Freddie Mac implemented the 2009 conforming loan limits for high cost areas (loans higher than $417,000 are called “super conforming” mortgages by Freddie Mac and “high balance” loans by Fannie Mae).   The American Recovery and Reinvestment Act (ARRA) raised loan limits for high cost areas to the higher of the permanent limits in effect for 2009 or the temporary limits in effect for 2008.  In most cases the 2008 limits are higher and are subject to a cap of $729,750.

The Freddie Mac announcement specifies eligibility requirements for high-balance loans, including:

·        One to four unit primary residences properties are eligible.

·        Second homes and 1- to 4-unit investment properties are eligible.

·        Ineligible loans include balloon mortgages, adjustable rate mortgages with initial periods of less than five years, 40-year mortgages, and many other categories.

·        Loans must meet complex loan-to-value (LTV) requirements.  For purchase money mortgages for one unit primary residence with qualifying fixed rate or adjustable rate mortgages, the maximum LTV is 90%.  For second homes and one unit investment properties, the maximum LTV is 80%.  For 2- to 4-unit investment properties, the maximum LTV is 70%.  Other rules apply to other categories.

·        Different LTV and minimum credit score requirements apply to super conforming mortgages with loan amounts greater than $1 million and certain others.

·        Limited cash out refinancing is permitted.

Borrowers with hybrid adjustable-rate mortgages – loans that carry a fixed-interest rate for certain number of years and then reset annually to rates tied to market benchmarks-are questioning if they should refinance to lock in a low rate for the long term, or if they should keep their adjustable-rate mortgages, current at interest rates lower than their initial fixed rates.

Some mortgage experts say it’s best to refinance out of adjustable-rate mortgages if the borrower plans to live in the home for more than two years.  Adjustable-rate mortgages are tied to myriad indices, and today’s low rate could jump as the economy recovers and inflation kicks in.  The increase would result in borrowers paying more in the long term for an adjustable-rate mortgage than they would if they refinanced into a fixed-rate mortgage.

Home equity lines of credit (HELOCs) have traditionally been popular financial tools with homeowners, as these lines of credit serve as a fallback and in many cases replaced savings accounts.

However, in the past year lenders have made it more difficult to qualify for HELOCs, and even those who do qualify currently pay a higher rate than the average long-term rate.

During the height of the real estate cycle, HELOCs commonly carried interest rates that varied in accordance with the prime rate.  Borrowers with favorable financial histories typically paid about one-half of a percentage point lower than the prime rate.

In the middle of last year, as the financial market began freezing, many banks started canceling unused portions of the homeowners’ HELOCs.  Since July 2008, the average interest rate paid on HELOCs has been rising, despite the fact that the prime interest rate has fallen.  The credit freeze also results in fewer banks offering HELOCs, and the resulting lack of competition enabled some banks to increase the cost of these loan products.     

Some home buyers may feel that today’s loan underwriting standards and down-payment requirements are too strict.  While the current lending guidelines are more stringent than in years past, when home buyers could receive mortgage loans with zero down payment and no proof of income, today’s standards are more in line with traditional lending practices.  The new guidelines make lenders more accountable and homeowners better positioned to manage their monthly payments.

Builder confidence rose five points in April to the highest level since October 2008 for newly built, single-family homes according to the most recent National Association of Home Builders/Wells Fargo Housing Market Index (HMI) report. It was the largest one-month increase recorded since May of 2003.

AB 957, “The Buyers Choice Act,” is proposed legislation that will mandate that the choice of escrow services be made by the buyer, not by the bank or other seller of a foreclosed property, on all real estate-owned (REO) transactions.