Rates saw a significant drop today even with the slight pull back at the end of the day. The reduction in rates was brought on by the Fed's announcement that they were ready to buy up to $500 billion in mortgage-backed securities and were willing to lend up to another $200 billion to help facilitate the purchase of other consumer and small business oriented asset-backed instruments. This news was well-received as the market is hoping this will be key in keeping credit flowing and interest rates down. We never know how long these rates will last. In the past, when rates went to these levels, they only lasted a few hours. Let's hope we'll see the market stay here for awhile.
In previous Updates, I have discussed changes that are to occur in the appraisal world. It looks like those changes are starting. Two of the largest mortgage companies announced their new guidelines for the ordering of appraisals starting in January. All of these changes are to stem fraud in the appraisal world. Some of these changes will make the buying and refinancing of a home a little more difficult. It looks like loan originators won't be able to order the appraisal or direct who prepares the report. This will impact our ability to get a rush appraisal done and it will impact us in those other areas where having a relationship with the appraiser has helped. I foresee more issues when it comes to property repair items as well as values - especially when the sale has large seller concessions. Fannie has also announced the addition of another form that the appraiser will need to complete. This form is to help underwriters analyze the market trends for a given neighborhood. The appraiser needs to complete an inventory analysis including a review of the absorption rate. The appraiser also has to review the sales information - days on the market, median price, list-to-sale price, etc. He or she also has to comment on foreclosures that have occurred in the immediate market area. We can assume that this will take the appraiser additional time to complete and it will probably increase the cost of an appraisal.
Happy Thanksgiving. I wish you all have a great holiday. I'll be available on Friday if you need anything.
*Rates quoted are for the use of Realtors and others in the real estate/financial service industries. They are not meant to be a quote for an individual situation. Rates change daily and those above are only listed to assist market participants by keeping them informed of current interest rates. Credit scores, down payment, and other risk related issues may change the rate. Quotes are usually shown for a 30 day lock period and a 1% origination or discount fee (1.75% for the Oregon Bond).
Rates saw a significant drop today even with the slight pull back at the end of the day. The reduction in rates was brought on by the Fed's announcement that they were ready to buy up to $500 billion in mortgage-backed securities and were willing to lend up to another $200 billion to help facilitate the purchase of other consumer and small business oriented asset-backed instruments. This news was well-received as the market is hoping this will be key in keeping credit flowing and interest rates down. We never know how long these rates will last. In the past, when rates went to these levels, they only lasted a few hours. Let's hope we'll see the market stay here for awhile.
In previous Updates, I have discussed changes that are to occur in the appraisal world. It looks like those changes are starting. Two of the largest mortgage companies announced their new guidelines for the ordering of appraisals starting in January. All of these changes are to stem fraud in the appraisal world. Some of these changes will make the buying and refinancing of a home a little more difficult. It looks like loan originators won't be able to order the appraisal or direct who prepares the report. This will impact our ability to get a rush appraisal done and it will impact us in those other areas where having a relationship with the appraiser has helped. I foresee more issues when it comes to property repair items as well as values - especially when the sale has large seller concessions. Fannie has also announced the addition of another form that the appraiser will need to complete. This form is to help underwriters analyze the market trends for a given neighborhood. The appraiser needs to complete an inventory analysis including a review of the absorption rate. The appraiser also has to review the sales information - days on the market, median price, list-to-sale price, etc. He or she also has to comment on foreclosures that have occurred in the immediate market area. We can assume that this will take the appraiser additional time to complete and it will probably increase the cost of an appraisal.
Happy Thanksgiving. I wish you all have a great holiday. I'll be available on Friday if you need anything.
*Rates quoted are for the use of Realtors and others in the real estate/financial service industries. They are not meant to be a quote for an individual situation. Rates change daily and those above are only listed to assist market participants by keeping them informed of current interest rates. Credit scores, down payment, and other risk related issues may change the rate. Quotes are usually shown for a 30 day lock period and a 1% origination or discount fee (1.75% for the Oregon Bond).
Estimated mortgage rates for the week of November 17, 2009
30 yr conforming 5.750 - 5.875
30 yr jumbo 6.25% to a $600k
7/1 ARM 5.625 - 5.750 Conforming and jumbo
OR State Bond 6.250 FHA and conforming
OR VA 5.875 + 1.00/5.750 + 1.50
As you can see, rates are holding steady. We have seen rates come down a little over the last few days. Loans are still being made. In fact, the service levels are some of the best we have seen in a long time. We were able to close a transaction - from start to finish - in 6 working days. Considering that the last day was to have the deeds record, we really did it in five days!
