Posts Tagged: ‘economy’

Big Rate Drop Thanks To Oil Prices

January 8, 2015 Posted by Andre Hemmersbach

Big Rate Drop Lower Gas Prices

Lower Gas Prices Big Rate Drop

 

Look at the big rate drop that the mortgage market has served up if you thought that the good news was the $25 you were saving at the pumps. Lower oil prices are deflationary and that has been great news for the big rate drop in the mortgage rates over the last 3 weeks. Coupled with weak economic news out of Europe and another Greek Currency hiccup the change in oil prices have really moved the home loan rates in the right direction is you are looking for a home loan to purchase a home or are currently in a mortgage over 4.25%.

Rates on a 30 year fixed rate have dropped to below 3.625% on the very best borrower profiles (APR 3.689). Many of my clients are also considering a term reduction to really kick up the savings. Refinancing from a 4.25%, 30 year fixed rate taken out last year to a new 20 year fixed rate at 3.375% will save a borrower over $131,000 in interest over those 20 years.

If you would like to see if a refinance would make financial sense, please call me I would be happy to perform a free review your current mortgage through my proprietary mortgage calculator.

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Payment Increases on Equity Lines

August 14, 2014 Posted by Andre Hemmersbach

During the last five years millions of homeowners have taken advantage of the government’s Home Affordable Modification Program (HAMP) or in the case of mortgages that did not fall under HAMP,  lenders’ proprietary modification programs. These Loan Modification programs (Loan Mods) were initiated to offer relief to desperate homeowners who were facing foreclosure due to various circumstances through temporary rate reductions or interest rate abatements. The key term in the above statement is “temporary”!  Loan Mods along with Home Equity Lines Of Credit (HELOC), a mortgage that is similar to a credit card, will see upward rate and payment adjustments, sending some homeowners back to the brink of financial crisis. (More on HELOCs later.)

To qualify for a Loan Modification borrowers were asked to submit an income and asset package to the lender proving a hardship and current stable income. If the borrower qualified, the lender dropped the interest rate as much as 3 or 4 percentage points and renegotiated a monthly mortgage payment that would represent about 45% of the borrower’s monthly gross income. Via the modification agreement, the borrower usually promised to return to the original rate and terms of the mortgage through 1% annual increases after a five year period.

The Real Estate Bubble burst in late 2008 and the loan modification programs started to gain momentum in 2009 and hit full stride in 2010 through 2012, therefore the first round of the notices for payment increases via the loan modification agreements are starting to be sent out.

Borrowers facing this issue today may have some additional alternatives that were not available to them back in the middle of the recession. At least in Southern California, equity positions have seen healthy gains and the job/income outlook have improved slightly. Options homeowners may consider are: refinancing to current low mortgage rates (albeit at higher rates than their modified rate but lower than their final rate), making the new higher payments via their modification agreement, selling their home to downsize or rent.

As a whole, HELOCs mortgage payments will also be increasing. The basic issue is that the 10 year interest only introductory period, typical in these mortgage products, is now coming due. Homeowner’s with balances on their HELOC will on the 10th anniversary move to a fully amortized 20 year loan and experience a fairly large payment increase. I have previously blogged about the dangers of HELOCs and you can read the remainder of the article at http://cahomehunters.com/real-estate-time-bomb/.

Bottom-line…. homeowners with these types of mortgage products who do not have the ability to afford the payment increases, may have to make some difficult decisions in the near future.

If I can be of assistance in giving you or a friend advice or direction with these type of products please let me know, as I would be happy to help them.

Also see: http://newsroom.transunion.com/press-releases/transunion-study-identifies-framework-for-managing-1136135#.U-0un_ldV8E

http://www.usatoday.com/story/money/business/2014/01/29/rate-increases-for-hamp-loan-modifications-2009/4964701/

http://www.pwc.com/us/en/consumer-finance/publications/avoiding-default-risk-mortgage-modification-resets.jhtml

 

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Real Estate Time Bomb

January 30, 2014 Posted by Andre Hemmersbach

If you regularly read financial periodicals, you will come across articles from financial experts on doomsday scenarios. Many times they are motivational pieces focused on selling you something to “protect” you against the awaiting catastrophe; other times it is a true warning by an expert that sees something very disturbing. The Dotcom Bust, the Asian Currency Crisis and even our 2008 Real Estate Bubble all had warning signs and experts who correctly predicted the financial disaster.  Today’s popular pending Armageddons are the Student Loan Bubble, the T-Bill Bubble and in the real estate sector a warning about Equity Lines of Credit (ELOC).

If you were a homeowner in 2004 – 2008 you were receiving multiple free offers for ELOC with low payments and teaser rates. Many homeowners took advantage of those freebies and started using their home equity like credit cards to buy everything from automobiles to vacations. In hindsight these mortgage instruments have been pretty good deals. Historic low-interest rates over the last 5 years and the tax benefits associated with the ELOCs have made this a very cheap method to finance any purchase.

Unfortunately, most homeowners do not understand the mechanics of their ELOC. Many times the promissory note they signed ten years ago was never read, explained or maybe just forgotten.  A quick explanation of how an ELOC works will help you understand the time bomb lurking in the shadows.

