Let the good times roll on.
You can now buy a California home for $ 1,021,895 with a minimum discount of just 5% and still get a loan secured by Fannie Mae or Freddie Mac.
The Federal Housing Finance Agency announced on Tuesday, November 30, that the 2022 loan limit for high-priced metro areas such as Los Angeles / Oklahoma City will rise to $ 970,800, up from $ 822,375 in 2021. As a conservative and regulator of Fannie and Freddie, the agency sets limits. for loans that meet the criteria for more favorable interest rates.
Can you say boom and bust?
The 2022 credit limit in the Inner Empire is $ 647,200. Any conventional mortgage in Los Angeles of $ 647,200 or less will also be considered eligible.
Interest rates on the relevant loans are on average about a quarter lower than on the so-called high-balance loans.
There is potentially no better and no more dangerous tool in a homebuyer’s arsenal than mortgage leverage.
On the plus side, if you save 5% ($ 50,000) on a $ 1 million property and the property value rises 10% in a year to $ 1.1 million, you’ve just made a great $ 100,000 in your sleep. This is a fair assumption as house prices have risen 15% higher over the past few years.
Assuming you are eligible and have an average FICO score of 740, your total monthly payment is approximately $ 5,447 including taxes and insurance.
How much does it cost to rent a million dollar home? Maybe $ 4,500? This is a strong selling point, especially when you consider the added freedom of home ownership and the potential for tax write-offs.
But what happens if we get close to the danger of brute force? Housing prices have been rising for almost 10 years. Then that 95% leverage is working against you.
If the value of the same $ 1 million property fell 10%, you would have negative equity if you owned a $ 900,000 home with a $ 950,000 mortgage.
Back in 2000, Tom LaMalfa, president of TSL Research & Consulting Co., sounded the alarm to then Fed Chairman Alan Greenspan and many others about the impending collapse of Fannie, Freddie.
“We are in the same situation as in 2008. Nobody expects housing prices to drop, ”LaMalfa said. “There is no significant change in underwriting with a high loan-to-value ratio, high debt ratio and minimum FICO scores.”
Jonathan Glovacki, principal and actuary consultant at global consulting firm Milliman Inc., asked how much of the housing supply / demand imbalance is causing a 20% rise in home values?
“What happens when the market normalizes again? The risk is how house prices will behave when supply and demand return to normalization, ”he said.
Glovacki noted that computerized automated assessments, or AVMs, lack the intuitive thinking of a human assessor. Think about how poorly Zillow’s automated scoring models perform.
LaMalfa observed that about 15% of the mortgage market before the housing market crash in 2008 was called Alt-A or subprime. Today, unqualified mortgages or exotic mortgages account for about 3% of the market. He believes that F&F owned the lion’s share of the mortgage market before the 2008 crash, and it still does.
Fanny and Freddie are still under government tutelage. If Fan and Fred crash again, taxpayer support is already there.
But F&F capital reserves are less than 1% of $ 6.1 trillion mortgages, LaMalfa said. They are similar to the levels before the 2008 mortgage collapse.
According to the US Census Bureau, there are about 104 million residential units in the country, consisting of 1-4 apartments.
According to Ed Pinto, senior fellow and director in the United States, there are 55 million mortgages in the United States. Housing Center of the American Enterprise Institute. Be aware that VA and FHA mortgage limits will mimic Fan and Fred limits after January 1st.
When it comes to shopping, how high is leverage then and now? It’s very similar.
Fannie and Freddie’s average down payment on mortgages this year is lower than in 2007, when the crisis began, according to CoreLogic. For example, F&F upfront payments for a US home averaged 15% this year, up from 17% just before the housing crisis.
In Southern California, CoreLogic reported that the average down payment this year was 17-24% in Los Angeles, Orange, Riverside and San Bernardino counties, up from 19-26% in 2007.
On the other hand, according to the Black Knight, homeowners in the US have much more home equity (and less debt). The average homeowner had 55% of home equity as of September, up from 36% in 2007.
In Los Angeles and Orange counties, homeowners averaged 65% of home equity in September, up from 46% in 2007; in the Inner Empire, the average capital is about 56% versus 29% before the collapse.
Glovacki says there is a 10-15% discount on any type of problem sales.
The big problem is that highly leveraged borrowers or underwater borrowers will get stuck if they have to sell. When bad sales happen, AVM evaluators and people cannot ignore them. There will be a domino effect.
Freddie Mac appreciated the news: The 30-year fixed rate averaged 3.11%, up 1 basis point from last week. The 15-year fixed rate averaged 2.39%, down 3 basis points from last week.
The Mortgage Bankers Association reported a 7.2% decline in mortgage applications last week.
Bottom line: Assuming the borrower receives an average 30-year flat rate on the $ 647,200 related loan, last year’s payment was $ 139 less than this week’s $ 2,767 payment.
What do I see: Locally, highly qualified borrowers can obtain the following unscored fixed rate mortgage loans: 30-year FHA at 2.25%, 15-year notional at 2.375%, 30-year notional at 2.875%, 15-year notional maximum-balance ($ 647,201 to $ 970,800) at 2.625%, a 30-year regular high balance at 3.125% and a 30-year fixed large balance at 2.875%.
Eye-catching Credit of the Week: 30 year adjustable rate mortgage for the first 10 years at 2.875% no points.
Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or [email protected] His website is www.mortgagegrader.com.