Credit crunch expands to cash-out refinancing, investment properties and vacation homes

The latest to feel the pinch:

* Cash-out refinancings.

* Loans with less than full documentation of borrower income, credit and assets.

* Mortgages for certain second-home purchases.

* Investment loan applications in which the buyer already owns at least three other rental properties.

* Mortgages to borrowers with nontraditional credit.

* Short-term construction loans that convert to permanent mortgages.

* Adjustable-rate mortgages in which the first adjustment occurs within 60 months after closing.

In a move scheduled to take effect for all loans delivered after Aug. 8, Freddie Mac will restrict financing to second-home and investment purchasers who already have “individual or joint ownership” interests in multiple properties. In the case of second-home buyers, they will be ineligible for new mortgages through Freddie if they have ownership interests in more than four properties securing debt, including the one they propose to finance.

Similarly, loans for rental houses, rental condos and other investment properties will be ineligible if the borrower has ownership stakes in four units. Previously, Freddie allowed investors to own up to 10 rental properties carrying mortgages.

Freddie Mac also announced new cutbacks on refinancings in which the property had secured a “cash-out” within the previous six months. The company defines a cash-out as any refinancing in which the replacement loan balance exceeds the previous balance by 5% or more. Recently, according to the company’s quarterly surveys, more than 80% of refinancings involved equity-depleting cash-outs.

The rule changes, Freddie Mac said, are designed to “reflect the risk of these transactions” in the wake of post-boom property devaluations and higher rates of foreclosure.

Meanwhile, private mortgage insurers — who provide loss coverage for lenders and investors on loans with down payments of less than 20% — have begun rollbacks on a variety of products, especially in areas they define as distressed or declining.

Genworth Financial, one of the largest insurers, recently told lenders that after Monday, it no longer will consider applications for second-home purchases anywhere in Florida. The new policy is irrespective of borrowers’ credit scores, assets or other characteristics.

Also effective that date, in all “declining/distressed” markets, Genworth will not touch cash-out refinancings, investment properties of any type, nontraditional credit applications, construction/permanent loans or adjustable-rate mortgages with initial adjustments within the first five years.

In its advisory, Genworth said the restrictions are intended to promote “prudent underwriting standards” in light of higher risks prevailing “nationally and at localized levels.”

PMI Group, another high-volume insurer, banned cash-out refinancings, limited documentation loans and all mortgages secured by investment properties in “distressed” markets. In nondistressed areas, cash-out refinancings on second homes and rental houses no longer are eligible for coverage, nor are interest-only loans on investment real estate and all mortgages on properties containing three to four units.

PMI also boosted minimum credit score requirements for “jumbo” loans nationwide to a FICO of 700 and now will require at least 10% down payments. The company also ruled out “stated income/stated asset” mortgages on duplex purchases, in which one unit is occupied by the owners and the other is rented out.

MGIC, the largest private mortgage insurer, recently eliminated coverage of all “option ARM” loans that have either scheduled or potential negative amortization features that increase borrowers’ principal debt rather than reduce it monthly. MGIC’s new ban is nationwide.

The company also no longer will insure cash-out refinancings using limited documentation, temporary rate buy-downs on investment real estate and nontraditional credit applications to buy second homes.

Why the continuing rollbacks, and how long could they continue? Lenders and insurers are carefully studying the sources of their greatest losses from mortgage vintages between 2003 and 2007. In the areas where they see inordinate risk, they are reacting by eradicating that risk.

Some of those high-loss loan products — mass-marketed option ARMs with minimal down payments and “stated” incomes, for instance — probably never will be seen again. Others are likely to return only with tougher underwriting standards and higher fees tied to credit and geographic risks.

In the meantime, consumers have little choice: Get used to it. It’s not going away any time soon.

kenharney@earthlink.net.

The steps in getting a home loan

Don’t be left in the dark: Locate utility off/on valves

Cultivating Culver City

By Martha Groves
Los Angeles Times Staff Writer

April 7, 2008

Factories, oil derricks and houses were sprouting all over Southern California in 1913 when Harry H. Culver outlined his plan for a city midway between Los Angeles and Abbot Kinney’s seaside resort. “If you draw a straight line from [downtown’s] Story building to the oceanfront at Venice,” he told the gentlemen of the private California Club, “at the halfway mark you will find three intersecting electric lines — the logical center for . . . a town site.”

