FHA in Irvine

IndieDev said:
For the front liners, USCTrojan, and the like, how many deals have you done involve FHA financing? 25%? 50%?

What effect will the $625,000 limit have on sales, etc?
?The administration is now likely to suggest that Congress allow the policy to lapse as scheduled in September, lowering the loan limit to $625,500.?http://www.washingtonpost.com/wp-dyn/content/article/2011/02/03/AR2011020307205.html[/quote]
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There were 2040 closed sales last year that were recorded in the MLS for Irvine. 
Of the 2040, only 153 were reported as being FHA financed. 
Of the FHA subset of 153, only 33 were above a purchase price of $648,186. That runs at a clip of 1.62% of sales that might have been actually affected. Keep in mind that some of the purchases were much higher, up to $1.6M, so the FHA finance vehicle was a choice, and not a necessity.

To answer your question of "what effect?"... My guess is not much.  But always remember that perception rules the buyer's mind, so I wouldn't entirely dismiss it.

-IR2
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None of my previous or current buyers who are looking to buy in Irvine used/will use an FHA loan to purchase their home.  Only 2 previous buyers used an FHA loan to purchase their homes (outside of Irvine) and I currently have 1 buyer that will use an FHA loan and one who will use a VA loan to make their purchases (both outside of Irvine).  I personally don't think that the decrease in the loan limit will have that much of an impact on prices in Irvine, you'll see more of an effect outside of Irvine.
 
IrvineRealtor said:
There were 2040 closed sales last year that were recorded in the MLS for Irvine. 
Of the 2040, only 153 were reported as being FHA financed. 
Of the FHA subset of 153, only 33 were above a purchase price of $648,186. That runs at a clip of 1.62% of sales that might have been actually affected. Keep in mind that some of the purchases were much higher, up to $1.6M, so the FHA finance vehicle was a choice, and not a necessity.
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Zombie time.

Of the 2040 sales last year, how many had loan balances between $625k and $729k?

I ask because the IHB claims that those loan are "common in Irvine" so the assumption is that the Oct 1 reduction to $625k for jumbo conforming is going to impact Irvine noticeably.
 
Yes. This isn't an FHA issue, but certainly a Conventional one. My guess is that Conventional Conforming loans above $417,000 might be 25% of all Irvine area home sales. Will be interesting to see what the numbers are.

Right off my 5/31/11 rate sheet the spread between a Conforming Conventional Jumbo and a portfolio 30 Fixed is 1/2 percent in rate.  If a buyer is putting 20% down on an $800,000 home, their loan is $640,000. Let's say the rate is 5.25%. The payment is $3,534. If the price of the home was $781,875 the 20% down loan gets to $625,500. Let's say the rate is 4.75%. The payment is $3,263 - a $271 per month difference. You'll find a great deal of $850k to $800k sales prices get pushed down to sub $790k come the second week of October 2011.

My .02c

Soylent Green Is People.
 
sgip said:
If a buyer is putting 20% down on an $800,000 home, their loan is $640,000. Let's say the rate is 5.25%. The payment is $3,534. If the price of the home was $781,875 the 20% down loan gets to $625,500. Let's say the rate is 4.75%. The payment is $3,263 - a $271 per month difference. You'll find a great deal of $850k to $800k sales prices get pushed down to sub $790k come the second week of October 2011.
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Spot on analysis.
 
irvinehomeowner said:
IrvineRealtor said:
There were 2040 closed sales last year that were recorded in the MLS for Irvine. 
Of the 2040, only 153 were reported as being FHA financed. 
Of the FHA subset of 153, only 33 were above a purchase price of $648,186. That runs at a clip of 1.62% of sales that might have been actually affected. Keep in mind that some of the purchases were much higher, up to $1.6M, so the FHA finance vehicle was a choice, and not a necessity.
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Zombie time.

Of the 2040 sales last year, how many had loan balances between $625k and $729k?

I ask because the IHB claims that those loan are "common in Irvine" so the assumption is that the Oct 1 reduction to $625k for jumbo conforming is going to impact Irvine noticeably.
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This is a much taller task than the FHA figures I pulled previously.
Keep in mind that some of the recordings show two loans originating on the date of purchase. This means that you may have many false positives -  even though the total loan balance may be in the sweet spot that you're talking about, say a $600K first mortgage and a $100K second on a $1MM purchase (total LTV = 70%), neither loan would be above $625K.  You may also have false negatives - the first may be at the $729K limit, but the second will be at $271K for a total of $1MM in debt.

