December 23, 2011 09:30AM
By Kenneth R. Harney
Could gloomy popular assumptions about how tough it is to get approved for a mortgage be scaring away large numbers of people who are qualified from even applying?
Could the same worries -- I can't come up with the big down payment I need, my credit scores are too low, my bank account has almost none of the "reserves" lenders want to see -- put a needless damper on a housing recovery in the new year?
You bet. Lenders and economists will tell you flat out: The lack of accurate information about the availability of loan programs that are designed to address special needs is discouraging far too many consumers from even considering an application, much less shopping around.
Mortgage banker Alex Stenback of the Residential Mortgage Group in Minnetonka, Minn., said he sees it every day: "People just aren't aware of what's possible right now" and as a result, they are missing real estate prices and long-term interest rate opportunities they shouldn't. Doug Lebda, founder and CEO of LendingTree, the online site that allows banks to make competing offers to applicants, believes that "the fear of being rejected" because they don't conform to standards that may not even exist, is keeping qualified applicants on the sidelines for no reason.
For example, what's needed for an acceptable down payment? Is it 20 percent? Ten percent? Less? Yes, it's less -- and potentially a lot less if you qualify for the right program. The widespread erroneous assumption that banks require a minimum 20 percent for conventional loans may have arisen from heavy media coverage this spring and summer of a controversial proposal by federal agencies calling for borrowers to put down that much if they want to get the best interest rates and lowest fees.
Also contributing to incorrect beliefs about down payments: The Obama administration floated the idea of a phased-in move to 10 percent upfront cash for all loans eligible for purchase by mortgage giants Fannie Mae and Freddie Mac, who together dominate the conventional home-loan sector. But neither the 20 percent nor the 10 percent plan has been adopted and the odds of either moving forward in 2012 are remote. Fannie Mae's and Freddie Mac's standard minimums are still 5 percent with mandatory mortgage insurance coverage.
If you have little or no cash to put down, there are multiple options for you: FHA requires just 3.5 percent down on its insured mortgages. Other programs let you go to zero -- even finance more than the price on the house when fees are rolled into the mortgage -- provided you fit into an eligibility niche. If you qualify as a veteran or active member of the military, you can get a zero-down VA-guaranteed mortgage. Plus the VA allows your seller to pay your loan fees and closing costs provided they don't exceed 6 percent of the house price.
You can also buy with nothing down if you are purchasing a home in any of the many communities around the country that are eligible for rural (USDA) guaranteed mortgages. Though the property may be located on the outskirts of a large metropolitan area and might not strike you as particularly "rural," if the local population is below roughly 20,000, there's a decent chance you're eligible. The little-publicized USDA guaranteed home loan program, by the way, is booming. In the last fiscal year alone, according to housing administrator Tammye Trevino, more than 130,000 borrowers received low or no down payment guaranteed mortgages -- quadruple the number of loans extended as recently as 2006.
What about credit? Haven't lenders been pushing up minimum FICO scores into the mid-700s and rejecting applications with lower scores outright? Not everywhere. Though most lenders doing FHA loans require 620 to 640 scores to get you in the door, a few of the biggest FHA originators, such as Quicken Loans, will accept scores down to 580. Bob Walters, Quicken's chief economist, said underwriters scrutinize low FICO applications extra carefully but are seeing good to excellent performance from them: Not one has gone seriously delinquent this year.
And how about debt-to-income ratios? Aren't they tighter than ever? Not really. Lenders say that when loan applications go through the "automated underwriting" systems used by Fannie, Freddie and FHA, borrowers with high total monthly debt levels of 45 percent to 55 percent of household income -- well beyond the posted limits -- frequently get approved if they have positive compensating information elsewhere in the application.
Bottom line: Don't assume you can't qualify for a mortgage in 2012. Talk to lenders and seek out loan products that offer flexibility where you need it. You just might be surprised.
Adam Simmons
Crystal Clear Mortgage LLC
adam@crystalclearmortgage.com
888-634-6911
www.CrystalClearMortgage.com
Wednesday, December 28, 2011
Monday, December 19, 2011
Real Estate Market Again Ripe for Fraud
Real-estate market again ripe for fraud
In an ironic twist, there are signs that the wreckage left over from the housing bust may be reigniting dubious real-estate schemes and fraud.
By Kenneth R. Harney
DEC 16, 2010
WASHINGTON — Could today's seductive conditions in the housing market — severely marked-down prices, record low interest rates and hundreds of thousands of foreclosures waiting to be resold — be breeding new generations of the very practices that led to the crash?
In an ironic twist, there are signs that the wreckage left over from the housing bust may be reigniting dubious real-estate schemes and fraud. According to researchers:
• Property flippers are back in action in places like South Florida and Las Vegas, where condo prices crashed but are now seeing appreciation again in some areas.
• So-called "floppers" are defrauding banks by hijacking short sales at prices below what legitimate purchasers are willing to pay. In these schemes, realty agents obtain fraudulent appraisals to persuade banks to sell houses at below-market prices to investor groups. The investors then flip the houses at fair market prices to ordinary homebuyers and split the quick profits.
• Creative "credit enhancement" companies are "renting" investors the bank-account balances they need to demonstrate to lenders that they have the financial wherewithal to qualify for a mortgage. The accounts are for real, but they don't belong to the loan applicants who claim them. Account names are assigned to applicants — who pay for the service — but they are never allowed access to the money. When mortgage underwriters check to verify the deposits — which are in reality fraudulent sub-accounts — they are told the money is in the name of the loan applicant. One investigator pretending to be a purchaser was verified as having funding available in the amount of $850,000. The loan application was to buy 935 Pennsylvania Ave. N.W., in Washington D.C., which is the headquarters building of the FBI.
• Investors are hoodwinking lenders into giving them low down payments and rock-bottom interest rates by lying about their intentions to occupy the property they plan to buy as a principal residence. Some investors consider such dissembling nothing more than a fib, but in reality it's bank fraud. Researchers at the Federal Reserve Bank of New York have documented that widespread falsehoods by investors about occupancy played a major but previously unrecognized role in the real-estate bust.
To Ann Fulmer, a former white-collar-crime prosecutor who is now a vice president with mortgage-fraud analytics company Interthinx, this all amounts to a "past is prologue" situation — the market conditions are ripe for a reprise of some of the worst behavior of the boom and bust.
Her firm's latest study of mortgage fraud nationwide, covering loan origination and other data from the third quarter, found that applicants' dishonesty about their employment and income was up 9 percent from the same period the year before and a stunning 50 percent from the third quarter of 2009. The reason: Borrowers increasingly are falsifying W-2s and other records in order to meet the tougher debt-to-income thresholds lenders adopted after the bust and recession.
Interthinx works with major mortgage lenders to spot fraud and has access to vast loan-application databases, credit-bureau data and other information, and runs it all through proprietary models to establish estimates of fraud risk. For example, when an applicant claims to be purchasing a home as a principal residence, Interthinx pulls credit-bureau files and public records and may find that the applicant already has other homes listed as principal residences. The anti-fraud systems also spot cases where buyers apply to multiple lenders for the same property.
For the sixth straight quarter, the states that Interthinx ranked riskiest for mortgage fraud are the same that experienced the most explosive booms and the most crushing busts between 2004 and 2008: Nevada, Arizona, California and Florida. California alone accounted for half of the 10 highest-risk metropolitan areas in the most recent rankings. Miami-Fort Lauderdale and Cape Coral-Fort Myers, Fla., are high on the list as well. Metropolitan Washington, D.C., which had been ranked sixth in fraud risk earlier this year, dropped to 24th place in the most recent study.
San Jose, Calif., saw a 16 percent jump in "identity fraud" schemes where loan applicants seek — and get — new identities and credit histories good enough to qualify them for mortgages that would otherwise be beyond reach.
Déjà vu? "I wouldn't be surprised," says Fulmer. "There's so much money on the sidelines" looking for high returns in the face of a volatile stock market and low yields on conventional investments. If you have larceny in your heart, mortgages and houses can be tempting targets.
In an ironic twist, there are signs that the wreckage left over from the housing bust may be reigniting dubious real-estate schemes and fraud.
By Kenneth R. Harney
DEC 16, 2010
WASHINGTON — Could today's seductive conditions in the housing market — severely marked-down prices, record low interest rates and hundreds of thousands of foreclosures waiting to be resold — be breeding new generations of the very practices that led to the crash?
In an ironic twist, there are signs that the wreckage left over from the housing bust may be reigniting dubious real-estate schemes and fraud. According to researchers:
• Property flippers are back in action in places like South Florida and Las Vegas, where condo prices crashed but are now seeing appreciation again in some areas.
• So-called "floppers" are defrauding banks by hijacking short sales at prices below what legitimate purchasers are willing to pay. In these schemes, realty agents obtain fraudulent appraisals to persuade banks to sell houses at below-market prices to investor groups. The investors then flip the houses at fair market prices to ordinary homebuyers and split the quick profits.
• Creative "credit enhancement" companies are "renting" investors the bank-account balances they need to demonstrate to lenders that they have the financial wherewithal to qualify for a mortgage. The accounts are for real, but they don't belong to the loan applicants who claim them. Account names are assigned to applicants — who pay for the service — but they are never allowed access to the money. When mortgage underwriters check to verify the deposits — which are in reality fraudulent sub-accounts — they are told the money is in the name of the loan applicant. One investigator pretending to be a purchaser was verified as having funding available in the amount of $850,000. The loan application was to buy 935 Pennsylvania Ave. N.W., in Washington D.C., which is the headquarters building of the FBI.
• Investors are hoodwinking lenders into giving them low down payments and rock-bottom interest rates by lying about their intentions to occupy the property they plan to buy as a principal residence. Some investors consider such dissembling nothing more than a fib, but in reality it's bank fraud. Researchers at the Federal Reserve Bank of New York have documented that widespread falsehoods by investors about occupancy played a major but previously unrecognized role in the real-estate bust.
To Ann Fulmer, a former white-collar-crime prosecutor who is now a vice president with mortgage-fraud analytics company Interthinx, this all amounts to a "past is prologue" situation — the market conditions are ripe for a reprise of some of the worst behavior of the boom and bust.
Her firm's latest study of mortgage fraud nationwide, covering loan origination and other data from the third quarter, found that applicants' dishonesty about their employment and income was up 9 percent from the same period the year before and a stunning 50 percent from the third quarter of 2009. The reason: Borrowers increasingly are falsifying W-2s and other records in order to meet the tougher debt-to-income thresholds lenders adopted after the bust and recession.
Interthinx works with major mortgage lenders to spot fraud and has access to vast loan-application databases, credit-bureau data and other information, and runs it all through proprietary models to establish estimates of fraud risk. For example, when an applicant claims to be purchasing a home as a principal residence, Interthinx pulls credit-bureau files and public records and may find that the applicant already has other homes listed as principal residences. The anti-fraud systems also spot cases where buyers apply to multiple lenders for the same property.
For the sixth straight quarter, the states that Interthinx ranked riskiest for mortgage fraud are the same that experienced the most explosive booms and the most crushing busts between 2004 and 2008: Nevada, Arizona, California and Florida. California alone accounted for half of the 10 highest-risk metropolitan areas in the most recent rankings. Miami-Fort Lauderdale and Cape Coral-Fort Myers, Fla., are high on the list as well. Metropolitan Washington, D.C., which had been ranked sixth in fraud risk earlier this year, dropped to 24th place in the most recent study.
San Jose, Calif., saw a 16 percent jump in "identity fraud" schemes where loan applicants seek — and get — new identities and credit histories good enough to qualify them for mortgages that would otherwise be beyond reach.
Déjà vu? "I wouldn't be surprised," says Fulmer. "There's so much money on the sidelines" looking for high returns in the face of a volatile stock market and low yields on conventional investments. If you have larceny in your heart, mortgages and houses can be tempting targets.
Friday, October 28, 2011
MOrtgage Lenders could soon take homes' energy costs into account
When you apply for a mortgage to buy a house, how often does the lender ask detailed questions about monthly energy costs or tell the appraiser to factor in the energy-efficiency features of the house when coming up with a value?
Hardly ever. That’s because the big three mortgage players — Fannie Mae, Freddie Mac and the Federal Housing Administration, who together account for more than 90 percent of all loan volume — typically don’t consider energy costs in underwriting. Yet utility bills can be larger annual cash drains than property taxes or insurance — key items in standard underwriting — and can seriously affect a family’s ability to afford a house.
A new, bipartisan effort on Capitol Hill could change all this dramatically and for the first time put energy costs and savings squarely into standard mortgage underwriting equations. A bill introduced Oct. 20 would force the big three mortgage agencies to take account of energy costs in every loan they insure, guarantee or buy. It would also require them to instruct appraisers to adjust their property valuations upward when accurate data on energy efficiency savings are available.
Titled the SAVE Act (Sensible Accounting to Value Energy), the bill is jointly sponsored by Sens. Michael Bennet (D-Colo.) and Johnny Isakson (R-Ga.). Here’s how it would work: Along with the traditional principal, interest, taxes and insurance (PITI) calculations, estimated energy-consumption expenses for the house would be included as a mandatory underwriting factor.
For most houses that have not undergone independent energy audits, loan officers would be required to pull data from either previous utility bills — in the case of refinancings — or from an Energy Department survey database to arrive at an estimated cost. This would then be factored into the debt-to-income ratios that lenders already use to determine whether a borrower can afford the monthly costs of the mortgage. Allowable ratios probably would be adjusted to account for the new energy/utilities component.
For houses with significant energy-efficiency improvements built in and documented with a professional audit, such as a home energy rating system study, lenders would instruct appraisers to calculate the net present value of monthly energy savings — i.e., what that stream of future savings is worth today in terms of market price — and adjust the final appraised value accordingly. This higher valuation, in turn, could be used to justify a higher mortgage amount.
For example, Kateri Callahan, president of the Alliance to Save Energy, a nonprofit advocacy group and a major supporter of the new legislation, estimates that a typical new home that is 30 percent more energy efficient than a similar-sized, average house will save about $20,000 in utility expenses over the life of a mortgage. Under the Bennet-Isakson bill, appraisers would be required to add those savings to the current market valuation of the house. In this instance, Callahan says, the increase in value would be about $10,000.
Dozens of housing, energy and environmental groups have endorsed the new legislation including appraisers, large home builders, the U.S. Chamber of Commerce, the U.S. Green Building Council, the Natural Resources Defense Council, green-designated real estate brokers, the Institute for Market Transformation and the National Association of State Energy Officials, among others.
Business groups such as the U.S. Chamber are backing the legislation because they see it as an employment generator that requires no federal budget outlays, no new taxes or programs. A joint study by the American Council for an Energy-Efficient Economy and the Institute for Market Transformation estimated that 83,000 new jobs in the construction, renovation and manufacturing industries could be stimulated by the legislation if the new underwriting rules were phased in over a period of years.
But not all interest groups are lining up behind the bill. The National Association of Realtors expressed concern that it might hamper a real estate recovery by complicating the mortgage process. “NAR supports efforts to promote energy-efficiency in housing and believes it’s something that all consumers should strive toward,” the group said. “However, we believe that homeowners should move toward energy efficiency at their own pace, without a mandate that impedes their ability to qualify for a mortgage or causes them to incur substantial additional costs to purchase a home, especially while the housing market continues to recover.”
Another group whose members and clients could be affected by the bill, the Mortgage Bankers Association, declined to comment for the record, saying it is still evaluating the bill’s provisions.
But one might ask: In a fractious, polarized Congress, could this bill actually make it through this session? The co-sponsors are optimistic and supporting groups say there is substantial bipartisan support — a rarity — for the idea in both the House and Senate.
In the meantime, for homeowners who think their energy-efficiency and cost-saving improvements should be worth something, there is no rule barring you from asking a qualified appraiser or a lender to assess the added market value of those features. You can get your house rated and documented and insist they do precisely that.
Or you can invest in documented improvements that save on utility expenses — a worthy goal in its own right — and hope that the federal agencies see the light and change their underwriting and valuation procedures before you go to sell. Sooner or later, this is going to happen.
Hardly ever. That’s because the big three mortgage players — Fannie Mae, Freddie Mac and the Federal Housing Administration, who together account for more than 90 percent of all loan volume — typically don’t consider energy costs in underwriting. Yet utility bills can be larger annual cash drains than property taxes or insurance — key items in standard underwriting — and can seriously affect a family’s ability to afford a house.
A new, bipartisan effort on Capitol Hill could change all this dramatically and for the first time put energy costs and savings squarely into standard mortgage underwriting equations. A bill introduced Oct. 20 would force the big three mortgage agencies to take account of energy costs in every loan they insure, guarantee or buy. It would also require them to instruct appraisers to adjust their property valuations upward when accurate data on energy efficiency savings are available.
Titled the SAVE Act (Sensible Accounting to Value Energy), the bill is jointly sponsored by Sens. Michael Bennet (D-Colo.) and Johnny Isakson (R-Ga.). Here’s how it would work: Along with the traditional principal, interest, taxes and insurance (PITI) calculations, estimated energy-consumption expenses for the house would be included as a mandatory underwriting factor.
For most houses that have not undergone independent energy audits, loan officers would be required to pull data from either previous utility bills — in the case of refinancings — or from an Energy Department survey database to arrive at an estimated cost. This would then be factored into the debt-to-income ratios that lenders already use to determine whether a borrower can afford the monthly costs of the mortgage. Allowable ratios probably would be adjusted to account for the new energy/utilities component.
For houses with significant energy-efficiency improvements built in and documented with a professional audit, such as a home energy rating system study, lenders would instruct appraisers to calculate the net present value of monthly energy savings — i.e., what that stream of future savings is worth today in terms of market price — and adjust the final appraised value accordingly. This higher valuation, in turn, could be used to justify a higher mortgage amount.
For example, Kateri Callahan, president of the Alliance to Save Energy, a nonprofit advocacy group and a major supporter of the new legislation, estimates that a typical new home that is 30 percent more energy efficient than a similar-sized, average house will save about $20,000 in utility expenses over the life of a mortgage. Under the Bennet-Isakson bill, appraisers would be required to add those savings to the current market valuation of the house. In this instance, Callahan says, the increase in value would be about $10,000.
