Recovery in Site?

The roller coaster of economic news continues. (I guess it would be too easy if everything pointed to one outcome.) Last week rates improved, as they did again yesterday morning after Asian stocks fell significantly. Oil, gold, and other commodities were down (although sugar is at a 28 year high, which doesn’t help people who make jam at home and kids who eat Captain Crunch).

How far can rates drop? I haven’t heard too many agents complain about rates in general, as mortgage rates remain near their lows but the government’s borrowing needs are at historical highs. This limits the amount that rates will be able to fall so as to attract buyers of our debt, and most analysts believe that soon the buyers of our debt will be demanding higher yields. Last week the Fed left overnight rates unchanged. So what? If anything, what the last year or two has taught us is that mortgage rates have little or no correlation with Fed Funds, so even though CNBC and the media make a big deal out of the Fed’s decision, mortgage rates are not impacted. Granted, any changes in rates can impact the Prime Rate (currently 3.25%), but that obviously is not the same as a 30-yr mortgage rate. So how do mortgage rates change? Mortgage rates are the result of supply and demand forces, just like any other security that is bought and sold in the open market. Securities that are backed by mortgages trade in the market, just like other fixed-income debt, and just like stocks which garner the headlines, with the prices in turn determining rates.

Get your approval today before the $8000 expires on November 30, 2009.

Rates Risen AGAIN Lock in Now or Wait?

Floaters got sunk this week. Anyone who is in the market for a new mortgage, be it a straight-up purchase or refinance, and was letting their rate float in hopes of locking in at a lower rate instead got smacked with a near quarter point rise in the 30-year fixed rate. According to Bankrate’s latest weekly survey (conducted Wednesday morning) the 30-year fixed average was at 5.45%, up from 5.23% That’s the highest level since February, and more than a half point above the 4.9% borrowers in early April could snag.

So what’s a floater to do now? Well, if you’ve lost your betting mojo, lock in and be happy. Yes, happy. Let’s remember that 5.45% is still seriously good. It was only one year ago that the average 30-year fixed rate was 6.1%. And long term, it is all but assured that a 5.45% fixed rate is going to look darn nice. It may take some time before the Fed gives up the fight and has to let rates rise to attract buyers for all the debt we now have to pay off, but it will happen. So while today’s 5.45% is high relative to a month or two ago, it is likely to be one you will boast about in the coming years.

Okay, enough of the long-term perspective. What if you’re still in betting mode and wondering about the next few weeks and months? Well, that’s one big crap shoot. The recent spike has been caused by action in the 10-year Treasury market (the 30-year fixed rate tends to follow movements in the 10-year note.) Late last week the bond market started worrying about inflation and servicing the federal deficit, and one thing led to another and the 10-year Treasury yield shot from 3.4% last Thursday to above 3.7% during trading yesterday (Thursday) before closing lower at 3.67%. Plenty of market watchers are expecting the trend line on the 10-year Treasury to keep moving up. But here’s where it gets interesting: there’s not as clear a picture if a continued rise in the Treasury will automatically cause the 30-year fixed to also rise.

The big wildcard is Ben Bernanke and his merry band at the Federal Reserve. The Fed has been actively buying up long-term Treasuries and mortgage backed securities in an effort to help keep yields low. When rates started rising the past few weeks the Fed signaled it wasn’t too concerned; in fact it seemed to be cheered by the notion that those slightly rising rates were a sign the economy was gaining a bit of strength. But now there’s a sense that the continued rise-capped by the big spike this past Wednesday-could refocus the Fed’s effort to push yields down; it has yet to use up even half the money it has allotted for the buyback programs, so it’s got plenty of gunpowder ready.

That could be good news for rate floaters; assuming the Fed is still worried that rates rising too quickly and too far will put the kibosh on the already anemic credit market recovery, it’s a decent argument to assume the Fed will soon ramp up its repurchases in an effort to push yields back down after their recent spike.

As David Rosenberg, the former Merrill Lynch economist now at Gluskin Sheff noted on Thursday morning:

“It’s one thing to have a Treasury yield backup when mortgage rates are still declining, but that is no longer the case. The yield on the 30-year fixed-rate is already up 20 basis points from the lows; 1-year ARMs have jumped 17bps. This is not what the Fed wants to see.”

Indeed, the recent rate uptick has sent a chill through the still frigid housing markets. According to the Mortgage Bankers Association, mortgage applications dropped 14.2% this week compared to a week prior.

The bet’s yours, floaters: lock in now at what still qualifies as a terrific interest rate, or put your money on the Federal Reserve pushing yields down in the coming weeks. Which way are you leaning?

