themetroeastloanspecialist

Market Update (2/22/2010)

2010-02-22T09:22:00.000-08:00

Is the end near? Mortgage bonds took a beating last week driving rates a little higher. We are still seeing exceptional rates, but we are also seeing higher rates than we did just 10 days ago. We have been here before, but we are now so close to the end of the Fed’s mortgage backed security purchase program that any move higher strikes fears that rates will continue on an upward trend. We are also continuing to see huge supplies of government auctions that is adding competition to mortgage bonds and leading to more concern over inflation.

Market Update (2/18/2010)

2010-02-18T09:05:00.001-08:00

There was some concerning inflation data released this morning. The Producer Price Index, which measures inflation at a wholesale level, has been ticking higher for several months now. We as consumers do not always see this inflation right away but eventually companies will start charging more for their goods because these goods are costing more to make. The bond market watches inflation very closely. We will continue to keep you updated.

Another little known fact about the homebuyer tax credits

2010-02-12T13:13:00.000-08:00

You do not have to sell your home in order to qualify for the tax credit that is available to repeat homebuyers. The only restriction is that you have lived in and owned the home for 5 consecutive years out of the most recent 8 years before purchasing the new one.

Little-known fact about the first-time homebuyer tax credit

2010-02-09T19:55:00.000-08:00

Owning a home outside of the United States within the last three years does not disqualify an individual from claiming the first-time homebuyer tax credit if they purchase a home in the US before June 30th.

Market Update (2/9/2010)

2010-02-09T07:14:00.000-08:00

Over the next month, you are going to start to hear more and more talk about the Fed’s mortgage backed security purchase program. In fact, Fed Chairman Ben Bernanke is scheduled to speak tomorrow to members of the House Financial Services Committee about the Fed’s plan to end this program on March 31st. Nobody knows for sure what this will mean for mortgage interest rates. I have heard experts say the impact will be anywhere from 0.5% to 1%. The one thing that I do not hear any experts say is that rates will stay the same or go down as we approach this date.

More information on the waiver of the FHA flipping rule

2010-02-04T12:43:00.000-08:00

Below is a website that you can visit that has all of the information concerning the recent release by HUD that they are waiving the requirement that homes need to be owned by the seller for at least 90 days before they can be sold to someone that is using FHA financing. The most important piece of information that I took from this new rule can be found in condition #2 concerning requirements if the new sales price is more than 20% more than the seller's acquisition cost. This wording can be found at the bottom of page 1 and the top of page 2.

http://www.hud.gov/offices/hsg/sfh/waivpropflip2010.pdf

Market Update (2/4/2010)

2010-02-04T10:18:00.001-08:00

Rates are still holding steady ahead of tomorrow’s Jobs Report. Current expectations are for the Jobs Report to show 15,000 jobs created in January and for the unemployment rate to remain at 10%. Our strategy right now for all new transactions is to lock in the interest rate ahead of this report. Not that we necessarily think the report is going to be better than expected, but we know that rates have a lot more room to go up than they do to go down. In other words, we are going to see rates of 5.5% before we will ever see the rate at 4.5% again. The risk of rising rates is not worth the reward.

Market Update (Groundhog Day)

2010-02-02T09:18:00.000-08:00

Like the 1993 classic “Groundhog Day,” today’s rate sheet is looking very similar to yesterday’s rate sheet and Friday’s rate sheet and Thursday’s rate sheet, and… (I think you get the picture.)

The value of mortgage backed securities has not changed much since the middle of January and neither have interest rates. This could all change this week because the always-important Jobs Report is set to be released on Friday. We will have more information about this report over the next couple of days. In the meantime, enjoy these low interest rates because they will not last forever. Right?

Have a great day and enjoy the 6 more weeks of winter. Go to the link below to see Punxsutawney Phil’s prediction this morning.

http://www.youtube.com/watch?v=I8VeiYh9TbI

Market Update (1/28/2010)

2010-01-28T08:36:00.000-08:00

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

2010-01-22T11:23:00.000-08:00

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

2010-01-22T07:42:00.000-08:00

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)

2010-01-22T07:41:00.000-08:00

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

2010-01-20T13:54:00.000-08:00

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)

2010-01-20T13:48:00.000-08:00

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

2010-01-18T13:13:00.000-08:00

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

2010-01-18T09:26:00.000-08:00

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)

2010-01-14T09:26:00.001-08:00

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

2010-01-13T15:02:00.000-08:00

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)

2010-01-12T09:34:00.001-08:00

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)

2010-01-08T08:38:00.000-08:00

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

2010-01-07T09:31:00.000-08:00

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

2010-01-05T10:08:00.001-08:00

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

2010-01-05T10:07:00.001-08:00

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.

