Are banks still funding home loans in Sonoma County?
Everyone is unsettled these days and no surprise.Â There are a few questions or comments that I am hearing repeatedly from clients and friends.Â The first is the question above.
With a cataclysmic world-wide banking crisis occurring over the last few weeks, I guess that is a logical question to ask.Â Can I still get a home loan today?
Well, home sales are still occurring, especially at the entry-level as indicated in previous posts.Â Jumbo loans are dicier and the larger jumbo loan limits expire at the end of December so we perhaps that is a cause of the flurry of real estate sales activity in our county in the mid-price ranges of $500,000 to $1 million.
While rules have tightened to sometime excruciatingly comical levels (some of the stories I have heard could fill another post or two) the flow of mortgage fundsÂ has continued.Â Kenneth Harney, in the San Francisco Chronicle on Sunday October 19th, gives a good overview of our current state of home lending.
Credit squeeze, credit freeze, credit system seizures: Everybody knows how severe and painful the global financial breakdown has been – with banks unwilling to lend even to other banks.
But what about mortgages and real estate? Can you still get a home loan with less than a 20 or 30 percent down payment? Or with a credit score below 720?
Absolutely. It would be a big stretch to label housing the sunny side of the market at the moment, but there’s a lot more light there than in most other financial sectors. Consider these facts:
— There is no shortage of money available for home mortgages, no freezing of credit to purchase or refinance a house. Why? Because the American mortgage market effectively has been federalized – at least for the time being.
More than 90 percent of new loans now are being made through the Federal Housing Administration insurance program, plus Fannie Mae and Freddie Mac. FHA is owned by the federal government, and Fannie and Freddie are operating under federal conservator-ship.
All three have unfettered access to global capital markets at rock-bottom costs because their borrowings are fully guaranteed by the Treasury.
Ginnie Mae, which is FHA’s pipeline to the bond market, recorded an all-time high of $29 billion in new mortgage-backed securities issued in August.
— Loan terms and credit underwriting standards have been toughened up, but you can still put down 3 percent (3.5 percent after Jan. 1) on an FHA-insured mortgage and 5 percent on certain Fannie Mae and Freddie Mac loan programs with private mortgage insurance.
FHA’s credit standards are generous and forgiving – the agency exists to help people with less-than-spotless credit histories. Fannie Mae and Freddie Mac have raised their credit score requirements over the past year, but buyers and refinancers with scores in the upper 600s can still qualify for loans carrying reasonable rates and fees.
— Despite the global financial system’s quakes, mortgage rates remain low by historical standards. Mortgage giant Freddie Mac reported Thursday that 30-year fixed-rate mortgages averaged 6.46 percent, and 15-year mortgages are at 6.14 percent.
— Maximum loans through FHA, Fannie and Freddie in high-cost local markets on the West and East coasts continue to be $729,750 through December. In January, the high-cost maximum is projected to dip to approximately $625,000.
— Home prices – pushed by foreclosures and short sales – have rolled back to 2003 and 2004 levels or lower in many of the former boom markets. As a result, growing numbers of buyers are coming off the sidelines, making offers and writing contracts. The pending home sales index jumped by 7.4 percent based on purchase contracts signed in August, according to the National Association of Realtors. The heaviest increases – pointing to higher closed sales in the coming two to three months – were in California, Florida, Nevada and the Washington, D.C., metropolitan area.
Housing and mortgage leaders say consumer worries about the stock market have obscured positive developments under way in real estate, where pricing pain and downsizing have been facts of the life for the past two and a half years.