The Housing and Economic Recovery Act of 2008

July 30, 2008

H.R. 3221, the “Housing and Economic Recovery Act of 2008,” passed the House on July 23, 2008, by a vote of 272-152. On Saturday, July 26, 2008, the Senate passed the bill by a vote of 72-13. The President signed the bill on July 30, 2008. The bill includes the following provision:

FHA Reform – including permanent FHA loan limits at the greater of $271,050 or 115% of local area median home price, capped at $625,500; streamlined processing for FHA condos; reforms to the HECM program, and reforms to the FHA manufactured housing program. The down payment requirement on FHA loans will go up to 3.5% (from 3%). The effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008).

FHA foreclosure rescue – development of a refinance program for homebuyers with problematic subprime loans. Lenders would write down qualified mortgages to 85% of the current appraised value and qualified borrowers would get a new FHA 30-year fixed mortgage at 90% of appraised value. Borrowers would have to share 50% of all future appreciation with FHA. The loan limit for this program is $550,440 nationwide. Program is effective on October 1, 2008.


Proposition 8 – Santa Clara County

July 7, 2008
Proposition 8 Temporary Assessment Relief, More Information

A Proposition 8 reduction is a form of assessment relief. It may be applied when a property’s assessed value exceeds the current market value.  In May all property owners will receive notification of their assessed value.  Additional details are below.

Proposition 8, passed in November 1978, amended Proposition 13 to reflect declines in value. As a result, Revenue & Taxation Code Section 51 requires the Assessor to annually enroll either a property’s Proposition 13 factored base year value, or its Market Value as of January 1, (taking into account any factors causing a decline in value), whichever is less.

Prop 8 reductions in value are TEMPORARY reductions which recognize the fact that the current market value of a property has fallen below its current (Prop 13) assessed value. Once a Prop 8 value has been enrolled, a property’s value must be annually reappraised to determine whether its then current market value is less than its Prop 13 factored base year value.

When and if the market value of the previously reduced assessment (Prop 8) increases above its Prop 13 factored base year value, the Assessor will once again enroll its Prop 13 factored base year value. Prop 8 values can change from year to year as the market fluctuates up and down, but in no case may a value higher than a property’s Prop 13 factored base year value be enrolled.

If you think your property is being taxed on a value that is higher than its current market value, submit a Prop 8 temporary relief form or contact the Assessor’s Office, and ask for a review form. Assessment Review Requests should be submitted to the Assessor’s Office by June 15, and no later than September 15, of the current assessment year.

Important Points

  • The Assessor can only consider the market value of your property as of the lien date (January 1st).
  • The market value of your property will be determined by analyzing sales of comparable properties in the area.
  • Properties with characteristics similar to yours must have sold for less than your current assessed value.
  • Supplemental Assessments will not be revised due to Proposition 8 reviews.

*Base year value/inflationary factor: The value established as of the date of acquisition and/or completion of new construction. This value is adjusted each year by an inflationary factor. The inflationary factor is the lesser of 2% or the California Consumer Price Index (CCPI) rate.

An Example of how it works:
Let’s say you bought a home several years ago for $100,000. The Assessor determined that the purchase price was the fair market value, so the new base year value of the property was set at $100,000.

Over the next year, real estate values increased by 10% and you could sell your home for $110,000. That’s good, you acquired $10,000 in equity. Even though the market value increased by 10%, the factored base year value could only increase 2% to $102,000, because of the limits set by Prop. 13. The Assessor compares the market value to the factored base year value, and enrolls the lesser of the two. The assessed value is $102,000.

The real estate market continued to grow, and property values in Santa Clara increased another 10% the following year. Last year you could have sold your home for $110,000, this year you could sell it for $11,000 more, or $121,000. But your Prop. 13 factored base year value was considerably less. Last year’s value of $102,000 plus 2% gives you a new factored base year value of $104,040. The Assessor again compares the two values, and enrolls the lowest one. This year’s assessed value is $104,040.

You can see in this example, after 2 years the difference between the market value and the assessed value is $16,960! Proposition 13 protected you from unpredictable increases in property taxes because the assessed value was based on factored base year value, not market value.

