Market Watch 12-15-2009

Mortgages continued to slide this morning on the announcement that producer price index figures rose all most double that what was expected rising by 1.8%. However, the large portion of this increase can be attributed to a sharp rise in oil prices during the review period. Oil prices in November breached the $80 per barrel mark but have retreated to around $70 per barrel as of today. Inflation cannot happen if over 10% of the US citizens are unemployed…hard to drive prices up when a large portion of America is unemployed and I would say there is probably another 7% which are under employed.

Tomorrow is the “big day” as the Bernanke’s two day FED party ends at 2:15 EST. The market will continue to look for any hint that either the FED will stop buying investment assets or that they may be looking to raise rates soon. I believe that this is a very remote possibility but still a possibility. If they were to do either of the before mentioned things, look for rates to move sharply higher….again…I doubt that this will happen but keep your eyes on the market after 2:15 pm tomorrow….Assuming I am correct and they continue on their current course, look for rates in improve slightly but nothing to get too excited over. Fixed rates today remain in the 4.875% range while 5 year ARMS are running in the 3.50% range!!!

Warriors of Wall Street

Our “Warriors of Wall Street” will have plenty to chew on this week as we will get a look at a cornucopia of economic releases and the final Fed meeting of the year. On the calendar this week we will get a look at the producer price index, the consumer price index, housing starts and leading economic indicators. While all of these release reach the level of “biggies”, the market will really focus on what the FED has to say during their two day meeting which concludes at 2pm on Wednesday. Any hint of Bernanke and friends coming off of their current position of holding rates at current levels will send mortgage rates notably higher. While this is certainly a possibility, I believe that Big Ben and friends are not ready to take the chance of upsetting what may actually be the beginnings of a recovery in the economy. But, beware of the message that they will put out at 2pm on Wednesday.

Look for rates over the next 48 hours to meander at current levels until the FED meeting concludes on Wednesday. 30 year fixed rate mortgages are hovering at the 4.875% handle while 5 year ARMS are holding in the 3.50% range.

Rates on the Rise

Ok…what does higher than expected retail sales and a poor treasury auction equal??? The answer….higher rates…Rates have moved roughly .25% in rate higher over the past 72 hours but have seemed to have found their spot, for now, holding in the 4.75% to 4.875% range for 30 year fixed rates and 3.25% to 3.375% for 5 year ARMS. The interest rate market is looking for something to move to higher levels and it got it with the news describe above. Look for rates next week to continue to try to push to higher levels in anticipation of another Uncle Sam Treasury Auction during the week. If the auctions next week are not received well, look for rates to push higher again. However, if the auctions next week are received well, look for rates to move slightly to lower levels. Don’t look for 4.5% on the 30 year fixed handle next week…I hope I am wrong. 30 day outlook for rates are to remain in the 4.75% range to 5.25%. I guess that is not too bad considering that these levels represent some of the lowest rates we have seen for over 40 years!!!

Today's Mortgage Rates and News

The mortgage markets have opened up once again lower (higher rates) and 30 year fixed rate mortgages (conforming) are running in the 4.625% to 4.750% range while 5 year ARMS (conforming) are running in the 3.25% to 3.375% range. FHA / VA is at 4.75% today.

In mortgage news, believe it or not…the director of HUD is asking Congress to raise the minimum down payment on FHA loans from 3.5% to 5% and cut seller contribution back to 3% from its current levels of 6%...I thought this guy was an Obama guy…can’t see how this would be good for housing the market but I will keep you updated. On a brighter note!!! There is a bill floating through the US House which would eliminate HVCC (the appraisal reform that we all have had to deal with over the past several years)…my inside sources on Capitol Hill are telling me that this bill has some legs and could get passed before the end of the year!!! The elimination of this bill would allow us to pick our appraisers for you deals like we did in the past!!!

Want a great web page to find out what is going on in our business??? Go to www.thinkbigworksmall.com and click on the daily report. These guys do a daily show each morning!!! The news part is generally around 3 to 4 minutes long and it is entertaining!!! This is one of my favorites!!!

Tax Credit Extension Looks Good!

