4-25 RATES LOWER AGAIN ; BIG FED MEETING THIS WEEK

 

MORTGAGE RATES LOWER AGAIN:  On a shortened week, the bond market went up every day.  Bonds closed the week 28 points up, improving the costs of loans about .25% on the week.  The 30 year fixed par rate dropped down to 4.75% – this rate costs about a point right now.  15 year fixed lowered to 4.125% and 5/1 ARMs lowered to 3.125%.   

FED MEETING THIS WEEK ; WHERE WILL RATES GO?:  The FED is meeting Wednesday and Bernanke will follow the meeting with a first ever 45 minute press conference – typically they just release a statement.  How the statement and conference goes usually pushes rates one way or the other. 

Last week S & P downgraded US debt.  US Treasuries and mortgage rates are closely tied.  The Fed pushed mortgage rates down in December of 2008 by purchasing mortgage backed securities.  This systematic buying of mortgage backed securities is slated to end in June of 2011.

The FED is able to purchase these securities by printing money and selling treasury bonds.  With the downgrade of US Debt, it seems to be only a matter of time before investors demand higher returns, pushing mortgage rates higher.

Although we have seen rates improve over the past two weeks, it seems only a matter of time before they have to continue to go up.  Based on technical indicators – rates can not go much lower without a major shift in the market.  Check out this great article from mortgagenewsdaily.com, explaining why it is very unlikely that mortgage rates will go much lower: http://www.mortgagenewsdaily.com/consumer_rates/208606.aspx

The risk of rates going up far outweigh the small gain you may get by floating a rate.  My advice is to lock in a rate if you are in process or thinking about starting a new loan.

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4-21-11 : Arizona Housing Market Showing Signs of Improvement

Good article from AZ Central showing signs that Arizona’s battered housing marketing is finally recovering. 

http://www.azcentral.com/business/realestate/articles/2011/04/20/20110420phoenix-housing-market-improving.html

RATES IMPROVE / IRS TO BEGIN TAXING ON SHORT SALES / FORECLOSURES.

MORTGAGE RATES FALL:  The bond market dropped 66 bps last week – marking a good week for lowering interest rates.  A lot of this is spurred by bad news in the economy / Japan.  It’s unfortunate, but when these things happen – the stock market typically goes down and mortgage rates get better.  The par rate on a 30 year fixed loan dropped to 4.875%.  5/1 ARMs back down to 3.25%.  15 year fixed loans down to 4.25%.

MORTGAGE RATE ADVERTISEMENTS:  I get asked this all the time – why are the rates you quote higher than other advertisements I see.  First, I quote par rates – the lowest rate you can get without paying discount fees to get the rate.  A lot of companies/individuals quote low on the rate so you will call them – they forget to mention that the rate they quote will involve a ton of closing costs.

Keep in mind when getting a quote – I can get you any rate that you want.  Lower rates are more expensive.  I try to quote rates with reasonable closing costs as that is what most customers want. 

IRS ENDING TAX BREAKS FOR SHORT SALES / FORECLOSURES IN 2012:  Congress enacted the Mortgage Forgiveness Debt Relief Act in 2007 that says the IRS will not tax foreclosure/short sale losses on primary residence homes until 2012.  For example if you owed $300,000 on your home and you short sold it for $200,000 – you would be sent a 1099 for the $100,000 that you would have to pay income taxes on.  This was temporarily suspended until 2012. 

The end is coming soon and you will be paying taxes on these losses.  I would never recommend foreclosure/short sale unless it is absolutely necessary, but if you are planning on doing one of these – I would do it now. 

Here is a good CNN article on when the IRS can tax you: http://money.cnn.com/2011/04/15/real_estate/taxes_mortgage_debt/index.htm

RATES RISE / FHA MORTGAGE INSURANCE INCREASE ON APRIL 18th

MORTGAGE RATES RISING:  Mortgage rates are controlled by the secondary bond market.  Over the past 1-2 weeks we have seen rates increasing due to dropping bond prices.  Most indicators see the market as bearish and that this drop and rise in rates could continue. 

