With the recent and ongoing changes in FHA, USDA loans are among the hotest mortgage products in many cities in the great state of California.
Today's posted rate for a USDA 30 yr fixed mortgage with a 1% origination point is:
5.50%
As compared to Fannie Mae or Freddie Mac who are running at 5.75% today and with a minimum of 5% down, USDA offers a far superior choice for many borrowers who have been recently saddled with changes in FHA guidelines now mandating a 3% down payment as of October 1, 2008 and a 3.5% down payment as of January 1, 2009.
So just what are the benefits of USDA:
First of all, it is not a steak; it is a loan program.
USDA-United States Department of Agriculture has as it's charter a commitment to help families in rural areas, who otherwise could not qualify for a standard Fannie Mae-Freddie Mac loan approval, qualify for outstanding terms and underwriting criteria:
Minimum Fico 600
No cash reserves
100% financing
Max income limits of $81,650 for a family of four (moderate income limts)
No PMI
If appraisal is higher than sales price you may finance closing costs without raising the sales price.
New for 2008: borrower does not have to be a first time homebuyer
No limit on seller contributions
No BK in the past three years
Max of 1 x 30 day late in the past 12 mos.
Purchase or new construction OK
May refinance an existing GRH loan into a new GRH loan
Now the only antiquated guidelines are:
No inground pools
Site value may not exceed 30% of total value
So if you live in towns such as Cameron Park, Diamond Springs, El Dorado Hills, Lincoln, Auburn, Colfax, Grass Valley, Georgetown, Grizzly Flats, Placerville, Pollock Pines, Shingle Springs, Foresthill, Kings Beach, Loomis, Meadow Vista, Tahoe City, Tahoe Vista, Rancho Murieta, Galt, Herald, Isleton, Locke, Walnut Grove, Wilton, Live Oak, Nicolas, E. Nicolas, Esparto, Winters, Knights Landing among many many more cities, you may just qualify!
So contact a preferred USDA lender today and get qualified for a USDA home loan where you live!
Effective 10-01-2008: No more seller assisted gift funds programs
Effective 01-01-2009: FHA min down will be 3.5%
Question: What other options do we have??
According to HUD letter 00-28 #4155.1:
Parents or family can still gift the entire 3.5%
Parents, believe it or not can literally get the money from any place (pawn shop, credit card, whatever) to gift to their kids.
Cash on hand up to $3000 (mattress money) can still be used as sourced funds
You can get a loan against an asset even from the seller and even on the subject property in the form of a seller second mortgage
You can get a loan against a 401(k)
You can get a loan against a whole life insurance policy (typically at a 3% rate)
You can set up a Monthly savings plan: I.e. new payment will be $1500; current rent is $900. Set aside $600 and in 10 mos or so you have your down payment and a profound sense of pride that you did it!
You can use SWEAT EQUITY: Yes I said it. . . If you are a painter for example and the appraisal calls for repairs, you can do repairs and trade it with seller as your down payment
You can have sweat equity gifted from a family member
You can have a gararge sale and take pictures and document deposits for down payment
Ebay
Pawn Shops
Wedding gifts for down payment
Other options:
Housing Rescue Act of 2008: You can borrow up to 10% of sales price up to a max of $7500 from your 2008 tax refund in the form of a 0% loan from Uncle Sam for your down payment paid back at 0% interest for 15 years at $500 per year.
CalHFA with ECTP, CHDAP or HICAP for 100% financing (even in declining markets)
USDA 100% financing in rural areas such as Lincoln, Colfax, Grass Valley, Auburn, Pollock Pines, Wheatland, etc. Great program 100% financing at 6.375% with no points and no PMI.
CalPERS: 100% financing with 5% down payment collateralized from CalPERS.
CalSTRS: 97% financing as an 80% first with a 17% second lent from the Teachers pension fund
VA: Veteran's Administration: 100% financing with No PMI
+ City, County, State, Federal Down Payment Assistance programs
Gang.... there are many ways to buy a home with no down.