What are rates doing?

What a GREAT way to start the week. After a horrible Thursday and Friday last week, the FNAM 30 YR 4.0% regained majority of its losses in today. The MBS closed higher by 50bp, translating into .25%-.375% depending on which rate sheets you or your lender was pricing off.

Oil prices have been rising steadily since January and are up roughly 30 percent year-to-date. Because of this, Thursday and Friday’s Producer Price Index and Consumer Price Index, respectively, will be closely watched. Both are a sort of “Cost of Living” measurement and are, therefore, susceptible to spiraling energy costs.

If either reading comes in higher-than-expected, look for inflation fears to ignite on Wall Street and mortgage rates to rise.

Similarly, if Friday’s Consumer Sentiment Index reveals a more confident American consumer, mortgage rates are likely to rise in that scenario, too. This is because a confident consumer tends to spend more, thereby hastening the recession’s end.

And, lastly, it’s worth noting that six members of the Federal Reserve will be delivering prepared speeches this week, including Chairman Bernanke. When Fed officials speak, the markets can move quickly.

If you’re still shopping for a mortgage rate, consider locking one in soon. Rates have been trending higher and there’s little reason for them to fall.

History of Rates……8% looks good right now!

How ‘bout this market? Yesterday rates moved higher, and prices lower, after Factory Orders increased 1.8% in February, following a downwardly revised 3.5% drop in January, and six consecutive monthly decreases. So why wouldn’t rates come down? US stock markets continued their rally, and in fact most overseas stock markets improved. (Japan’s was helped by Toyota’s stock rallying after a bank agreed to help finance US car sales.) And it would appear that there is a change in mood about the economy: in spite of the continued bad news, investors appear to feel that the worst is behind us. Just tell that to some Detroit or Sacramento home owner! Maybe investors are just tired of sitting on piles of cash…

This morning the unemployment data came out pretty close to expected: U.S. employers cut 663,000 jobs in March, and the unemployment rate hit 8.5%, the highest since 1983 when Reagan was in office. And although February’s numbers were unrevised, January’s were changed to a loss of 741,000, the biggest decline since October 1949. Since December 2007, the U.S. economy has dropped 5.1 million jobs, with about two thirds of the losses occurring in the last five months. After the news, bond prices are down slightly, with the 10-yr yield currently sitting around 2.69% and mortgage prices a shade worse than yesterday afternoon. (Interestingly, with the high profit margins now built into mortgage pricing, in spite of the MBS market worsening yesterday, many originators decided to absorb the price hit instead of passing it along on their rate sheets in order to potentially help locks.)

As for interest rates they are hopping around daily. We have seen rates as low as 4.5% and as high as 5.375% just in a matter of days. My recommendation is getting an application in, getting approved with our IN HOUSE Underwriter, and lock when the rate is where you desire. Speaking of rates lets look back since rates were tracked back in 1971. I think 8% looks great right now, It will help fight inflation!!!!

 

