Manhattan Beach CA/ e-PRO..... Kaye Thomas...

If you are thinking of buying a property or refinancing your South Bay-Beach Cities home there are 6 things you should know about the current financial market.

While almost everyone knows that lenders have tightened their rules about making loans; most people really don't quite understand what that means when they are shopping a loan for a purchase or a refinance. If the only real estate loans you have obtained have been within the last 7 years... you may be in for a shock.

The rules have changed drastically from a few years ago. The Beach Cities have seen conforming loan limits raised to $729,750 but these loans, known as conforming Jumbo loans, have a higher rate then loans under $417,000. If you want a jumbo loan (over $729,750) you will need a big down payment along with excellent FICO scores. You will also need to be patient as a number of lenders are not offering jumbo loans because they have to keep them as part of their in-house portfolio rather then sell them to Fannie and Freddie.

6 things you need to know if you want to refinance your current loan or would like to buy a property....

1. I have great credit.... maybe... maybe not... a lot has changed in the last year. So what is a good credit score today? Two years ago a good FICO was 700 or better. In today's world a 700 FICO will cost you money. I stole the chart below from Dan Green at The Mortgage Reports. If you check out the chart (Fannie & Freddie rate fees) you can see that a credit score under 740 is going to cost you upfront fees in addition to the points the lender wants. These fees are for conforming loans. If you are looking for a non-conforming loan (jumbo) the best rates are for those with FICOs of 780 or higher.

2. I have 20% down so no problem... on a conforming loan ( $729,750-) 20%-25% down and good credit (720 FICO+)will work ...usually. If you want to utilize an FHA loan then you can have as little as 3% down and a slightly lower FICO score but you will get a higher rate and pay some upfront fees. If you are looking for a loan over $729,750 then 20% and good credit isn't enough. You may find lenders wanting 30%-40% down with great credit (750+ FICO)and a good chunk of cash in reserve. The guys who 2 years ago would have tripped over themselves to throw money at you will now barely acknowledge you exist.

3. My income is 1099 based not W2 but I make lots of money... There has been a lot of talk about stated income loans... those loans were made for people who were not traditional W-2 employees. Today many lenders turn a blind eye and a deaf ear to 1099 employees. There are a few lenders making stated income loans with a large down, verification of assets and 2 years in the business. For the most part 1099 employees are out of the loop unless they have very large bank accounts.

4. But Interest rates have dropped... Rates have indeed dropped but the "great rates" are only for those with high FICO scores and large down payments. Conforming loans with 10% down or FHA's are not to be found for 5%. The big boys with large accounts can find some sweet deals on jumbo loans but most borrowers are going to need high FICO's and pay points to see those lower rates.

5. I can always get an adjustable...buyers got used to having a number of choices in the types/terms of adjustable loans. There are more choices for conforming loans but if you are seeking a jumbo loan you may find your choices limited to a 1/1 or a 5/1 term . A number of lenders are not making 7/1 or 10/1 loans as they are not sure where rates will go in the future. If you are thinking of interest only add at least another .25% or more to the rate.

6. I have 20% equity, so a refi should be a snap... Don't count on it. There are not many lenders who will even consider a loan-to-value even if you use the same lender . Some lenders are looking for 30%-40% equity on a refinance in markets they feel are trending downward. On a similar note lenders are not real crazy about cash out refinancing. There are some who have those programs but they are likely to cost more money.

In today's market the best way to ensure you get a loan is to do your homework. Don't assume that because you got a loan a few years ago without any issues that you can do the same today. If you are buying a home you need to be fully approved before making an offer and be ready to throw in additional cash if necessary. If you are refinancing, don't expect the process to be easy. Remember, banks are more apt to give loans to people with substantial resources... and cash in the bank can buy a lot of goodwill.

