How Have World Events Effected Mortgage Rates?

What do a rebellion in Libya, and a tsunami and subsequent nuclear scare in Japan have in common.  Both are events that scared investors out of the stock market and into less “risky” treasury bonds and mortgage securities in the U.S. over the last month. 

For those who aren’t aware, a large reason that our Mortgage Rates have been so low over the last few years has been that so many people are willing to buy U.S. Treasury Bonds, and the bond rate is one of the major influences on the rates that we pay for mortgages on our homes.  When more people want to buy Bonds, the demand for them goes up, and the government can offer a lower interest rate for each bond and still sell it (pushing rates down).  During good economic times, when bonds are considered a bad investment, the government has to offer a higher rate to get anyone to buy their bonds as opposed to investing it somewhere else (pushing mortgage rates up).

Over the last month, with all of the international in-stability and crisis, investors are turning to the safe but low yielding Bond in greater numbers than they were in the previous few months.  This has caused rates to creep back down from around 5% to nationally a number closer to 4.75% (though locally I have seen 4.625% offered by a couple lenders in the last week).  While it doesn’t seem like much, that rate drop of 3/8th’s of a percent is the equivalent of housing prices dropping by between $5,000-6,000 for a homebuyer in terms of monthly payment.  If you can afford more house without paying anymore money each month, that’s always a good thing. 

While we don’t want to see any more tragedies like the one in Japan, or violent conflicts like the one in Libya, at least we can all agree that lower interest rates are a good thing for our housing market and recovery. 

Read the source article from Yahoo! News at http://finance.yahoo.com/banking-budgeting/article/112439/world-events-affect-your-mortgage-rate?mod=bb-budgeting&sec=topStories&pos=2&asset=&ccode=

Comment, Share, and above all…Keep Dreaming!

FHA Raises Monthly MI Fees Effective 4/18/11

So, apparently my prediction yesterday that you will see fees and costs increase in buying a home in the near future was more accurate and prophetic than I would have liked it to be.  Several of my trusted loan officer’s emailed me this morning to let me know that FHA announced late yesterday afternoon that they would be increasing the monthly mortgage insurance (MI) charged to buyers who make less than a 20% downpayment. 
The current rate of monthly MI is .9% per year (or appoximately $145 per month for a $200,000 mortgage).  The rate, after 4/18/11, will go up by .25% more, to a total of 1.15%.  This will equate to a MI payment of approximately $185 on the same $200,000 mortgage.  The consumer gets socked with $40 more in cost per month, from which they see no additional benefit.

In order to avoid paying the increased premium you must have an FHA case number assigned to your loan prior to the 4/18/11 change.  This does not mean that you have to settle on your new home or refinance by then, only that you have initiated the process (have been approved for a re-fi or have a contract on your home for purchase). 

To go back to yesterday’s article again, where I talked about how waiting for the bottom can hurt you more than it helps, you would have to see prices drop by approximately $6000-7000 (on this same $200,000 house…it would need to drop more on a more expensive home) just to break even on the increase in monthly payment that the new FHA MI rate will cause.  With a currently steady to increasing local market here in MD, I would bet money on the market NOT declining by that much in the next 2 months. 
If you need a good agent in your area to help you, or someone you care about avoid paying more for the same house, or if you live in MD and would like my help, let me know in the comments or contact me at toddrmoyer@yahoo.com.  Can you afford to keep waiting? Only if you intend to keep your dream home in your dreams.  Keep Dreaming, but take action this time too!

The Real Estate Waiting Game

Talking with potential buyers I have heard a lot of people tell me they are “waiting for the market to bottom out” before they decide to buy.  Sounds like common sense, or maybe even wisdom, but is that line of thinking really going to save you money in the long run if you are renting right now or looking to move up to a bigger home?  If the recent rise in interest rates is any indication, probably not!

Lets look at this from a purely financial point of view.  Lets pretend for a moment that the market is truly still declining all over the country (though in my local region there were over half the counties showing price INCREASES last month).  For every $1,000 that prices go down, you save approximately $6-7 a month in your monthly payment.  For every 1/8% that an interest rate changes, you gain about $12-15 a month in payment.  Since the end of last year we have seen rates go from 3.75% at their lowest to around 5% on average right now.  That is a change of 10/8%, or $120-150  a month added to your monthly payment.  Did housing prices drop by $20,000 in that same time period?  Not even close, and that is how much they would have had to come down for someone to have the same payment on the same house today that they would have a few months ago. 

