2 things that derail most sale-leasebacks

You’ve opted to own the location from which your company operates. A great move by the way! A limited liability company was formed and owns the building. Presumably, the LLC’s members are similar to that of the occupants.

You struck an agreement with the resident – your enterprise – to pay the LLC an amount of money each month for the use of the address. In effect, you’re paying yourself. It’s a beautiful thing! Tax benefits are afforded for the owners of an LLC, such as depreciation of the asset, write-offs for any mortgage interest, property taxes, and operating expenses. Over time, the LLC’s investment appreciates.

Your occupying business pays rent just as it would to a landlord who has no stake in the company. Plus, because the owner of the real estate and operation are synonymous – if business ebbs and flows – so can the rent you pay yourself monthly. We are fortunate to have such a situation.

We own the building from which we ply our brokerage. Each month Lee & Associates Orange – the occupant – pays Taft Lee LLC – the owner – a dollar amount that provides a nice return on our investment. However, during the term of our ownership, we have deferred rent increases, banked reserves for a new roof, and kept the rent commensurate with market conditions. We can do this because we are the landlord AND the tenant.

Generally, a business or ownership transition will create a commercial real estate decision. As an example, if you acquire a competitor, will the real estate you own and occupy adequately house the marriage? Conversely, if you sell the business, does the buyer of the business have their own location? Thus making your asset an excess?

An election to move your enterprise out of state requires some time to facilitate and turn the equity in the real estate to buy your new location. In all cases, as you can surmise, you’ll make a decision. Keep the building or sell it.

When selling is chosen, one of the strategies employed is a sale-leaseback. By definition, a sale-leaseback inserts an investor to replace the LLC ownership. The group – your company – stays in the building, and in the leaseback, pays rent to the investor.

With that as a backdrop, let’s discuss what can derail most sale-leasebacks.

The operating company cannot afford market rent.

Remember. One of the reasons you own your business location is to provide flexibility during tough times. Maybe the amount allowed to your operation to pay is well below what comparable rents are. This is done because your two interests – business and building – are satisfied.

In order to maximize the value of your investment, however, you’ll need to shore that delta. Someone buying your real estate – and relying on rent – is only concerned with a return on their money. Therefore, the price an investor will pay you is based on a formula known as a capitalization rate or cap rate.

A cap rate is determined by net income (rent less expenses) divided by purchase price. The relationship is inverse: the lower cap rate, the higher the price. But, the higher the rent, the higher the price … within reason. If the company housed cannot afford market rent, the sum an investor will pay will result in a lower value.

As a seller, you’d like to max your sale proceeds but don’t want to saddle the business with an unsustainable monthly rent. A true dilemma!

What to do with the proceeds?

Your ownership LLC with a related company paying you is a tidy investment. If you sell the real estate, where can you reproduce the return? Remember, you’ll need to accomplish a tax-deferred exchange into another income property or be faced with a whopping tax bill.

In the three transitions above – acquire a competitor, sell the business or move out of state – a sale-leaseback could ensue. However, each presents complexity.

Buying a competitor is easy, especially if you need more space. No lease-back is needed. You simply sell the smaller and exchange into a larger. Boom.

A business sale – especially if the business buyer doesn’t need your real estate – is challenging. You’ll have to fill a vacancy by selling or leasing. The timing of an out-of-state move works great for a sale-leaseback. Simply, point A is sold. A lease is created for two years. Point B is bought and rented short-term while you prepare to move your enterprise. The lease expires on Point A and the relocation to Point B is completed.

More on these later.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. 

Artist Wyland challenges plans to remove his gray whale mural on Laguna Canyon Road

It’s one of the last images of the sea people see as they leave Laguna Beach: a gray whale popping it’s head out of the Pacific Ocean.

On Friday, July 30, a press conference was held in front of the 34-year-old mural along Laguna Canyon Road, one of Wyland’s 100 Whaling Wall series, to oppose plans for its removal.

The developer who bought the industrial property wants to replace the porcelain tile image with tenant signs, but the marine artist is saying the mural is protected by the Visual Artists Rights Act of 1990.

