In addition to the rate reduction, Fannie Mae and Freddie Mac won government approval to reduce their required capital reserve by 10%.  Fannie Mae and Freddie Mac are subject to larger reserve requirements than other purchasers of mortgages.  They had been required to keep an additional 30% of the required amount in reserve, but that has now been reduced to an additional 20%.  This may not sound like much of a big deal, but it is just as important, possibly more so when talking home loans, than the rate cut.

By reducing the capital Fannie Mae and Freddie Mac (the two largest purchasers of mortgages) must keep in reserve, it effectively is pumping $200 billion into the mortgage world.  By not being forced to hold this money in reserve, Fannie Mae and Freddie Mac are free to use these funds to purchase more loans.  This reduction should add some liquidity to the mortgage market, which is very important when talking about making loans available at the best rates possible.  If the market that purchases loans on the secondary market is not very liquid, less loans can be written, and they will have to be written at higher rates in order to ensure buyers. 

Speaking of rates, 30 year fixed mortgage rates are again on a downward trend, again, available in the mid 5% range at wholesale rates.  Mortgage rates had been much lower early in the year, but have been creeping up over the past month or so, due in large part to an illiquid secondary market.  With the additional action taken this week, rates have been falling again.  I expect this to continue, with rates hovering near historic lows for the foreseeable future.  Additional help could come with more action on the governments part.  We are not out of the woods by any stretch of the imagination, and additional action could continue to add liquidity and help restore confidence in the secondary market.  With all of the uncertainty in the market and large institutions failing, Additional action seems certain.

Now is an excellent time to look into financing options, whether for a purchase or a refinance.  Feel free to take advantage of my online loan calculators, whether comparing the cost of renting versus buying or to see if today’s rates could save you money.   There are still many loan options available, and terms are again near historic levels.  For California home loans, or financing questions of any kind, please contact me.

Also, many closing costs can be financed with an FHA loan.  With most conventional loans, the borrower must pay these closing costs.  If they allow the seller to pay the costs, they usually cap this concession at a maximum of 3% of the loan amount.  FHA programs allow the borrower to finance many of these charges, and also allow the seller to pay a larger portion.

Some fees are limited under FHA rules.  FHA has limits on some of the fees that can be charged in association with your loan.  These fees are capped at a level that is reasonable and customary, as determined by the local FHA office.

Finally, the limits that are in place for maximum loan amounts under FHA loans are fixed.  These have been raised, however, through the end of 2008, making it a great time to ask about an FHA loan.  To see the new limits by county for California, take a look at my conforming loan limit post, which breaks down these limits county by county.

If you would like to contact me regarding your California home loan options, please feel free to do so.  I am always happy to discuss the options available to you.  Additionally, with the increased limits, now is an excellent time to revisit your existing loan, or look at purchasing a new home.  Remember, these limits are currently only in place through the end of 2008, after which they are anticipated to go back to the old limit of $417,000.

New conforming loan limits hit the ground this week, making it easier for some homeowners and potential buyers to qualify for loans once categorized as jumbo loans.  These new limits are good from March 6, 2008, through the last day of the year, barring the program being extended.

These new limits are determined by county, and are set at 125% of the median house price for that area, as determined by the department of housing and urban development, with a max of $729,750 for a single family residence.  This is good news for high cost housing areas, of which California is one.

According to the department of housing and urban development, here are the median home prices, and new FHA and conforming loan limits by county in California:

Now is the opportune time to look at your financing options.  If you currently have an adjustable rate loan, or even a fixed rate loan, options are available today that were not only a week ago.  Please feel free to call me directly at 877 462 3422 for any of your California home loan needs and I will be more than happy to discuss the options available to you.  Remember, these limits are only in effect through the end of the year, barring an extension.  Coupled with the current low interest rates, it is a great time to explore financing options available.

Loan Workouts are on the rise, which is good news for the troubled real estate markets.  In the fourth quarter, delinquency rates were still rising, but the number of loan workouts also rose due to a number of factors.

