There is a lot of confusion about the "no cost" refinance. What people need to realize is that there are always costs on a loan such as appraisal, underwriting, processing, title, escrow, and etc,. The difference is that with a "no cost" loan the rate is increased by a certain amount of basis points, depending on the loan amount, to create a credit from the lender to the borrower to cover these costs. This way the borrower does not pay the lender costs, but will pay for them in the rate.

This is great for a borrower that plans to keep the loan for less than 6-7 years. If the borrowwer plans to keep the loan longer than this period, they could be costing themselves over the long term because they will pay more interest from the higher rate.

This is careful to consider when trying to get the lender to pay the closing costs. If you are planning on keeping the loan for more than the above mentioned term, the better option is to lock the lower rate, pay the closing costs, but roll them in to the loan. This way you do not pay them out of pocket and this works out to more savings over the long term.

Here are some real simple basic FHA pros/cons to simply go over and compare an FHA loan to a Conventional loan...

FHA Pro: An FHA loan is designed for lower credit borrowers (640-700 range). The loan guarantee allows the government to make a guarantee to the lender against a loan default because the borrower is a more risky borrower. This allows the lower credit score borrower (640-700 range) to obtain a good interest rate loan through the lender. This does not guarantee loan approval, just against default. All loans, whether FHA or conventional must go through a similar approval process. Rates on the FHA loan are very similar to the conventional loan because of this guarantee to the lender.

FHA Pro: The down payment needed for an FHA loan is 3.5% and can be gifted from a family member. The conventional has a minimum of 5% down and funds needs to come from the borrower.

FHA Con: FHA has an upfront funding fee of 1%. This means you pay 1% just for the right to have an FHA loan. This means for a $350,000 loan you would pay $3,500 as an additional upfront fee (this can be financed into the loan). Conventional has no such cost.

FHA Con: Monthly mortgage insurance is more expensive with an FHA loan. FHA MI is 1.15% (95% LTV and above) and the conventional MI factor is .78%. This is means on a $350,000 loan, the monthly MI on a FHA loan would be $335. On a conventional loan the monthly MI would be $227.50.

With good credit (above 700) and good income, borrowers should usually choose the Conventional loan unless they do not have a 5% down payment. There are no other major benefits to a borrower. These are just a few of the basic points of this comparison. Please feel free to contact me anytime for other details.

FHA has increased their monthly MI cost and lowered the upfront MIP fee to 1%. Conventional is a better option, if you can put down 5% instead of 3.5% and if your credit is above 700. Conventional does not have an upfront funding fee and the monthly MI fee is lower too. Here are the new costs of the FHA loan...

FHA Annual Mortgage Insurance Premium Increase

FHA Annual Mortgage Insurance Premium Increase

The housing market continues to keep experts and analysts on their toes. I assume this will pattern of uncertainty will continue for at least 2011 and partially in to 2012, with more steadiness at that time.

While existing-home sales rose again in January and are outpacing year-ago levels, we are still seeing a drop in home prices across much the country. Existing-home sales increased 2.7 percent in January and are 5.3 percent above January of 2010. Lawrence Yun, NAR chief economist, sees the rise as positive, but with room for improvement. "The uptrend in home sales is consistent with improvements in the economy and jobs, which are helping boost consumer confidence," Yun said. "The extremely favorable housing affordability conditions are a big factor, but buyers have been constrained by unnecessarily tight credit. As a result, there are abnormally high levels of all-cash purchases, along with rising investor activity."

Regionally, the West saw the largest existing-home sales increase. In the West they rose 7.9 percent and are 7.0 percent above January 2010. The Midwest and South also saw monthly rises -- up 1.8 and 3.6 percent respectively.The Northeast didn't fare as well. The Northeastern region is down 4.6 from December and down 1.2 from year ago levels. The most recent reports from the Case-Shiller Index have brought on a slew of comments from the experts. The Case-Shiller quarterly index showed prices fell 3.9 percent in the fourth quarter and 4.1 percent for all of 2010. Karl Case reports that the housing market is "a rocky bottom with a down trend." And, unfortunately, he was the optimist! Mr. Robert Shiller, on the other hand, reported that the increased precedence of foreclosures, as well as the impending decisions over the future of Freddie Mac and Fannie Mae, leaves risk of future declines at 15 to 25 percent.

