Mortgage Blog

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.

In the mortgage industry, 2007 may go as the year of the ARM reset. If you have no idea what I’m talking about, that’s probably a good thing. But for many, a letter from you lender has recently greeted you with the news that your mortgage payments are going to go up, way up.

Lenders didn’t just decide to do this on a whim. You agreed to this possibility when you closed on that super low rate loan a couple years ago. Unfortunately, lots of folks never understood that this could happen. Now, you are ultimately responsible for every commitment you signed on the day of your closing. But I doubt anyone has ever read every word of every page they signed. Instead, many trusted the advice of their loan officer and real estate agent. If you just got a reset letter in the mail that was completely unexpected, I wouldn’t ever bank on that “advice” in the future.

So now what? Well, foreclosures are through the roof, lenders are dropping like flies, and best of all congress is threatening to get involved in this debacle. Trust me, the last thing in the world your lender wants to do is foreclose on your home. They’ll end up loosing more money than you, and feed the press with more bad news to report. Because of this, many lenders have set up unpublicized action plans that involve doing what they can to smooth over the situation. Whether you believe it or not, YOU have some leverage here. Here’s what to do:

1. Call your lender. Be very polite. Do not accuse them of being crooks. Tell them you need help. Act a little bit confused.

2. Raise the specter of foreclosure. Don’t proclaim it, suggest it. “Sir, I don’t know what to do. I guess I didn’t really understand what I was signing, or that the rate could go up like this. With my income, it will be nearly impossible for me to make the new payment and I’m very worried that I’m going to loose the house.”

3. If you are old, take advantage of this. Have your son or daughter call for you. You’ll need to be there when they call to give the lender permission to talk to them. Have them say, “I have no idea why my parents signed this without talking to me, they don’t understand all of this modern financing. Now I’m afraid they are going to loose their house and need to find out what you can do for them”.

4. Hopefully, they will offer to extend the low rate period for another year. Maybe they will only offer six months. In some cases, they’ll tell you tough luck. But hey, it’s just a 20 minute phone call. It can’t hurt to ask.

5. They may also offer to refinance you into a fixed rate loan. I recommend that you look at their offer, then go out and see what a few other mortgage companies can do for you as well. The key, as always, is to shop around.

Concerned about ? My new search engine is filled with resources to help you and news stories that shine a light on the criminals commiting fraud. I’m also looking for volunteers who would like to help in adding content to the engine. I hope this will be a useful tool for you.

Peter Coy of Business Week is looking for borrowers who are “feeling the squeeze”. This is a good opportunity to help others avoid the pitfalls you may have incurred.

Is Your Mortgage Choking You?

Fraud is a big problem in the mortgage industry right now. As the problem increases, lenders and government are likely to turn up the heat on the offenders. The thing is, some folks don’t even realize that they are committing fraud.

Rob Blake, who has a great radio show here in Denver, and a new blog, The Mortgage Insider’s Blog, has an excellent post on steering clear of some of these problems.

Here’s a question I got from a reader today.

I found your blog on the web and thought you might be able to answer a question. I’m currently looking for a duplex or triplex to purchase. I intend to finance my new home with an FHA mortgage. I hope to live in the new home for 1 to 2 years, at which time I would search for a new single-family home. I intend to keep the duplex/triplex and rent out all units. What kind of implications does this have on finding a mortgage for the single-family home? Will a large down payment or high interest rate be required for the mortgage on my second home?

Matt - Louisville, KY

If the new single family home is an improvement in living conditions over the duplex you are living in now, then there will be no “Second Home” implications when it comes to higher rates. The Single Family will become your first home. Basically, the underwriter must be convinced that you really do intend to move into this new home.

You may have some income hurdles to cross when you get the new loan. You’ll need to prove you can pay both loans. You’ll be able to use the income generated from the other half of the duplex, but in most cases, you will not be able to use the potential income from renting the half you currently live in. Even if you have a renter signed to a new lease. You may end up needing to do a Stated Income style loan, then refinance it in a year or so, after you can document this additional income. If you do some research, you may come to the conclusion that Stated Income loans are a bad thing. But just because they are often misused, doesn’t mean they are inherently bad. The honest reason for Stated Income loans is to help people how actually have the money to pay, but can’t fully document where it is coming from. Future rental income would be a prime example.