The First-time home buyer tax credit that is set to expire on November 30^th looks like it WILL BE EXTENDED for contracts written on or before April 30, 2010 and closed by June 30, 2010. The US House of Representatives passed the extension Thursday, November 5th with a 403-12 vote (would love to meet the 12 guys who did not vote for this). This vote by the House followed a unanimous vote by the Senate on the Bill on Wednesday, November 4th. The Bill now goes to the President and is expected to be sign by maybe as early as this week!!! The Bill also added two other noteworthy items. The first is a tax credit for existing home owners on new purchases up to $6500 (must have resided in current residence for the past 5 years). The second addition to this Bill was that it raised the income limits from $75K for single taxpayers to $125K and joint taxpayers from $150K to $225K.

It appears that our elected officials in Washington finally understand that this is one of the stimulus ideas that has actually worked. The first-time home buyer tax credit has truly stabilized home prices over the past several months and a lack of an extension of this credit would have certainly driven home prices 5% to 10% lower over the next 90 to 120 days. The addition of a tax credit for existing home owners should only enhance the power of this economic stimulus package in the real estate area.

Tax Credit Deadline for First Time Home Buyers

Not managing expectations of the first time home buyer regarding the urgency to close before Dec 1st in order to realize the tax credit is like “flirtn’ with disaster!” As of today, there are only 26 business days left until Dec 1st - Veteran’s Day, three days during Thanksgiving, and not counting the last day of the month reduce the actual number of business days from 31 to 26. And, and November only has 30 days in the month! The lending industry is requiring perfection on properly documenting every loan file before the closing package can be released to attorney’s office (see my most recent blog post "Is the Loan Clear to Close?"). It takes longer to clear conditions on each loan. Appraisers must spend more time documenting their appraisals by supplying additional comps or commentary to justify or defend their value. Over half the sellers are banks. Banks will move at their own pace! Do not expect banks to respond quicker to offers, counters, etc. as the deadline nears expiration. Rates are low, home prices are deeply discounted, and the eight thousand dollar federal tax credit is in play. There has never been more incentive or opportunity for a first time home buyer. Activity has picked up as motivated buyers move with urgency to write a contract and close by 11/30. This is a great opportunity to enjoy a run in business that we all welcome, to help buyers realize the American Dream of home ownership, and to help buyers improve themselves financially with instant equity and tax benefits. However, absent of setting expectations to the buyer on time frames and responsibilities, this is a recipe for disaster that can crush clients’ hopes and destroy our professional reputations. We must plan and anticipate if we are to best serve our clients! To learn more about setting expectations for the buyer, to view tips, a proactive timeline, pertinent questions and answers and important information on FHA financing and the FHA flip rule, please read this entire article posted on my website under "News Alerts." Let’s get our buyers motivated and EDUCATED. Let’s get our sellers motivated and EDUCATED. Collectively let’s pull together (realtors, lenders, attorneys, appraisers) to ensure our first time home buyers capitalize on this tremendous opportunity! At the end of the day we will have guided our buyers through a labor intensive, time sensitive process. There is an awesome opportunity for us to showcase our expertise and value and ensure we earn future referrals from those we serve…..and avoid “flirtn’ with disaster” caused by missed expectations and opportunities. Please call me if you have any questions, if there is anything I need to clarify, or if I can help you with a buyer or particular scenario. I am eager to assist!

Is the loan clear to close?

There is an old saying I heard while playing high school football, “Shoot for perfection and you will catch excellence.” In today’s mortgage lending environment, excellence is not good enough when documenting each and every loan file. Lenders are requiring perfection on every loan file. Why? I attended two industry seminars in the last two weeks. In each seminar I heard that each loan file must “achieve perfection.” Simply put if loans are not perfect they will not be purchased on the secondary market by Fannie Mae, Freddie Mac, VA or HUD. Lenders have no choice but to underwrite, review and audit the file to perfection BEFORE closing. Until this recent change (I saw it start this August) lenders would allow documents to be collected at closing or even after closing. NO MORE…not in today’s mentality that if a loan is not perfect prior to closing that is a risk a lender cannot take. Contracts must be fully executed with all addendums, and every initial must be on it. Cash to close must be verified to the extreme. Gone are the days of “lets close it and we can get outstanding information post closing.” Now keep in mind that requirements have not changed but the attitude toward getting every piece of information in advance has. Simply put lenders must have loans ready to be purchased to earn money. Loans not being purchased cost lenders financial loss that they cannot tolerate or absorb. In an attempt to mix humor with reality, I kid with clients and agents telling them we will ask for everything but a blood sample, or your first born….but it may feel like we are asking for that at some point. So getting loan is still the same- we must verify income, assets, cash to close, and credit. What is required to do that has changed…more is required and just as importantly all information is required before loan package can go to closing. Previously the big question was “Is the loan approved?” Now the BIG question is, “Is the loan clear to close?” We must all work together to supply documentation. Patience, cooperation, and communication are the key getting the loan “clear to close” and achieving perfection.

