FHFA Announces Conforming Loan Limits for 2021

The Federal Housing Finance Agency announced a new baseline conforming loan limit for Fannie Mae and Freddie Mac in 2021: $548,250.

The Federal Housing Finance Agency (FHFA) today announced the maximum conforming loan limits for mortgages to be acquired by Fannie Mae and Freddie Mac in 2021.  In most of the U.S., the 2021 maximum conforming loan limit (CLL) for one-unit properties will be $548,250, an increase from $510,400 in 2020. 

  • $548,250 for 1-unit properties
  • $702,000 for 2-unit properties
  • $848,500 for 3-unit properties
  • $1,054,500 for 4-unit properties

Baseline limit
The Housing and Economic Recovery Act (HERA) requires that the baseline CLL be adjusted each year for Fannie Mae and Freddie Mac to reflect the change in the average U.S. home price.  Earlier today, FHFA published its third quarter 2020 FHFA House Price Index® (FHFA HPI®) report, which includes estimates for the increase in the average U.S. home value over the last four quarters.  According to the seasonally adjusted, expanded-data FHFA HPI, house prices increased 7.42 percent, on average, between the third quarters of 2019 and 2020.  Therefore, the baseline maximum CLL it in 2021 will increase by the same percentage. 

High-cost area limits
For areas in which 115 percent of the local median home value exceeds the baseline CLL, the maximum loan limit will be higher than the baseline loan limit.  HERA establishes the maximum loan limit in those areas as a multiple of the area median home value, while setting a “ceiling” on that limit of 150 percent of the baseline loan limit.  Median home values generally increased in high-cost areas in 2020, driving up the maximum loan limits in many areas.  The new ceiling loan limit for one-unit properties in most high-cost areas will be $822,375 — or 150 percent of $548,250. 

  • $822,375.00 for 1-unit properties
  • $1,053,000.00 for 2-unit properties
  • $1,272,750.00 for 3-unit properties
  • $1,581,750.00 for 4-unit properties

Special statutory provisions establish different loan limit calculations for Alaska, Hawaii, Guam, and the U.S. Virgin Islands.  In these areas, the baseline loan limit will be $822,375 for one-unit properties.

As a result of generally rising home values, the increase in the baseline loan limit, and the increase in the ceiling loan limit, the maximum CLL will be higher in 2021 in all but 18 counties or county equivalents in the U.S.   

Questions about the 2021 CLLs can be addressed to LoanLimitQuestions@fhfa.gov and more information is available at https://www.fhfa.gov/CLLs.

Source: https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Conforming-Loan-Limits-for-2021.aspx 

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Should You Take That Forbearance Every Homeowner Is Hearing About?

What is a Forbearance? Should you consider it? When this program was first announced by congress it was very frustrating for me to see all the misinformation that was being promoted by those who weren’t in our industry. It has also been frustrating for me to see the misinformation that is being promoted in the responses from individuals in our industry, as well.  You might say – I’m just plain frustrated.

Forbearance is not forgiveness. Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, forbearance is an option for homeowners who cannot afford to make their mortgage payments due to the economic impact of COVID-19, the disease caused by the Coronavirus. If you have lost some or all of your income, then the forbearance program with your existing mortgage servicing company might offer temporarily relief.  However, as a Mortgage Advisor and individual who lived through the 2008 Mortgage Crisis I have to warn you, it might not be the best option and in my humble opinion should be avoided at any cost, if possible.

Some of the immediate negative implications of a forbearance are:

  • Inability to refinance to better rates and terms – once you enter into a forbearance, you forgo the ability to refinance the loan on better rates and terms.
  • Issues with meeting the repayment terms – the issues that caused you to enter a forbearance may not go away so you would end up in the same position as you were before the forbearance
  • Impact on rates – the added risk to mortgage backed securities will demand a higher yield to justify that risk, and result in a lower value of loan servicing which will have to be reflected in the rates the consumers pay

There may be other risks as well, but these are those that immediately come to mind.