Dozens of housing, energy and environmental groups have endorsed the new legislation including appraisers, large home builders, the U.S. Chamber of Commerce, the U.S. Green Building Council, the Natural Resources Defense Council, green-designated real estate brokers, the Institute for Market Transformation and the National Association of State Energy Officials, among others.
Business groups such as the U.S. Chamber are backing the legislation because they see it as an employment generator that requires no federal budget outlays, no new taxes or programs. A joint study by the American Council for an Energy-Efficient Economy and the Institute for Market Transformation estimated that 83,000 new jobs in the construction, renovation and manufacturing industries could be stimulated by the legislation if the new underwriting rules were phased in over a period of years.
But not all interest groups are lining up behind the bill. The National Association of Realtors expressed concern that it might hamper a real estate recovery by complicating the mortgage process. “NAR supports efforts to promote energy-efficiency in housing and believes it’s something that all consumers should strive toward,” the group said. “However, we believe that homeowners should move toward energy efficiency at their own pace, without a mandate that impedes their ability to qualify for a mortgage or causes them to incur substantial additional costs to purchase a home, especially while the housing market continues to recover.”
Another group whose members and clients could be affected by the bill, the Mortgage Bankers Association, declined to comment for the record, saying it is still evaluating the bill’s provisions.
But one might ask: In a fractious, polarized Congress, could this bill actually make it through this session? The co-sponsors are optimistic and supporting groups say there is substantial bipartisan support — a rarity — for the idea in both the House and Senate.
In the meantime, for homeowners who think their energy-efficiency and cost-saving improvements should be worth something, there is no rule barring you from asking a qualified appraiser or a lender to assess the added market value of those features. You can get your house rated and documented and insist they do precisely that.
Or you can invest in documented improvements that save on utility expenses — a worthy goal in its own right — and hope that the federal agencies see the light and change their underwriting and valuation procedures before you go to sell. Sooner or later, this is going to happen.
Monday, October 24, 2011
New Loan Product with No Loan to Value restrictions!
Federal regulators on Monday plan to unveil a major overhaul of an under-used mortgage-refinance program designed to help millions of Americans whose home values have tumbled.
The plan is the latest White House effort to deal with one of the most critical impediments to economic recovery—a stagnant housing market caused in part by a surfeit of homeowners who are unable to refinance.
The overhaul will, among other things, let borrowers refinance regardless of how far their homes have fallen in value, eliminating previous limits. That could open up refinancing to legions of borrowers in Nevada, Arizona, Florida, California and elsewhere who are paying high interest rates and are deeply "underwater," owing more than their houses are worth. President Barack Obama is expected to tout the program in Las Vegas on Monday.
The plan will streamline the refinance process by eliminating appraisals and extensive underwriting requirements for most borrowers, as long as homeowners are current on their mortgage payments, according to administration officials and an official at the Federal Housing Finance Agency. Fannie and Freddie have also agreed to waive some fees that made refinancing less attractive for some.
The Long Haul
The revamp is aimed at homeowners like Christine and Hector Penunuri of Gilbert, Ariz., who have never missed a mortgage payment and who both have jobs and good credit. Yet their application to refinance their five-bedroom home, which has fallen in value, was denied earlier this year because their tax returns showed a $1,000 loss in start-up costs from Mr. Penunuri's business, which isn't even his day job.
It's "absurd," says their mortgage broker, Steve Walsh of Scottsdale, because the loan is already guaranteed by government-backed mortgage company Freddie Mac.
The Penunuris could save $350 a month by refinancing to a 4% rate from their current 5.75%. They would use that money to put their two sons into junior sports, take a family vacation and pay off other debts, says Ms. Penunuri, 41 years old. "It's a win-win situation."
Freddie Mac declined to comment on the rejection of the Penunuris' earlier refinancing. Freddie Mac and sister company Fannie Mae together guarantee roughly half of the nation's $10.4 trillion in home loans outstanding.
Christine Penunuri, and her husband have never missed a mortgage payment and have jobs and good credit, but have been unsuccessful in refinancing their loan.
Regulators are revamping a program rolled out two years ago, the Home Affordable Refinance Program, or HARP, which lets borrowers with less than 20% in equity refinance if their loans are backed by Fannie Mae or Freddie Mac. President Obama announced HARP roughly one month into his presidency. So far, only 894,000 borrowers have used it, of which just 70,000 are significantly underwater.
"It hasn't worked," said James Parrott, a White House economic adviser, in a speech last month.
Officials at the Federal Housing Finance Agency, which regulates Fannie and Freddie, estimate that between 800,000 and one million more borrowers should be able to refinance. "It's in our interest to have these borrowers refinance into lower rates and continue to pay," said an FHFA official.
Monday's refinance announcement is separate from a recent push by state attorneys general to extract concessions from banks to refinance underwater mortgages. That effort, part of the months-long negotiations to settle alleged foreclosure-processing abuses, would apply only to loans held on the books of five of the nation's largest banks, a much smaller subset of loans.
In past downturns, lower interest rates engineered by the Federal Reserve were a powerful antidote for a sluggish economy. Falling mortgage rates triggered a refinancing wave that lowered homeowners' mortgage payments, freeing up cash for other things. That, in turn, helped to stimulate spending that boosted economic growth.
This time around, falling mortgage rates—now averaging just 4.11% for a 30-year fixed-rate mortgage, according to a Freddie Mac survey—haven't packed the usual oomph. The reason: Many homeowners haven't been able to refinance.
Where Refinancing Should Be Happening
CoreLogic, a company that tracks 85% of all mortgages, estimates that 20 million borrowers with equity in their homes could cut the interest rates on their loans by more than one percentage point if they could refinance. That's about a quarter of all the homeowners in the country.
Because a refinanced mortgage is treated like a brand new loan, refinancing is nearly impossible for another eight million borrowers whose homes are worth less than their mortgages, unless they qualify for HARP.
But what about those who still have equity in their homes? Some have blemishes on their credit and employment histories or don't have enough income to qualify under today's tougher lending standards. Some find refinancing isn't worthwhile after factoring in new fees imposed by Fannie and Freddie or other closing costs. Still others can't get a refinancing application through a clogged mortgage-processing system.
That's a big obstacle to a stronger economy. Goldman Sachs economists estimate that if current borrowers with a 30-year fixed-rate loan backed by Fannie or Freddie were to refinance, they would save $24 billion annually. Researchers at Columbia Business School estimate that the benefits would accrue primarily to working- and middle-class borrowers with mortgages below $200,000.
Refinancing Rethink
Key points of the overhaul, designed to make refinancing easier for people with mortgages backed by Fannie Mae and Freddie—about half the nation's $10.4 trillion in outstanding home loans:
Open to those owing more than 125% of their home's value
Appraisal and underwriting requirements to be reduced
Loan fees will drop; waived for borrowers who reduce their loan term
Borrowers must be current on previous six payments
The changes should help borrowers like Carol Gesior, who has two underwater mortgages, backed by Freddie Mac, on suburban Chicago properties she bought for siblings. She says she tried to refinance but her bank, Citigroup Inc., told her she couldn't without equity. She was unaware of HARP. If she could refinance both properties, she says she would replace her 1995 Ford Crown Victoria.
"I made a commitment. I signed an agreement to pay. But I didn't do anything to cause the values of these homes to decrease," says Ms. Gesior, 52, an office manager at an investment management firm. "Any logical person would have walked away already."
A Citi spokesman says the company is "happy to work with this client to explore refinancing options that may be available to her."
One problem is that bankers or other mortgage originators shy away from refinancing all but the safest borrowers because Fannie and Freddie can force a lender to buy back a loan if underwriting flaws emerge. In response, lenders are asking for extra documentation of incomes and scrutinizing appraisals, steps that raise costs and lead to more denials.
Another obstacle is new fees that Fannie and Freddie charge borrowers with less-than-perfect credit, even if the borrower's existing mortgage is guaranteed by Fannie or Freddie.
The changes being prepared by federal officials should boost refinancing because they will let banks avoid the risk of any "buy-back" on a HARP mortgage as long as borrowers have made their last six mortgage payments and they prove that they have a job or another source of passive income. They are also set to reduce loan fees that Fannie and Freddie charge. The fees will be waived on borrowers that refinance into loans with shorter terms, such as a 15-year mortgage.
Developments
Pricing details won't be published until mid-November, and lenders could begin refinancing loans under the retooled program as soon as Dec. 1, according to federal officials. Loans that exceed the current limit of 125% of the property's value won't be able to participate until early next year. The program's expiration date, originally next June, will be extended through 2013. HARP is only open to loans that Fannie and Freddie guaranteed as of June 2009.
Mr. Walsh, the Scottsdale broker, says such changes could lead him to hire "a ton" of new loan officers. "I have a line out the door of people who want to refinance under that program and can't," he says.
Refinancing can't fix the biggest problems eating at the housing market. Tight lending standards and high volumes of foreclosed-property sales are putting pressure on home prices at a time when demand is weak, potentially creating more underwater borrowers.
But refinancing could help those borrowers repair their balance sheets and guard against future defaults. If lenders and regulators successfully execute the changes, they could be "amazingly powerful," said mortgage-market pioneer Lewis Ranieri. "It'll start to create the confidence which is largely what's keeping the system from going forward."
The changes could spur an additional 1.6 million refinanced loans by the end of 2013, assuming interest rates don't rise sharply, according to Mark Zandi, chief economist at Moody's Analytics.
For the very safest homeowners, falling mortgage rates have been a bonanza. Some have become serial refinancers. Jim Wozniak locked in a 3.88% rate for 30-year fixed-rate mortgages for his primary residence in Brookfield, Wis., and his lakefront home in nearby Hartland late last month. Replacing 4.25% loans, he will save $2,700 annually.
"This is probably my third time in three years," says Mr. Wozniak, a 54-year-old investment adviser who says he has an excellent credit score and lots of equity in both properties.
For others, the hurdles are insurmountable. Appraisals are a big one. When an appraisal shows that a property has too little equity, lenders sometimes order a second appraisal. "You get into these appraisal wars, often at the borrowers' expense," says Marietta Rodriguez, the national director for home-ownership and lending at NeighborWorks America, a nonprofit housing group.
Steven Eisner, a 59-year-old attorney in Haddonfield, N.J., says he expected to sail through the process when he tried to refinance last month because he has good credit and strong income. Instead, he was startled to find that the appraisal on his vacation condo in Bonita Springs, Fla., came in so low he would have needed to ante up $52,000.
He put 25% down when he bought it four years ago. But, because of sagging home prices, his equity has declined to just 10% of the property's value. Refinancing "is simply not worth the trouble," says Mr. Eisner, whose mortgage is guaranteed by Fannie.
Not everyone benefits from encouraging more refinancing, of course. Banks and investors in mortgage-backed securities—including Fannie and Freddie and the Federal Reserve—stand to lose billions if performing loans pay off, leaving investors with cash to reinvest at today's lower rates.
"Somebody's going to get hit. This isn't a free good," says Anthony Sanders, a real-estate finance professor at George Mason University in Fairfax, Va.
That doesn't faze Mr. Eisner. "We've certainly done enough to prop the banks up," he says. "These are loans that everyone knew could prepay."
The success of any refinance push rests not only on whether policy makers can untangle a Gordian knot of technical hurdles, but also on whether they can get buy-in from private-sector players. One major obstacle to refinancing is that the mortgage industry has shrunk. Four big banks now control more than 60% of the mortgage market. Many originators, including the biggest banks, have cut staff or shifted loan underwriters into units working through piles of delinquent mortgages.
New rules designed to prevent independent mortgage brokers—who originate loans on behalf of a bank or other lender—from fleecing consumers have made it harder for them to compete with bigger lenders that aren't subject to the same rules. For example, new compensation rules make it less attractive for brokers to originate smaller or more complicated loans.
The reduced competition has led to longer processing times and higher prices for consumers. When their borrowing costs fall, banks aren't necessarily reducing the rates they charge borrowers by the same amount. Banks with big market share "know they can get away with it," says Thomas Lawler, an independent housing economist in Leesburg, Va. "The market's just not as competitive as it once was."
Industry executives dispute the notion that the market isn't competitive but concede that the industry wasn't ready to handle a surge in applications after rates dropped two months ago.
"Capacity constraints" will be temporary because lenders are hiring more staff, but "in the short run, there's no question that's a challenge," says David Stevens, the chief executive of the Mortgage Bankers Association. Lenders are going "through a lot more checks and balances simply to get a loan approved safely and soundly."
Some spurned borrowers aren't giving up. Barb Skaer, 70, of Appleton, Wis., and her husband wanted to refinance a $402,000 mortgage on a second home that appraised at $547,000 two years ago. She says they have strong credit scores and own part of a manufacturing business that makes bobby pins and hair clips.
Ms. Skaer says their bank, J.P. Morgan Chase & Co., quoted a 4% rate. But she says her loan officer told her she and her husband wouldn't qualify for a new loan because their income from their factory business declined the past two years. A J.P. Morgan spokesman declined to comment.
Ms. Skaer says they are appealing the decision at their bank and may go elsewhere if that doesn't work.
"Our theory is that if we can afford [the current payment of] $2,189 per month, we should be able to afford $200 less by refinancing," says Ms. Skaer. "This makes absolutely no sense to us, and we are not taking 'no' for an answer."
The plan is the latest White House effort to deal with one of the most critical impediments to economic recovery—a stagnant housing market caused in part by a surfeit of homeowners who are unable to refinance.
The overhaul will, among other things, let borrowers refinance regardless of how far their homes have fallen in value, eliminating previous limits. That could open up refinancing to legions of borrowers in Nevada, Arizona, Florida, California and elsewhere who are paying high interest rates and are deeply "underwater," owing more than their houses are worth. President Barack Obama is expected to tout the program in Las Vegas on Monday.
The plan will streamline the refinance process by eliminating appraisals and extensive underwriting requirements for most borrowers, as long as homeowners are current on their mortgage payments, according to administration officials and an official at the Federal Housing Finance Agency. Fannie and Freddie have also agreed to waive some fees that made refinancing less attractive for some.
The Long Haul
The revamp is aimed at homeowners like Christine and Hector Penunuri of Gilbert, Ariz., who have never missed a mortgage payment and who both have jobs and good credit. Yet their application to refinance their five-bedroom home, which has fallen in value, was denied earlier this year because their tax returns showed a $1,000 loss in start-up costs from Mr. Penunuri's business, which isn't even his day job.
It's "absurd," says their mortgage broker, Steve Walsh of Scottsdale, because the loan is already guaranteed by government-backed mortgage company Freddie Mac.
The Penunuris could save $350 a month by refinancing to a 4% rate from their current 5.75%. They would use that money to put their two sons into junior sports, take a family vacation and pay off other debts, says Ms. Penunuri, 41 years old. "It's a win-win situation."
Freddie Mac declined to comment on the rejection of the Penunuris' earlier refinancing. Freddie Mac and sister company Fannie Mae together guarantee roughly half of the nation's $10.4 trillion in home loans outstanding.
Christine Penunuri, and her husband have never missed a mortgage payment and have jobs and good credit, but have been unsuccessful in refinancing their loan.
Regulators are revamping a program rolled out two years ago, the Home Affordable Refinance Program, or HARP, which lets borrowers with less than 20% in equity refinance if their loans are backed by Fannie Mae or Freddie Mac. President Obama announced HARP roughly one month into his presidency. So far, only 894,000 borrowers have used it, of which just 70,000 are significantly underwater.
"It hasn't worked," said James Parrott, a White House economic adviser, in a speech last month.
Officials at the Federal Housing Finance Agency, which regulates Fannie and Freddie, estimate that between 800,000 and one million more borrowers should be able to refinance. "It's in our interest to have these borrowers refinance into lower rates and continue to pay," said an FHFA official.
Monday's refinance announcement is separate from a recent push by state attorneys general to extract concessions from banks to refinance underwater mortgages. That effort, part of the months-long negotiations to settle alleged foreclosure-processing abuses, would apply only to loans held on the books of five of the nation's largest banks, a much smaller subset of loans.
In past downturns, lower interest rates engineered by the Federal Reserve were a powerful antidote for a sluggish economy. Falling mortgage rates triggered a refinancing wave that lowered homeowners' mortgage payments, freeing up cash for other things. That, in turn, helped to stimulate spending that boosted economic growth.
This time around, falling mortgage rates—now averaging just 4.11% for a 30-year fixed-rate mortgage, according to a Freddie Mac survey—haven't packed the usual oomph. The reason: Many homeowners haven't been able to refinance.
Where Refinancing Should Be Happening
CoreLogic, a company that tracks 85% of all mortgages, estimates that 20 million borrowers with equity in their homes could cut the interest rates on their loans by more than one percentage point if they could refinance. That's about a quarter of all the homeowners in the country.
Because a refinanced mortgage is treated like a brand new loan, refinancing is nearly impossible for another eight million borrowers whose homes are worth less than their mortgages, unless they qualify for HARP.
But what about those who still have equity in their homes? Some have blemishes on their credit and employment histories or don't have enough income to qualify under today's tougher lending standards. Some find refinancing isn't worthwhile after factoring in new fees imposed by Fannie and Freddie or other closing costs. Still others can't get a refinancing application through a clogged mortgage-processing system.
That's a big obstacle to a stronger economy. Goldman Sachs economists estimate that if current borrowers with a 30-year fixed-rate loan backed by Fannie or Freddie were to refinance, they would save $24 billion annually. Researchers at Columbia Business School estimate that the benefits would accrue primarily to working- and middle-class borrowers with mortgages below $200,000.
Refinancing Rethink
Key points of the overhaul, designed to make refinancing easier for people with mortgages backed by Fannie Mae and Freddie—about half the nation's $10.4 trillion in outstanding home loans:
Open to those owing more than 125% of their home's value
Appraisal and underwriting requirements to be reduced
Loan fees will drop; waived for borrowers who reduce their loan term
Borrowers must be current on previous six payments
The changes should help borrowers like Carol Gesior, who has two underwater mortgages, backed by Freddie Mac, on suburban Chicago properties she bought for siblings. She says she tried to refinance but her bank, Citigroup Inc., told her she couldn't without equity. She was unaware of HARP. If she could refinance both properties, she says she would replace her 1995 Ford Crown Victoria.
