CREDIT CRUNCH FOR THE HOLIDAYS & ALERT FOR CORPORATIONS!

 Rate Update

As we patiently wait for mortgage rates to drop further, now is the time to consider preparing for a cash-out refinance to manage high-interest credit card debt. Consumer credit has surged since COVID, leaving many borrowers with significant balances.

While no one wants to replace a low-interest-rate first mortgage, there comes a tipping point where the savings outweigh the cost of refinancing at today’s higher rates. Though we’re not there yet, we expect this opportunity soon—fingers crossed!

Currently, most mortgage rates are hovering in the mid- to high-6% range, with some requiring points. If you’d like to discuss whether refinancing makes sense for you, reach out!

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Mandatory Report for Corporations

Did you know? The U.S. government now requires all corporations and limited liability companies (LLCs) to file a report disclosing basic ownership information. If you own multiple active corporations or LLCs, you must file this report for each entity before the end of 2024.

What happens if you don’t file?
Failure to submit your Beneficial Ownership Information (BOI) report could result in penalties of $591 per day, up to a maximum of $10,000.

The good news? Filing is quick, easy, and free. You’ll need the following information for each company owner:

1. Address
2. Telephone number
3. A scanned copy of their driver’s license (both sides)

You can file online at this link:
https://boiefiling.fincen.gov/

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We wish you and your loved ones a joyous holiday season filled with laughter, love, and cherished moments with family and friends!

Warm regards,

The Card Team

Karen, Katie and Stephanie

Election Drama, Rates and our Veterans!

We hope you voted!   Many of you may be wondering how political changes will influence interest rates and the real estate market here in Southern California. We want to provide you with insights that can help you navigate these uncertainties.

Interest Rates: Current Trends

Interest rates have been a significant topic over the past year, with the Federal Reserve making adjustments to combat inflation. Currently, we are seeing rates moving back up to around 7% which has impacted borrowing costs for homebuyers. While we hope for stability, it’s essential to recognize that rates can fluctuate based on economic conditions and policy changes. We still expect the Fed to drop the rate again this month by .25% --but the market may have already taken that into account.

The Election’s Impact

The Election outcome can have profound implications for interest rates. Depending on which party gains control, we may see differing approaches to fiscal policy, taxation, and housing regulations. Historically, a change in administration can lead to shifts in market confidence, which, in turn, can influence the Federal Reserve's decisions.  There are many differing opinions as to which party will be better for the economy and for interest rates.

Regardless of the outcome, keeping an eye on post-election economic policies will be crucial for predicting interest rate trends.

VA loans

Assisting our Veterans has always been one of our priorities.  Veterans are eligible for lower interest rates, higher Loan-to-Value (up to and in some cases over 100% of purchase price) and more lenient underwriting guidelines in terms of Debt-to-Income and FICO scores.   

There is no longer any “Loan Limit” for VA loans, so long as the borrower qualifies with automated underwriting for the loan.  We are seeing more jumbo loan amounts such as two-, three- or four-million-dollar VA loans.  But, with higher loan amounts the VA Funding Fee becomes more consequential.  It can be a pretty large number if the VA loan has been used in the past.

Current State of Real Estate in Southern California

The Southern California real estate market has shown resilience despite rising interest rates. Home prices remain relatively high, driven by limited inventory and strong demand. However, higher borrowing costs coupled with rising insurance costs have made it more challenging for some buyers to enter the market.

Key Observations:

• Market Adjustments: As interest rates rise, we’re starting to see a slight cooling in the competitive bidding wars that characterized previous years. Buyers are becoming more cautious, and many are waiting for a better entry point.
• Opportunities for Buyers: For those who can navigate the current landscape, there are still opportunities. Some sellers are more willing to negotiate, and there are potential benefits for first-time buyers in specific markets.
• Refinancing Trends: For homeowners considering refinancing, it’s essential to assess whether the potential savings outweigh the costs, especially in a high-rate environment.

Looking Ahead

It is vital to stay informed. Keep an eye on interest rates, local market conditions, and how political decisions may shape the economic landscape.

