Market Update (1/28/2010)

The mortgage backed security market has been very quiet all week. This has kept mortgage interest rates very low.

The big news of the week is that the Federal Reserve issued their policy statement yesterday. In the Fed’s statement, they further confirmed their plan to end the mortgage backed security purchase program on March 31st. We always expected this date would stay firm, but some have whispered that this program might be extended. For more information on what this means for interest rates, read our 2010 Rate Forecast post from the beginning of January.

Update to the Changes in the upfront costs for FHA loans

The new rules that were described in my 1/20 post titled “Changes are Coming to FHA Loans” are set to take effect on April 5, 2010. Click on the link below to find the new HUD Mortgagee Letter for additional information.

Mortgagee Letter 2010-02

Changes to the FHA Appraisal Process

Please mark February 15th on your calendars. Why? Because on or after this date, loan officers will no longer be able to order appraisals or have contact with appraisers for FHA loans. The ordering of an FHA appraisal will now be done by appraisal management companies or by a department that is not involved in loan production. This process will now mirror the process for ordering conventional appraisals.

Although I understand and agree with the spirit behind these changes, the fact is that this process takes control out of my hands which means that the process will take longer. If possible, I encourage you to get contracts for FHA purchases to me before February 15th. If you have any questions, please call me.

Market Update (1/22/2010)

When rates are as low as they are right now, comments like “mortgage interest rates hold steady again this morning” are good. Well, that is exactly what we have once again. Mortgage interest rates refuse to be bothered by good economic news and by the impending end of the Fed’s mortgage backed security purchase program. With few exceptions, we have seen rates right around the 5% range for over a year now. Instead of analyzing why this morning, I am going to just enjoy it and encourage you do the same.

Change are coming to FHA loans

The Federal Housing Authority announced yesterday that they are going to be tweaking the guidelines for an FHA loan. Here are the tweaks:

1. The upfront mortgage insurance premium is going to be raised from 1.75% to 2.25%. This fee will still be financed into the loan, but the cost to the borrower is going to be $500 for every $100,000 borrowed. (They also asked for permission to raise the monthly mortgage insurance premium. If they raise the monthly premium, they might lower the upfront premium. We are not sure exactly how this is going to work.)

2. Set a minimum down payment of 10% for any borrowers with a credit score under 580. The impact of this is zero because banks stopped doing loans for borrowers under 620 over a year ago.

3. Reduced the maximum seller concessions from 6% to 3%. Getting 6% from the seller was not necessary anyway. 3% should be plenty.

We will find out the dates of these changes later.

Market Update (1/20/2010)

Mortgage interest rates continue to move as the stock market moves. Yesterday, mortgage interest rates were higher and so was the stock market. Today, mortgage interest rates are back down and so are stocks.

The big news of the day is that the Federal Housing Authority, or FHA, has decided to raise the up-front borrower costs for an FHA loan. The FHA is also seeking permission to raise the monthly mortgage insurance premium being charged. The good news to come out of today’s announcement is that the minimum monthly payment will be kept at 3.5%. The exact timetable for implementation will not be known until tomorrow, but we expect this to happen sometime this spring. Click on the link below for more information.

Changes for FHA Financing

90-Day Flipping Rule for FHA Loans Has Been Waived

In the past, a buyer could not get an FHA loan on a house that had not been owned by the seller for less than 90 days. This morning we found out that this rule has been waived for the next year starting on 2/1.

Why Buyers Might Not Want to Wait Until April 30th

In observance of Martin Luther King, Jr. Day, the market is closed today. This gives me the opportunity to give a brief reason why buyers might not want to wait until the April 30^th deadline for the tax credit to purchase a new house.

That reason is the higher rates that are inevitable. I have been preaching this for some time now, but rates will go up this year. Do we know exactly when? No. What we do know is that the federal government’s tool that has been used to move interest rates to 5% is ending on March 31. This tool is the Federal Reserve’s mortgage backed security purchase program. You might hear whispers in the next couple of months that this program might be extended. Those whispers will probably be half-true. On the one hand, the Fed will probably reserve the right to purchase mortgage backed securities in the future. However, I would be very surprised if any additional money will be allocated outside of the $1.25 Trillion that was allocated last year. In essence, the program will end and mortgage interest rates will go up.

Market Update (1/14/2010)

Mortgage interest rates are holding steady again today despite some dismal economic reports that were released this morning. These reports, which study Retail Sales in the US, came in much lower than expected. This news would often send money into the bond market and lower interest rates. However, we are not seeing much impact so far today.