  • A tile replica of a Wyland painting of a California Gray Whale in Laguna Beach, CA, on Friday, July 30, 2021. Steve Creech, the president of the Wyland Foundation, says the property owner of the industrial building along Laguna Canyon Road is planning to demolish the 500-square foot artwork on Saturday. The existing tile mural, which dates back to 1996 replaced a painted version installed over 30 years ago. (Photo by Jeff Gritchen, Orange County Register/SCNG)

  • Wyland supporters stand near tile replica of a Wyland painting of a California Gray Whale in Laguna Beach, CA, on Friday, July 30, 2021. Steve Creech, the president of the Wyland Foundation, says the property owner of the industrial building along Laguna Canyon Road is planning to demolish the 500-square foot artwork on Saturday. The existing tile mural, which dates back to 1996 replaced a painted version installed over 30 years ago. (Photo by Jeff Gritchen, Orange County Register/SCNG)

  • Steve Creech, the president of the Wyland Foundation, near tile replica of a Wyland painting of a California Gray Whale in Laguna Beach, CA, on Friday, July 30, 2021. Creech says the property owner of the industrial building along Laguna Canyon Road is planning to demolish the 500-square foot artwork on Saturday. The existing tile mural, which dates back to 1996 replaced a painted version installed over 30 years ago. (Photo by Jeff Gritchen, Orange County Register/SCNG)

  • A tile replica of a Wyland painting of a California Gray Whale in Laguna Beach, CA, on Friday, July 30, 2021. Steve Creech, the president of the Wyland Foundation, says the property owner of the industrial building along Laguna Canyon Road is planning to demolish the 500-square foot artwork on Saturday. The existing tile mural, which dates back to 1996 replaced a painted version installed over 30 years ago. (Photo by Jeff Gritchen, Orange County Register/SCNG)

  • A Laguna Beach police officer tells Steve Creech, the president of the Wyland Foundation, and other Wyland supporters that they are trespassing as they hold a press conference near tile replica of a Wyland painting of a California Gray Whale in Laguna Beach, CA, on Friday, July 30, 2021. Creech says the property owner of the industrial building along Laguna Canyon Road is planning to demolish the 500-square foot artwork on Saturday. The existing tile mural, which dates back to 1996 replaced a painted version installed over 30 years ago. (Photo by Jeff Gritchen, Orange County Register/SCNG)

  • A tile replica of a Wyland painting of a California Gray Whale in Laguna Beach, CA, on Friday, July 30, 2021. Steve Creech, the president of the Wyland Foundation, says the property owner of the industrial building along Laguna Canyon Road is planning to demolish the 500-square foot artwork on Saturday. The existing tile mural, which dates back to 1996 replaced a painted version installed over 30 years ago. (Photo by Jeff Gritchen, Orange County Register/SCNG)

of

Expand

Chris Dornin, president and CEO of Dornin Investment Group, contends the mural was originally installed as a billboard sign to advertise the Wyland gallery that was once located on the property.

“Wyland designed it so he could remove it when he vacated the property, but he never did and now he is trying to claim something drastically different,” Dornin wrote in an email.

Wyland, speaking from Hawaii where he’s preparing for the grand opening of a new Wyland Gallery on Kauai, said he originally did create the art on honeycomb so it could be removed, but many years have passed and it is now too fragile to take down.

“People have driven by that wall for 30 years. It belongs there, it needs to stay there,” Wyland said. “Someone that buys a building doesn’t have a right to destroy art that becomes part of the community.  That’s the critical importance of public art.”

Wyland got his start in Laguna Beach, inspired during a summer trip as a kid when he saw gray whales nearby while he was swimming in the ocean.

His first-ever mural and the first of his 100-wall project was painted in 1981 on Pacific Coast Highway –  a piece of art that later put him at odds with the previous owners of Hotel Laguna, who painted over it in the mid-’90s. The hotel’s current owner allowed Wyland to recreate his original mural two years ago, which is next to his Laguna Beach work-live studio.

In 2017, Wyland battled with Hawaiian Airlines after it bought the airport center building in Honolulu and wanted the rights to the two murals on the buildings. The airline and artist eventually came to agreement, with Wyland restoring the artwork.

Since last year, Wyland and the developers of the AES power plant in Redondo Beach have been at odds over an iconic 586-foot, 95-foot high mural he created there in 1991.

Wyland argues his murals have protections under the Visual Artists Rights Act of 1990, including requiring written consent before the work can be destroyed.

“They’ve come across the wrong artist. If they get away with it, all public art is exposed. I need to stand up for artists. I will always do that,” Wyland said. “Our position is, we are not allowing them to remove or damage the mural, now or in the future.”

Dornin said he received design review approval more than a year ago from the city for cosmetic upgrades, including replacing the Wyland billboard with tenant signage for the property at 2171 Laguna Canyon Road.

