American Pacific Mortgage

American Pacific Mortgage

Wednesday, July 28, 2010

Market Update and Summertime Blues

We haven’t had much sunshine to enjoy along our Orange County coastline so far this summer, but we have continued to enjoy record low interest rates. If you haven’t yet considered a refinance to lower your rate, please give me a call.

I have a number of “no point, no cost” refinances in process for clients. Although their monthly payment and interest saving is not as great as it might be if they paid all loan costs, they are not out of pocket any cash, or adding to their loan balance to enjoy a reduction in their mortgage payment.

Much of the final decision about a refinance rests on how long you expect to remain in your property. Obviously a longer time horizon makes the decision for the lowest rate possible more attractive.

New federal laws make “full disclosure” a requirement, and I have had many clients ask me questions about the total costs, and the new good Faith Estimate. In the past many loan-related costs were paid by the bank or broker, and were essentially “hidden” from view. Costs haven’t increased so much as they are just more fully disclosed today, in an attempt to provide the consumer with better and more complete information.

Newport’s Back Bay

Steve and I visited Newport Beach last Saturday afternoon for one of our favorite activities…a bike/kayak adventure. We parked at The Dunes, unloaded our bikes, and took off on the 10.5 mile loop that winds through the Upper Newport Bay Ecological Reserve and Nature Preserve, then around through the residential area off Irvine Avenue, to PCH and back. We stopped for a break at the Muth Interpretive Center to view an art exhibit by the Southern California Plein Air Painters Association-- ”SOCALPAPA” -- with wonderful renderings of the Back Bay and other local beaches, etc.

The map of the trail loop and complete information on the nature preserve can be found on the Irvine Company website at

After our return to the car, we packed up the bikes and changed into attire more suited to kayaking, only to discover we’d forgotten our paddles. (we own three!) So, we drove to the kayak rental spot on the bay, just under the bridge on PCH, to rent them. We decided to head inland into the preserve and enjoy the quiet…since we usually head out for a circuit of Balboa and Lido Islands. It is always fascinating to check out the “wildlife” in the inhabited portion of Newport Bay.

This trip we had expected complete quiet, but we found ourselves on the water with a large number of children and young adults playing around on kayaks and racing outrigger canoes. We were in front of the Newport Aquatic Center. We didn’t realize we could have parked here for free, and launched our kayak from here. The Aquatic Center is located on a public beach, (ahem on a man-made land extension) and is a non-profit organization that offers membership on an annual or daily basis. They house an on-site gym, shower/locker facilities, and warehouse a large number of water recreation craft. They rent their kayaks, outriggers, sculls and a few motorized boats, all of which are free for members. NAC holds all kinds of events and they train competitive teams for both juniors and adults. NAC boasts Olympic champions as members/trainers.

But back to our kayak experience: our wildlife sightings including primarily birds and crabs (and a few fish). We needed a bird book along to identify the birds, but we counted at least five or six different ones including a group of odd-looking black ducks (cormorants I believe, after some research) that were sleeping on the sand. My best guesses for the rest were sandpipers, egrets, and swallows. The bay is host to over 200 species.

After drying off and sharing a couple of beers we drove the coast home to Capo Beach, braving the crowds through Laguna, and were thoroughly exhausted when we arrived. And still wishing for more sunshine.

Tuesday, July 13, 2010

Rate Snapshot and Strategic Defaults

The market continues to enjoy all-time lows in rates, although they are slightly off today.

Up to $417,000
30 yr fixed—4.5%
20 yr fixed—4.25%
15 yr fixed—3.875%
5/1 Arm—3.375%
10/1 arm—4.125%

$418,000 to $729,000
30 yr fixed—4.75%
15 yr fixed—4.25%
5/1 Arm—3.875%

True Jumbo loans (over $729,000)
30 yr fixed—5.625%
5/1 arm—4.375%
10/1 arm—5.25%

All rates quoted assume a one point origination fee plus closing costs, and are subject to FICO scores, loan-to-value, property type, and occupancy.


New research based on national consumer credit files, and academic papers, shows that many high credit borrowers are defaulting on their mortgages in the face of large negative equity situations. This is particularly true in states such as California and Arizona, where state laws limit the lenders’ ability to collect post-foreclosure or short sale deficiencies, vs. states such as Florida and Nevada where lenders have more recourse available to them.

Many strategic defaults are not motivated by an inability to make the mortgage payments. They are typically more related to the extended time horizon necessary to achieve a breakeven situation, e.g. 100% loan-to-value, much less realizing equity once again in the property. Many of these homeowners would still face a loss of 20% or more of original property value they paid in a cash down payment at the time of property purchase. Some are so far "under water" their property value is less than 1/2 of original value.

The Deed-in-Lieu is a more attractive option for many borrowers, vs. a short sale or foreclosure. In this case, the borrower simply deeds the property over to the lender, who saves time and money by not going through the foreclosure process or spending months processing a short sale transaction. Further, the bank does not try to execute on any deficiency (shortage) of payoff. Their goal is to quickly sell the property during the traditional summer months, while interest rates continue at record lows.

Bank of America is one lender who has instituted a new deed-in-lieu program and offers cash incentives to their borrowers in some cases.

A deed-in-lieu doesn’t have as negative an effect on your FICO score as a foreclosure or bankruptcy, but will reflect the same as a short sale, or “not paid as agreed” on the credit report.

In the case of a short sale, the bank agrees to accept less than the amount due on the mortgage through the sale of the property. These can be very sticky transactions that may take months for approval by the bank, and are especially tedious when there are two lenders, e.g. one in first position and one in second position. Although the first TD lender has priority, the second lender often jockeys for some sort of payoff as well from the seller and in some cases will pursue the seller after the close of the sale.

Many thanks to my dear friend and real estate broker Cynthia White, for providing the research on this timely issue.