What we need is good ol' fashioned back to basics approach.
Sitting down at the kitchen table and formulating a plan to help the buyer get the loan and the realtor earn the commission.
Despite the gloom and doom in the marketplace there are still plenty of great financing options.
One such program is especially attractive, if not the most attractive of all 100% financing in the marketplace today. The program I refer to is the USDA Guaranteed Home Loan.
"It is simply hard to compete with the USDA Home Loan." - Tony Jones, USDA client closed 7-02-08
USDA is designed to stimulate rural development. Properties must be located in eligible rural areas. By definition, generally towns with a population of 20,000 or less that are removed from urban centers.
I live in the Roseville area of California so for me towns such as
Lincoln, Cameron Park, Colfax, Dixon, Auburn, Placerville, Pollock Pines, Wilton, Winters, Grass Valley, Orland, Galt and many other cities are all eligible for this program
Here is how the program works:
Income limits to 115% of US median income (for most counties this is $65,000 for a family of 4)
100% financing with no limit on seller paid contribution for rate buy-down, etc
2/1 Buy-downs are available
2% upfront MI fee is financed into loan and as a result, the loan will not have Mortgage Insurance
Loan may include closing costs on a purchase
No cash reserves
Minimum FICO is 600 for a 29/41% max debt ratios; however with a 660-700 FICO ratios may be increased higher to 50%.
I just pulled up this property in Lincoln July 18th which is listed for sale at $219,900 located at:
2525 Saint Andrews Drive Lincoln, CA which is eligible for the program
Realtor contact: Forth Hoyt 916-248-7777
Today's Rate for USDA for this property = 6.50% with no lender points fixed for 30-38 years.
No MI financing!
$219,900 + 2% upfront MI fee = $224,298 total loan
Ok folks this is the patented Fannie Mae 5.50% mortgage bond; the only true benchmark for the mortgage market. I have charted this going back 12 mos. so you get a flavor for what I am about to post.
For those who know me, understand I have 3 passions: my kids, politics, & mortgage planning.
I take great pride in the fact that I am a mortgage news "geek." So here is where we be:
Our benchmark Fannie Mae bond was up 41 basis points today
Mortgage rates will drop tomorrow as a result
The lowest 30 year fixed in today's market was posted at 5.625% at .125% discount
I charge a 1% origination for that bond price. {meaning 1% origination +.125% discount}
My competition was all at 5.875% even 6% today
At 5.875% today I am charging no points or lender fees
Now moving ahead . . . .
Wednesday we have ADP National Employment Report.
The ADP National Employment Report is a measure of nonfarm private employment, based on a subset of aggregated and anonymous payroll data that represents approximately 392,000 of ADP's 500,000 U.S. business clients and roughly 24 million employees working in all 19 of the major North American Industrial Classification (NAICS) private industrial sectors.
POTENTIAL IMPACT ON INTEREST RATES: HIGH
Other than that I am sleeping until Friday and might open one eye to take a peak at hourly earnings, non-farm payrolls & unemployment which may have an impact on mortgage rates.
Keep in mind that mortgage bonds hate inflation. Just as those on a fixed income hate rising price, so do investors who commit to a 30-yr mortgage at say 6%. Assuming inflation is on the rise, the purchasing power of that 6% dividend every month will diminish in value and investors will demand higher rates.
We hit that sentiment last Friday and today there was a significant "flight to quality" as investors sought bonds and mortgage bonds (FNMA) for safety.
As always be smart with your money and entrust your refinance or purchase decision to a pro who can answer these 4 questions when rate shopping:
What are mortgage rates based on? {hint: mortgage backed securities and not the 10 yr t-bond. If they say the 10 yr t-bond, run don't walk}
What is the next economic report that may affect interest rates? A pro will have at their fingertips.
When the Federal Reserve Board cuts short term rates, what happens to mortgage rates? Yes, in 99% of the cases they ALWAYS rise.