He contends the piece was never commissioned as part of the city’s Art in Public Places program.

“That doesn’t in any way say it’s not public art,” Wyland said. “It’s one of the largest public art projects in Orange County and inspired so many more, and so many other artists.”

The piece, “Laguna Coast,” is one of the smaller murals in the Whaling Wall series at 20 feet long and 24 feet high. The 12th in the project, it was dedicated on Dec. 2, 1987 and later recreated in porcelain tile in 1996.

“Art is important to the community.  Who thinks it’s a good idea to remove something that is a landmark in Laguna Beach, plus adds value to the building and the community?” Wyland said.

But Dornin said Wyland is welcome to keep the art and has given him two years notice to remove the mural.

“If the billboard is important to him, he is more than welcome to remove it and show it in one of his galleries or install it on a property he owns,” Dornin said.

Steve Creech, executive director of the Wyland Foundation who was at Friday’s press conference, said though there were emails exchanged years ago, a third-party source just warned them about possible imminent removal, maybe as early as Saturday, and time is needed for inspection. Dornin could not be reached to ask about any immediate demolition plans.

Real estate news: 20-story office tower in Orange sells for $150 million

City Tower, a 20-story, 435,177-square-foot high-rise office building in Orange, has been sold for $150.5 million.

The building at 333 City Boulevard is home to UC Irvine Medical Center, Enterprise Rent-A-Car and Sedgwick and Spaces.

The transaction, which was brokered by Newmark Knight Frank, is the largest office sale in Orange County this year, according to the firm.

The property got a $3 million renovation that upgraded the lobby, fitness center, conference center and main entry.

Newmark’s Kevin Shannon, Paul Jones, Brunson Howard, Ken White and Brandon White represented the seller, Pacific Oak Capital Advisors. The buyer was Opal Holdings, a New York-based real estate investment firm.

El Verano, a new, 54-unit affordable and supportive housing apartment complex for the homeless and low-income seniors, is now fully occupied at 1248 E. Lincoln Ave. in Anaheim. Innovative Housing Opportunities converted the blighted Sandman Hotel into a three-story community with Spanish architecture. (Courtesy of Innovative Housing Opportunities)

Anaheim housing project fully occupied

El Verano, a new, 54-unit affordable and supportive housing apartment complex for the homeless and low-income seniors, is now fully occupied at 1248 E. Lincoln Ave. in Anaheim.

Innovative Housing Opportunities converted the blighted Sandman Hotel into a three-story community with Spanish architecture.

The city bought the hotel in 2017 for $3.5 million along with parcels at 1239 and 1249 E. Broadway. IHO, which proposed spending $23 million for the conversion, holds a 55-year lease with the city. Federal funds and tax credits were used to develop the apartment in addition to a $2.5 million loan from the city.

Amenities include a community room, computer room and dedicated health office. All the services are aimed at helping residents remain housed and to “age in place with dignity and grace,” the organization said in a statement.

El Verano is next door to IHO’s Rockwood Apartments, another multifamily complex that provides housing and support services for 48 formerly homeless families, as well as 15 permanent supportive housing units for Mental Health Services Act (MHSA) residents living with mental illness.

Newport Beach-based CapRock Partners has bought 21 acres of land in 10 parcels for the development of three industrial buildings totaling 441,554 square feet in north Las Vegas. (Rendering courtesy of CapRock Partners)

More deals in Vegas

Newport Beach-based CapRock Partners has bought 21 acres of land in 10 parcels for the development of three industrial buildings totaling 441,554 square feet in north Las Vegas.

CapRock bought the land for a Class A project that should break ground in early 2022. Its completion is expected by the end of that year.

The new project, named CapRock Tropical Logistics Phase II, is the second phase of the adjacent CapRock Tropical Logistics, a two-building 1.1 million-square-foot logistics complex that is nearly complete.

Together, the two projects will encompass 105 acres or 34 legal parcels. CapRock said the first phase is 100% pre-leased and should be ready in the fall.

Newport Beach-based Alere Property Group, a developer and investor of industrial real estate, has bought a 72,051-square-foot, single-tenant distribution warehouse in Rancho Cucamonga. Terms of the transaction were not disclosed. The building at 8700 White Oak Avenue is occupied by Bluestar Express Group, a third-party logistics user. (Courtesy of Alere Property Group)

Inland buy for Alere

Newport Beach-based Alere Property Group, a developer and investor of industrial real estate, has bought a 72,051-square-foot, single-tenant distribution warehouse in Rancho Cucamonga.

