market update August 19, 2008
Fannie Mae and Freddie Mac are the focus of increased
investor concern over the mortgage GSEs capital reserves.
The recent Fed takeover of IndyMac caused jitters throughout
the market when investors made a run on the faltering
California giant, the second largest wholesale lender in
the US. We’re currently still experiencing credit tightening
as write downs on existing mortgages continue. This
has investors concerned about the prospects of a lingering
recession.
Ben Bernanke continues to insist that he believes that the
economy will stabilize later this year, that housing prices
may also stabilize in late 2008 and early 2009, and that the
economy should increase its growth in 2009. Inflation is
the biggest concern so there is also focus on how to get
fuel costs in line and how to stop job losses that have been
climbing in recent months. But recent housing reports are
not as gloomy. In fact a lot of us (including myself!) have
been extremely busy this summer with sales in the Bay
Area. Yikes! I’ve been so busy that I haven’t been able to
find the time to write these updates for a month!
To help yourself and your clients important new developments
to remember include the following… Most loan
types are still available, and although qualifying involves
stricter guidelines, they can be met with success for most
borrowers. August has brought new restrictions by mortgage
insurers and lenders, restricting jumbo loan size
mortgage insurance to loans at 90% LTV or less, so plan
on clients needing at least 10% down to buy in most cases.
If the clients want a jumbo interest only loan then they will
probably need to plan on 20% down. Some conforming
loans (up to $419,000) can still be used for purchases in
lower price ranges with as little as 3% down… but remember
that lenders often reduce the LTV further (requiring
more money down) during underwriting if the property
is in a declining market area. The higher conforming loan
amounts available as a result of changes earlier this year
will likely be made permanent. The Treasury discount
window is now open to Fannie and Freddie… which means
they can borrow as needed to stay solvent. How fast can
things turn around? As fast as it takes to say, “election
year”.