Call our office if you have any questions or need personalized advice regarding your mortgage options. We are here to help you navigate these exciting yet uncertain times in the real estate market.  We expect activity to pick up in in the next six months.

 

FALL - FALLING RATES AND MAJOR HURRICANES!

Well, the falling rates part is a stretch, as rates fell then moved back up a bit, but appear to be on their way back down... albeit slowly.  We are hoping for another drop to the Fed funds rate this year, although the recent better-than-expected employment figures are not helping the cause.

We’ve said this before and will reiterate….as mortgage rates drop, more buyers and move-up or move-down sellers will come off the sidelines, creating upward pressure on home prices.  We should see more inventory available, but there continues to be pent-up demand, particularly in coastal California. 

NEED MORE CASH FOR A DOWN PAYMENT?

Fannie Mae has a non-borrowing Investor program where a buyer who can qualify for a loan, but needs more cash down, can use cash from an investor to buy a home.  The investor is not a borrower on the loan, but will be on title for a share of the equity.  The investor does not need to be a relative and the funds are not considered to be a gift.

This could get tricky if the investor decides they want to sell but the occupant borrower wants to stay put or cannot buy out the investor, so a legal agreement is likely a good idea to avoid future litigation.

INSURANCE WOES

As I write this Hurricane Milton is on a bullseye path for Tampa, Florida with yet another hurricane this season.  Helene was a doozy, particularly affecting North Carolina!  Insurance has already become a major headache for homeowners and lenders.  The  current fires and hurricanes are certainly adding to the issue.    I fear that many areas of Florida will not be insurable in the future meaning you can only buy with all cash.  The same will likely be the result in fire-prone areas of Southern and Northern California.  We have had more than a couple escrows cancel in light of insurance problems with HOA Master  insurance, as well as individual policies.

FIRST TIME HOMEBUYERS AND CREDIT

We often hear “I need to pay off all my credit cards and loans before I can buy.”  This is absolutely not true.  While credit does play into loan qualifying, it is the monthly payments that are considered, and not the actual balance due.   Always ask a mortgage professional about the best path to qualifying.  It is not always paying off debt first.

SELF-EMPLOYED?

We can help prepare you for a home refinance or purchase.  These borrowers take extra care and assistance.  We love to collaborate with their tax advisors to strategize for the next step.

As always, reach out to us with any questions.  And, have a Happy Halloween!

 

Summer Heat and HOT Rates!

Ok, I admit it.  I missed my August Newsletter. The last few months have been so busy, I failed in my task to complete my newsletter. 

As I write this, this week is projected to bring us yet another heat wave.  Now I am regretting my complaints about the cool start to summer.

We've all had too much fun, and now it is time for back to work and school!  Rates have begun to come down, and a few more properties have come onto the market.  Although prices have begun to decrease slightly in some areas, here in Orange County we have the great good (or bad?) fortune of having prices hold, and even continue to increase.  One of the markets in high demand. 

As soon as rates normalize at or below 6% we expect to see a much higher level of activity.  We are getting closer, but not quite there.  Please remember our mantra:  waiting will only bring more competition for properties and there is tremendous pent-up demand.  Too many on the sidelines, for far too long. 

INSURANCE WOES

Insurance is the bogeyman in the picture!  We continue to face many hurdles with home insurance whether for condos or single family homes, or even commercial space.  Some of the insurers who left the market have returned, but with higher rates as now allowed by our insurance commissioner.

Before you complain, please understand that our country (and the world) are experiencing a much higher number of natural disasters…hurricanes, fires, floods, mudslides etc. etc.  Insurance companies are not non-profits.  They can’t continue to lose money.

Real estate ownership is still the best investment you can make, hands down. In the long term you will reap many rewards and provide for future generations.

 SUMMER NEWS

This summer for us was filled with quick trips here and there… Boulder for a wedding;  girl’s trip to La Quinta;  a week in the Eastern High Sierra with almost the entire family;  Paso Robles for wine;  Catalina for swimming and snorkeling;  grandkids sailing championships in San Diego; and grandkids sailing lessons in Dana Point;  music events at the Festival of the Arts in Laguna;  the Pageant of the Masters.  Steve had a show in the Art-A-Fair in Laguna, along with an ongoing exhibit at Studio 7.