But what happens if the market value goes down? Proposition 8 allows the Assessor to temporarily reduce the assessed value of property if the market value is lower than the factored base year value. This is exactly what happened a few years ago to many property owners in Santa Clara. As a result the Assessor temporarily reduced the assessed value of over 100,000 parcels.

Let’s go back to our example and say the market dropped 20%, and you could only sell your home for $96,800. At the same time, the last factored base year value of $104,040 is increased by 2% to $106,120. The Assessor compares the two values and sees that the market value is lower. The property receives a temporary reduction because of Prop. 8, and the assessed value drops from $104,040 to $96,800.

When the real estate market rebounds, market values of many properties are once again higher than their factored base year values. As a result, the Assessor is returning many parcels to the value limits set by Prop. 13. That means that if you received a temporary reduction in the past, you could see what looks like a greater than 2% increase in the assessed value this year.

Here’s what’s happening; the temporary relief that Prop. 8 gave you due to the depressed real estate market is now over and the assessed value is returning to the limits set by Prop. 13. In many cases, the assessed value is still much lower than the current market value of the property.

Back to our example, suppose the market jumps 30% in one year and you could sell your home for $125,840. The factored base year value is increased by 2% from $106,120 to $108,242. Now the factored base year value is lower than the market value, so the Assessor enrolls an assessed value of $108,242. Your assessed value goes up from $96,800 last year to $108,242 this year. You are again receiving the benefits of Prop. 13, and your assessed value is $17,598 lower than the market value.

Can the Assessor increase your assessed value more than 2% in one year? Yes, your assessed value can go up more than 2% in one year if you received a temporary (Prop. 8) reduction in the previous year, but it cannot go higher than the factored base year value which is limited to increases of no more than 2% per year.

Your situation may be different, and the Assessor’s staff is ready to help you understand the assessed value of your property. If you have any questions, or think that the market value of your home is lower than the new assessed value on the value notice mailed in May, contact the Assessor’s Office.

For More Information Please Contact:

Assessor Real Property – General Questions, Property valuations and Propositions 3, 8, 60, 90
70 West Hedding St., East Wing
5th Floor
San Jose, CA 95110
Phone: 408-299-5300
Fax: 408-298-9439

Bear Stearns, you helped create this mess

March 14, 2008

Bear Stearns stock is down 38.6% to $35.00 a share.  Rightfully so, since they helped create this big mortgage mess.

Option arms have been around for a long time, they are still one of the core products of Wachovia Mortgage, formerly known as World Savings.  Option arms can be called many things such as pick-a-pay loans or equity builders.  They essentially serve the same function however they are tied to different indexes, MTA, COFI, CODI, COSI, Libor.  These products give a borrower 4 payment options:

1) Minimum Payment at a teaser rate typically 1.0-1.95%

2) Interest Only Payment calculated at the Fully Indexed Rate (Margin + Index)

3) 30 Yr Payment calculated at the Fully Indexed Rate (Margin + Index)

4) 15 Yr Payment calculated at the Fully Indexed Rate (Margin + Index)

Prior to the peak of the real estate market most lenders would lend up to a maximum of 80-90% of the value of a home on these mortgages, in rare cases 95% with lower loan amounts.  It makes sense since there is the possibility that these Option Arms (Neg Ams) would defer the interest up to a maximum of 110-115% of the original loan amount. 

 It makes sense to cap the maximum that a lender would lend since there was the possibility of the borrower just making minimum payments, owing as much as the home was worth if real estate prices were flat.  If prices increased at the same rate as the interest on the mortgage or at a faster rate then the buyer was in relatively good shape.  If real estate prices dropped,payments were deferred then we all know how that story ends…

 Bear Stearns was one of the ONLY lenders that rolled out an option arm that did 100% financing stated/stated.  Essentially put $0 down on a home, state your income, state your assets and it would get you into the home.  The terms of these loans were HORRIBLE since the margin was high, meaning the fully indexed rate (index + margin) was very high and the 2nd mortgage rate was very expensive as well.  Bear Stearns owned the market for these loans and plenty of correspondent lenders were reselling the same Bear Stearns product to brokers.  The only other lender doing this to 100% was Suntrust (Full Documentation of income only).

