This was reported August 5, 2009 in the San Francisco Chronicle: Back in September, when Tae Hong signed a contract to buy a condominium in Oakland’s new Pacific Cannery Lofts, he expected to move in quickly. With a 20 percent down payment, excellent credit and good employment as an options trader, he seemed assured of qualifying for a home loan.

But Hong, 26, couldn’t get a mortgage. The problem wasn’t with him – it was with new, tighter rules for condo loans that are affecting entire developments.

“Suddenly, the (Federal Housing Administration) increased the presale requirement from 25 percent to 51 percent” of the units, said Gail Stark, director of sales for the Pacific Cannery Lofts. “Then we had months of uncertainty. It was extremely frustrating; we had about 10 canceled contracts with buyers who couldn’t wait any longer.”

Eventually, the lender that had financed the construction of the lofts stepped in to issue mortgages to those wanting to buy them.

Hong finally closed on his unit in July, more than 10 months after agreeing to buy.

“It was very inconvenient,” he said. “Every week that went by, I was looking at interest rates going up little by little and worrying.”

Bottom line? What was true one day may not necessarily true the next. Be sure your mortgage broker is experienced. Read the rest of the story here.

Here are the new guidelines for FNMA condo loans.

-No more than 15% of the total units in a condo may be 30 days or more past due on their maintenance fee payments

-Hazard insurance is required of ALL units in the condominium- this coverage includes everything located inside the apartment- you must come to the closing table with insurance.  The coverage has to be for at least 20% of the units value.  This is sometimes called a ‘walls-in’ policy, HO-06.

-If a new condominium, at least 70% of them must have been pre-sold

-Existing condo units need to be at least 51% owner occupied

-No single entity may own 10% of the number of units

-Not more than 20% may be used for non-residential purposes

-Fidelity Insurance is now required for condos with 20 or more units.

-HOA insurance.  There is no specific guideline for the insurance, but make sure you have at least $1,000,000 liability insurance for each occurrence (Wells Fargo is requiring $2,000,000).

-HOA reserves.  Again, there is no specific guideline for the reserves, but make sure your HOA has a reserve account with money in the bank account.

Exceptions to these rules can be obtained from the lender, but it is a case-by-case basis.  I would not count on getting the exception.

Eric Wood
Loan Officer
Princeton Capital
1699 Van Ness Avenue
San Francisco, CA 94109
415-229-1228 Tel
415-889-0708 Cell
408-335-1172 eFax
ericwood@princetoncap.com
http://www.princetoncap.com/ericwood

To me it makes sense. I put myself in the situation where I’ve owned my house for quite a few years. I am retired and have to live on Social (in)Security. What better way to increase the quality at which I can live by pulling money out of my house?

In an Associated Press story yesterday in the San Francisco Chronicle, they talked about the ads featuring James Garner pushing reverse mortgages as an alternative to provide seniors age 62 or older an influx of cash. (Perhaps if Ed McMahon had done this…)

As with any type of investment there are things to watch out for, but overall, the plan sounds reasonable to me. Again, from my point of view, money now versus money later when I am dead makes about as much sense as “death” insurance. This is for the people I leave behind, not for myself. So why not “borrow” from the biggest asset I own to make my retiring years a little cushier? Makes perfect sense to me… Just be sure to structure it so that the money doesn’t run out before I pass on!

- Mick Orton

I wanted to give you a brief update on the bond market action for the past few days. As I discussed in the Wednesday morning meeting, the bond market seemed to be showing signs of selling capitulation and, with help from benign PPI and CPI numbers Thursday and Friday respectively, I was looking for the buyers in the bond market to return and pricing to start improving. Fortunately, that is exactly what we are seeing so far and the highs that rates hit on Wednesday morning appear to be the upper boundaries of rates at this point.

We are seeing lenders starting to reprice today for the better already and with continued follow-through, I would expect to see better pricing next week as well. Please call me or come by if you want any further information!

- Princeton Capital

Hi everyone!

Wanted to provide you all a quick bond market update today in light of the fact that a) I didn’t get a chance to present at yesterday’s meeting as it went long and b) the market is moving against us significantly today.

As you may remember, a few weeks ago I mentioned at the Wednesday meeting that the bond market had ticked below the 200-day moving average and that was most likely an indication that rates would get worse before they get better. However, even I did not anticipate rates moving against us to the degree that they have in the past week or so with today being the worst day we have seen in almost a year. Treasuries are selling off sharply (meaning rates going up) and the 10-year treasury yield is above 5% for the first time since August 2006. We are now down 75 basis points on the day – that is a huge move for one day.

So what is causing this major selloff? There are multiple things going on in global markets that are causing it…

1. The first factor is global growth and inflation as illustrated by both the recent rate hikes and strong data reports in several countries…most recently an unexpected rate hike in New Zealand. Yes…the economy in New Zealand effects our mortgage rates. Why? Because there is competition for foreign investment in the bond market and with rate hikes overseas, the foreign markets become more attractive as their debt instruments become higher-yielding. Therefore, investors take money out of the US bond market to buy overseas, our bond market drops causing the domestic bond rates to go up.
2. Another factor I believe is leading to the selloff in bonds is expectations of a fed rate cut that has been priced into the market to some degree starting earlier this year based on widespread perception that the economy would weaken enough to persuade the Fed to cut rates. However, this hasn’t happened, and a number of data reports and other indicators of late have pointed to unexpected resilience in the economy causing inflation fears to raise their head again.
3. Lastly, with the 10-year ticking over 5% this morning (now at approximately 5.12%), the bond market took out a significant emotional threshold which caused the selling volume to escalate.

So the question is…what can we expect now?