Market Update (12/29/2009)

2009-12-29T09:12:00.000-08:00

The value of mortgage backed securities has been in a steady decline since the beginning of December and has fallen off of a cliff starting on December 18th. This fact has caused interest rates to go from the high 4s to the mid 5s. Where this will stop is all speculation.

What is not speculation is that the Fed's program to purchase mortgage backed securities is going to come to an end in three months. I read something last week that indicated that the Federal Reserve is now as much as 25% of the market for Fannie Mae, Freddie Mac, and Ginnie Mae mortgage backed securities. To put this in persepctive, one year ago the Federal Reserve was 1% of that market. WOW! This is a very big deal and is important for potential homebuyers and individuals that currently have a mortgage and have not yet taken advantage of the interest rates that we have seen this year. As I have said over and over again, now is the time.

Market Update (12/22/2009)

2009-12-22T08:06:00.001-08:00

The Grinch is back as mortgage bonds have taken a beating the last couple of days sending mortgage interest rates higher. A lot of factors are contributing to this current uptick for interest rates. The big ones being inflation fears, a rising stock market, and the looming end of the Fed’s program to purchase mortgage backed securities. Rates are still phenomenal from a historical perspective, but have risen consistently since the record lows that we saw at the beginning of this month.

I do feel bad delivering all of this negativity during the holiday season. To make up for it, I included a link to a Christmas song that you might enjoy.

http://www.youtube.com/watch?v=aAGq1u5R9mw

Why now is the time to buy.

2009-12-18T09:20:00.000-08:00

The record low rates that we have experienced this year are thanks to the Fed’s program to purchase mortgage backed securities. This program, which began back in January, is set to expire at the end of March. The latest data shows that the Fed has about $163 BILLION left for this program. Simple math tells us that that averages out to $11.5 BILLION dollars per week from now until March 31. The reason that I highlight this today is because the Fed has been spending over $18 BILLION per week over the most recent 3 months. Common sense tells us that the Fed will start purchasing fewer mortgage backed securities over the next 3 months. The result will be higher mortgage interest rates. Please make sure that your buyers are aware of these facts.

Just to keep in the “Grinch” spirit, I also want to make you aware of some rumblings going around concerning FHA loans. These “rumblings” started because HUD—the department that controls FHA loans—is seeing its reserves dwindle as a result of foreclosures and increased demand for FHA loans. Changes that could be coming to FHA loans are the following:

Raising the minimum down payment to 5%
Raising the up-front mortgage insurance premium
Raising the minimum FICO requirements

Will this happen? I do not know. What I do know is that buyers should not wait and see. Now is the time.

Sorry for all of the negativity this morning, but the good news is that interest rates are still very, very low.

Market Update (12/16/2009)

2009-12-16T07:48:00.000-08:00

Mortgage interest rates are steady this morning ahead of this afternoon’s Fed meeting. Also this morning, the Consumer Price Index (CPI) was released. For those of you that do not know, the CPI is an inflation indicator that measures the price paid by consumers for a fixed basket of goods. This number came in at expectations. This has added to the steadiness in the bond market.

This afternoon’s Fed meeting should not bring a whole lot of news to the forefront. The Fed Funds Rate and the Discount Rate, two rates that the Fed uses to control monetary policy, will not change as a result of this meeting. What we will be watching for is the Fed’s concern or lack of concern about future inflation. We will update you tomorrow.

Market Update (12/14/2009)

2009-12-14T08:30:00.000-08:00

After a slight uptick last week for interest rates that followed the record low mortgage interest rates that we saw in the first week of December, rates are once again settling into the low 5% range. Not much economic news is set to be released today, but the rest of the week is full of market movers. On Wednesday, the Fed will get together for the 8^th and final time to discuss their short-term monetary policy. As you know, the news that comes out of this meeting could always be market moving. Also on Wednesday, there are several very important inflation reports set for release. Any sign of inflation will cause a sell off in the bond market and higher interest rates.

In the meantime, please enjoy the current mortgage interest rate market as we head into the final stretch of the year.

Have a great day and a great week!

Market Update (12/10/2009)

2009-12-10T10:06:00.000-08:00

This week has been a little bit of a roller coaster with interest rates rising on Monday, falling on Tuesday, and going back up again today. Today’s move is particularly concerning because some economic news that would typically trigger a good day for the bond market was released this morning. I am referring to the weekly initial jobless claims coming in higher than expected. This negative economic information would usually mean good news for mortgage bonds and mortgage interest rates.