One of the reasons for the increased number of loan workouts is the falling interest rates.  Many of the subprime mortgages are tied to indexes, such as the LIBOR, that have come down a good deal over the past few months.  The average subprime ARM today is resetting at an average of 8.76%, whereas in December, the average reset rate was 11.25%.  The drop in rates allows lenders more flexibility in coming to a loan modification, and these rates are expected to continue to drop in the near future, which should continue to help the loan workouts.

Additionally, we have seen the number of loan modifications as opposed to repayment plans increase.  Loan modifications are typically more beneficial to borrowers than repayment plans.  A modification changes the original terms of your loan.  Examples of modification would be fixing an adjustable rate for a longer period of time than the original loan called for and/or reducing the rate at which the loan is to reset.  Loan repayment plans, on the other hand, typically take the amount of back interest and fees owed on the loan, and chop that amount up to be repaid over a period of time rather than upfront.  A repayment plan does not lower your payment or change the terms of your loan, it just offers a repayment plan that can allow a borrower to get back on track.

Lenders working with borrowers on loan modifications is very important.  We are still in a down real estate market, with a surplus of inventory.  The first step to recovery is getting through the inventory on the market, especially the bank owned properties and foreclosures.  These are properties that have a severe drag on pricing.  With more loan modifications and workouts should come less foreclosures.  We are not seeing the delinquency rate fall yet, and foreclosures are still at record levels, so there is more rough road in the immediate future.  As lenders become more and more willing to work with borrowers, however, and as the loan modifications become more and more common, it should start to have an impact on the foreclosure numbers.

Check back in as I will be touching on more points related to the current market conditions.  As always, feel free to contact me regarding home loans or other financing questions.

If you have been paying attention to the recent news surrounding the economic stimulus package, you know that conforming loan limits are set to rise.  Old limits of $417,000 are being changed on a county by county basis, based on the median home prices for that particular county.  That is good news for the housing market, but more changes are on the horizon.

Simply raising the conforming limit, which is the maximum loan amount Fannie Mae and Freddie Mac can purchase, is a good step in the right direction, but more change is needed to get us out of the current housing rut we are in.  An additional issue, and a major one, is the liquidity of the credit markets, especially in the mortgage lending world.  A proposed change on the horizon could help out with those liquidity issues as well.

Currently, Fannie Mae and Freddie Mac are capped at a total of $1.5 trillion on their combined holdings.  They are also required to keep 30% more capital in reserve than the minimum legal requirement.  This is to safe guard against losses such as those recently suffered in the mortgage meltdown.  Fannie Mae lost $3.56 billion last quarter, that is compared to a $604 million profit last year in the same quarter. 

March 1, the $1.5 trillion cap will be removed, which will help the mortgage market’s liquidity.  The reserve requirement could be the next thing to be relaxed.  The government is now considering decreasing this reserve requirement gradually.  Because of this restriction, both companies have been forced to sell special stock to raise $13 billion in capital in 2007, in addition to reducing their dividends.  By decreasing the reserve requirement, the government would essentially be freeing up capital that would be pumped into the mortgage lending world.

This is essential.  With a more liquid market, the extremely tight lending standards of today could begin to relax.  To get out of the current real estate slump, this is key.  It won’t solve the problems by itself, we still have a huge amount of inventory on the market, and foreclosures are still at record highs.  Until we begin to make our way through the current inventory on the market, I don’t see a big turn in the market.  A big piece of this puzzle is finding a solution to these foreclosures. 

As banks take back more and more properties, they are slashing their asking prices to get them off their books.  So not only do we have a glut of homes on the market, but we have a large percentage of them as bank owned.  Banks don’t want to own property, and are willing to take the large losses that come with the reduced price they must market them at to sell in a timely manner.  In the local East Contra Costa real estate market, over 50% of homes currently on the market are foreclosure or bank owned properties. 

A more liquid mortgage market will help by allowing more people to buy these homes, as well as allow more people to refinance out of their adjustable rate loans, keeping them out of foreclosure.  With the recent changes, it is anticipated that refinancing activity will increase as borrowers with adjustable rates resetting higher will secure more affordable fixed rate mortgages.  These upcoming changes are not a cure all, but they are surely a step in the right direction.

If you have questions regarding the new limits, guidelines or rates, or if you are in the market for a California home loan, please feel free to contact me for more information.