"I made a commitment. I signed an agreement to pay. But I didn't do anything to cause the values of these homes to decrease," says Ms. Gesior, 52, an office manager at an investment management firm. "Any logical person would have walked away already."
A Citi spokesman says the company is "happy to work with this client to explore refinancing options that may be available to her."
One problem is that bankers or other mortgage originators shy away from refinancing all but the safest borrowers because Fannie and Freddie can force a lender to buy back a loan if underwriting flaws emerge. In response, lenders are asking for extra documentation of incomes and scrutinizing appraisals, steps that raise costs and lead to more denials.
Another obstacle is new fees that Fannie and Freddie charge borrowers with less-than-perfect credit, even if the borrower's existing mortgage is guaranteed by Fannie or Freddie.
The changes being prepared by federal officials should boost refinancing because they will let banks avoid the risk of any "buy-back" on a HARP mortgage as long as borrowers have made their last six mortgage payments and they prove that they have a job or another source of passive income. They are also set to reduce loan fees that Fannie and Freddie charge. The fees will be waived on borrowers that refinance into loans with shorter terms, such as a 15-year mortgage.
Developments
Pricing details won't be published until mid-November, and lenders could begin refinancing loans under the retooled program as soon as Dec. 1, according to federal officials. Loans that exceed the current limit of 125% of the property's value won't be able to participate until early next year. The program's expiration date, originally next June, will be extended through 2013. HARP is only open to loans that Fannie and Freddie guaranteed as of June 2009.
Mr. Walsh, the Scottsdale broker, says such changes could lead him to hire "a ton" of new loan officers. "I have a line out the door of people who want to refinance under that program and can't," he says.
Refinancing can't fix the biggest problems eating at the housing market. Tight lending standards and high volumes of foreclosed-property sales are putting pressure on home prices at a time when demand is weak, potentially creating more underwater borrowers.
But refinancing could help those borrowers repair their balance sheets and guard against future defaults. If lenders and regulators successfully execute the changes, they could be "amazingly powerful," said mortgage-market pioneer Lewis Ranieri. "It'll start to create the confidence which is largely what's keeping the system from going forward."
The changes could spur an additional 1.6 million refinanced loans by the end of 2013, assuming interest rates don't rise sharply, according to Mark Zandi, chief economist at Moody's Analytics.
For the very safest homeowners, falling mortgage rates have been a bonanza. Some have become serial refinancers. Jim Wozniak locked in a 3.88% rate for 30-year fixed-rate mortgages for his primary residence in Brookfield, Wis., and his lakefront home in nearby Hartland late last month. Replacing 4.25% loans, he will save $2,700 annually.
"This is probably my third time in three years," says Mr. Wozniak, a 54-year-old investment adviser who says he has an excellent credit score and lots of equity in both properties.
For others, the hurdles are insurmountable. Appraisals are a big one. When an appraisal shows that a property has too little equity, lenders sometimes order a second appraisal. "You get into these appraisal wars, often at the borrowers' expense," says Marietta Rodriguez, the national director for home-ownership and lending at NeighborWorks America, a nonprofit housing group.
Steven Eisner, a 59-year-old attorney in Haddonfield, N.J., says he expected to sail through the process when he tried to refinance last month because he has good credit and strong income. Instead, he was startled to find that the appraisal on his vacation condo in Bonita Springs, Fla., came in so low he would have needed to ante up $52,000.
He put 25% down when he bought it four years ago. But, because of sagging home prices, his equity has declined to just 10% of the property's value. Refinancing "is simply not worth the trouble," says Mr. Eisner, whose mortgage is guaranteed by Fannie.
Not everyone benefits from encouraging more refinancing, of course. Banks and investors in mortgage-backed securities—including Fannie and Freddie and the Federal Reserve—stand to lose billions if performing loans pay off, leaving investors with cash to reinvest at today's lower rates.
"Somebody's going to get hit. This isn't a free good," says Anthony Sanders, a real-estate finance professor at George Mason University in Fairfax, Va.
That doesn't faze Mr. Eisner. "We've certainly done enough to prop the banks up," he says. "These are loans that everyone knew could prepay."
The success of any refinance push rests not only on whether policy makers can untangle a Gordian knot of technical hurdles, but also on whether they can get buy-in from private-sector players. One major obstacle to refinancing is that the mortgage industry has shrunk. Four big banks now control more than 60% of the mortgage market. Many originators, including the biggest banks, have cut staff or shifted loan underwriters into units working through piles of delinquent mortgages.
New rules designed to prevent independent mortgage brokers—who originate loans on behalf of a bank or other lender—from fleecing consumers have made it harder for them to compete with bigger lenders that aren't subject to the same rules. For example, new compensation rules make it less attractive for brokers to originate smaller or more complicated loans.
The reduced competition has led to longer processing times and higher prices for consumers. When their borrowing costs fall, banks aren't necessarily reducing the rates they charge borrowers by the same amount. Banks with big market share "know they can get away with it," says Thomas Lawler, an independent housing economist in Leesburg, Va. "The market's just not as competitive as it once was."
Industry executives dispute the notion that the market isn't competitive but concede that the industry wasn't ready to handle a surge in applications after rates dropped two months ago.
"Capacity constraints" will be temporary because lenders are hiring more staff, but "in the short run, there's no question that's a challenge," says David Stevens, the chief executive of the Mortgage Bankers Association. Lenders are going "through a lot more checks and balances simply to get a loan approved safely and soundly."
Some spurned borrowers aren't giving up. Barb Skaer, 70, of Appleton, Wis., and her husband wanted to refinance a $402,000 mortgage on a second home that appraised at $547,000 two years ago. She says they have strong credit scores and own part of a manufacturing business that makes bobby pins and hair clips.
Ms. Skaer says their bank, J.P. Morgan Chase & Co., quoted a 4% rate. But she says her loan officer told her she and her husband wouldn't qualify for a new loan because their income from their factory business declined the past two years. A J.P. Morgan spokesman declined to comment.
Ms. Skaer says they are appealing the decision at their bank and may go elsewhere if that doesn't work.
"Our theory is that if we can afford [the current payment of] $2,189 per month, we should be able to afford $200 less by refinancing," says Ms. Skaer. "This makes absolutely no sense to us, and we are not taking 'no' for an answer."
Friday, October 21, 2011
How To Shop for a Home Loan
After hitting record lows of 3.94% with 0.8 points the week of October 3, rates are up .375% in the past two weeks. And while rates are still extremely low, refinancers and homebuyers are always looking for the lowest.
A primary reason rates rose is market optimism about Eurozone leaders acting more forcefully to contain problems with insolvent member nations like Greece. Eurozone issues are also a big reason rates got so low.
Here's why:
If one or more Eurozone nations defaulted on their debts, European and U.S. banks would both suffer and it could lead to market turmoil on the level we saw in 2008. These concerns have driven global investors into safer bets like U.S. mortgage bonds, and rates fall when bond prices rise on this buying. This extreme volatility won’t stop as the Eurozone crisis plays out in the coming weeks and months. Rates trade in realtime and react to each little development. This is why it's rates will likely touch early-October lows again. But these lows come and go in minutes during specific trading intervals each trading day. And this kind of volatility drastically changes the way consumers should shop for a mortgage. Because markets move up and down so fast right now, the rates you see in mainstream media* headlines are long gone by the time you can do anything about it.
So here’s how to shop for a mortgage in this new world. Shop For Loan Agents, Not Rates
Every consumer shops for mortgages and they should. But this is the critical distinction: you should be shopping for the best mortgage advisor. If you have that, you’ll get the best rate. Here’s what happens when shoppers focused only on rate get quoted by a good loan agent: Loan agent quotes a rate only after they've analyzed the client's entire financial profile and analyzed their home’s value and condition—also known as pre-approving them.
The client will either tire of the pre-approval analytics or be unhappy with the rate and go somewhere else. Then 80% of those cases come back to that loan agent because the competing rate quote was revealed to be incorrect when the other lender actually completed the client’s profile, or the home’s value/condition made the loan ineligible.
Mortgages are extremely competitive so rates and fees are generally the same with most (established, credible) lending firms. What’s not the same lender to lender is the loan agent’s ability to: (1) advise properly, (2) analyze borrower and property profiles, and (3) close with no surprises. So shop to find the lender and loan agent you feel most confident can perform on these three things. Then work with that loan agent to pick a rate target you can’t or won’t go above, and give them a standing order to lock when they see it. These guidelines are for refinancers.
For homebuyers, you can’t lock a rate until you’re in contract to buy a home, but once you’re in contract, the same approach applies.
Rate Targeting
Their are two reasons for the pre-approval and rate targeting tactics discussed above: (1) A rate quote that flies through the air means nothing. If a loan agent doesn’t issue you written terms after obtaining a full profile on you and your home, then you haven’t received a quote you can count on. (2) Rate lows are here and gone in minutes each trading day as mortgage bonds rise and fall on economic and technical trading signals. So if you don't first get pre-approved then set a rate target with a standing lock order, it's nearly impossible to hit the lows AND close with no surprises.
Your loan agent also must be able to brief you daily or weekly on the market outlook, so if you're not sensing market competence from your agent, then keep shopping. A loan agent must have a strong read on what's impacting the rate market ups and downs to deliver you the best terms.
*Mainstream media is almost always off the mark on rate data
Crystal Clear Mortgage
888-634-6911
A primary reason rates rose is market optimism about Eurozone leaders acting more forcefully to contain problems with insolvent member nations like Greece. Eurozone issues are also a big reason rates got so low.
Here's why:
If one or more Eurozone nations defaulted on their debts, European and U.S. banks would both suffer and it could lead to market turmoil on the level we saw in 2008. These concerns have driven global investors into safer bets like U.S. mortgage bonds, and rates fall when bond prices rise on this buying. This extreme volatility won’t stop as the Eurozone crisis plays out in the coming weeks and months. Rates trade in realtime and react to each little development. This is why it's rates will likely touch early-October lows again. But these lows come and go in minutes during specific trading intervals each trading day. And this kind of volatility drastically changes the way consumers should shop for a mortgage. Because markets move up and down so fast right now, the rates you see in mainstream media* headlines are long gone by the time you can do anything about it.
So here’s how to shop for a mortgage in this new world. Shop For Loan Agents, Not Rates
Every consumer shops for mortgages and they should. But this is the critical distinction: you should be shopping for the best mortgage advisor. If you have that, you’ll get the best rate. Here’s what happens when shoppers focused only on rate get quoted by a good loan agent: Loan agent quotes a rate only after they've analyzed the client's entire financial profile and analyzed their home’s value and condition—also known as pre-approving them.
The client will either tire of the pre-approval analytics or be unhappy with the rate and go somewhere else. Then 80% of those cases come back to that loan agent because the competing rate quote was revealed to be incorrect when the other lender actually completed the client’s profile, or the home’s value/condition made the loan ineligible.
Mortgages are extremely competitive so rates and fees are generally the same with most (established, credible) lending firms. What’s not the same lender to lender is the loan agent’s ability to: (1) advise properly, (2) analyze borrower and property profiles, and (3) close with no surprises. So shop to find the lender and loan agent you feel most confident can perform on these three things. Then work with that loan agent to pick a rate target you can’t or won’t go above, and give them a standing order to lock when they see it. These guidelines are for refinancers.
For homebuyers, you can’t lock a rate until you’re in contract to buy a home, but once you’re in contract, the same approach applies.
Rate Targeting
Their are two reasons for the pre-approval and rate targeting tactics discussed above: (1) A rate quote that flies through the air means nothing. If a loan agent doesn’t issue you written terms after obtaining a full profile on you and your home, then you haven’t received a quote you can count on. (2) Rate lows are here and gone in minutes each trading day as mortgage bonds rise and fall on economic and technical trading signals. So if you don't first get pre-approved then set a rate target with a standing lock order, it's nearly impossible to hit the lows AND close with no surprises.
Your loan agent also must be able to brief you daily or weekly on the market outlook, so if you're not sensing market competence from your agent, then keep shopping. A loan agent must have a strong read on what's impacting the rate market ups and downs to deliver you the best terms.
*Mainstream media is almost always off the mark on rate data
Crystal Clear Mortgage
888-634-6911
Friday, September 9, 2011
Why Aren't Mortgage Rates Getting Lower as Fast as Treasuries?
From our friends at Mortgage News Daily.com:
Yet again, Mortgage Rates improved today. But the improvements were fairly minor, just as they have been in general despite a healthier rally in Treasury rates. In some cases Best Execution rates may be lower, but in most cases, the improvements will be seen in the form of lower closing costs for the same rates available yesterday.
Today we want to use that space to address this question of why mortgage rates aren't lower considering the record low Treasury rates.
As you might already be aware, mortgage rates ARE NOT based in any way on US Treasuries. However, IN GENERAL, Treasuries tend to move in the same direction as mortgage rates because of their relationship to the "stuff" that actually does determine mortgage rates: Mortgage Backed Securities, or MBS for short.
Getting into a detailed definition of the MBS Market isn't necessary for the purposes of this post. What's important to know is that MBS are SIMILAR to Treasuries in a lot of ways. They're both fixed-income investments, both are in the "less risky" realm of the investment world, although MBS are more complex and their value is subject to certain factors that DO NOT AFFECT Treasuries.
In short, the PRICE and YIELD of MBS are the basis for mortgage rates. This equates to the raw pricing that lenders are dealing with in order to lend you money. But lenders can't simply offer mortgage rates based on raw MBS pricing because they wouldn't make any money, and they gotta make some if they're going to keep offering mortgages! This is where a subjective component enters into mortgage rates. There are several factors that affect profitability which lenders attempt to account for in deciding the ideal amount of cushion between raw MBS and mortgage rates (also known as primary/secondary spread).
Actually, we could probably write a whole series on those factors but we'll focus on a few of the "biggies" for today. First of all, we've already been mentioning VOLATILITY as a reason for a discrepancy in rates from lender to lender. Bottom line: volatility makes things more expensive for lenders. They absorb some of that cost with lower profits and you absorb some with higher mortgage rates than you might otherwise see in a lower volatility environment.
Beyond volatility, this whole rally in the fixed-income world (bonds, Treasuries, MBS, etc...) has been very fast and abrupt. That has created capacity constraints for lenders who can only really raise rates in order to deter the new business they can't handle. Additionally, if rates get low too quickly, lenders may lose commitments from borrowers who now seek a lower rate. But the lender has already "accounted for" that new mortgage in their pipeline when you locked your loan (meaning they've promised to sell into the MBS market using your loan as part of that MBS). When that happens, it costs them more money to readjust and consequently will cost future borrowers more money in the form of slightly higher rates.
These are just a few of the reasons why you're not seeing mortgage rates fall as quickly as Treasury yields. It's a whole different world-a deep dark rabbit hole of financial complexity. Today's post only begins to scratch the surface, but if it's helpful, let us know and we'll do more. Or let us know if you have questions about this one and we'll follow up on those.
Crystal Clear Mortgage
888-634-6911
Yet again, Mortgage Rates improved today. But the improvements were fairly minor, just as they have been in general despite a healthier rally in Treasury rates. In some cases Best Execution rates may be lower, but in most cases, the improvements will be seen in the form of lower closing costs for the same rates available yesterday.
Today we want to use that space to address this question of why mortgage rates aren't lower considering the record low Treasury rates.
As you might already be aware, mortgage rates ARE NOT based in any way on US Treasuries. However, IN GENERAL, Treasuries tend to move in the same direction as mortgage rates because of their relationship to the "stuff" that actually does determine mortgage rates: Mortgage Backed Securities, or MBS for short.
Getting into a detailed definition of the MBS Market isn't necessary for the purposes of this post. What's important to know is that MBS are SIMILAR to Treasuries in a lot of ways. They're both fixed-income investments, both are in the "less risky" realm of the investment world, although MBS are more complex and their value is subject to certain factors that DO NOT AFFECT Treasuries.
In short, the PRICE and YIELD of MBS are the basis for mortgage rates. This equates to the raw pricing that lenders are dealing with in order to lend you money. But lenders can't simply offer mortgage rates based on raw MBS pricing because they wouldn't make any money, and they gotta make some if they're going to keep offering mortgages! This is where a subjective component enters into mortgage rates. There are several factors that affect profitability which lenders attempt to account for in deciding the ideal amount of cushion between raw MBS and mortgage rates (also known as primary/secondary spread).
Actually, we could probably write a whole series on those factors but we'll focus on a few of the "biggies" for today. First of all, we've already been mentioning VOLATILITY as a reason for a discrepancy in rates from lender to lender. Bottom line: volatility makes things more expensive for lenders. They absorb some of that cost with lower profits and you absorb some with higher mortgage rates than you might otherwise see in a lower volatility environment.
Beyond volatility, this whole rally in the fixed-income world (bonds, Treasuries, MBS, etc...) has been very fast and abrupt. That has created capacity constraints for lenders who can only really raise rates in order to deter the new business they can't handle. Additionally, if rates get low too quickly, lenders may lose commitments from borrowers who now seek a lower rate. But the lender has already "accounted for" that new mortgage in their pipeline when you locked your loan (meaning they've promised to sell into the MBS market using your loan as part of that MBS). When that happens, it costs them more money to readjust and consequently will cost future borrowers more money in the form of slightly higher rates.
These are just a few of the reasons why you're not seeing mortgage rates fall as quickly as Treasury yields. It's a whole different world-a deep dark rabbit hole of financial complexity. Today's post only begins to scratch the surface, but if it's helpful, let us know and we'll do more. Or let us know if you have questions about this one and we'll follow up on those.