The issue with the bond market this week is that results of the Treasury Department auctions that we discussed on Monday have been less-than stellar. The weak appetite for treasury bonds spills over into mortgage bonds and mortgage interest rates are up as a result. Will this trend continue? The long-term answer is “YES.” The short-term answer is “I don’t know.”

Market Update (12/8/2009)

2009-12-08T08:30:00.000-08:00

Last week’s rising mortgage interest rate market was very short lived. Comments by the Federal Reserve Chairman and some less-than-stellar economic news from a couple of very large US companies has sent the stock market lower and the bond market soaring once again.

Ben Bernanke made some news yesterday by indicating that inflation is currently in line and could possibly go down in the future. As you know, low inflation is the key to low mortgage interest rates. Couple that with McDonald’s and 3M indicating that the economy might not yet be ready to take off and you get money to flow out of the stock market and away from the gold market and back into the bond market. This has once again sent mortgage interest rates below 5%. Enjoy this time.

Have a great day!

Market Update (12/7/2009)

2009-12-07T10:05:00.000-08:00

Mortgage interest rates have held steady through the weekend.

Once again this week, the Treasury Department will be auctioning off a very large amount of notes and bonds that could affect the value of mortgage bonds. As always, the real effect on mortgage bonds and mortgage interest rates will not be known until we see how much of an appetite there still is for bonds. We will be watching.

I am sure that all of you know that December 7^th, 1941 is “a date which will live in infamy.” However, have you heard the actual speech given by President Roosevelt where he uttered those famous words? If not, click on this YouTube link to listen to this very famous speech.

Market Update (12/4/2009)

2009-12-04T09:57:00.000-08:00

I hate to say that I told you so, but I TOLD YOU SO!

In my market updates last week, I indicated that mortgage interest rates were not going to go any lower and would probably go higher. Well, guess what? Mortgage interest rates have gone up every day this week. This is especially true today following the much-better-than-expected Jobs Report which showed that our economy only lost 11,000 jobs last month. (I say “only” because the expectation was that the loss would be about 125,000)

By the way, I do know that I have hinted at rates going up for the past couple of months. Since I was wrong for those two months, I just wanted to make sure that I pointed out my first correct prediction since Columbus Day.

Market Update (11/30/2009)

2009-11-30T10:06:00.000-08:00

Even though some “experts” have been saying for months now that rates are going to go up, they have actually gone down. Mortgage interest rates truly are at all-time lows. How long will this last? Even though I have been wrong over the last couple of months about the length of this rally in the bond market, I am not going to change by tune. These rates cannot last much longer. Can they?

We will once again be watching the Treasury auction this week to see how the market reacts. We also have the jobs report due out on Friday. This report can always stir a reaction from the markets.

Market Update (11/24/2009)

2009-11-24T08:58:00.000-08:00

I know that these updates are starting to get boring. “Now is an unbelievable time to buy a home.” YAWN! “Rates continue to stay at 5% or lower.” YAWN AGAIN!

Well, at this point, boring is good. Nothing has been able to move mortgage backed securities higher lately. The stock market had a very strong day yesterday. Consumer confidence was higher than expected this morning. The federal government is borrowing money at an unprecedented pace. All of these factors often cause higher mortgage interest rates but have had no affect lately. How long will this continue? If I was in the market for a new house or was looking to refinance, I would not count on it continuing for much longer.

Market Update (11/23/2009)

2009-11-23T13:16:00.000-08:00

Mortgage interest rates continue to look very attractive. I keep indicating that this trend will not continue, and I keep being wrong. This is good news because the current level is really good for potential homebuyers and for homeowners who need to refinance.

Today is another one of those days that is bucking the rule of stocks and bonds competing for the same money. The stock market is way up today and this has had no impact on the bond market. One of the reasons that this is possible is because the Fed is still purchasing Mortgage Backed Securities in order to keep interest rates low. Remember that this program is scheduled to end on March 31, 2010.

2009-11-19T09:14:00.000-08:00

It truly is a remarkable time for interest rates. I am running out of words to describe it and am also running out of ways to explain that it cannot and will not last. Next year should be a different story. The expectation level is that 6% and higher is going to be the norm.

I know that now is not a time of the year when people are typically buying houses. That being said, this year should be different. A 30-Year loan of $150,000 at 6% will cost a buyer almost $35,000 in interest charges over the same loan at today’s rate of 5%. I know that 6% is not a bad rate, but it is not as good as 5%.

Have a great day!

Market Update (11/3/2009)

2009-11-03T09:58:00.000-08:00

Not much movement today on mortgage interest rates as traders brace themselves for tomorrow’s Fed meeting. At that meeting, the Fed will leave their rates alone. The news will be if they hint at future interest rate hikes. The statement is due tomorrow at 1:15. We will update you if anything earth-shattering is included in the statement.