	Jan	Feb	March	April	May	June	July	Aug	Sept	Oct	Nov	Dec	Average
1971				7.31%	7.43%	7.53%	7.60%	7.70%	7.69%	7.63%	7.55%	7.48%	7.55%
1972	7.44%	7.32%	7.29%	7.29%	7.37%	7.37%	7.40%	7.40%	7.42%	7.42%	7.43%	7.44%	7.39%
1973	7.44%	7.44%	7.46%	7.54%	7.65%	7.73%	8.05%	8.50%	8.82%	8.77%	8.58%	8.54%	8.24%
1974	8.54%	8.46%	8.41%	8.58%	8.97%	9.09%	9.28%	9.59%	9.96%	9.98%	9.79%	9.62%	9.43%
1975	9.43%	9.10%	8.89%	8.82%	8.91%	8.89%	8.89%	8.94%	9.12%	9.22%	9.15%	9.10%	9.00%
1976	9.02%	8.81%	8.76%	8.73%	8.76%	8.85%	8.93%	9.90%	8.98%	8.92%	8.81%	8.79%	8.96%
1977	8.72%	8.67%	8.69%	8.87%	8.83%	8.86%	8.94%	8.94%	8.90%	8.92%	8.92%	8.96%	8.90%
1978	9.01%	9.14%	9.20%	9.35%	9.57%	9.71%	9.74%	9.78%	9.76%	9.86%	10.11%	10.35%	9.80%
1979	10.39%	10.41%	10.43%	10.50%	10.69%	11.04%	11.09%	11.09%	11.30%	11.64%	12.83%	12.90%	11.45%
1980	12.88%	13.04%	15.28%	16.32%	14.26%	12.71%	12.19%	12.56%	13.20%	13.79%	14.21%	14.79%	13.78%
1981	14.90%	15.13%	15.40%	15.58%	16.40%	16.70%	16.83%	17.28%	18.16%	18.45%	17.82%	16.95%	17.13%
1982	17.48%	17.60%	17.16%	16.89%	16.68%	16.70%	16.82%	16.27%	15.43%	14.61%	13.82%	13.62%	15.65%
1983	13.25%	13.04%	12.80%	12.78%	12.63%	12.87%	13.43%	13.81%	13.73%	13.54%	13.44%	13.42%	13.29%
1984	13.37%	13.23%	13.39%	13.65%	13.94%	14.42%	14.67%	16.47%	14.35%	14.13%	13.64%	13.18%	14.27%
1985	13.08%	12.92%	13.17%	13.20%	12.91%	12.22%	12.03%	12.19%	12.19%	12.14%	11.78%	11.20%	12.21%
1986	10.89%	10.71%	10.08%	9.94%	10.15%	10.69%	10.51%	10.20%	10.01%	9.98%	9.70%	9.32%	10.06%
1987	9.20%	9.08%	9.04%	9.83%	10.60%	10.54%	10.28%	10.33%	10.89%	11.26%	10.65%	10.64%	10.56%
1988	10.38%	9.89%	9.93%	10.20%	10.46%	10.46%	10.43%	10.60%	10.48%	10.30%	10.27%	10.61%	10.42%
1989	10.73%	10.65%	11.03%	11.05%	10.77%	10.20%	9.88%	9.99%	10.13%	9.95%	9.77%	9.74%	10.16%
1990	9.90%	10.20%	10.27%	10.37%	10.48%	10.16%	10.04%	10.10%	10.18%	10.17%	10.01%	9.67%	10.13%
1991	9.64%	9.37%	9.50%	9.50%	9.47%	9.62%	9.58%	9.24%	9.01%	8.86%	8.71%	8.50%	9.17%
1992	8.43%	8.76%	8.94%	8.85%	8.67%	8.51%	8.13%	7.98%	7.92%	8.09%	8.31%	8.21%	8.30%
1993	7.99%	7.68%	7.50%	7.46%	7.47%	7.42%	7.21%	7.11%	6.91%	6.83%	7.16%	7.17%	7.19%
1994	7.07%	7.15%	7.80%	8.32%	8.60%	8.40%	8.61%	8.51%	8.64%	8.93%	9.17%	9.20%	8.71%
1995	9.15%	8.83%	8.46%	8.32%	7.96%	7.87%	7.61%	7.86%	7.64%	7.48%	7.38%	7.20%	7.70%
1996	7.03%	7.08%	7.62%	7.93%	8.07%	8.32%	8.25%	8.00%	8.23%	7.92%	7.62%	7.60%	7.99%
1997	7.82%	7.65%	7.90%	8.14%	7.94%	7.69%	7.50%	7.48%	7.43%	7.29%	7.21%	7.10%	7.53%
1998	6.99%	7.04%	7.13%	7.14%	7.14%	7.00%	6.95%	6.92%	6.72%	6.71%	6.87%	6.74%	6.91%
1999	6.79%	6.81%	7.04%	6.92%	7.15%	7.55%	7.63%	7.94%	7.82%	7.85%	7.74%	7.91%	7.61%
2000	8.21%	8.33%	8.24%	8.15%	8.52%	8.29%	8.15%	8.03%	7.91%	7.80%	7.75%	7.38%	8.00%
2001	7.03%	7.05%	6.95%	7.08%	7.15%	7.16%	7.13%	6.95%	6.82%	6.62%	6.66%	7.07%	6.96%
2002	7.00%	6.89%	7.01%	6.99%	6.81%	6.65%	6.49%	6.29%	6.09%	6.11%	6.07%	6.05%	6.39%
2003	5.92%	5.84%	5.75%	5.81%	5.48%	5.23%	5.63%	6.26%	6.15%	5.95%	5.93%	5.88%	5.81%
2004	5.71%	5.64%	5.45%	5.83%	6.27%	6.29%	6.06%	5.87%	5.75%	5.72%	5.73%	5.75%	5.92%
2005	5.71%	5.63%	5.93%	5.86%	5.72%	5.58%	5.70%	5.82%	5.77%	6.07%	6.33%	6.27%	5.90%
2006	6.15%	6.25%	6.32%	6.51%	6.60%	6.68%	6.76%	6.52%	6.40%	6.36%	6.24%	6.14%	6.47%
2007	6.22%	6.29%	6.16%	6.18%	6.26%	6.66%	6.70%	6.57%	6.38%	6.38%	6.21%	6.10%	6.38%
2008	5.76%	5.92%	5.97%	5.92%	6.04%	6.32%	6.43%	6.48%	6.04%	6.20%	6.09%	5.29%	6.09%
									Historical Average				9.14%
	5% Range Months				6%  Range Months
	Interesting Facts:
> All Time High was October 1981 of 18.45%
> The all time LOW was in June of 2003 at 5.23% and we are near that right now at 5.29%
> In the First 30 years that rates were tracked (April 1971 – April 2001) rates were below 7% for only 12 months