News in our industry has been centered on borrowers' qualification standards, in particular, debt-to-income ratios and paperwork requirements. We are all aware that stated income loans are a thing of the past. However, both Fannie and Freddie have allowed us to use limited documentation for many of our better qualified borrowers. Looks like that is changing. Both agencies have announced elimination of reduced/minimal documentation and verbal verification of employment. Standard documentation will apply come the middle of December. This shouldn't have much of an impact for most of us. Many lenders have already moved in this direction and many loan originators (myself included) have already been requesting full documentation of income and assets.
The reduction in debt-to-income ratios will cause more concern, however. Freddie is implementing a maximum of 45% debt-to-income ratio (there is no word from Fannie or FHA as of this writing). Combined with more stringent documentation requirements, we can see that some borrowers won't be able to qualify for a loan that, just a month or two ago, they would have easily qualified. Not to be repetitive but we are back to the old days...again. I remember working with many clients over a three or six month period - even longer in some cases - to get them to be in a position to qualify for a loan. Helping clients make a budget, figuring out ways for them to pay off debts - and the right debts, trying to them to save money....these are things we all used to do. Personally, I enjoy assisting people in managing their personal finances. It does take more time but, thankfully, that is something that we have plenty of.
*Rates quoted are for the use of Realtors and others in the real estate/financial service industries. They are not meant to be a quote for an individual situation. Rates change daily and those above are only listed to assist market participants by keeping them informed of current interest rates. Credit scores, down payment, and other risk related issues may change the rate. Quotes are usually shown for a 30 day lock period and a 1% origination or discount fee (1.75% for the Oregon Bond).
7/1 ARM 5.625 - 5.75 for conforming and jumbo product
OR State Bond 6.000
OR VA 5.75 (1.5 Origination)/5.875 (1.0 Origination)
Rates still remain a little elevated for the last week or so. The Fed did drop the funds rate by .50%. Prime rate should drop to 4.00% tomorrow. That will lower the cost on those Home Equity lines of credit. Mortgage rates, though, did go up. That has been the norm when the Feds announce a rate cut. Remember, the Fed controls the short term rates, the markets control the long term. Mortgage rates are considered long term and they have also been closely tracking the stock market....when the stock market goes up, rates go up with it. It occurs because large investors sell their bonds in favor of purchasing stocks. The selling of the bonds decreases the bond's price but causes the rates to move up. Also, to fund the recent legislative bills, the federal government has a serious demand for funds. That demand is causing our long term rates to move up.
Some disconcerting news out of Freddie Mac recently. Although it's not in their guidelines yet, they have announced that the maximum debt-to-income ratio on loans that they will approve will be 45%. This change will probably come about at the beginning of next year. The problem that I have with this rule is that it doesn't appear to allow for exceptions. I understand that the rule makes sense on some transactions. In fact, many of the mortgage insurance companies that we use have already implemented the same guidelines. But where it might not make sense is when a borrower is putting down a rather sizable amount. In the case of someone putting 50% down with good credit and reserves, a higher debt ratio can make sense. This will also hurt those cases where there are two parties buying a home but only one is going on the loan. That happens when the other party's credit score isn't that good. The lower score transactions have higher rates. Amending the policy on increasing rate/costs for lower scores would help in these cases. We haven't heard anything from Fannie Mae though and that might be our way out. But we usually do see the agencies follow each other. Let's hope that there is some constructive feedback to Freddie before they implement the rule.
I'll leave you with some encouraging news. I receive many reports from various analysts. One analyst has an audience of over one million readers all over the globe. He offered some guidance on where investors should invest their money today. One of his suggestions was that real estate will offer a good return over the next few years. He suggested that in many areas the prices are at a point that the investment makes sense. It's nice to see that a very well-informed investor is now talking about real estate. With his million-plus readers, word should spread. As we all know, it is impossible to time the market. Now might just be the right time for buyers to jump in.
*Rates quoted are for the use of Realtors and others in the real estate/financial service industries. They are not meant to be a quote for an individual situation. Rates change daily and those above are only listed to assist market participants by keeping them informed of current interest rates. Credit scores, down payment, and other risk related issues may change the rate. Quotes are usually shown for a 30 day lock period and a 1% origination or discount fee (1.75% for the Oregon Bond).