I have updated you in the past about what the Fed’s buying of mortgage backed securities has done for mortgage interest rates. This program which began back in January is set to end after the first quarter of next year. During these remaining couple of months, the Fed has about $273 billion to spend for this program. This is an average of about $12 billion per week. Although this sounds like a lot of money, the Fed was spending about $20 billion this summer on this program.

MY POINT: There is going to less Federal money purchasing mortgage backed securities over the next 22 weeks. The result should be less value in mortgage backed securities and higher mortgage interest rates.

Sorry for getting so technical this morning. Please let me know if you need some clarification.

The Latest Developments on the First-Time Homebuyer Credit

2009-10-30T09:50:00.001-07:00

11/28: Senate leaders struck a compromise to extend the first-time homebuyer credit. In this deal, sales contracts would have to be signed by April 30, 2010 and close by June 30, 2010. Along with this extension, lawmakers added a provision that would allow individuals who are not first-time homebuyers the opportunity to take advantage of this tax credit. The agreement indicates that if you have owned your current primary residence for more than 5 years and you purchase a new home, you will be eligible for a $6500 tax credit. Just like the credit for first-time homebuyers, the buyer would have to sign the contract before April 30 of next year and close by June 30 of next year.

11/30: Treasury Secretary Tim Geithner and HUD Secretary Shaun Donovan issued a statement saying, “We welcome efforts taken by Congress to extend the first-time home buyers tax credit for a limited period.” This basically means that the President would sign into law a bill that extends the first-time homebuyer credit.

A couple of things to note from these latest developments are:

The joint statement issued by the Obama administration today made no mention of allowing repeat buyers the opportunity to take advantage of the tax credit.
This compromise or deal is only an amendment to a much larger bill that is still making its way through the Senate.
Even if this bill makes it through the Senate, it still has to get passed by the United State House of Representatives.

My thoughts are still that this, or something close to it, is going to happen. However, there is still some work that needs to be done

Market Update (10/30/2009)

2009-10-30T09:48:00.000-07:00

You have often read in my updates that stocks and bonds compete for the same money. Never more than the last two days has that been more apparent. Yesterday the stock market showed huge gains and money flowed out of the bond market. Today, the opposite is true. The DOW Jones Industrial is down almost 150 points and the bond market is making gains. What does it all mean to us? Really, really good mortgage interest rates.

Have a great day and a spooky Halloween!

Market Update (10/26/2009)

2009-10-26T15:04:00.000-07:00

Rates are still holding steady. This is good news since they are holding steady at a rate below 5.5%. The big news for the day is it does look more and more likely that the tax credit will be extended. I have attached a link to a Reuter's article describing this potential extension.

http://www.reuters.com/article/newsOne/idUSTRE59P3VO20091026

Market Update (10/22/2009)

2009-10-22T09:24:00.001-07:00

Rates stayed steady today, but that could change later on.

The big economic news of the day is that the US Treasury Department announced that it is going to auction off $116 billion of notes next week. First of all, is anyone else concerned that the US government is going over $100 billion deeper into debt just to cover a two week period? WOW! Secondly, how does this affect the mortgage interest rate market? As you have heard me discuss in previous updates, new competition for investment dollars is usually not good for mortgage backed securities. However, to find out the true effect, we will have to wait until the auctions actually take place. This will happen next week. If the Treasury Department struggles to sell these notes, then mortgage backed securities will lose value and mortgage interest rates will go up. We will be watching.

Market Update (10/21/2009)

2009-10-21T12:44:00.000-07:00

Rates are back up a little this morning. The reason—INFLATION. Although all of the leading indicators show inflation to be moderate to nonexistent at this time, the future does not look as positive. China announced this morning that their economy will be “battling inflation in the coming months.” I continue to tell you that it is inevitable. This combined with the winding down of the Fed’s purchase of Mortgage Backed Securities makes this the best time to purchase a home. This is true even if the Obama administration decides to extend the homebuyer tax credit.

Tomorrow we will be watching closely as the United States Treasury Department will announce their auction schedule for next week. This schedule will determine how many new Treasury Notes will be hitting the market. Remember that these Treasury Notes compete with Mortgage Backed Securities for investment dollars. More competition could lead to lower values for Mortgage Backed Securities and higher mortgage interest rates.

FHA Flipping Rules

2009-09-30T14:02:00.000-07:00

When a buyer is attempting to purchase a home using an FHA mortgage and that home was acquired by the seller in the past six months, there are a couple of FHA rules that you really need to know.