We feel incredibly blessed with friends, family, health and happiness. 

Here’s to Fall!  Bring it on!  Football has started! And, USC won their opener!  😊

 

Salute to the USA and our Vets!

Happy 4^th of July!  We hope you all had a safe celebration!

This month we have exciting updates and valuable information on VA loans, and a heartfelt tribute to our veterans.

VA Loans: Empowering Our Heroes

VA loans are designed to provide our veterans with the opportunity to own a home with favorable terms. Here are some key benefits:

• No Down Payment: Qualified veterans can purchase a home with no down payment.
• No Loan Limit: There is no loan limit so long as the Vet qualifies income wise
• Competitive Interest Rates: VA loans often offer lower interest rates compared to conventional loans.
• No Mortgage Insurance (MI): Unlike conventional or FHA loans, VA loans do not require MI.
• Flexible Credit Requirements: VA loans typically have more lenient credit requirements, making homeownership accessible to more veterans. 

For more information on VA loans and eligibility criteria please call us.

Salute to Our Veterans

We want to take the time to recognize the sacrifices and service our Veterans have given.  We salute the Dana Point 5^th Marine Regiment Support Group and their achievements and contributions.  The 5^th Marine Regiment is assigned as the Lead Regiment for Crisis Response should US Ground forces be required. 

Dana Point 5^th Marine Regiment Support Group

• Mission is to provide support and outreach for the benefit of our Wounded, Families of our Fallen and active duty Marines, Sailors and Families.
• Community events include:
•  Combat Golf Tournament
• Dana Point Concerts in the Park
• Baby Shower for expecting Marine families
• Laughs for Leathernecks, a comedy fundraiser

Do you know a veteran or an organization we should feature? Let us know!

 

JUNE GLOOM - Brokers and Bankers Explained

 
MARKET UPDATES

Those of us living in Coastal Southern California are currently experiencing unfortunate but traditional June Gloom.  Many days the sun barely appears and drizzle is apparent almost every morning.

However, the housing market is not nearly as gloomy.  Although interest rates remain stubbornly high, mostly in the 7+ range, this is certainly not deterring buyers from the market any longer.  Prices are up – as much as 18% over the last year, depending where you are….  The Median Home price in Orange County is $1.2M.  There is competition for homes.  If you want to sell, this is a great time to do so.

What is driving those prices sky high you ask, again?  Lack of Inventory!  Simple supply and demand equation.

Things may look a bit different in other parts of the country, as Real Estate values are definitely location driven and quite specific to neighborhoods.

 BROKERS Vs. BANKERS

American Pacific Mortgage is a Mortgage Banker.  That means that we process, underwrite and fund our own loans, in-house with our employees.  This process provides far more control to loan officers since we can manage the process more efficiently.  “Julie, can we please put a rush on this file so we can close timely?”

In this fashion we fund our loans using a “warehouse line” which is similar to a super large Line of Credit.  Once the loans have been funded, we then sell them to one of a number of different places:  Fannie Mae, Freddie Mac, the VA, and a host of other individual investors like banks and large mortgage companies.  We do not service our loans nor hold them in our “portfolio.”  All loans are sold once closed, to a third party.

Brokers typically send loan files off to a third party to process, underwrite and fund the loans.  The broker is paid a fee which is disclosed on the Initial and final Disclosures.  We sometimes send our loans out to other investors “brokering” the loan to them for better pricing.  It is always our goal to find the best loan program and interest rate for our clients.  However, there is a loss of control with brokered loans as the process is managed outside our own company.

Please reach out to us with questions or for advice!  We are here to help!

Karen, Katie and Stephanie

FICO SCORING SECRETS & MARKET UPDATES

Market Update

More Inventory, and even more buyers!!!

The spring selling season is here!  The seller’s market continues with demand outpacing inventory.  And, prices continue to rise despite stubborn interest rates. We are seeing more competitive bidding again for many homes.  In order to stand out, buyers must be fully pre-approved and ready to act swiftly.

