Now that (hopefully) the housing market is starting to show signs of improvement, condo lending should also improve. Slowly.

Fannie Mae recently reported that they will now review the condo market, particularly in Florida, one of the hardest hit states. It’s important to note that not all loans for condos require a 25% down payment. In fact, there are still lenders offering products, for a Fannie/Freddie loan, on a condo with less than 25% down payment. The other issue to keep in mind, however, is mortgage insurance. Remember, for most conforming loans with less than 20% down payment, the borrower is either going to require a first mortgage with no more than 80% LTV and then a second mortgage for the balance of the loan (something very difficult to find these days) or going to require mortgage insurance. The mortgage insurance companies are perhaps even more conservative when it comes to condominiums.

Hopefully guidelines will loosen up sooner and lenders and the secondary market will continue to help the condo complexes that have been suffering the most.

Remember that Fannie and Freddie increased conforming loan limits–in certain geographic areas–so that borrowers with larger loans could benefit from lower, conforming interest rates and, to some extent, conforming loan underwriting qualifications.

However when these jumbos came out the interest rates weren’t so favorable.  Lower than most “true” jumbo loans, but still relatively higher than conforming loans.

The key is to make sure that your property is located in an area where these jumbo conforming loans are allowed.

Here in Chicago we hit 60 degrees this weekend. I noticed everyone out and about, walking dogs, walking kids, wearing shorts, etc.  So I guess spring is here.

Then I noticed the trees.  Still all bare.  Not any sign of buds yet.  It was as if the buds were still afraid to pop out for fear that we’d get another blustery snowstorm. I don’t blame them.  I am nervous about that too.

But that got me thinking about my industry.  Though it seems that more people are out looking at properties, my sense is everyone is still nervous. From talking to new clients as well as real estate agents, most people have heard about the mortgage industry situation, and even after having been fully pre-approved, they still don’t feel anxiety-free.  They know about the month-to-month (or, even more accurate, day-to-day) program changes, and so they have to be wondering, “I am fully pre-approved today.  But what about in 30 days when I find a property?”  Good question.

My suggestions:

1. Be sure to work with a reputable and knowledgeable loan officer.
2. If you call a loan officer, and he/she doesn’t call back, you can be sure that you won’t get a call back when programs change.
3. Be proactive and ask your loan officer a lot of questions. Like: “How will I know if the program for which you are preapproving me will be around?” and see how they respond.
4. Does your loan officer explain the state of the industry or just say everything is great, please sign here?

It’s important to feel safe and secure.  Though no one can guarantee every loan, the conventional programs should be solid.  If you are going to do any out-of-the-box loan, be careful.  It could be very very cold out there still.

Zillow.com has a new mortgage page. The information is, for the most part, pretty informative and practical. A good place to educate yourself about both the mortgage and real estate process.

However…their “find a lender” (or, I guess, the lender finds you) search is not unlike many of the internet-based companies that are trying to lure people into believing that finding a lender is like buying a bottle of ketchup:  all are the same and you just want the cheapest (and we all know that all ketchup is not the same.)

I could go on and on about the many dangers of using this site for finding a lender, but instead I would go to Lenderama’s site and read this post. It’s great and explains the objections in a sensible and thoughtful manner.

We were discussing the hot topic of the day, month, and year:  the state of the mortgage industry. We eventually got around to the various ways to fix the problems. We all know that the government would get involved, for better or worse. Here in Illinois, for example, the state government passed Public Act 095-0691, and the federal government has passed the Stimulus bill which includes sections about mortgage reform as well as mortgage “fixes.”

The Illinois law would effectively either slow the mortgage process (for someone buying a home) or even possibly stop loans.  Those (in the government) who would be reviewing a loan application would not be consciously or intentionally stop the loan, but the review and time to get the review done might (and this is the key word:  might) cause 1. sellers to find another buyer, or 2. discourage good buyers from moving forward. And thus everyone loses: buyer and seller, seller and buyer realtors, attorneys, loan officers, the city, the state…..

So…what is the point of these laws?  There are many, and it’s complicated. So the realtor and I came to this point and he said, “Well, isn’t it (the law) for us to pause?”

Hmm…let me take a second to think about this………..

The one positive outcome of all the reforms, bills, and laws, for now and just before the borrower signs the application documents, is to take a moment, pause, and think. Is this the right loan program? Will this leave me financially stable and in a position to pay my bills? If something happens for the worse, am I ok?

Hmm…some things to think about?  Thanks Zeke.

The good news is that the limits for lending have increased for many areas. As outlined in the Allregs guide:

“The Act provides that the mortgage limit for any given area shall be set at 125% of the median house price in that area, as determined by the Department of Housing and Urban Development, except that the FHA mortgage limit in any given area cannot exceed 175% of the 2008 Freddie Mac conforming loan limit of $417,000, nor be lower than 65% of the same 2008 Freddie Mac conforming loan limit for a residence of applicable size.

