My Mind on Mortgages

The Obama Administration announced yesterday that they were expanding the criteria for homeowners who wish to refinance their existing mortgage under the housing-rescue program.  The program, which is known as refi plus in our industry, is now allowing homeowner’s whose mortgages are now worth up to 125% of the home’s current value to refinance under this program.  Previously the program only allowed loans to be refinanced up to 105% of the homes value.

In addition, they announced enhanced pricing on these programs which should improve mortgage rates.

The expansion is not likely to benefit many homeowners in the Portland-metro area because home prices have not fallen so significantly.  Other criteria still exist:

Among others here are the main criteria that we find inhibit our clients ability to utilize this program:

*When the existing mortgage was originated it could not have exceeded 80% of the homes value.  In other words, the homeowner must have had 20% down OR taken out a 2nd mortgage in place of having 20% equity.

*If the borrower has a 2nd mortgage then we need to obtain a subordination agreement with that lender stating they agree to resubordinate the existing 2nd mortgage behind a new first mortgage.  In this credit environment we don’t know of any 2nd lenders who are allowing this.

*The borrower’s existing mortgage must be a Fannie Mae or Freddie Mac mortgage.  Jumbo loan amounts are NOT covered nor are loans owned by “portfolio lenders” such as Washington Federal Bank or ING Direct among others.

If you have questions about this program and if it can benefit you please let us know.

In yesterday’s ‘rate update’ we recommended floating rates into today’s jobs report and fortunately our advice paid off. Both fixed rates and ARMs are down significantly this morning. FHA rates remain unchanged.

Analysts’ expectations were for 363,000 jobs lost last month. The report issued this morning showed that the economy lost over 100,000 more than this. The unemployment rate in the US now stands at 9.5%, the highest level since 1983.

Bad news for the economy is typically good news for mortgage rates and we’re seeing that this morning. For a more complete explanation on how the monthly jobs report impacts mortgage rates please refer to this link.

For now, technical trading patterns do not look favorable for interest rates. We are going to continue to float to see if rates can push lower but we need to be cautious because in today’s markets volatility can erase gains quickly.

Current Outlook: Cautiously floating

Mortgage rates are unchanged from yesterday and are expected to remain here until tomorrow’s monthly jobs report.  Click this link to learn why the jobs report is such an important economic report for mortgage rates.

Given the current condition of the economy it’s expected that tomorrow’s jobs report will be ugly which would ordinarily help mortgage rates move lower.  However, these are not ordinary times.  Because analysts are expecting the jobs report to be poor (the market currently expects jobs losses of 363,000), even a modest sign of hope could push rates higher.

Given yesterday’s increase in fixed rates we feel comfortable floating rates into the report tomorrow.

Current Outlook: Floating into tomorrow’s jobs report

Fixed rates are slightly higher this morning due to positive news regarding the housing market as well as technical trading patterns.

This morning’s S & P Case-Shiller report shows that although home prices declined in all of the 20 urban markets it covers, the annualized decline was less than previous reports (for an explanation as to why this particular report is thought to be more accurate than other real estate reports watch the first 3:00 minutes of this you tube video I made last year).  Many analysts think this may signal the “bottom of the market”.  As a result, mortgage-backed bonds have retreated this morning.

In addition, technical trading patterns are likely also playing a role as prices traded near resistance yesterday afternoon.

Current Outlook: Locking in the near term

On August 5th, 2008 I blogged about the first-time home-buyer tax “loan” which President Bush signed into law. I thought I would update this post to reflect the changes that President Obama enacted with the Recovery and Reinvestment Act of 2009:

*Who qualifies for this credit? Anyone who buys a home from April 9, 2008-June 30, 2009 January 1, 2009-November 30, 2009 who is buying their first home or who had not owned a new home in the previous 3 years from the date of purchase.

