Toot the horn, sound the bells, this HARP sounds good!

Toot the horn, sound the bells, this HARP sounds good!

With all this noise, did you catch the significant change? Read below …

By now, we are all familiar with recent news from Washington that the Federal Housing Finance Agency rolled out HARP II in an effort to reach more borrowers.  The basic changes include:

·         Lower fees

·         Removing the 125% LTV ceiling

·         Eliminating the need for a new appraisal (in many cases)

·         Extending the HARP program through 12/31/13

Good stuff.  BUT, the most significant change is:

·         Waiving certain representations and warranties that lenders commit to in making loans owned or guaranteed by Fannie Mae and Freddie Mac.

Huh? Previously, most banks were only offering HARP financing up to 100% LTV because Fannie and Freddie were placing restrictions on the portion of the financing in excess of 100% LTV.  The opportunity to finance up to 125% LTV was available, but banks weren’t participating in this program. It wasn’t worth the risk.

Now that Fannie and Freddie have eliminated their indemnifications, lenders feel comfortable offering loans up to 125%, 150%, even 200% of the value of the home. 

So which transactions are eligible under the tuned-up HARP?

·         Mortgage owned by Fannie or Freddie

·         Mortgage sold to Fannie or Freddie before 5/31/2009

·         Mortgage has not been refinanced since 5/31/2009

·         Original loan amount $417,000 or less

·         Current LTV in excess of 80%

·         Borrowers must be current on mortgage payments

·         No late payments in past 6 months / Up to 1 late payment in last 12 months

If this sounds like your loan, give us a call.  We will get you a fixed rate in the 4s.

By November 15^th, lenders will have full details.

What's a La Jollan to do?

As you know, the high balance loan limits in San Diego county will be lowered from $697,500 to $546,250 effective 10/1/11.  What does this mean for borrowers in San Diego?
In La Jolla, the median home price is $964,134 (http://www.homeinsight.com/).  If one were to purchase this home prior to 10/1/11 (good luck with that!), a 28% down payment would allow this loan to conform to the high balance loan limit.  At $266,634 down payment is certainly high, but at 28% is not out of the realm of the normal deposit on a home purchase. 

After 10/1/11, this lucky home buyer would likely be forced to acquire a Jumbo loan, unless they were able to come up with a $418,000 down payment. This median-home-price purchase would require a 43% down payment to qualify as a high balance conforming transaction.

Jumbo loans are not fully back by Fannie Mae and Freddie Mac and carry a higher 'risk' which translated to a mortgage rate increase of about 1%.  In addition, Jumbo loans have more stringent guidelines. 

Of course, if your loan falls in to the Jumbo loan category, we would be happy to originate it for you.

So long Six Ninety Seven Five ...

In California, the High Balance Conforming loan limit is $697,500.  Push your loan amount up to $700,000 and you can expect to pay an additional 2 points, or 2%, to keep the same rate.  Fannie Mae loan limits for High Balance Conforming mortgage loans are scheduled to expire on September 30, 2011.  Going forward, San Diego County will have a High Balance Conforming loan limit of $546,250.

Who does this affect? Anyone hoping to refi or purchase a home and finance between $546,250 and $697,500.  All of these borrowers will be pushed from the High Balance Conforming category to the Jumbo loan category.

What is the anticipated effect? The spread between High Balance and Jumbo pricing is currently at about .75%, meaning if you want to pay 0 points, you can get a 30yr High Balance loan for 4.375% or a 30yr Jumbo loan for 5.125%, with the Jumbo rate being .75% higher.

For a $1,000,000 home value, a $697,500 Loan (High Balance) would be financed at 4.5% with a borrower credit of .25%.  For the same home value, a $700,000 Loan (Jumbo) would be financed at 5.25% with a slight credit.  If you want the 4.5% rate for the Jumbo loan, you would have to pay 2.5 points (2.5%) in fees. Ouch.

Effective 9/30/11, Loan amounts in excess of $546,250 are subject to the Jumbo Loan pricing.

Bottom line: If you fall into this category, which roughly 20% of my clients do, give me a call to discuss your options.

Have it your way!

We all know that fixed mortgage rates are the conservative choice.  Generally, you can opt to pay off your home loan in a time frame of 15 years or 30 years.  Accelerating your mortgage payoff from a 30 year to a 15 year time frame dramatically increases your payment amount, and may make this option unattainable for the most homeowners.   Stretching your payments over a 30 year time frame instead of 15 years will lower the payment amount, but extends the time frame out into your sixties, seventies or even eighties.  Who wants to be an octogenarian with a mortgage payment?