Rates are high compared to the pandemic period, but are still running close to historical averages.  Expert guidance is key to navigating the mortgage process, especially for first time homebuyers.  Be sure to work with a knowledgeable and experienced lender to streamline the process and ensure a successful close.

Here is the current conundrum regarding rates:  Prices are high, CPI is high, and inflation is higher than the Fed wants.  The Feds will apparently only reduce rates when CPI falls.  Which will only happen when home price appreciation cools.  Which will only happen when there is a sustained increase in housing inventory.  Which will only happen when rates fall.  And, back to the beginning.

 

FICO SCORE HELPFUL HINTS

When planning for a home loan, whether a purchase or a refinance, it is paramount to understand the factors that influence your FICO score.  And, remember there are different scoring models. Clients may tell me what their FICO score is, but when I pull a Tri-Merge from Experian, Transunion and Equifax, which is required for a mortgage loan, the scores are quite different. 

1.      Payment History – Late payments, especially on any mortgage are a critical negative factor.

2.      Credit Utilization – Keep balances to less than 30% of credit available; this is typically the most common issue affecting FICO scores we see

3.      Length of Credit history – the longer you have had credit, the better.  And, being added as an Authorized User to a relative’s long-standing account may help, check with us first!

4.      Credit mix – Installment loans (auto loans) or leases help your score when coupled with revolving credit. And, have at least two or three revolving credit accounts.

5.      Inquiries – typically these have the least effect on your score although consumers believe otherwise.

We frequently work with clients to assist them with credit repair.  Here are some of the most common questions we hear:

1.      Should I pay off my credit cards and/or car loan?  Not necessarily, unless they are affecting your debt-to-income ratio.  You don’t need to be debt-free to qualify for a home loan.  And sometimes it is best to have a small balance on some accounts.

2.      Should I close my credit cards that I don’t use anymore?  After all, I’ve paid them off.  NO!  This will have a negative effect on your FICO score.  The more unused credit you have, the better!!!! Never close an account.

3.      Can I apply for a car loan at a number of places to find the best rate?  NO!  Too many inquiries at one time will temporarily drop your score.

Always discuss any possible changes to your credit cards or loans with your loan officer first.

We are here to help and be your resource!

Karen, Katie and Stephanie

APRIL SHOWERS...ENOUGH ALREADY!

Important Dates:

April 10^th your Real Estate Taxes are due!  You will be penalized if you don’t pay them in a timely manner.  Online is easiest!

April 15^th your income taxes are due.  Be sure to file an extension if you are not filing your returns on the 15^th.

Rate and Market Updates

Well, The Fed is not cooperating with us on interest rates.  Why?  New job creation continues at a strong level, the largest since last May.  Basically, the economy is still strong and although inflation has reduced dramatically from the highs, not enough. 

As of Friday the 5^th the published Freddie Mac average rate on a 30 year fixed rate mortgage (under 766K) is 6.8%.  But remember, this rate is affected by FICO score, Loan-to-Value, loan purpose and other factors. 

San Diego is leading the charge on home price gains with an 11.2% increase over the last 12 months.  Los Angeles and Orange County are up 8.6%.

With inventory continuing at a low level, bidding wars are picking up again.  The Millennials are back, representing nearly 40% of buyers.  And, average down payments hit an all-time high last year! 

Myth busting around the NAR lawsuit regarding agent commissions.

·         This is good news for buyers…NO!.  Buyers cannot finance the commission for their agent in their loan.  They either need to pay out of pocket for that service, or go without an agent.

·         Why bother paying an agent to show me homes when I can check them out on Zillow?  Well, unless you are a real estate expert and intimately acquainted with the RPA (Residential Purchase Agreement) and all the attendant requisite disclosures, you are frankly incapable of adequately representing yourself.  There are 1000 things that can go wrong without an agent representing your best interests.

·         Ever hear of a pocket listing?  You won’t find that without an agent working on your behalf.  That is a listing that never hits the MLS.

·         Dual Agency is fine (The listing agent also represent the buyer) NO!  No agent can honestly and fairly represent both sides of a transaction and provide the best result for both.  Impossible.