Do you {my entrusted mortgage broker} have an opinion on the market? What you are really looking for is .... is it really appropriate for me to do something now if rates are dropping next month? Again, a pro will always have an opinion to save you money.
That's all for now . . . My new seminar has been published and entitled:
MORTGAGE PLANNING FOR DUMMIES 2008/2009
IF YOU ARE IN THE NORTHERN CALIFORNIA AREA, YOU CAN BOOK ME TO SPEAK AT YOUR OFFICE FOR FREE.
The Federal Open Market Committee consists of the seven Governors of the Federal Reserve Board and five Federal Reserve Bank presidents. The FOMC meets eight times a year in order to determine the near-term direction of monetary policy. Changes in monetary policy are now announced immediately after FOMC meetings.
POTENTIAL IMPACT ON INTEREST RATES: HIGH
Compliments of MMG: Mortgage Market Guide
"Traders will have something to react on at 2pm ET, when the Fed releases their Minutes from the April 30 meeting. At that meeting, the Fed cut rates by .25% bringing the Fed Funds Rate to 2%. The vote to cut wasn't unanimous as both Richard "Loose Lips" Fisher and "Three Swing" Charlie Plosser preferred no change to rates. And the policy statement had some verbiage, which led the financial markets at the time, to believe the Fed may be done cutting rates. So the Minutes may provide some color as to the Fed's most recent rate cut and the possibility of future cuts. As of this moment, the Fed Funds Futures are pricing no chance of a Fed rate cut at the next meeting on June 25th.
The Fed has a growing concern on its hands, as energy prices continue to skyrocket. Oil hit another record high of $130.47 per barrel today. Unless these prices pull back, it is hard to imagine it not having a negative effect on the consumer, inflation and the economy overall.
In news across the pond, The Bank of England voted 8-1 to keep the interest rates at 5% this month as the majority of policy makers argued that a reduction risked letting inflation get out of control. "
So it is the sentiment within the FOMC minutes will likely tell the story for the coming mos.
If the underlying sentiment is that the FED will likely tighten rates to deal with inflation (Oil is now hitting $132 a barrel as I write this) this actually bodes well for Mortgage Bonds and Mortgage Backed Securities.
Here is why:
When the FED signals they are now focusing on inflation and by raising short term money, long term inflation worries start to subside, & mortgage bonds will behave in a positive fashion.
To understand, put yourself in the position of a mortgage bondholder... like the mortgage lender.
If you lend the money, you receive interest over time. If that were a mortgage, it could be a full 30 years worth of repayments and interest. Let's say you were going to be receiving $1,000 per month for the entire 30-year term. At first, that $1,000 may be a very fair return, as you calculate what you can do with that money every month. But over time, inflation requires that you spend more money to purchase the very same goods and services that you can purchase today for less. That same $1,000 just doesn't go as far in future years as it does today. This eats away at the value of a long-term fixed instrument like a bond or a mortgage, and explains why inflation is the main enemy of bonds.
Because bond investors are very aware of this, they will require a higher rate of return or interest on their investment to compensate them, if they feel that inflation will be increasing.
In today's improving economic environment, inflation is expected to be on the rise.
Think about it - a move to tighten or hike rates by the Fed is designed to slow inflation, and we can now see why tempering inflation is very good news for bond holders or mortgage lenders. With inflation reduced, the buying power of their future returns will face less erosion from the effects of inflation.
So as that bond retains its value or goes up in value mortgage rates in today's terms getter better or lower.
So believe it or not, this is why a Fed rate hike actually helps reduce mortgage rates.
Mortgage rates have dropped down today with certain special lenders to 5.50% on a 30 year fixed. Hybrid 7/1 ARMS are down to 4.875% (all with 1% origination fee).
I explain how the service works and how it has saved my customers thousands of dollars by locking in a loan ahead of pricey intra day price changes; or save them thousands more by floating ahead of price improvements. Not all brokers do this. I understand; however my thing is if I have already negotiated a price structure of say: 1% origination fee (1% of the loan) and I am getting .5% in additional compensation for delivering this loan to the investor and then I see the price improving by another .375% in fee what do I do?