Crystal Clear Mortgage
888-634-6911
Wednesday, August 17, 2011
Rates, Rates, and more Rates
If you have not already heard it in the news, mortgage interest rates are back to all time lows. Combine that with current home prices and there has never, I repeat NEVER, been a better time to finance a real estate transaction. With the combination of low rates and low prices, you can get more house for cheaper than ever before.
So what are the rates? Every situation is different but here is a quick run down:
CURRENT MARKET: The Best Execution 30-year fixed mortgage rate is around 4.25% in most cases. Several investors we work with are willing to offer around a 4.000%, and even 3.875% is possible for those interested in buying down their rate, but around 4.250% is widely-available. On FHA/VA 30 year fixed Best Execution is around 4.000%, but 3.875 and even 3.750 are available with additional closing costs. 15 year fixed conventional loans are best priced around 3.625% but we're seeing aggressive quotes as low as 3.375%. Five year Adustable Rate Mortgage's are still best priced around 3.25%. ARMs seem to have bottomed out.
Though many lenders we work with have greatly improved their consumer rate quotes over the past two weeks, we must point out an increased amount of volatility in what individual lenders are now quoting as their Best Execution rates. This is a factor of price volatility in the secondary mortgage market. Unfortunately when volatility picks up in the secondary mortgage market, the cost of doing business gets more expensive for lenders (hedging costs go up). Those added costs are usually passed down to consumers via extra margin in rate sheets. These costs are unavoidable. The best thing for mortgage rates right now is stability. Additionally, some lenders have been adjusting their loan pricing strategies to better control the flow of new loan originations. To put it more simply, some lenders are busier than others and can't take-in anymore business, so they've pushed rates higher to encourage consumers to either wait it out or find another lender before rates rise.
GUIDANCE: If you missed the boat on record low mortgage rates last November/October, the opportunity is still out there for the taking. And we think you should jump on it as soon as possible. The risks involved in floating have greatly expanded to include (1) lenders taking it upon themselves to negatively adjust rate sheets (to slow loan production) and (2) interest rates finding a bottom and moving higher on their own. The frustration of missing out on "high 3's" and instead getting "low 4's" seems nowhere near as bad as the frustration of missing out on a refi opportunity (moving from 5% to 4.25% for instance) altogether.
*Best Execution is the most cost efficient combination of note rate offered and points paid at closing. This note rate is determined based on the time it takes to recover the costs you paid at closing vs. the monthly savings of permanently buying down your mortgage rate by 0.125%. When deciding on whether or not to pay points, the borrower must have an idea of how long they intend to keep their mortgage. For more info, ask your loan officer to explain the findings of their "breakeven analysis" on your permanent rate buy down costs.
*Important Mortgage Rate Disclaimer: The Best Execution loan pricing quotes shared above are generally seen as the more aggressive side of the primary mortgage market. Loan originators will only be able to offer these rates on conforming loan amounts to very well-qualified borrowers who have a middle FICO score over 740 and enough equity in their home to qualify for a refinance or a large enough savings to cover their down payment and closing costs. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the "perfect borrower" category, make sure you ask your loan originator for an explanation of the characteristics that make your loan more expensive."No point" loan doesn't mean "no cost" loan. The best 30year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recording. Don't forget the fiscal frisking that comes along with the underwriting process
PLease call us with any questions!
Crystal Clear Mortgage
888-634-6911
So what are the rates? Every situation is different but here is a quick run down:
CURRENT MARKET: The Best Execution 30-year fixed mortgage rate is around 4.25% in most cases. Several investors we work with are willing to offer around a 4.000%, and even 3.875% is possible for those interested in buying down their rate, but around 4.250% is widely-available. On FHA/VA 30 year fixed Best Execution is around 4.000%, but 3.875 and even 3.750 are available with additional closing costs. 15 year fixed conventional loans are best priced around 3.625% but we're seeing aggressive quotes as low as 3.375%. Five year Adustable Rate Mortgage's are still best priced around 3.25%. ARMs seem to have bottomed out.
Though many lenders we work with have greatly improved their consumer rate quotes over the past two weeks, we must point out an increased amount of volatility in what individual lenders are now quoting as their Best Execution rates. This is a factor of price volatility in the secondary mortgage market. Unfortunately when volatility picks up in the secondary mortgage market, the cost of doing business gets more expensive for lenders (hedging costs go up). Those added costs are usually passed down to consumers via extra margin in rate sheets. These costs are unavoidable. The best thing for mortgage rates right now is stability. Additionally, some lenders have been adjusting their loan pricing strategies to better control the flow of new loan originations. To put it more simply, some lenders are busier than others and can't take-in anymore business, so they've pushed rates higher to encourage consumers to either wait it out or find another lender before rates rise.
GUIDANCE: If you missed the boat on record low mortgage rates last November/October, the opportunity is still out there for the taking. And we think you should jump on it as soon as possible. The risks involved in floating have greatly expanded to include (1) lenders taking it upon themselves to negatively adjust rate sheets (to slow loan production) and (2) interest rates finding a bottom and moving higher on their own. The frustration of missing out on "high 3's" and instead getting "low 4's" seems nowhere near as bad as the frustration of missing out on a refi opportunity (moving from 5% to 4.25% for instance) altogether.
*Best Execution is the most cost efficient combination of note rate offered and points paid at closing. This note rate is determined based on the time it takes to recover the costs you paid at closing vs. the monthly savings of permanently buying down your mortgage rate by 0.125%. When deciding on whether or not to pay points, the borrower must have an idea of how long they intend to keep their mortgage. For more info, ask your loan officer to explain the findings of their "breakeven analysis" on your permanent rate buy down costs.
*Important Mortgage Rate Disclaimer: The Best Execution loan pricing quotes shared above are generally seen as the more aggressive side of the primary mortgage market. Loan originators will only be able to offer these rates on conforming loan amounts to very well-qualified borrowers who have a middle FICO score over 740 and enough equity in their home to qualify for a refinance or a large enough savings to cover their down payment and closing costs. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the "perfect borrower" category, make sure you ask your loan originator for an explanation of the characteristics that make your loan more expensive."No point" loan doesn't mean "no cost" loan. The best 30year fixed conventional/FHA/VA mortgage rates still include closing costs such as: third party fees + title charges + transfer and recording. Don't forget the fiscal frisking that comes along with the underwriting process
PLease call us with any questions!
Crystal Clear Mortgage
888-634-6911
Tuesday, July 12, 2011
FHA credit score requirements and other fun things...
When one hears about a particular lender claiming, "'ABC Mortgage' is now doing FHA loans with a 620 score!!!" , the odds are that it is a negotiated deal with a larger investor. Yes, there are some cases where it is a portfolio lender or direct Ginnie Mae issuer, but for the typical conventional or government products, if something falls outside the overlay guidelines usually some negotiation has taken place. What is Ginnie Mae's minimum FICO for a FHA loan? A trick question - there is none. All Ginnie requires is that the loan be insured for final pool certification which must occur within a given period. So in effect, typically whatever minimum FICO overlay levels that are out there are a combination of FHA loan delinquency studies by servicers and negotiations with the companies that sell to them.
But before you go calling the Wells' & Chase's of the world trying to wangle 500 FICO borrowers for condos (we do FHA with a 600, by the way), remember that investors are unlikely to disregard their underwriting and overlays entirely. It is a give & take process, and benefits accrue to high volume, loyal, well capitalized counter parties who know what they're doing -but there are rumors of cracks in the ice in certain underwriting areas IF they make sense - and you didn't hear this from me.
Speaking of large investors, JPMorgan Chase, Bank of America, Citigroup and other major banks are preparing to report second-quarter results, which analysts expect will be down from the previous quarter. CSFB expects core trading revenue at major Wall Street banks to have declined by as much as 25% on average, much of it due to lower levels of activity/volume.
Volume is important for Annaly Capital Management, the largest U.S. mortgage REIT (Real Estate Investment Trust). It spread the word that it plans to sell 100 million shares in its third public stock offering this year. The proceeds will be used to buy mortgage-backed securities, adding on to 150 million shares it has already sold this year for a total of about $2.6 billion. Annaly has expanded from investing in government-backed mortgage bonds to over seeing distressed-debt buyers and a securities firm, along with financing middle-market companies and home lenders, and entered ventures to make commercial real estate loans. Since the federal government basically ended their run buying mortgage backed securities in June, it will be good to have another purchaser in the market place.
In somewhat dated news, a report in the Wall Street Journal said two Representatives plan to introduce legislation to merge Freddie & Fannie and restructure the company into a government-held corporation. Most doubt that anything will happen until after the 2012 elections, and until then much of the talk may be political grandstanding and sound bites for the folks back home. It is one idea out of many competing plans for housing finance, and there is certainly no consensus on whether or not the government should offer a guarantee. But the plan has some genetics that we may see in future proposals. "Frannie" would be a utility-like entity and phase out government-controlled Fannie Mae and Freddie Mac, would purchase mortgages and repackage them as government-backed securities, and have no shareholder investors. But as you might recall back in May, another duo of politicians introduced legislation that would create at least five private companies to replace the two co-called government-sponsored enterprises, or GSEs. Not much has happened with that one.
Like most other things, figuring out Freddie & Fannie seems to have paralyzed our elected officials. The dividing line among many lawmakers is whether or not to provide a government backstop for mortgages and, if so, on what terms to provide the guarantee. Any bill that is crafted by anything related to the Republican-led House would likely still be in jeopardy once it reaches the Democrat-controlled Senate. All of them want to stop the"taxpayer bailouts," an easy term for the folks back home to understand, but it is easier said than done. According to experts, none of the plans are confronting the key decision, which is the role of the government in the system. And as mentioned above, with the housing market still in the doldrums, any final decisions on housing finance reform are expected to be put off until after elections in 2012.
What is new with the agencies? For one thing, currently Fannie Mae requires a minimum of six months to elapse between the time a borrower purchases a home and subsequently applies for a cash-out refinance. Its Selling Guide has been updated to allow a cash-out refinance within six months of a purchase transaction when no financing was obtained for the purchase transaction. There are of course all kinds of parameters, including maximum LTV (loan-to-value ratio), documentation, arms-length transaction and "all other cash-out refinance eligibility requirements and cash out pricing applies." But this is good news for investors who can now remove equity out of their investments faster, and for home buyers who couldn't compete in the long term with all-cash investors, but who might be able to put down the cash for a few weeks before obtaining a mortgage.
Freddie Mac released guidelines for servicer handling of delinquent loans, per a FHFA mandate from April. Fannie Mae released guidelines at the beginning of June and Freddie's appear similar. The bottom line is that servicers will have to devote additional resources to deal with these tightened guidelines to avoid a fine. UBS analysts suggested this could detract from the day-to-day business of originating purchase or refinance loans and lead as well to tighter underwriting standards given the increased costs of complying with the guidelines. As a result, there could be some marginal decline in prepayments. Freddie Mac's guidelines must be implemented no later than October 1 and Fannie's by September 1.
Housing and realty lobbies are pushing for a continuation of the $729,750 high-cost area maximum, but banks don't appear to be along for the ride. As industry folks have seen for a few years now, jumbo loans are valuable items in a portfolio (basically earning that spread versus what banks pay folks on their checking accounts) , and banks are happy to step in for borrowers who are credit worthy and have enough of a down payment. On Oct. 1, the maximum loan at each of the three federal mortgage giants will fall to $625,500 in some areas mostly along the coasts.
Fannie Mae released news for servicers. Specifically, it addressed HUD's Emergency Homeowners' Loan Program (the EHLPis designed to provide mortgage payment relief to eligible borrowers experiencing a reduction in income resulting from involuntary unemployment or underemployment due to adverse economic conditions or a medical emergency.) For details go to FannieEHLP. As mentioned above, the enhanced delinquency management and default prevention policies announced in June via SVC-2011-08 will go into effect September 1. "As part of these requirements, servicers must reach out to delinquent borrowers between the 31st and 35th day of delinquency and again between the 61st and 65th day of delinquency using a Borrower Solicitation Package."
Bottome line, a lot of changes still happening in the mortgage industry. Please call your neighborhood experts at Crystal Clear Mortgage with any questions. We have 3% down conventional loans, 3.5% down FHA loans, $100 down FHA loans, Fannie Mae Homepath, USDA, VA , refinance and more...
Crystal Clear Mtg
888-634-6911
But before you go calling the Wells' & Chase's of the world trying to wangle 500 FICO borrowers for condos (we do FHA with a 600, by the way), remember that investors are unlikely to disregard their underwriting and overlays entirely. It is a give & take process, and benefits accrue to high volume, loyal, well capitalized counter parties who know what they're doing -but there are rumors of cracks in the ice in certain underwriting areas IF they make sense - and you didn't hear this from me.
Speaking of large investors, JPMorgan Chase, Bank of America, Citigroup and other major banks are preparing to report second-quarter results, which analysts expect will be down from the previous quarter. CSFB expects core trading revenue at major Wall Street banks to have declined by as much as 25% on average, much of it due to lower levels of activity/volume.
Volume is important for Annaly Capital Management, the largest U.S. mortgage REIT (Real Estate Investment Trust). It spread the word that it plans to sell 100 million shares in its third public stock offering this year. The proceeds will be used to buy mortgage-backed securities, adding on to 150 million shares it has already sold this year for a total of about $2.6 billion. Annaly has expanded from investing in government-backed mortgage bonds to over seeing distressed-debt buyers and a securities firm, along with financing middle-market companies and home lenders, and entered ventures to make commercial real estate loans. Since the federal government basically ended their run buying mortgage backed securities in June, it will be good to have another purchaser in the market place.
In somewhat dated news, a report in the Wall Street Journal said two Representatives plan to introduce legislation to merge Freddie & Fannie and restructure the company into a government-held corporation. Most doubt that anything will happen until after the 2012 elections, and until then much of the talk may be political grandstanding and sound bites for the folks back home. It is one idea out of many competing plans for housing finance, and there is certainly no consensus on whether or not the government should offer a guarantee. But the plan has some genetics that we may see in future proposals. "Frannie" would be a utility-like entity and phase out government-controlled Fannie Mae and Freddie Mac, would purchase mortgages and repackage them as government-backed securities, and have no shareholder investors. But as you might recall back in May, another duo of politicians introduced legislation that would create at least five private companies to replace the two co-called government-sponsored enterprises, or GSEs. Not much has happened with that one.
Like most other things, figuring out Freddie & Fannie seems to have paralyzed our elected officials. The dividing line among many lawmakers is whether or not to provide a government backstop for mortgages and, if so, on what terms to provide the guarantee. Any bill that is crafted by anything related to the Republican-led House would likely still be in jeopardy once it reaches the Democrat-controlled Senate. All of them want to stop the"taxpayer bailouts," an easy term for the folks back home to understand, but it is easier said than done. According to experts, none of the plans are confronting the key decision, which is the role of the government in the system. And as mentioned above, with the housing market still in the doldrums, any final decisions on housing finance reform are expected to be put off until after elections in 2012.
What is new with the agencies? For one thing, currently Fannie Mae requires a minimum of six months to elapse between the time a borrower purchases a home and subsequently applies for a cash-out refinance. Its Selling Guide has been updated to allow a cash-out refinance within six months of a purchase transaction when no financing was obtained for the purchase transaction. There are of course all kinds of parameters, including maximum LTV (loan-to-value ratio), documentation, arms-length transaction and "all other cash-out refinance eligibility requirements and cash out pricing applies." But this is good news for investors who can now remove equity out of their investments faster, and for home buyers who couldn't compete in the long term with all-cash investors, but who might be able to put down the cash for a few weeks before obtaining a mortgage.
Freddie Mac released guidelines for servicer handling of delinquent loans, per a FHFA mandate from April. Fannie Mae released guidelines at the beginning of June and Freddie's appear similar. The bottom line is that servicers will have to devote additional resources to deal with these tightened guidelines to avoid a fine. UBS analysts suggested this could detract from the day-to-day business of originating purchase or refinance loans and lead as well to tighter underwriting standards given the increased costs of complying with the guidelines. As a result, there could be some marginal decline in prepayments. Freddie Mac's guidelines must be implemented no later than October 1 and Fannie's by September 1.
Housing and realty lobbies are pushing for a continuation of the $729,750 high-cost area maximum, but banks don't appear to be along for the ride. As industry folks have seen for a few years now, jumbo loans are valuable items in a portfolio (basically earning that spread versus what banks pay folks on their checking accounts) , and banks are happy to step in for borrowers who are credit worthy and have enough of a down payment. On Oct. 1, the maximum loan at each of the three federal mortgage giants will fall to $625,500 in some areas mostly along the coasts.
Fannie Mae released news for servicers. Specifically, it addressed HUD's Emergency Homeowners' Loan Program (the EHLPis designed to provide mortgage payment relief to eligible borrowers experiencing a reduction in income resulting from involuntary unemployment or underemployment due to adverse economic conditions or a medical emergency.) For details go to FannieEHLP. As mentioned above, the enhanced delinquency management and default prevention policies announced in June via SVC-2011-08 will go into effect September 1. "As part of these requirements, servicers must reach out to delinquent borrowers between the 31st and 35th day of delinquency and again between the 61st and 65th day of delinquency using a Borrower Solicitation Package."
Bottome line, a lot of changes still happening in the mortgage industry. Please call your neighborhood experts at Crystal Clear Mortgage with any questions. We have 3% down conventional loans, 3.5% down FHA loans, $100 down FHA loans, Fannie Mae Homepath, USDA, VA , refinance and more...
Crystal Clear Mtg
888-634-6911
Wednesday, June 1, 2011
Home Values and Mortgage Interest Rates
Yesterday the S&P/Case Shiller Home Price Index was released and painted a bleak picture of the overall housing market.
from the release...
The U.S. National Home Price Index declined by 4.2% in the first quarter of 2011, after falling 3.6% in the fourth quarter of 2010. The national index hit a new recession low with the first quarter data and posted an annual decline of 5.1% versus the first quarter of 2010.
my take...
