Saturday, January 23, 2010

Mortgages and Wine

The majority of my clients have all bought their homes and have needed to have a mortgage!  Some transactions went smoothly and others nearly cost my clients their home.

I can not reiterate enough how important it is to have a mortgage lender who is on hand, local and prepared to kick some serious bottom when things aren't going as smoothly as wanted.

In Vermont, I was fortunate enough to have had numerous transactions with Nick Parent of Spruce Mortgage.  I could always rely on him.  He always returned phone calls, was honest, sincere and more importantly put his clients first.  I can not recommend him enough.

Now that I have moved to the Bay Area I am trying to find a Nick Parent!

There is a gentleman in my office called Greg Vanslow who works for Princeton Capital.  I am yet to have a transaction with him but have heard great things about his professionalism,  commitment and knowledge.  The added bonus is that he is quite knowledgeable when it comes to wine!

Weekly he sends an email giving an honest and real update of the weeks top off the reading he always adds his thoughts on recent wines and good value can never have too much information.....

If you would like to skip the honest information about the current mortgage situation and prefer to jump to his thoughts about wine then scroll down to the section about Wine!

Good afternoon,
The Dow is down to 10,100.
The 10 Year Treasury is back down to  3.60%.
The dollar is doing great, $1.40/Euro, as a result of economic weakness in Europe and other zones, which helps attract investment in Bonds.
So, rates are holding up. The attached rate sheet is unchanged.

No economic news until Wednesday so based on stochastics I would expect a little worsening in rates over the next couple days.

People keep asking me if lending is loosening yet?

Not really.

We are seeing a few exceptions, however. One notable loosening is that FHA has put a one year suspension on its flipping rule.
You recall that FHA did not do loans on properties that had been owned by the current owner less than 90 days.
The exception was for REOs owned by nationally chartered banks. About a year ago they loosened the exception to any REO.

Now they are allowing flipping by most anyone, with lots of fine print. The big thing to look for is if the seller is making more than 20% and arms length transactions. If the seller is re-selling in less than 90 days and is selling for more than 20% over what they paid it may still be allowed, but there’s extra fine print. The fine print isn’t especially worth memorizing, but if you’re interested let one of us know and we’ll send it to you.

Back to the topic of tightening lending.

You may recall me speculating that FHA was going to increase their insurance premiums. They are. They are increasing their Up-Front MI premium (which can be rolled into the loan amount) from 1.75% to 2.25 % affective April 15. Nice date to implement that, eh? As with just about everything in the lending world, there are exceptions, but I’m pretty sure I’ll never encounter a deal that fits.

FHA Condo Projects
Don’t forget that January 31 is the last day to get an FHA case number and get a condo spot approval.
FHA has announced how the new condo project approvals will work going forward. I’ve attached a matrix showing the required documents for a given type of project.
Here’s a summary of the approval requirements. Enjoy:

There are some Temporary Guidelines.
Until December 31, 2010 the following guidelines have been relaxed for full project approvals:

FHA Concentration
Will be increased to 50% vs. 30% and in some cases up to 100%.  In order to be eligible for the 100% exception the project will have to meet the following parameters:
1.      Project must be 100% complete for at least 1 year.  Builder will have to provide evidence of the temporary/conditions certificate of occupancy for the last unit.

2.      100% of the units must be sold and no entity owns more than 10% of the units
3.      Budget provided for funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 10% of the budget
4.      HOA has control
5.      Owner occupancy is at least 50%
6.      Project is NOT New Construction or a conversion

Owner Occupancy
50% of the units must be owner occupied or sold to owners who intend to occupy.
Vacant or tenant occupied real estate owned (REOs), including properties that are bank owned may be excluded from the calculation (should be removed from both the numerator and denominator)

Pre-Sale Requirements
Will be reduced to 30% vs. 50%.


Mortgagee Letter 2009-46B revises and consolidates existing guidance.  It provides the lender the option of either approving the project (DELRAP) or sending it to HUD for approval (HRAP).  Lenders are required to submits the first  5 projects for HUD approval before underwriting them internally on an on-going basis.

