By Pete Carey
Mercury News
Posted: 01/06/2009 06:07:52 PM PST
Valley saw surge in foreclosure filings in 2008 Mortgage rates are at their lowest level in decades, but thousands of Silicon Valley residents are discovering that qualifying for a loan is tougher than it has been in years.
Banks are reluctant to lend at favorable rates to all but the most bulletproof of borrowers, according to area mortgage brokers. Unless you have a gold-plated credit score, low credit-card debt and a big down payment or a lot of equity, those rates of 5 percent or less on a 30-year fixed-rate mortgage may be out of reach.
Adding to the difficulty for many people hoping to refinance loans taken out in the past few years is that the collapse in home values has eroded their equity so much that they don't qualify for a new loan.
"It's like cable TV — there's 200 options and nothing worth watching," said Andy DelGesso, a hospital department manager who failed to qualify to refinance his loan on his San Ramon home because his equity had declined to less than 20 percent of its value.
"We were all spoiled the last few years when it was so easy to qualify," said Patrick Dudum, area sales manager for Equitas Capital in Los Gatos. "Relative to 2004 it is difficult, but if you have followed the market for any length of time, this is a normal market."
A couple of years ago, you wouldn't have needed much of a down payment. These days, to get the absolute lowest rate, it's likely you will need a big down payment and a credit score of 720 or above, and be able to document your income. Banks don't want to see much credit-card debt, either. They say much depends on individual circumstances, with no two borrowers exactly alike.
In any case, government actions to revive the housing market appear to be bearing fruit, even as the lending industry has returned to the tighter standards that prevailed before the housing bubble.
There are still loans for those who don't meet those requirements, but they cost more and carry higher interest rates. "The credit is available, it's just not as favorable," said Keith Gumbinger of HSH Associates, a New Jersey firm that tracks loan rates. A person with a 620 credit score putting less than 20 percent down "could be looking at 6.5 percent or more," he said. (Credit is rated on a scale of about 300 to 850 in a system known as FICO.)
"It's more back to the basics,'' said Cathy Warshawsky, president of the Silicon Valley chapter of the California Association of Mortgage Brokers. Warshawsky said people who have less than 20 percent equity or who are trying to take cash out in a refinance are being told they need to buy mortgage insurance. Also, loans above $417,000 but below $625,500 — Fannie Mae's limit on so-called "jumbo" loans that meet its standards — still cost half to three-quarters of a percent more in interest.
"Standards across the country absolutely have tightened," said Arlene Allert, a Wells Fargo Home Mortgage retail regional sales manager responsible for the Bay Area. She said Wells already had tight standards, so it hasn't had to change them as much as others have. But the biggest hang-up for refinancing is the decline in home values, Warshawsky said.
Jerry McClain of S&L Home Loans in San Jose, who is hospital department manager DelGesso's broker, said he's seeing lots of people who have perfect payment histories, good credit scores, stable income and low credit-card debt being turned down because their equity isn't enough to satisfy lenders.
"In the Bay Area, we not only have microclimates, we have micro-neighborhoods," McClain said. Some areas have lost value dramatically, while others are at least holding their own. If you aren't in one of those areas, unless you have a great deal of equity, you're having a rough time getting a loan.
The banks are demanding tougher appraisals, too. "Everything has to be explained in greater detail," said appraiser Greg Walker of San Jose. "Every appraisal I do, we look at what's happened in that neighborhood over the past year, and everything's declined over the past year with the exception of a few neighborhoods."
Among the stable areas, Walker said, are Los Gatos, Cupertino (within the Cupertino school district), Sunnyvale and the Almaden area of San Jose. East San Jose is down 38 percent to 50 percent, depending on the neighborhood, he said.
But if you qualify for a loan, the rates are truly great, the best in a generation.
So, despite the stricter standards, first-time buyers are beginning to snap up homes — still mainly foreclosures and short sales — tempted by the unique combination of lower prices and low interest rates. They're the people who sat on the sideline during the boom, saving money for a first home.
"I've been stoked about this market for the last three months," said Dudum of Equitas. "The government is going to throw everything in their power at this problem to fix it. We're going reap the benefits. We're going see a boom in the next 24 months, and the last one will pale in comparison."
