Loans/Financing/Credit

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Conventional Loans most popular in Lane County

This post will be of most interest to my loan writing friends, a.k.a., mortgage brokers. I looked at the different types of loans used to purchase single family houses in the one-year period of July 2008 to July 2009 in Lane County. Raw data came from rmls.

Of the 3,172 sales, a little over ½ the loans were conventional; cash purchases came next, with one in five purchases last year, FHA insured loans comprised only 18%; and VA was a paltry 4%. Given the popularity of FHA loans these days, I was surprised to find that less than 1 in 5 purchase money loans last year were FHA.

Loan Types for Home Purchases in Lane County Oregon

Loan Types for Home Purchases in Lane County Oregon

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8,000 Dollar Tax Credit: Still Time

Most have heard of the tax credit available to first time home buyers. The government will credit you up to $8,000 if you purchase a principle residence by 1 December 2009. It has to close by then, which means you had best be looking now. If you haven’t owned a home in the last 3 years, now is a great time to buy. The best information on the housing credit is by the National Association of Homebuilders, an organization I’m proud to be a member of.

 

$8,000 Housing Credit: What a Deal

$8,000 Housing Creidt: What a Deal

 

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Fannie Mae Loosens Standards for Multiple Property Owners

Investors will once again be able to get Fannie and Freddie loans for up to 10 properties. Recently, the limit had been ratcheted down to loans on only 4 properties, which was an impediment to rental owners.

The new program, effective March 1, 2009, is available for borrowers that own between 5 and 10 financed properties. This time around, the GSE’s (Fannie and Freddie) actually want some signs that the borrowers will repay. These minimums include:
∙ 25% down payment.
∙ Credit score of 720.
∙ No bankruptcy within 7 years.
∙ No mortgage delinquencies within the last year.
∙ Documentation of enough money to make 6 months payments on all the mortgages (Principal, Interest, Taxes, & Insurance) they have. These funds must be resting in their checking, savings, and/or retirement accounts.

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How Long the Recession Will Last

So, how long is it? Hard to tell in the dark.

Economics is a rather dark art and will only tell us when the recession is over after it’s over. But only a long time after. My prediction: end of 2009. The reason: the government stimulus should take about 9 months to show up in the economy. And, with some 1 trillion dollars plus being pumped into the economy, that will do something. That’s the equivalent of the government lending each citizen in the U.S. over $3,000.

It is thought that the U.S. consumers account for some 10% of the world’s economic growth, and nearly 3/4 of the U.S. G.D.P. Currently, consumers have zipped their wallets and purses. As soon as the news stops scaring the hell out of us and confidence returns, spending will tick up, and things should improve.

How does this affect housing prices? It should remain a good time to buy through the end of 2009.

Low Consumer Spending Will Change

Low Consumer Spending Will Change

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Jumbos: Let Them Eat Cake?

Jumbo loans, those greater than 417K in most areas of the U.S., including Lane County, are becoming delinquent with increasing frequency, according to a recent WSJ article. The rate of jumbos greater than 3 months delinquent has shot up to 6.9%, nearly a 3-fold increase from last year.

Jumbo loans are more expensive than conventional conforming loans, usually by at least 1.5%. The reason: Without the government backing of Fredie Mae or Fannie Mac, investors perceive more risk and demand a higher yield.

So, what does this mean? The market for higher-end houses requiring jumbo loans should be soft. Larger down payments, higher interest rates, and great credit scores reduce the amount that buyers will pay. But, if you have the money, now’s a good time to buy.

Pittock Mansion in Portland. Used with permission.

Pittock Mansion in Portland. Used with permission.

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American Recovery and Reinvestment Act

I met with Mike Gansen, of Gansen Construction, and the President of the Oregon Home Builders Association on Friday. He shared the details of the American Recovery and Reinvestment Act that the National Association of Homebuilders have been lobbying for. It had just cleared the Senate and is expected to be signed by Mr. Obama next week.

Certain key provisions especially important to homeowners and home buyers are:

1) 8,000 first time home buyer tax credit requiring no repayment for home purchase between 1 Jan and 1 Dec. 2009. The home must be your principal residence, and if you sell within 3 years, the credit is recaptured.

2) Enhancement of Section 25C program for energy efficiency remodeling to existing homes.

3) Increases in FHA, Fannie Mae and Freddie Mac loan limits to 2008 levels.

There are plenty more goodies in the Act, but the above are especially important.

Mike Gansen, President of the Oregon Home Builders Association

Mike Gansen, President of the Oregon Home Builders Association

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Fannie Virus

Disgruntled alien attempts to wipe out the U.S. home mortgage system–sounds like a line from Men in Black, to me. But, it’s true. The WSJ reported that a 35 year old Indian-National here on a work visa planted a virus in Fanie Mae’s computers. The virus was set to go off yesterday and destroy all of Fannie’s data, lodged on some 4,000 servers.

