Sacramento mortgage rates shot up to 6.24% this week from 5.5% during the week of January 24th, according to Freddie Mac’s weekly rate survey. Most people are still under the impression that the Fed adjusts mortgage rates or that mortgage rates move in lock step with Fed cuts. In recent weeks, Sacramento mortgage rates have done exactly the opposite. The market is a bit better this morning on news of flat consumer spending and lower consumer sentiment.

Nehemiah Gets The Cold Shoulder

I wrote about combining FHA + Nehemiah: a Path to 103% Financing a few weeks ago. It’s one of only a couple ways left to structure 100% financing. Several title insurance companies and at least one wholesale bank announced this week that they will disassociate themselves from deals where the Nehemiah program is being used. Nehemiah has survived numerous challenges in its non-profit status over the years, and it has another court test approaching. Are these companies are putting some distance between themselves and what will be hind-sighted as yet another contributor to the meltdown?

New Conforming Loan Limits

As the deadline approaches for HUD’s assessment of median prices, hopes fade for any meaningful increase in Sacramento conforming loan limits. According to my sources, Sacramento will be designated as a “high cost” area, but with median prices somewhere in the low $300k range, the formula may yield only a small increase, if any. Higher limits could unlock S.F. Bay Area markets and send more relocations our way to absorb inventory in the upper prices range.

Okay, time to get back on track. I am still recovering from the hacking that took down Lending Clarity and many other Tomato blogs. More than that, Ive just been extremely busy pre-qualifying home buyers. Prices in many areas of the Sacramento real estate market have bounced off a hard floor and pent-up demand has buyers fighting it out once again over well-priced properties, often bidding prices up in the process.

Meanwhile, mortgage rates have been locked in a narrow range since the beginning of the year. Freddie Macs Complication of Weekly Survey releases for 2008 shows this well. For most of this year, rates have stayed within a whisper of 6%. The weekly average belies the incredible daily volatility we have experienced.

The Treasury Bubble

With corporate earnings reporting the past couple of weeks, things looked bad. Its just that they werent as bad as everyone expected, so that made them look good, well, in a relative sort of way. And despite a plunge in consumer confidence to the lowest level in 26 years, the last round of corporate write-downs have caused a lot of economists and Wall Street pundits to wonder whether the worst is over.

If it is, and if the investors who fled to the safety of bonds, especially Treasuries, sell off suddenly, expect interest rates to rise. Expectations for another 50 basis point Fed cut next week have already evaporated, and even hopes for 25 basis points are fading. With renewed inflation concerns on the table, higher mortgage rates could be just around the corner. That would not be a big help right now as we struggle back to our feet.

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Real estate buying activity in Sacramento is highly concentrated in the foreclosure sector. Makes sense. Buyers want the best deal they can get, and bank-owned properties appear to offer the best chance for that. But financing those REOs isn’t always easy, especially as shrinking bank liquidity pulls the lending noose tighter.

The Problem with “As Is” Sales

Many bank owned properties have been abused or poorly maintained. The banks who now own them would prefer to sell “as is” to avoid throwing good money after bad. But you can bet those same banks wouldn’t finance those homes now if asked. Prices are even lower if the bank hasn’t had to spend money on fix-up, but securing a loan on a roughed-up property is a growing challenge

Traditionally, lenders are concerned with two categories of repairs: habitability and health & safety issues. Conditions that impair habitability include kitchens lacking appliances or cabinets, non-functional sink or toilet fixtures, damaged or removed flooring, or a leaky roof. Health & safety issues are self explanatory but can include even minor items like missing electrical outlet covers. Banks have always required that these items be repaired prior to close. But it’s getting tougher as banks balance sheets dry up, leaving them extremely vulnerable if they originate a loan that cannot be sold off immediately in the secondary market.

A Few Possible Solutions

Here are a few ways to deal with this challenge.

This certainly is a confusing time for borrowers. The Fed keeps cutting short-term rates, the falling Prime rate has brought down rates on home equity lines, and desperate lenders continue to advertise loans that don’t exist. Add several price changes each day and a dash of well-earned industry distrust, and it’s no wonder consumers are skeptical. It just seems like 30 yr mortgage rates ought to be lower than they are.

There are some simple reasons for this, none of which you’ll find in within easy access. But if you dig a little, the simple truth emerges. The debt markets are in a state of panic. Investors who created liquidity by buying mortgage backed securities–the Norway Sovereign Wealth Fund, the Peoples Bank of China, and PERS, among others–believed the Wall Street alchemists and their talking-dummy rating agencies who claimed that the toxic waste was potable. Now, after vomiting up $200 billion in losses and “write-downs” (keep in mind that the CDO market is about $2 trillion in size), they’re not exactly storming the punchbowl. So, the banks have to juice the rates to lure investors back. So far, it’s not working all that well.

