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Real Estate Blog for Palo Alto, Mountain View, California, and Surrounding Communities

Blog by Lynne Mercer
Palo Alto, California
Selling real estate in the mid San Francisco peninsula is unlike selling real estate in any other area. Just as the geographical area is famous for its microclimates, the real estate landscape has its own microclimates, each with its own idiosyncracies. An experienced agent will be in tune with the subtle variations from one subarea to another. But it is always changing. In this blog I will attempt to capture some items of interest to buyers and sellers alike, and to have some fun as well (see ""Fun Stuff"). If you have information you would like to have posted on this website, please email your suggestios to Lmercer@Lmercer.com.

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Real Estate Blog for Palo Alto, Mountain View, California, and Surrounding Communities

Conforming Loan Limit Increased to $729,750 in Santa Clara & San Mateo Counties
Mar. 18, 2008
Categorized in: Real Estate News
Tagged with: jumbo conforming loans, new lending guidelines

Fannie Mae releases guidelines for the temporary increase in the conforming loan limit.

We may have a breakthrough... Fannie Mae has announced the timing of when they will be buying the new "Jumbo-Conforming Loans" as they are now calling loans between $417,000 and the increased limit of $729,750.  Fixed rate loans origninated after March 1, 2008 will be eligible for underwriting beginning April 1, 2008.  Fixed-adjustable loans, like  5/1 and 7/1 ARMs will be eligible begining May 1, 2008.

According to Fanne Mae's most recent update, they will have different (more stringent) guidelines for "Jumbo-Conforming Loans".  This does not come as a huge surprise.  It may, however, limit the number of people who will benefit.

"Jumbo-Conforming Loans", those between $417,000 and  $729,750 are subject to the following restrictions:

  • Only 1 unit properties (no 2-plex, 3-plex, or 4-plex).
  • When purchasing a new property:
    •  the minimum down payment is 10% with a 700 FICO score for fixed rate loans.
    •  the minimum down payment is 20% with a 660 FICO socre for a 5/1 ARM.
  • When refinancing, no cash out is allowed.
  • On a second home or investment property, a minimum of 40% down payment is required.
  • Consolidating a first mortgage and a second mortgage is not allowed.
  • Refinancing with 6 months of a purchase is not allowed (You must have owned the property for at least 6 months before you can refinance the mortgage into a "Jumbo-Conforming Loan").

Overall, these new guidelines will help some people get into a better mortgage at a lower rate.  Now may be a good time to do a "Mortgage Check-Up" to see if you could benefit from these changes. 

This information was provided by Stern Mortgage. For additional information contact Stern Mortgage Company at 650-322-7277

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New Lending Guidelines and Potential Effect on Local Market
Aug. 4, 2007
Categorized in: Fun Stuff
Tagged with: loans, new lending guidelines, sub prime crisis
We have all heard about the crisis in the sub prime mortgage business. Sub prime loans are loans that are approved for borrowers with less than stellar qualifications. During the past few years, when we were experiencing rapid property appreciation in most markets, lenders loosened their underwriting requirements for almost all borrowers, including those who fell into the “sub prime” category. Frequently there would be an outrageously low initial interest rate, thereby allowing the borrower to qualify for a larger loan, and this was often coupled with a low or no down purchase requirement.
The problem with all of these loans is that whenever the initial lower rate expires, the interest rate will increase, frequently to more than the borrower can afford. Lenders who had been counting on rapid appreciation to allow borrowers to refinance their high interest 100% loans to a lower interest rate 80% loan were suddenly finding that the value of the property was the same or may even have decreased instead of increasing, and borrowers were suddenly unable to make their payments or refinance into the more favorable loan situation. In many areas the result is a glut of properties on the market, thereby lowering prices even more.
 
Up until recently, this did not directly affect our local market environment very much, except in the lowest priced neighborhoods, as our chronic inventory shortage continued and ever anxious buyers were still willing to compete for whatever homes they were interested in and pay over asking price in most cases. However, all of that may be changing.
 
In response to the sub prime crisis that has affected so much of the country and parts of California, many lenders recently tightened their underwriting criteria for almost all borrowers. No longer will they qualify buyers at the lower introductory rate, but at the fully indexed rate. 100% stated income loans, where the lender relies on the income statement of the borrower without documentary confirmation (almost always reserved for the most qualified borrowers) have all but disappeared. FICO score requirements have been tightened. Interest only loans may no longer be qualified at the interest-only payment but are now qualified at the fully indexed and fully amortized amount (as if the borrower is paying principal as well as interest.) In other words, it suddenly has become more difficult for even highly qualified borrowers to obtain the mortgage they may be looking for, and they will qualify for less in many cases.
 
What does that mean for us, in this isolated island of real estate madness? Well, it may mean fewer buyers for any individual home on the market. People who may have qualified to buy a $2.5 million home may now only qualify for a $2 million home. Buyers who may have been preapproved earlier this year may be in for a big shock if they rely on that preapproval figure to purchase a home now. All buyers should review their qualifications with their particular lender to makes sure they haven’t been bumped into a slightly lower price range.
 
So far there has been no noticeable change in our market because of these changes, but the changes are very recent and not fully implemented. The jury is out, but sellers must know that the market landscape may shift somewhat over the summer months. Buyers must   know that their purchasing power may be diminished. They may be able to mitigate this with a 40 year as opposed to a 30 year mortgage, but they need to check. Real estate agents must alert their clients to the most recent changes and be pro active in advising their clients as to their best strategy in this new environment.
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