Let's examine:
$300,000 loan at 5.625% today at .625% rebate to me + 1% origination fee = $300k x 1.625% = $4,875
The customer already says "yes Mike I want this loan." But I say . . . . . ."Just hold on a second"
Today for example, mortgage bonds rallied up 22 basis points. I got a notification from my friends at MMG to "float ahead of a price improvement. . . So I did and I told the client what I was doing.
I got a lender "reprice" for the better of .25% in price about an hour later, so I locked in at 5.625%
I then called my buyer and told them they are locked for 30 days and oh by the way . . .I am lowering my loan origination fee from 1.00% to .75% for no reason other than I am working hard to save you money and provide a valuable service and I have so far.
They are thrilled. . . . let the good times and referrals roll.
Since there is absolutely no change in my income of $4,875, why would I get greedy when instead I can knock the clients socks off and have the opportunity to earn countless referrals?
This is good business: This is fun for both myself and my client.
Moving forward watch oil folks . . . . Mortage bonds hate hate hate inflation.
Core PPI (Producer price index) is in the headlines today having gone up only .02 vs. .04% expected; however the core PPI {taking out food and energy} came in at .04% vs. .02% expected 100% increase.
Mortgage bonds rallied from a sell off in stocks today but as the world (India & China) put more and more demands for energy and oil, analysts believe we may see $150 a barrel oil by year end and $5 - $6 prices for gasoline.
We may seen the last for cheap anything so stock up your costco, sams and walmart and refinance or buy at what will go down as one of the last great buyers' markets.
Yesterday I listened to syndicated radio talk show host from Sacramento Tom Sullivan compliments of newstalk 1530. The more I listened the more I took offense to his over simplistic appraisal of the current market situation and what to do to "solve" it.
Compliments 1530 Newstalk Sacramento
"We should go back to the time when buyers had to put down 20-50% down payment."
"Fannie Mae is under increasing pressure to not tighten lending standards by the National Associate of Realtors and the National Association of Homebuilders."
His show ran and as I tried unsuccessfully to get in. So today, I thought I would post this response for all of you may have listened to yesterday's radio show.
A couple of things about the current situation:
Unlicensed loan officers working under the DOC
A single licensing system via the DRE and not a dual licensing system: one for realtors and a separate one for lenders.
No clear leadership on the part of DRE nor mortgage bankers for more integrity in the lending system.
No clear irrefutable response to mortgage fraud for profit and for property
Lending based on unrealistic income assumptions for stated income
No ratio and no income, no asset loans to 100% financing
Lending based on unrealistic and unsustainable equity growth of 15% to 30% a year in the Sacramento region and Placer county over the period between 1998 and 2005.
So in order to clean up the mess, you would need:
A system exclusively for lenders to get licensed in CA under the DRE that is apart from a normal real estate license. CA is the 8th largest economy in the world and yet when most mortgage sales people take their DRE, they have mastered real estate concepts such as "Riparian rights," but only do say 4 math questions out of 150 questions. Further there is no mention of ethic, integrity, product placement, prudent terms and financial goals for the client. It is clear the DRE licensing is antiquated and puts consumers and homeowners at risk of getting a loan from a shark. The test needs to be written by mortgage brokers, bankers and experienced industry professionals with oversight from the Department of Real Estate.
Mandate anyone originating loans MUST BE LICENSED! No more DOC characters originating under a corporate charter with no experience in my field.
Audit 100% of loan files for fraud or at least announce that they will do this. Offset the cost via tax credits from State of CA.
No ratio and NINA (no income no asset loans) or no longer available & stated income loans are now done at reduced loan-to-value loans and under clear make sense guidelines. Stated income loans are still very acceptable given they have sufficient assets and loan reserves. The market has corrected this problem on their own.