Resales Occurring 90 Days or Less Following Acquisition

If the date of the contract is 90 days or less after the most recent date of settlement on the seller’s purchase of that property, then the buyer will NOT be able to get an FHA loan on that property.

The confusing part of this rule is that the date of the new contract needs to be more than 90 days after the acquisition by the seller. The closing date is immaterial.

Also, the purchase price has no bearing on this rule.

Exceptions include the following:

· Sales by HUD of its Real Estate Owned
· Sales of properties that are acquired by the sellers by inheritance.

Resales Occurring Between 91 and 180 Days Following Acquisition

If the contract date is between 91 and 180 days following acquisition by the seller, the lender is required to obtain a second appraisal if the new purchase price is 100 percent or more over the price paid by the seller.

Again, the date of the contract is the important date here.

a Bill vs. a Note vs. a bond

2009-09-08T09:57:00.000-07:00

A bill is a security that matures in 1 year or less.
A note is a security that matures in 1 to 10 years.
A bond is a security that matures in 10 to 30 years.

That is very valuable information. Alright, maybe not.
Thanks for visiting.

Using the Fed Mortgage Backed Security Purchase Program to Predict Interest Rates

2009-08-25T13:53:00.000-07:00

Fannie Mae and Freddie Mac sell mortgage backed securities that pay 4%, 4.5%, 5%, 5.5% and so on. If you read the previous post, you will notice that the investor that purchases mortgage backed securities gets paid about 0.75% to 1% less than the interest rate that is charged to the home owner.

In other words, an investor that owns a 5% mortgage backed security owns a group of mortgages that have interest rates of about 5.75% to 6%.

Furthermore, when the Fed purchases a large portion of 5% mortgage backed securities they are attempting to manipulate mortgage interest rates to be about 5.75% to 6%. For this reason, we watch which mortgage backed securities the Fed is purchasing in order to predict the future of interest rates.

Right now, this is exactly what the Fed is doing. They are buying 5% mortgage backed security coupons. This is why we expect mortgage interest rates to be in the upper 5s by the end of the year.

This is just one factor that is used to determine mortgage interest rates at this time, but this technique has proven to be pretty reliable this year.

By the way, I do understand that this is all pretty boring to most people. I also understand that there is a good chance that you are more confused after reading my explanation than you were before reading my post. Finally, I am quite certain that most people did not make it this far in their reading of this post.

Mortgage Backed Securities, Fannie Mae, Freddie Mac, and more

2009-08-25T09:00:00.000-07:00

I am going to describe what a mortgage backed security is by telling you what happens to a mortgage after the loan closing.

Step 1: A homebuyer gets a mortgage through a mortgage company. The mortgage company sells that mortgage to a bank, also known as a loan servicer. (Citimortgage, JPMorgan Chase, US Bank, etc.)

Step 2: The bank sells the loan on the secondary mortgage market. Typically, these loans are bought by Fannie Mae and Freddie Mac.

Step 3: Fannie Mae and Freddie Mac then securitize a group of mortgages and sell them to investors. These securitized mortgages are called mortgage backed securities.

The reason that it works like it does is because individual banks, even very large individual banks, have restrictions on how much money they can lend. By selling these loans on the secondary mortgage market, they free up money to loan to the next person.

Loan servicers like Citimortgage, JPMorgan Chase and Wells Fargo make money on mortgages because Fannie Mae and Freddie Mac pay them a servicing fee. This servicing fee is usually 0.25% of the remaining principal on the loan.

Fannie Mae and Freddie Mac make money when they sell the mortgage backed securities because they pay the investor about 0.5% to 0.75% less than the interest rate they are collecting on a mortgage from the homebuyer.

If you followed all of that, then you understand that the loan servicer (Citimortgage, JPMorgan Chase, Wells Fargo, etc.) gets paid about 0.25% of the interest collected on a home loan. Fannie Mae and Freddie Mac get paid about 0.5% to 0.75% of the interest collected. The rest goes to the owner of the mortgage backed security.

Mortgage Rate Outlook

2009-08-20T09:02:00.000-07:00

Rates are going to go up. It is almost inevitable. Why and how can I be so sure? Let me count the ways.

Reason 1: The Federal Reserve Bank is purchasing Fannie Mae, Freddie Mac, and Ginnie Mae mortgage backed securities. As you know, the value of these mortgage backed securities directly affects mortgage interest rates. This Fed program to purchase mortgage backed securities began in January and will end when they have spent $1.25 trillion. As of August 13th, the Fed had bought $741.6 billion of Fannie Mae, Freddie Mac, and Ginnie Mae mortgage backed securities. This leaves the Fed with about $500 billion more to spend. When this money runs out, mortgage interest rates will go up.