OR VA 5.50 but we hear it could increase very soon
As you can see by the above, rates have moved up. We have two competing themes for the rate markets. The first is the slowing U.S. and world economies. That should be helping to ease rates down. The opposing side is that the U.S. Treasury needs to borrow a lot of money to fund the recent legislative bills. Treasury has to come up with around a trillion dollars. Using those basic Economic 101 principles of supply and demand and that interest rates determine the price of money, rates have to go up. So far, the latter is what we are seeing. It's still extremely volatile out there but it does look like we have turned the corner on the panic in the financial world. There is still much work that needs to be done but at least the light is back on at the end of the tunnel.
Let me assure everyone who reads my Update that we are still able to close loans. Although underwriting guidelines have gone back to the old days, we haven't had any issues on getting the money to close transactions. None. The mortgage business is still fully operating and "business as usual' is what we see. With the events that occurred over the weekend, many pundits are thinking that the worse is behind. Still too early to call but it definitely appears that way. It looks like all of the developed countries (and many of the less-developed countries) are all on the same page now. There is no question that the events of the last few weeks are destined for the history books and that there will be significant changes as to how the business world will operate. With that said, I for one am done dealing with all of the stress that this has brought on. It's time to go back to business and do what we all do best! I think it's also time for us all to take a refresher class on the basics. Regardless of what business we are in, we all need to focus on those basic business principles that we first learned....good customer service, personal discipline, and hard work.
*Rates quoted are for the use of Realtors and others in the real estate/financial service industries. They are not meant to be a quote for an individual situation. Rates change daily and those above are only listed to assist market participants by keeping them informed of current interest rates. Quotes are usually shown for a 30 day lock period and a 1% origination or discount fee.
Estimated rates for the week of September 29, 2008.
30 yr conforming 5.750 - 5.875 30 yr jumbo 6.125 to $600k 7/1 ARM 5.875 - 6.000 OR VA 5.500 OR State Bond FHA 5.750
Obviously, most of the news today surrounds the House of Representatives failure to pass the bill that would have re-capitalized our financial system. Investors around the globe showed their displeasure by dropping stock prices in a very dramatic fashion. Hopefully, many of those who opposed the legislation will now understand what's involved if this bill - or one similar to it - is not passed. And it needs to be sooner and not later.
I have been asked a number of times today whether we can lend money. As I mentioned last week, there is still money out there to lend and we are finding it. The recent turmoil hasn't made it easier but we - and many other lenders - are still at it. Rest assured, if the buyer/borrower is qualified, we can get them financing.
For those who want to understand the how's and why's of the recent turmoil more than the local news can give you, I have attached an article for you to read. It comes from a gentleman who has an excellent grasp of the situation. It can be a little difficult at times, but it does a great job of covering how we got here and where we are going. It's from John Mauldin, Best-Selling author and recognized financial expert, who is also editor of the free Thoughts From the Frontline that goes to over 1 million readers each week. For more information on John or his FREE weekly economic letter go to: http://www.frontlinethoughts.com/learnmore
****Since I can't attach the document to this blog, please email me and I will forward it directly to you. Sorry for the inconvenience.****
Of course, his isn't the only opinion of where we go from here....especially since the bill didn't pass the House. I am currently reading another analyst's opinion that states that it could be good that the bill didn't pass. Here is a quote from his letter : "Congress would be much better advised to take the extra few days or week it would take to structure a plan that the world is going to have to live with for a very long time" (1) Personally, I hope that Congress passes the bill and then allow the necessary regulation of Wall Street to follow.
Although the financial news is very unsettling, we will get through this. It will take some pain but we will come through it stronger and better. Don't let the financial issues of today take any more control of your life than necessary. Maintaining good personal health, keeping family relations strong, and doing the right thing for your clients and yourself is where our focus should be. Thanks for reading!
Bob Chiodo, Equity Home Mortgage, LLC 12550 SW 68th Parkway Portland, OR 97223 (503)670-7393 fax: (503)670-7062 bobchiodo@equityhome.com www.ResCommLending.com
*Rates quoted are for the use of Realtors and others in the real estate/financial service industries. They are not meant to be a quote for an individual situation. Rates change daily and those above are only listed to assist market participants by keeping them informed of current interest rates. Quotes are usually shown for a 30 day lock period and a 1% origination or discount fee.
(1) Michael Lewitt of Hegemony Capital Management. Article titled "Haste Makes Waste" as printed in John Mauldin's Outside the Box. Vol 4, Issue 48, September 29,2008.