Cap lending in high appreciation areas to historic appreciations or at least do this on a case-by-case basis. Link appraisals to actual wage growth in areas or have a make sense reason for doing the loan. I.e. the property is in an historic stable area of better than average appreciation (such as "FAB 40s", Sun City, Del Webb, etc)
However, lenders should not eliminate 100% financing for qualified buyers.
So what is a qualified buyer?
A buyer who has W-2s, paystubs and assets and better than average credit (680+)
A buyer who has W-2s, paystubs but lacks assets and lacks traditional credit; however has demonstrated an ability to make a payment equal or close to that of the new mortgage payment (via a rental rating) and has non-traditional verified credit {such as pg&e, cell, cable, rent, rent-a-center, etc} and have shown ability to manage debt and credit responsibly. We call these people 620 credit score and they too would be able to get a mortgage.
And that is pretty much it . . .So now let's look at the very programs that are out there that I speak of:
FHA - Federal Housing Administration: Great option for a 97.15% loan with a 3% mandatory down payment from the buyer via own funds, gift funds from family, gift funds from a non-profit down payment assistance program. Great for the buyers in the second category above and fully insured by the US govt.
CalHFA: California Housing Finance Authority: Great option for first time home buyers: 95% mortgage with optional reduced mortgage insurance and a silent 2nd and 3rd at rates of 3% & 6.75% respectively. Conventional loan underwritten by Fannie Mae. Great option for "As-is" purchases.
VA: Veterans Administration: Great loan for veterans with no monthly PMI.
CalPERS: 95% first mortgage with either a 5% personal loan collateralized from CalPERS (but not actually deducted from their retirement account) OR (and this is new) a 95% first with a 5% second secured from the National Home buyer Fund for 100% total financing.
National Home buyer Fund: 95% + 5% financing but with higher rates but also for first time or non first time home buyers.
There is also the ability to do a 95% fannie mae loan with a 5% gift from a family member.
All of these programs are available in declining markets and all enable QUALIFIED HOME BUYERS to purchase a home with no money down and no money out of their pocket.
Sound risky?
Not really! Just follow my instructions above and the rest will take care of itself.
& of course . . . . IF YOUR CURRENT LENDER IS NOT OFFERING THESE PROGRAMS, CALL ME (OR SOMEONE WHO IS OFFERING THESE PROGRAMS).
For more information on any of these ideas or programs simply email me at:
Below is the benchmark used by us mortgage professionals to monitor mortgage bond movement.
(Provided courtesy of Mortgage Market Guide with their permission)
As you can see the price which started out up 22 basis points (1/100 of a percent) and is only up 3 basis points.
This blog is posted at 12:36 PST and based on this most lenders will probably issue a reprice for the worse of probably .125% to perhaps .25% in fee (or 1/8th to 1/4 of a discount point to the consumer in price). I suspect a reprice will come in 15-20 minutes ahead of this movement. However it will probably bounce back tomorrow so I am still advising a FLOAT position. If I am wrong, I will eat this on behalf of my clients.
Here is the news today for mortgage backed securities ahead of tomorrow's meeting:
Mortgage Bonds are trading slightly higher this morning and are just above important resistance levels at the 50- and 100-Day Moving Averages. Stocks, however, are under some selling pressure on news that Germany's largest Bank, Deutsche Bank, reported its first quarterly loss in five years due to sub-prime related losses.
Today kicks off the two-day Fed Meeting--with the monetary policy decision and statement being announced tomorrow. I agree with economists' expectations that the Fed will lower the Fed Funds Rate by .25%, making it an even 2.00%.
As discussed with a great deal of my clients this week, the "language" in tomorrow's 11:15 PST FOMC meeting will tell the story for mortgage rates. A lot of brokers mistakenly tell their clients that when the FED cuts rates mortgage rates fall. NOT TRUE! When the FED cuts rates they are only controlling short term loans between member banks. The FED funds and the Discount rates controlled by the FED are only short term overnight loans between member banks.