Under a forbearance program, mortgage servicers are not collecting up to 6 monthly payments to allow some financial relief for the time being but the public must understand, the servicers are NOT forgiving or forgetting these payments and they DO expect these payments to be paid in full as quickly as possible and repayment terms may not be any different from existing mortgage terms.

So let’s say your monthly payment is $4,000 , using a forbearance plan you don’t make payments for 6 consecutive months and then here comes the 7th month which now requires you to either request additional assistance or, if you are not eligible for further assistance, you must then repay the skipped payments and currently, there are only the following 3 options available:

Option 1
John skipped April, May, June, July, August and September for a total of $24,000.   Come October 1st John is going to be expected to make a $28,000 payment to cover the last 6 months as well as pay the October payment. It reasonably likely that someone who was unable to pay $4,000 in April would likely not be able to pay $28,000 in a matter of months. 

Option 2
The mortgage servicer will do a quick calculation and offer the homeowner the option to pay the unpaid balance due over the next 6 months.  $24,000.00 unpaid balance divided by 6 equaling $4,000.00. The new monthly payment will be $8,000.00 ($4000.00 + $4,000.00) for the next 6 months or if they make it 12 months, you are still to pay $6,000.00 a month.

Option 3
Loan Modification.  This option would require that the homeowner first quality for the program based on its guidelines and also be willing to accept the HUGELY negative impact on his/her credit, as well as possibly lowering his/her FICO score, possibly preventing him/her from future refinance options or purchasing new property for about 2 to 4 years based on current mortgage lending guidelines. Additionally, this could affect other things including lending rates on auto financing, student loans, business loans, credit card applications and essentially anything that relies on credit ratings. 

In short, forbearance affects credit. This could impact the ability to refinance or purchase a new home in the future.

Is there an alternative? Depending on what you are looking to accomplish and what your circumstances are, I will make myself available to you to discuss your options.  Feel free to call or email me directly and I will be more than glad to discuss whether refinance, debt consolidation, cash-out refi, HELOC or anything else I can offer could be an alternative option for you.

 

COVID-19, SBA Grants and Loans, Mortgage Payment Forbearance and Deferments

Last week was a profound time of change for most businesses. I wanted to share important updates with you that I have shared with my family, friends, clients and colleagues.
As you are working to find a new way of managing your business affairs, please know that I am here as a resource for you and you should feel free to reach out any time to set up a call so that I may help you in any way I can.
For those needing assistance with the SBA disaster relief programs, click http://disasterloan.sba.gov/ela to apply

Also, here is a compilation of small business resources shared by the California State Treasurer, Fiona Ma: https://bit.ly/2xntDpn
California Governor Gavin Newsom has made an irresponsible statement claiming that three of the largest banks will allow their borrowers deferrals on their current mortgage payments up to three months due to COVID-19, however this isn’t the case.
Homeowners that have not been able to work (who have proof of unemployment), have non-essential businesses or are impacted with health issues which currently have mortgages impacted by this pandemic are eligible to file for forbearance with a valid proof of hardship which will allow them not to make payments for the next three months.

However, after the three months expire, homeowners will have to make those payments, either in a lump sum or six or twelve month installments. Currently, there are no other options and while several lenders are considering traditional forbearances (which means that the missed payments will be tacked on to the end of the mortgage) this option is not currently available but what lenders are offering instead are Loan Modifications (formal processed to modify the terms of an existing loan). It is important to keep in mind that each of these options runs the risk of putting homeowners in default or foreclosure situations.

Stay Responsible.
Using this time to get a break from mortgage payments can put the Real Estate industry, Real Estate Market and our nation’s economy in a very similar crisis to 2008 due to the shortage of liquidity. Can you imagine millions of homeowners deferring their payments all at the same time? If you are blessed to currently have a job or funds to make your payment in the next month, this will help our country protect its financial well-being and preserve your economic standing.

Are you in the Real Estate or Mortgage Industry?

If you are, now is the time to educate your clients, family and friends. Shortcuts don’t exist in times like this. Each of us has a responsibility to spread facts and accurate information to help one another navigate our way through this crisis. It is our job to guide society through this crisis when it comes to their financial and economic decisions.