Amid all the hoopla about the $7500..nope $15,00... make that an $8,000 tax credit... there was almost no mention about reinstating the hybrid conforming loan limits back to $729,750 from $625,000. This is good news for South Bay-Beach home buyers and owners who want to refinance existing loans.

The final tax credit will have a limited impact on our market because of limits on income and local home prices. Increasing the conforming loan limits however will have an impact on our Beach Cities real estate markets. Last year in the short time frame these loans existed(July-Nov.), a number of buyers took advantage of them. While the rates on these loans are slightly higher then rates on loans under $417,000 they are usually considerably lower then those on Jumbo loans... and much easier to obtain.

Anyone who has been loan shopping lately knows that jumbo loans are still expensive and not easy to obtain. Most lenders have a loan max of $1,000,000, with LTV around 50%-70% depending on the loan amount. There are not a lot of choices as to the term... either a 5/1 or a 30 year fixed. FICO scores to get a rate around 6.65% must be over 750+. The bank may also want you to set up an account with them to provide for direct deposit of the monthly payments. If you want a rate around 6% you will need a FICO of at least 780+. If you want to buy a $2M home you will need 50% cash down.


While banks will make loans over the $1M mark these only go to members of the bank's High Roller Club..( those having accounts at the private banking window) which usually means that you are willing to keep a minimum of $100,000 or more in accounts at the bank. The more money you stash in the bank the higher the loan amount, the longer the term and the lower the rate. Historically this was how banks conducted business back in the good old days.


A number of lenders are getting rid of their wholesale operations and only making loans directly to consumers via in house staff. This means that most Mortgage Brokers will not be able to place loans with BofA, Chase, Wells Fargo or many of the Big Banks. The banks often have better rates but usually offer fewer choices to consumers as they may only offer one or two loan options. Traditionally Mortgage Brokers were able to offer consumers an array of products. This means fewer options for buyers or for owners looking to refinance.

Will $15K make a difference to home sales in the South Bay-Beach Cities of Los Angeles County?

The U.S. Senate in an effort to customize their version of the Bailout Bill and add a few more perks the House missed, voted to give home buyers a credit of 10% of the sale price or a maximum of $15,000 on a home purchase. Of course the bill is not actually a done deal... It has to go back to The House and then be signed by The President before it takes effect. Right now I'm guessing the bill will be changed along the way and won't be ready for consumers anytime soon... if ever.

Unlike the previous version of a $7500 tax credit that must be paid back..the new bill will not require buyers to reimburse the government...ie taxpayers... for the money. I understand the idea behind the bill but once again I think the folks in DC are off the mark.

Would a $15,000 credit stimulate sales in the South Bay-Beach Cities...yes and no. Certainly getting an extra $15K credit looks like a good deal for anyone buying but the problem is that while the credit is nice, it's pretty useless if banks are not making loans. And therein lies one of the major problems with many of the ideas about real estate and the housing market floating around Washington.

You can pass stimulus packages 'til the cows come home..but they are pretty useless if consumers can't use them. If the boys in DC are really serious about doing something about the housing crisis then I would suggest that the first step is putting a few conditions on the money they are passing around to lending instutions... namely if you want money from the government you have to make loans on homes.

If you caught the LA Times article about Million Dollar home sales in CA you know that in 2008 Manhattan Beach had more home sales over one million then any other community in the state. There were 296 sales in Manhattan Beach of homes above $1M in 2008 . While that probably makes most Manhattan Beach homeowners happy as an indication that values didn't take a complete nosedive... the information also points out that 2008 numbers were down considerably from the 403 homes that sold in 2007. So far this year that trend seems to be continuing with closed sales in January 2009 of 7 homes and 2 townhomes...ouch!

None of this information is surprising if you are buying or selling a home in Manhattan Beach or any of the Beach Cities. Sellers are trying to figure out the magic number that will make a buyer decide to make an offer, while Buyers are waiting for prices to drop more and loans to get easier to obtain.

