SF Mortgage Spot

I read Ben Bernanke's most recent speech to the Economic Club of New York with great interest.

He offered three reasons that banks are being so Scroogelike with their money.  I offer these explanation not to excuse the banks, but to encourge you, dear borrower, to not take it personally when it seems your bank wants to do anything BUT lend you money!

1.   Some banks are keeping more liquid assets on their books, at the request of regulators.  That reduces cash available to lend.  Analogy:  while you'd love to lend your nephew part of his college tuition, you decide it's smarter to have a bigger cash cushion in these difficult times.

2.  Banks have already sustained large losses, and don't know what future regulations will be enacted; they don't want to take on additional risks until there is more certainty.  Analogy:  you lent your college roommate money to buy her wedding dress but she never paid you back.   So the next time a friend in need calls, you are not exactly in the mood to be  so trusting again.   

3.  Lenders are still having trouble finding a secondary market to securitize the loans already on their books.  Translation:  it's harder for banks to find fresh money to lend out.  (Bailout money is supposed to help, but that's different than creating a secondary market, which will be durable and predictable, which bailout money is not!)

To sum up, banks recklessly lent out money that never got paid back, there have been repercussions, and now they are afraid to make foolish mistakes again and lose even more money.  No wonder they are so grouchy!

Does that make you feel any better?

As I have mentioned before, FHA loan limits are higher for multi-unit buildings.  These can either be purchased as tenants in common, or to live in one unit and rent out the others.  Here is a story from today's New York Times that shows how this can be done successfully in San Francisco, with a minimal down payment:  only 3.5% down!

Please note that our firm is featured rather prominently in this article.  Kudos to us!

http://www.nytimes.com/2009/11/20/business/20limits.html?pagewanted=2&_r=1&emc=eta1

Just a reminder:  as you know, the Fannie Mae loan limit of $729,750 on a single family residence,  has been extended through December, 2010.   Beyond that, the limts on 2 to 4 units have also been extended as follows:

2 units:  $934,200

3 units:  $1,129,250

4 units:  $1,403,400

These limits apply both to Fannie Mae and Freddie Mac conventional loans as well as FHA-insured government loans.

You may be hoping that today's low 30 year fixed rates will reduce your monthly payments on your TIC unit with a simple refinance.   Yes, it would be great to convert to a more predictable 30 year fixed rate loan while you wait another year for a more favorable lottery.  

But don't get too excited.  Some owners will benefit by the change, but most won't, not unless they purchased their unit long ago or with a sizeable down payment.  

Under the extended guidelines, the maximum loan to value on a 2 unit building is 80%, but on a 3 to 4 unit building, it's only 75%.  Translation:  if you purchased your TIC interest within the past tive years with 10% down, it's unlikely your loan to value is now low enough to take advantage of a 30 year fixed rate loan.   Secondly, if you obtained an interest ony loan, even if you have the equity (a low enough loan-to-value ratio), you probably won't like the payment jump from the interest only payment to the fully amortized payment. 

Feel free to contact me if you'd like me to run a scenarios for you to see if refinancing will make sense under the extended loan limits.