Mortgage Blog

I have had several questions from friends and family members in the last few days on what the status of lending has become and where it is going. Most are worried that the failure of the Governement to concede the passing of a 700 billion dollar wallstreet bailout. There isn’t a “freeze” per se but most lenders this week have been asking for 720 credit scores, 20% down, and your first born child. The credit crisis has banks less willing to lend money to each other, which ultimately means it will be harder for borrowers to get the credit they need. But that doesn’t mean it’s impossible to borrow money for those in good credit standing. From a consumer standpoint, credit hasn’t been frozen says Texas Home Loans advisor Shon Lorg with Lonestarfinancing.com. “If you’re somebody with excellent credit, you’re in a good position to borrow money.”

The thing to remember at this time is that standards are back and now higher than ever with mediocre interest rates. Lenders are no longer lending money on stated income and poor or even good credit scores are not under to qualify under most lending criteria. That means that the first step in the borrowing process is making sure your credit report is squeaky clean and your credit score is a minimum of 680 and preferrably 720. You can get a credit report for at freecreditreport.com or annualcreditreport.com for approximately $16.00.

Eventually the bailout will go back through the house and ultimately it will be passed. It may not be in it’s entire original form or be any where near $700 Billion dollars but a traunch of the bill will be approved to tampen down the fears of wallstreet. Consumer confidence must be strengthened to ensure mass panic doesn’t insue and employment tumbles. The big bailout won’t prevent recession, according to many economists, so consumers who don’t have emergency funds and worry about their job security should think thrice before taking on new obligations. so when does a home equity or new loan make sense? A new loan makes a lot of sense for someone seeking to refinance a bad loan, buy their first house at a nice price, or get that fuel-efficient car they’ve been planning on for a while. And though interest rates have moved up slightly during the recent tumultuous weeks in the market, today’s rates may seem low compared to what they are predictted to look like in the future. Most economists are predicting interest rates to gradually start climbing and possible hitting a pinnacle in 24 months at an estimated 8% or higher.

Still not sure if the time is right for you? Whether it’s a home or auto loan, here’s how to find that cash now. Mortgages Conventional borrowers seeking less than $417,000 )Fannie Mae/Freddie Mac limit) in most housing markets—will not have trouble finding loans. Expect to pony up a down payment of at least 5 percent (20 is better) and prove that you can cover all of your monthly debt payments with about 40 percent of your pre-tax income. Big borrowers and commerical loans is where most borrowers will run into problems in the coming months. In short the market needs to correct itself and this will either take two years or five years depending on how much governement intervention this is in the coming years.

Now big borrowers will have a much tougher time. Rates on jumbo loans—those above the conventional level—are running more than a percentage point higher than the smaller loans, according to bankrate.com. If you’re looking for a big mortgage, make the rounds of the local lenders, but check with a local mortgage broker and a large national broker, such as eloan.com, too.

One group of borrowers has a particular impetus to move fast: In the most expensive housing markets, such as Texas , New York and many California cities, they can get conventional mortgages as high as $700,000, but that limit will drop to $625,500 on Jan. 1.  Texas mortgage refinancing rates now 1.5% higher than 12 months ago. That means someone in one of those places looking to borrow more than $625,500 will pay a higher rate, and having a harder time finding a lender after the New Year.
And as far as automobile loans, forget about it. The car companies are in trouble, but would rather discount the car than the loan to buy it. That makes third-party lenders—again, the local small bank and the credit union—the place to shop for those loans. Line up a no-obligation loan before you go to the dealer, suggests Stephen Schooff of Capital One, whose capitaloneautofinance.com is one of the largest car lenders. It’s tightening its credit standards, but still offers a “blank check” auto loan to solid borrowers with rates as low as 5.5 percent now. You can take that check to the dealer and negotiate like a cash buyer.

Home Equity loans are still a great credit option for those with good or excellent credit. If you’ve already got a home equity line of credit (HELOC), that’s also a good place to borrow money for your next car or home improvement. Rates now average below 5.5 percent, according to Bankrate, and there’s a good chance that interest is tax deductible. Before maxing out your home equity line, check to make sure that it doesn’t put your total home-backed borrowing near or over the current value of your house, because lenders have been dialing back those credit lines.

Alternative Sources and privatization of lending may start slowing hitting the markets even as soon as the next few months. But that is a whole new blog. 

