Rancho Santa Margarita Homes & Lifestyles

Are you one of the many Rancho Santa Margarita homeowners stuck in a jumbo adjustable rate mortgage? Unable to refinance into a fixed rate mortgage since Wall Street’s abrupt decision last August, to stop buying jumbo loans from Lenders? Is your credit score intact and your loan-to-value reasonable? You could be in for a break in the near future.

A bipartisan economic growth package is in the works, including tax credits and a plan to increase both the FHA (to $729,000) and conforming loan amount limits (to $625,000+). Read Thursday’s White House Press Release. My understanding is that this is a one-year temporary increase, that would allow otherwise qualified borrowers the opportunity to refinance into more practical and more affordable loans. The object is not to promote additional high-risk loans, but allow credit-worthy borrowers to position themselves in such a way as to avoid the foreclosure catastrophe facing many homeowners who have been unable to refinance.

Those with Jumbo loans between $417,000 and $625,000 will be afforded the same preferable interest rates as those who currently have conforming loans. These borrowers will save substantially with lower interest rates, and the idea is that they will take that savings and pump a portion of it back into the economy. Presto! Complete economic meltdown avoided. Or not.

There are many schools of thought as to the wisdom of increasing the conforming loan limit. I read comment after comment from those who feel that increasing the conforming limit will interfere with and delay the housing market correction. I also read that many of those against a conforming loan increase feel that an increase is an open invitation for additional mortgage fraud.

I am not an economics major, a financial analyst or a statistician and I will never claim to be. I take my cues and follow the logic of others that I respect and those who have proven track records when it comes to these matters. Some agree that a temporary loan limit increase will be beneficial to the economy and some say it’s just another nail in the coffin. Either way the debate is quite heated.

As a Real Estate Agent in Rancho Santa Margarita, I see many homeowners who would benefit from this temporary increase. Most of my clients fall into the jumbo price range. Many of them have 3, 5 or 7 year fixed loans and are concerned about resets in the future. They chose these less-stable loans because the interest rates for them were closer to the conforming rates. Most of them assumed they would be able to refinance before their fixed rate term ended.

What about those who got into neg-am loans intending to refi out of them, only to find out that no new jumbo stated income loans were being issued? Oh, and about those stated income loans. One of my pet peeves is that the general public doesn’t understand that a true stated income loan does serve a purpose and it doesn’t necessarily follow that stated income loans are fraudulent. To say so is ignorant.

Full docs loans for those owning numerous properties, business and other types of investments can be daunting and the paper trail can clear half a rain-forest. Stated income loans are a vehicle for lenders to provide financing to qualified borrowers who have difficulty documenting their income, often due to the complexity of their holdings. In retrospect, it does appear that many consumers used these products as a means to puff up their income.

Risk analysts would have been wise to build in lower loan-to-value limits as well as higher credit scores requirements. I’m sure they’re well aware of that now. Going forward I would imagine that loan limit increase or not, underwriters are going to stick to staying within established guidelines.

In terms of the effect of a higher conventional limit on the Rancho Santa Margarita Real Estate Market, we’re probably looking at a cross section of homeowners pulling their homes off the market, refinancing, and hunkering down for the long haul. We’re also looking at a sliver of home buyers who are ready and willing, but up until this point, were financially unable to purchase at the higher jumbo rates. It may slightly improve the state of the current housing market, put it into more of a controlled slide as opposed to a kamikaze nose-dive, but more importantly, I think it will reduce the number of defaults, short sales and foreclosures that would have potentially and unnecessarily occurred, and which would have added to the downward market spiral.

There are those who say that California’s home prices are too over-inflated and that no adjustments should be made to accommodate California borrowers. I disagree. I’ve disagreed since the late eighties. The limits were much lower then, but they were still as disproportionately skewed against California homeowners as they are today. Why Alaska, Hawaii, Guam and the U.S. Virgin Islands were granted higher limits but California, Florida and other higher-cost areas were left out in the cold is beyond me.

One thing’s for sure, if FHA raises its limit to $729,000 there’s going to be slew of mortgage activity. In the past few years the limit has been so low in comparison with South County home values that practically no one even applied for an FHA loan. I would venture to say that the majority of South County mortgage bankers and brokers aren’t even FHA approved. That in itself will be interesting. I suspect I’ll be bombarded shortly by truckloads of junk mail aimed at trying to lure me away from my real estate practice by promising to teach me how to make the big bucks in the lucrative world of FHA refinance. I can hardly wait.

I have several wonderful sources for mortgages. If you need a referral or have questions regarding the proposed loan limit increases, please contact me and I will forward your information to a mortgage professional.

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