Mortgage rates are bonds and instead of being an overnight loan (obviously), mortgage bonds are typically 30 yr bonds.
So if a mortgage is originated today at say 5.75% and the then tomorrow rates go to 6% due to say inflation talk in the news. The value of the mortgage bond that closed today at 5.75% is sold at a loss as the market is yielding 6%. In other words the bond price drops when mortgage rates rise and vice-versa.
The enclosed candle stick chart shows this relationship as the Fannie Mae 5.50% bond {our current measuring stick for movement in mortgage rates} is dropping in price today. As the price (as shown by the candlestick) drops, mortgage rates rise.
So... when the FED cuts short term rates to stimulate buying by consumers, if the sentiment is that the rate cut will stimulate too much borrowering or buying, thus becoming inflationary, the value of the mortgage bond will drop as rates rise on the market opinion that the rate cuts are going to create inflation down the road.
This is a confusing thing for most consumers to grapple with. The media is also confused to boot. Just keep in mind that a mortgage is a bond and nothing kills the value of a fixed security like rising rates due to inflation. For now, I recommend floating, but I will be watching the market closely and will let you know if the situation changes.
If the FED suggests it is done cutting rates tomorrow, you will see a mortgage bond rally with lower mortgage rates. Keep in mind that the media will report this event (if it happens this way) that the FED cut rates by .25% and mortgage rates declined. But . . . .You will know the real reason.
I hope this blog is viewed as useful to you and your business.
Ok now that I have your attention, I wanted to touch on something I have been thinking about, realizing and practicing on a day-to-day basis.
It is that little buzzword: PROFESSIONALISM: I call it "deal insurance."
You know I was listening to Mr. Brian Buffini, the wise old irishman, the other day discussing dialogues and how to deal with clients. The thing that stood out was this quote:
"Right now you might be frustrated because you are closing 1 home a month or lender say 2 loans a month and you are used to say 3 homes a month and lenders say 4-5 a month. But remember the context....There are many who are not doing any deals a month right now."
It was that little mental shift that settled me down from being so so hard on myself. You know the little mental games that Shad Helmstetter talks about in his book: "What to say when you talk to yourself." I routinely catch myself with the "I am no good at my job or life dialogue." As we all know, we are our worst critics.
This market has been tough but I am doing "ok." I am starting to rebound in a strong way and gain marketshare and mindshare in this business.
I think the #1 factor attributing to being a successful real estate and lending professional is the basics:
Get up early
Stay late
Ask for the business
Return calls
Be accountable
Be Responsible
Be moral and honest to all
Answer the phone or return a text
Be helpful and supportive of your referral sources (they do are going through a lot right now as well)
Provide a unique service and be outragious with your clients - make them laugh a lot! Get to know them! It really is fun!
Look for new ways to prospect and get business (I am now getting leads via Active Rain and Zillow pretty consitently)- I am being interviewed by the PR department for zillow based on my active quoting and participation. pretty cool!!
Be grateful for your health, your kids' health, your family and friend's health.
Be grateful for what you have; not what you don't!
Watch the secret; live it as well!
Go to the client's home to sign paperwork such as disclosures when you can!
Attend the loan signing when you can
I met with clients at their home to sign RESPAS on Wed night at 6 pm and it was great. Two weeks ago I drove from Sacramento to Oakland for a 20 min conversation with a client. That was a 4 hour round trip for 20 minutes of dialogue.
Sure it takes time; sure we are all busy. But boy does it feel good for you and, believe it or not, the client when you meet face-to-face (from a lending standpoint). When I meet with the client and follow this simple list above, I don't ever lose the deal.
Certified Mortgage Planner (CMPS): 14 yrs experience & over $300,000,000 in loan fundings. Committed to providing my commercial & residential clients with real time data on mortgage backed securities & rate locking strategies.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
Each bar = $160,000
Compliments 1530 Newstalk Sacramento
;)
;)