Thus, in areas where 125% of the median house price is less than 65% of the Freddie Mac limit, the FHA limits are set at the 65% limit, i.e., the “floor,” as follows:

          1 Unit:  $271,050

          2 Units: $347,000

          3 Units: $419,400

          4 Units: $521,250

In areas where 125% of the median house price exceeds the 175% limit of $729,750 for a 1-unit property, the mortgage limits are set at the 175% amount, i.e., the “ceiling,” as follows:

          1 Unit:  $729,750

          2 Units: $934,200

          3 Units: $1,129,250

          4 Units: $1,403,400

For all other areas, i.e., those where 125% of the median home price for the area is in between the floor and the ceiling, the limit shall be at 125% of the median home price.”

So the news, for a change, is good for everyone. Buyers who need a more liberal mortgage program (i.e. have little down payment, not spectacular credit scores/history, little money in reserves, etc.), FHA is a great way to go. Sellers will have more opportunity to sell their homes, as there may be more buyers available, particularly for higher priced homes.

Here’s my thought though: I looked up the word “limit,” and the definitions point to the idea of boundary or restraint. I think we should keep this in mind.

Yes, the new FHA limits allow more people to buy “more home.” Sound familiar? Remember all those programs, in the last four years, that were able to “buy more home” buy offering high LTV (low down payment), interest only, and negative amortization programs? No income or assets required? No job, no problem? Remember those programs and remind ourselves of all the heartbreak that has spread not only throughout the country but also throughout the world.

Let’s make sure we do the right thing. Budget. Limit ourselves. Just because the limit is $729,750, doesn’t mean that we have to take a loan for that much.

Still, this is great news for the beginning of the spring season.

Regarding the mortgage industry, one item stands out.  If the President signs the bill, there is a good possiblity that the conforming loan limits will increase.

It is estimated that conforming loan limits for 1 unit properties will go from the current $417,000 to (an estimated) $729,000! For many people who are going to be buying properties and would be stuck with jumbo loans (i.e. much higher interest rates), this is big news.  And many people will be able to refinance from two loans, often with higher-interest second mortgages, into one loan with better interest rates.

Look for updates.

It has been common, when buying a home and putting down less than a 20% down payment, to use a 2nd mortgage. This is common to avoid PMI (aka Private Mortgage Insurance–what people seem to think of as The Evil Empire). 

So…for those who obtained a 1st and 2nd mortgage in purchasing their home, and now want to consolidate both into one loan, not a problem (so long as they qualify for the loan itself). But what about those who obtained one loan, at any loan-to-value, and then got a new 2nd mortgage after the purchase, and now want to refinance both?  This could be a problem.

Basically, in mortgage lingo, if you want to refi a 1st and 2nd mortgage that was obtained for a purchase, this would be considered a rate and term refi.  Its more risky cousin, a cash-out refi, where you are refinancing a 2nd mortgage that was obtained after the purchase, is riskier in that it is as though you are paying off credit card debts or literally taking cash out. So rates may be higher and some programs may not allow you to even refinance if the loan-to-value is too high.

So, some people who did say thanks are now saying “thanks a lot!” if they can’t get a loan. Be careful about when you get a second mortgage.

The room, as I call it, is the place where you, the borrower of a loan, and the loan officer, the person who is assisting you in getting the loan, meet. By place I should almost say space, but really, it is how you meet the loan officer. It could be via email, via phone, or in person. It is this place/space where the loan process begins, and this is the area that no one–none of the so-called experts–really can tell how things are going. Except for the loan officer and the borrower(s).

In continuing my series on our current foreclosure epidemic that started with my Introduction, I think this is probably the most important step in staying out of foreclosure.

Tony Gallegos has a recent post (quoted from another source) that explains how Abe Lincoln would know his opponent’s arguments and case so well that he himself would, in effect, take all the wind out of the opponent’s sails and win. Because he knew their case better than they knew their case. In an odd way, this is relevant to my point. As borrower’s ‘meeting’ with a loan officer, in many cases a stranger, you should think about the loan officer’s agenda. Yes, the loan officer has to make a living, yet the best loan officers never convey the sense that they are meeting you only to make a profit. Hopefully, though, when you walk into that strange space (internet, phone, or actual room), you will get a very strong sense that the loan officer wants to help you, make you feel comfortable, and assist you in making the best decisions. Though you are nervous and excited and probably feeling eight to ten other emotions, I think it is important to pay attention to the loan officer.  What is he saying? How is she saying it? Are there options? Why? Why not?

So here is my main point–and it is going to sound really crazy: don’t just think of yourself. By this I mean pay attention.

The road to foreclosure starts right now. We, the people who are trying to understand and explain and help others not go down this path, forget that we really don’t know what happens in these rooms. Does the loan officer explain an ARM and how it works and how it could hurt you? Does the loan officer give options? Does the loan officer review the Good Faith Estimate, and, if the borrower signs it, does the loan officer sign as well? Does the loan officer review the credit report, the essential documents for underwriting, and/or the different types of documentation (verify income and assets and employment…or not)?

Most important, when you walk in the room, do you feel like you are being treated as a human being or manipulated like a robot?  And this is what no expert can measure in explaining how the foreclosure mess started.

I am not Abe Lincoln (for sure), but I do like to understand my clients, and most good, reputable loan officers will do the same. Prepare yourself before you step into the room.

Turns out, I may not be that far off.  Read this article about 100-year mortgages coming to Wales. And Japan already has 150-year mortgages.

One of those be careful for what you wish for ideas………