Yes, of course this is disappointing news yet it is being over played by the media. The issue at hand that no one is talking about still revolves around foreclosures. Over the last two years the federal government was pulling out all the stops to try and help struggling home owners avoid foreclosure. Because of that loan servicers were reluctant to force someone out of their home in a timely manner. The backlog of (pending) foreclosed homes piled up. Once everyone began to see that the loan modifications and workouts were not helping, the foreclosure process was accelerated which resulted in much more distressed inventory, thus lower home prices. How else could home values decline 7.8% in 6 months yet we post back to back gains in new home sales (up 7.3% in April per the Commerce Department). Bottom line, once these distressed homes are sold the values will stabilize. Thank goodness we live in Texas!
Mortgage interest rates are currently at some of the lowest levels seen in the past 12 months. Not quite record lows, but very close. If you are thinking about buying, or have clients that are thinking about buying, now is the time. With home values at the lowest since 2002 and interest rates near all time lows, there literally has never been a better time to buy.
Call us with any questions!
Adam Simmons
Crystal Clear Mortgage
888-634-6911
adam@crystalclearmortgage.com
from the release...
The U.S. National Home Price Index declined by 4.2% in the first quarter of 2011, after falling 3.6% in the fourth quarter of 2010. The national index hit a new recession low with the first quarter data and posted an annual decline of 5.1% versus the first quarter of 2010.
my take...
Yes, of course this is disappointing news yet it is being over played by the media. The issue at hand that no one is talking about still revolves around foreclosures. Over the last two years the federal government was pulling out all the stops to try and help struggling home owners avoid foreclosure. Because of that loan servicers were reluctant to force someone out of their home in a timely manner. The backlog of (pending) foreclosed homes piled up. Once everyone began to see that the loan modifications and workouts were not helping, the foreclosure process was accelerated which resulted in much more distressed inventory, thus lower home prices. How else could home values decline 7.8% in 6 months yet we post back to back gains in new home sales (up 7.3% in April per the Commerce Department). Bottom line, once these distressed homes are sold the values will stabilize. Thank goodness we live in Texas!
Mortgage interest rates are currently at some of the lowest levels seen in the past 12 months. Not quite record lows, but very close. If you are thinking about buying, or have clients that are thinking about buying, now is the time. With home values at the lowest since 2002 and interest rates near all time lows, there literally has never been a better time to buy.
Call us with any questions!
Adam Simmons
Crystal Clear Mortgage
888-634-6911
adam@crystalclearmortgage.com
Thursday, April 21, 2011
Fannie Mae Revised Outlook
Fannie Mae's April Economics and Mortgage Market Analysis attributes the current state of temporary weightlessness to a pair of major shocks - the political turmoil which continues in the Middle East and North Africa and the earthquake and resulting nuclear catastrophe in Japan coupled with what it calls multiple cross-currents in both the U.S and Europe. These include budget problems on all levels of government and related cut-backs in spending, concern over federal monetary policy and "rising headline inflation" driven by increasing food and energy prices.
Meanwhile, there appears to be a slowdown in economic activity in the first quarter of the year with consumer spending growth poised to come in well short of the high-water mark set in the fourth quarter of 2010. Business investment and nonresidential investment in structures also slowed and housing is showing renewed softness. Just as the picture begins to seem bleak, Fannie Mae's economists post some good news - more new jobs created in March, an unemployment rate that dropped to its lowest level in two years, and the best quarter for the Dow Jones Industrial Average in 12 years. Despite the overall gloom in the report, Fannie Mae says the contraction in growth is expected to be temporary with a modest acceleration projected for the second half of the year. The group predicts economic growth to average 3.1 percent for 2011, a downgrade from 3.5 percent projected in the March forecast. The key to this outlook is continued improvement in the labor market and moderating oil prices in the second half of the year. Fannie does however exhibit nervous sentiments on the potential for further downgrades, saying "significant challenges lie ahead, which could potentially lower growth this year by much more than we project."
The report calls housing the "Achilles Heel of the Expansion." Activity weakened across the board in February. Existing home sales fell 10 percent, perhaps partially due to earlier weather conditions and distressed sales continue to account for more than a third of total housing sales. The distressed sales are a particular hurdle for the new home market which set a new record low in February and is now 9 percent below the old record set last August. The lack of sales activity has resulted in sharp drops in housing starts which are now only about four percent above the record lows in January 2009 and the second consecutive monthly drop in the issuance of single-family permits suggest continued sluggish home building activity near term.
Distressed sales and a winding down of programs to support the housing market have affected home prices which have shown persistent declines. The FHFA purchase-only price index fell in January for the seventh time in eight months while the CoreLogic and Case-Shiller indices show year-over-year home price appreciation during the firsthalf of 2010 and then renewed declines following expiration of the home buyer tax credits. Market expectations for home prices have deteriorated over the past several months according to multiple surveys of consumers.
Some of the shifts in housing projections since the March report are disquieting. Median prices of existing homes which were projected to float in the $211,000 to $223,000 range through the end of 2012 have been downgraded to a range of $160,300 to $167,500 in the first three quarters of 2011, falling again at the end of this year and beginning of next before recovering to around $167,000 by Q4 2012. Housing starts have been downgraded to 478,000 for the year compared to 508,000 in the March report and total housing sales projections were modified slightly from 5.56 million 5.53million.
Mortgage originations are still projected to total $1.038 billion with 40 percent coming from refinances and the estimate for the 30-year interest rate remains at 5.4 percent at year-end.
Bottom Line: Fannie Mae says home prices are falling right now but interest rates should remain low throughout the year. Sounds like a good time to be a home buyer!
Call today for a Pre Approval!
Crystal Clear Mortgage
888-634-6911
Meanwhile, there appears to be a slowdown in economic activity in the first quarter of the year with consumer spending growth poised to come in well short of the high-water mark set in the fourth quarter of 2010. Business investment and nonresidential investment in structures also slowed and housing is showing renewed softness. Just as the picture begins to seem bleak, Fannie Mae's economists post some good news - more new jobs created in March, an unemployment rate that dropped to its lowest level in two years, and the best quarter for the Dow Jones Industrial Average in 12 years. Despite the overall gloom in the report, Fannie Mae says the contraction in growth is expected to be temporary with a modest acceleration projected for the second half of the year. The group predicts economic growth to average 3.1 percent for 2011, a downgrade from 3.5 percent projected in the March forecast. The key to this outlook is continued improvement in the labor market and moderating oil prices in the second half of the year. Fannie does however exhibit nervous sentiments on the potential for further downgrades, saying "significant challenges lie ahead, which could potentially lower growth this year by much more than we project."
The report calls housing the "Achilles Heel of the Expansion." Activity weakened across the board in February. Existing home sales fell 10 percent, perhaps partially due to earlier weather conditions and distressed sales continue to account for more than a third of total housing sales. The distressed sales are a particular hurdle for the new home market which set a new record low in February and is now 9 percent below the old record set last August. The lack of sales activity has resulted in sharp drops in housing starts which are now only about four percent above the record lows in January 2009 and the second consecutive monthly drop in the issuance of single-family permits suggest continued sluggish home building activity near term.
Distressed sales and a winding down of programs to support the housing market have affected home prices which have shown persistent declines. The FHFA purchase-only price index fell in January for the seventh time in eight months while the CoreLogic and Case-Shiller indices show year-over-year home price appreciation during the firsthalf of 2010 and then renewed declines following expiration of the home buyer tax credits. Market expectations for home prices have deteriorated over the past several months according to multiple surveys of consumers.
Some of the shifts in housing projections since the March report are disquieting. Median prices of existing homes which were projected to float in the $211,000 to $223,000 range through the end of 2012 have been downgraded to a range of $160,300 to $167,500 in the first three quarters of 2011, falling again at the end of this year and beginning of next before recovering to around $167,000 by Q4 2012. Housing starts have been downgraded to 478,000 for the year compared to 508,000 in the March report and total housing sales projections were modified slightly from 5.56 million 5.53million.
Mortgage originations are still projected to total $1.038 billion with 40 percent coming from refinances and the estimate for the 30-year interest rate remains at 5.4 percent at year-end.
Bottom Line: Fannie Mae says home prices are falling right now but interest rates should remain low throughout the year. Sounds like a good time to be a home buyer!
Call today for a Pre Approval!
Crystal Clear Mortgage
888-634-6911
Wednesday, April 6, 2011
How Would a Government Shutdown Impact the Loan Process?
With a possible government shutdown on the horizon, I thought it interesting to report this article from Mortgage News Daily, written by Adam Quinones. Bottom line...potential issues on FHA loans, verifying employment for buyers with government jobs, current paystubs for borrowers with current government jobs, verifying tax transcripts, and likely higher interest rates. Here is the article:
Congress to pass a "Continuing Resolution" by Friday, April 8th to avoid a government shutdown. From Wikipedia: A continuing resolution is a type of appropriations legislation used by the United States Congress to fund government agencies if a formal appropriations bill has not been signed into law by the end of the Congressional fiscal year. The legislation takes the form of a joint resolution, and provides funding for existing federal programs at current or reduced levels.
RTRS-WHITE HOUSE SAYS PROCESSING OF SOME PAPER-FILED IRS TAX REFUNDS WILL BE SUSPENDED IF THE GOVERNMENT DOES HAVE TO SHUT DOWN
RTRS-WHITE HOUSE SAYS PROCESSING IRS TAX AUDITS WOULD ALSO BE IMPACTED BY A GOVERNMENT SHUTDOWN
RTRS-PROCESSING OF SMALL BUSINESS ADMIN LOANS WOULD BE AFFECTED IF GOVT SHUTS DOWN - U.S. OFFICIAL
RTRS-US OFFICIAL - GOVERNMENT SHUTDOWN WOULD IMPACT FHA, HAVE "SIGNIFICANT IMPACT" ON HOUSING MARKET IN PEAK HOME-BUYING SEASON
RTRS-US OFFICIAL-NUMBER OF FEDERAL WORKERS WHO WOULD BE IDLED COULD BE IN THE SAME VICINITY AS THE 800,000 IMPACTED IN LAST SHUTDOWN
RTRS-US OFFICIAL-ELECTRONIC FILING OF US TAX RETURNS WILL CONTINUE IN THE EVENT OF A GOVERNMENT SHUTDOWN
RTRS-SIGNIFICANT NUMBER OF PENTAGON CIVILIAN EMPLOYEES WOULD BE FURLOUGHED IF GOVT SHUT DOWN - U.S. OFFICIAL
RTRS-US OFFICIAL-MILITARY WILL BE PAID UP TO APRIL 8TH IF GOVT SHUTS, SALARIES WILL ACCRUE AFTER THEN BUT PAYMENTS WILL BE DELAYED
RTRS-OBAMA SAYS GOVERNMENT SHUTDOWN WOULD HURT U.S. ECONOMY RIGHT WHEN IT'S GAINING MOMENTUM
RTRS-OBAMA URGES DEMOCRATS AND REPUBLICANS TO MAKE COMPROMISES TO GET BUDGET DEAL, KEEP GOVERNMENT RUNNING
HOW WOULD A GOVERNMENT SHUT DOWN HAVE A "SIGNIFICANT IMPACT" ON THE HOUSING MARKET?
INITIAL THOUGHTS: The government's servers won't be taken off-line. The network will still be up and running. Essential staff will still be in place. FHA Connection is web-based but ordering FHA Case Numbers ASAP is advised. The IRS is an important part of the loan application process. Tax transcripts are generally accessible online but i t seems like a safe move to get 4506-T ordered now. One obvious thought is not being able to verfiy the employment status of borrowers with government jobs. Plus there could be a delay in getting current paystubs. FHA and Ginnie Mae aren't the only program offices within HUD though.
HERE IS A LIST OF HUD PROGRAMS THAT COULD BE IMPACTED..... Community Planning and Development * Community Development Block Grants (CDBG) (Entitlement) * Community Development Block Grants (Non Entitlement) for States and Small Cities * Community Development Block Grants (Section 108 Loan Guarantee) * Community Development Block Grants (Disaster Recovery Assistance) * Community Development Block Grants (Section 107) * Community Development Block Grants for Insular Areas * Community Development Block Grants (Rural Innovation Fund) * The HOME Program: HOME Investment Partnerships * Housing Trust Fund * Shelter Plus Care (S+C) * Emergency Shelter Grants (ESG) Program * Surplus Property for Use to Assist the Homeless (Title V) * Supportive Housing Program * Continuum of Care Program * Section 8 Moderate Rehabilitation Single Room Occupancy (SRO) Program * Rural Housing Stability Assistance Program * Brownfields Economic Development Initiative (BEDI) * Economic Development Initiative ("Competitive EDI") Grants * Empowerment Zones * Self-Help Homeownership Opportunity Program (SHOP) * Capacity Building for Community Development and Affordable Housing * Housing Opportunities for Persons With AIDS (HOPWA) * Loan Guarantee Recovery Fund for Church Arson and Other Acts of Terrorism (Section 4) Federal Housing Administration (FHA) * Single Family Housing Programs o One to Four Family Home Mortgage Insurance (Section 203(b)) o Mortgage Insurance for Disaster Victims (Section 203(h)) o Rehabilitation Loan Insurance (Section 203(k)) o Single Family Property Disposition Program (Section 204(g)) o Loss Mitigation o FHA-Home Affordable Modification Program (FHA-HAMP) o Graduated Payment Mortgage (GPM) (Section 245(a)) o Adjustable Rate Mortgages (ARMs) (Section 251) o Home Equity Conversion Mortgage (HECM) Program (Section 255) o Manufactured Homes Loan Insurance (Title I) o Property Improvement Loan Insurance (Title I) o Counseling for Homebuyers, Homeowners, and Tenants (Section 106) o Good Neighbor Next Door o Energy Efficient Mortgage Insurance o Insured Mortgages on Hawaiian Home Lands (Section 247) o Insured Mortgages on Indian Land (Section 248) Risk Management and Regulatory Affairs * Manufactured Home Construction and Safety Standards Multifamily Housing Programs * Supportive Housing for the Elderly (Section 202) * Assisted-Living Conversion Program (ALCP) * Emergency Capital Repairs Program * Multifamily Housing Service Coordinators * Manufactured Home Parks (Section 207) * Cooperative Housing (Section 213) * Mortgage and Major Home Improvement Loan Insurance for Urban Renewal Areas (Section 220) * Multifamily Rental Housing for Moderate-Income Families (Section 221(d)(3) and (4)) * Existing Multifamily Rental Housing (Section 207/223(f)) * Mortgage Insurance for Housing for the Elderly (Section 231) * Supplemental Loans for Multifamily Projects (Section 241) * Supportive Housing for Persons with Disabilities (Section 811) * Multifamily Mortgage Risk-Sharing Programs (Sections 542(b) and 542(c)) * Mark-to-Market Program * Self-Help Housing Property Disposition * Renewal of Section 8 Project-Based Rental Assistance Healthcare Programs * New Construction or Substantial Rehabilitation of Nursing Homes, Intermediate Care Facilities, Board and Care Homes, and Assisted Living Facilities (Section 232); Purchase or Refinancing of Existing Facilities (Section 232/223(f)) * Hospitals (Section 242) Public and Indian Housing * Housing Choice Voucher Program * Homeownership Voucher Assistance * Project-Based Voucher Program * Public Housing Operating Fund * Public Housing Capital Fund * Public Housing Neighborhood Networks (NN) Program * Revitalization of Severely Distressed Public Housing (HOPE VI) * Choice Neighborhoods * Public Housing Homeownership (Section 32) * Resident Opportunity and Self-Sufficiency (ROSS) Program * Family Self-Sufficiency Program * Indian Community Development Block Grant (ICDBG) Program * Indian Housing Block Grant (IHBG) Program * Federal Guarantees for Financing for Tribal Housing Activities (Title VI) * Loan Guarantees for Indian Housing (Section 184) * Native Hawaiian Housing Block Grant (NHHBG) Program * Loan Guarantees for Native Hawaiian Housing (Section 184A) Fair Housing and Equal Opportunity * Fair Housing Act (Title VIII) * Fair Housing Assistance Program (FHAP) * Fair Housing Initiatives Program (FHIP) * Equal Opportunity in HUD Assisted Programs (Title VI, Section 504, Americans with Disabilities Act, Section 109, Age Discrimination Act, and Title IX) * Section 3 Program * Voluntary Compliance Policy Development and Research * Policy Development and Research Initiatives Government National Mortgage Association (Ginnie Mae) * Ginnie Mae I Mortgage Backed Securities * Ginnie Mae II Mortgage Backed Securities * Ginnie Mae Multiclass Securities Program * Ginnie Mae Platinum Securities Program * Healthy Homes and Lead Hazard Control * Office of Sustainable Communities o Sustainable Communities Initiative Temporary Programs * Housing and Economic Recovery Act of 2008 (HERA) Programs * HOPE for Homeowners * Neighborhood Stabilization Program (NSP1) * American Recovery and Reinvestment Act of 2009 (Recovery Act Programs) o Neighborhood Stabilization Program 2 o Green Retrofit Program for Multifamily Housing o Healthy Homes Demonstration Grant Program and Technical Studies Grants o Homelessness Prevention and Rapid Re-Housing Program (HPRP) o Lead-Based Paint Hazard Control Grant Program and Lead Hazard Reduction Demonstration Grant Program o Indian Housing Block Grants (Formula) o Indian Housing Block Grants (Competitive) o Public Housing Capital Fund (Formula) o Public Housing Capital Fund (Competitive) o Tax Credit Assistance Program (TCAP) * Dodd-Frank Wall Street Reform and Consumer Protection Act Programs o Neighborhood Stabilization Program 3 o Emergency Homeowners Loan Program Other Resources * Neighborhood Reinvestment Corporation (NeighborWorks America) * U.S. Interagency Council on Homelessness -------------------------------------
We see this childish Congressional behavior as politics in their purest form. STANDARD OPERATING PROCEDURES ON CAPITOL HILL. Playing this game of chicken with the bond market carries massive conseuqence. We're cutting off our nose just to spite our face here. The last thing we want to do is put the U.S. credit rating in the global spotlight. We don't want bond vigilantes chasing after our debt like they are EU debt right now. A "bitter fight over budget cuts" unfortunately would do just that. I hope our so called leaders in Washington avoid that bitter fight. I hope they act like adults and avoid grand-standing and pandering. We don't need bickering. We need common ground. We need to develop a plan and make some moves to restore confidence in our country.