Realty Trac reports that 26 percent of all homes sold in 2010 were foreclosures and short sales. The states with the largest percent of distressed sales were Nevada, at 57 percent of all sales; Arizona, at 49 percent; California, 44 percent; and Florida 36 percent.

It's the slow jobs recovery that is partially to blame for this second hit on the housing market, however, new reports from the Labor Department indicate that jobless claims fells again last week. It is now at the lowest levels since late July 2008. This is a bit of welcome news for a market that is yearning for a bright spot.

That's right.  Smart investment money is starting to come off the sidelines as those investors recognize the value in Puget Sound real estate.  Prices have adjusted to value levels, and in some cases, way below value levels.  That brings the folks who have been sitting on the bench into the game.  And that is good news because it helps to shape the perception of others. 

Of course it's always about location as location proves value.  A quality product in a quality location at a value price.  That's the shape of the current market.

Should you be buying right now in our Seattle Tacoma area? It sures seems like the value is there. Anytime you can buy at the same cost of renting, which is about what we have, the time to buy is upon us. As an investor myself, we are looking at some homes to buy as investment and you might think about buying now too.

No news can sometimes be good news. According to the December Home Price Index, recently released by analytic firm CoreLogic, "2010 shows home prices stabilized with the average annual HPI index showing no change relative to 2009."

Month over month, however, home prices were still down in December, with prices declining by 5.46 percent from November. This was the fifth straight month of declines. Home prices were also down in some unexpected areas. While declines in home values were expected in previous boom areas, such as California and Florida, declines have now been surfacing in some new, unlikely cities.

A recent article in the New York Times highlighted the affects of this down market on such areas as Seattle, Minneapolis, and Miami. According to Zillow.com, Seattle is down about 31 percent from its mid-2007 peak, and could see another 10 percent dip on the horizon. Stan Humphries, the chief economist for Zillow, sees a 5 to 7 percent decline in the rest of the nation's future. He says, "If these declines are sustained, as we expect to happen in many markets, the result will be a "double dip " in home values, defined as two periods of sustained declines in home values separated by a brief period of stabilization or recovery."
It's not all gloom and doom. Some states are seeing positive appreciation. Corelogic reports that "excluding distressed sales, the five states with the highest appreciation were: Hawaii (+6.15 percent), North Dakota (+6.03 percent), West Virginia (+3.53 percent), New York (+3.27 percent), and District of Columbia (+2.64 percent).

The Obama Administrations recent call for an orderly transition from the current form of the secondary mortgage market also has some experts breathing a welcome sigh of relief. The National Association of Realtors reports that they believe "we cannot have a restoration of the former secondary mortgage market with entities that took private profits while pushing losses onto the taxpayer. The new system must involve some government presence, outside of FHA, USDA, and the Department of Veterans Affairs, to ensure a continued flow of capital to housing markets during economic downturns when large lenders flee the housing market." NAR President Ron Phipps reports, "NAR believes that the size of the government's participation in housing finance should decrease if the market is to function properly." NAR's economists estimate that a retreat of capital from the housing market will negatively impact the economy; because for every 1,000 home sales, 500 jobs are created for the country.
Improvements are also being seen in the 55+ housing market, a market that was stalled in the second half of last year.

Recent reports from the National Association of Home Builders (NAHB) indicate that builders are more confident now that the slump has ended. "The normal course of purchasing a new home in anticipation of or upon entering retirement has been interrupted by the fall in Baby Boomers' house values and reduction in their home equity," said NAHB Chief Economist David Crowe. "Boomers are finding that the market for their current home remains soft and potential buyers cannot qualify for affordable mortgages. Even those with the ability to buy a new home are finding a limited selection, as builders cannot get loans to build homes." However, for a little leaven in the loaf, expected sales (six months into the future) dropped five points on the Housing Index scale.

