A new hope for historically low rates

Here at A Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile, the market is constantly watched to see not only the current trend in rates, but also where rates are headed over the next several days.

If you’ve read the news lately, you know that interest rates are not what they used to be.  Rates climbed to as high as 6%, but have slowly and surely worked their way down over the past couple of weeks.  Then the big news of the day… the 200 day moving average has been broken and rates are moving lower.  Why is this good news?

- Frequent readers know that I love mortgage backed security (MBS) bonds.  Why?  Their values determine interest rates.  As MBS Bond prices rise, interest rates fall (and vice-versa).

- Frequent readers also know that I am somewhat obsessed with the 200 day moving average because it acts as a strong level of resistance OR a strong level of support – depending on which side MBS bond prices sit.

- If bond prices are below the 200 day moving average, it becomes difficult for interest rates to continue to improve.  If bond prices rest above the 200 day moving average, it becomes difficult for interest rates to worsen.

Before today’s market movements, bond prices were below the 200 day moving average and that line acted as a resistance to rates continuing to improve. Rates were resting around 5.25-5.375% and not moving lower.

Now that bond prices have passed the 200 day moving average, 5.25% becomes the new “high” end of rates.  In fact as I finish up this post, lenders are releasing improved rate sheets.  For those of you waiting for anything at or below 5%, a new hope emerged.

What does this mean for you? 

- If you are looking to refinance, talk to someone now so you are in a position to take advantage of low rates when they arrive. 

- If you are buying a home, inquire about a “lock and shop” feature where you can lock your interest rate while you look for a home.  Even better, once you find a home, you would also be eligible for a one time FREE float down on the rate if the market has improved

 As I’ve said many times, planning ahead is crucial.  Talk to your mortgage professional now and be ready to act while interest rates are near historical lows.

Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Dunwoody Mortgage Services seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.

Higher rates? OK, now what?

By now we all know rates are higher than they have been in quite some time.  Some lenders have rates for 30 year fixed mortgages above 5.5%.  Seems funny since rates were very recently hovering around 4.75%.  See yesterday’s post for information on “why” this happened.

 

Based on my post from Tuesday, here are some questions you might be thinking:

• So are we on the verge of a full economic recovery? No, not on the verge. 
• OK then, then a full recover must be just around the corner, right?  Maybe, but not necessarily.
• So… what was the ‘good news’ that caused everyone to get trigger happy on selling bonds and pushing interest rates higher?  I’m glad you asked!

 

The ‘good news’ wasn’t really ‘good news’ but actually ‘not as bad as we thought news.’ The market reacted positively with the release of the Jobs Report Wednesday morning that showed initial jobless claims came in slightly under expectations — only 623,000 jobs were lost when the market expected the number to be around 636,000. 

 

It is ‘good news’ when the market beats expectation, but it seems everyone ignored the fact that over 600,000 people still lost their jobs last month!?!

 

It seems the total recovery may not be as close as some hoped last week, which actually bodes well for interest rates.  Moving forward, the environment is still favorable for low rates due to: 

• The Feds and the Treasury’s continued motivation to keep rates low by purchasing Mortgage Backed Security Bonds.  The White House’s “Home Affordable” Program will be severely slowed down if mortgage rates remain above 5%.  To continue to assist the housing recovery, economic recovery, and keep all parties involved looking good in the eye of the public, expect the Feds and the Treasury to step up their efforts.
• Rates for a 30 year fixed mortgage have consistently stayed in the 4.625% to 4.875% range.  Lenders have demonstrated a willingness to loan money at this rate, but not much lower than that level.  Meaning, there is a precedent for interest rates being that low and they could move back into that range.

Based on the fact that rates will probably recover some (if not all) of their losses over the next several weeks/months, my advice is simply “be ready.”

• Now is the time to get prequalified and start looking for your new home.  Finding a home could take several weeks, and rates may have moved lower by that point.
• If you are looking to refinance, get the process started and wait for a target rate… 4.625%, 4.75%, 4.875%, or 5.0% and be prepared to lock-in as soon as it is available.

Interest rates have take a dramatic turn north, but all is not lost.  Planning ahead and getting the ball rolling on a purchase/refi will put you in a great position to take advantage of improving interest rates. 

Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Dunwoody Mortgage Services seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.

Right about “when”; wrong about “why”

Previous posts (here, here, and here) discussed the inevitable possibility of interest rates moving higher around the end of May/early June of this year. 

Why did I feel this would happen? 

The Federal Reserve began a campaign that purchased Mortgage Backed Security Bonds. This action pushed bond prices higher while forcing interest rates lower.  The plan was scheduled to end June 30th.  Since market movements predicate on what could happen as much as what does happen, the feeling was rates would move higher once we were around 30 days of the program ending. 