Soft Market Classification!

Swiftly and without notice the mortgage landscape is ever changing. The latest curve ball that could blindside a buyer just hours before closing and stop any qualified buyer in their quest to purchase a new home is the requirement for an additional 5% down payment. When could this happen? When lender receives a conventional appraisal classified with “soft market” conditions.

Most of metro Atlanta has now been tagged as a “SOFT MARKET” area. Declining purchase prices and over six months of inventory are but only two examples of what might show up on a conventional or jumbo appraisal. The result is that if a buyer is pursuing max financing and attempting to put as little down as possible, the appraisal (which usually is received only a few days before a 30 day close) could dictate the buyer must put an additional 5% down. Independent of the financial strength of the buyer, a purchaser could be required to put more money down only a couple of days or hours before closing.

Do not let this soft market shocker be a last second spoiler for your purchase transaction. As industry leaders and professionals we have to educate our buyers on the front end of the financing process. Buyers must know that if they are pursuing financing with the minimum amount down, they must be prepared to either put more money down or switch to FHA financing once the appraisal is received. Buyers in the jumbo market may not have the luxury of FHA being plan B.

Here is a quick scenario-

Buyer is putting 5% down on a sales price of $323,000 on a property in Metro Atlanta.

Buyer should know in first stages of financing conversation that based on appraisal the property could be subject to soft market classification.

Buyer could:

1. Pursue exception with lender and mortgage insurance company to still only put 5% down payment. Buyer must realize that 5% down for conventional financing is the exception not the rule and closing delays could be experienced as this attempt for exception is now in the hands of a mortgage insurance company
2. Buyer could put an additional 5% down and still go with conventional financing terms.
3. Buyer must understand 80/15/5 financing is about as hard to find as a dinosaur
4. Buyer to consider FHA financing

In the end FHA is usually the wisest choice numerically and emotionally. The fact that FHA usually has a higher rate tricks borrowers to thinking it is a bad choice but the numbers do not lie and buyer can put 3.5% down going FHA, the monthly mortgage insurance factor for max financing is about half with FHA vs. conventional. Even though the FHA rate is normally higher the buyer puts 1.5% less down, has a lower mortgage insurance payment and minimal difference in PITI. Emotionally there is less uncertainty going FHA which allows expectations to be managed and an overall smoother buying experience.

Mortgage Insurance: Friend or Foe -PART 2

FHA is a great solution for filling the void for 95% conventional financing. FHA offers down payment for 3.5% of the sales price. FHA requires a very reasonable monthly MI fee plus a one time upfront fee. FHA refers to its MI as MIP (mortgage insurance premium). The upfront fee is currently 1.75% of the base loan amount. There is an option to either pay that fee out of pocket at closing or finance back into the loan amount. 99.5% of the buyers elect to finance the fee back into the loan amount, preferring to bring less cash to closing table and finance the amount over the term of the loan. TWO NOTES ON FHA MIP: 1) When a homebuyer sells his/her home they should contact HUD (the government lending body providing FHA financing) and see if they are eligible for MIP refund of the original 1.75% upfront fee. Refund amount and eligibility will be based on length in the loan among other factors. 2) After having the FHA loan for five years, home owner can petition FHA to drop monthly MIP premium. Contact HUD for more details on what requirements are. NOTES ON VA AND CONVENTIONAL MI: VA The best loan available today! AND to the most deserving! No monthly MI. 100% financing if veteran has full eligibility. VA loan does require a VA Funding fee that can either be paid out of pocket or financed back into the loan amount. VA funding fee will depend on number of times veteran has used VA eligibility to purchase home. CONVENTIONAL Expect minimum of 10% down and increase in MI premiums due to perceived market risk, past losses due to non-performing loans, and dropping home values. Frequently a buyer will ask if MI is required if the house appraises for substantial higher value than purchase price. Lenders will go off the appraised value or sales price, the lesser of the two. Instant equity can be realized on a refinance, establishing an equity line, or when sold, but not on the purchase. Check with lender servicing your loan on what requirements are to drop PMI (private mortgage insurance). Expect a two year seasoning period from the date you purchase until one can petition for MI to be dropped and a loan to value of less than 80%. Finally if you are pursuing conventional financing (purchase or refinance) ask your mortgage consultant to educate you on “lender paid mi”.