READ MORE: Budget Battle Looms. Bond Vigilantes Lurk Besides the observations made above, we don't know exactly how a government shutdown would impact the housing market, we don't see anything positive coming from it though....mortgage rates certainly wouldn't react well!
WHAT ELSE ARE WE MISSING HERE? Do Fannie and Freddie count as government or is that just an "implied" shutdown? Did you know?
Thursday, March 24, 2011
FHA Purchase and Refinance to 600 credit score!
FYI...We have one of our primary investors that is relaxing their credit score requirements on FHA refinances and purchase loans. Starting April 4th Crystal Clear Mortgage can now accommodate borrowers with a 600 credit score and above!
Their are significant caveats to this program, here are a few:
Their are significant caveats to this program, here are a few:
- The property must be single family residence, condominium, or PUD
- Borrower's may not have had any short sales, "settled for less than amount owed", public records, judgments, bankruptcies, foreclosures, or tax liens in the most recent three years
- Borrowers may not have had any collections in the last 12 months other than medical
- no 30 day late pays on mortgage, rent, or installment debt in the previous 12 months
- No more than one 30 day late pay in the last 12 months on revolving debt
- overtime, bonus, second job, income from part time employment, commission income, and self employment income cannot be used to qualify unless the borrower has a two year history of receiving this income. Must be consecutive years but does not need to be same employer.
- Gift funds for down payment are eligible from a family member
This is a stark reduction is the severity of underwriting guidelines. Perhaps this is a trend of what is to come. Of course, most people with a 600 score will not be able to clear these hurdles. This loan is not designed for the person that doesn't pay their bills. This loan is designed for someone that had a medical emergency or a divorce situation and could not maintain a decent credit score under the weight of all of the bills.
If you have clients or you yourself has been declined recently please call us!
Adam Simmons
Crystal Clear Mortgage
888-634-6911
Tuesday, March 15, 2011
How do the Events in Japan affect Mortgage Rates?
Another explosion at a nuclear power station in Japan triggered a 10.55% sell-off in Japanese stocks last night and initiated a massive global flight to safety away from equities into safe haven bonds and currencies. This helps to lower long term mortgage rates.
"The situation at Japan's Fukushima Dai-Ichi nuclear plant worsened overnight with at least one other explosion and fire at the facility," said economists at BMO. "There was some release of radiation and those living within 30km were advised to stay indoors, while those within a 20km range were being evacuated."
Prime Minister Naoto Kan said the risks of further radiation leaks are increasing. Japanese economic minister Kaoru Yosano told reporters the nation's economy is healthy and that stocks are falling because of uncertainty.
S&P 500 futures are a staggering 32.50 points lower at 1,258 and Dow futures have tumbled 232 points at 11,694 - the lowest since early January.
Light crude oil fell 3.24% to $97.93 per barrel, while gold prices surprisingly dropped 2.44% to $1,391.80
Meanwhile, risk averse assets are rallying. Among Treasuries, the two-year yield has firmed 7 basis points to 0.53% and the benchmark 10-year yield has fallen 12.5 basis points to 3.24%. The 2s/10s curve is 6bps flatter at 271bps wide.
"The safe-have Swiss franc and US$ are being bought across the board," BMO reports.
The drop in Japanese stocks marks the biggest single-day decline since October 2008 despite the Bank of Japan injecting 8 trillion yen into money markets. The volume of trading is considered all the more remarkable considering how short-staffed Japanese desks are.
European markets are currently down 2% to 4%, while shares in China finished 1.38% lower and those in Hong Kong fell 2.86%.
BOTTOM LINE: If you are waiting or were waiting to lock in your rate today will probably be the best day in the last month to do so. Call us today!
Crystal Clear Mortgage
888-634-6911
"The situation at Japan's Fukushima Dai-Ichi nuclear plant worsened overnight with at least one other explosion and fire at the facility," said economists at BMO. "There was some release of radiation and those living within 30km were advised to stay indoors, while those within a 20km range were being evacuated."
Prime Minister Naoto Kan said the risks of further radiation leaks are increasing. Japanese economic minister Kaoru Yosano told reporters the nation's economy is healthy and that stocks are falling because of uncertainty.
S&P 500 futures are a staggering 32.50 points lower at 1,258 and Dow futures have tumbled 232 points at 11,694 - the lowest since early January.
Light crude oil fell 3.24% to $97.93 per barrel, while gold prices surprisingly dropped 2.44% to $1,391.80
Meanwhile, risk averse assets are rallying. Among Treasuries, the two-year yield has firmed 7 basis points to 0.53% and the benchmark 10-year yield has fallen 12.5 basis points to 3.24%. The 2s/10s curve is 6bps flatter at 271bps wide.
"The safe-have Swiss franc and US$ are being bought across the board," BMO reports.
The drop in Japanese stocks marks the biggest single-day decline since October 2008 despite the Bank of Japan injecting 8 trillion yen into money markets. The volume of trading is considered all the more remarkable considering how short-staffed Japanese desks are.
European markets are currently down 2% to 4%, while shares in China finished 1.38% lower and those in Hong Kong fell 2.86%.
BOTTOM LINE: If you are waiting or were waiting to lock in your rate today will probably be the best day in the last month to do so. Call us today!
Crystal Clear Mortgage
888-634-6911
Friday, February 11, 2011
Obama Admin Releases White Paper on how to Fix Housing Market
Funny, but I thought we were in the middle of a massive self correction,free market style, but I digress...
This is a long post but it is vitally important for real estate agents to understand what is happening right now to their industry. The following was taken from Mortgage News Daily and written by Adam Quinones. My comments are embedded in their too!
The long-awaited report on the future of housing finance has been released by the Obama Administration.
The first thing to take away from this paper is the Administration's intention to wind down Fannie Mae and Freddie Mac on a responsible timeline. That tells you this reform process will take many years and much debate. There's nothing wrong with that though. Slow and steady works as long as lenders have funding liquidity in the process. The main goal is to get housing finance reform done right....the first time, as this market can only take so much more stress, rewriting regs repeatedly would be detrimental to the overall housing recovery process. Plus, any elimintaion of Fannie and Freddie from the market place on an immediate basis would have catastrophic consequences that most people do not understand.The average tax payer is upset about the bail out of Fannie and Freddie, but do not understand the economic situation if those bailouts did not take place. Let's be upset about the bailouts of Wall Street firms, but this one was needed.
Next on the list of observations is a tightrope transition from government supported loan funding to private investor supported loan funding. It appears the Administration is taking an "if we don't do it, someone else will" approach. They will attempt to accomplish their objective of reducing the government's "footprint" in the secondary mortgage market by tightening underwriting guidelines and raising fees. This will effectively "level the playing" field and lower the barriers to entry for private investors. We hope risk retention (skin in the game) regs don't "unlevel" the playing field. This means for conventional loans you will see higher down payments, tighter credit standards in an effort to push people to other loan products.
There is a ton of discussion still to be had. For now, read on...
------------------------
WASHINGTON – Today, the Obama Administration delivered a report to Congress that provides a path forward for reforming America’s housing finance market. The Administration’s plan will wind down Fannie Mae and Freddie Mac and shrink the government's current footprint in housing finance on a responsible timeline. The plan also lays out reforms to continue fixing the fundamental flaws in the mortgage market through stronger consumer protection, increased transparency for investors, improved underwriting standards, and other critical measures. Additionally, it will help provide targeted and transparent support to creditworthy but under served families that want to own their own home, as well as affordable rental options.
“This is a plan for fundamental reform – to wind down the GSEs, strengthen consumer protection, and preserve access to affordable housing for people who need it,” said Treasury Secretary Tim Geithner. “We are going to start the process of reform now, but we are going to do it responsibly and carefully so that we support the recovery and the process of repair of the housing market.”
“This report provides a strong plan to fix the fundamental flaws in the mortgage market and better target the government’s support for affordable home ownership and rental housing,” said Housing and Urban Development Secretary Shaun Donovan. “We must continue to take the necessary steps to ensure that Americans have access to quality housing they can afford. This involves re balancing our housing priorities to support a range of affordable options, from promoting much-needed financing for quality, affordable rental homes to ensuring the availability of safe, and sustainable mortgage products for current and future homeowners.”
The Obama Administration's reform plan will:
1. Wind Down Fannie Mae and Freddie Mac and Help Bring Private Capital Back to the Market. In the wake of the financial crisis, private capital retreated from the housing market and has not yet returned, leaving the government to guarantee more than nine out of every 10 new mortgages. That assistance has been essential to stabilizing the housing market. However, the Obama Administration believes that, under normal market conditions, the private sector – subject to stronger oversight and standards for consumer and investor protection – should be the primary source of mortgage credit and bear the burden for losses.
The report recommends using a combination of policy levers to wind down Fannie Mae and Freddie Mac, shrink the government’s footprint in housing finance, and help bring private capital back to the mortgage market. The Obama Administration is committed to proceeding with great care as we work toward the objective of ensuring that government support is withdrawn at a responsible pace that does not undermine the economic recovery.
Phasing in Increased Pricing at Fannie Mae and Freddie Mac to Make Room for Private Capital, Level the Playing Field. The Administration recommends ending unfair capital advantages that Fannie Mae and Freddie Mac previously enjoyed by requiring them to price their guarantees as though they were held to the same capital standards as private banks or financial institutions. This will help level the playing field for the private sector to take back market share. Although the pace of these increases will depend significantly on market conditions, the Administration recommends bringing Fannie Mae and Freddie Mac to a level even with the private market over the next several years.
Reducing Conforming Loan Limits. To further reduce Fannie Mae and Freddie Mac’s presence in the market, the Administration recommends that Congress allow the temporary increase in those firms’ conforming loan limits (the maximum size of a loan those firms can guarantee) to reset as scheduled on October 1, 2011 to the levels set in the Housing and Economic Recovery Act (HERA). We will work with Congress on additional changes to conforming limits going forward.
Phasing in 10 Percent Down Payment Requirement: To help further protect taxpayers, we recommend requiring larger down payments from borrowers. Going forward, we support gradually increasing required down payments so that any mortgage that Fannie Mae and Freddie Mac guarantee eventually has at least a 10 percent down payment.
Winding Down Fannie Mae and Freddie Mac’s Investment Portfolios: The Administration’s plan calls for continuing to wind down Fannie Mae and Freddie Mac’s investment portfolio at an annual rate of no less than 10 percent per year.
Returning Federal Housing Administration (FHA) to its Traditional Role.
As Fannie Mae and Freddie Mac’s presence in the market shrinks, we will encourage program changes at FHA to ensure that the private sector – not FHA – picks up this new market share. The Administration recommends that Congress allow the present increase in FHA conforming loan limits to expire as scheduled on October 1, 2011, after which it will explore further reductions. The Administration will also put in place a 25 basis point increase in the price of FHA’s annual mortgage insurance premium, as detailed in the President’s 2012 Budget.
Throughout the transition, we remain committed to ensuring that Fannie Mae and Freddie Mac have sufficient capital to perform under any guarantees issued now or in the future and the ability to meet any of their debt obligations. This assurance is essential to continued economic stability.
We recognize the critically important role that Fannie Mae and Freddie Mac and their employees have played in the housing finance market while they have operated in conservatorship. We look forward to continuing to work with them to find ways to develop and implement the longer term reform solutions that the Administration determines together with Congress.
2. Fix the Fundamental Flaws in the Mortgage Market. The Obama Administration is committed to fixing the fundamental flaws in the housing finance chain. That process is already underway as we move to fundamentally transform the mortgage market through the Dodd-Frank Wall Street Reform and Consumer Protection Act’s (Dodd-Frank Act’s) critical reforms. Implementing these key measures, as well as additional reforms outlined in this report, will help to strengthen the long-term health of the mortgage market for borrowers, lenders, and investors.
Helping Consumers Avoid Unfair Practices and Make Informed Decisions About Mortgages: The Administration will continue to implement the Dodd-Frank Act’s reforms to strengthen anti-predatory lending protections, improve underwriting standards, require lenders to verify a borrowers’ ability to pay, and provide increased mortgage disclosures for consumers.
Increasing Accountability and Transparency in the Securitization Process: The Administration is currently working on rules to require originators and securitizers to keep greater “skin in the game” and to align incentives across the securitization chain. Dodd-Frank charged the SEC with setting stricter disclosure requirements so that investors can more easily understand the underlying risks of securities, and establishing an Office of Credit Ratings to more effectively regulate the credit rating agencies.
Creating a More Stable Mortgage Market: The Administration supports stronger capital standards to help ensure that banks can better withstand future downturns, declines in home prices and other sudden shocks, without jeopardizing the health of the economy. Additionally, the comprehensive reforms undertaken pursuant to the Dodd-Frank Act to constrain excessive risk in the financial system, including strengthened and coordinated oversight through the Financial Stability Oversight Council (FSOC), will help build a healthier and more stable mortgage market for the long term.
Servicing and Foreclosure Processes: The Administration supports several immediate and near-term reforms to correct problems in mortgage servicing and foreclosure processing to better serve both homeowners and investors. These include putting in place national standards for mortgage servicing; reforming servicing compensation to help ensure servicers have proper incentives to invest the time and effort necessary to work with borrowers to avoid default or foreclosure; requiring that mortgage documents disclose the presence of second liens and define the process for modifying a second lien in the event the first lien becomes delinquent; and considering options for allowing primary mortgage holders to restrict, in certain circumstances, additional debt secured by the same property.
Forming a New Task Force on Coordinating and Consolidating Existing Housing Finance Agencies: Following on the President’s call in the State of the Union to reform government to build a stronger future, the Administration will create a task force to explore ways in which the Department of Housing and Urban Development, the Department of Agriculture, and the Department of Veterans’ Affairs housing finance programs can be better coordinated, or even consolidated.
3. Better Target the Government's Support for Affordable Housing. The Administration believes that we must continue to help ensure that Americans have access to quality housing they can afford. This does not mean, however, that our goal is for all Americans to become homeowners. Instead, we should make sure opportunities are available for all Americans who have the credit history, financial capacity, and desire to own a home have the opportunity to take that step. At the same time, we should ensure that there are a range of affordable options for the millions of Americans who rent, whether they do so by choice or financial necessity. Moving forward, we must design access and affordability policies that are better targeted and focused on providing support that is financially sustainable for families and communities. The Administration recommends initially focusing our efforts on four primary areas:
Reforming and Strengthening the FHA: We will continue to ensure that creditworthy borrowers who have incomes up to the median level for their area have access to affordable mortgages, but we will do so in a way that is healthy for FHA’s long-term finances, including considering options such as lowering the maximum loan-to-value ratios for qualifying mortgages and adjusting pricing.
Rebalancing our Housing policy and Strengthening Support for Affordable Rental Housing: The plan advocates additional support for rental housing through measures that could include expanding the FHA’s capacity to support lending to the multifamily market, with reforms like risk sharing with private lenders and dedicated programs for hard to reach property segments like smaller properties.
Ensuring that Capital is Available to Credit-worthy Borrowers in All Communities, Including Rural Areas, Economically Distressed Regions, and Low-income Communities: The plan calls for greater transparency by requiring securitizers to disclose information on the credit, geographic, and demographic characteristics of the loans they package into securities. The Administration will explore other measures to make sure that secondary market participants are providing capital to all communities in ways that reflect activity in the private market, consistent with their obligations of safety and soundness.
Supporting a Dedicated Funding Source for Targeted Access and Affordability Initiatives: The plan calls for a dedicated, budget neutral, financing mechanism to support homeownership and rental housing objectives. The Administration will work with Congress on developing this funding mechanism going forward.
4. Longer-Term Reform Choices. The report also puts forward longer-term reform choices for structuring the government’s future role in the housing market. Each of these options would produce a market where the private sector plays the dominant role in providing mortgage credit and bears the burden for losses, but each also has unique advantages and disadvantages that we must consider carefully.
Deciding the best way forward will require an honest discussion with Congress and other stakeholders about the appropriate role of government over the longer term. The Obama Administration looks forward to working to build consensus, on a bipartisan basis, with a wide range of stakeholders on this issue.
IF YOU HAVE ANY QUESTIONS ABOUT THIS REPORT AND HOW IT CAN IMPACT YOUR BUSINESS PLEASE CALL US AT 888-634-6911. PLEASE ALSO LET YOU CLIENTS ON THE FENCE KNOW THAT IN THE NOT TOO DISTANT FUTURE THEY WILL NEED A MUCH LARGER STACK OF CASH TO BUY.
ADAM SIMMONS
CRYSTAL CLEAR MORTGAGE
This is a long post but it is vitally important for real estate agents to understand what is happening right now to their industry. The following was taken from Mortgage News Daily and written by Adam Quinones. My comments are embedded in their too!
The long-awaited report on the future of housing finance has been released by the Obama Administration.
The first thing to take away from this paper is the Administration's intention to wind down Fannie Mae and Freddie Mac on a responsible timeline. That tells you this reform process will take many years and much debate. There's nothing wrong with that though. Slow and steady works as long as lenders have funding liquidity in the process. The main goal is to get housing finance reform done right....the first time, as this market can only take so much more stress, rewriting regs repeatedly would be detrimental to the overall housing recovery process. Plus, any elimintaion of Fannie and Freddie from the market place on an immediate basis would have catastrophic consequences that most people do not understand.The average tax payer is upset about the bail out of Fannie and Freddie, but do not understand the economic situation if those bailouts did not take place. Let's be upset about the bailouts of Wall Street firms, but this one was needed.
Next on the list of observations is a tightrope transition from government supported loan funding to private investor supported loan funding. It appears the Administration is taking an "if we don't do it, someone else will" approach. They will attempt to accomplish their objective of reducing the government's "footprint" in the secondary mortgage market by tightening underwriting guidelines and raising fees. This will effectively "level the playing" field and lower the barriers to entry for private investors. We hope risk retention (skin in the game) regs don't "unlevel" the playing field. This means for conventional loans you will see higher down payments, tighter credit standards in an effort to push people to other loan products.
