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Bernanke Speaks; Appraisal Issues; FHA; Record Home Price Decline

The stock market again approached lows not seen since the 1990s, and the Case-Shiller U.S. Home Price Index showed that home prices plunged 18.2% nationally from the same period a year ago – the largest drop in its 21-year history. An 18.2% drop, however, seems mild compared to the 45%+ drop we experienced here in the Bay Area.

Fed Chairman Bernanke is speaking today and tomorrow. He claims we are in for a protracted slump but that we should pull out of the recession late this year. Let’s hope his prognostication is more accurate than two years ago when he claimed our economy was fundamentally sound overall, and that we had little to worry about.

A client of ours complained yesterday about a transaction he has with Wells Fargo’s retail division. His client opted to use Wells Fargo instead of us, even though our rates and fees were lower, because the Wells Fargo agent was a close friend of the buyer. Our client’s complaint yesterday was the slow turn-time for Wells Fargo’s appraisal – almost ten days. Hearing this made us want to remind everyone that we have a stable of exceptionally experienced appraisers who can always guarantee 48 hour turn times for purchase-appraisals.

FHA vs. Conventional. We have many clients concerned about the “cost of FHA”, as mentioned yesterday. But the cost is over-stated. The only additional cost for FHA is the “Up Front MIP” fee. This fee, that can be added to the loan amount, is 1.75% of the loan amount if the LTV is above 94.9%, and only 1.5% of the loan amount if the LTV is below 94.9%. The other cost associated with FHA is the monthly MI which is typically 0.55%, much cheaper than the MI required for conventional loans.

Conventional Loans greater than 80% loan to value do not require “Up Front MIP”, but they do require much more expensive Monthly MIP. A 90% LTV Loan would require a Monthly MI Rate of at least 0.69%, for example. And this is only available for the most qualified borrowers, with excellent credit. MI for 95% LTV Loans is almost non-existent in our market right now, making FHA the only option for most borrowers in any case.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167