Here today…

April 8, 2010

The deadline for the tax credit is fast approaching. If you haven’t started the process, don’t worry, there is still time!

Unlike the first go around, you do not have to be closed by the deadline – you only have to be under a binding contract by the end of April. You then have 60 days (end of June) to complete the purchase.

This is ideal for all of those fence sitters out there! ūüôā

For more details on the tax credits, check out this previous post. Some quick points:

  • First time home buyer (or not owned a home in 3+ years) tax credit of $8,000 extends through April 30, 2010. Home must be under contract by that date and closed on or before June 30, 2010.
  • A ‚Äúmoving up‚ÄĚ tax credit of $6,500 is available for current home owners buying a new primary residence.¬†¬†To qualify, home owners moving up¬†must have lived in their current residence for¬†5+ years at the date of the binding contract to buy the new home.

If you have ever thought about buying a home to earn one of the tax credits, it isn’t too late to get started. Begin by talking with a mortgage professional, then find a home.

The tax credits are here today, but won’t be for much longer.

That was fast – rates on the rise

April 2, 2010

Less than 48 hours after the Feds stopped purchasing mortgage backed security bonds, interest rates have already jumped 0.25% for a 30 year fixed mortgage. For information on the Feds buying MBS bonds or how this affects interest rates, see yesterday’s post OR this one OR this one OR this one… you get the idea.

The trading today has been very limited because of the holiday. That may also be why the Feds chose this date to hop out of the bond buying market. The real reaction will begin on Monday.

Regardless, lenders are pricing interest rates on more of a worst case scenario basis, thus the quick jump in interest rates. If Monday is a flat or good day for bonds, rates may stabilize and possibly move lower. However, most investors are just looking for a reason to doubt bonds and feel it is inevitable that interest rates will continue to rise. Either way, Monday should be interesting.

Waiting to lock?… don’t. As many people have said (including posts on this blog), as low as rates have been, they have nowhere to go but up.

Performing without a net

April 1, 2010

The safety net is gone. The Feds are finished purchasing mortgage backed security bonds, and their direct influence on mortgage rates is over. Is a mortgage rate Armageddon upon us?

Don't look!! It's a long way down.

Well, no, it isn’t. That said, there could be a market “adjustment”, and here’s why…

In November 2008, the Federal Reserve announced a plan to purchase mortgage backed security bonds to lower interest rates into the 4’s. At the time of the announcement, rates dropped roughly a half a point over night. As the Feds began buying these bonds (increasing their value), mortgage rates fell into the 4’s – exactly as planned!

The Feds offered a “safety net” for bond prices. Investors knew that no matter what occurs in the financial sector, a certain amount of bonds would be purchased every week. This kept bond prices steady during this turbulent market.

Now the market’s “safety net” has been removed, what should we expect moving forward?

  • Considering rates dropped dramatically on the announcement of the plan, an opposite adjustment would logically be expected now that the plan is over.
  • Negative overreactions to financial events/data are back into play now that the Feds will no longer spend billions of Dollars each week buying bonds. Who will make up that gap during poor performing days for bonds?
  • What happens if the Feds now look to sell the bonds they purchased (over $1 trillion worth)? Putting those bonds for sale into a market along with the new bonds up for sale will dilute the market, weaken bond prices, and push rates higher.

In short, now that the Feds are no longer buying mortgage backed security bonds, the only direction rates have to go is up, not down. All the experts agree on that, they just don’t agree on how much rates will increase.

What should you do? If you are still holding out to buy a home OR refinance a home while rates are in the 4’s, the time is now. Get started and lock in a rate while these historic lows are still here!

New blog feature

March 15, 2010

Introducing Meebo… Meebo is an instant chat application that is now integrated into my blog. Meebo will allow readers to ask me question about mortgages, blog posts, or anything else.

To use Meebo, find the box titled “ask a question” that is located on the upper right side of the blog. If you see “claygj is online“, then I’m logged in and will see your question. All that is left is for you to type and submit your private question.

This will be a quick and easy way for my clients, colleagues, and friends to reach out to me even if they don’t have enough time to call. Oh, and anyone working for a company that employs an office linbacker, don’t worry, it’s so discrete I doubt he will ever notice you sending me questions.

Refinances available up to 125% LTV

March 12, 2010

Over the past several months, I’ve had the privilege of helping home owners refinance their home using the Making Home Affordable Program. The design of the program allowed home owners to refinance their home even if they were underwater on their mortgage.

Initially lenders only allowed home owners to refinance up to 105% LTV (Loan To Value – determined by the current mortgage balance versus the appraisal value of the home).

Fortunately, we are now able to offer home owners the opportunity to refinance up to the Making Home Affordable Program’s maximum limit – 125% LTV

The question now becomes, “do I qualify?” Let’s find out!

