Thursday, July 24, 2008

Impact of Economic Stimulus on Mortgage Finance in Los Angeles

The chart shows the recent growth of FHA mortgages in Los Angeles. We expect this growth to accelerate exponentially.

Early this year, the Economic Stimulus Act of 2008 (Public Law 110-185) included an increase of FHA and conventional mortgage loan limits. For Los Angeles, the new mortgage loan limit is $729,750. Before the Economic Stimulus Act the maximum FHA mortgage amount for single family homes was $362,790. That prior mortgage loan limit made FHA mortgages useless for home purchases in Los Angeles because the purchase price for most homes were substantially greater than the FHA mortgage limit. Higher mortgage loan limits and lower home purchase prices make many more homes eligible for FHA mortgages for borrowers with low down payments. Home purchases using conventional mortgages will not be as easy or cost effective for many borrowers. While conventional mortgage financing in Los Angeles is still many times greater than FHA, conventional mortgage originations are declining.

The newer housing legislation maintains the high FHA mortgage limits. Homeowners can refinance their recent "under water" conventional mortgages into FHA mortgages with a principle balance reduced to 85% of the current market value of the home and approval from their lender to release the remaining loan obligation from the borrower. More mortgage investors are accepting reduced principle as payment in full when closing short sales. Reduced principle payoffs are expected to increase in mortgage refinances adjusted to current market value of the property.

Mortgage lenders serving borrowers in Los Angeles with FHA mortgages stand ready to profit from accelerating volumes of FHA mortgage transactions. The mortgage market share report for Los Angeles covering the past two months shows some lenders we spoken about recently. Several prominent mortgage lenders have stopped originating new mortgages. First Horizon sold their mortgage operations to Metlife Bank. Prospect Mortgage. shown in the report as Metrocities, has been gaining market share in Los Angeles, especially with FHA mortgages. Prospect Mortgage recently purchased retail offices of Indymac. Prospect Mortgage may also pick up the wholesale customers of Indymac. This will propel Prospect (Metrocities) to the top of the market. In Los Angeles, Metrocities shows strong market share with conventional mortgages (Let us know if you want these market share reports).
Another mortgage lender expected to show market leadership in Los Angeles is TB&W Mortgage. They recently acquired Platinum Home Mortgage. The combined company and business relationships that TB&W has with brokers should make TB&W a formidable competitor in this market.

Any mortgage company that expects to successfully compete for business in Los Angeles must know the conventional mortgage products, Government insured mortgage products, pricing, and the business relationships that companies like TB&W and Prospect/Metrocities has established in Los Angeles. What else do you need to know about the largest mortgage market in the nation? We might have the data for you to evaluate your decision to participate Los Angeles and how to succeed. Over the next few days and weeks, I'll be publishing more reports, charts, and maps showing the mortgage market landscape in Los Angeles. Knowing this market information gives mortgage professionals the edge needed to succeed!


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