Good Morning...
 
On Thursday, current coupon mortgages finished little changed versus swaps while both higher and lower coupon mortgages outperformed.  At the close, FNCL (30yr) 4.5s in March were +8/32 (101-03) and the FNCI (15yr) 4.0s in March were +7/32 (102-02+).  In agency swaps, Ginnie/Fannie swaps continued their move higher yesterday in response to the same dynamics that have been in play all week (limited supply and the prospect of slower prepay speeds going forward).  Right now, the Ginnie/Fannie 5.0% swap is trading +44/32nds up 6/32nds from a week ago.
 
Flows from originators totaled about $1.25bln yesterday, which is in line with the daily average for the week.  In many instances, lender's hedging needs have been fairly minimal this week as the rate of new locks coming in the door has almost matched the pace of pipeline fallout.  With the rally over the past two sessions originators have been able to reprice their 30yr primary rates lower by .125% to ~5.125%.  The recent move puts the primary/secondary spread at around ~80bps which is virtually unchanged week over week.  Lock activity has been categorized as flat to slightly higher week over week, but overall production remains extremely muted. 
 
Yesterday, treasuries finished the session higher across the curve amidst continued unrest in the Middle East and the release of some weaker than expected economic data.  At the close, the 2yr was +4.25/32 (0.766) and the 10yr was +12.5/32 (3.576).  In economic releases yesterday, the weekly jobless claims figure was released and showed an increase of 25k week over week.  The larger than expected increase is further evidence of the sluggish pace of improvement in the labor markets.  The CPI index for January was also released on Thursday and showed a 0.4% monthly increase in the index versus expectations for a 0.3% increase.  The largest monthly increase in food costs in over two years helped contribute to the increase in the index.  In equities, futures are little changed following modest gains in all of the major indices yesterday.  Right now, S&P futures are -0.3 and Dow futures are +1.0

Borrowers and lenders should realize that there are new changes (an increase) coming to the FHA Annual Mortgage Insurance premium on April 18, 2011. If you recall, FHA recently made changes on October 4, 2010 and lowered the upfront MIP to 1% (from 2.25%) and raised the monthly MI to a factor of .90%. Well...this is going to change again. The upfront MIP will remain the same, but the Annual Mortgage Insurance premium (MI) will increase in most cases. Here are the current FHA UFMIP and Monthly MI amounts...

FHA MI Fees as of October 4, 2010

UFMIP = 1.00% & Monthly MI = .90%

UFMIP = Loan Amount of $100,000 x UFMIP of 1.00%  = Total amount financed of $101,000

Monthly MI = Loan Amount of $100,000 x Monthly MI Factor of .90%  = $900 / 12 = Mortgage Insurance per month $75.00

Here are the new FHA loan costs in a chart (and a sample loan)...

Apply for your FHA case number prior to this date or the monthly premiums will be higher.

There have been many questions regarding borrowers obtaining loans with non-occupant co-borrowers. Here some basic simple guidelines for the non-occupant co-borrower on "Conventional" (Fannie Mae or Freddie Mac) loans. These do not apply to FHA loans, as they have their own rules.

•·         Minimum 5% down payment must be from the borrower's own funds;

•·         Applications with occupant and non-occupant co-borrowers when the LTV is greater than 80%, the minimum required contribution must come from the occupant borrower;

•·         Non-occupant Co-borrowers, the maximum LTV/CLTV is 90%.  Interest Only loans are not eligible.  The non-occupant co-borrower may be a relative or a person with an established relationship and motivation.  The owner-occupant must meet the following requirements:

•-          Purchase transactions - if the LTV is greater than 80% and the non-occupant's income is used to qualify, the owner-occupant must have 5% of the purchase price in his own funds;

•-          The owner-occupant must qualify at 35%/43% maximum ratios regardless of the LTV;

Rules vary for the FHA. Make sure the reason you are using a non-occupant co-borrower is proper. An FHA loan may have more options for your loan.