My reportings include the sum of any/all loans recorded at the time of the purchase (+/- 3 days).  It's all manually reviewed, entered, and verified, which is why it is such a PITA to maintain in my free time.  I simply don't have the time to re-review to give you 100% accurate info.  The best I can do currently is pull from 2009's data set and hope that volume overpowers the outliers.  :)

Only 96 of the 1860 sales had a total loan amount of $625-729K (5.2%).
However, 184 of the 1860 sales had a total loan amount of $625K or above (9.9%)  I would estimate, from personally reviewing each recording name, date, and amount, that ~90% of this subset had at least one loan in the range you are seeking. 

That brings my best-guess estimate to about 9% of Irvine's MLS recorded sales from 2009 would be affected.
I don't know if this qualifies as "common" but I wouldn't classify it as a rare event, either.  You can verify these numbers for yourself any time at www.IrvineRealtorSite.com
I hope this helps. 

Good luck,
-IrvineRealtor
 
IR2: Thanks for the summary.

To me, 10% (even 20%) seems more "rare" than it is "common". I wanted Larry to qualify his statement but he said he doesn't have the data to prove it... which is something that irks me a bit because people assume these generalities about Irvine that aren't exactly true, for example:

1. Most Irvine loans during the bubble were 0% down (the AZDave theory)
2. Irvine is the epicenter of Option Arm and Ninja Loans (while many of the mortgage companies may have been HQ'ed in Irvine, that doesn't necessarily mean that the majority of the loans were for Irvine residences)
3. Irvine has the most HELOC abuse of any city (just because Larry can profile one almost daily, doesn't necessarily mean that's the majority of transactions here)
4. Irvine prices are all WTF and no one in their right mind would pay those amounts for the properties Larry profiles (yet many of them are already pending)
5. A rise in interest rate will result in a dollar for dollar reduction in sales price.

And while I agree with SGIP about the borderline loans, the way IHB frames the limit change is that $729k loan limit homes will magically drop their prices so the loans can come under $625k. Who actually thinks a $900k home is going to sell for $781k just because of the change in the limit? But who knows, that's less than a 15% drop and since many think Irvine still has another 10-20% to go this will just help things along.

And to me, this will largely affect homes that are $650k+.... but where affordability problems in Irvine need to be addressed (in my opinion) is $600k and below.
 
IF there is an impact to about 10% of all Irvine area transactions - a big IF mind you - there also will be a spillover influence on all sellers and all prices. When buyers see $820k homes float into the 7's they may want to see $675k homes fall to $650 before they jump forward and buy. Same for the upper end. Why pay $1m for a home when all of the $9's are becoming $8's??

Should an impression be created of a sudden rush to the exits on prices, an abundance of capitulating sellers will tell us all the bottom is neigh. Appearance is reality, no matter what people chose to believe otherwise.

My .02c

Soylent Green Is People
 
This probably is not going to affect Irvine housing that much; but if the proposed qualified residential mortgage (QRM) rules pass, home price will take another plunge in ALL areas and ALL loan types:

Two main proposed qualified residential mortgage rules:
1. minimum 20% down
2. 28% debt to income ratio

75% of 2010 borrowers do not qualify for QRM.





 
akula1488 said:
This probably is not going to affect Irvine housing that much; but if the proposed qualified residential mortgage (QRM) rules pass, home price will take another plunge in ALL areas and ALL loan types:

Two main proposed qualified residential mortgage rules:
1. minimum 20% down
2. 28% debt to income ratio

75% of 2010 borrowers do not qualify for QRM.
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40 years ago, those requirements would've been normal.

Now days, the credit fake-it generation is out and about in full force.
 
akula1488 said:
This probably is not going to affect Irvine housing that much; but if the proposed qualified residential mortgage (QRM) rules pass, home price will take another plunge in ALL areas and ALL loan types:

Two main proposed qualified residential mortgage rules:
1. minimum 20% down
2. 28% debt to income ratio

75% of 2010 borrowers do not qualify for QRM.
Click to expand...
Can you link over where I can get more info regarding those QRM rules?  Thanks.
 
USCTrojanCPA said:
akula1488 said:
This probably is not going to affect Irvine housing that much; but if the proposed qualified residential mortgage (QRM) rules pass, home price will take another plunge in ALL areas and ALL loan types:

Two main proposed qualified residential mortgage rules:
1. minimum 20% down
2. 28% debt to income ratio

75% of 2010 borrowers do not qualify for QRM.
Click to expand...
Can you link over where I can get more info regarding those QRM rules?  Thanks.
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first link from Google searchhttp://blogs.wsj.com/developments/2011/03/24/five-questions-on-the-qualified-residential-mortgage/

Also another big rule is that interest only loans would not qualify.

They are just proposed rules.
 
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