American Pacific Mortgage

American Pacific Mortgage

Thursday, June 2, 2022

The Season of Weddings, Vacations and Home Sales!

 Sales Activity and Interest Rates

Home sales activity has slowed down with the sudden uptick in rates combined with general market volatility.  In the past, the summer months represented the lion’s share of home sales.  However, this has changed in the past five years or so.  Today there is no real “sales season” as home sales remain fairly consistent year-round—at least here in California.

The recent rise in mortgage rates has stalled out, with rates ranging from the mid 4’s well into the 5’s.  The rate chosen by a borrower depends on many factors to include FICO score, loan term, (a 5- or 10-yr ARM vs. a 30 year fixed) loan program, (FHA, VA, Conforming or Jumbo)  loan purpose (purchase vs. refinance) and primary residence vs. second home or investment property. 

Some market analysts believe that rates may come down a bit.  Did you know the historical “normal rate” is 6.25%?

On home prices, we still have no reason to believe that values will fall.  There is simply too much demand and not enough inventory.  Flatten out a bit, possibly.

Family Fun

I was able to spend the Memorial weekend with my grandchildren, while my partner (and daughter) Katie and her husband were in Napa and Sonoma with friends.  The kids had a great time at the Long Beach Aquarium and were able to find and identify the Hawaii state fish, the Humuhumunukunukuapa’a.  And yes, they know how to pronounce it! 

After lunch at Bubba Gumps’ we ventured to the Los Alamitos Yacht Club to watch my grandson Theo in a sailboat race.  After two days of racing, he came in 2nd overall!  A great achievement!

While Theo was racing, Steve was also in a race Saturday overnight from Cabrillo Yacht Club in San Pedro around Catalina Island and back to Dana Point.  His boat, Chaos Theory won first place in its class!


We are off for some scuba diving in Mexico.  I was certified only sixteen years ago but Steve was certified in 1970.  Wow!  No dive computers back then, you dove by the Navy Dive tables and had to hand calculate your dive times/depth using the charts. Actually although computers were coming into regular use when I was certified, we still learned with the tables.  Now we use dive computers that do all the calculations for us.  😊

Happy Summer!  Please call us with any questions you may have.

Karen

Tuesday, May 10, 2022

The Sky IS NOT Falling!

 RATES

Interest rates continue to rise, but we expect them to level out somewhat through the rest of 2022.  Although the Fed just bumped up the Fed rate by .5% this does not correlate directly with mortgage rates. Most lenders have already built in the anticipated increase in their rates.  Mortgage rates are generally based upon current yields (rates) of mortgage-backed securities as traded on the open market.  The ten-year Treasury is also considered a benchmark but does not correlate directly to mortgage rates. 

ARM loans (Adjustable Rate Mortgages) are making a comeback, particularly the 5-year ARM.  Remember, most homeowners don’t own the same home or loan for more than five years, due to changing circumstances.

HOME PRICES

We want to re-emphasize that we do not anticipate a drop in home values.  We do expect a slowdown in appreciation rates (which was over 20% countrywide last year) but there is no reason to believe homes will drop in value.  Although we may be heading into a recession in a response to the move to reduce inflation, the worst we expect to see home appreciation drop to is around 4.5% to 5%.  Inventory of homes for sale continue to be at record lows.   Remember, real estate is the best hedge against inflation and a great long-term investment. And coastal California real estate is always in demand.

BUYING OR REFINANCING TODAY

Although the Refi boom is past us, there are still many reasons for a refinance.  Life transitions such as divorce or death of a family member present the continued need for home financing whether to purchase a new home or refinance an existing one.  Remodeling and home improvements are another.  We can always assist with HELOC loans as needed for some of these situations.

CASE STUDY

We recently closed a purchase loan for a client going through a divorce.  We worked closely with all parties involved to assure she would qualify for the new home purchase.  Watch this brief video to learn more:  CLICK HERE

DID YOU KNOW???

APM was the #1 FHA lender in the state of California in 2021.  Yes, that means we work with a lot of first-time homeowners. 

FUN STUFF

The Dance craze is continuing with new Cardio Funk classes on Saturday mornings in the Dana Point Harbor.  Join us at the Piazza Wellness Center at 10:00 a.m. for 90 minutes of great cardio and a ton of fun!  www.milolevell.com Piazza Wellness Center

TRAVEL

We just returned from a weekend in Ensenada for the Newport-Ensenada sailboat race.  There were 120 boats that participated in several classes.  Steve crewed on Freedom, a 55” Beneteau that won First in Class, along with three other first place trophies.  However, he missed the wine tour we had at Casa del Piedra, in the Guadalupe Valley followed by a fantastic lunch.  Fabulous time!