 

FHA MORTGAGE INSURANCE INCREASING ON APRIL 18th:  On April 18th, FHA will be increasing the monthly mortgage insurance on all of it’s products.  In order for a customer to qualify off the old mortgage insurance plan, they must have a new FHA case number pulled by Friday.  It usually takes a day to pull, so I would recommend doing this by Thursday.  Below is what the changes are:

Loan Period Greater Than 15 Years:

(Current) Loan to value 95% and below:    Mortgage insurance of .85% 

(New) Loan to value 95% and below:    Mortgage insurance of 1.1%

(Current) Loan to value 95.01% and above:    Mortgage insurance of .9% 

(New) Loan to value 95.01% and above:    Mortgage insurance of 1.15%

Loan Period Less Than or Equal to 15 Years:

(Current) Loan to value 90% and below:    Mortgage insurance is 0%

(New) Loan to value 90% and below:    Mortgage insurance of .25%

(Current) Loan to value 90.01% and above:    Mortgage insurance of .25% 

(New) Loan to value 90.01% and above:    Mortgage insurance of 5%

What this means for consumers:  Basically your payment will be going up by 20.84 for every $100,000 of loan amount.  This is a big change – I would definitely recommend consumers looking to purchase a home soon to get their FHA case number pulled now.  I would also recommend consumers in existing FHA loans looking to streamline refinance to get this pulled now. 

THE FED RULE ON LO COMPENSATION – NOW IN EFFECT!!

HOW THE NEW MORTGAGE REGULATIONS WILL AFFECT YOU:

 THE FED RULE DELAYED ; TEMPORARILY:   After all the buildup – the Fed rule on loan officer compensation has been stopped – at least temporarily.  A court will be reviewing this over the next couple days and giving a final ruling.  As of right now, new loans can be originated just as before.  In all likelihood, most expect the new rule will still go into place.

CONSUMERS HAVE A COUPLE DAYS TO GO OFF OF OLD PLAN:    If you want to get a loan off of old commission structure , you will want to apply for a new loan immediately.  As stated before, most still expect the rule to go into effect shortly – by end of week or early next week. 

HOW THE NEW MORTGAGE REGULATIONS WILL AFFECT YOU:   If the new rule does go into effect, here is an example of how it may affect you.  The new rule states a loan officer can not be paid commission based on the terms of the loan.

Because of this, lenders will most likely price 1.5-3% into the pricing of all of their loans – all loans must be priced the same.  What this basically means, is the lender has to make the same percentage profit on every loan they do regardless of a borrower’s situation.  This can be priced with either up front costs or by giving a higher rate. 

So lets say you have a 400,000 loan and a lender has 2% pricing built into the loan.  The lender will be making 8,000 on the loan regardless of borrower’s situation- they have no way to make any different amount per the new rules.  So lets say you as a consumer wanted the lowest rate paying points.

UNDER NEW PLAN YOU WOULD PAY:       8,000 lender fees + title and escrow. 

UNDER OLD PLAN:        Under old plan you would have more options.  Most companies charge certain set costs:  my company charges a 995 processing fee, and a 795 funding fee.  These are house fees that I make no commission off of.  So pricing starts out at 1,790.  Now on a 400,000 loan, I would probably make .5 to .1% doing this loan.  Let just say I charged .75 points – I would charge 3,000 origination fee, 995 processing, 795 underwriting = $4,790 in lender fees + title and escrow.

Now I can control the amount of money I make on old plan.  If I have a customer that needs a certain amount of costs to make it work – I could lower my commission.  The new plan does not allow any negotiation or options for a consumer.  There is a certain percentage that a lender has to make on the loan regardless of the situation. 

Imagine how this can affect higher loan amounts – like a 700,000 loan.  I never charge 1% on a loan that big , but with the new plan a lender will have at least 1% in the pricing and most likely more.  There is no negotiaion – pricing is what it is. 

This also affects new purchases – sometimes we are trying to close a loan and we have to credit a borrower fees as they don’t have enough for closing.  We can not do this per new guidelines – we make the same amount regardless.

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