Those reasons for the potential rate increase were ruined once the Feds announced an extension of the plan through 2009.  Sadly though, rates still climed at the very end of May.

On Wednesday, May 27, 2009, interest rates increased roughly a half a point in one day!?! What exactly happened?

The past couple of months saw interest rates trading in a range of 4.625% to 4.875%.  When rates moved to 4.625%, they would start to slightly increase, and vice-versa.  When the market opened Wednesday morning, rates were on the high end of that trading cycle; meaning, the trend showed they were moving in the wrong direction.

Then supply-and-demand took hold. There was an over-supply of bonds in the market Wednesday due to a new 2-year treasury auction.  Couple that with a positive economic outlook for the rest of 2009, and you have a recipe for disaster.

In the end, it seems my prediction on when rates would go up was right.  Most of the time, it’s better to be half right rather than being completely wrong.  In this case, I would rather have been wrong about both the when and the why.   Higher rates aren’t good for anyone at the present moment.

Coming soon… Higher rates? OK, now what?… thoughts on what to do as we move forward.

Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Dunwoody Mortgage Services seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.

Hard to say goodbye

Sometimes we just don’t know how good something is until it’s too late. Gone are the days of no credit requirements for FHA loans, and it appears the requirements will only get tighter.

Once upon a time, borrowers with bad or no credit turned to FHA loans to buy a home.  FHA did not have minimum credit score requirements and even allowed non-traditional forms of credit such as rent and/or utility payments, college tuition payments, etc. 

Today most FHA programs require a minimum credit score of 620 with a negative rate adjustment for credit scores under 660.

How long will it be before FHA minimum score is 660?!?  Think that sounds crazy? Who would have thought there would have been any credit requirements for FHA loans two years ago?

It is hard to say goodbye to great things, but at least this is a feeling we can all relate to in life. We’re in this together!

Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Dunwoody Mortgage Services seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.

Watershed moments

Historical events all have a starting point…

- July 4, 1776: signing of the Declaration of Independence

- June 6, 1944: D-Day

- July 20, 1969: first steps on the moon

- November 4, 2008: Obama elected as President of the US

- May 27, 2009:  the bursting of the historically low interest rate bubble?

While the last date doesn’t exactly carry the significant historical importance of the other dates, May 27th could be the beginning of the end to the refinance bubble.

Before we get too carried away, know that tates are still historically low. That said, today’s events have pushed rates up to 8 week highs and that trend looks to continue over the short-run.

What’s catastrophic event is causing this swing in rates?  It isn’t what you would expect… good economic news.  Yeah, that’s right, good news is causing it!  Consumer confidence is up.  Consumer spending is up. There are signs the recession is coming to an end, and all of this good news is actually bad news for interest rates.

Will rates continue to climb?  Possibly… the economy has been in dire straits for quite some time. Any positive signs the down turn is ending will have a dramatic effect on rates as the markets seem to be overreacting to any good news. 

This could all change with another bad jobs report, poor economic news, etc.  Even so, refinance booms and low rates don’t last forever.  I’m not saying 6% is just around the corner, but 4% rates may soon be a thing of the past. 

If you are considering refinancing your mortgage and are waiting for the right time, now is the time to talk to someone about your options.  People always miss out beacuse they wait too long to get started.  Don’t be one of them!

Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Dunwoody Mortgage Services seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.

Buy a home with a $100 down payment

Yes, you read that correctly.  Regardless of what you may hear in the news (must have a 20% down payment), there are homes available to buy with only a $100 down payment.  All a potential buyer needs is $100 for the down payment, 600+ credit score, the home must be their primary residence, and well, a pulse!

For more details on the program, you can go to HUD’s website here.  For a quick look at some of the highlights:

- The home must be owned by HUD and requires an FHA loan to purchase the property.

- Buyer must give a full price offer on the home.

- Provisions are made to offset some (if not all) of the closing costs.

The pros to this program are obvious – a home buyer only needs $100 for a down payment and can use an FHA loan (with flexible credit qualifying) to buy the home.

The biggest downside to this program is location, location, location.  The only properties eligible for the program must be owned by HUD.  This makes targeting a home with a certain number of beds/baths, a specific neighborhood, or school district a little more difficult.  It just depends on what is available.

Interested?  If so, you need to find see the homes available. To do that, try this link.  If you are in Georgia, go here.

Don’t believe everything you see on TV or read on the internet.  You don’t need a 20% down payment to qualify for a mortgage.  Homes can be purchased for as little as $100 down through this special FHA program.  Generally, FHA loans only require a 3.5% down payment, and conventional loans only need 5% down.  That is a far cry from the “20% needed” you may hear on the news!

Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Dunwoody Mortgage Services seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.

A bit of a letdown

In a post from March, I mentioned the high expectations for the most recent stimulus bill, but was a little cautious of how it would be implemented.   You know how it goes.  You get hyped up to see a movie, a play, a ballgame, etc., and it just doesn’t live up to your expectations.

You can apply that same concept to one of the provisions in the stimulus bill – the one that was designed to help home owners who are underwater.

The premise of the refinance plan allowed home owners to refinance their homes up to 105% of its current value.  That sounds great, but it may not be working out quite as well as anticipated.

- loans that currently have Private Mortgage Insurance (PMI) are not eligible for the program.  Mortgage servicer companies are not allowing loans with PMI to be transferred by refinance to another mortgage servicer.

- that would be an easy hurdle to pass if PMI companies would provide coverage for these new loans up to 105%, but they are not. The max coverage in the state of Georgia is 95%. Without PMI companies providing the coverage, banks won’t allow the loans.

- anyone with a first and second mortgage probably does not have PMI on the first mortgage.  That makes the first mortgage eligible for the program and there is no limit on the Total Loan to Value (TLTV) from the stimulus bill.  The TLTV is figured by combining the first and second mortgage and dividing that number by the value of the home. 

The problem here is that second mortgage companies MUST agree to the terms of the new first mortgage, and on average, current guidelines set by second mortgage companies will not allow the TLTV to exceed 90%. 

If there is a second mortgage on the home, it will most likely need to be paid down in order to qualify to refinance the first mortgage.

- some home owners may have a TLTV on the first and second mortgage below the 105% limit, but the refinance plan only allows the first mortgage to be refinanced.  This reverts us back to the previous problem of getting the second mortgage company to agree to the terms of the new first mortgage.

While this portion of the plan sounded great in its construction and approval phase, its application is a bit frustrating.  It seems the plan really only applies to home owners who put 20% down when they bought their home (so there was no PMIon the loan) or to a home owner that has already paid off their second mortgage.

That is all well and good, but those two groups weren’t exactly the targets the bill had in mind.  There are rumors of modifying the stimulus bill to help more home owners qualify, but how long that takes remains to be seen.

Clay Jeffreysis a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Dunwoody Mortgage Services seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.

A rehab loan gaining momentum

We all know there are numerous bank-owned properties available to buy.  We also know that foreclosed homes can be in need of repairs.  What options do borrowers have to buy a home in need of repairs?

Of course the borrower can always pay for the repairs out of pocket, but not everyone has that kind of cash just lying around.  Once upon a time, it was easier to obtain a rehab loan, but those loans are riskier.  In this market, anything “risky” is hard to get and fewer banks offer these loans.

However, there is a loan program that borrowers can use to purchase AND repair/remodel a home.  This program is more readily available because it is backed by the Federal Government. What is it? — an FHA 203k Streamline loan.

With this program, borrowers can acquire money to not only purchase the home, but also repair and modernize the home.  Here are some of the program highlights:

- The basics requirements of the loan are the same as a typical FHA loan. Borrowers must have a 600+ credit score, a 3.5% down payment, and their debt to income ratio can’t exceed 31% on the front end.

- Borrowers can add up to $35,000 to the purchase price in order to make improvements to the home.

- Improvements can include anything from new appliances, updating the kitchen, to building a deck, and even landscaping.  They main thing to remember is the improvement/addition must be a permanent part of the home.

- “Luxury” items are not eligible for this loan program.  Think something extravagant, like a $5,000 custom made iron front door.

- An additional $8,000 can be added to the $35,000 if you choose to couple the 203k Streamline loan with the Energy Efficient Mortgage program (giving you a total of $43,000 for repairs/remodeling).

- Borrowers can add up to 6 months of mortgage payments into the loan amount so long as they are NOT living in the home while repairs occur.

After reading this list, it is easy to see why borrowers would be interested in a loan program like this.  Banks owning foreclosed homes are also warming up to it because they know most of the homes they now own are in need of some repairs.

For more information, you can check out some information from HUD.gov here and here, or feel free to contact me.

In conclusion, if you are looking at homes and find something that needs some TLC and you have enough for a 3.5% down payment (or can get this as a gift from an approved source), this just may be the loan program for you!

Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Dunwoody Mortgage Services seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.

What is today’s rate?

After a long hiatus,  A Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile is back and here to answer a very common question these days…

 

“What is today’s rate?”

 

Rates are low, historically low and many people are taking advantage of these rates and refinancing their existing mortgages.  Even with the unprecedented number of refinances taking place, there are still many people sitting and waiting for a better rate.  Here are a couple of things to consider.