 

New Rules of Lending

By Les Christie, CNNMoney.com staff writer

February 4, 2009: 1:35 PM ET

NEW YORK (CNNMoney.com) — If you’re shopping for a mortgage these days, it’s a whole new world out there. “There have been a huge number of changes over the past few years in mortgage borrowing,” said Gibran Nicholas, founder of the CMPS Institute, which trains and certifies mortgage advisors. Of course, many of the subprime loans that helped fuel the housing boom – those that didn’t require borrowers to show any proof of income, or that let homeowners make minimum payments – are are simply no longer available. But even buyers looking for a traditional mortgage are now faced with different factors to consider. Here is what you need to know: Paying up-front points. Borrowers can pay points – one-time, up-front fees – in order to reduce their mortgage’s interest rate over the life of the loan. One point represents 1% of the mortgage value. But they often assume that they should never pay points, according to Alan Rosenbaum, founder of mortgage broker Guardhill Financial. That’s a mistake, in his opinion. When interest rates were high, paying points didn’t make sense because borrowers were very likely to refinance after rates dropped. They wouldn’t hold their original loans long enough to recoup their up-front costs. But now borrowers can get a lot more bang for their buck. The old rule of thumb was that paying one point at closing could lower their mortgage’s interest rate by a quarter percentage point or so. “Today the spread is worth a half point to a full point on the rate,” said Rosenbaum. It means paying $2,000 on a $200,000 mortgage at closing can shave as much as a whole percentage point off the loan’s interest rate, changing a 6% loan to 5%. That would save $126 a month, and pay for itself in 16 months. Even if the rate were only lowered to 5.5%, that would still save $64 a month, paying for itself in 32 months. Still, not everyone is convinced. Rosenbaum recently had a client who chose a 15-year fixed rate loan at 5.875% with zero up-front points on a $800,000 loan, instead of paying a point to get a 5.375% loan. Had the borrower chosen to pay that point, he would have recouped that cost in about three years, and then gone on to save more than $200 a month for the remaining 12 years of the loan. Of course, there are caveats. Buyers who are planning to refinance or sell within a few years shouldn’t pay points, since the strategy simply doesn’t pay in the short term. Making more than the minimum down payment. If you can afford to put 25%, 30% or more down, should you do it? Most lenders require a minimum down payment of 20%; anything less and borrowers will need to obtain private mortgage insurance. And if a buyer could afford to put more than 20% down, it was generally assumed that they should. The traditional thinking was, “If you have the capital to commit, why not?” said Keith Gumbinger of mortgage research firm HSH Associates. “It will give you a smaller balance to pay off. But now, in light of declining home markets, not everyone would agree with that.” High down payments can be wiped out in severely declining markets. Nicholas said he knows of a couple in Arizona who put a whopping $400,000 down on a million dollar house a couple of years ago. That gave them, they thought, a nice home equity cushion should they run into financial trouble. “But prices are down so much, the couple still fell underwater,” he said. “It would have been better to conserve that cash in case home prices continue to decline.” Locking in the mortgage rate. Many borrowers choose not to lock in when rates are falling, as they have been, since they assume that the deals will only get better. But that’s often a mistake. “We almost always recommend that if you have the numbers that make your deal work, then lock it in,” said Gumbinger. His reason: Interest rates tend to jump up much faster than they inch down, meaning that buyers are much more likely to get stuck with a higher mortgage rate than they are to get lower one because they waited. Besides, locking in at the currently very affordable rates can give borrowers peace of mind, which is no small matter when you’re trying to buy a house. “You’ll sleep better at night,” said Gumbinger.