The following is a summary of the requirements needed to gain project approval on all projects (existing or new construction):

1.      Minimum number of units: Projects must consist of 2 units or more.
2.      Commercial Space:  No more than 25% of the property’s total floor are can be used for commercial purposes.
3.      Investor Ownership: No more than 10% of the units may be owned by one investor.
4.      Delinquent HOA Dues:  No more than 15% of the total units can be delinquent in their fees.
5.      Presale Requirement:  At least 50% of the total units must be sold.
6.      Owner Occupancy:  At least 50% must be owner occupied.
7.      FHA Concentration:  For projects with 3 or less units, no more than 1 unit can be encumbered by FHA financing.  Projects of 4 or more units will have no more than 30% of the total units encumbered by FHA Financing.  HUD will start tracking thru the FHA Connection this information.  Once a case number has been assigned, it’s ok to proceed even if the concentration has changed.
8.      Budget Review:  The budget must include allocations to ensure sufficient funds are available to maintain and preserve all amenities and features.  The funding of replacement reserves for capital expenditures and deferred maintenance must be at least 10% of the budget.
9.      Insurance Requirements:  Fidelity Bond insurance is required for projects with 20 or more units.  Coverage must equal at least the sum of 3 months aggregate assessments on all units plus the reserve funds.
10.  Environmental review:  Required only if HUD underwrites project and if the project is at the initial stage of construction.
11.  Condominium Conversions:  Will be treated as new construction

New Construction Condominium Projects

Additional documents required on new construction or condominium conversions are:
1.      Builders Certification of Plans, Specification and Site.  Form HUD-92541
2.      Builder’s Warranty, form HUD-92544
3.      Building Permit (or its equivalent)
4.      Final Certificate of Occupancy (or its equivalent).
5.      A temporary Certificate of  Occupancy is acceptable under the following circumstances:  A.  All common areas and amenities are 100% complete and the certificate states that the unit is habitable and eligible for immediate occupancy.  B.  The jurisdiction that is issuing the certificate has in place a standard protocol to later issue permanent certificates.

Projects on HUD’s Rejected or Withdrawn List

If the project has been rejected or withdrawn by HUD, the project is not eligible for reconsideration unless the following parameters are met:
1.       Projects rejected or withdrawn  12 months or Less: new additional information may be submitted to HUD for reconsideration under the HRAP processing.
2.      Projects rejected or withdrawn over 12 months: new additional information may be submitted to HUD under HRAP or the lender can do the DELRAP review.

Projects on HUD’s Approved List

If the project is on HUD’s approved list, the lender must certify that it has no knowledge of circumstances or conditions that might have an adverse effect on the project.  In order to do so an HOA cert will be required on all files and the following information will be required:
1.      Owner occupancy:  At least 50%
2.      Percentage of owners in arrears:  No more than 15%
3.      Investor Ownership:  No more than 10% of the units may be owned by a single entity.
4.      FHA Concentration Rate.  No more than 50% until the end of 2010 and 30% from 2011 on.

Recertification of Project Approvals

Project approvals will expire 2 years from the date of placement on the list of approved condominiums.  Lenders will be required to recertify the project.  In addition to meeting the guidelines required for projects on the list, the following items must be evaluated:

1.      Pending special assessments
2.      Pending legal action against the condominium association, or its officers or directors; and
3.      Adequate hazard, liability insurance and when applicable, flood insurance.

Projects that received approval prior to October 1, 2008 will require recertification on or before December 7, 2010.

Projects that received approval between October 1, 2008 thru December 7, 2009 will expire 2 years from the placement on the approved list.

Princeton Capital is an RMR Financial company.  RMR Financial is a Residential Mortgage Lender, licensed by the California Department of Corporations under the California Residential Mortgage Lending Act, license #415-0027, and the Oregon Division of Finance and Corporate Securities, license #ML-2847.

Willi Haag Brauneberger Juffer Riesling QbA 2007 (Mosel) - $10 Artison Wine Depot – A  little sweet, but great deal on a good German Riesling.

2007 Candela Pinot Noir Monterey, CA - $17 Wine Club – “I usually like to give a little background for each of the wines I write up. But, not much is known about this wine other than it is made by Miura Vineyards (producers of some of California’s best Pinots) and comes from Monterey/Santa Lucia Highlands area. Oh, I also know that it is tasty!

I was first captivated by the color of this Pinot. Usually Pinots in this price range are a bit thin and lacking intense color. Not this wine. It has a rich, appealing dark cranberry color with fuchsia edges. The nose really got my attention. Focused aromas of boysenberry, blackberry and cranberry with notes of candied cherries almost overwhelm the senses. My initial reaction after the first sip was “Wow!” Really jammy fruit but more tangy than sweet. Flavors of plum, cranberry, black raspberry and kirsch are complimented by very subtle flavors of tobacco and anise. This isn’t what I’d call ‘classic Pinot‘ but I would call it one of the best I’ve tasted this year for under $20.”


If you would like a quick chat with Greg then send him an email or feel free to call him on 650 917 4263 and as always if you have any questions about buying or selling a property please feel free to call me at 650 917 4229!


- Stella Abraham, REALTOR

Coldwell Banker Los Altos
95 1st Street,
Los Altos, CA 94022

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