What the Lower Interest Rates SHOULD do

Unless you have been avoiding the media entirely (which is often not a bad idea), you probably have heard that this week Congress will send to the President for his approval an economic stimulus package. I have no interest in analyzing what this may or may not do except for one aspect-the provisions that will likely lower interest rates for many of my clients. It seems hard to believe that less than a year ago The Fed was worried about inflation and raising the cost of money. In retrospect it seems like it was not the right decision-with higher rates, lenders unwilling to lend for new purchases, rising foreclosures all combining for the worst 6 months in Real Estate (or retail, automotive etc) that many can remember-ever.

This Stimulus Package is an aggressive attempt to stem the negative tide on many levels. Lets focus though on what it can do for you. First, if you have a loan between 417,000 (the current “break even” point for jumbo loans) and 729,950 you will now be able to REFINANCE into a low interest “conforming” loan. Today, for example, you can get a conforming interest rate of under 5.5% with jumbo loans closer to 7%. The goal of course is to help CURRENT homeowners lower the cost of their monthly payment allowing them to stay in their homes (reducing the number of foreclosures) and have extra money each month to spend on consumer items. This is a huge and necessary step but it will only be available for ONE YEAR. If your loan is currently between 417,000 and 729,000 and is over 5.5% then I can direct you to a special 800 number that I have just set up (800-680-8053 xt320) that will update you weekly on rates, changes in lending guidelines and other important facts to take advantage in the next year of this oppurtunity. Secondly, the increase in conforming loan limits is designed to spur home purchases so that buyers can buy more home for less money. This helps areas of higher prices like Santa Clarita where the median price is about $600,000. There is though a big HOWEVER to all of this.

What agents like myself are painfully aware of is how CONSERVATIVE the lenders are now in virtually every aspect of the lending process. First, unless your credit is pristine, it may be difficult to buy or refinance at these new lower rates. Second, because of the soft market, all of LA County is considered declining and as such, the appraisers are asked to basically take current market value and adjust down 5% for the “expected future value”. If you are buying this isn’t too big an issue. If you are trying to refinance however, you may not have the required LTV (loan to value) to refinance-the bank may say you don’t have enough equity to qualify, especially if you are in an area where prices are dropping more than others (See last months blog for those areas). So, if you are starting to get the idea that what should be welcome and easy (refinancing at lower rates because the conforming loan limits went up), may in fact be something the lenders aren’t too excited about-your right.

I was privvy this week to an inter office memo from one such large Mortgage Compnay and it all but said how tough they were going to make the process. As such, I will do everything I can to keep you informed, to help you strategize and ultimately to maximize these important changes to your benefit