Certainly, we are seeing lenders reprice today (and some lenders are already on their 2nd reprice today) for the worse…they, like some investors, are running a bit scared of this action today. Technically, the bond market has taken out some significant levels of support and that has investors and lenders nervous. That being said, the bond market is extremely oversold right now and if we can get any sense of stability, I believe we will be able to recover much of this selloff in pretty short order. I will keep you posted if anything significant changes in the market but for right now, we are definitely on Mr. Toad’s Wild Ride (a Disneyland reference for those not familiar!) so hold on to your hats!

Please let us know if you have any questions!

- Stacey Fleece
Senior Loan Consultant
Princeton Capital
415.229.1228

Recently Princeton Capital announced that they were now offering expanded fractional TIC financing, thus enabling individuals buy and sell at their leisure. Not so in the past, since previously it was required that all owners participate in the new mortgage when others wanted to buy in our get out of the property.

Another feature is that up to 90% financing is available with no mortgage insurance with loan sizes up to $2 million. There are other features that make this program attractive to TIC owners or potential TIC buyers. You should call Eric Wood of Princeton Capital to get more information.

Stacey C. Fleece, CFA
Senior Loan Consultant
Princeton Capital
415.229.1228 (office)
415.596.6069 (mobile)
staceyfleece@princetoncap.com

Dennis Kowalski
(415) 229-1241 (office)

Stay tuned for more information on Tenancies in Common (TIC). Tomorrow we post TIC Frequently Asked Questions.

- Mick Orton

A reader asks: As a first time buyer, how much information and what type of questions will a real estate agent ask me in regards to my finances?

Our reply: A good agent can help you structure the best transaction for you if they understand how much down payment you have to work with and what payments you can afford. They will work with a loan broker to get you the best loan for your needs. For this reason, they need to know how much money you have for a down payment, if you are borrowing money from a relative or getting a gift from a relative and what your monthly income is and what payment you have to meet each month. It is also helpful to know if you expect a large bonus or raise in your job.

If you are getting a gift from a relative there is paperwork the lender must have from the relative that they gift is not to be repaid. It is very important to get this information before making an offer.

I once had a situation where a buyer told me his parents were going to give him the down payment. We went out looking for property and found a condo he loved. We made an offer with a loan contingency, but when he went to his parents they refused to give him the money. We cancelled the transaction but the sellers refused to refund his deposit (even though he had a loan contingency), and he had to hire an attorney to get his deposit refunded. In the end it cost him seveal thousand dollars because he did not have his financing in order before making the offer.

- Janis Stone

Senior Loan Consultant for Princeton Capital at 1699 Van Ness Avenue, San Francisco, CA 94109, housed in the same building as SFResidence and TRI Coldwell Banker.

Hi Everyone!
The 26 Criteria for Quoting Rates:

There are 26 unique criteria that goes into determining what rate someone is able to secure for a particular loan…and, yes, we need to analyze and understand all of them in order to provide intelligent and accurate financial counseling.

Please feel free to pass this information on to your clients and, as always, if Dennis or I can ever be of service, do not hesitate to call! Remember…anyone can quote anything over the phone…the question becomes one of integrity, knowledge and ability to deliver!

• Loan Size
• Loan to Value
• Combined Loan to Value
• Credit Score
• Credit History
• Escrows
• Closing Date
• Loan Type
• Property Type
• Occupancy Type
• Residency
• Available Assets
• Asset Seasoning
• Co-borrowers
• Debt Ratio
• Housing Ratio
• Purchase or Refi
• Employment Type
• Employment History
• Documentation
• Income Recognition
• Re-cast Option
• Relocation
• Seller Contributions
• Gifts
• Cash-out

Stacey C. Fleece, CFA
Senior Loan Consultant
Princeton Capital
415.229.1228 (office)
415.596.6069 (mobile)
staceyfleece@princetoncap.com

Eric Wood is a Senior Loan Consultant for Princeton Capital at 1699 Van Ness Avenue, San Francisco, CA 94109.

Ah…the glory days of home buying! Remember back in 2003 when you bought that $800,000 condo, put 5% down and got a 5-year interest only ARM at 4.875% with no points? Sure…the rate on your equity line 2nd lien has gone up a lot over the past four years but your 1st lien is locked for five years…what a steal!

Fast forward to 2007…less than one year left on that ARM and when you hit your adjustable period, the rate would change to LIBOR plus a margin of 2.5%. Based on today’s market, that equates to a whopping 8.75%! But don’t panic – now is the time to consider refinancing out of that ARM into a new ARM or even a 30-year fixed before rates start moving higher. There is still time to get a low rate and the impact to your monthly payment will be significantly less than if you continue to hold your mortgage in the adjustable period.

Let’s look at a real world example on that $800,000 condo you bought in 2003…

Let’s assume your current mortgages breakdown as follows:
That is a 59.5% increase over the current mortgage payments. Yikes! What can we do about this now to prevent such a large jump in payment? Plenty…
Now let’s evaluate current payments versus payment on a new lien. Yes, the rate on the 1st lien will increase. Get with reality…5-year ARM’s are just no longer in the 4.875% range. However, since we are able to roll the liens together into one, the rate on the $120,000 2nd will be much lower on a refinance. If you were to refinance the above loan scenario today, here’s how it could look:

1st lien – $760,000, 5-year ARM interest only @ 5.875% – payment $3,720.83
NO SECOND LIEN
TOTAL MONTHLY MORTGAGE $3,720.83

The monthly increase is only $245 higher than your current financing…and it is over $1,800 LOWER than what your future holds in monthly payments based on your pending adjustable loan…you could even refinance to a 30-year fixed, still save loads off your adjustable payment and lock in the rate for the life of the loan!

Do yourself a favor and start looking into refinancing that mortgage now while rates are still low. There are no guarantees on where rates might be 10 months down the road and you know what they say…a bird in the hand…!