·         Home prices will be lower since the seller is not paying for the buyer’s agent.  DOUBTFUL  Think again. If you are selling your home, are you going to offer less than true market value to be kind to the buyer?  Or, do you want the most $$ out of your home?

·         The seller can’t pay for my agent as a buyer.  WRONG.  Yes they can, but it may not be called out in the MLS as a commission to buyer’s agent.  However, the listing agent may note a seller concession for “closing costs” which can include the fee to the buyer’s agent.  Remember, everything is negotiable!

This situation is fraught with danger signs.  I anticipate many more lawsuits if dual agency becomes the norm.

AND, WE ARE OFF TO THE RACES!

Someone somewhere turned the light on, finally! Buyers are coming off the sidelines and sales activity is picking up, as we have been predicting since last year. 

RATES AND THE MARKET

Although rates are still holding steady fairly close to 7%, we are seeing much more application activity in the last two months.  We still expect to see the Fed reduce the Fed funds rate by June, although we continue to see mixed economic indicators. Inventory remains on the low side, keeping home prices up in most markets.

BE A “SCOUT” AND BE PREPARED!

With the recent increase in activity, we are getting more and more phone calls that go like this:  “Hi, how are you?  I need a pre-approval letter today so I can see a property that was just listed”  or even worse, “I need a pre-approval letter now, so I can make an offer.”

Preapproval letters do not grow on trees--- and are not automatically issued (at least not by ethical lenders) upon request.   We always perform our due diligence and review bank statements, W2s, paystubs, and tax returns as applicable, depending on income streams. We pull a “soft” credit report and run automated underwriting on most loans for “automated loan approval.”  This can take us a day or two, depending on workflow and the speed with which clients provide us the documentation needed.

Please contact us early on so you are prepared to pounce when you find the right property.  That way, you won't miss out because you did not get your preapproval the same day you asked. 

Further, we oftentimes work for a month or twelve with clients on credit repair, increasing savings, accessing gift funds or down payment assistance, car loan payoffs, etc.

REMINDER FOR SELF-EMPLOYEDS             

Our self-employed borrowers face special challenges.  Their income streams are typically more complicated, and oftentimes they have more latitude on the amount of expenses they deduct from income.  This can make or break a purchase or refinance loan.

We always want to review your business and individual tax returns PRIOR TO FILING.  This way we can be certain you will qualify for the loan you desire.  We like to collaborate with your tax preparer and/or CPA to coordinate for a successful loan transaction.

Recently a client who was fully pre-approved went ahead and filed his 2023 returns--showing less income with more expenses, and we had to cut his loan amount after he was ready to make an offer.  Don’t be that client!

I recently visited my sister and her chickens.  We love the fresh eggs they provide!

 Welcome to spring and daylight savings!  YAY!!!  

As always, call us with questions!

Karen, Katie and Stephanie

 

 

SUPERBOWL and SWIFT Insurance Changes!

I had to get a comment in about the increase of younger women, “Swifties” watching the Superbowl.  Wow!  What a great game, a nail-biter up to the end!  And the half-time show was entertaining!  Of course I am an Usher fan.  We watched the game at Dana Point Yacht Club, here is the sunset view.

Rate and Market Updates

Rates have crept back up near their highs.  The next move down will depend primarily on the CPI figures coming out this week.   If inflation is decreasing, we should see a reduction in the Fed rate sooner than later.  If not, we may be waiting for June before we see any appreciable change.

Regardless, activity is definitely picking up, with many coming off the sidelines when rates started their drop at the end of last year. To quote a local Real Estate professional, “Stop holding your breath waiting for prices to fall.”  They won’t, barring a National or International Disaster.

Baby boomers are not selling their homes and, for the most part, are not moving.  So, get into the market if you aren’t already, any way you can, even if you have to buy an investment property and/or combine forces with a friend or relative.  Don’t wait for your dream home or you may be priced entirely out of the market here in California.

Insurance Woes

In case you have not heard, we have an insurance crisis.  Insurance costs are rising dramatically for homes, cars and more.  A number of carriers have stopped writing insurance on homes in California, or pulled out of our market altogether.  This means many homeowners have had their policies cancelled by their carriers, and find they now have to resort to the “Fair Plan” provided by the State, with an additional “wrap” policy.  These are all expensive! 