Mortgage rates have slowly eased over the past week as President George Bush signed into law an emergency Federal plan to rescue Fannie Mae and Freddie Mac, which hold nearly half the country’s housing debt. Freddie Mac spokesman was quoted as saying in its weekly mortgage-rate report Thursday that short-term, long-term, fixed and adjustable rates all have swooned. The spokesman attributed the drop to lower commodity prices as well, which eases concerns about inflation, despite mixed reports on the housing market. Oil price speculation seems to be coming back into check which also contributed to the commodity bounce.

Freddie’s 30-year fixed mortgages averaged 6.52% with an upfront payment of seven-tenths of a point, down from 6.63% a week earlier. Shorter term 15-year fixed mortgages averaged 6.17% with a payment of 6/10th of a point, down from 6.18%.

Five-year adjustable-rate mortgages that are indexed to Treasury notes averaged 6.07% with a payment of six-tenths of appoint, down from 6.16%. One-year ARMs posted an average rate of 5.30% with the same payment, down from 5.49%.

All four rates are also below year-ago levels.

Freddie Mac spokesman was quoted as saying “A drop in commodity prices eased market concerns over inflation pressures,” says Freddie Chief Economics Frank Nothaft, who noted that oil and gasoline prices reached their lowest levels since May.

On the other hand, it was difficult to get a clear reading on what housing reports released during the week meant for the relative strength of the market. The supply of existing homes climbed to 11 months in June, while the supply of new homes dropped to seven months for the second time in a row. The U.S. homeownership rate rose slightly to 68.1% during the second quarter from 68% the previous one, but was still below the 68.3% level a year earlier.

While most analyst still don’t see a true mortgage rebound occuring until early 2009, this Federal relief package should help stabilize the Texas home market and prevent further sliding of house prices across the state.  The long of the short of the Federal bailout is that it is a temporary fix that will only expand the life of this recession. To describe one economist opinion “It’s like giving a heroin addict a fix instead of rehabilitating him. It solves the short term problems, but does nothing to address the long term.”

I have received several email from visitors who have been asking how to research which company owns their mortgage.  Don’t borrowers have the right to know who owns their mortgage? I need to work out a loan modification or refinance but can’t find out who to contact and the servicing company will not assist me.

Of the nightmares facing homeowners caught up in the mortgage net, this one issue is perhaps the most frustrating. From individual lenders to the government-sponsored Hope Now Alliance devoted to untangling this type of mess, the standardized advice to borrowers is the same: as soon as you think you’re headed for trouble, contact your mortgage lenders to see about working out an alternate payment plan or even request that your lender to help you by moving your loan to a lower rate on a fixed note.

It’s good advice. The sooner you act, the better your chances of not falling so far behind the situation becomes irreversible. For their part, lenders don’t want you to lose your home or generated income either. The last thing they need is another property to add to the long list of unsold properties on their books, and subsequently more lost earnings.

In order to contact your mortgage lender means you must first figure out who owns your loan. In the fallout of the housing boom, some lenders simply went out of business or were divested or acquired by bigger lenders — and these defaulted loans hence changed hands.

As the mortgage market rains have dried up, lenders have had to lay off workers who, just a few years ago, had a hard time keeping up with the flood of new mortgages. Now, with foreclosures rising, there are fewer employees on the other end of the phone to help homeowners in trouble. Experienced real estate attorneys and professional housing counselors report that they’re also not having much luck navigating the maze of voicemail.

Even worse, there may be no particular one owner of your loan if the original mortgage was bundled with hundreds of others and placed in a trust which was then sold off in fragmented interests to hundreds of mortgage investors. The servicer — the company hired to make sure the monthly payments got to the right investors and never expected so many home loans go so badly. So they weren’t really set up to re-negotiate payment terms with literally thousands of borrowers.

Still, many of these type servicers do have the legal authority to work with you on a payment option that you can handle. It’s their job to maximize investors’ returns, and having you default isn’t going to help anyone. If you can get through to the servicer’s mitigation honchos, you might be able to get the conversation going.

A better option might be to get some help from a HUD-approved housing counselor or a lawyer who specializes in working with lenders and may be able to help you cut through the sea of red tape. As recommended by Texas Mortgage Loans, Check out Web site of the National Foundation for Credit Counseling to locate an office near where you live. If you can’t afford legal support, look for a non-profit services office and most of them spend a lot more time on mortgage and housing issues.