His Culver Investment Co. bused potential lot buyers to free picnics, awarded parcels to the parents of pretty babies and placed newspaper ads reading “All roads lead to Culver City.”

Nearly a century later, the electric rail lines are long gone, but Culver City, denigrated in years past as a backwater on the Westside, is starting to live up to its founder’s hype.

In recent years, dozens of galleries, design houses and architecture firms have moved in. Wine bars and upscale eateries — many with alfresco dining — are garnering raves, and more restaurants are in the works.

Young families and singles are replacing retirees, and developers are demolishing duplexes to build condos. Rising office rents reflect the discovery by high-tech, media and creative employers — Symantec, National Public Radio, the Tennis Channel, Ogilvy & Mather — of a well-situated alternative to pricier Santa Monica or Beverly Hills.

City officials and many residents cheer the cultural and culinary renaissance in the city’s downtown and the ongoing commercial revival there and in other pockets. But detractors contend that the once sleepy hamlet is paying a steep price in increased traffic, congestion and competition for parking spots that not long ago seemed plentiful. Downtown businesses are clamoring for a valet parking plan.

“We’ve become a victim of our own success,” said Andrew Weissman, a Culver City planning commissioner who is among nine candidates vying in Tuesday’s election for three City Council seats.

Density and traffic

As in much of the region, the overriding issues on the minds of Culver City voters are development, density and traffic — the slow midday crawl on Sepulveda Boulevard or the weekend evening jam-ups where what is purported to be the world’s shortest Main Street joins Culver and Washington boulevards in the city’s core. Commuter cut-through traffic compounds the woes.

“What’s been happening in Culver City is an enormous amount of development,” said Judith Miller, a resident battling a developer’s plan for 26 condos and office space with below-ground parking next to her Spanish colonial revival house, a city-designated landmark near City Hall. “The council members also make up the redevelopment agency and have been historically predisposed to development without being responsive to the community’s concerns.”

One redevelopment official countered that the new businesses provide much-needed revenue and a sense of vitality at a time when Sacramento is threatening to cut funding to cities.

“It’s been fascinating to see the evolution from having no identity, to struggling to achieve an identity, and now we’ve achieved it and are struggling to deal with that identity,” said Todd Tipton, redevelopment administrator. “It’s taking some effort to come to terms with this as [the city] grows and prospers.”

‘Run-down things’

In years past, residents of Culver City, population 40,000, might have welcomed packed sidewalks and thoroughfares.

“When I moved there in 1993, there wasn’t a restaurant to be had,” said Laura Stuart, a resident of the Sunkist Park neighborhood near the 405-90 freeway interchange in southwestern Culver City. “Downtown was pool halls and run-down things.”

It wasn’t always that way. Founder Harry Culver had emphasized the need for a solid economic base. The motion picture industry, which in the 1920s and ’30s found the city’s wide-open spaces ideal for back lots and filming, was a boon.

Enticed by Culver, Thomas Ince had built the town’s first studio, Ince/Triangle Studios — later Goldwyn Studios and then Metro-Goldwyn-Mayer. (Since 1990, the lot has been the headquarters of Sony Pictures Entertainment, which employs 3,300 people in or near Culver City.)

Hal Roach Studios filmed Laurel and Hardy silent comedies around town. Other movies filmed there include “Meet Me in St. Louis,” “Citizen Kane,” “Gone With the Wind” and “The Wizard of Oz.”

But by the early 1990s the city had lost most of the military, aviation and entertainment jobs that had created a strong local economy, if not a scintillating social scene. Much of the city became blighted.

In 1992, “other managers told me our basic job was to slow the rate of decline,” said Mark Winogrond, then the director of community development who was later credited with implementing the downtown revitalization. “I viewed Culver City as a town trapped in 1958 trying desperately to get into the 1970s.”

Even though Culver City’s motto continued to be “The Heart of Screenland,” Winogrond said, some residents had grown distant from the city’s rich history as a production hub for motion pictures and television.

