Wednesday, September 10, 2008

Manhattan Beach-Beach Cities: Lenders to Buyers... Let's Make a Deal

If you are in escrow or thinking of buying a home in the Manhattan Beach or the Beach Cities then financing is of utmost importance. Shopping rates and getting pre-approved is something all buyers should be doing before they step foot in a home that is for sale. Last week conforming** 30 year fixed rate loans of $729,750 or less were around 6.3% with 0 points or 6.125% with 1 point. My... my... how life has changed.

If you are a buyer in escrow or thinking about making an offer... lenders are tripping over themselves to give you a good rate. My buyers that were looking at 6.125% with 1 point on Friday are now looking at 5.75% with 1 point. One of my lenders tells me he can do 5.675% with 1 point. I'm getting rate quotes from every lender I know. This is great news if you are within conforming limits.**

But as with life in general... while some things are sweet... others can be a bit bitter. If you are not within conforming limits the news is not so hot. Jumbo loans over the $729,750 limit are still stuck in no man's land. A fixed rate jumbo ($729,750 +) 30 year loan is 7.75%-8.3% depending on the lender... while a fixed 5/1 ARM is 6.125%-6.25%. However it looks as if some lenders may be thinking about going back to giving customers of their bank a break.

Craig Filson of Wells Fargo tell me that Wells has a new approach for their clients who need larger loans. Wells is going to offer borrowers who maintain accounts with $50K + at Wells, have a Fico score of 720+ and who are looking for a loan to value(LTV) of 75% or less some very good rates. They are offering a jumbo 30 year fixed at 6.875 with 0 points and a fixed 5/1 ARM at 6.50% with 0 points. It you are willing to pay a point you may get a better rate.

I'm sure BofA and others will follow suite in a very short time. Many years ago it was standard procedure for banks to offer their customers with larger accounts a better rate on home loans then they offered non-customers or those with less money in the bank.

I suspect that we will see a number of old ideas resurface in the coming months. I think you are going to see sellers offer to pay points on a loan to buy down the rate for buyers. I fully expect to see some homeowners offer to take back second trust deeds or even carry the first trust deed if a buyer has a large enough down payment. You can expect to see the Bank of Mom & Dad make a comeback as buyers realize they need more money down. FHA loan limits have gone up making these the perfect vehicle for buyers looking at less expensive property who don't have much down.

Buyers are realizing that buying a house takes more preparation today then it did a few years ago. They need to get their credit score in order. They need to start saving money or save more money for a down payment. Expectations will change as buyers realize they can only buy so much house and no more. The idea of a starter house will not be looked down on but rather become a sensible choice once again.

** Just a reminder... As of January 1, 2009 the conforming loan limit will be reduced to $625,000 from the current level of $729,750.


bondinvestor said...

i wouldn't worry too much about the conforming limit going down on january 1. the market will adjust.

prices will fall further. it is, after all, now firmly a buyers market and probably will be for the next 5 yrs while the system de-leverages.

steve Jenkins said...

great blog, well done guy's

Kaye Thomas said...

I disagree... the median listing price in MB remains around $1.9 even with the recent declines in price. The $729,750 has made a difference for buyers in lower entry level properties.

Kaye Thomas said...

Steve Jenkins,
Thank you... but I'm afraid it's just me... no guys here LOL

pablo said...

What % of homes sold in MB during 04-07 are 5 year options ? I know my pal , who makes 80 k was offered an 1 million $ mortgage by CWide. He could only afford Hermosa , by I make twice as much . But , i doubt there is anyone else like us in the south bay .

Kaye Thomas said...

I have no idea but would imagine there are quite a few... the impact will depend on how many are like you and how many are like your friend.

Most of my clients did 5-7 arms that were fixed for the specified term and then adjusted at the end of the term rather then the option type arms. Option arms are nothing more then a new name for the old negative amortizing loans. I saw the damage these did in the 90's. My experience has been that the majority of people who use these loans will wind up in trouble sooner if not later.