Monday, February 25, 2008

Real Estate Economic Aid

$5,694 / year – every year, is to be given to homeowners nationwide by the economic stimulus package.*

$1B+ / year – every year, could be put back into the San Diego economy.**

* Homeowners who refinance loans in high-cost areas may save $5,694 per year due to the economic stimulus package. With the conforming loan limit being increased to as much as $729,750 in high-cost areas like San Diego, a number of homeowners may be able to trade in a jumbo loan or a first & second combination loan for a conforming loan. Because the interest rate on a jumbo loan is typically 1% higher than we find on a conforming loan, less mortgage interest will be paid. For example, on a $729,750 loan, reducing an interest rate of 6.75% down to 5.75% means a savings of $5,694 / year – every year!

** The National Association of Realtors indicates that 44% of transactions in San Diego fall below the current conforming loan limit of $417,000 and that 32% fall between the current limit and the new $729,750 limit. The US Census Bureau says that San Diego has 1,125,000+ housing units, of which 35% are multi-family. Hence, there are 731,250+ homes * 32% = 234,000 homes. At $5,000 apiece, we are well over $1B. You might be tempted to argue that a $5,000 average savings is high. It is. But, I believe the 32% might be low.

Why? Two reasons. First, we have first-hand evidence of a client refinancing their mortgage that is currently above the $729,750 loan limit. Now, that means a first and a second, but there is a significant savings to be had regardless. Second, 100% - 44% = 56%. So, we aren’t necessarily limited to 32%. If all 56% could save equally, then we’d be looking at $2B+ / year. Of course, not everyone can; some have no equity; others have loans that are just too large; banks are freezing some rates; and still others have awesome rates that they should just leave alone. And not everyone who can, will. Hence, “could” and “$1B”.

But the interesting thing about this is the comparison to the much-hyped “give something to everyone – except the rich” provision. The $600 / adult and $300 / child provision amounts to about $1.5B for San Diego. But is a one-time-only deal. The mortgage interest savings is every year until the loan gets replaced.

However, this provision expires at the end of 2008. My wife, Anne-marie, the mortgage broker, says, “It is important for people to act quickly … with hundreds of thousands of people looking to refinance, the system will become overloaded, there are only so many appraisers” She cites the last refinance boom where lenders artificially inflated interest rates to limit the flow of loans. She says people from anywhere in California with good credit may refinance with her at San Diego's Finest Real Estate for Loans aka The phones are usually busy, but she can be reached 24/7 at

If we can put $1B+ back into the local economy, recurring annually, wouldn’t it be “un-American” not to refinance?! :)

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