Reason 2: The United States Government is spending money at an unprecedented rate. In order to do this, they have to either print money or borrow from a country that is going to print it. What happens when governments print money? The money that already exists loses value. This, as you know, is called inflation. When inflation goes up, mortgage interest rates do as well.

Reason 3: The United States Government is borrowing money at an unprecedented rate. In order to borrow this money, they sell treasury securities. The sale of these treasury securities competes with the sale of mortgage backed securities. How? An investor who might have bought a mortgage backed security might now buy a treasury security. The sellers of the mortgage backed security will now have to raise the yield, ie. interest rate, in order to entice buyers to buy their security instead of the treasury security. Make sense? Increased competition in the securities market will make interest rates go up.

Where rates will stop is obviously unknown. Many experts believe that we will see mortgage interest rates go back to where they were before the government started their mortgage backed security purchase program. That point is the mid 6s. However, if the economy gets really hot again, inflation is really going to be a problem. If this happens, it is possible that we will see double-digit interest rates again.

Interesting Items About the Credit Scoring Model

2009-07-29T13:30:00.000-07:00

1. You are better off being over your credit limit than maxed out on your credit card.
2. You are better off owing $10 on a credit card than owing $0 on a credit card.
3. It is better to have a business credit card than a personal credit card.
4. Paying off a collection could hurt your credit scores.

Appraisal Changes and APR Changes Explained

2009-07-21T10:38:00.000-07:00

The mortgage industry has made numerous changes over the past year that affect you, me and all potential homebuyers. These changes can, if not handled properly, cause mortgage transactions to be delayed or, in some cases, terminated. Below is a list of some of the more important changes and the date in which they go or went into effect:

May 1, 2009: For conventional loan transactions, loan officers are no longer allowed to order appraisals or have any contact with the appraiser during the process. This law only affects conventional loans. VA appraisals are still ordered by the VA and FHA appraisals can still be ordered by the loan officer.

July 30, 2009: Homebuyers must wait a minimum of 7 business days (this includes Saturdays) from the date that they received the initial RESPA disclosures before closing on their mortgage.

July 30, 2009: If the actual APR being charged to the borrower differs by more than 0.125% from the APR listed on the Truth-In-Lending that was given to the borrower as part of the initial RESPA disclosures, then the lender must furnish an additional, corrected statement to the borrower. The borrower must then wait an additional three days from the receipt of this new Truth-In-Lending Statement.

$8000 Tax Credit FAQ

2009-07-14T08:02:00.000-07:00

Below is the link for the best website that I have come across that answers some of the more unique questions about the $8000 tax credit and when the buyer qualifies. Furthermore, the website is the IRS official website. I would think that they would know what they are talking about. (Feel free to comment on that last statement.)

One of the more interesting items that I picked up is this statement:

Eligibility for the first-time homebuyer credit is determined on the date of purchase. If Taxpayer A, a first-time homebuyer, buys a house and then later that year marries Taxpayer B, not a first-time homebuyer, the credit is allowable to Taxpayer A. Taxpayer A may take the maximum credit.

Go to http://www.irs.gov/newsroom/article/0,,id=206294,00.html for more answers.

Money Myths

2009-07-10T09:40:00.000-07:00

MYTH #1: Co-signing is not a big deal.

If you believe this, you shouldn’t be allowed near a loan document. When you co-sign for a loan (or credit card), you are agreeing to pay that debt in full if the primary borrower defaults or misses even one payment.

MYTH #2: Student loans are dischargeable through bankruptcy.

Student loan debt for the most part is not dischargeable in bankruptcy. There is a provision that allows student loan debt to be wiped out but only in hardship cases. However, a hardship discharge is a near impossible standard to meet.

MYTH #3: You can’t get credit after you file for bankruptcy.

Not only can you get credit, you might actually get more credit offers after declaring you can’t pay your debts.

MYTH #4: Having too much available credit will hurt you when applying for a loan.

Available credit will not only not hurt you when applying for a mortgage, it can help you. It is important to have a low percentage of credit that you are using compared to credit that you could use. When credit card companies extend your credit limit, this ratio improves and your credit scores rise.

VA Appraisal Issues

2009-07-07T09:39:00.000-07:00

Below is a link that I found that can help you if you have a VA appraiser that came in lower than your comps dictate. Good luck if you have this issue because getting these appraisals changed can be a very difficult process.
http://www.vba.va.gov/ro/central/stpau/Real%20Estate%20Professionals/Reconsiderationofvalue.html

Should we really be celebrating America's birthday on The Fourth of July?