Mortgage Insurance: Friend or Foe -PART I

What the Heck is MI….Anyway! Be glad we have Mortgage Insurance (MI) today. MI is providing opportunities for home buying. Creative loan structuring by most all lenders from 1999-2007 greatly reduced the number of loans with mortgage insurance. There has never been more of a need for mortgage insurance than the present. I hope the information below provides the purpose of mortgage insurance, clarification of terminology on the major three types of financing (Conventional, FHA, VA) and when a buyer can request for MI to be dropped. Mortgage Insurance (MI) is used to diversify the risk of foreclosure for a lender. Many people see MI as penalty or useless to the buying process. I completely understand their perspective. In economic prosperity MI is seen less as benefit but rather an ugly, unwanted necessity. However I would like to suggest MI is a reason that today people can still get residential financing with less than 20% down. If the risk was not diversified for the banks making home loans, minimum down payment requirement would easily be 20%. Today very few if any borrowers in metro Atlanta can get a primary residence 95% conventional loan with mortgage insurance, which proves my point that without PMI (private mortgage insurance) more money is required for down payment. While lenders are willing to lend to borrowers with 5% down the MI companies are not (except on rare occasions). Additional proof of what the mortgage lending landscape looks like when MI companies do not participate in loans is in the arena of second homes and investment properties. In the majority of cases on both of these classifications, 20% down payment is required, which eliminates the need for mortgage insurance. It appears that for the foreseeable future, mortgage insurance will be issued on primary residences with at least 10% down. In time as the real estate market begins to heal I hope we see a MI companies reenter the game and issue MI on primary residences for 95% conventional financing as well as second homes and investment properties. When will that be? Once home values start to rise again and foreclosure rates drop.

“T Minus 55 and Counting”

55 business days until Thanksgiving, November 26. The following Monday is November 30th. For all practical purposes, November 25 is the last business day of November. In order for homebuyers to be eligible for the tax credit, they must close on or before November 30. With September just underway, December 1st sounds distant. However, a hard look at the calendar suggests the window is closing sooner than one might think. Over 50% of sales taking place in this market have banks/ institutions as sellers. It appears to be taking three to four weeks for banks/ institutions to respond to offers and contracts to be finalized. With more foreclosures hitting the market at attractive prices and more buyers hustling to take advantage of the tax credit before it expires, expect a juggernaut. Additionally the speed lenders can close loans has slowed. New legislation on appraisals and disclosure has drawn out the time it takes to close a loan. Appraisals are reviewed with more scrutiny, and legislation mandates a final Truth and Lending statement must be viewed 3 days before closing. Overall loans require more documentation in today’s environment which takes time to obtain. If an offer is sent today and it takes several weeks to get accepted and 25 days to get the loan approved and closed, then the close date would be right around Halloween. Theoretically, the real estate contract needs to be finalized by the end of this month to ensure closing date does not surpass 11/30/09 and jeopardize the tax credit benefit. I am not suggesting that the window of opportunity closes by end of September. I am suggesting that NOW is the time to act. Now is the time to contact your realtor and develop a strategy of buying a home with the awareness that time is crucial.

Just Do It!