I held off on my doing my weekly update in the hopes that some stability would return to the markets. Since that hasn't happened, I still wanted everyone to see what the rates were doing and to assure our market participants that we are still lending money and real estate transactions are still closing. Although underwriting is tougher, it's business as usual as far as I am concerned.
By now everyone is aware of the bill that is trying to get through Congress. I'll leave the analysis of the bill to those far more qualified. There is no question that something has to happen and it has to be big. I have read many different points of view on it. Right now, there are more questions than answers. That said, it's going to happen and it will be big. Congress knows it too. The hope is that it will free up our capital markets - without which there would be a standstill in business. The consequences of it not happening are far worse for all of us. And, there is a good chance that the total costs won't be anywhere near the $700 billion. Remember, the design is to buy assets (loans) that are tough, if not impossible, to sell. The government will buy them at discounted prices and, the hope is, will be able to sell these loans later at the same or higher prices. It actually makes sense, and if done correctly, it shouldn't cost us taxpayers that much money. It will allow the banks and investors to get rid of these loans which should allow them to start lending money again. The banks and investors will take their losses but that should be it. Business back to usual, right? Don't count on it - count on much more regulation, less profits for the banks and investors, less risk taking, etc. Out of this mess will come new ideas on capitalism, government involvement in the markets, and risk management - to name just a few. Interesting times!
I want to comment on a letter that was sent to a borrower from their current lender. An agent asked me to review it and, I have to say, I was very impressed with the letter. It seems that this particular borrower had taken out a Neg Am loan that was due to recast. Without fully explaining how that works, the bottom-line was that the payment was going to go up by over 100%. There was no way that the borrower was going to be able to make that payment. Of course, due to the Neg Am, the borrower was upside down in the home -the loan was higher than the home's value. The lender, without being asked, offered to freeze the loan payments for 3 years at an interest only (no longer Neg Am) equal to the current below market payment. That payment worked out to be less than 4% interest only. If the borrower paid more, the overage would go to principal. After the three years, the loan adjusts to the scheduled interest rate but that would require only an interest only payment for five years. After that, the loan converts to a 40 year fully amortizing loan. Overall, it's a fantastic deal. The borrower gets a 4% rate for three years and can afford to stay in the home. No foreclosure or short sale for the bank. The neighborhood doesn't get impacted by having the home being sold at a loss. The bank keeps getting paid. This was a win-win for everyone. And, again, the bank did this without being asked. It's really good to see that the lender was taking the initiative and was doing the right thing. There is hope out there after all!
Have a great week.....I welcome your comments or calls.
*Rates quoted are for the use of Realtors and others in the real estate/financial service industries. They are not meant to be a quote for an individual situation. Rates change daily and those above are only listed to assist market participants by keeping them informed of current interest rates. Quotes are usually shown for a 30 day lock period and a 1% origination or discount fee.
We have had a few good days in the rate markets. Today we can get 5.50% with a few lenders. Not sure how long it will last but there is some talk that they can even go lower. Since the recent drop is rather large for rates, we might see some pull back though. Many are now thinking that we can see mortgage rates come down over the longer term due to the takeover of Fannie Mae and Freddie Mac. It wasn't that long ago that the difference between mortgage rates and like maturity U.S. Treasuries was a little above 1.00%. That difference, or spread, has gone up to over 2.50% recently. As the uncertainty in the real estate market prevailed, that spread wouldn't come down. Now that the government has taken action, the risk surrounding mortgage-backed securities issued by Fannie and Freddie should dissipate. If that spread even narrows to 1.50%, we could see rates in the low fives again. This would be very good medicine for the real estate markets.
As for the takeover of Fannie and Freddie, I will let you read about it on all the other press. There is much being said today. It's obvious that the interest rate and mortgage markets liked it. There will undoubtedly be some fallout though. We will see over the next few weeks how it plays out. There will be a lot of press about it as well as a lot of opinions will be voiced. We will also probably see a more volatile rate market. With the recently passed housing bill and a much more secure secondary market, things are starting to line up to ease the issues in our real estate market. Of course, there are still many other problems that remain. Mortgage insurance plays a very pivotal role as do other funding sources besides Fannie and Freddie. Next week I will cover what I consider the three main sources of mortgage financing that are available to homeowners.
Since almost all of our low down payment/high loan-to-value transaction are requiring mortgage insurance, I thought I would pass on a web site:
http://www.frbsf.org/publications/consumer/pmi.html This site describes how a homeowner can go about cancelling their mortgage insurance for private mortgage insurance. This does not apply to FHA loans. For FHA loans, take a look here: http://www.hud.gov/offices/hsg/comp/premiums/prem2001.cfm It will direct you to read a couple of letters. They seem to be very clear and informative. Of course, refinancing the loan is always an option too.