Don’t stick your head in the sand and pretend rates will be going back down either!  Despite many of us on “Main Street” certainly not seeing this grand “Recovery” yet, the government and Wall Street have been claiming the worst is behind us for months.  Expext to watch the Federal Reserve stop artificially lowering interest rates with programs like Quantitative Easing I and II, for them to increase the key interest rates for trading between banks, and for government programs like FHA to increase fees and rates even more than they already have the last 2 years as they have greater “needs” for revenue and think they can do it without harming a “fragile market.”    All of these things will lead to higher costs in the future for you to buy a home, not lower. 

Do you like paying more money for the same things you can buy now for less?  I didn’t think so…then stop playing the waiting game and make your move now.  How can you afford not to?

Keep Dreaming!

Rates on the Rise: Stop Waiting!

This week has seen an increase in mortgage rates by an average of .375% for all loan programs.  A large part of that happened this morning alone!  What has caused the increase in rates this week?  Well…lets take a look.

Good Things Coming in 2011 for the Real Estate Market

I always love it when the mainstream media gives some positive press for our Real Estate market and industry.  I love it even more when that positive press is actually written from an intellectual standpoint rather than just blind conjecture. 
Needless to say then, it was love at first read when I saw a Yahoo! Real Estate article (via Kiplingers.com) titled Housing Outlook 2011: Home Prices Will Head Up.  While the writer (Pat Mertz Esswein) is mostly cautiously optomistic about out coming market, there are well made arguments about why we will see growth in housing in this coming year. 
The strongest argument of the bunch is that housing prices nationwide have reached the point where it is either equal to or cheaper per month to buy a home right now than it is to rent one.  The only things holding people back from buying right now are credit, downpayment, and fear.  Credit, while a major obstacle with no overnight panacea, can be overcome with diligent work and education by the motivated consumer.  Downpayment, unless congress finally acts on their threats to increase FHA’s limit, is only 3.5% for most buyers and there are rumors of bringing back seller backed downpayment assistance programs to help buyers with this in the coming year.  Finally, fear…well there is no solution I can offer for someone who is afraid to buy instead of rent other than to share the words of Warren Buffet: “When people are Fearful, I get Greedy. When people are Greedy, I get Fearful.”  Buffet has made billions of dollars investing in things that people are scared to buy and getting out of the things that everyone is running towards.  Right now, if you can look at your home as a long term investment rather than a stepping stone, you can buy at reasonable prices, at historically low interest rates, and even if prices decline a little more in the short term, you stand to make even more in the long run buying BEFORE the rates go back up and prices begin climbing. 

If you would like to read my “source” for today’s topic, click this link to see the Kiplinger article by Pat Mertz Esswein.
http://realestate.yahoo.com/promo/housing-outlook-2011-when-home-prices-will-head-up.html

May 2011 be as positive as Pat and I believe.  See you again soon, and Keep Dreaming!

Fannie Mae and Freddie Mac Underwater Refi Now Available!

Are you in a house where you owe more than the home is worth?  Is your interest rate higher than today’s rates in the 4-4.5% range?  Would you like lower monthly payments (if you don’t, check your pulse/sanity)?  Well, this program might just be what you need to get that help.  Read below the jump for program details!

Positive News on the Housing Front

Last Thursday congress quietly pushed through a piece of legislation to help keep our housing market moving at least at its current level.  H.R. 3081 was passed to extend the conforming loan limits for FHA, VA, and Fannie and Freddie for another year (to September 30, 2011) instead of letting them expire that day.  These conforming loan limits were adjusted last year, after years of stagnation to account for the changes in housing prices that had occurred over the last decade.  For those that are not aware, the conforming loan limit is the highest amount of money that can be lent to a person without charging them additional fees or interest rate increases (loans that exceed the conforming limit are called Jumbo loans.)  By keeping this limit up at the current levels, congress is allowing more people to be able to get homes at the lower interest rates that prevail in today’s market, which should help keep things moving in the right direction (or at least shouldn’t get worse). 

If you would like to know the conforming loan limit for your area please contact your local Realtor or ask me to look it up for you in the comments.  They differ by area of the country, and even county to county, so I cannot just give a list of them here.  I hope this news is as heartening to you as it is to me.  See you tomorrow, and keep dreaming!

Dennis Cardoza (D-CA), What are you THINKING?

So today I am out doing my research and come across information that there is a bill floating around (The Home Act: HR 6218) proposed by Representative Dennis Cardoza of California (D) to bring back some of the extremely loose lending practices that got us into the financial mess a few years back.
Dennis is proposing to have a No Documentation, No Credit, No Appraisal re-fi program available for people who currently have government backed (Fannie and Freddie) loans to allow them to re-finance into a fixed program at today’s rates.  Wait a second…did we all read this right…NO documentation or credit needed?  Isn’t that what got us into this mess in the first place?  Lending to people who didn’t have the income or the credit to afford the homes?  Mr. Cardoza *THWACK* that’s me trying to smack some sense into you!
First, Fannie and Freddie already have a rate relief program in place to refinance people up to 125% of their home’s current value.  It requires some documentation to make sure they aren’t delinquent and about to be foreclosed on (though even here exceptions are made if they can afford the reduced payment but not the current payment) but is generally pretty easy to get through, according to my wife who is a mortgage processor. 
Next, if we aren’t checking these people out to make sure they can afford the new payments we are just delaying the inevitable foreclosure that will STILL happen, even with this refinance.  Why waste people’s time doing something that won’t actually do a darn thing? 