  • The current mortgage cannot have Private Mortgage Insurance. Why? While the program allows up to 125% LTV, private mortgage insurance companies are not currently insuring loans with that high of an LTV. If the current mortgage has PMI, sad to say, I coudn’t help with a refinance.
  • If there is a second mortgage, it may prevent being approved for a refinance. Why? The second mortgage can’t be paid off in the refinance, so the second mortgage would need to be subordinated behind the new first mortgage. If the home is underwater, there is a good chance the second mortgage company will not approve the subordination behind the new mortgage.

For more information on second mortgages and how they can stop a refinance dead in its tracks, see this recent post from one of my colleagues.

If the current mortgage does not have PMI and there is no second mortgage, there is only one thing left to check.

  • The Making Home Affordable Program only applies to mortgages owned by¬†Fannie Mae or Freddie Mac. So, who owns your mortgage? To find out, search for your mortgage using Fannie¬†Mae’s online loan lookup tool. If not found, try¬†Freddie Mac’s online loan lookup tool.

In short, if your mortgage does NOT have PMI, you don’t have a second mortgage, and the first mortgage is owned by Fannie Mae or Freddie Mac, you are eligible and I can help you refinance!

Let’s get started now talking about details, options, qualifying rates, etc. while we are still enjoying these historically low interest rates.

New licensing requirements

March 9, 2010

With the passing and implementation of the SAFE Act (Secure and Fair Enforcement of Mortgage Licensing Act of 2008), I am often asked about the licensing requirements prior to the SAFE Act. The answer is actually kind of frightening…

There was no test (federal or state)… there were no educational requirements… individuals only needed a pulse, pass a background check, and work under a licensed mortgage broker or bank. Anyone could transition from being a cook, mechanic, insurance agent, car sales, etc. and move into the mortgage business the next day! (this is not THE reason for the current real estate and mortgage environment, but it certainly didn’t help)

The SAFE Act is designed to set a minimum standard for the mortgage industry and to reduce fraud by requiring loan originators to be individually licensed by completing 20 hours of pre-licensing education, passing a federal test, passing a state-specific test, and passing a back ground check. Anyone looking to move into the mortgage industry must complete the same requirements.

The deadline to complete and apply for an individual MLO License (Mortgage Loan Originator) is March 31, 2010. NMLS (National Mortgage Licensing System and Registry) will not have the entire process/paperwork complete by that date, but will grant a temporary license to loan originators who have completed all requirements by March 31st. This will allow responsible loan originators to continue helping borrowers buy and refinance homes.

Never one to wait until the last minute, I have completed the 20 hours of pre-licensing educational classes, passed the federal and state specific exams, authorized a back ground check AND officially applied for my individual license! It is a relief to know I will avoid any last minute headaches, but that will not be the case for everyone.

If someone fails the test (and one-third of loan originators are failing), they have to wait 30 days before taking it again. Anyone failing the test in March will not make the March 31st deadline and won’t be granted a temporary license. That doesn’t mean those individuals are permanently banned from the mortgage industry. However, it means they won’t receive a temporary license and will either have to wait until the entire process is complete (possibly several months) OR work for a bank.

No joke. Bank employed loan originators are not currently required to be licensed.¬†That could be an interesting development…

Tax season Q and A

March 2, 2010

It is upon us… one of the two guarantees in life – death and taxes. For this post, we’ll focus solely on taxes as I provide some answers to common questions I receive this time of year.

Let me start this list by stating that I am not a licensed tax professional. For information on how to file tax returns, how to write off the items listed below, etc., please consult a licensed tax professional. If you would like a referral, I know some excellent CPAs, including this one.

  • Is mortgage interest tax deductible? – Yes! Home owners are allowed to deduct interest paid on their mortgage. The IRS requires the mortgage lender to provide the documentation (form 1098) showing the interest paid by the borrower. Bottom line – check your mail and then look at Schedule A on the federal return!
  • Is mortgage insurance* tax deductible? – Possibly. Under the current tax code, mortgage insurance is tax deductible for households with adjusted gross income less than $100,000 ($50,000 for single file). The benefits begin to faze out once crossing the $100,000 ($50,000) threshold, and is entirely gone once adjusted gross income surpases $110,000 ($55,000).
  • How do I file for the home buying tax credit? – Whether a first time OR repeat home buyer (see the¬†IRS website for complete details),¬†anyone claiming one of these tax credits must file a paper (non-electronic) return,¬†include a copy of the HUD-1 settlement statement, and a completed Form 5405. Note that while the form 5405 says “first time home buyer”, it is the form for both tax credits. Filing a paper return may not be as fast as an e-file, but the payoff ($8,000 or $6,500) will definitely be worth it!

While this is by no means an exhaustive list, these are by far the most common questions I’ve received this year. Remember, I’ll be glad to answer any questions and help however I can, but I am not a licensed tax professional. See a tax professional to complete and file your 2009 return.

* – Mortgage insurance is required for borrowers who buy a home with less than a 20% down payment. For conventional loans, mortgage insurance is more commonly referred to as PMI or private mortgage insurance. For FHA loans, it is known as mortgage insurance premium.