Showing posts with label cheap mortgage rates. Show all posts
Showing posts with label cheap mortgage rates. Show all posts
Wednesday, January 7, 2009
Wednesday, December 31, 2008
The Top 5 Housing-Market Hopes for 2009
Here Are the Five Best Reasons to Be Hopeful About Housing in 2009:
Luke Mullins
US News and World Report
Thursday December 18, 2008, 11:02 am EST
1. Cheap mortgage rates: With inflationary pressures easing and economic concerns mounting, shell-shocked investors are seeking the protection of government securities, such as 10-year treasury notes, driving down yields. The lower yields, coupled with the Fed's recently announced plans to buy up debt and mortgage-backed securities from Fannie Mae and Freddie Mac have dragged mortgage rates to multi-year lows. Thirty-year, fixed mortgage rates hit an average of 5.47 percent last week, the lowest they've been since 2004, according to Freddie Mac.
To be sure, not everyone will be able to take advantage of these attractive rates: Tougher lending standards will prevent many would-be buyers from getting into the market, while homeowners whose houses are now worth less than what they owe on their mortgage won't be able to refinance. Still, the rates present a welcome incentive for qualified borrowers to step up to the plate. "Lower mortgage rates mean more people with those credentials will be able to qualify," says Patrick Newport, a U.S. economist at IHS Global Insight. While that might not make a dramatic impact on the market, it could be enough to keep home sales from declining as much as they otherwise would, Newport says.
2. Lower prices: Home prices at the national level have already fallen 21 percent from their 2006 peaks. And in certain bubble markets, the crash has been even steeper--prices have fallen more than 30 percent in Phoenix and Las Vegas over the past year alone. Although that's a big blow to homeowners--the housing bust is expected to wipe out more than $2 trillion in home values in 2008--lower prices do help stimulate buyer demand, which is badly needed to mop up the excess housing inventory. And while home prices are expected to drop further in 2009, values in certain markets are already at levels low enough to tempt bargain hunters. "Falling home prices aren't part of the problem, they are part of the solution," says Mike Larson, a real estate analyst at Weiss Research.
3. Fewer housing starts: In the face of dwindling demand, home builders have been forced to sharply pull back on new construction. The government reported Tuesday that November housing starts dropped to their lowest level since 1959, when officials started keeping the statistics. While that's bad news for the economy--because it means fewer jobs for builders and others--it's an important step in bringing housing supply back in line with demand. The cutback will limit the supply of new homes coming into the market, which helps to reduce the glut of unsold homes that is putting such downward pressure on housing prices. "In order to get rid of the inventory, builders have to cut back even further and prices have to drop," Newport says. "It's very painful, but there is no way to get around the fact that that's what you need to do to equilibrate the market."
4. Obama stimulus: In an attempt to hoist the economy out of its rut, President-elect Barack Obama has announced plans for a massive federal spending program. The initiative is expected to put between $500 billion and $1 trillion into infrastructure repair and other projects in an effort to keep Americans working. Should this program succeed in preventing unemployment from skyrocketing and keeping the economic contraction from hitting the dourest projections, certain housing markets may firm up quicker than expected, says Susan Wachter, a professor of real estate at the University of Pennsylvania's Wharton School of Business. In the best-case scenario, "the housing market declines become contained to those markets where house price declines are significant," Wachter says.
5. Credit programs: It will be tough for the housing market to come back to life until the credit markets--which have been log-jammed by fear for more than a year--begin to unlock. Like the fight to limit unemployment, reviving the credit markets is a daunting challenge. But remember, the federal government has already taken a number of steps designed to do just that. The Federal Reserve has slashed its benchmark interest rate to between 0 and 0.25 percent and committed nearly $2 trillion to new lending programs, bailouts, and additional measures designed to bolster the financial markets. Meanwhile, Congress passed a $700 billion bailout and the Treasury has already injected a chunk of that money into banks of all sorts. While these efforts haven't been enough to restore the credit markets to health, they have produced results. Interbank lending, for example, has eased. And should this modest victory lead to a broader recovery in the credit markets, the economy--and the housing demand that comes with growth--could turn around quicker than expected. "Right now, panic is driving the credit markets," says Moody of Mission Residential. "If, for whatever reason, confidence were to resume and people's appetite for risk was starting to increase, then you could start all of a sudden seeing credit flowing much more freely, which obviously supports spending in both business and households."