2009-07-02T12:43:00.000-07:00

WHAT REALLY HAPPENED IN THE SUMMER OF 1776

· June 1776—a committee that includes Thomas Jefferson, Ben Franklin, and John Adams is given the task of drafting a declaration of independence. (Thomas Jefferson does most of the writing and is therefore given credit as its author.)

· July 2, 1776—the 2nd Continental Congress declares the colonies independent. (This is the date that many of the founding fathers, including John Adams, considered America’s Independence Day.)

· July 4, 1776—Congress approves the final version of the declaration presented by the committee. Only two delegates sign this document.

· July 19, 1776—It is ordered that an official copy of the declaration be created on parchment. The order calls for handwritten ornamental script to be used. It is also ordered that all members of Congress are to sign this official document.

· August 2, 1776—John Hancock, along with forty-nine other delegates, puts his now famous signature on the official document. (Five members of Congress sign later that same year and one delegate, Thomas McKean, does not sign it until 1781.)

Federal Income Taxes--How it works

2009-06-30T08:15:00.000-07:00

My experience tells me that knowing how income taxes work is far from common knowledge. Here is my attempt to correct this problem. (This scenario applies to W2 employees. If you are self-employed, then stop reading.)

Your employer withholds a certain amount of money from your paycheck each pay period. This amount is based on your income and the information that you put on your W-4. (For more information on your W-4, go to www.paycheckcity.com/W4/w4instruction.asp.)
Between January 1 and January 31 your employer will send you a W-2. This W-2 is a form that is required by the IRS that shows your income and the amount of money that was withheld by your employer for the previous year.
You now use your W-2 to have your Federal Income Tax Form or 1040 filled out. Basically, your 1040 will show you and the IRS how much money you should have paid in the previous year to the Federal Government for your income taxes.
This number is derived by subtracting your deductions from the income that appeared on your W-2. (You can use the standard deduction or you can use your itemized decutions. The one that you use depends on which one is greater.)
You now know your taxable income. This amount is now put into a formula based on your tax bracket. (To find out your tax bracket and to see the formula that will be used to figure your tax liability go to www.moneychimp.com/features/tax_brackets.htm.)
Finally, you subtract any tax credits to which you are entitled. (These tax credits include the child tax credit and will also include the first time homebuyer tax credit.) You now know your tax liability for the previous year.
If your tax liability is less than what was withheld by your employer, then you will get a return. If it is greater, then you will owe money before April 15.

ARMs--Bad or Good?

2009-06-25T08:14:00.001-07:00

Adjustable Rate Mortgages, better known as ARMs, have been chastised over the last year or two and have even been blamed for causing the current "global economic crisis." Imagine that, me convincing a homebuyer to get an ARM is the reason that Chrysler failed, McCain lost, and a homebuyer actually needs money in order to buy a house. I had no idea that I had that kind of power.

With all of this bad press, I wanted to try to clear the air and stick up for a tool that I actually used to buy my own house. ADJUSTABLE RATE MORTAGES ARE NOT BAD! What is bad is not understanding what you are getting when you get an adjustable rate mortgage. You are getting a loan that has a fixed rate for a certain period of time. In most cases, that period of time is 3 or 5 years. If you stay in this loan for longer, then your interest rate is going to adjust. Your new rate will be based on an index plus a margin. It is important that you understand this upfront.

It is also important that you understand this before deciding to refinance out of your ARM. Do the research or better yet, call me and I will do the research.

ARMs are not for everyone but they are a good fit for some. This includes me. I am still in my ARM and my rate actually went down this year. (Lesson: Do not be too quick to refinance out of that ARM.)

The problem with ARMs is not the loan. The problem with ARMs is a lack of understanding.

Home Valuation Code of Conduct--HVCC

2009-06-23T07:20:00.000-07:00

I am curious to know how many people are aware of a recent change in the appraisal process for conventional loans. (Conventional loans are loans that are sold to Fannie Mae and Freddie Mac. Basically, this is any loan under $417,000 that is not an FHA or VA loan.) This change or law is called the Home Valuation Code of Conduct, commonly referred to as HVCC. Instead of boring you with the entire law, I am going to try to hit on some important highlights that could affect you.

1. Mortgage brokers are no longer able to order appraisals directly. They must use appraisal management companies. This could cause higher fees and will probably delay the loan process. This new law makes ordering a conventional appraisal similar to ordering a VA appraisal. Those of you that have had experience with VA appraisals understand that this is not always the smoothest process.