We head out in June for scuba diving in Cozumel, a Caribbean Island off the coast of Cancun, Mexico. 


Steve will do some painting while I read in the shade.  Here is an example of his tropical fish.  See more at https://stevesandborgart.com/  Shameless plug! 

 

Life is Good!  And don’t hesitate to call us with any questions you may have.

Thursday, April 14, 2022

HOW HIGH CAN THEY GO?

RATES

Interest rates are up across the board, and they aren’t coming down anytime soon.  This has the effect of eroding affordability for many prospective buyers, but it certainly has not slowed down the market…yet. Inflation has taken off and there is no end in sight, given current events.  So, the days of rates in the 2’s, 3’s and 4's are gone. Frankly we are looking at a return to a more “normal” rate environment. 

In the past when rates were higher, many opted for ARM loans.  These are Adjustable Rate Mortgages.  Typically the start rates are lower vs. a 30 year fixed loan, since they adjust to market level over an index at some point in the future.  However, currently the yield curve is pretty flat, and some think we will see an inverted yield curve which is not a good sign…and is a precursor of a recession, the elephant in the room.  An inverted yield curve means that investors see more risk in the short term vs. longer term.

HOME PRICES

Contrary to what many of those standing on the sidelines hope, we are not going to see a drop in home values.  We may see a slowdown in appreciation rates (over 19% countrywide last year) but there is no reason to believe homes will drop in value.  Stall out a bit, maybe.  The problem is the short supply of new housing.  Builders stopped building homes over the decade following the great recession caused by the Mortgage Meltdown, and we do not have enough housing supply.  This, coupled with low inventory of existing homes for sale creates demand far greater than supply, the perfect storm for increased home prices.  Remember, real estate is the best hedge against inflation and a great long-term investment. And coastal California real estate is always in demand.

BUYERS TODAY

We have a number of fully ACE* approved purchase clients out making offers right and left.    In this market it is not unusual for buyers to make three to five offers before one is accepted.  We always will call the listing agent to assure them of our client’s qualifications, and strategize with our client’s agent regarding contingency periods, whether we should waive contingencies, etc. 

* With our ACE approval, our clients have gone through complete underwriting of income, credit and assets.  They just need to find a property!

REFINANCE?

Most homeowners have a tremendous amount of equity to play with, whether to pull out cash for upgrades or remodeling, adding a new pool, or to buy another home.  Sometimes we recommend a refinance of the existing first mortgage, but depending on the interest rate of their primary mortgage, a HELOC may be the better avenue.  Much depends on how much cash is desired.

DID YOU KNOW? 

When I bought my first home in 1984, the average rate was 13.88%  So, no complaining!               

FUN STUFF

I am taking a series of Hip Hop classes offered through Casa Romantica, the historical property located on the bluff above the San Clemente pier. They offer various arts and music events open to the public.  What a blast!

Steve and I will be scuba diving in Cozumel in June.  Coz is a Caribbean island off the coast of Cancun, Mexico.  We have been there before a few times (like more than four) and are looking forward to some great diving and relaxation.

Life is Good!  And don’t hesitate to call us with any questions you may have.

Wednesday, March 9, 2022

First COVID, Now A War in Ukraine?

RATES

When clients ask me where rates are heading (nearly every day), I always point out that since we have an international economy today, events around the world can and do affect interest rates here in the US.   Case in point, the markets are currently experiencing dramatic volatility and rates have dropped a bit after a rapid climb in the first Q this year.  How long will it last?  No one can guarantee they will remain on a downward trend, as they have been up and down over the last week.  The bottom line is we can only move forward knowing that eventually rates will continue to rise.  There is nothing like the thrill of receiving three or more reprice notifications during one day!  Up by .25%, down .375%. Yikes!!

The war is having effects in multiple areas including interest rates;  the stock market;  oil prices (as we all can see at the gas pump) and on many other consumer products, as the supply chain is further impacted.   At this juncture no one can predict how long this will last. Only that the poor citizens of Ukraine are feeling much worse pain.

