Keep in mind these figures are only for housing and do not include various expenses such as car payments, insurance, food, cell phone bills, entertainment expenses, and so forth. Add those all together, and if you’re spending more than 50% on housing, you’re either very close to living paycheck to paycheck or well past that point already.

In California, these problematic statistics are shown to increase steadily from 2004 to 2007. Aside from stated loans, people also grew more comfortable with leveraging their money so heftily; expecting home values to continually rise. The problem is that when it comes time to refinance because of your adjustable rate mortgage, and you can’t–you’ve given yourself no wiggle room. If you’ve maxed out your debt to income ratios in the first place, by the time your payments begin to increase you’ll have no more room to breathe.

That being said, here are a few tips I’d like to share regarding your debt to income ratios:

  • Don’t just consider your DTI another loan qualification obstacle. Seriously consider this ratio and see if you’re actually qualifying within these limits. With loans more stringent these days, you’ll most likely have to document your income. But, if you are stating your income, make sure your stated numbers are true to what you make. You may feel like you’re scoring a great deal or getting past the system, but these ratios are in place for a reason.
  • Plan ahead and consider the future, but don’t bank on anything. Don’t rely on home price trends or future expectations to calculate how much you can afford. There are cases where great predictions can mean great opportunities and sweet profits, but take the current economy as a lesson to see what happens when these future expectations aren’t met.
  • Think carefully about any type of adjustable rate mortgage. Again, there are opportunities where adjustable rate mortgages can be great. But, consider the possible scenarios if your payments were to increase. Could you afford it? Would you be even willing to pay that much? Refinancing is usually an option to transition back into a fixed rate mortgage, but again, see what is happening to people today who are stuck in their ARM mortgages.

There’s definitely a lot of things shaking up this housing market, but the bottom line is always your dollar. Home prices and slowing economies are definite causes for concern, but the bottom line is what’s coming in and out of your pockets every month. Take this consideration carefully, and you’ll see why debt to income ratios are still such important mortgage qualification tools.

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Home Equity Loans

Bank of America Lends a Helping Hand to Select Californians
Published
by
Heindrick
on October 10, 2008
in Refinance
. 2 Comments

In the midst of all the troubled mortgages and failing banks, Bank of America seems to be setting themselves apart from the competition. Earlier this week, BofA stated that they would provide more than $8 billion in loan modifications nationwide; with about $3.5 billion allocated for select residents of California. 

Now, one can only hope that others banks would follow this move and respond just as kindly. But before you applaud BofA for this seemingly heartfelt gesture, keep in mind this move is due to a recent lawsuit settlement resulting from their takeover of Countrywide; and they are still continuing cases against Countrywide and CEO Angelo Mozilo.

For those of you in California wondering about the provisions, here’s a quick summary of the necessary qualifications:

  • - Covers subprime and Option Arm Adjustable Rate Mortgages originated between January 1st 2004 to December 31st 2007
  • - Eligible borrowers must either be 60 days late or face a serious mortgage rate adjustment
  • - Some adjustable rate mortgage holders may qualify for an extension of their introductory rates
  • - High interest rate mortgage holders may be eligible for rate reductions
  • - Option Arm mortgage holders may be eligible for principal reductions
  • - Some home owners will have their mortgages automatically adjusted, while others will receive notice of their eligibility
  • - Other incentives include waived prepayment penalties, rates as low as 3.5%, and value adjustments according to today’s market values.

Is it Enough?
Now, $3.5 billion sounds like a great deal of money, and it is. But compared to what’s going on in California, it just isn’t enough to make any substantial changes. For the home owners who can qualify, I’m sure you will feel a definite and substantial change.  But what we can all look forward to is the precedent that such a move will make. With recent help such as the FHAs Hope For Homeowners program, we’re starting to see more of these big entities take active participation to help address the problems we’re all facing. It’s something that will help in the long run and something home owners can look forward to.

Fore more information, here are some quick links for you to check out:

San Jose Mercury News - Bank of America Offers Assistance to California Mortgages

SFGate - BofA OKs Foreclosure Relief for Californians

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Home Equity Loans

The Bailout Rescue Bill and California Home Owners
Published
by
Heindrick
on October 8, 2008
in New Home loan
. 3 Comments

Last week was quite a roller coaster of financial emotions. On Monday, the House had initially rejected the Rescue bill and by the end of the week in was back in President George W Bush’s hands to sign. Within those 96 hours, stock markets panicked and confidence in our economy was severely shaken. But with the rescue bill finally in place, here’s what home owners in California can look for in the future.

Some think Bailout Is Just Not Enough
The Sacramento Bee wrote that the Rescue Bill simply won’t be enough to cure the foreclosures in their region of Sacramento. The San Jose Mercury News also writes that the bailout doesn’t detail specific provisions for “strapped homeowners” and will do little to cure this economy.

Meanwhile, the FHA has also stepped in to provide insurance of up to $300 billion worth of troubled mortgages in their Hope for Homeowners program. Then there are individuals who are saying that the bailout bill was wise to avoid specific details, as it places most of the responsibility on the market itself to correct the housing industry.

Giving the Bailout Time to Work
Financial analysts concur that this economy will get worse before it gets any better. And without a bottom in sight just yet, a lot of government officials and individuals will be under pressure to simply do something. There are a few steps that California has already taken, mostly addressing the issue troubled homeowners either facing foreclosure or already in the process.  But the notion that we must hit rock bottom is definitely a cause for concern. If you take a look at the trends in home prices in California, we saw a dramatic increase in home values over a period of many years.

What we can’t expect is for this mortgage crisis to cure itself within a fraction of that time. It’s been addressed by many before, but home prices in California need to return back to “normal” levels; unfortunately, this is what’s putting so many on the edge of their seats. Everyone wants this troubled economy to improve and for the housing industry to return back to normal, but people aren’t that excited about losing the value of their home. I wouldn’t be either, but it’s a fact we must face. If we expect these “bubble” values to continue, and avoid the inevitability of the “normal” values to return, it’ll be a very long time before we can expect any turnarounds in this economy. Expecting the bill to cure markets overnight is simply too optimistic.  For right now, the bailout rescue bill allowed us to avoid a collapse in the markets; a glimpse we were able to catch post Monday’s rejection.

 Here’s Some Links to Interesting Reads:

LA Times - Giving the Bailout Time

InsideBayArea - Bailout will Restore Confidence, slowly.

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Heindrick So

About the Author:

Heindrick So is a mortgage consultant at a local Bay Area Real Estate Brokerage - specializing in residential wholesale lending.



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