Terms of the transaction were not disclosed.

The building at 8700 White Oak Avenue is occupied by Bluestar Express Group, a third-party logistics user.

Nick Velasquez and Mike Hartell of Colliers International represented the seller and Alere in this transaction.

The Bascom Group in Irvine and Spirit Investment Partners of Stamford, Conn., have bought a 221-unit apartment complex in Evanston, Ill., for $49 million or $222,217 per unit. The complex, called 415 Premier, is a 17-story high-rise built in 2008.

Bascom buys in Chicago area

The Bascom Group in Irvine and Spirit Investment Partners of Stamford, Conn., have bought a 221-unit apartment tower in Evanston, Ill., for $49 million or $222,217 per unit.

The building, called 415 Premier, is a 17-story high-rise built in 2008.

Dan Cohen of CBRE represented the seller. Peter Marino, also of CBRE, arranged the acquisition financing through Rialto Capital Management.

Buchanan Street Partners in Newport Beach has bought Village of Rowlett, a 249-unit apartment complex in Rowlett, Texas, a suburb of Dallas, from Catalyst Urban Development. Terms were not disclosed by the firms. (Courtesy of Buchanan Street Partners)

Buchanan Street buys in Texas

Buchanan Street Partners in Newport Beach has bought Village of Rowlett, a 249-unit apartment complex in Rowlett, Texas, a suburb of Dallas, from Catalyst Urban Development.

Terms were not disclosed by the firms.

The 3-year-old Village of Rowlett includes 16,000 square feet of retail space plus a mix of studios, one-bedroom, two-bedroom units, in addition to 27 two-bedroom townhomes. The property was 96% occupied at the time of sale, Buchanan Street said.

Amenities including a swimming pool and sun deck, camp-style fire pit, urban community garden and yoga/fitness center.

Aaron Kirman Group in Los Angeles has named former NFL cornerback turned real estate agent Morgan Trent as managing director for its expansion into Orange County. Trent, who started his real estate career in Orange County at The Related Companies in 2012, co-starred with Kirman on the CNBC show. (Courtesy of Aaron Kirman Group)

‘Listing Impossible’ team expands into OC

Aaron Kirman Group in Los Angeles is looking for more luxury sales in Orange County, naming former NFL cornerback turned real estate agent Morgan Trent as managing director for the new venture.

Aaron Kirman, founder and president of the firm and president of International Luxury Estates at Compass, is the host and agent that stars in “Listing Impossible” on CNBC. Season One included a listing in Dana Point that had toiled for three years before Kriman sold it for $9,995,000 in October 2018.

Trent, who started his real estate career in Orange County at The Related Companies in 2012, co-starred with Kirman on the CNBC show.

So far, there is no office space for the Orange County division. Trent, the firm said, will be focused on growing his team first.

On the move

Jim and Margaret Turco have joined the Mission Viejo office of Berkshire Hathaway HomeServices California Properties. The Turcos were among the founders of Surterre Properties, which has offices in Laguna Beach, Monarch Beach and Newport Beach.

Troy Dao has joined The Saywitz Co. in Newport Beach and will help the brokerage expand its business development group and its brokerage operations. He has a background in customer service and sales.

Troy Dao has joined The Saywitz Co. in Newport Beach. Patty Arvielo, co-founder and president of Tustin-based New American Funding, has been named one of the Most Powerful Women in Mortgage by Mortgage Banker.

Milestones

Patty Arvielo, co-founder and president of Tustin-based New American Funding, has been named one of the Most Powerful Women in Mortgage by Mortgage Banker. This is the first time that Arvielo has been honored by the magazine. First American, with 179 locations and some 4,800 employees nationwide, said it wrote 170,000 loans for $43.4 billion in 2020.

Good works

Sea Pointe Construction, a residential design/build firm in Irvine, has donated new cabinetry and has partnered with Galleher to provide flooring to renovate a unit at Thomas House Family Shelter in Garden Grove.

This is the second unit Sea Pointe has renovated at Thomas House during the COVID-19 pandemic.

Thomas House has provided over 1,500 families with rent-free shelter with a goal of helping residents maintain permanent housing while monitoring and bettering their personal finances.