More on the new good faith estimate

February 17, 2010

Since blogging about the new good faith estimate in January, I’ve had the chance to listen to clients and other loan professionals’ feedback on the new three-page form… and the feedback has been consistent.

As the recent post states, there are some great benefits to the new good faith estimate:

  • the terms, interest rate, and loan amount are clearly stated on the first page leaving no room for confusion
  • lender fees quoted must match at closing
  • other fees (attorney, credit, etc.) are also clearly identified leaving no room for ambiguity

The areas needing improvement are still there:

  • there is no signature line/page on the new good faith estimate for borrowers to acknowledge they received the form
  • total closing costs are not shown. Instead, prepaids and closing costs are mixed together.
  • total cash required to close is nowhere to be found
  • monthly mortgage payment is also nowhere to be found

Solving the first problem is easy – all mortgage professionals must create a form for borrowers to sign acknowledging they received the good faith estimate.

In order to help our clients with the rest, we created another form. This additional page shows the itemization of closing costs and prepaid items along with the cash required for closing and the monthly mortgage payment – problems solved!

The one item out of our control is how other mortgage professionals quote estimates for property taxes and homeowners insurance. This is one area that the burden is on the borrower to ensure the good faith estimates they review use the same amounts for property taxes and insurance. Only then will a borrower have a true apples-to-apples comparison.

As with all things in life, there are pros and cons, and the new good faith estimate is no different. As a colleague of mine said in one of his¬†recent posts, the keys to helping our clients through the pros and cons haven’t changed – be simple, honest, and professional:

  • quote closing costs honestly and don’t try hiding or under quoting fees
  • quote real interest rates and not something abnormally low to get the phone to ring
  • keep your word!

Mortgage professionals able to do that will help to keep themselves, their realtor partners, and clients happy as we all navigate the new (and sometimes confusing) three-page good faith estimate (oh, and don’t forget the extra page showing the itemization of closing costs, and one more page to confirm receipt of the new good faith estimate).

is the (low mortgage rate) party over?

February 9, 2010

The party is just getting started in New Orleans (Super Bowl win + Mardi Gras = month long celebration), but it may soon be coming to an end for historically low rates.

Enjoy it while you can!

Mortgage rates hit historic lows in 2009 thanks to the extraordinary efforts of the Federal Reserve.  Back in November 2008, the Feds announced a program to buy mortgage backed security (MBS) bonds.  The reasons were two fold:

  • to help push mortgage rates lower to stimulate the real estate market
  • to create¬†a market (or in other words, increase the value) of MBS bonds for others to buy

When the plan was announced by the Feds in November 2008, interest rates dropped roughly a half point in one day!  As the Feds began buying bonds, rates dropped down to their historic lows. The initial plan was to buy bonds through the first six months of 2009. It was extended through 2009, and extended again through end of the first quarter 2010.

At their recent meeting, the Feds reiterated their intentions to “seamlessly exit” the MBS bond market with no hint at another extension to the MBS bond buying program.¬† The question now is “what happens to mortgage rates?”¬† Take a look at the chart below.

Since mortgage rates dropped significantly on the announcement of the plan, and then continued to improve to historic lows as the Feds purchased MBS bonds, one would logically expect the opposite reaction once the bond buying program comes to an end.  In this case, and at least to some degree, interest rates should rise.

How should you proceed? Anyone who hasn’t refinanced OR is waiting until the deadline to take advantage of one of the home buyer¬†tax credits, go ahead and get prequalified today.¬† Move forward with the loan now while rates are still ridiculously low.

There is not guarantee rates will dramatically increase, but also no guarantee they will stay the same.  Take advantage of the market and low rates while they are still available.

to buy or not to buy

February 3, 2010

That is most certainly the question these days. The answer is an easy one if you look at the market as a whole Рhome values are down, homes are more affordable than they have been in years, financing is available, and there are incentives (federal and some state tax credits). With all of that in mind, it is a good time to buy!

Specifically, if you are in one of the two categories below, there has never been a better time to buy a home.

  • First time home buyers – Conventional loans available with as little as 5% down and FHA loans only require 3.5% down.¬† The seller can pay for most (if not all) of the closing costs.¬† The down payment can be a gift from a family member.¬†The $8,000 tax credit still applies to first time home buyers (or anyone who has not owned a home in the last thee years).
  • Buyers looking to move up into a larger home – Buyers may lose money selling their current residence, but save substantially more on their next purchase. For instance,¬†I’ve had clients lose a few thousand dollars on the homes they sold only to buy new homes (that were originally listed over $400,000)¬†in the $300,000¬†price range. Also, don’t forget about the $6,500 tax incentive available to move-up or repeat home buyers.

Now is indeed a great time to buy, and if anyone is looking to take advantage of one of the tax credits, what are you waiting for?  Remember in order to claim one of the tax credits, the home must be under contract by the end of April and purchased by the end of June.

If you haven’t spoken with someone about qualifying to buy your first home OR seeing how much home you could afford prior to selling your current residence, now is the time! I would enjoy the opportunity to speak with anyone looking to take advantage of the current market and/or government tax programs.