So while the rate confusion reins, if you want to know where conforming mortgage rates are, Freddie Mac offers their Primary Mortgage Market Survey. It’s published every Thursday and shows average regional and national rates for popular loans. Depending on your qualifications–credit score, employment history, debt ratios, and reserves–your mileage may vary.

If what you’re hearing on the radio, reading in the newspaper, or being told by your neighbor about rates varies significantly from Freddie Mac’s figures, poor out the kool-aid, place your hand over your wallet, and walk calmly toward the nearest exit.

Need advice or a quote? Give me a shout.

Got an opinion or comment, leave it below. Yes, I’d love to have your thoughts, and you’d love to see your words in print, wouldn’t you?

Sorry folks. I guess server issues has taken me out of action the past few days. Tomato Blogs is working on the problem and seems to have restored the archives up through December. Hope to have it all back shortly. Don’t go away. I’ve got a week’s worth of pent up frustration and updates to share with you.

What emerged as a brief flurry of activity appears to have developed into buying trend. Sacramento prices–at least in some areas–may have finally found a bottom.

How do we know this? Although the activity seems highly concentrated in the bank-owned property arena, it has become common for buyers to have competition. Investors and first time buyers are competing for properties at the bottom, often driving up prices beyond that asked by the bank/owner. According to agents I know, there are many all-cash offers among the buyers out there.

Today’s jobs report continued the 3-month trend of losses. In a rather ominous sign, the service sector– responsible for 80% of the economy’s job growth–failed to produce any increase. To make things more dreary, January and February’s losses were revised lower still by a combined 68,000 jobs, for a total of 232,000 jobs lost year to date. Unemployment edged up to 5.1% to no one’s surprise, but on the on the heels of further banking losses and home foreclosures, expectations rose slightly for a 50 basis point Fed cut on the 29th.

Yesterday, Freddie Mac reported a weekly average 30 year fixed rate of 5.88% with one-half point, although we’re getting a bit more improvement today. Inflation worries have been sidelined this week by further concerns about the economy. The debate still wages between those who think the economy can weather the financial and housing crisis and those who think we will have a full blown recession before it gets better.

Sacramento Real Estate Heats Up

In an odd sort of paradox, the Sacramento housing market has heated up. Although activity is highly concentrated around bank-owned properties, multiple offers and competitive bidding has replaced the near absence of buyer traffic. I have several all-cash buyer clients who have had offered on numerous properties only to be outbid buy investors and first time buyers. While lending guidelines tighten and change every day, the trophies will go to those who are still well enough qualified to snake through the lending gauntlet.

Prices are still in decline according to my appraisers, but they have obviously reached a threshold of affordability, and buyers are coming out to check out the merchandise.

I hope you occasionally read Bill Gross’s Investment Outlook. On the occasion of his birthday, he writes When I’m Sixty-Four.

Unlike all the excessively formal sounding pundits who wax unintelligibly about the financial markets (yes, I’m reading the Age of Turbulance right now), Mr. Gross is always delightfully down to earth and understandable, despite dishing up a heaping plateful of insight and common sense.

Do check it out if you’re looking for clarity about the current banking crisis. I think you’ll enjoy it.

I’ve been doing Reverse Mortgages for the past couple of years now, though not in huge quantities, and I’ve learned some interesting things. My first revelation was that the generation for whom these were intended–the pre baby boom, post depression era, 62 and older crowd–find reverse mortgages about as appealing as a bankruptcy. It takes an extreme hardship to get them to even consider the idea.

After thinking about it, I get that. In order to gain the high ground of owning a home with no debt, those people worked all their lives and sacrificed in ways my generation can’t even imagine in our self-indulgent, buy-it-now-pay-for-it-later world. To these diligent folks, taking out a mortgage once they finally own their home is tantamount to slamming the car into reverse and flooring the gas. Nothing good can come of it.

It’s Usually the Kids

I mean that it’s usually the children who introduce the idea of a Reverse Mortgage. It’s pretty common to find an elderly person living on beans and pursuing their life long practice of self-sacrifice just to preserve the equity in their home for…..yes, the children. What kind of sense does that make?

Often, the children are first to have the epiphany. Those who are successful in their own right often prefer to see the parents lighten up and live a little. For others, it can be a matter of cash flow and trade-offs. “Why should we stop our 401(k) contributions to help mom or dad now just so they can leave us more later?” Good question.

Options and Flexibility

For many, the issue is liquidity. I have a client whose entire family nest egg–three generations worth– is tied up in her home. But she is getting on in years and dealing with the usual health issues. If she experiences a sudden decline in health or a medical emergency, tapping the home equity may not be possible. The only choice then will be to sell in an unfavorable market.

A reverse mortgage became the basis for that family’s financial plan where virtually no plan had existed before. A combination of immediate cash plus a line of credit–yes you can combine these–created the options and flexibility they will need when the day finally arrives.

Do you know someone who needs a reverse mortgage and doesn’t know it? Give me a call. I can help.