Real estate transactions, leases and new projects, industry hires, new ventures and upcoming events are compiled from press releases by contributing writer Karen Levin. Submit items and high-resolution photos via email to Business Editor Samantha Gowen at sgowen@scng.com. Please allow at least a week for publication. All items are subject to editing for clarity and length.

 

Navy to reexamine ocean training after fin whales were likely struck by a visiting destroyer

Naval protocols for training off Southern California and Hawaii will be reviewed again following an investigation into the death of two fin whales found stuck on the hull of an Australian destroyer during a joint training exercise with the U.S. Navy off San Diego.

The Australian destroyer pulled into Naval Base San Diego in May with the two dead whales hanging off its bow.  The smaller whale, a calf, was disposed of in a landfill and the larger was dragged back out to sea off San Diego, but drifted for miles washing up at Bolsa Chica State Beach on May 19. The carcass was then disposed of in a landfill.

Biologists from the National Oceanic and Atmospheric Administration confirmed with testing that the two female whales were related – likely mother and daughter.

The Center for Biological Diversity, an environmental advocacy group, requested NOAA, the Pentagon and the U.S. Department of Commerce re-examine Navy training in the Pacific and put in place more protective measures for whales and marine life, threatening a lawsuit in its letter.

Recently, Navy and NOAA officials answered the center’s letter and agreed to reexamine their training protocols.

Officials with NOAA said that based on their “evaluation of the recent vessel strike incident involving the HMAS Sydney, and other relevant new information,” the trigger to reevaluate the Navy’s training in the regions off Southern California and Hawaii had been met.

The Navy has to meet strict guidelines outlined in a permit issued by NOAA’s National Marine Fisheries Service, which is tasked with addressing the effects of human activities on protected marine species under the authority of the Marine Mammal Protection Act and the Endangered Species Act. The permits, typically for five-year periods unless there is an issue and NOAA needs to reevaluate, set limits on how many animals can be killed or injured in a specific time period before training has to pause.

The Navy also agreed to the new review, saying it is coordinating with NOAA.

Navy officials said they employ various protective measures such as 24-7 lookouts who stand on the stern and aft of the ships to spot marine life and reducing power and speed when animals are sighted.

Sailors also stop active sonar transmissions when marine mammals are within a predetermined safety range and safety zones are established around detonations and maneuvering vessels. The Navy also limits training when it is breeding, migration and feeding times for specific species.

According to NOAA officials, the need for a new evaluation can arise if the number of whales or marine life killed or injured exceeds allowed levels, if there is information on how training could affect species in the area in a way that was not previously considered, or if there is a new species or critical habit identified.

Kristen Monsell, legal director with the Center for Biological Diversity’s ocean program, said she is pleased the two federal agencies have agreed to further study the training and how current practices may negatively affect the whales and marine life in the area.

“These military activities can wreak havoc on whales, dolphins and other marine mammals through explosions, sonar and ship strikes,” she said. “We hope this process leads to new mitigation measures like slowing ships down in important whale habitat. The Biden administration needs to find a better balance of marine protection with military readiness.”

The letter from the environmental group outlined concerns not only related the two fin whale deaths, but also included new scientific information regarding not only vessel strikes, but other sources of stress on sea life; it also suggested the Navy had expanded its activities and that there is a newly designated critical whale habitat at play.

Biologists with NOAA and the Navy are expected to develop new protocols based on various types of training and areas where the training may happen and decisions should be made within 150 days, per their standard protocols.

“The Navy could choose to adopt additional mitigation measures now and not wait for the new biological opinion, and we certainly hope they do so since endangered whales are at risk now,” Monsell said.

Monsell said her group would like to see even more safeguards put into place for whales and other marine mammals, including slowing vessels to 10 knots or less in important whale habitat areas and additional restrictions on the use of sonar and explosives.

Vessel strikes are a leading cause of whale deaths in California. In January, the Center for Biological Diversity sued the federal government, saying it failed to protect endangered whales from speeding ships, and the group filed a federal petition in April seeking a mandatory 10-knot speed limit.

Federal records document at least 26 whales killed by vessels along the West Coast from 2014 through 2018. Scientists say the actual number of vessel-strike deaths could be 20 times larger than documented since most dead whales sink.

But speeding isn’t the only problem the Center for Biological Diversity sees with the Navy’s training.

“The explosions and sonar used in the Navy’s activities are incredibly harmful to marine mammals,” Monsell said. “These animals rely on hearing for essential behaviors like feeding and breeding. If they can’t hear, they can’t survive.”