There is a lot of information in the article that didn't make the headline. If you read the chart one of the things that pops out is that price-wise Manhattan Beach is in the middle of the pack. While prices are still on the high side they are below the prices of Laguna Beach, Newport Beach and even some areas of Palos Verdes.

However you have to read most of the article before you find what is perhaps the most significant piece of information...namely that of the 236,000 homes that went into foreclosure last year...only 1,612 were homes that sold over the $1M mark. I believe we will see more million dollar plus home in trouble this year as the economy worsens, but as a percentage that number will continue to be small relative to the total number of REO homes in CA.

Over the last few years there has been this assumption that anyone who bought an expensive home really couldn't afford the home. While I have no doubt there are a number of buyers who did get in over their heads... the low numbers above seem to indicate that perhaps most folks who bought in the more expensive communities were not as financially imprudent as many thought.

In just a few hours 2008 will be gone. I don't think many will be sad to see it go. No one has escaped unscathed from the financial and economic turmoil of 2008. Our local Manhattan Beach-Beach Cities real estate market has certainly been adversely affected by the disruption to the economy. While we have fared better then other communities in Southern California we have not escaped the problems that affect California real estate. In our little slice of Paradise prices are down in all the Beach Cities and sales volume is lower then last year at this time. Interest rates have dropped, but jumbo loans( $625,000+), with few exceptions, are still at high interest rates when compared to overall rates. This is a real problem in our Manhattan Beach-Beach Cities real estate market with median prices in most of the Beach Cities over the $625,000 hybrid conforming level. While conforming rates are lower then at any time since 1971, the requirements to obtain a mortgage are probably stricter then they have been in the last 25 years. It is a bit ironic that lenders who gave loans to anyone who could fog a mirror are currently refusing loans to people who are are well qualified for sometimes inane reasons. As with all things in the financial community... this too will change.

There is a lot of speculation about what will happen in the Manhattan Beach-Beach Cities real estate markets in 2009. While there are those who are predicting a complete collapse in housing with markets returning to 1990 levels, most of us who have lived here for a long time are not quite so pessimistic. We have seen these market dives before and will no doubt see more in the future. If the recession gets worse then we could see more problems but so far we seem to be holding up fairly well. Could that change... of course it could. The market may be slow but it hasn't died.

Thoughts on the housing market of 2009 in the South Bay- Beach Cities.....

Consumers will exercise more discretion in spending. Buying a home will once again be about shelter rather then a short term investment where you expect the value of your home to double in 2 years. 25 years ago an entry level home was not a new 4000 sq ft home in the tree section of Manhattan Beach. People bought small older homes and worked their way up to big new homes over years. I think we will see a return to consumers buying below their means rather then above.

Foreclosures continue to be on the low side in the Beach Cities. Interest rates are at their lowest level since 1971 which means that many of the loans that will be resetting may do so at rates that will not be a problem for owners. Inventory continues to be much less then many had anticipated. As of today there are 507(total) homes and townhomes for sale on the MLS in the Beach Cities.... Manhattan Beach((178), Hermosa(78), N. Redondo (85), S. Redondo (124)and El Segundo(42). While you can expect the number of homes on the market to increase in the spring, we would need to see the economic crisis worsen considerably in the South Bay to create a scenario that dumped vast numbers of homes on the market. This doesn't mean we won't continue to see prices moving downward... we will. It just means we probably won't see massive numbers of foreclosures and the devastating loss in value that happened in the '90's as long as the employment situation in the South Bay remains fairly stable. The new Administration seems committed to stabilizing the housing market. The question is whether or not they will be able to do what the old one couldn't... namely bring stability back to the financial sector by buying up toxic assets and creating jobs with programs like the old WPA? If they can accomplish these goals without inflation rearing it's ugly head then the South Bay-Beach Cities real estate market may just squeek by with a minimal amount of problems. Once again only time will tell what awaits us in the future...

HAPPY NEW YEAR ......

Kaye