Luke Mullins
US News and World Report
Thursday December 18, 2008, 11:02 am EST
1. Cheap mortgage rates: With inflationary pressures easing and economic concerns mounting, shell-shocked investors are seeking the protection of government securities, such as 10-year treasury notes, driving down yields. The lower yields, coupled with the Fed's recently announced plans to buy up debt and mortgage-backed securities from Fannie Mae and Freddie Mac have dragged mortgage rates to multi-year lows. Thirty-year, fixed mortgage rates hit an average of 5.47 percent last week, the lowest they've been since 2004, according to Freddie Mac.
To be sure, not everyone will be able to take advantage of these attractive rates: Tougher lending standards will prevent many would-be buyers from getting into the market, while homeowners whose houses are now worth less than what they owe on their mortgage won't be able to refinance. Still, the rates present a welcome incentive for qualified borrowers to step up to the plate. "Lower mortgage rates mean more people with those credentials will be able to qualify," says Patrick Newport, a U.S. economist at IHS Global Insight. While that might not make a dramatic impact on the market, it could be enough to keep home sales from declining as much as they otherwise would, Newport says.
2. Lower prices: Home prices at the national level have already fallen 21 percent from their 2006 peaks. And in certain bubble markets, the crash has been even steeper--prices have fallen more than 30 percent in Phoenix and Las Vegas over the past year alone. Although that's a big blow to homeowners--the housing bust is expected to wipe out more than $2 trillion in home values in 2008--lower prices do help stimulate buyer demand, which is badly needed to mop up the excess housing inventory. And while home prices are expected to drop further in 2009, values in certain markets are already at levels low enough to tempt bargain hunters. "Falling home prices aren't part of the problem, they are part of the solution," says Mike Larson, a real estate analyst at Weiss Research.
3. Fewer housing starts: In the face of dwindling demand, home builders have been forced to sharply pull back on new construction. The government reported Tuesday that November housing starts dropped to their lowest level since 1959, when officials started keeping the statistics. While that's bad news for the economy--because it means fewer jobs for builders and others--it's an important step in bringing housing supply back in line with demand. The cutback will limit the supply of new homes coming into the market, which helps to reduce the glut of unsold homes that is putting such downward pressure on housing prices. "In order to get rid of the inventory, builders have to cut back even further and prices have to drop," Newport says. "It's very painful, but there is no way to get around the fact that that's what you need to do to equilibrate the market."
4. Obama stimulus: In an attempt to hoist the economy out of its rut, President-elect Barack Obama has announced plans for a massive federal spending program. The initiative is expected to put between $500 billion and $1 trillion into infrastructure repair and other projects in an effort to keep Americans working. Should this program succeed in preventing unemployment from skyrocketing and keeping the economic contraction from hitting the dourest projections, certain housing markets may firm up quicker than expected, says Susan Wachter, a professor of real estate at the University of Pennsylvania's Wharton School of Business. In the best-case scenario, "the housing market declines become contained to those markets where house price declines are significant," Wachter says.
5. Credit programs: It will be tough for the housing market to come back to life until the credit markets--which have been log-jammed by fear for more than a year--begin to unlock. Like the fight to limit unemployment, reviving the credit markets is a daunting challenge. But remember, the federal government has already taken a number of steps designed to do just that. The Federal Reserve has slashed its benchmark interest rate to between 0 and 0.25 percent and committed nearly $2 trillion to new lending programs, bailouts, and additional measures designed to bolster the financial markets. Meanwhile, Congress passed a $700 billion bailout and the Treasury has already injected a chunk of that money into banks of all sorts. While these efforts haven't been enough to restore the credit markets to health, they have produced results. Interbank lending, for example, has eased. And should this modest victory lead to a broader recovery in the credit markets, the economy--and the housing demand that comes with growth--could turn around quicker than expected. "Right now, panic is driving the credit markets," says Moody of Mission Residential. "If, for whatever reason, confidence were to resume and people's appetite for risk was starting to increase, then you could start all of a sudden seeing credit flowing much more freely, which obviously supports spending in both business and households."
Subscribe to:
Posts (Atom)