VALUES

Home prices across the country rose last year by an astounding 19%.  In both Los Angeles and Orange Counties, the median home price was $950,000 for the month of January.  Crazy!  Most homeowners have a tremendous amount of equity to play with, whether to pull out cash for upgrades or remodeling, adding a new pool, or to buy another home.  The problem is the short supply of new housing.  I looked at a few Open Houses the past weekend.  It was so nice to actually go to an Open House!   One property was a total teardown with incredible ocean views in the hills of San Clemente, listed at only $1.45 million.  WOW.  We figured it would take at least a $2 million budget to get it to a livable condition.

The lack of inventory is a major contributor to rising home prices.  Our inventory in Southern California is at an all-time low.  That is right, I said an ALL-TIME low.  In some areas condo values rose more quickly than did values of single-family residences, which is an anomaly. This is likely due to higher demand at the lower price levels pushing up those values.

DID YOU KNOW? 

HUD came out with Reverse Loans for purchase with the HECM program in 2009.  I closed a home purchase in March of 2009 with a Reverse loan, for what may have been the first in California.

FUN STUFF

Steve and I began golfing almost every weekend during COVID as one of the few activities we could safely participate in.  While I still don’t have a handicap, I want to report that during our recent golf scramble with 15 couples from our yacht club, we used several of my drives, fairway shots and putts.  YESSSS!

Speaking of the yacht club, things are beginning to return to normalcy with a Mardi Gras bash, weekend brunches and even prime rib night.  Next up:  A weekend cruise to Newport to visit with other yacht clubs.   Steve enjoys crewing on a couple of different boats for the racing events which happen most weekends.  Then we have the Newport to Ensenada race, otherwise known as N2E in April.  I will go down on a tour bus and meet the racers when they get in.  You never know how long the race will take as it all depends on the wind conditions.

Please remember, Life is Good!  And don’t hesitate to call us with any questions you may have.

Thursday, February 3, 2022

February 2022

Groundhog day has come and gone, and here in Southern California we noted a shadow, predicting more wintry weather.  At least we are not dealing with blizzards like much of the country!

INTEREST RATES

It is definitely feeling wintry when looking at the interest rate climate.  Rates continue to rise and we are also facing new “Loan Level Pricing Adjustments” for high-balance conforming loans (those over $647K) as well as big pricing adjustments for second homes. 

The rise in interest rates have a great effect on affordability as you can see here:

$700,000 loan at 3.5% carries a Principal and Interest payment of $3143. The same $700,000 loan at 4% carries a payment of $3342.  This $200/month difference can make or break it for some buyers/homeowners.  There is no time to delay in moving forward with a home purchase or refinance.  As rates continue to rise it may influence home prices/values, but for now inventory remains so low that there is no relief in sight from rising prices.

TAX TIME

Please have your Home Loan Officer review your draft returns prior to filing if you are self-employed or own rental real estate.  I cannot stress the importance of this enough. We frequently see tax returns for self-employed individuals as well as corporate returns where a small adjustment here or there can make an enormous difference in the income used to qualify for a home loan.  If you are planning to buy or refinance in the coming year, make this a priority.

 PREQUAL vs. PRE-APPROVAL vs. ACE APPROVAL

There are a lot of misconceptions about these terms when a buyer is making an offer to purchase a home.  As Real Estate Agents know, sometimes “prequal” or “pre-approval” letters are not worth the paper they are printed on.  A “Prequal” is typically based on a phone conversation providing verbal information on income and assets.  I have yet to speak with a self-employed individual who accurately reported their income to me verbally.  A “Pre-approval” is based on income and asset documentation provided to your lender, along with a completed loan application and a credit pull.  With these the lender can run automated underwriting – universally used today – and provide an automated underwriting approval. 

An ACE approval is a full underwriting approval subject to only identifying a property and obtaining an appraisal. Either the human underwriter or the Artificial Intelligence underwriter, that actually reads the documentation in the file, has reviewed everything and approved the borrower for a specific loan amount.  We strongly suggest obtaining an ACE approval (otherwise known in the industry as a TBD approval) given current market conditions.  It is so competitive!  With an ACE approval we can shorten contingency periods or remove them altogether, offer shorter escrow periods, and even waive appraisal contingencies depending on the borrower.  Why did we name it the ACE approval?  We are the CARD TEAM after all-- and hold all the Aces!