The alleged culprit, Rajendrasinh Makwana got fired by Fannie, and apparently thought it was better to get even than get ahead. Mr. Makwana was indicted by a Federal Grand Jury, but has plead innocent. What happened to being grateful to America as the land of opportunity?

The virus was caught in time, and it’s business as usual. Good thing–otherwise it might have been tough to get a loan.

Fannie Mae Headquarters in DC. Photo by NCinDC.

Fannie Mae Headquarters in DC. Photo by NCinDC.

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Getting a Loan with Low Credit

I recently had a chance to talk with Jared Helton of Infinity Lending Solutions, about lower credit scores and how they affect getting a loan for a house.

Q. Are there minimum credit scores to get a loan for a house?
A. For most products, it is stated that there are no minimums on government backed loans. However, most lenders have instituted minimums.

Q. What are the practical minimum credit score limits for the different loan types.
A. FHA: 580 (a few lenders go to 520)
USDA: 600 (a few go to 580)
VA: 580 (a few go to 520)
Conventional: 620

Q. How do lower FICO scores affect loan pricing?
A. For government backed loans, like FHA, USDA, & VA lower credit scores have less affect on pricing with maybe as little as 0.25% for a lower fico between 580 – 619. On conventional loans, it’s a huge change on pricing. Some rates jump over 1% for lower credit scoring around 620.

Q. Is there a minimum score, below which getting a loan is next to impossible?
A. Pretty much below 520 is private money lenders only.

Q. What are some steps to improve your credit scores?
A. Schedule a review of your credit with someone that knows what they are  doing. I’ve written about it on my web-site too.

Q. Does talking to lenders and doing multiple applications hurt your credit score?
A. That is a huge myth that multiple inquires hurt your score.

All multiple “like” inquiries by mortgage companies made in any isolated 45-day period of time for TransUnion and Equifax (14 day period for Experian) are treated as one single inquiry for the calculation of the score.

Any mortgage inquiry made during the 30 days prior to the current broker/lender’s mortgage inquiry will be buffered out of any impact in the consumer’s score calculation.

Jared Helton, Partner, Infinity Lending Solutions

Jared Helton, Partner, Infinity Lending Solutions

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Hi Credit for Best Interest Rates

Credit scores are increasingly important to getting loans, and loans of course are usually necessary to purchase a house. Banks have grown more and more averse to bad loans, so they’re wanting better credit scores. And the higher your score, the lower your interest rates.

FICO scores of 760, up from 720, are now necessary to get the cheapest rates on conventional 30 year fixed mortgages, according to a 3 January 09 WSJ article. The article also said that the new FICO scoring model will be even more sensitive to on time payments. So, pay your bill on time, if you can.

Sky-High Credit is Required for Best Interest Rates. Photo from Springfield Oregon.

Sky-High Credit is Required for Best Interest Rates. Photo from Springfield Oregon.

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Commercial Loans in Lane County

I recently had the chance to speak with Pat Costello at Selco Credit Union about commercial lending in Oregon. Pat, having worked at some of the biggest banks around before coming to Eugene, is not your usual small town banker. An MBA from the University of Chicago, rental ownership, and a Board spot at the Eugene ROA give him keen insight into commercial property in Lane County.

The credit crisis has many lenders in a stingy mood; they’re holding on to their capital (not readily making loans) to cover bad or questionable loans already on their books. This isn’t the case with Selco–they’re still making loans.

Two of the ratios that are critical to your loan are DCR and LTV. DCR, debt coverage ratio, is probably the most important, and the bankers like to see a minimum of 1.20 to 1.25 these days. DCR is a measure of income to debt servicing. In simple terms, the project will need to clear a dollar and twenty five cents for every dollar you’ll apply to paying down the loan.

DCR tends to be more restrictive than loan to value. In order to meet the 1.20 minimum DCR, your LTV, loan to value, ratio will most likely not exceed 70%, at least for properties around here.

Construction money is still available at Selco for good projects. Loans up to 75% LTV for interim construction funds are possible, with up 80% LTV possible for permanent financing. In today’s economic climate, I think it’s fair to say, that Selco has grown more selective on loans.

Interest rates follow the Seattle Home Loan Bank’s 5 year commercial bullet index. Loan structure is frequently fixed for 5 years before adjusting, with a 10 year call, and 25 year amortization. The banks look at the 3 C’s when scrutinizing a potential loan:

C Collateral
C Cash Flow
C Credit.

While the ratios and standards have grown more restrictive, there are local programs available to assist borrowers get more money through the Small Business Association. Pat is familiar with those too. If you’d like to reach Pat, give him a call at 744-7519.

Pat Costello at Selco

Pat Costello at Selco