Hotels, Start-ups, and More to 85-90% LTV?

That’s right, our new SBA 504 Program will allow these tougher deals to get done with very little money down.  The SBA 504 program is a government based lending program that allows businesses to purchase Real Estate for their own business use with as little as 10% down.  The doctor buying a building to house his practice, the restaurant owner seeking to buy a second location for his concept, and other such examples are the types of transactions you see on this program.   On these transactions, the lender loans 50% of the purchase price, the SBA brings a second for 40% and the client comes in with 10%.

Getting the second mortgage approved from the SBA is the easy part.  The hard part is getting the approval from the lender for the first mortgage. They still underwrite very conservatively even though they are at 50% LTV.  So hotels, start-ups and other type deals still have trouble getting funding.  BUT NO MORE!  We have negotiated an agreement with a consortium of banks to APPROVE ANY FIRST MORTGAGE AS LONG AS THE SBA SECOND MORTGAGE HAS BEEN APPROVED.

That’s right, we will take the SBA’s second mortgage approval and underwrite and approve the first on the same terms-no questions asked.  This is HUGE.

This opens the door for those transactions that have floundered in the pipeline.  Hotels, gas stations, restaurants, day cares and more can all be done on this new program. If the SBA has approved the second, we will approve the first.  It does not get much easier than that.  For more information, or  if you know of anyone struggling to get financing,  just give me a call today at 888.650.9966 Ext.100 and I will gladly assist you in getting it done.  I can screen a deal quickly and will always shoot straight.  I look forward to helping you or your clients get the financing they need in these difficult lending times.

Michael McDevitt

P.S. Remember, those commercial Real Estate transactions that have faltered in the past can now be done on our new program with as little as 10% down!  Hotels, gas stations, restaurants, start-ups, and more can get the financing they need.  Call me today 888-650-9966 Ext. 100

Improvements in Housing Data:

CoreLogic reported that the number of American homes that are “underwater” fell last quarter.  A home is considered “underwater” when the owner owes more on their mortgage(s) than the home’s present value.  The data fell from 24% in the first quarter to 23% in the second quarter.  While this is not a huge decrease – given the high unemployment levels, any improvement is welcomed.

What Happened to Rates Last Week:

Mortgage backed securities (MBS) gained +22 basis points last week causing 30 year fixed rates to decrease.  MBS reached a new all-time best pricing level on Thursday.  After we reached those great levels, we pulled back -53 basis points by Friday. The gains in mortgage backed securities (the only thing 30 year conventional mortgage rates are based on) were primarily the result of continued concerns about a very fragile economy and the perception of an increased probability of a “double-dip” recession. Our huge pull back on Friday (which caused mortgage rates to increase) was due to the release of the revised 2nd QTR GDP numbers.  It was revised from 2.4% growth down to only 1.6% growth but the markets expected an even bigger downward correction.  Since the data was better than market expectations, MBS sold off causing us to lose the lowest rates we have ever seen.

Weak Data Supports Lower Rates

Generally weaker than expected economic data again pushed mortgage rates to new lows this week. In a highly anticipated speech Friday morning, Fed Chief Bernanke confirmed that economic growth has fallen below the expected levels in recent months. He also suggested that the Fed is unlikely to take further stimulus action unless the economy deteriorates significantly. The current Fed outlook is for below average economic growth with low inflation, which is a favorable environment for low mortgage rates.

The impact of the homebuyer tax credit was seen in the weak housing market data released this week. July Existing Home Sales dropped 27% from June to an annual rate of 3.83 million units, the lowest level since May 1995. July New Home Sales showed a decline of 12% from June to the lowest level ever recorded. These figures sound terrible, but they really just demonstrate the effect of the homebuyer tax credit on the timing of purchases. The National Association of Realtors (NAR) still expects total existing home sales this year to be roughly the same level as last year.

Since the financial crisis, the Federal Housing Association (FHA) has grown rapidly and is now backing nearly half of all new home-purchase loans. To boost reserves and reduce risk to taxpayers, the FHA will raise the annual fee it charges to new borrowers. In particular, for case numbers ordered October 4 or later, it will raise annual insurance premiums (MIP) to 0.85% or 0.90%, based on LTV, up from 0.55%.

Week Ahead

The biggest economic event next week will be the important Employment report on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Early estimates are for a decrease of about 120K jobs in August. Before the employment data, Personal Income will be released on Monday. The Chicago PMI will be released on Tuesday, along with the minutes from the August 10 Fed meeting. ISM Manufacturing will come out on Wednesday. Pending Home Sales, a leading indicator for the housing market, is scheduled for Thursday. ISM Services, Productivity, Construction Spending, Consumer Confidence and Factory Orders will round out the busy schedule.