To many it is a confusing and stressful time to consider home ownership. The press blitzes the public with stories on foreclosures, unemployment, and a volatile stock market. People ask daily, “Is now a good time to buy a house?” My response is like a former tag line from Nike, “Just Do It!” and here is why: 1) Fixed rates are still at historical lows. True rates are not at 4.5%-4.75% on 30 year loans like they were in the spring but 5.0-5.5% 30 year fixed rates are still at historic lows. In most cases the 30 year fix is the “best value” program available. Obtaining a fixed rate at or below 5.5% on 30 year fix will provide buyers a peace of mind and reduce the likelihood for the need to refinance in future. 2) House prices are deeply discounted. Recent study shows home prices a near “pre housing bubble prices” suggesting the price correction is perhaps hitting the bottom. Last year, when buyers were making offers for 75 cents on the dollar or lower, I thought they were out of touch. They were not. They were just ahead of their time. Discounted homes selling for $215,000 in the summer of 2008 are now going for $180,000 or $175,000. Seeing offers for 50 cents on the dollar on REO’s (bank owned properties) are very real. 3) If one has never owned a home or has not written off interest on their tax returns for the last three years, they should have the opportunity for a federal tax credit of $8000 and may have a state tax credit as well. In the 20 years I have been originating loans, we have never had such an incentive to “first time” home buyers. Home ownership has always provided the tax benefit of writing off interest, the opportunity to build equity in a home through principle reduction and appreciation, and a piece of the American Dream. Add the three benefits outlined above and buying a home is a “no brainer”. One of the oldest axioms from the financial arena is, “Buy low and sell high”. My advice is “JUST DO IT”. Contact a realtor to explore home buying opportunities and contact a mortgage banker for what your purchasing power is in today’s market. My advice….. “JUST DO IT”.

July 4th brings Thoughts on the Importance of VA Loans

On the eve of our Country’s Birthday, it is only fitting to salute the men and women who have served our country, allowing us the privilege to enjoy our freedom, liberties and prosperity. One small benefit to serving our country is the VA eligibility status for buying a home. Folks, it is the best loan going today. If you have VA eligibility use it….you earned it! Based on our country’s decision to utilize military force around the world, many people have VA eligibility but are not aware of the value it affords. Some veterans believe the rate is higher than other mortgage programs and others discard the VA option because of the funding fee that is typically required. The “pros” far outweigh any “perceived cons” when considering the merits of a VA loan. Yes the rate is higher but typically not much. An increase in rate is offset by the fact that a VA loan does not require monthly mortgage insurance. The funding fee can be financed into the loan so it is a minimal increase in monthly payment to finance in the funding fee over 30 years. The big benefit of a VA loan today is it requires no down payment. It is one of a handful of loans available today with 100% financing. If seller pays closing cost and pre-paids on a VA loan, the buyer may not bring any money to closing. Any money that was saved and earmarked for a down payment could be used to pay off consumer debt. So enjoy the rare opportunity VA financing allows with no down payment, no monthly mortgage insurance and an interest rate below 6%. If you have VA eligibility, grab your DD-214 or L.E.S. and get with your mortgage loan office. Examine and compare a VA loan with any other loan options available and see the benefits of using your VA benefit.

Buying a Home is Like Getting Married…..Everyone Gives You Their Opinion!

Today’s market is perfect for the first time homebuyer- house prices at deep discounts, rates at all time lows, and federal tax credits to sweeten the pot and reignite the housing sector. Now is truly an opportune time to buy. With a flood of first time buyers comes their “Advisor or Advisors”. A multitude of people weigh in with their well intended opinion on every imaginable topic including: how to negotiate on deal, what type of loan the buyer should apply for, who to use, when to close, when to lock in the rate, how many homes to see before making an offer, what type of window treatments the new home needs, if they should put up a fence….you get the picture. I have witnessed tons of opinions on tons of different topics related to buying your first home. With that said, I will weigh in with my opinion- Today’s currency is experience, knowledge and expertise. Search out and identify a true professional in each field- do not try to do it yourself. Market conditions are opportune but tricky and ever changing. The value of a true professional in his/ her field is not in the discount of fee but in the knowledge they posses and the way they lead the buyer through the process. For example the idea of buying a home in today’s market without a realtor leaves a buyer unrepresented and unprotected. Using a broker for financing rather than a bank leaves higher likelihood for delays and unwanted surprises as closing nears. In summary obtain names of experts from the “advisors”, build a team of trusted specialist in their field, and charge the experts to educate you on real time issues and opportunity. Get all the facts and options. Deliberate and make the decisions. One final note, keep a legal pad nearby. It is a great coping mechanism for when you hear all the different suggestions and experiences that happened when Aunt Jane bought a home 10 years ago or your best friends brother’s closing went south in the 12th hour. Record the experience and work with your Realtor and lender to understand what does and does not apply to you and your scenario in this very unique market. Welcome the opinions of the family and follow the advice of the professionals!