 

- If you know you want to refinance, go ahead and start the process now but not lock in the interest rate.  When the loan is approved, you can then lock the rate and take advantage of a shorter rate lock window (say 12 or 15 days) which is at least 0.250% lower than a 45 day rate lock.  For more details, see this previous post.

 

- If you want to continue to wait to lock in a 45 day rate lock, keep this in mind. The longer you wait, the more you may be missing out.  For instance, today rates for a 45 day rate lock are 4.75%. If you are thinking about passing up 4.75% to wait for 4.5%, I would consider the math.  For each month you wait for lower rates, you are passing up the opportunity to save $$ each month.  Let’s say you are going to save $200 per month by refinancing; if you wind up waiting 6 months to refinance, you have lost $1,200 just in the time spent waiting and watching . . . all in an effort to hopefully save an additional $30 per month (0.25% for a $200,000 mortgage is about $30 per month).  And the cost of waiting the 6 months will now take 40 months to recoup at the extra $30 you have saved.  Of course, this example assumes that interest rates will still be at their all-time historic lows when you are ready to move forward.

 

Bottom line… if you know you want to refinance and take advantage of these historic rates, at least go ahead and start the process today.  You can lock in at any time, and by at least getting “in line” for underwriting, you ensure that if rates to hedge up, you won’t completely miss out.  Every time there is a refinance boom, people miss it because they continue to wait for the rate to improve. 

 

For what it is worth, I’ve already refinanced not wanting this opportunity to slip away.  I know this sounds like a stereotypical “used care salesman”, but truly, these low rates won’t be here forever.

Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Dunwoody Mortgage Services seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.

The Unveiling of a Long-Awaited Plan

We’ve been hearing the rumors for months. Somewhere out there lurked a plan to buy “toxic assets” from banks. Once this happens, banks will lend money, the credit crunch will ease, the economy will strengthen, and wolves will dwell with lambs. Well, maybe not the last part, but nonetheless, it seems the long-awaited plan has arrived.

The “Public-Private Investment Program” is designed to work alongside the previous bailout/economy-helping bills to stabilize the financial institution and get the economy back on track.

Before I get to the recently released details, here is a quick FAQ for background information:

- What are “toxic assets”? Basically, these are bad loans that banks have created and loaned out that are now defaulting – think subprime mortgages.

- Why do they need to be purchased from banks? These loans are holding the banks hostage from issuing more loans. Since they can’t unload these loans from their books, banks do not have any available capital to lend.

- Why shouldn’t banks be left to deal with their problem? That is a really good question and a fine point, but “their” problem has become “everyone’s” problem. Even though this bailout will assist those who helped get the economy into this mess, its goal is to everyone.

- Will this work? That is the million (or trillion) dollar question. No one knows for sure if this will work, but history shows it might. Sweden and Japan suffered similar economic meltdowns in the 1990s. The method that turned things around was the same – buy the toxic assets. Sweden acted swiftly and recovered in a few years. Japan tried letting the system work itself out and unknowingly ushered in “The Lost Decade.” After 10 years, the government finally bought the toxic assets and Japan’s economy began its recovery.

That brings us to the details of the Public-Private Investment Program. The initial details include?

- The government will use up to $100 billion in taxpayer funds to begin an initiative to purchase our own toxic assets.

- The idea is to create a market for these loans allowing the private investment sector to get involved looking to buy these toxic assets at a true market value that will in turn create a profit for the investor.

- Once the ball gets rolling, toxic assets would come off the banks books, capital will become more readily available, and the economy can start back up.

The idea is that “everyone” will work together to solve “everyone’s” problem. The initial reaction on Wall Street has been favorable as the Dow jumped 300+ points. What will Main Street think? Well, that remains to be seen. At least on paper, the plan looks good. The anxiety comes from knowing that just because it looks good on paper doesn’t mean it will work in the real world.

The idea of a sure thing on paper not panning out reminds me of something happening (or no longer happening as the case may be) at your local theater…

Watchmen made its debut as a limited series comic book in the mid 1980s and was a commercial success. It seemed only a matter of time before it became a movie. There were many attempts to bring it to a theater near you and after 20 years of development, the film was finally released. Much to the chagrin of the execs at Warner Brothers, the film is not performing well at the box office. While the hype and excitement was great, it fizzled out a few days after its theatrical release.

Hopefully Obama and Geithner’s plan to buy toxic assets won’t suffer a similar fate… anticipation… delays… release… initial success… then everything falls apart… If it works, it may just give us all something to smile about.

Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Dunwoody Mortgage Services seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.