New Home Owners In The Waiting:

A new survey by Trulia.com found that 72% of all renters wish to eventually own their own home.

Of those that want to own their own home, one third are ready to buy now and two thirds say that they will wait two years or more.  One-third is a very sizable number and combined with consistently low mortgage rates at or near their historic lows, the stage is set for entry-level home sales to continue to surge.  As the entry-level market continues to improve, that provides demand for those that are moving up to the next price level.  While renters are eager to own, they are concerned about the unemployment picture, the economy, and down payment options.

What Happened to Rates Last Week:

Mortgage backed securities (MBS) lost -19 basis points last week causing 30 year fixed rates to rist.  MBS neared their best all-time pricing levels on Thursday.  After we reached those great levels, we pulled back -47 basis points by Friday. The gains in mortgage backed securities (the only thing 30 year conventional mortgage rates are based on) were primarily the result of very weak Initial Jobless Claims and Philadelphia Fed Manufacturing data.  We pulled back from our best pricing on Friday due mainly for profit taking as no one wanted to hold MBS at their highs.

High End Home Sales Surge:

A significant decline in jumbo mortgage rates (loans above $417,000) are helping to move some of the highest-end inventory.  Sales volumes of homes worth more than $1 million across the country are up more than 35% from this time last year according to the National Association of Realtors. They also stated that homes between $700,000 and a million were up 29% from last year.

There is no question that high unemployment and concern about the economy is pressuring the housing market at all price points, but it is clear that the ultra-low mortgage rates are having a dramatic impact on the highest end of the price spectrum.

Conventional lenders (Fannie Mae and Freddie Mac) do not make jumbo loans.  Those loans usually are held by banks.  These banks are becoming more comfortable making higher end loans these days and are looking to take advantage of a premium that they just can’t earn with a conventional mortgage where their margins are simply too thin.

What Happened to Rates Last Week:

Mortgage backed securities (MBS) lost -3 basis points last week but reached their best all-time pricing levels on Tuesday.  After we reached those great levels, we pulled back -31 basis points by Friday. The gains in mortgage backed securities (the only thing 30 year conventional mortgage rates are based on) were primarily the result of the Federal Open Market Committee (aka “The Fed”) rate decision and policy statement on Tuesday afternoon.  While they did leave their rates alone, their downwardly revised economic outlook and decision to reinvest their profits from maturing mortgage backed securities into Treasuries drove down rates.

Underwater Mortgages Decline:

An “underwater mortgage” is when a homeowner owes more on their current mortgage(s) than what the home is currently worth and obviously is a big concern for the housing market.

According to Zillow.com, the rate of underwater mortgages fell last quarter.  The percentage of single-family homes with negative equity fell to 21.5 percent in the second quarter. Many see this as an indicator that default and foreclosure rates could slow from current levels and is reflective of some stability in home values and stronger demand for housing with all-time low mortgage rates still driving up demand.

What Happened to Rates Last Week:

Mortgage backed securities (MBS) gained +50 basis points last week which caused 30 year fixed rates to decrease for both government and conventional loans.  The gains in mortgage backed securities (the only thing 30 year conventional mortgage rates are based on) were the result of a weaker than expected Unemployment report.  The Unemployment Rate remained unchanged at 9.5% but market participants were very disappointed with the growth levels of the Non-Farm Payrolls in the private sector.

Home Prices Increase Again:

Single-family home prices rose more than expected in May according to the new release of the Standard and Poor’s/Case Chiller home price index.

The 20-city composite price index rose 0.5% in May and April was upwardly revised to an increase of 0.6%.  Economists had been expecting a smaller gain in the range of 0.2%.  While these monthly increases appear small, they do indicate a trend towards housing stability after the bottom in 2009.  The index showed a 4.5% increase on a year-over-year basis and it is the 14th straight month of improvement in this report.

What Happened to Rates Last Week?

Mortgage backed securities (MBS) gained +66 basis points last week which caused 30 year fixed rates to decrease for both government and conventional loans.  The gains in mortgage backed securities (the only thing 30 year conventional mortgage rates are based on) were the result of concerns about the stability of our economic recovery.  While we had a week of stronger than expected housing data across the board, the market reacted to a lower than expected economic growth rate (GDP) and deflationary concerns.