The product was out for about 6 months or so, I can only imagine how many loans they underwrote during that period of time, approved, and funded. 

Estimated Higher Loan Limits

February 14, 2008

The economic stimulus package is here, however increased loan amounts have not arrived yet because FNMA, FRE and FHA have not decided how they are going to underwrite these new loans.  We do have estimated loan limited based on Metropolitan Statistical Areas (MSA).  New loan limits are anticipated to be delivered by HUD March 13, 2008.

Areas of interest are as follows:

County  Median Adjusted Limit
Los Angeles $588,400 $729,750
Merced $377,245 $471,557
Napa $567,500 $709,375
Alameda $825,400 $729,750
Sacramento $381,884 $477,355
Salinas $590,000 $729,750
San Diego $589,300 $729,750
San Francisco $825,400 $729,750
San Mateo $825,400 $729,750
Santa Clara $852,500 $729,750
Santa Cruz $610,000 $729,750
Stockton $391,230 $489,038

For information regarding additonal counties that may be missing, please contact me at .

Raising conforming loan limit from $417,000 to $729,750?

February 12, 2008

There is a high probability that President Bush will sign into law the recently passed economic stimulus bill.  This will raise the conforming loan lmit from $417,000 to approximately $729,750, conforming loans can be purchased by FNMA (Fannie Mae) and FRE (Freddie Mac).  FHA (Federal Housing Authority) limits are expected to be increased as well.  This increase will be temporary and will end December 31st, 2008.

 The difference in interest rate for a conforming 30yr fixed vs a jumbo 30yr fixed is approximately 1% – 1.5% at the moment so this increase in the conforming rate is expected to bring in a flood of new mortgage applications for refinances as well as purchases.  With all the layoffs in the mortgage industry our lenders are bogged down as is and refinance transactions are taking approxing 45 days to close.  With the increase in the conforming loan limit we can expect times to increase to 45-60 days to close a refinance transaction, purchases are always given priority over all refinances.

FHA loans limits are county specific, the FHA limit for Santa Clara County as of 2/12/08 is $362,790.  They finance up to 97% of a purchase price, and allow 2nds behind them.  So currently an FHA loan may get you into a 1 BR condo in Santa Clara county.  Imagine an FHA limit of $729,750, this would allow buyers to finance 3-4Bedroom homes in Santa Clara with low down payments and excellent loan terms.  Please note that we have been originating low down payment CALHFA programs that are California specific that will allow up to 103% financing.

So it is a given that turn times will increase, it is a given that this will be good for the mass majority of californians.  I am unsure what will happen to overall lending guidelines once this goes into effect.  I’m leaning towards this package helping to stablize the overall housing market short term.   

2nd Mortgage Companies are Pulling Back

February 1, 2008

Yesterday, another 2nd mortgage company cut their maximum LTV/CLTV (Loan to Value/Cumulative Loan to Value) requirements in California yet again. We have moved every bank lending on 100% of the value of a home down to 90%, down to 80%, and now even lower over the past year.

We still have govt/state/1st time homebuyer programs that will do 100% financing and 2nd mortgage companies that will lend to 95% of the value of the property but the number of these firms are dwindeling. Calfornia has been designated as a declining market. A declining market means that a bank will cut their maximum lending requirements in that area/state by 5% of their maximum allowable CLTV. Keep in mind, not all lenders have done this. Some classify CA as a declining market. Some classify declining markets specific to certain counties in CA.

Minimum credit score of 680, full documentation of income/assets, and max of 95% of value of home is going to be the max upper that we’ll be able to do until we see this market turn.

Back to the good old days of putting money down on homes!! Prior to entering the industry I always thought that a 20% down payment was mandatory. Although we are not at that point yet at can still finance of to 100% of a home’s value, .

What is funny is that when I took my real estate license test 5 years ago classes were packed. 3 years ago you would have to drive to LA to get a seat to take an exam within 2 weeks. My friend recently went to taker her test and there were a whopping 6 people 🙂