To be honest, I would whole heartedly support this if it were changed in one little way, requiring a certain basic standard for income and credit, but waive the appraisal on the home (maybe also make it available for FHA/VA since they don’t have a rate relief program available now like Fannie and Freddie already do).  In THIS format we would only be modifying the loans for people that would be able to keep their homes at this reduced rate.  They could free up a little extra of their income to go back into the economy in other spending.  It would also lower the rate of strategic foreclosures (where people walk away from homes they are underwater on and cannot reduce rates on), as these people may decide at today’s rates their home is still an investment worth keeping over time. 

Instead, we get this…redundant, un-neccessary, and ill conceived idea to fix our mortgage woes.  If this is what got us in trouble (sub-prime no doc lending) how is it going to be what gets us out of trouble, Mr. Cardoza?  It won’t but it sure does make you look insane (Insanity: Doing the same thing over and over and expecting a different result despite getting the same results every time). 

Thanks for reading, you can find the source bill I am discussing at Htt p://cardoza.house.gov/uploads/The%20HOME%20ACT.pdf.  See you tomorrow and Keep Dreaming!

Higher Credit Scores May Soon Be Needed to Buy a Home.

Yesterday, I talked about how many people cannot qualify for home purchases due to having sub 620 credit scores, which is the current limit to qualify for a mortgage.  This limit, even though it already gets rid of over 1/3 of our population is being deemed as not restrictive enough, and we may see it go up to 640 within the next few months.

There are five major servicers in the mortgage industry (Bank of America, Wells Fargo, GMAC, Citimortgage and BB&T) along with some minor servicers.  As we have seen in the past, once one servicer sets a standard the others follow in a domino effect.  In the past few months two of the major servicers have increased the minimum FHA credit score from 620 to 640.   As of Monday, Bank of America announced that they will increase to a minimum of 640 effective 10/4/2010.  We still have two of the major servicers  holding at 620 but our sources are telling us that they could go to 640 within the next few weeks.

What does it mean to you?   Right now we are still at 620, but there is a very good possibility that the 640 will become the new lower qualification limit in the weeks to come.  So this is a call to action for you if you planned to buy but have lower credit scores between 620-639.  You need to look at purchasing NOW because if this change is implemented it could take you out of the market if your score does not meet the 640 benchmark.

In the past few weeks we have seen FHA raise their MI costs on buyers and the credit score limits start to creep up. You may have already lost the best deals (since FHA’s MI change enacts this coming Monday), but you can still get in before the lending criteria gets any tighter or rates start to go back up (which they are bound to do eventually.  As the saying goes, he who hesitates is lost, so don’t lose your chance to get into a home during this great market.

One Third of Americans Cannot Get Mortgages, But Should They?

Zillow reported yesterday that nearly one third of Americans right now cannot qualify for mortgages due to having Credit Scores below 620.  While this is probably a strong statement about the health of the individual economies of most Americans (that we carry too much debt to our income, aren’t responsible about payments, and need to get better at resisting temptation and saving), it isn’t necessarily a bad thing in my mind that these people aren’t getting loans. 
The article takes the premise that this many people out of the housing market is a bad thing, as it lowers the demand for housing by preventing a large part of the population from qualifying to buy a home and reducing our overlarge backlog of inventory.  I would argue their premise, in that most of the loans that are defaulting now are from people that were sub-620 scores to begin with, those sub-prime loans we have heard so much about over the last few years.  We are in an era of more responsible lending now, and given time and enough people learning to be responsible, we will see a true recovery in the housing market which will be sustainable. Lending to sub 620 buyers would create another quick burst of under qualified buyers which would grow the market for now, but would eventually cause another collapse.  The biggest thing needed to aid in the housing recovery is the recovery of the jobs market, as even people that had good credit are suffering now if they have lost their jobs.  These are the people that can be or were great responsible home owners, and many of them through no fault of their own are either unable to buy, or have lost the homes they had when they couldn’t find or lost their employment.  Either way, it is one less buyer, or one more home to be sold, tipping supply and demand the wrong way for increasing value.  Read the source article copied from Zillow.com below the jump.