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.

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

Holy Moly! Hang On Tight!

The current environment is unprecedented on many fronts. Quarantines and Social Distancing, unemployment is mounting, and the havoc in the mortgage industry is staggering. Mortgage lenders are under tremendous pressure on multiple fronts: volume, rate drops, market volatility and "churning" of their loan portfolios, e.g. early payoffs and rate lock abandonment. This causes a lack of liquidity since once locked, lenders hedge their positions and if the lock is broken, it is costly. Servicing income drops dramatically and forbearance (forgiveness of loan payments) isn't going to help.

APM is NOT a loan servicer, so we do not face the risks of the large servicing companies or "aggregators" of mortgage loan pools. However we do have interest rate risk, which is the risk of not being able to sell loans, once closed, at low rates if pricing and rates increase.

The Fed move to drop the fed rate did not, and does not directly affect mortgage loan rates. But the stimulus package to buy Mortgage Backed Securities (MBS) DOES have a downward effect on rates. This in reality is NOT helping since it is motivating so many borrowers to break current locks and/or refinance their loans, causing huge losses to the above mentioned servicers/aggregators.

What does it all mean? We all need to be patient, and wait for the markets to normalize. This may take a few weeks or months. In the meantime, The Card Team and APM are diligently working through our pipeline of refinance loans and, as always, prioritizing purchase loans. One of the steps we have taken is locking all refinance loans for 60 days on a 30 day lock price, to handle the high volume.

We are here to answer any questions or concerns you may have. We continue to open new refinance loans for our clients, and prep them for processing, floating the rate and not locking yet, while waiting for the market to settle down.

Rate and Travel Updates

Mortgage rates continue to hover near record lows with the Corona virus taking most of the credit! The market flight to security caused a dip in the stock market which provided a boost to US treasuries.

What does it all mean? Right now is a great time to pull cash out of your home for improvements or remodeling, while rates are low. Home prices have continued to increase, as there isn’t a lot of inventory out there, which means it is a great time to sell if you are so inclined.

If you haven’t refinanced recently you can likely lower your rate and payments, even if you aren’t pulling cash out.

Loan limits have increased again for FNMA, Freddie and FHA/VA loans. The high-cost counties, such as Orange and Los Angeles, are up to $765,500 loan limits… which makes it easier to qualify for mortgage financing.

Reverse loans continue to gain in popularity although I still hear some of the myths repeated, such as “the bank owns your home.” NOT!!!

Please reach out to me or Katie with any questions. We are here to help! Visit our website at www.card-team.com.

FAMILY - TRAVEL

We continue to enjoy spending time with our adult children, grandchildren, and friends. The grandchildren, now numbering five, are ages 7,5,3,2 and 1. We took a camping trip to El Capitan, north of Santa Barbara in September, and most of our crew joined us. The weather cooperated and we had a blast swimming and playing on the beach. I actually tried boogie-boarding for the first time, what a hoot.

November saw us traveling to Maui with friends where we stayed at Ka’anapali. We enjoyed hiking to the blowhole, swimming, snorkeling, and got in a number of scuba dives. We saw more sea turtles than ever before, and had our first sighting of Manta Rays. What a delight! One day we did four dives. Water Warriors!

LITTLE DUME

Steve’s boys played at The Troubador last month and they have released an album. WOW! They are amazing. Just search for Little Dume on Spotify or YouTube to tune in and enjoy! They played earlier in the year at our Yacht Club and were a fabulous success. We hope to host them again there soon.

Here is hoping you all have a wonderful 2020!

Buy or Refi now or Wait...?

The interest rate outlook is clearing up, and we see no signs of rate increases in the near future. Recession worries are receding, due to low unemployment and a stable economy. However there are many factors affecting the markets that are beyond our borders, to include the tariff wars. So, the bottom line is barring something dramatic on the international front, rates should remain steady through year end. The recent drop of .25% to the Fed rate did not have much effect on mortgage rates and that and future anticipated drops appear to have already been built into current rates.