There is a ton of discussion still to be had. For now, read on...
------------------------
WASHINGTON – Today, the Obama Administration delivered a report to Congress that provides a path forward for reforming America’s housing finance market. The Administration’s plan will wind down Fannie Mae and Freddie Mac and shrink the government's current footprint in housing finance on a responsible timeline. The plan also lays out reforms to continue fixing the fundamental flaws in the mortgage market through stronger consumer protection, increased transparency for investors, improved underwriting standards, and other critical measures. Additionally, it will help provide targeted and transparent support to creditworthy but under served families that want to own their own home, as well as affordable rental options.
“This is a plan for fundamental reform – to wind down the GSEs, strengthen consumer protection, and preserve access to affordable housing for people who need it,” said Treasury Secretary Tim Geithner. “We are going to start the process of reform now, but we are going to do it responsibly and carefully so that we support the recovery and the process of repair of the housing market.”
“This report provides a strong plan to fix the fundamental flaws in the mortgage market and better target the government’s support for affordable home ownership and rental housing,” said Housing and Urban Development Secretary Shaun Donovan. “We must continue to take the necessary steps to ensure that Americans have access to quality housing they can afford. This involves re balancing our housing priorities to support a range of affordable options, from promoting much-needed financing for quality, affordable rental homes to ensuring the availability of safe, and sustainable mortgage products for current and future homeowners.”
The Obama Administration's reform plan will:
1. Wind Down Fannie Mae and Freddie Mac and Help Bring Private Capital Back to the Market. In the wake of the financial crisis, private capital retreated from the housing market and has not yet returned, leaving the government to guarantee more than nine out of every 10 new mortgages. That assistance has been essential to stabilizing the housing market. However, the Obama Administration believes that, under normal market conditions, the private sector – subject to stronger oversight and standards for consumer and investor protection – should be the primary source of mortgage credit and bear the burden for losses.
The report recommends using a combination of policy levers to wind down Fannie Mae and Freddie Mac, shrink the government’s footprint in housing finance, and help bring private capital back to the mortgage market. The Obama Administration is committed to proceeding with great care as we work toward the objective of ensuring that government support is withdrawn at a responsible pace that does not undermine the economic recovery.
Phasing in Increased Pricing at Fannie Mae and Freddie Mac to Make Room for Private Capital, Level the Playing Field. The Administration recommends ending unfair capital advantages that Fannie Mae and Freddie Mac previously enjoyed by requiring them to price their guarantees as though they were held to the same capital standards as private banks or financial institutions. This will help level the playing field for the private sector to take back market share. Although the pace of these increases will depend significantly on market conditions, the Administration recommends bringing Fannie Mae and Freddie Mac to a level even with the private market over the next several years.
Reducing Conforming Loan Limits. To further reduce Fannie Mae and Freddie Mac’s presence in the market, the Administration recommends that Congress allow the temporary increase in those firms’ conforming loan limits (the maximum size of a loan those firms can guarantee) to reset as scheduled on October 1, 2011 to the levels set in the Housing and Economic Recovery Act (HERA). We will work with Congress on additional changes to conforming limits going forward.
Phasing in 10 Percent Down Payment Requirement: To help further protect taxpayers, we recommend requiring larger down payments from borrowers. Going forward, we support gradually increasing required down payments so that any mortgage that Fannie Mae and Freddie Mac guarantee eventually has at least a 10 percent down payment.
Winding Down Fannie Mae and Freddie Mac’s Investment Portfolios: The Administration’s plan calls for continuing to wind down Fannie Mae and Freddie Mac’s investment portfolio at an annual rate of no less than 10 percent per year.
Returning Federal Housing Administration (FHA) to its Traditional Role.
As Fannie Mae and Freddie Mac’s presence in the market shrinks, we will encourage program changes at FHA to ensure that the private sector – not FHA – picks up this new market share. The Administration recommends that Congress allow the present increase in FHA conforming loan limits to expire as scheduled on October 1, 2011, after which it will explore further reductions. The Administration will also put in place a 25 basis point increase in the price of FHA’s annual mortgage insurance premium, as detailed in the President’s 2012 Budget.
Throughout the transition, we remain committed to ensuring that Fannie Mae and Freddie Mac have sufficient capital to perform under any guarantees issued now or in the future and the ability to meet any of their debt obligations. This assurance is essential to continued economic stability.
We recognize the critically important role that Fannie Mae and Freddie Mac and their employees have played in the housing finance market while they have operated in conservatorship. We look forward to continuing to work with them to find ways to develop and implement the longer term reform solutions that the Administration determines together with Congress.
2. Fix the Fundamental Flaws in the Mortgage Market. The Obama Administration is committed to fixing the fundamental flaws in the housing finance chain. That process is already underway as we move to fundamentally transform the mortgage market through the Dodd-Frank Wall Street Reform and Consumer Protection Act’s (Dodd-Frank Act’s) critical reforms. Implementing these key measures, as well as additional reforms outlined in this report, will help to strengthen the long-term health of the mortgage market for borrowers, lenders, and investors.
Helping Consumers Avoid Unfair Practices and Make Informed Decisions About Mortgages: The Administration will continue to implement the Dodd-Frank Act’s reforms to strengthen anti-predatory lending protections, improve underwriting standards, require lenders to verify a borrowers’ ability to pay, and provide increased mortgage disclosures for consumers.
Increasing Accountability and Transparency in the Securitization Process: The Administration is currently working on rules to require originators and securitizers to keep greater “skin in the game” and to align incentives across the securitization chain. Dodd-Frank charged the SEC with setting stricter disclosure requirements so that investors can more easily understand the underlying risks of securities, and establishing an Office of Credit Ratings to more effectively regulate the credit rating agencies.
Creating a More Stable Mortgage Market: The Administration supports stronger capital standards to help ensure that banks can better withstand future downturns, declines in home prices and other sudden shocks, without jeopardizing the health of the economy. Additionally, the comprehensive reforms undertaken pursuant to the Dodd-Frank Act to constrain excessive risk in the financial system, including strengthened and coordinated oversight through the Financial Stability Oversight Council (FSOC), will help build a healthier and more stable mortgage market for the long term.
Servicing and Foreclosure Processes: The Administration supports several immediate and near-term reforms to correct problems in mortgage servicing and foreclosure processing to better serve both homeowners and investors. These include putting in place national standards for mortgage servicing; reforming servicing compensation to help ensure servicers have proper incentives to invest the time and effort necessary to work with borrowers to avoid default or foreclosure; requiring that mortgage documents disclose the presence of second liens and define the process for modifying a second lien in the event the first lien becomes delinquent; and considering options for allowing primary mortgage holders to restrict, in certain circumstances, additional debt secured by the same property.
Forming a New Task Force on Coordinating and Consolidating Existing Housing Finance Agencies: Following on the President’s call in the State of the Union to reform government to build a stronger future, the Administration will create a task force to explore ways in which the Department of Housing and Urban Development, the Department of Agriculture, and the Department of Veterans’ Affairs housing finance programs can be better coordinated, or even consolidated.
3. Better Target the Government's Support for Affordable Housing. The Administration believes that we must continue to help ensure that Americans have access to quality housing they can afford. This does not mean, however, that our goal is for all Americans to become homeowners. Instead, we should make sure opportunities are available for all Americans who have the credit history, financial capacity, and desire to own a home have the opportunity to take that step. At the same time, we should ensure that there are a range of affordable options for the millions of Americans who rent, whether they do so by choice or financial necessity. Moving forward, we must design access and affordability policies that are better targeted and focused on providing support that is financially sustainable for families and communities. The Administration recommends initially focusing our efforts on four primary areas:
Reforming and Strengthening the FHA: We will continue to ensure that creditworthy borrowers who have incomes up to the median level for their area have access to affordable mortgages, but we will do so in a way that is healthy for FHA’s long-term finances, including considering options such as lowering the maximum loan-to-value ratios for qualifying mortgages and adjusting pricing.
Rebalancing our Housing policy and Strengthening Support for Affordable Rental Housing: The plan advocates additional support for rental housing through measures that could include expanding the FHA’s capacity to support lending to the multifamily market, with reforms like risk sharing with private lenders and dedicated programs for hard to reach property segments like smaller properties.
Ensuring that Capital is Available to Credit-worthy Borrowers in All Communities, Including Rural Areas, Economically Distressed Regions, and Low-income Communities: The plan calls for greater transparency by requiring securitizers to disclose information on the credit, geographic, and demographic characteristics of the loans they package into securities. The Administration will explore other measures to make sure that secondary market participants are providing capital to all communities in ways that reflect activity in the private market, consistent with their obligations of safety and soundness.
Supporting a Dedicated Funding Source for Targeted Access and Affordability Initiatives: The plan calls for a dedicated, budget neutral, financing mechanism to support homeownership and rental housing objectives. The Administration will work with Congress on developing this funding mechanism going forward.
4. Longer-Term Reform Choices. The report also puts forward longer-term reform choices for structuring the government’s future role in the housing market. Each of these options would produce a market where the private sector plays the dominant role in providing mortgage credit and bears the burden for losses, but each also has unique advantages and disadvantages that we must consider carefully.
Deciding the best way forward will require an honest discussion with Congress and other stakeholders about the appropriate role of government over the longer term. The Obama Administration looks forward to working to build consensus, on a bipartisan basis, with a wide range of stakeholders on this issue.
IF YOU HAVE ANY QUESTIONS ABOUT THIS REPORT AND HOW IT CAN IMPACT YOUR BUSINESS PLEASE CALL US AT 888-634-6911. PLEASE ALSO LET YOU CLIENTS ON THE FENCE KNOW THAT IN THE NOT TOO DISTANT FUTURE THEY WILL NEED A MUCH LARGER STACK OF CASH TO BUY.
ADAM SIMMONS
CRYSTAL CLEAR MORTGAGE
Wednesday, February 9, 2011
Mortgage Rates Hit 10 Month High
The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending February 4th, 2011.
The Refinance Index decreased 7.7 percent from the previous week. The four week moving average is down 1.5 percent. The refinance share of mortgage activity decreased to 66.6 percent of total applications from 69.3 percent the previous week. This is the lowest refinance share observed in the survey since the week ending May 14, 2010.
The average contract interest rate for 30-year fixed-rate mortgages increased to 5.13percent from 4.81 percent, with points decreasing to 0.84 from 1.02 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This means your no point loans are carrying even higher rates. This is the highest contract 30-year rate recorded in the survey since the week ending April 9, 2010. The 32 basis point jump is the largest rate increase since June 2009.
"Mortgage rates increased last week as many incoming economic indicators continue to show stronger growth than had been anticipated. Refinance volume continues to be low, as fewer homeowners with equity have any incentive to refinance," said Michael Fratantoni, MBA's Vice President of Research and Economics. "We are at the beginning of the spring buying season, but purchase volume remains weak on a seasonally adjusted basis."
We all new that rates could not stay in the 4% range for ever. The question is are they gone for good? Bottom line...Rates in the 5% range, on a historical basis, are still fantastic and should not stop you from trying to buy a home if that is your goal. Remember, mortgage interest is also a tax dedcutible expense.
Crystal Clear Mortgage
888-634-6911
The Refinance Index decreased 7.7 percent from the previous week. The four week moving average is down 1.5 percent. The refinance share of mortgage activity decreased to 66.6 percent of total applications from 69.3 percent the previous week. This is the lowest refinance share observed in the survey since the week ending May 14, 2010.
The average contract interest rate for 30-year fixed-rate mortgages increased to 5.13percent from 4.81 percent, with points decreasing to 0.84 from 1.02 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This means your no point loans are carrying even higher rates. This is the highest contract 30-year rate recorded in the survey since the week ending April 9, 2010. The 32 basis point jump is the largest rate increase since June 2009.
"Mortgage rates increased last week as many incoming economic indicators continue to show stronger growth than had been anticipated. Refinance volume continues to be low, as fewer homeowners with equity have any incentive to refinance," said Michael Fratantoni, MBA's Vice President of Research and Economics. "We are at the beginning of the spring buying season, but purchase volume remains weak on a seasonally adjusted basis."
We all new that rates could not stay in the 4% range for ever. The question is are they gone for good? Bottom line...Rates in the 5% range, on a historical basis, are still fantastic and should not stop you from trying to buy a home if that is your goal. Remember, mortgage interest is also a tax dedcutible expense.
Crystal Clear Mortgage
888-634-6911
Monday, February 7, 2011
Rough Start for Mortgage Rates
Last week ended on a very brutal note for interest rates. The Fannie Mae (FNMA) 4.5%coupon has now stopped being the primary benchmark for mortgage rates. That title now belongs to the FNMA 5.0% coupon.
When I use the term "coupon" that just means a tranche of loans that are bundled together and sold on the secondary market. This bundling of loans and the price they sell at determines the interest rates available for people buying and refinancing homes.
What does it mean that the 5.0% coupon is now reigning supreme? It means goodbye interest rates in the upper 4% range on thirty year notes. Your best execution (combination of rate and fees, usually no point loans) is officially above 5%. Depending on how the treasury auctions go this week you could easily see 5.375% become the new norm on 30 year notes. Don't say we didn't warn you! If you are closing a loan in the next 30 days you better have your rate locked in and you better make sure it is locked for a long enough period of time. Rate lock extensions could be very expensive in this market!
Crystal Clear Mortgage
888-634-6911
When I use the term "coupon" that just means a tranche of loans that are bundled together and sold on the secondary market. This bundling of loans and the price they sell at determines the interest rates available for people buying and refinancing homes.
What does it mean that the 5.0% coupon is now reigning supreme? It means goodbye interest rates in the upper 4% range on thirty year notes. Your best execution (combination of rate and fees, usually no point loans) is officially above 5%. Depending on how the treasury auctions go this week you could easily see 5.375% become the new norm on 30 year notes. Don't say we didn't warn you! If you are closing a loan in the next 30 days you better have your rate locked in and you better make sure it is locked for a long enough period of time. Rate lock extensions could be very expensive in this market!
Crystal Clear Mortgage
888-634-6911
Wednesday, February 2, 2011
Jumbo Loans Making A Comeback...where are rates going?
There has been a product missing from the mortgage market for the past couple of years. That product is a jumbo, fixed rate loan. Jumbo loans are any loan that is above 417K. The reason these are called Jumbo loans is because they exceed Fannie Mae and Freddie Mac's loan limit for insurance.
That means that these loans are purchased on the secondary market by private firms, pension funds, hedge funds, etc. At the start of the housing/mortgage debacle this loan was one of the first to disappear. The lenders that remained in this market had to fund with their own money, and keep the loan on the books and service it. This meant two things: tight underwriting guidelines and higher rates.
Over the last month these Jumbo loans have been appearing on rate sheets with more frequency. A lot of the lenders that exited this niche market are now back in it. Rates are still slightly higher than conventional loans (always have been, but the spread is starting to narrow) and you will need 20% down. There are now also second lien options up to 200K to make the purchase process and resulting loan a little more palatable.
Bottom line, you or your clients now have more options for their large purchases. Please call us for current rates and program guidelines.
As far as current conventional rates are concerned, where we go remains any one's guess. Like a see-saw on a playground we are up then down up then down...rely on your mortgage professional to ride the waves and lock you in a trough rather than a peak.
Adam Simmons
Crystal Clear Mortgage
888-834-6911
That means that these loans are purchased on the secondary market by private firms, pension funds, hedge funds, etc. At the start of the housing/mortgage debacle this loan was one of the first to disappear. The lenders that remained in this market had to fund with their own money, and keep the loan on the books and service it. This meant two things: tight underwriting guidelines and higher rates.
Over the last month these Jumbo loans have been appearing on rate sheets with more frequency. A lot of the lenders that exited this niche market are now back in it. Rates are still slightly higher than conventional loans (always have been, but the spread is starting to narrow) and you will need 20% down. There are now also second lien options up to 200K to make the purchase process and resulting loan a little more palatable.
Bottom line, you or your clients now have more options for their large purchases. Please call us for current rates and program guidelines.
As far as current conventional rates are concerned, where we go remains any one's guess. Like a see-saw on a playground we are up then down up then down...rely on your mortgage professional to ride the waves and lock you in a trough rather than a peak.
Adam Simmons
Crystal Clear Mortgage
888-834-6911
Wednesday, January 19, 2011
Anti Flipping Rules and More
Have you ever thought about flipping houses? Most people who flip houses buy those homes with cash, and renovate them with cash. The issue has been lately that a lot of the buyers do not have enough cash. That means they must finance the home they want to flip, which still requires 20% down when buying as an investment property. That also means there is a 90% chance that the buyer of your property will need to do an FHA loan when purchasing your newly renovated house.
For a period of time FHA made that extremely difficult with strict rules against property flipping when using their loan product. FHA used to not allow homes that were purchased in the previous 90 days to be sold within that same 90 day period for a higher price. Also, if you bought the home within the last 12 months, and were selling it for 25% more than you bought it for,you would have to show receipts to prove that you made improvements to the house. Thus, an anti flipping rule. FHA has announced this week that they are waiving the 90 day rule for the next 12 months. This is set to expire in January 2012. what does this mean?? You can now buy a house with an FHA loan, pay to fix it up, and now sell it to someone using an FHA loan to buy.
I am not sure how many more people this will bring into the market place, but it can definitely give real estate agents another avenue to market their properties. I can see the tagline already..."Buy this house with 20% down and make 50% on a flip!" HMMMMM...my wheels are spinning.
So what else is happening in our mortgage market? Interest rates are continuing a slow climb to who knows where. It is time for buyers who are thinking about buying to stop worrying about rates when it is your time to buy. The rates will be what they are, and from a historical perspective, still very good. Buying a house should not be put on hold because you can only get a 5.25% instead of a 4.75%. Stay on top of rate trends buy signing up for this blog to be emailed to you. You can do this at www.CrystalClearMortgage.com.
Current purchase rates for well qualified buyers are 4.75% to 4.875% with no points or origination fees. If you are getting quoted a higher rate ask your loan officer why your situation is not considered ideal. It could be your credit, loan amount, loan to sales price value, etc. There are many factors that effect a rate that can be offered. Take the time to know why your rate is what it is.