How to Renegotiate your mortgage

Many Americans are finding it increasingly difficult to make their mortgage payments due to the struggling economy. If you find yourself in this situation, it may be worth calling the lender that services your loan to discuss a mortgage renegotiation. Here is how to go about it:

1. Call and ask for the loss mitigation department or the department that handles renegotiation inquiries.
2. Explain why you can’t afford your payment and be ready to prove it!
3. Send them your pay stubs and proof of monthly obligations (other debts, childcare, etc.). The goal is obviously to prove that your ability to pay the debt has declined.
4. Once the lender gets the information from you, they will run a debt-to-income analysis to see if you are a good candidate for renegotiation.
5. If they decide to renegotiate, they will send you new terms and conditions to sign.
6. Let us know if you are unsuccessful in renegotiating with your lender. You can call us for recommendations on organizations that specialize in renegotiation.
7. The government is looking to potentially contribute to the cost of re-writing the loans to slow foreclosures as soon as the new administration takes office. So keep this in mind, as it would be very helpful in adding to the willingness of the lenders to help.

Rates at 4.5%…. MAYBE

The European Central Bank delivered the biggest interest-rate cut in its 10-year history by cutting their benchmark lending rate by 75 basis points to 2.5%. And here in the United States, lobbyists are pushing the Treasury Department to consider a plan to purchase mortgage-backed securities in the hopes of driving mortgage rates to as low as 4.5%. How? As we saw last week, an increased demand for mortgage-backed securities would prompt mortgage rates to drop, which enables homeowners to refinance into lower-cost loans and make it cheaper for potential homebuyers to get into the market. Of course, the plan is not without its critics, especially since the markets have naturally pushed rates higher since last week. They say that only a narrow slice of credit-worthy borrowers would benefit, and the proposal would do little to help troubled borrowers who have fallen behind on their payments, have no equity in their homes or have lost their jobs. And remember those tight guidelines! Mandated low rates could keep private investors out of the mortgage-backed securities market, forcing the government to remain the primary buyer of such investments

FHA new down payment and loan limits

 2009 FHA Loan Limits

The 2009 FHA loan limits are calculated at 115% of the area median sales price.  For 1-unit, the FHA floor remains at $271,050 and the ceiling is now at 150% of the conventional floor, or $625,500.  Below is a table illustrating the 2009 FHA loan limit Floor and Ceiling:

 

2009 FHA Loan Limits
	1 – Unit	2 – Units	3 – Units	4 – Units
Minimum (Floor)	$271,050	$347,000	$419,000	$521,250
Maximum (Ceiling)	$625,500	$800,775	$967,950	$1,202,925
Alaska & Hawaii	$938,250	$1,202,150	$1,451,925	$1,804,375

 

 In order to determine the FHA Loan Limit for your area, please follow the link below, type in County where your property is located and click on the “down arrow” next to “Limit Year” and select “CY2009” before you click on “Send”.  This will bring up the FHA Mortgage Limit in your desired area for 2009.

 

https://entp.hud.gov/idapp/html/hicostlook.cfm

 

 FHA Down Payment Requirements

Effective with new case number assignments on or after January 1, 2009, the minimum down payment requirement on purchase transactions increases to 3.5% (from 3%) of the lesser of the appraised value or sales. This amount is in addition to any borrower closing costs.

 This change eliminates the previous loan-to-value limits that varied by property value and average closing costs for the state.

 For all refinance transactions, including streamline refinances, the maximum loan-to-value is 100% of the appraised value, including the financed upfront mortgage insurance premium.

 The new down payment requirements only apply to FHA 203(b), 234(c), and streamline refinance loan programs.

Do Rates Seem High?

One answer is that in order to fund the rescue and the new government guarantees, our Treasury must sell more new Treasury securities to raise money. And the Treasury has to offer higher interest rates to sell them. On top of that, mortgage related bonds always trade at a slightly higher yield due to the prepayment and delinquency risk. Lastly, the cost of financing mortgages has increased for Freddie and Fannie due to the plan for the FDIC to back the newly issued, unsecured debt of some banks. Obviously by guaranteeing bank debt, the government is making that debt more attractive for investors, and consequently creating more competition for Fannie and Freddie when they look to sell their own securities. To compete for buyers, the mortgage giants will have to raise their own yields – and to pay for that they’ll have to charge borrowers higher interest.

Stop Creditors Junk Mail

Most people already do this, but through the wonders of modern technology, You are able to “opt-out” of pre-screening by all of the major repositories. Remember, as soon as you run a credit report, you will very likely be inundated with offers for mortgages/credit unless your client has previously “opted-out” of such pre-screening. With the refi boom underway, this will spare you the waiste of time answering telmarketing calls. To opt out go to www.optoutprescreen.com and take the following three steps to avoid solicitations.