Wow, mortgage backed securities finally headed in the right direction direction, even if just for a short time. I hope you all were paying close attention and were able to help your clients cash in on the correction. After the sub-prime collapse Congress and the Fed severly overcompensated for lending program credit requirements, but now recent changes have once again breathed a little oxygen into the lungs of the shallow mortgage industry. Just how long is it going to last though?

The recent changes come from MSNBC reports that U.S. consumer confidence fell to an unexpectedly near 10 year low, sinking to the fifth-lowest level ever in history.The report Tuesday also said the group’s reading of consumers’ expectations hit an all-time low as home prices tumbled while gasoline and food prices rose. A separate index of home prices saw the largest drop since its inception in 2000.

Last week did not have a lot of data coming in so it relied a lot on technical factors and the direction of stocks mostly.  In the previous weeks, bonds have done very little besides fall down a steep slope, so a move higher was needed just to bring reality back into the mix.  The move higher is likely unsustainable, but more on that later.

Looking at the past week, oil prices continued to climb, even when Saudi Arabia announced that they would increase production.  Combine the recent strikes in Israel with talks from Israel about preemptive strikes on Iran’s nuclear plants and you can see why oil is dropping.  Since oil prices are part of the inflationary battle, bonds did not like the news.

However, things were not all bad for bonds as they did climb, fueled by more fears of a slow economy.  The manufacturing sector showed weakness, the Philadelphia Fed Index missed expectations, and more write downs from CItigroup all aided in giving bonds a much needed boost.  By the end of the week, mortgage rates were down a little, about .125%

Technically speaking, bonds are still leaning toward the oversold side of the spectrum, but they remain in their downward trend.  Without any catalyst to break the trend, the recent move higher will be a needed correction and the downward trend will resume shortly.  I would start the week off cautiously floating if bonds open higher, but be ready to lock as the trend lower resumes.

However, don’t let your guard down just yet as the future does not look bright for bonds.  For starters, the move higher is likely just a correction as bonds failed to break resistance on Friday and remain below their downward trend line. 

Technical analysis is pointing toward the oversold side of the spectrum, but they remain in their downward trend.  Without any catalyst to break the trend, the recent move higher will be a needed correction and the downward trend will resume shortly.  I would start the week off cautiously floating if bonds open higher, but be ready to lock as the trend lower resumes.

Stop by Loanbark soon as I will continue this blog with expansion on how these factors will effect the mortgage market and what we can expect in the next 3-6 months.

A lot of my customers have questioned me in the last few weeks as to why interest rates are jumping - even as the Fed is busy cutting interest rates.

What happened is that mortgage rates jumped by three-quarters of a percentage point in a matter of weeks — reversing a sharp drop that began in the middle of last year.

Here’s Mr. Bernanke’s answer to Congressman Guiterrez from the Congressional hearing:

“Even as the Fed has lowered interest rates, and as the general pattern of interest rates has declined, the pressures in the credit markets have caused greater and greater spread, particular for risky borrowers, like risky firms, for example,” he said. “Our easing is intended to, in some sense, you know, respond to this tightening of credit conditions. And I believe we’ve, you know, succeeded in doing that, but there certainly is some offset that comes from widening spreads. This is what’s happening in the mortgage market.”

The Congressman moved on to another question, leaving the discussion of tightening credit and widening spreads for another time.

But, judging from our mail, the question is still on many readers’ minds these days. How can mortgage rates go up if the Fed is cutting rates? Doesn’t that mean that banks are, in effect, price gouging?

It turns out that lenders don’t control the price of long-term loans any more than consumers do. What’s happened in the past month or so is that, even as the Fed has been aggressively slashing short-term rates — and flooding the banking system with as much money it will take — the global capital markets are still very nervous about the latest headlines on rising foreclosures, a weakening economy and losses from banks and other lenders that have topped $100 billion — so far.

It turns out there are two mechanisms for setting interest rates. All the Fed can do is target the interest rate paid by U.S. banks for overnight loans among themselves. But using short-term loans to back long-term mortgages can be risky.

If National Bank takes out a short-term loan of $200,000 from the Fed and lends it to Tom the HomeBuyer for 30 years, it still has to come up with $200,000 right away to pay it back. It could do so with another short-term loan, but then it has to keep doing this over and over, indefinitely “rolling it over.” If, during this process, short term rates go up, the bank loses money. 