*Rates quoted are for the use of Realtors and others in the real estate/financial service industries. They are not meant to be a quote for an individual situation. Rates change daily and those above are only listed to assist market participants by keeping them informed of current interest rates. Quotes are usually shown for a 30 day lock period and a 1% origination or discount fee.
Rates are holding steady. Every day they are up a little or down a little with no real change from week to week. We have been in this range for quite some time and there is nothing expected to change things. The minutes from the Fed's last meeting showed that they still wanted to raise rates because of inflation pressures but weren't going to due to the uncertainty in the economy. That uncertainty hasn't vanished but the issue about inflation might be partially resolving itself. Commodity prices have dropped substantially, especially that of oil. The price of a barrel of oil has come down about 25%. Gasoline hasn't dropped near that amount but we have seen it come down. And, hopefully, we will still see further declines at the pump. There hasn't been any wage inflation to speak of so we might see some weaker inflation numbers going into fall and winter. That should keep the Fed from making any moves through the end of this year.
There has been a lot of talk in the market about failing banks and whether Fannie Mae and Freddie Mac will survive. This creates some of the uncertainty that I referred to above. Fannie and Freddie will survive. The question is one of whether their stock holders will or not. Seems like the consensus is that the government will have to inject a lot of capital into the firms and, most likely, will wipe out the stockholder's equity. Everyone agrees, though, that they have to survive to keep the mortgage market alive. It's the 'too big to fail' syndrome being played out again. As for the banks going under, there will be many who get hurt by the failures but the failures shouldn't impact the overall market in general. Those depositors with concerns about FDIC insurance should do some research. An excellent tool to help calculate the amount of FDIC insurance on your accounts can be found at http://www4.fdic.gov/EDIE/
The change in fees charged by Fannie and Freddie have taken place. There will be no increase on loans at 60% or less of the value/sales price of the property. There is a new grid that we need to review to quote a rate today. That grid has seven different credit scores and eight different loan-to-values. So having a rate quote isn't as easy as it may seem. Everything now depends on credit score and down payment. The interest rate range I show above is usually for those with good scores....above 720. If the scores are lower, the rate could be substantially higher. Again, those rates above are really just to inform you of what the overall rate trend is.
*Rates quoted are for the use of Realtors and others in the real estate/financial service industries. They are not meant to be a quote for an individual situation. Rates change daily and those above are only listed to assist market participants by keeping them informed of current interest rates. Quotes are usually shown for a 30 day lock period and a 1% origination or discount fee.
Rate markets are staying steady. That's our good news for the week. I mentioned over the last few weeks that the down payment assistance (DPA) programs are going away. Last week we had two lenders suspend the use of the DPA programs. My company announced that this week will be the last for us. I have no update for the bill that is in Congress that would keep the DPA programs - it doesn't look like it will go anywhere though.
I mentioned in the last Update that Fannie and Freddie are increasing their fees. This, of course, means that rates are going up a little. The rate increases are tiered based on credit scores and loan-to-values. 740 is the top tier for the credit scores. Due to the lower risk to Fannie or Freddie on loans with Mortgage Insurance (MI), the mortgage rates/fees are actually lower on loans with 10% down versus those with 20% down. Of course, to the borrower, the payment is higher because they have to pay for the mortgage insurance.
Speaking of mortgage insurance, we have seen a few companies starting to sell their hybrid or split-level MI. This is looking to be a great alternative to standard MI or to LPMI. For instance, we just did one on the hybrid that worked out well. Standard MI had an annual premium cost of .84%, the LPMI cost was 2.40% up front (which worked out to be about .625% in a rate increase) and the hybrid was only 1.05% up front (about .25% in rate) and a annual premium monthly cost of .11% The total for the hybrid worked out to be about .375% - far better than the other two options. It's nice to see that the MI companies are working on new - or revised - products.
Next week I am going to cover the various types of lenders: portfolio, private, and pass-through. Hope you all have a great week.
*Rates quoted are for the use of Realtors and others in the real estate/financial service industries. They are not meant to be a quote for an individual situation. Rates change daily and those above are only listed to assist market participants by keeping them informed of current interest rates. Quotes are usually shown for a 30 day lock period and a 1% origination or discount fee.
Bob Chiodo
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