The Carlisle Mosquito Online

Friday, May 2, 2008


Buying, selling or refinancing a home? A local expert offers advice

In February President Bush signed into law the Economic Stimulus Package in an effort to revive our battered economy. The legislation is about more than just rebate checks; it can also have a positive impact on current and future homeowners.

Carlisle homeowners have many questions about the current mortgage situation, and with my long experience in the mortgage industry, I can help to answer them.

What impact does the Stimulus Package have on homeowners?

The Economic Stimulus Act of 2008 is a $168 billion plan intended to jumpstart the sliding U.S. economy. The new bill is designed to help certain “high-cost regions” of the struggling housing market by temporarily increasing the conforming loan limit from $417,000 to as high as $529,000 in specified areas; and temporarily increasing the size of loans the Federal Housing Administration (FHA) can insure from $362,000 to as high as $729,750 in specified areas.”

How is a high-cost region determined and does Carlisle qualify as one?

A high-cost region is typically determined by the median value of its homes. The median value is the specific price that is halfway between the least expensive and most expensive home sold in an area over a given period of time. Not to be confused with the average home price, the median home price is the price at which half of all buyers bought more expensive homes and half of all buyers bought less expensive homes. If that sounds confusing, don’t worry. It is the responsibility of the Department of Housing and Urban Development (HUD) to determine and publish what the median home price is for regions across the country. I can easily access and interpret these figures for local residents, and help them calculate the new conforming and/or FHA loan limits within minutes.

What do these new provisions mean for Carlisle homeowners?

For those looking to purchase or refinance real estate in a high-cost region, this program is great news. These temporary increases could help consumers avoid the higher interest rates associated with non-conforming or jumbo loans – which are currently more than a point higher than rates on conforming loans. This means more consumers will be able to take advantage of great real estate deals and get more home for less money. In fact, many homes that some borrowers could not afford just a few years ago could now be within reach, thanks to this temporary government program.

The Stimulus Package is also very good news for homeowners looking to refinance out of their expensive jumbo loan and into a new conforming loan. While the legislation limits new mortgage contracts to 2008, it does not exclude the refinancing of any past mortgages. This means that, if borrowers qualify, they can take advantage of the new conforming loan limits no matter how many years have passed since they obtained their mortgage – as long as they get it done before the end of 2008.

What is the subprime mortgage crisis all about and does it affect Carlisle?

The negative effects of the subprime mortgage crisis can be felt in Carlisle. Subprime mortgages written over the past three years have now been credited for bankrupting well over 110 lenders and seriously damaging operations at many major mortgage firms nationwide. They have reportedly wiped out five hedge funds, tens of thousands of jobs, and have led to millions of foreclosures with millions more on the way. As if that weren’t enough, subprime mortgages are also blamed for massive volatility in the stock, bond, credit, futures and real estate markets here in the U.S. and around the globe. Some say losses in the mortgage securities market alone could reach hundreds of billions of dollars this year.

This means that Americans looking to buy, sell or refinance a home in Carlisle or elsewhere are confronting a very different market from the one that existed just six to twelve months ago.

How did this happen?

The recent real estate boom was fueled by a period of record home appreciation and historically low interest rates. Banks, in order to compete, loosened guidelines and began offering more funding to more borrowers through riskier, non-conforming or exotic mortgages.

These ideal lending conditions persisted for several years, supported by high demand, historical real estate data, home prices, and massive trading volume/profits on mortgage-backed securities and other financial instruments on Wall Street.

Then in 2006, a slowdown in real estate led to a deterioration of home values, an increase in inventories and ultimately to today’s tightening of credit guidelines, leaving many investors unable to sell or refinance out of their existing positions. Many Americans who had tapped into their equity were suddenly tapped-out and overextended as home values fell. Foreclosures followed in record numbers and a revaluation of mortgage bonds and other financial instruments created the credit/liquidity domino effect we are now experiencing.

Unfortunately, it’s going to get a lot worse before it gets better. According to the latest estimates, over two million subprime and Alt-A adjustable rate mortgage (ARM) holders will face payment increases of up to 30% to100% when their loans reset in the next two to 18 months. These loans make up less than 40% of the total mortgage market, but the negative effects, as we have seen, of increased foreclosure activity can have a ripple effect throughout the industry and around the globe.
What should we know if we’re planning on selling our home?

If you’re planning on selling your home, be prepared for an even smaller pool of qualified buyers. While some experts predict a settling of this credit crisis over the coming year, tightened credit guidelines and diminishing mortgage products could knock out as many as 15% to 30% of potential qualified buyers. Now is not the time to sit and wait for the best possible price. Have a serious talk with your real estate agent. Having experienced buying/selling transactions in your area, he or she can help you price your home accordingly and can also help ensure that your buyers are pre-approved and stay pre-approved throughout the entire transaction.

What advice do you have for people seeking to buy in Carlisle?

Get pre-approved by your mortgage professional. While there are a lot of great deals out there, getting credit is becoming tougher and tougher, and it’s taking longer and longer to complete a transaction. Remember, what you qualify for today could change tomorrow in a volatile market. For those looking to refinance, there is no time to delay! Communicate with your lender. Don’t do anything that could negatively affect your credit, and make sure you get all your documentation in on time.

What advice do you have for people seeking to refinance an adjustable rate mortgage?

If your ARM is scheduled to reset in the next two to 18 months, you need to schedule an appointment with a mortgage professional right away. Whether your ARM is subprime, Alt-A, or even if you have a pre-payment penalty, don’t let a default or foreclosure situation sneak up on you. Did you know that your monthly payments can increase anywhere from 30% to 100% once your loan resets? At the very least, give yourself the peace of mind of knowing what your adjusted payment will be.

Finally, there’s an important concept to embrace: all markets, while cyclical in nature, are self-correcting, be it credit, real estate, stocks, or bonds. For the last six or seven years, real estate was booming and riding high. The correction we’re experiencing now – while it seems harsh and could get much worse – is, in a sense, “natural” and directly related to the extremely loose guidelines and perhaps overzealous lending and leveraging during the boom cycle.

Laura Mullins Chelton is president of Wayside Mortgage Company, located in Carlisle Center. ∆

© 2008 The Carlisle Mosquito