Please call me with any questions!
888-634-6911
For a period of time FHA made that extremely difficult with strict rules against property flipping when using their loan product. FHA used to not allow homes that were purchased in the previous 90 days to be sold within that same 90 day period for a higher price. Also, if you bought the home within the last 12 months, and were selling it for 25% more than you bought it for,you would have to show receipts to prove that you made improvements to the house. Thus, an anti flipping rule. FHA has announced this week that they are waiving the 90 day rule for the next 12 months. This is set to expire in January 2012. what does this mean?? You can now buy a house with an FHA loan, pay to fix it up, and now sell it to someone using an FHA loan to buy.
I am not sure how many more people this will bring into the market place, but it can definitely give real estate agents another avenue to market their properties. I can see the tagline already..."Buy this house with 20% down and make 50% on a flip!" HMMMMM...my wheels are spinning.
So what else is happening in our mortgage market? Interest rates are continuing a slow climb to who knows where. It is time for buyers who are thinking about buying to stop worrying about rates when it is your time to buy. The rates will be what they are, and from a historical perspective, still very good. Buying a house should not be put on hold because you can only get a 5.25% instead of a 4.75%. Stay on top of rate trends buy signing up for this blog to be emailed to you. You can do this at www.CrystalClearMortgage.com.
Current purchase rates for well qualified buyers are 4.75% to 4.875% with no points or origination fees. If you are getting quoted a higher rate ask your loan officer why your situation is not considered ideal. It could be your credit, loan amount, loan to sales price value, etc. There are many factors that effect a rate that can be offered. Take the time to know why your rate is what it is.
Please call me with any questions!
888-634-6911
Tuesday, January 4, 2011
The Eight Most Important Factors for 2011's Mortgage Market
From the Texas Association of Mortgage Professionals (TAMP). If you have any questions about what any of this means please do not hesitate to call us!
1. Consumer Finance Protection Bureau. By July 21, the structure to promote what may be sweeping overhaul of mortgage products, Stack of paper processes and disclosures will be put in place. Elizabeth Warren, charged with creating the structure of the new Bureau, is expected to have much of the framework in place for the new regulatory body by the "official" July start date. By that time, a new director will have been named and regulators and regulations drawn from other bodies will be assembled.
It does seem likely that mortgage disclosure reform will be first on the list for the Bureau to tackle. Confusing, unclear and seemingly conflicting documentation has been implicated in the mortgage market mess, and a push for more explicit yet simpler forms for consumers to review and sign are thought to be a top priority for the new body. That said, a simplification of the document stream has long been a dream of any number of regulators, with an exhaustive study completed just a few years ago with limited results. The change in 2010 to the Good Faith Estimate to make fees charged to borrowers more explicit was helpful to a degree, and trying to revise required RESPA and TILA documents will surely be an even greater challenge.
2. Fannie Mae and Freddie Mac Will Change... maybe. Reforming the Government-Sponsored Enterprises (GSE) has been an on-again, off-again, on-again crusade for the last couple of administrations. To be sure, it's a love-hate relationship; the GSEs have totally distorted the mortgage market, but without them, there would be no mortgage market to distort. They have eaten tens of billions of taxpayer funds, but remain perhaps the key support for millions of homebuyers and homeowners. In such a fragile market, making immediate, substantial changes could have many unwelcome consequences. Reforming these entities is a thorny issue, to be sure.
After having been kicked down the road three times by the Obama administration, recommendations for change are expected to come from the Treasury Department in January. But will reform follow quickly? Probably not. There has been some talk of perhaps a five-year wind down plan for the GSEs, some discussions of separating their "public" function of securitizing mortgages from their "private" investment portfolios, but both have proven useful to politicians at various times.
No matter what the proposals have to say, we expect long and contentious debate between Democrats and Republicans over the role of government in housing finance markets. If the housing market can begin a small but steady recovery, the firms' losses will start to ease and possibly reverse, and so any delays in making changes argue in favor of keeping the status quo. We think that if there is no real progress toward reform made by perhaps October, it is very likely that GSE overhaul won't happen until after the next presidential elections. For our part, we're betting on little if any real change to come in 2011.
3. The Economy Improves. If you want to know what will happen to mortgage rates in 2011, watch what happens to the economy. AsEconomy Improves we write this, the economy has put in about six quarters on the positive side of the economic ledger, and Federal Reserve stimulus and the recent tax agreement seems likely to ensure that growth continues on an upward track in 2011. The labor market recovery should continue to gain momentum as the year progresses, but unemployment will remain stubbornly high for perhaps years to come.
That said, continual but gradual improvement seems likely. As the economy finds firmer footing, so will mortgage rates. After being pressed to 56-plus-year lows in 2010 by various crises, deflation concerns and government manipulation, we may just see a bit of the other side of the coin in 2011. Although the Fed will keep short term interest rates low, they are unlikely to want to leave them at emergency levels forever; as the economy recovers, the market will probably begin to demand that the Fed begin the process of raising short-term interest rates and backing off on policy "accommodation" in order to avoid an inflation problem at some point. Since they would tend to temper any outsized growth potential, which in turn would trim inflation concerns, any rise in short-term rates (whether directly or through the process of managing currency reserves) should keep long-term mortgage and other interest rates from rising too far. As we begin 2011, mortgage rates have moved off recent bottoms, but have probably overshot where they should actually be, given current economic condition.
4. Homebuyers Return in Greater Numbers. We'll stop short of calling 2011 "the year of the homebuyer," but the gentle improvement in the labor market, still-low interest rates and what should be gradually easier lending conditions seem to us likely to foster a stronger housing market.
Whether we see easier lending conditions depends upon Fannie and Freddie reform, a resurrection of private secondary markets and whether or not consumers find an appetite for mortgage products that banks prefer to put in their own portfolios and can exercise full underwriting control over, such as ARMs. Few banks want to hold sizable portfolios of low-yielding, long-term fixed-rate mortgages, and so the vast majority of those are sold to Fannie and Freddie and are thus beholden to their standards. Without a competitive private market, the restrictive standards put in place by the GSEs over the last couple of years will continue to be the only game in town, and will serve to continue to limit access to the cheapest mortgage credit.
With only one private offering of a new Mortgage-Backed Security in 2010 -- a "best of the best" package of loans early in the year -- and financial market reforms still being digested, it does seem unlikely that we'll see a huge swing away from tight underwriting standards, but could see some nibbling around the edges. This perhaps may come in the form of some flexibilities in borrower employment histories, for example.
5. The "Distressed" Real Estate Market Improves. Recently, there was a slight improvement in the number of underwater homes that Foreclosure for Saleoccurred not because of any gains in home prices, but rather because a rise in foreclosures produced a final "cure" that loan modifications did not. It makes a curious headline, indeed: "Underwater Crisis Solved by Foreclosure Crisis", but this does seem to be continue to be a resolution for at least some underwater loans in 2011. The combination of an increase in the use of principal forgiveness in modifications and FHA "Short Refinances" in 2011, coupled with a resumption in the stream of foreclosures, should ultimately render fewer loans delinquent and fewer homes underwater, and the headline figures should begin to improve as the year progresses.
Loans written in 2008-2010 and the new ones to come in 2011 are certainly subject to economic tides, but they are underwritten far better than those from 2004-2007, which are still being wrung out of the system. Loan failures from fundamentally flawed, "bad" or "risky" loans are fading behind us; many weren't curable no matter the offer of assistance or modification. More recent delinquencies and failures have been economically driven, and probably are more curable as hiring resumes and household finances improve. To be sure, the improvements here will be gradual, but real.
6. A "Soft Demise" for HAMP. By now, it should be fairly clear that the Obama administration's goal of saving 3-4 million homeowners from foreclosure by 2012 was wildly optimistic. By the program's end, we may not even make half that number (and even fewer with "permanent" help), but the administration is claiming some success in shaping and focusing the loan servicing industry to deal with borrowers in crisis, fostering more private and lasting modifications. With the big push to get people into various Making Home Affordable (MHA) programs now over, and the economy gaining strength, it stands to reason that the number of new entrants into mortgage assistance programs would begin to dwindle. We have noticed diminishing media coverage of MHA as 2010 progressed, and expect that the noise coming from the program will continue to fade in 2011, excepting perhaps news of re-failing loans.
7. Mortgage Rates Remain Favorable. Of course, we mean this from a historical perspective. Barring a new economic crisis of widespread proportions, it's increasingly unlikely that we will challenge the 56-plus-year lows for mortgage rates seen in 2010. Borrowers will again have to become accustomed to rates in the low- and mid-five-percent range for 30-year fixed rates. Still, much of the year should continue to feature rates that rank among the best seen in a generation or more, even if they don't test new record low levels. The low mortgage rates of 2010 came as a result of multiple financial panics and investor fears of more losses, and to wish for their return is to hope for renewed economic catastrophe. For our part, we'll take low- and mid-five percent rates in a growing economy over four percent rates in a collapse anyday.
8. The Federal Reserve's Quantitative Easing II (QEII) Program Ends. Initiated in November 2010, the Fed's program of purchasing Federal Reserve Treasury Securities in hopes of fostering lower interest rates has had the exact opposite effect, and interest rates have risen measurably off their panic-level bottoms. This is partly due to an improving economy and partly due to the expectation that the Fed's moves will further spur economic growth in 2011. Instead of a mechanism to lower interest rates, we've come to believe that the Fed is instead using the program as a way to buffer the market, keeping market interest rates from rising more quickly than the Fed would like.
As the economy improves, interest rates will naturally rise, but a sustained unanchored spike could push the economy back into recession. The Fed's program is perhaps a means to keep this from occurring, and there have even been discussions that the program could be extended when it expires about mid-year. We think that this is unlikely, unless there is at the time a general buyer's strike for U.S. government debt. The program will go, and the economy will continue to grow... and the Fed will probably be considering draining excess reserves and raising short-term interest rates before the summer comes to a close.
Crystal Clear Mortgage
888-634-6911
1. Consumer Finance Protection Bureau. By July 21, the structure to promote what may be sweeping overhaul of mortgage products, Stack of paper processes and disclosures will be put in place. Elizabeth Warren, charged with creating the structure of the new Bureau, is expected to have much of the framework in place for the new regulatory body by the "official" July start date. By that time, a new director will have been named and regulators and regulations drawn from other bodies will be assembled.
It does seem likely that mortgage disclosure reform will be first on the list for the Bureau to tackle. Confusing, unclear and seemingly conflicting documentation has been implicated in the mortgage market mess, and a push for more explicit yet simpler forms for consumers to review and sign are thought to be a top priority for the new body. That said, a simplification of the document stream has long been a dream of any number of regulators, with an exhaustive study completed just a few years ago with limited results. The change in 2010 to the Good Faith Estimate to make fees charged to borrowers more explicit was helpful to a degree, and trying to revise required RESPA and TILA documents will surely be an even greater challenge.
2. Fannie Mae and Freddie Mac Will Change... maybe. Reforming the Government-Sponsored Enterprises (GSE) has been an on-again, off-again, on-again crusade for the last couple of administrations. To be sure, it's a love-hate relationship; the GSEs have totally distorted the mortgage market, but without them, there would be no mortgage market to distort. They have eaten tens of billions of taxpayer funds, but remain perhaps the key support for millions of homebuyers and homeowners. In such a fragile market, making immediate, substantial changes could have many unwelcome consequences. Reforming these entities is a thorny issue, to be sure.
After having been kicked down the road three times by the Obama administration, recommendations for change are expected to come from the Treasury Department in January. But will reform follow quickly? Probably not. There has been some talk of perhaps a five-year wind down plan for the GSEs, some discussions of separating their "public" function of securitizing mortgages from their "private" investment portfolios, but both have proven useful to politicians at various times.
No matter what the proposals have to say, we expect long and contentious debate between Democrats and Republicans over the role of government in housing finance markets. If the housing market can begin a small but steady recovery, the firms' losses will start to ease and possibly reverse, and so any delays in making changes argue in favor of keeping the status quo. We think that if there is no real progress toward reform made by perhaps October, it is very likely that GSE overhaul won't happen until after the next presidential elections. For our part, we're betting on little if any real change to come in 2011.
3. The Economy Improves. If you want to know what will happen to mortgage rates in 2011, watch what happens to the economy. AsEconomy Improves we write this, the economy has put in about six quarters on the positive side of the economic ledger, and Federal Reserve stimulus and the recent tax agreement seems likely to ensure that growth continues on an upward track in 2011. The labor market recovery should continue to gain momentum as the year progresses, but unemployment will remain stubbornly high for perhaps years to come.
That said, continual but gradual improvement seems likely. As the economy finds firmer footing, so will mortgage rates. After being pressed to 56-plus-year lows in 2010 by various crises, deflation concerns and government manipulation, we may just see a bit of the other side of the coin in 2011. Although the Fed will keep short term interest rates low, they are unlikely to want to leave them at emergency levels forever; as the economy recovers, the market will probably begin to demand that the Fed begin the process of raising short-term interest rates and backing off on policy "accommodation" in order to avoid an inflation problem at some point. Since they would tend to temper any outsized growth potential, which in turn would trim inflation concerns, any rise in short-term rates (whether directly or through the process of managing currency reserves) should keep long-term mortgage and other interest rates from rising too far. As we begin 2011, mortgage rates have moved off recent bottoms, but have probably overshot where they should actually be, given current economic condition.
4. Homebuyers Return in Greater Numbers. We'll stop short of calling 2011 "the year of the homebuyer," but the gentle improvement in the labor market, still-low interest rates and what should be gradually easier lending conditions seem to us likely to foster a stronger housing market.
Whether we see easier lending conditions depends upon Fannie and Freddie reform, a resurrection of private secondary markets and whether or not consumers find an appetite for mortgage products that banks prefer to put in their own portfolios and can exercise full underwriting control over, such as ARMs. Few banks want to hold sizable portfolios of low-yielding, long-term fixed-rate mortgages, and so the vast majority of those are sold to Fannie and Freddie and are thus beholden to their standards. Without a competitive private market, the restrictive standards put in place by the GSEs over the last couple of years will continue to be the only game in town, and will serve to continue to limit access to the cheapest mortgage credit.
With only one private offering of a new Mortgage-Backed Security in 2010 -- a "best of the best" package of loans early in the year -- and financial market reforms still being digested, it does seem unlikely that we'll see a huge swing away from tight underwriting standards, but could see some nibbling around the edges. This perhaps may come in the form of some flexibilities in borrower employment histories, for example.
5. The "Distressed" Real Estate Market Improves. Recently, there was a slight improvement in the number of underwater homes that Foreclosure for Saleoccurred not because of any gains in home prices, but rather because a rise in foreclosures produced a final "cure" that loan modifications did not. It makes a curious headline, indeed: "Underwater Crisis Solved by Foreclosure Crisis", but this does seem to be continue to be a resolution for at least some underwater loans in 2011. The combination of an increase in the use of principal forgiveness in modifications and FHA "Short Refinances" in 2011, coupled with a resumption in the stream of foreclosures, should ultimately render fewer loans delinquent and fewer homes underwater, and the headline figures should begin to improve as the year progresses.
Loans written in 2008-2010 and the new ones to come in 2011 are certainly subject to economic tides, but they are underwritten far better than those from 2004-2007, which are still being wrung out of the system. Loan failures from fundamentally flawed, "bad" or "risky" loans are fading behind us; many weren't curable no matter the offer of assistance or modification. More recent delinquencies and failures have been economically driven, and probably are more curable as hiring resumes and household finances improve. To be sure, the improvements here will be gradual, but real.
6. A "Soft Demise" for HAMP. By now, it should be fairly clear that the Obama administration's goal of saving 3-4 million homeowners from foreclosure by 2012 was wildly optimistic. By the program's end, we may not even make half that number (and even fewer with "permanent" help), but the administration is claiming some success in shaping and focusing the loan servicing industry to deal with borrowers in crisis, fostering more private and lasting modifications. With the big push to get people into various Making Home Affordable (MHA) programs now over, and the economy gaining strength, it stands to reason that the number of new entrants into mortgage assistance programs would begin to dwindle. We have noticed diminishing media coverage of MHA as 2010 progressed, and expect that the noise coming from the program will continue to fade in 2011, excepting perhaps news of re-failing loans.
7. Mortgage Rates Remain Favorable. Of course, we mean this from a historical perspective. Barring a new economic crisis of widespread proportions, it's increasingly unlikely that we will challenge the 56-plus-year lows for mortgage rates seen in 2010. Borrowers will again have to become accustomed to rates in the low- and mid-five-percent range for 30-year fixed rates. Still, much of the year should continue to feature rates that rank among the best seen in a generation or more, even if they don't test new record low levels. The low mortgage rates of 2010 came as a result of multiple financial panics and investor fears of more losses, and to wish for their return is to hope for renewed economic catastrophe. For our part, we'll take low- and mid-five percent rates in a growing economy over four percent rates in a collapse anyday.
8. The Federal Reserve's Quantitative Easing II (QEII) Program Ends. Initiated in November 2010, the Fed's program of purchasing Federal Reserve Treasury Securities in hopes of fostering lower interest rates has had the exact opposite effect, and interest rates have risen measurably off their panic-level bottoms. This is partly due to an improving economy and partly due to the expectation that the Fed's moves will further spur economic growth in 2011. Instead of a mechanism to lower interest rates, we've come to believe that the Fed is instead using the program as a way to buffer the market, keeping market interest rates from rising more quickly than the Fed would like.
As the economy improves, interest rates will naturally rise, but a sustained unanchored spike could push the economy back into recession. The Fed's program is perhaps a means to keep this from occurring, and there have even been discussions that the program could be extended when it expires about mid-year. We think that this is unlikely, unless there is at the time a general buyer's strike for U.S. government debt. The program will go, and the economy will continue to grow... and the Fed will probably be considering draining excess reserves and raising short-term interest rates before the summer comes to a close.
Crystal Clear Mortgage
888-634-6911
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