Increased Mortgage Loan Limits December, 2003 By Jim Woodard Many home buyers and sellers will benefit from Fannie Mae's and Freddie Mac's recent announcements that each will increase their single-family mortgage loan limit from $322,700 to $333,700 in 2004. But real estate leaders in exceptionally high priced markets say it doesn’t go nearly high enough. Here’s an example: “While this is good news for many homebuyers, Fannie Mae's and Freddie Mac's new loan limits do not go far enough to improve homeownership opportunities in California,” said the president of the California Association of Realtors. “Conforming loan limits need to more accurately reflect the cost of housing in California, where the median price of a home is more than double that of the nation.” The current median home price in California is $381,200, an increase of 17 percent compared to a year ago and more than 14 percent higher than the national conforming loan limit of $333,700. * * * ARMs reviving Adjustable-rate mortgages (ARMs) appear to be experiencing a mini-revival in popularity with borrowers. The proportion of ARM loans in the total volume of mortgage applications has been increasing. “The ARM share has risen to its highest level in over 3.5 years,” said Jay Brinkmann, MBA’s vice president of research. At this writing, the ARM proportion of mortgage activity increased to 27.5 percent of total applications – almost a full percentage point increase from just the previous week. The attraction of an ARM mortgage is, of course, the substantially lower interest rate than available with a fixed-rate loan. And with most experts predicting the low mortgage interest rates continuing in the foreseeable future, an increasing number of consumers are taking advantage of the lower ARM rates. A one-year ARM loan can carry a rate up to two percentage points less than a 30-year fixed-rate mortgage. Many borrowers, however, want the peace of mind in knowing their mortgage interest rate will not periodically jump upward, raising their monthly payments. They opt for a 15-year or 30-year fixed-rate mortgage. * * * Homeowner’s insurance to be more accessible Finally, homeowner’s insurance coverage may become more available next year, thanks to Policyholders of America (POA), a consumer group. This organization will start selling homeowners policies in the later months of next year, it was announced. It’s part of POA’s continuing attempt to provide consumer-friendly products. Unlike conventional insurers, POA will not use credit scores or report claims to the Comprehensive Loss and Underwriting Exchange database, according to Melinda Ballard, POA president. However, the group will require policyholders to have their roofs and homes inspected annually, and require leak detection systems for those seeking water damage coverage. It will decline to insure synthetic stucco homes, or any structures built by builders they feel are problem-prone. * * * Home value appreciation trends There are many markets throughout the country that are growing significantly in population and in home values. In a recent study, 74 markets were identified where residential real estate values are appreciating at 10 percent or more per year. The study was by Runzheimer International, a real estate and relocation consulting group. The study analyzed home market values for a 2,200-square-foot residence in a suburban community. In an average-cost location, home values increased 4 percent per year over the past four years. “A 3 to 6 percent appreciation rate is typical for the majority of home markets across the United States,” said the manager of research for Runzheimer. “This is the case in most markets, but in a few suburban communities home values are increasing at a rate of more than 12 percent per year.” * * * Mortgage borrower profile With mortgage interest rates remaining at near-record lows, and home values rising at a record pace in many markets, the profile of today’s mortgage borrower is changing in some markets. A huge increase in equity has been accumulated by homeowners in a short time period – equity that could be tapped to consolidate outstanding debt or generate cash for college tuitions, investments or other monetary needs. And with interest rates at such low levels, many homeowners are concluding this is the time for such action. The focus for many refinance mortgage applicants is shifting from reducing monthly payments on their home mortgage to using the growing equity to generate funds for other financial needs. Some homeowners have determined this is a strategic time to refinance their mortgage, combining their existing first and second mortgages into one new low-interest mortgage, thus saving money each month on payments. Others have concluded their personal financial needs would be best served with a new second mortgage as a means of generating funds. “Many borrowers are applying for a new cash-out refinance mortgage, where the balance of the new loan is greater than the previous mortgage,” said Michael Levy, president-CEO of Home Savings Mortgage, a major 15-office mortgage banking firm based in Oxnard, Calif. “This produces cash that the family can use for any purpose they desire.” Typically, lenders will loan up to 75 to 80 percent of the home’s current market value. A higher loan-to-value ratio loan can usually be arranged if private mortgage insurance (PMI) coverage is included. There are, of course, closing costs to consider – appraisal, credit checks, title insurance, etc. But in some cases there are ways to minimize these costs. For example, if it wasn’t too long ago that the title was researched for a previous title policy, a simple low-cost update of the policy might be possible. * * * Incompetent appraisers Incompetent appraisers are the targets of a recently launched system implemented by the Department of Housing and Urban Development (HUD). The new Appraiser Watch system allows the Federal Housing Administration (FHA) to identify appraisers linked to a significant number of defaulted mortgages or involved in appraisals of rehabilitation and multifamily loans, and other industry segments with traditionally high default rates. The objective of the system is to safeguard homebuyers against the few predatory lenders that strip them of equity, boost their debt loads, and push them into default or foreclosure. ”Appraiser Watch is another tool that we’re using to help more families own their homes by obtaining mortgages they can afford,” said HUD Secretary Mel Martinez. The system originally was supposed to pinpoint unscrupulous appraisers then automatically sanction them and possibly remove them from the business. | 