REVERSE LOANS

Baby Boomers are retiring right and left.  By the year 2030 all Baby Boomers will have turned 65.  Whenever we work with clients approaching retirement or already retired, we always show them various financing options, to include reverse loans.  These are helpful in a number of ways, including improving monthly cash flow by eliminating the mortgage payment;  or providing an income stream in various forms such as a line of credit or fixed monthly distributions.  They are also a useful tool for financial planners to use in down market years (to avoid liquidating pre-tax funds which is costly) since the income from a reverse loan is tax free.

There are many misconceptions still floating around about reverse loans: 

1.     The bank does not own the home or take title after the borrower passes.  The home goes to the heirs.  The owner remains on title throughout the life of the loan.

2.      You can’t outlive your reverse loan.  The only event of default is failure to pay your taxes, insurance or permanent move-out.  You must live in the property. The loan is non-recourse and there is no time limit involved.

3.      A reverse loan does not affect Social Security or Medicare.

4.      Reverse loans are no more expensive than a typical FHA loan, and with jumbo reverse loans the costs are similar to a regular refinance. 

As always, please reach out to us with any questions or concerns.  We are here to be a resource to our clients.

Thursday, January 6, 2022

January 2022

Welcome to 2022! WOW! What a year 2021 was! We would like to wish everyone a Happy New Year and update you on the Mortgage market with news and tips on financing for purchases as well as refinances. 

CONFORMING LOAN LIMITS INCREASE! 

The new limit for conforming loans (FANNIE and FREDDIE) has been increased to $647,200 across the nation for a one-unit home. However, in high-cost areas such as LA and Orange Counties, the high balance limit is $970,800. San Diego has a slightly lower high balance limit, and Riverside and other counties are limited to $647K. What does this mean? Conforming loans have more lenient guidelines for loan approval vs. “Jumbo” loan programs. Great news all around! 

RATES 

Interest rates have begun their inevitable rise from the lows of 2020-2021. It could not last forever, and as the Fed eases up on the buying spree of mortgage-backed securities, we are seeing rates rise. In addition, inflation has kicked in and the economy is improving. What this means for home buyers is there is no time to spare in getting into the housing market or making that “move up.” Interest rates have a far greater effect on affordability than rising home prices. Our advice is to get in while the getting is good! 

HOME VALUES 

Nationwide home prices rose by an average of 19.5% last year. There is a huge shortage of housing across the country. Right now inventory in Orange County is at an all-time low. This means the bidding wars for property will continue. Don’t be fooled into thinking that with interest rates rising, home prices will come down. They won’t -- as there is no inventory! It is a GREAT time to sell! 

LOAN UNDERWRITING AND APPROVAL 

It is all-important to be fully approved for a loan BEFORE you get out and make any offers, so you can be as competitive as possible with shorter time frames for closing, and fewer contingencies. We frequently see buyers experiencing “offer fatigue” after making multiple offers and losing out to a higher bidder. This is why it is best to be as competitive as possible with a full loan approval and shorter or no contingencies. 

Anyone who is self-employed and has an S-Corp or C-Corp should have their draft returns reviewed by their lender PRIOR to filing, if you intend to make a home purchase or refinance this year. We frequently work with tax preparers and CPAs to be sure returns accurately reflect income and are not purposely attempting to minimize the income tax burden. This can kill a loan approval! 

Underwriting guidelines continue to be quite stringent, especially when it comes to self-employeds. Recent business bank statements and up-to-date P&Ls are required for all self-employed borrowers. 

The use of gift funds for down payments, especially with first-time home buyers is increasing. This requires a gift letter and asset statements snapshot from the donor. We are often asked whether this is taxable to the donor or recipient. The short answer is no, but Form 709 should be filed with the IRS annually if the gift exceeds the exempt limit of $16,000 per individual. However it is noteworthy that the current lifetime exclusion is over $12 million per person, so most of us don’t need to worry about the gift tax. We might wish we did! 

ESTATE PLANNING 

We are passionate about estate planning and urge all our client to put a plan in place to care for minor children, and to protect your assets from going through a very costly probate. This is something that should not be put off if you care for your family members. Property and most assets should be titled in a living trust, so your estate is not “probated.” Considering property values in California many homeowners have quite substantial assets. We can refer clients to trusted professionals to assist. 

Please reach out to our team with any questions or concerns you may have. We are here to be a resource for you! 

Karen, Katie and Stephanie