Let’s all do our part as professionals to not only help people get their dream homes and build Real Estate portfolios but to also keep their homes, assets and liabilities intact.

If you’re eligible for a cash payment 

Most individuals earning less than $75,000 can expect a one-time cash payment of $1,200. Married couples would each receive a check and families would get $500 per child. That means a family of four earning less than $150,000 can expect $3,400.

If you or someone you know has lost a job

States will still continue to pay unemployment to people who qualify. This bill adds $600 per week from the federal government on top of whatever base amount a worker receives from the state. That boosted payment will last for four months. 

If you’re a small business owner

The bill provides $10 billion for grants of up to $10,000 to provide emergency funds for small businesses who qualify for the Economic Injury Disaster Loan to cover immediate operating costs,

 

There is $350 billion allocated for the Small Business Administration to provide loans of up to $10 million per business. Any portion of that loan used to maintain payroll, keep workers on the books, or pay for rent, mortgage and existing debt could be forgiven, provided workers stay employed through the end of June.

If you’re a freelancer or independent contractor

Typically, self-employed people, freelancers and contractors can’t apply for unemployment. This bill creates a new, temporary Pandemic Unemployment Assistance program that provides unemployment coverage through the end of the year to freelancers and independent contractors and also provides an additional $600 per week for 4 months in addition to regular state benefits.

If you’re a property/homeowner

Borrowers of federally-backed mortgage loans can request a loan forbearance on their payments (without penalties, fees, or interest) for at least 180 days. Please contact your mortgage services and ask for specifics. 
Multi-family borrowers may request a similar forbearance for up to 30 days. In addition, foreclosures on similar mortgage loans are prohibited for at least 60 days and evictions from properties related to several federal programs are also prohibited for a 120 day period

Real Estate Definition: Essential Terms Everyone Should Know – Part 1

Real Estate Definition - Part 1

Real Estate Definition Essential Terms Everyone Should Know in order to understand the real estate process. Real estate has its own share of language and some of it is hard to understand. Learn your home buyer vocabulary before you start looking for your dream home.

Annual Percentage Rate (APR)

The annual rate charged for borrowing or earned through an investment and represents the actual yearly cost of funds over the term of a loan.

Private Mortgage Insurance (PMI)

Borrowers have to pay this when they take out a mortgage from a commercial lender and pay a down payment of 20 percent or less.

Adjustable-Rate Mortgage (ARM)

This type of mortgage allows the lender to change the interest rate at certain points during the term of the loan.

Conventional Loan

This type of mortgage is not guaranteed or insured by any government agency.

Fixed-Rate Loan

This type of loan has an where the interest rate doesn’t fluctuate during a “fixed-rate” period of the loan. This allows the borrower to accurately predict the amount of future payments.

Federal Housing Administration Loan (FHA Loan)

This type of mortgage is issued by an FHA-approved lender and insured by the Federal Housing Administration.

Interest Rate

The amount charged on top of the principal by a lender to a borrower for the use of assets.

Housing assistance grants for homeowners and renters affected by the Camp, Woolsey, and Hill fires

Through a $1 million gift from the REALTORS® Relief Foundation, C.A.R. is offering disaster relief grants up to $2,000 per household to provide housing assistance with mortgage relief or temporary housing, such as payments on the mortgage of a primary residence that was burned in a fire, lease or rent payments on replacement housing, or payments to a temporary shelter.

Grant details:

  • Relief assistance is limited to a maximum of $2,000 per applicant household. The deadline for application submission is June 30, 2019, contingent on the availability of funds.
  • Assistance is for housing relief only; other expenses including mortgages on property other than a primary residence, vehicle purchase, rental, repair and or mileage are ineligible for reimbursement under this program.
  • Documentation requirements: proof of residency, proof of lease/ownership, proof of damage/loss.
  • One application per household.
  • Grants are available only for the applicant’s primary residence.
  • Recipients of other financial assistance (FEMA, charitable groups) are eligible.
  1. Frequently Asked Questions (pdf)
  2. Link to online application

If you are in the Los Angeles area, have any questions or real estate sales or financing needs, feel free to contact us www.crestico.com/contact