Since no one can time the market perfectly, I would not recommend waiting any longer if you need to refinance for home improvements, debt consolidation, or just to reduce your current monthly payment.

We have not seen a statistically significant drop in home values, excepting possibly at the higher price points, well over $1 million. So, waiting to make a move may not work in your favor.

For first time homebuyers who are on the fence, studies show that waiting to make a home purchase costs money every month. Postponing a home purchase to wait for the perfect storm will cost more in the long run, in terms of lost equity. Why make the mortgage payment for your landlord vs. for yourself?

Reach out to us by phone or visit our website at www.card-team.com for assistance.

5 Reasons to Use Reverse Financing

Reverse loans are becoming more "accepted" although there are still some who think they are only for those in dire straits, or are just generally a bad idea. Not so!!! Here are five reasons to use Reverse financing:

1. Pay off an existing home loan to reduce monthly debt by eliminating your monthly payment. No payment is required on a Reverse loan.

2. Place a Line of Credit on your home, for quick and easy access to cash as needed. No payment is required and you only accrue interest on the actual balance of the line of credit.

3. Buy your final retirement home using Reverse financing, vs. all-cash or regular mortgage financing. Increase your buying power, and no payment is required for the Reverse Loan.

4. Access your home's equity to pay for long-term care or prepare your home for aging in place. No payment is required.

5. Access your home's equity to provide regular monthly payments to yourself for additional income. No payment is required and the income is not taxed.

Real Estate in California...What 's Next?

It is that time of year, again...Spring buying season. Home listings are growing in numbers, but where are the buyers? Most homes are sitting on the market longer than in the past few years, and most are selling below list price. We expect activity to pick up, since rates have adjusted down nicely. Most economists see home values flattening out somewhat, but we aren't expecting any drops in value in the near term.
Rates are also flattening out, and we've seen a couple of moments of the dreaded "inverted" yield curve which means that short term rates rise above longer-term rates. This translates to a couple of things: 1. A recession is expected sooner than later, and 2. the marketplace sees more risk in the short term vs. the long term.

What does this mean for you? If you are interested in buying, now is the time to jump while rates remain near historical lows.

We believe Reverse loans are going to continue to gain in popularity due to the aging baby-boomer population. These increase the buying power of a buyer over age 62 when coupled with cash toward the purchase price. They are also very useful for those wishing to retire existing debt on their home to reduce monthly expenditures, or to have a line of credit to use when future needs arise, all without a required monthly payment.

ON THE HOME FRONT

The first quarter has sped by with alarming speed! My grandchildren are growing like weeds, and entertaining us endlessly. They are now six, four, two, one and almost one. WOW! Steve is still commuting to Dallas, but we expect that to wind down this year. My daughter is working with me here at THE CARD TEAM, and we are having a lot of fun and keeping very busy!

We are busier than ever. Between kids, grandkids, Yacht Club events, work and exercise there isn't much downtime. We have also taken up golf, and try to get out on weekends when the weather is nice. Steve is going to crew in the Newport-Ensenada race for the first time and I will cheer from the sidelines when I am not on a wine tasting tour of the wineries near there. We have some scuba diving planned for the year both locally, in Catalina, and in Hawaii later in the year. A camping trip to El Capitan (north of Santa Barbara) is on the books for September, with all our kids and grandkids. It will be wild! When we are all together it is sort of like a tsunami, but always filled with laughter and good times.

Last year we took a couple of scuba trips, one to Cozumel and one to Cabo Pulmo outside Cabo San Lucas. The trip to Cabo Pulmo was combined with some fishing in the Sea of Cortez with a large group of friends, which was a blast. Nothing we caught was big enough to write home about, but it made some for very good eating for ceviche and sashimi. We also went up to our favorite family vacation spots in the High Sierra at Rock Creek for five days with all the family. All fun: lots of hiking, fishing, laughing and card games. In between all that we took quick trips to Catalina, Palm Springs and La Quinta. Phew!

We are looking forward to another fabulous year and wish you the same! Remember, we create experiences that matter.