The Navy’s training, meant to be as realistic as possible, can include explosions in the water, torpedo tests, use of sonar and high-energy lasers, underwater vehicles and multiple ships moving around at once.

Since 2009, the Navy has had to secure permits from NOAA for its training.

15-year fixed mortgages drop to record low of 2.1%

Where is the bottom?

This week the Freddie Mac primary market mortgage survey shows the 15-year fixed hitting a record-low of 2.1% with a 0.7-point cost.

One year ago, during Wave 1 of the COVID-19 triggered refinance mania, the 15-year was 41 basis points higher at 2.51%.

The 15-year fixed is currently available at a 1.75% interest rate in California if you are willing to pay some points. Because mortgage sizes are much larger in California, mortgage pricing is always better than Freddie’s national polling shows.

The average 30-year fixed is currently at 2.8%, Freddie Mac reported, just 15 basis points above its Jan. 7 all-time low of 2.65%

Before I explain what is going on, let me first eat some crow.

Just two months ago, I wrote a column predicting the 30-year fixed rate would hit 3.5% by year end. There have been just a handful of times in the past 50 years where mortgage rates have climbed about three-quarters of a percentage point in five months, according to Freddie Mac historical data.

In most cases, that occurred when hyperinflation was in the wind. The inflation pressures in front of us today are nowhere close to hyperinflation. So, the chances of us seeing 3.5% by year end are slim and none. Crow it is.

Obviously and quite unexpectedly, a new COVID-19 virus variant named Delta is clobbering many corners of America. New cases are rapidly mounting. Masking up is the new mandate-again.

Uncertainty is never good for the economy. Uncertainty tends to drive rates down. Are we going back to lockdown mode? When will this new strain get contained? What is next? Will we see a wave of some other variant when this one comes to an end?

Here’s what we do know: Federal Reserve Chair Jerome Powell announced Wednesday, July 28, that the Fed will continue to buy at least $40 billion of mortgage-backed securities each month until substantial further progress has been made toward maximum employment and price stability goals.

Remember, Fannie and Freddie dropped their one-half point “adverse market” fee for refinanced mortgages a few weeks ago. That saves borrowers $2,500 on a $500,000 loan.

With home prices and home appreciation exploding, Black Knight reported America had $8.1 trillion of tappable home equity as the first quarter of the year.

Black Knight’s Optimal Blue refinance rate-lock data shows 42% of all rate locks were for cash-out refinances during the first three weeks of June.

As of July 21, Black Knight data shows nearly 14 million borrowers could save almost $300 per month by refinancing. Of those, more than 1.8 million were in California. The estimated savings to California refinance borrowers was even higher at more than $400 per month.

Local refinance activity over the past few years has been remarkable.

Starting in the first quarter of 2019, refinance volume in Los Angeles, Orange, Riverside and San Bernardino counties increased 10%-20% each quarter through December 2020, according to Attom Data Solutions. The exception was in the first quarter of 2020, when volume dropped as COVID-19 first hit.

If you want to take cash-out, you should determine if you are better off refinancing your first mortgage or getting a home equity line of credit, or HELOC.

Generally, if you have a really good rate right now and you don’t want to pull out much cash, a HELOC might be a better choice. Most banks don’t charge anything to get a HELOC.

The downside of a HELOC is rates and payments may adjust monthly.

If you are looking to drop the rate you pay for a fixed loan, you should be able to get around 2.875% on a 30-year fixed and 2.375% on a 15-year fixed without any closing costs. This assumes excellent income, credit, and equity.

The biggest break is if you can go from a 30-year fixed to a 15-year fixed. You can typically reduce your interest rate by 0.5% by taking on the shorter-term mortgage.

Freddie Mac rate news: The 30-year fixed rate averaged 2.8%, 2 points higher than last week. The 15-year fixed rate averaged 2.1%, a record-low that’s 2 basis points lower than last week.

The Mortgage Bankers Association reported a 5.7% increase in mortgage application volume from the previous week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $548,250 loan, last year’s payment was $55 more than this week’s payment of $2,253.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages without closing costs: A 30-year FHA at 2.5%, a 15-year conventional at 2.375%, a 30-year conventional at 2.875%, a 15-year conventional high-balance ($548,251 to $822,375) at 2.5%, a 30-year conventional high-balance at 3.125% and a 30-year fixed jumbo at 3.25%.

Eye-catcher loan of the week: A 15-year fixed mortgage at 1.75% with 1.625 points cost.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.