Dear Pamala,

Please find below a link for This Month’s Issue of The Real Estate Report. I’ve summarized the information below, I know it seems like a lot of reading, but trust me…it’s very powerful information to share with your clients.

It’s been a crazy past couple of days in the mortgage industry. If you have somehow managed to escape the news….here’s what’s going on. 

Over the last several days, the mortgage world, as we know, it has changed.

We know that the Sub Prime Lending market had created huge restrictions over the last several months due to mortgage rate adjustments on ARM loans causing a mess in the Foreclosure Market. What is typically assumed on ARM’s is that when they roll over into the adjustable portion of the loan they can only go up or down 2% each year. While this is correct the caveat to this is for the FIRST CHANGE ONLY the rate can move up or down the full cap amount which is usually 5%. If a LIBOR ARM (todays’ LIBOR is 5.28%) were to change today from a 4.75% rate that was available 5 years ago and the ARM had a 2.75% margin the new rate would be 8.03%. On a $500K loan the principal and interest payment would change from $2,457 to $3,679 or appx a 50% increase. This coupled with decreasing values is what is causing many foreclosures especially on high LTV homes.   
 

The changes we’ve seen since Thursday of last week, is that the Sub-Prime mess is spilling over into parts of the Prime Mortgage Market. The secondary mortgage market investor has gotten nervous with all of  the changes in the lending landscape; with foreclosures on the rise and the housing market slowdown, investors simply do not want to take the risk they once did. Therefore, the investors will not buy many of the loans they did once before and this is why we are seeing many banks not offering all of the mortgage products they did previously. The ability of the secondary mortgage market to buy these commodities (mortgages) is called liquidity. We are now seeing a lack of liquidity. They are still in the market, but they want to be compensated for their risk. 

What does this mean…..Well, it means that any loan that is non conventional or non traditional is going to be harder to get and cost borrowers more. Experts do not see any problems with a standard conventional loan (i.e. 30 year fixed at or under $417,000.00). Many lenders have slapped on stricter standards for Stated Income or Stated Asset loans. The cost for Jumbo Loans have gotten more expensive as well due to the fact that Jumbo Loans cannot be sold to Freddie Mac or Fannie Mae; these loans are sold to investors on the secondary market and have seen increases of ¼% to ½% or more in rate over the last week. 

Below you will find links to an article with more information on this topic as well as other articles I think you will find informative. Please feel free to pass these on to your sellers and buyers to keep them informed on the market conditions.

Despite the ever changing environment, we have still seen over 10,000 sales in Santa Clara county through June of this year! Sellers are still selling and buyers are still buying. The key is keeping your clients informed and helping them make educated decisions. It’s all of our jobs to keep a level head and assist people through what can be a very emotional event.  

I hope you find this information practical. If you know of any other agents in your office that you think would benefit from these articles, please let me know and I will be happy to contact them and provide them with the same valuable information  I’m providing to you.