2. Mortgage bankers can order appraisals directly from an appraiser. However, this new law prohibits anyone in loan production, ie. loan officers, from ordering an appraisal. This is now done by a risk management department that has no loan production responsibilities at the company. Keeping this process "in house" carries a huge advantage over using the appraisal managment companies.

The obvious question now is what is the difference between a mortgage banker and a mortgage broker. That distinction is pretty easy to explain.

Mortgage bankers close loans in their own name and sell the loan to the "bigger bank" a week or two after the loan closes.

Mortgage brokers close loans in the name of the "bigger bank."

By the way, Midwest Mortgage Capital is a MORTGAGE BANKER.

Reverse Mortgages

2009-06-17T11:49:00.000-07:00

In its simplest terms, a reverse mortgage is:

- a mortgage available only to seniors 62 and older
- a financial tool that provides access to a significant portion of equity in a senior's home (based on age)
- a mortgage that does not require monthly mortgage payments
- a mortgage for which credit and income are not qualifying factors

Other key features of a reverse mortgage are:

- just like all mortgages, ownership remains with the seniors; lenders never own the home
- upon death of last borrower, heirs or estate take title and, usually, sell the home and pay off mortgage
- reverse mortgage borrowers can never be forced to leave their homes
- vast majority are adjustable rate loans, but attractive new fixed rate is appropriate for some (but not all)

Proceeds (accessible equity) can be used in one of three ways or any combination:

- as a lump sum at closing (normally not recommended for reasons we must explain)
- as a guaranteed monthly payment for life or some shorter period
- left in a growing line of credit to be easily accessed whenever needed
- current liens must be paid off at closing, and their total must be less than available proceeds

How to use the $8000 tax credit for your down payment.

2009-06-16T09:06:00.001-07:00

Most people withhold a certain percentage of their income each pay period in order to pay their federal income taxes at the end of the year. If you plan on purchasing a home before December 1 of this year and you are a first time homebuyer, then you will probably not need that money withheld from your paycheck because you will probably not have any federal income tax liability due to the $8000 tax credit that you will be receiving.

If you start now, you can stop withholding this money and save several thousand dollars that you can use as your down payment on a new house. Here is an example:

Yearly Income: $70,000

Income from today through December 1, 2009: $29,166

Federal Income Tax Withholding Percentage: 15%

Using this example, you can save $4375 ($29,166 X 15%) before December 1 to use as your down payment on your new house. This program would not require you to change your way of living at all in order to save this $4375.

In today's market, you are required to put 3.5% down on a house to get an FHA loan. This means that you would have enough money saved to put 3.5% down on a $125,000 house.

Start this program now because the $8000 tax credit ends when November ends.

The Past/The Present/The Future

2009-06-15T10:05:00.000-07:00

THE PAST:

Late last year, the Federal Reserve Bank decided to purchase Mortgage Backed Securities. (For a good definition of Mortgage Backed Securities, go to www.wikipedia.org/wiki/Mortgage-backed_security.) This decision caused the value of Mortgage Backed Securities to rise due to an increase in demand for these particular securities. When this happens, interest rates go down. Lower mortgage interest rates was the goal of the Fed when they made the decision to purchase Mortgage Backed Securities. The theory was that lower interest rates will motivate individuals to purchase new homes and this would help lead our economy out of the economic slowdown. Basically, the purchase program succeeded in lowering mortgage interest rates. Rates have been around 5% since January with some days seeing rates dip to the mid 4s.

We are now seeing signs of this program losing its grip on the market as rates shot up to almost 6% last week. Why is this happening? There are two main reasons:

INFLATION FEARS--Inflation is always the number one enemy of any bond market. Even though inflation is relatively moderate right now, the market is very jittery as to the effect that the massive amounts of money that the Federal government is pumping into our economy is going to have on future inflation. This fear and anxiety has caused the value of mortgage backed securities go down.
INCREASED SUPPLY AND COMPETITION—In order to raise enough money to pay for all of the spending that the current administration is planning, the Federal Government sells bonds. These bonds now compete with Mortgage Backed Securities for investors and this increased supply has caused their value to go down and mortgage interest rates to rise.

THE PRESENT:

Investors are actually returning to purchase Mortgage Backed Securities after the steep sell off that we saw starting on June 1. Why? I believe it is because they saw the sell off as an over reaction. They are now returning because they see these securities as having a value higher than their current prices.

I have attached a chart that shows the value of Mortgage Backed Security over the last six months. Remember that a high value on the chart typically means lower interest rates. Hopefully this will help you understand what I have written in this email.

THE FUTURE:

Our prediction is that rates will be in the mid to high 5% range until our economy truly begins to show signs of life. When the economy starts to turn around, mortgage interest rates will go up.

Have a great day and a great week!