I’d like you to know there are other fixed rate time frames available that offer a compromise – a low rate close to the 15 year fixed rate as well as a low payment like that of a 30 year rate.  Consider refinancing your home for a 20 or 25 year time span … hopefully paying off the biggest investment of your life near your anticipated retirement age. 

Consider the following scenario:

Your home is worth $1,000,000. 

Your outstanding loan amount is $600,000.

Your current rate is 5%, with a payment of $3,742, and 26 years left on your loan.

If you were to refinance with a 15yr fixed, your rate would go down to 3.875% and your time frame would be reduced by 11 years, but your payment would go up to $5,112.

If you were to refinance with a 30yr fixed, your rate would go down to 4.625%, your payment would go down to 3,584, but your loan would be extended 4 years.

Consider that selecting a 20 or 25 year time frame may meet all of your financial objectives:

·         Lowering your rate

·         Lowering your payment

·         Reducing your time frame.

	15yr Fixed	20yr Fixed	25yr Fixed	30yr Fixed
Rate	3.875%	4.250%	4.500%	4.625%
Payment	$5,112	$4,316	$3,874	$3,584
Closing Costs	$3,500	$3,500	$3,500	$3,500

Call me if you want to discuss your particular scenario.

Tracy Trudeau

858-216-4385

tracy@tracytrudeau.com

Are you a good candidate for an ARM refi?

If your fixed rate monthly mortgage payment is preventing you from meeting you current financial goals, it may be a good time to consider an adjustable rate mortgage, or ARM for short.  ARMs are mortgages with an interest rate that is linked to a specific index, and the rate is periodically adjusted as the index changes.  Remember that whenever there is a change in your rate there is a corresponding adjustment to your monthly payment.  

So are you ready to sign up for a 5/1 Libor 2.25% margin ARM? First let’s make sure you know what you are buying.  The “5” refers to number of years during which your rate will be fixed.  The “1” refers to the future adjustment period, as in your loan will adjust every “1” year after the 5^th year.  The 2.25% refers to the spread added to the Libor index.  Did you catch that? The “5” refers to number of years during which your rate will be fixed meaning that you can essentially get a FIXED loan for 5 years as long as this matches your time frame.  Note that there are also fixed periods available in the 1, 3, 7 and 10 year time frame.

Does a short time frame match your financial objectives? Let’s see if you are a good candidate for an adjustable rate mortgage:

·         You currently live in your first home, and plan to move up in the next 3-10 years

·         You expect to earn higher income in the future, and want to have low monthly payments for now

·         A lower rate means lower payments, which might meet your short term financial goals

·         You anticipate a residential and/or job change which makes it hard to plan your long term goals

Remember, 30 year fixed rates are going to be higher than 5/1 ARM rates because you are paying for the security of a fixed rate for 30 years.  If you only need the security of a fixed rate for 5 years (or 3, 7 or 10), an ARM might be the right financial vehicle for you!

Loan Amounts up to $ 417K (Conforming)				5/1 ARM		30yr Fixed
Value	$        800,000			0pts	1pt	0pts	1pt
Loan	$        400,000		Rate	3.000%	2.875%	4.500%	4.375%
LTV	50%		Payment	$1,686	$1,660	$2,027	$1,997
Payments over the course of 5 years (60 month)				$101,185		$121,604
Total savings of using adjustable vs fixed rate				$20,420
Loan Amounts $ 417K to $697K (High Balance)				5/1 ARM		30yr Fixed
Value	$     1,000,000			0pts	1pt	0pts	1pt
Loan	$        500,000		Rate	3.375%	3.125%	4.625%	4.375%
LTV	50%		Payment	$1,768	$1,714	$2,057	$1,997
Payments over the course of 5 years (60 month)				$106,103		$123,393
Total savings of using adjustable vs fixed rate				$17,290
Loan Amounts above $697.5K (Jumbo)				5/1 ARM		30yr Fixed
Value	$     1,400,000			0pts	1pt	0pts	1pt
Loan	$        700,000		Rate	3.500%	3.250%	5.125%	4.875%
LTV	50%		Payment	$3,143	$3,046	$3,811	$3,704
Payments over the course of 5 years (60 month)				$188,599		$228,685
Total savings of using adjustable vs fixed rate				$40,086

 Tracy Trudeau, Senior Loan Officer, 858 216-4385, tracy@tracytrudeau.com