The duplex will become an investment property. You current loan on the duplex will not change, but if you ever refinance it, you will then pay investment property interest rates on the new loan. Also, ask your loan officer if there is a minimum occupancy term on the loan for the duplex. If you plan to live in the duplex for more than a year, it shouldn’t be a problem, but check anyway. In some cases, if you attain a “owner occupied” loan, then turn the property into a rental right away (usually a mater of months), the lender can come back and call the loan due.

Here’s a blog I found today. I am Facing Foreclosure .com. It should be required reading for anyone psyched up after a Carlton Sheets seminar.

Adjustable Rate Mortgages (ARMs) can be intimidating to new borrowers, but should not be overlooked. The key is to understand the variables involved, and then scrub them against your short/long term goals.

ARM’s feature an interest rate that can change. Lender’s offer superior rates on ARMs compared to fixed rate loans because they are not locked into providing the exact same rate to you for the next 30 or so years. ARM’s let the lender adjust according to market conditions and inflation. When interest rates go up, your ARM can go up as well. Comparing the difference between ARM’s is more complicated than fixed rate loans because the start rate is only important until the rate begins to change. How much it can change, and when it will change are just as important to consider.

The period of time between when your rate can change is the first variable to consider. Some ARM’s can actually change every single month, starting in the next month after you close. Ever here those 1% ads on the radio? It’s likely tied to a loan that changes monthly. It’s more common for an ARM to change once a year, and in many cases, it will have a period of a fixed rates for a few years before it becomes adjustable. For instance, a 5/1 ARM is fixed at the start rate for the first five years, then adjusts yearly. A 3/1 ARM is fixed for three years, then adjusts yearly. If you are pretty confident that you are going to move again in the next five years, a 5/1 has almost no downside to it.

How much your loan can adjust, once the fixed period is over, is the second variable to consider. ARM’s have caps that limit how much the rate can move at one time. Let’s say your caps are 2 & 5. That means the rate can adjust as much as two percent a year (assuming your loan only adjusts once a year), and can never go above 5% over your original start rate. With a 5/1 ARM and 2&5 caps, in a worse case scenario, your rate would change as follows.

Year One - Start Rate, let’s say it is 5%
Year Two though Five- 5%
Year Six - 7%
Year Seven - 9%
Year Ten - 10%
10 through 30 - 10%

Obviously, if you plan to live in a home for the next 30 years, with no intention of ever refinancing, an ARM like this may be a bad idea. But most folks would refinance or sell by the seventh year.

That’s a worse case scenario. Now let’s look at how the rates will actually adjust. It might seem like the start rate is the only important number to consider here, but that’s a mistake. The MARGIN plays the biggest role in how much your rate can change. Margin is one of those obscure figures that many loan companies try to breeze over. Always look at the margin if you think it’s possible that you’ll have this mortgage once it starts adjusting. So what is margin? It’s a set number that gets added to an index, to determine what your rate will be. This is where it gets tricky, but stay with me.

Different ARM’s are based on economical standards called indexes. One index is the Monthly Treasury Average (MTA). Another is the London Inter-bank Offered Rate (LIBOR). Many loans are based on US Treasury Bills. We could spend a day talking about indexes, but the simplified core of it is that these indexes go up and down, depending on the market. In times of higher rates, these indexes are higher. Some move up and down faster than the others, but they all pretty much mimic the economy. Currently, US Treasuries are about 5%.

Here’s where the margin kicks in. When your rate starts to adjust, the margin is added to whatever the index is at the time, and that is your new rate. Let’s use that same 5/1 ARM above and assume that your five years are up today. Let’s also assume that your margin is 1.875%

Start Rate was 5%, 2&6 Caps
Margin - 1.875%
Current Index - 5%
Index + Margin - 6.875%

For the next year, 6.875% is your new rate. Now lets assume the Treasury Index goes up to to 7.5% next year.

Current Rate 6.875%, 2&6 Caps
Margin - 1.875%
Current Index - 7.5%
Index + Margin -9.375%
Current Rate + 2% Cap 8.875%

In this case 8.875% would be your new rate because the caps limit the rate from going higher.

ARMs don’t just go up. If the index goes lower, so do your rates. It’s also important to remember that different loan companies will offer loans based on the same index. Again, the import number to consider in this case is the margin. Lenders will pay brokers for loans with higher margins. As you can see above, the difference between a 1% or 2% margin directly results in a 1% or 2% increase in your rate when the loan starts adjusting. In most cases, brokers can offer more than one margin, make sure you include this factor in your comparison.