Why is this happening, may you ask?   Well, fires, floods, and earthquakes.  Climate change is bringing more frequent and more serious weather events.  The number of weather-related disasters have risen dramatically in the US over the past 20+ years.  Insurance companies are losing money, and they are for-profit enterprises. 

So far, the companies that have exited or stopped writing new policies include The Hartford; State Farm, Allstate, Farmers, Kemper, and USAA.

Auto rates are climbing as well, primarily due to high costs to repair autos. 

What does this all mean?  Well, it has a rather dramatic effect on home affordability if your insurance premium is double or more than initially expected. Lenders require insurance and it is not wise for anyone to go “bare” without insurance, even if you don’t have a loan on your property.

We have to remind our clients to get busy contacting agents to get insurance in order ASAP,  or it can and will slow down closings.

However, if you think it is bad here, take a look at Florida.  There, many homeowners are being forced to sell as they can’t afford the enormous increase of their insurance policiy.  Others are paying off their mortgage and going “bare” so they don’t have to pay giant premiums where policies have doubled or tripled due to hurricanes.

If you need help with insurance, reach out!  We can help!

We are looking forward to Spring!

Karen, Katie and Stephanie

MYTH-BUSTING THE REAL ESTATE NEWS

Welcome To 2024!  There is a lot of information floating around out there that is either in conflict from one day to the next, wishful thinking, or just plain wrong information.  We are here to inform you of what is happening in the real estate market today, and provide real up to date information.

Recession?  Nope!  Employment is too strong, and unemployment is still relatively low.  This is going to provide what economists call a “soft landing” for the country, unless we have an unforeseen catastrophe.  If we do enter recession, it will be very mild.

Wave of Foreclosures?  No way!  Homeowners have far too much equity to go into foreclosure.  Should a homeowner lose their job, and be unable to pay their mortgage (although there are still lots of jobs out there) they can sell and retain their equity before they might go into a foreclosure situation.

It's Too Hard to Qualify?   Although rates are higher than most of 2023, they have begun to come down.  At the same time there are more programs to make it easier for self-employed borrowers to qualify without providing tax returns.  Minimum down payments have been reduced for some loan programs, and there are many DPA (Down Payment Assistance) programs out there.  It has been a full-document environment for so long, there is nothing more difficult about today’s lending environment.  Both FHA and conventional programs are pretty liberal when it comes to debt-to-income ratios.  And, gift funds are always allowed to help with down payment.

Real Estate Crash?  No Way! Since the major “Meltdown” of 2008 – 2010 many things in the lending industry have changed.  Foremost of these is that virtually all homeowners who bought after the Meltdown qualified for real on paper for their loan.  And, today they have an absolute TON of equity in their home.  The last and biggest crash in 2008 was precipitated by an enormous number of “liar loans” where there was no income documentation required.  Those loans were packaged and sold to pension funds all over the world as “AAA” paper mortgages.  When they began to fail, the domino effect took over.  It was devasting for many people both in and out of the RE industry.  It absolutely can’t happen again with the safeguards now in place.

Home Prices will Drop? Prices have to come down, right?  Not in most areas of California.  We are uniquely insulated from major price fluctuations due to location, location, location...especially the closer to the Coast you are.  Most in the industry believe that as soon as rates begin to normalize into the low 6’s and 5’s, all the prospective buyers sitting on the sidelines will come out in droves, creating a frenzy of buying and bidding wars.

You Should Wait for rates to come down!  This is one of our favorites. The Cost of Waiting is enormous as you miss out on property appreciation and equity buildup through amortization (principal paydown).  Homeowners build wealth through real estate ownership. If you wait for five years on an $850K purchase you lose $275K. YES.  $275,000.  The interest rate is not as important as the price of the home.  Regarding prices, see above.

We hope all this helps you to see through the barrage of non-information coming your way.  We look forward to a productive 2024 for all!

Happy New Year from The Card Team!   

Karen, Katie, Stephanie