The revival plan aimed to celebrate that connection. It called for downtown to be bookended on one end by Sony and the Kirk Douglas Theatre (a lovingly refurbished former movie palace) and on the other by Culver Studios and the Actors’ Gang Ivy Substation. Movie theaters, long absent, would help lure patrons, for whom public garages would provide ample free parking.

With the city providing incentives, such as helping to negotiate favorable leases and pay for remodeling, businesses gradually repopulated the area.

Meanwhile, developers Frederick and Laurie Samitaur Smith were revamping the Hayden Tract, the largely abandoned industrial sector along National Boulevard just east of downtown. Architect Eric Owen Moss’ futuristic designs for what the Smiths call Conjunctive Points attracted postproduction companies and Internet-related firms. More recently, the captive audience of office workers, as well as the prospect that the light-rail Expo Line could soon be transporting commuters along National, has helped spur the opening of trendy cafes.

Rules revised

Redevelopment officials also have their sights on the area near Westfield Fox Hills, a shopping center in southern Culver City that’s undergoing a $160-million face-lift. Nearby, developer Robert Champion floated ideas for building a massive mixed-use project on an arguably underused stretch of Sepulveda that features tire shops, banks and other businesses.

Leery of traffic, neighbors revolted and Champion backed off. Sensitive to the opposition, the City Council revised a mixed-use ordinance to scale back the allowable heights and densities.

Bonnie Zucker and her husband, Eric Magnuson, who moved to Culver City five years ago, say they enjoy the downtown’s new walkability and hope that the metamorphosis continues.

“Clearly, Culver City is on the rise and will continue to be,” said Zucker, a UCLA psychologist.

For Akasha Richmond, who recently opened her namesake restaurant in a landmark brick building downtown, Culver City sparks comparisons that would have been unthinkable in Harry Culver’s day.

“I feel the collective energy of all the creative people in the area,” Richmond said, “just like in New York.”

martha.groves@latimes.com

Information on Decline in Value Reassessments

It has been widely reported that the property values of single-family homes and condominiums throughout most of the State have been declining. While the declines in Los Angeles County have not been as dramatic as those in other parts of the State, property values have dropped in some areas of Los Angeles County.

How does this impact your property taxes? In 1978, California voters passed Proposition 8, a constitutional amendment that allows a temporary reduction in assessed value when a property suffers a “decline-in-value.” A decline-in-value occurs when the current market value of your property is less than the assessed value as of January 1.

Typically, an application is required to initiate a review of your property’s value by the Assessor. However, in 2008 the Los Angeles County Assessor’s Office will be proactive in reviewing those single-family homes and condominiums that were purchased between July 1, 2005 and June 30, 2007. We will look at sales of comparable properties that sold near the lien date, January 1, 2008. If the market value is less than the assessed value indicated on your 2007-08 tax bill, the assessed value will be reduced accordingly. An application will not be necessary.

We will complete this review by June 1, 2008 and will notify in writing those property owners who qualify for a reduction in the assessed value of their property. Applications will be accepted prior to June 1, 2008, but if you purchased your home between July 1, 2005 and June 30, 2007, we urge you to wait for notification from our office before filing. Should it be necessary, you will have until December 31, 2008 to file an application for review.

If the sale date of your property is not within the dates noted or is other than a single family home or condominium, it will not be included in the review. However, if you believe the assessed value of the property shown on the 2007-08 tax bill is more than the fair market value as of January 1, 2008, you may file an application at any time through December 31, 2008.

Solicitations of this type may not be illegal, but property owners should be aware that the Assessor’s Office provides a simple filing process for a reduction in their property taxes at no charge.

U.S. to ease capital limits on Fannie, Freddie

WASHINGTON - The government on Wednesday relaxed capital requirements at Fannie Mae and Freddie Mac as part of a plan to quickly inject an additional $200 billion of financing for home loans.

The initiative, which will require Fannie and Freddie to raise substantial funds, is part of a broader government strategy to ease a credit crisis that has made it difficult for consumers and businesses to borrow, and spread fear throughout global financial markets.