That’s why mortgage lenders making long-term loans turn to the capital markets — a global network of banks, corporations, institutions, pension funds, governments and individual investors who buy and sell money. When these players lend money for the long term, they agree to get paid back in installments, plus an interest rate that’s usually fixed for the life of the loan. As long as the rate the mortgage lender agrees to pay the investor is lower that the rate it charges its customer, the lender makes money.  Visit Texas Mortgage Lenders for current mortgage rates.

Sales of existing homes fell to the lowest level in nearly a decade in January while the average price for a home dropped for the fifth straight month.

The National Association of Realtors said Monday that sales of single-family homes and condominiums dropped by 0.4 percent last month to a seasonally adjusted annual rate of 4.89 million units, the slowest sales pace on records going back to 1999.

The median price of a home sold in January slid to $200,000, a drop of almost 5% from a year ago.

 The drop in sales and the fifth consecutive decline in prices underscored the continued pressure facing housing, which is struggling to emerge from its worst slump in a quarter-century.

Sales were weak in all parts of the country except in Southwest, where Texas sales posted an increase of 3.4 percent. Sales dropped by 3.6 percent in the Northeast, 2.1 percent in the West and 0.5 percent in the West.

Sales of both existing homes and new homes tumbled for a second straight year in 2007 as the housing industry was battered by a severe credit crunch that hit in August as major financial institutions began reporting multibillion-dollar losses on their investments in risky subprime mortgages, loans made to homeowners with weak credit.

The market for subprime mortgages has essentially dried up and other types of loans have become harder to obtain as lenders have tightened their standards.

Lawrence Yun, chief economist for the Realtors, said he believed the housing market may be on the verge of bottoming out with a rebound expected to start toward the end of this year.

“Subprime loans and other risky mortgage products have virtually disappeared from the marketplace, and over the past five months, this has been reflected in soft but fairly stable home sales,” he said.

Lawrence noted that he expected demand to be bolstered in coming months by the action of Congress in the economic stimulus bill to raise the caps on the size of loans that can be backed by Fannie Mae and Freddie Mac and the Federal Housing Administration.

Both realtors and mortgage lenders are guarded optimistic for 2008.

With a light schedule of economic events, Texas investors focused on a stream of Fed officials making appearances last week, and two conflicting themes emerged. Thursday, the Fed’s Fisher emphasized that the risk of higher future inflation remains a concern, and Texas mortgage rates rose after his comments. Friday, however, the Fed’s Yellen pointed out that the risk of slower economic growth or recession has increased. A decline in economic growth generally leads to lower inflation, so it was viewed as good news for mortgage markets. As a result, mortgage rates fell, ending the week just a little higher than the previous week. In contrast, slower economic growth and higher inflation are both unfavorable for stocks, and the Dow suffered a 500 point loss during the week. Friday, the government moved closer to passing an economic stimulus package which President Bush has signed, is expected to boost economic activity as well as help the housing market, and the passage of the bill appears to be imminent. Under the terms of the pending legislation, Fannie Mae and Freddie Mac will temporarily be allowed to purchase or insure loans up to 125% of the median home price in the area, subject to a maximum cap of about $730,000, which means that in some markets loans above the current limit of $417,000 will be considered conforming loans. FHA loan limits will increase as well, according to a similar formula and subject to a maximum of 175% of the current limit. Qualifying loans should have lower rates than if the limits were not increased, making homes more affordable and refinancings more attractive. In the Houston, TX housing sector, the December Pending Home Sales index fell more than the expected from November, and the index was down -24% from one year ago. Pending Home Sales are a leading indicator of future housing market activity, so the next Existing and New Home Sales reports may show declines. The National Association of Realtors (NAR) latest forecast predicted that conditions will remain soft for the first half of 2008, but that activity will pick up during the second half of the year.  

New home sales plunged in 2007 by the largest amount on record while home prices tumbled sharply in December. Analysts forecast a continues snide in 2008 as the housing market braces for anticipated recession.

National reports per msn.com reported Monday that “sales of new homes dropped by 26.4 percent last year to 774,000. That marked the biggest decline on record, surpassing the old mark of a 23.1 percent plunge in 1980.”

The government is currently reporting that the average price of a new home barely budged last year, edging up a slight 0.2 percent to $246,900, the poorest showing since prices fell by 2.4 percent during the 1991 housing downturn.

While sellers are taking it on the chin right now, it is a buyers market thus keeping the mortgage industry in busy times. With refinance, mortgage cash outs and investment property being a hot commodity the mortgage industry is prepared to report record numbers in 2008.