98% of all ELOC have a 10 year draw period. During this time you can use your line like a credit card to buy goods and services. After the 10th year starts the 20 year repayment period begins (a few ELOCs have 15 year repayment periods).  All ELOC have an index and most are based on the prime rate (currently 3.25%). Lenders use an index to make sure that they receive an interest rate that is commensurate with current market conditions. To the index rate the lender adds a margin (the Bank’s profit) usually 0.0% to as high as 3.0% or more. Check your Promissory Note or with your servicer to find your margin. Every month the lender adds the index rate to the margin and divides by 12. This is the monthly rate you are charged on your outstanding balance. These loans do not contain any sort of periodic cap to protect you from quick interest rate increases month over month. A lifetime interest rate cap of 18% is standard.

So where is the potential powder keg? As the 10 year draw and interest only periods are coming to close, borrowers will get notices of their mortgage payments increasing as their ELOC change to  fully amortizing loans. The amount could be startling for some homeowners! For example, an $85,000 balance, which is pretty typical of what I see on my customer’s loan applications, at a current rate of 4.25% (3.25% Prime Rate plus a 1.0% margin) has an interest only payment of $301.04 this would go to $526.35 on a 20 year repayment. But that’s not the whole story! Understand that we are at historically low rates. In the past the Prime Rate has been above 8% seven times since 1970 and at 8.25% as recently as September of 2007. So let me run those numbers on a balance of $85,000: Current payment interest only $301.04, new payment with rates at 9.25% (Prime Rate 8.25% plus a 1.0% margin) would be $778.49 for a 20 year repayment. If your ELOC has a 15 repayment your new payment would be $874.82. That is a payment increase of $573.77 or 191%

Please do not misconstrue that I am predicting an 8.25% prime rate anytime soon, but recognize that homeowners who have ELOC s with larger balances need to be aware of potential payment increases and how it could affect them.

If I can help you figure out how your ELOC will adjust and the steps you can take to minimize the impact please call me at my office. 310 540 1330.

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Real Estate Values in 2014

December 20, 2013 Posted by Andre Hemmersbach

Being in the Real Estate industry gives me access to various   tools, reports and statistics that most individuals cannot find. That being said you can find a chart or statistic to make a case for or against almost anything. The big question on many of my client’s mind is where Real Estate prices go from here. Our friends at John Burns Real Estate Consulting do a marvelous job of sifting through the numbers on a state by state and county by county level to come up with relevant, timely and meaningful predictions about matters in real estate.

I found the recent information prepared by JBREC to be extremely interesting as it charts the historical ratio between the median housing payments to income.   A shorter way of describing this chart is an affordability ratio. As home payments get more expensive via higher rates, median home prices or a drop in income it is reasonable to expect a reversal in demand. The historical mean of the average housing payment to income ratio is close to 32.5%. The current ratio through October 2013 is 28.4% based on a 4.1% 30 year fixed rate.

MedianHousingPayment_to_IncomeRatios

If this chart holds true we would need another 13% increase in the national sales price or mortgage rates to go to 6% before we hit the historical mean of 32.5% in affordability.

Please call me to discuss your plans in purchasing a home or Real Estate investment in 2014. Unless you are paying cash, getting all your ducks in a row early will save you time, money and headaches!

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South Bay Sales Prices Take A Rest

November 8, 2013 Posted by Andre Hemmersbach

Per the Multiple Listing Service (MLS) data for the greater South Bay area, real estate prices seem to have taken a bit of a rest in the last few months as the median listing price and median sales price have dropped (See Chart Below). While certain high demand zip codes could still be experiencing sales price increases, multiple sources that measure housing values have been reporting that the rate of sale price increases have started to slow nationally. FHFA HPI

The frenzied atmosphere of this summer’s home buying season created conditions in which buyers had to make tough decisions on paying over value, waiving inspections, waiving appraisal contingencies and other contractual milestones that protect them from potentially harmful financial situations. For those who are still looking to purchase a home and were frustrated by the absolute chaos of multiple offer and “bidding war” situations during the summer months, may take hope in the recent slow down in activity.

Supply and demand is a basic driver of price in any free market and the lack of homes for sale has continued to be an issue (See Chart). Just a short 16 months ago a home owner wanting to sell his property had a tough time getting a fair price for his property because of the glut of foreclosures and short sales that were his competition. That is no longer a problem as distressed sales in the South Bay and the nation as a whole,  have dramatically decreased. According to most experts the supply of homes for sale will  probably not increase any time soon (Foreclosure Rates).

Demand from home buyers while still strong, seems to have slowed a fraction. To blame could be seasonal issues along with higher interest rates and sales prices. The latest Homeowners Affordability Index (HAI) report from the California Association of Realtors (CAR) showed that affordability in California has slipped every quarter since it’s high in the first quarter of 2012. Mortgage applications for purchases as reported by the Mortgage Bankers Association, a very reliable forward looking indicator for home sales has also fallen almost every week since the September 22, 2013 release.

Current conditions for buying a home appear as favorable now as they were in the 2nd quarter of 2012. Rates are still a extremely low historical levels and while we are still in a seller’s market buyers are not running over each other at the site of a new house on the market. At least until Spring buying season 2014, buyers should be able to make rational decisions based on real issues and not the “if I don’t get this one, I’ll miss the market” mentality.

Please let me know if i can be a resource you you or your acquaintances on any matters of real estate.

List Price vs Sales Price 11 1 2013

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