With the upcoming end of the Fed's Mortgage Backed Security purchase program and the continued borrowing of money by the US Treasury, I do believe that we have seen the bottom for interest rates. Get more information on my outlook for 2010 by clicking on my January post with the title 2010 Rate Forecast.

VA Funding Fees

VA Funding Fees are always a big question in our area. Below is the chart that is used by the VA in order to determine the funding fee. This chart is very important because it can help one decide how much money to put down on a new house. (Understand that for borrowers who collect disability from the VA, the funding fee is waived.)

Type of Veteran	Down Payment	First Time Use	Subsequent Use for loans from 1/1/04 to 9/30/2011
Regular Military	None 5% or more (up to 10%) 10% or more	2.15% 1.50% 1.25%	3.3% * 1.50% 1.25%
Reserves/ National Guard	None 5% or more (up to 10%) 10% or more	2.4% 1.75% 1.5%	3.3% * 1.75% 1.5%

Market Update (1/12/2010)

Rates are down a little this morning. This is partly due to a down day for stocks. Remember that money that leaves the stock market often finds its way to the bond market. The increased money supply for bonds such as mortgage backed securities helps increase the value of those bonds. This, in turn, lowers mortgage interest rates.

One quick point that I want to make this morning is to remind your buyers that an Adjustable Rate Mortgage might be right for them. This is not the case for every buyer, but it is for some. Please click the link below to find out more about Adjustable Rate Mortgages.

ARMS: Bad or Good?

Market Update (1/8/2010)

Although the Jobs Report came in much worse than expected, mortgage interest rates have not been affected yet this morning. The dwindling dollars left for the Fed to purchase mortgage backed securities is going to make it difficult for any news to spark much of a rally in the mortgage backed security market. That being said, there were whispers last week that this program could be extended past March. If this were to happen, the purchases would not be at the pace that we saw in 2009 but could help ease the fall. Click here for more information.

New FEMA Map Adds 150 Cities to Flood Hazard Areas

FEMA has added about 150 cities to its designated flood hazard area. Although it looks like most of the new areas are out West, it still makes sense to check the new flood map to make sure by clicking on the link below. A new buyer could have to pay flood insurance even though the current owner does not.

FEMA Map Service Center –

New Good Faith Estimate

Starting on 1/1/2010, paperwork for new loans will look a little different. The ever-popular Good Faith Estimate has received a face lift. Despite popular opinion in the mortgage industry, this is not the end of the world. In fact, it is a very good and positive thing for homebuyers and for loan officers. Let me explain. This new GFE and the new rules that come along with it have created transparency in the home loan process. Buyers should no longer be concerned that they do not know what is going to happen when they go to close their loan because loan officers can no longer do a bait-and-switch or add unwarranted fees at the last minute. The positives to home buyers is obvious. The positives for loan officers comes from the fact that this has leveled the playing field. Unscrupulous loan officers can no longer pull some of the shenanigans that I described above. This will only help the better loan officers and create a stronger industry.

2010 Rate Forecast

On the first market update of the new year, I want to give you my forecast for 2010 with a quick look back at the previous year.

A LOOK BACK: As most of you know, mortgage interest rates had a banner 2009 with rates consistently around 5% and dipping to 4.5% at the end of November. These record rates were the result of a Federal Reserve program which purchased mortgage backed securities from Fannie Mae, Freddie Mac, and Ginnie Mae. This program was designed to jump start a down housing market with super low mortgage interest rates. It, along with the homebuyer tax credits, did just that.

2010 FORECAST: We will start our 2010 forecast by discussing this Fed purchase program that had such a huge affect on interest rates in 2009. This program to purchase mortgage backed securities is set to expire at the end of March. This will obviously take a lot of money out of the pool that buys these mortgage backed securities. Most experts agree that this Federal money affected interest rates by about 1%. This leads us to believe that interest rates are set to go up about 1% as this program comes to an end. Our prediction then is that mortgage interest rates will range from their current level up to the high 6s this summer. However, there is a wildcard for the year that could send interest rates from the 6s and into the 7s. That wildcard is inflation. If our economy is in fact on the path to a recovery, then inflation will be the next concern that we will have to deal with and there is no bigger enemy to mortgage interest rates than inflation.

HOMEBUYER TAX CREDIT: I am not going to spend too much time on the homebuyer tax credit except to remind you that contracts need to be signed by 4/30/2010 and that the purchase needs to be closed by 6/30/2010.