The prolonged slump in housing is raising concerns that the weakness could be severe enough to push the country into a full-blown recession. In an effort to guard against that threat, the Federal Reserve cut a key interest rate last week by the largest amount in more than two decades with a further rate cut expected on Wednesday when the Fed completes a two-day meeting.
President Bush and House leaders reached agreement on a $150 billion economic stimulus package last week which included items to boost housing by increasing the size of the mortgages that Fannie Mae and Freddie Mac and the Federal Housing Administration can handle. But critics said the continued plunge in housing showed that more dramatic action is needed.

Following the market over the next few weeks could provide for quiet a roller coaster ride and the stimulus bill will probably not have the effect that most legislators are hyping.
 

The Texas mortgage market continues to bounce back with another surprise cut by the FED today.  Fed delivered a three-quarter rate cut on Tuesday, making rates the lowest they have been since 9/11. MBS prices are up +13/32 (FNMA 30yr 5.5 at 101.24), which is about 15/32 higher than Friday at this time. The 30 yr fixed FNMA required net yield (60 day) is now at 5.35%, the lowest level of the month. World equity markets followed US stock markets lower over the long weekend, and this morning the Fed responded. In a surprise move, the Fed lowered the Fed Funds rate by three quarters of a point to 3.50%, the largest rate cut since 1984. Citing increased risks of slower economic growth, the Fed cut rates between meetings for the first time since just after the 9/11 attacks in 2001. With the next Fed meeting just over a week away on January 30, today’s action was a very unusual move, indicating the severity of the conditions in financial markets. In addition to today’s cut, investors are also expecting another half point cut in the Fed Funds rate at next week’s meeting. The Dow was down as much as 464 points earlier this morning, before bouncing back and recovering almost half  of the losses. No economic data will be released today.

The FED cuts has sent Texas mortgage brokers in a frinzy trying to keep up with the phonelines. Brandon Tully, Elite Financing of Austin, Texas, Reported a sharp increase in phone activity this week and expects the activity to continue as people take advatage of the low rates for home refinancing in Texas.  

My name is Rachel McGuire and I work for Lonestarfinancing.com.  I have recently taken the helm of Loanbark and will be blogging here now along with other mortgage brokers.

Since so much time has passed since the last post, let’s get down to business and discuss the market.  What market you say?  Exactly!  People come strutting into my office asking me to time the market for them.  Here is the deal; I can time the market just about as good as the next guy.  No one really knows what is going to happen but I will give you my take on the whole situation and you can do with it what you will.

In the early 2008 year, I think the economy will continue in the direction of a recession.  With this said, the housing market will continue to decline.  In an effort to jump-start the economy out of this recession, I believe the Fed’s will drop interest rates.

On that note, this will be a great opportunity to refinance.  Many experts agree that if you can lock into a fixed rate at about 2% lower than your current rate, go for it.  Keep in mind that a refinance can bring unexpected closing cost that you need to be prepared for.  But in my opinion you will save money in the end.  I’m a big advocate of fixed rate mortgages.

Now I want to bring up the dreaded question of:  Should I buy a house now or should I wait?  Here is what I think; buy it now!  If you plan on buying a new home, plan on being in that home for a few years, and can qualify for that new home without over extending yourself, then I think you should do it.  Many brokers don’t agree saying that you could lose a lot of money.  For instance, if you put 30% down on your home and the housing market falls 15%, you have lost half your investment.  Yes, this is true, but if you plan on staying in your home for a few years, you can wait out this down turn.  If you are scarred of this happening, offer 10% - 15% below asking price to compensate for any lose you feel you may consume.  It is important to remember that the market is constantly fluctuating and today your house may be worth a little less than it did yesterday or vice-versa.

These days’ homes on average tend to be on the market for a longer period of time.  This is a huge advantage to the buyer in that the seller will often consider your offer and most likely counter do to the fact that their home has been sitting on the market for some time now and they are ready to move it.  This creates a situation in which the buyer and seller end up with a deal that makes them both happy.

Like I mentioned earlier if you are buying a house in the market today, you are probably going to get an remarkable deal on the house and in the future, the home will increase in value as the market goes back up. 

I can’t tell you what the market is going to do or if you should buy a new home today or tomorrow.  A good deal to one person is not necessarily a good deal to the next.  Everyone has their own opinion of GOOD and if you feel you have a GOOD deal, run with it.  In the end you are the one who has to be happy and I can’t tell you what you want to hear to make yourself happy.