The Office of Federal Housing Enterprise Oversight, which oversees the government-sponsored companies, said the mandatory cash cushion for Fannie and Freddie — now nearly $20 billion for the two — will be reduced by a third under the new plan. The goal is to free-up money to help new home buyers take out loans and to help existing home owners refinance into more affordable mortgages.

The capital requirement for each company will be reduced from the current 30 percent to 20 percent, and further reductions will be considered by the regulator in the future. Fannie and Freddie will likely raise billions of dollars through special sales of stock.

“Fannie Mae and Freddie Mac have played a very important and beneficial role in the mortgage markets over the last year,” OFHEO Director James B. Lockhart said at a news conference. “We believe they can play an even more positive role in providing the stability and liquidity the markets need right now.”

The companies’ shares were buoyed by news of the agreement. Fannie stock jumped $2.64, or 9.4 percent, to $30.86 in late morning trading, while Freddie shares advanced $2.98, or 11.4 percent, to $29. The companies’ shares have plummeted to fresh 52-week lows in recent weeks amid concern over their ability to find buyers for their mortgage-linked securities amid plunging home prices and rising foreclosures.

The new agreement was the third step the government has taken in recent weeks to allow Washington-based Fannie and McLean, Va.-based Freddie to shoulder larger burdens in the mortgage market despite their multibillion-dollar fourth-quarter losses and expectations of further red ink this year.

The $168 billion economic stimulus package enacted last month included a temporary increase in the cap on mortgages that the companies can purchase or guarantee, from $417,000 to $729,750 in high-cost markets. And, as a reward for filing timely financial statements following multibillion-dollar accounting scandals, Fannie and Freddie were freed on March 1 of a combined $1.5 trillion cap on their mortgage-investment holdings.

OFHEO estimated that the combination of these efforts should allow Fannie and Freddie to purchase or guarantee roughly $2 trillion in mortgages this year.

The two companies together hold or guarantee around $4.9 trillion in home-loan debt. As the mortgage crisis and ensuing credit crunch have worsened in recent months, policy makers have increasingly looked to them to step up their participation in the hobbled market for securities backed by mortgages.

“This is what (Fannie and Freddie) were put in place for. … And we will deliver,” Freddie Mac Chairman and CEO Richard Syron said.

Influential Democratic lawmakers have been pushing for a reduction in the companies’ capital-holding requirements. Bush administration officials and numerous Republican lawmakers, on the other hand, have long opposed allowing Fannie and Freddie to take on more debt, contending that doing so could threaten the global financial system.

URL: http://www.msnbc.msn.com/id/23704630/

FHA Raises Mortgage Limits
In High-Cost California Counties

The Federal Housing Administration raised the mortgage limits to a maximum of $729,750 for 14 high-cost counties in California, as the government began providing aid to homeowners required by the recently enacted economic-stimulus package.

The upper mortgage limits also will apply to loans purchased or guaranteed by government-sponsored mortgage companies Fannie Mae and Freddie Mac, FHA officials said.

Details for the rest of the country are due to be announced this week. California counties such as Los Angeles and Orange will be eligible for the maximum limit, which was raised from $362,790. Lower- priced regions, such as Trinity and Lassen counties, will qualify for a loan cap of $271,050, up from $200,160.

FHA officials predicted the increases in California would aid about 33,000 individuals. The new loan limits will be in effect through the end of this year. The goal is to invigorate the market for larger mortgages, which should help push down interest rates.

The FHA said there would be an appeal process through which the new loan limits could be raised higher for counties that aren’t now eligible for the $729,750 maximum, but none of the limits will be lowered, said Bill Glavin, special assistant for public affairs in the FHA’s Commissioner’s Office. That appeals process could be announced, along with new loan limits for the rest of the country, as early as Thursday.

“From what we understand there are not going to be a lot of areas in the country except for California that are going to be at the maximum,” Mr. Glavin said.

Those who have applied for an FHA loan but haven’t yet closed on it will be able to take advantage of the new limits. The new ceilings also will apply to people seeking to refinance into an FHA loan.

By SARA MURRAY
March 5, 2008 6:38 p.m.

FHA Mortgage Limits in California by County