*What are the terms of the credit? The credit is actually an interest-free loan (under the new law there is no repayment obligation) worth up to $7,500 $8,000 for couples filing jointly or $3,750 $4,000 for those who file individually.  A tax credit is different from a tax deduction in that it actually reduces your tax liability dollar for dollar (whereas a tax deduction reduces your taxable income which means your tax liability is only reduced by the amount of the deduction times your marginal tax rate). As an example, if you were expecting a tax refund for $2,500 you’d actually get $10,000 ($7,500 more) with the tax credit.

However, you don’t get to keep this tax credit money for ever. The IRS will then collect $500 per year ($250 for individuals) for 15 years from your tax refund (or added to your tax bill) to repay the credit. Although this is kind of drag this is still a great deal.

*How much will this help? It’s difficult to say for sure how much of an impact this will have. However, if I were a first time home-buyer and didn’t have a down-payment saved up one possibility for me would be for me to borrow $7,500 from a family member or close friend to use towards a down payment (FHA loans only require 3% down so I could buy a $250,000 home and put 3% down with this tax credit) and then pay back the loan when my tax refund became available.

The tax credit does phase out for individuals earning $75,000+ & couples earning $150,000+.

Link to the “my sabbatical” section of my blog.

Fixed Mortgage Rates are unchanged from Friday.

The Chinese Government made reassuring comments over the weekend regarding their appetite for US debt which is helping mortgage rates this morning.  As you may recall China is one of the largest buyers of US debt.  Recently there has been speculation that they would reduce their demand for US-denominated bonds because of the massive amounts of debt that the US government is amassing in order to stave off economic disaster.  Their comments are assuring investors this morning which is why mortgage-backed bonds are trading modestly higher.

The market is volatile but for now we’ll continue to float mortgage rates.

Current Outlook: Cautiously floating

After being gone for 6 months Tina and I landed on US soil on Wednesday AM in LAX.  Upon landing I couldn’t wait to get my hands on two things that are scarce overseas- filtered coffee & the WSJ.  I was able to acquire both shortly after clearing customs (suckers).

Anyways, in the Wednesday edition James B. Stewart wrote a good piece on the process of refi’ing in today’s environment.  Here is a link to the article along with a couple excerpts-

Underwriting has gotten much more difficult-

Little did I know the ordeal I was about to embark upon. Getting to a successful closing became something of an obsession, and what seemed at times a second occupation. Several times I thought I’d reached the point where I couldn’t take yet another request for a document (often in the possession of third parties who never answer their phones). And I have a reasonably high credit rating, a low loan-to-value ratio, a low loan-to-income ratio, and a history of never having missed a mortgage payment. Can it be only a few years ago, anyone with a pulse got a mortgage?

Solutions?  Make the process SIMPLER.  Also, work with a professional who will educate you on your options in lawman terms-

So-called reforms that deprive people of choice and opportunity strike me as counterproductive. I’m all for reforms that clarify, simplify, and educate consumers to make better decisions, and I hope the Obama proposals will help achieve this.

Fixed Mortgage Rates are slightly lower from yesterday.

Mortgage Backed Bonds experienced a great boost yesterday as it plowed through the 200 day moving average.  This gain has resulted in lower interest rates coming out yesterday afternoon and this morning.  Currently, bonds have backed off a bit from yesterday’s rally and remain about in the middle of the 200 day moving average (which hopefully will now serve as a floor of support), and the 50 day moving average which seems to be a ceiling of resistance.  For now, it should be safe to see if bonds can get any closer to the 50 day moving average and possibly break though it as stocks are struggling in early morning trading.  For loans set to close in the short run however, it may be wise to lock in rates now after this recent boost to bond prices.

Yesterday the New York Fed announced it had purchased $20.29 Million in Mortgage Backed securities last week.  This brings the total to $570 Million since the beginning of the year, and about half of what the Fed has indicated that they will purchase.  Another report from yesterday showed that the savings rate in the U.S. has increased 6.9%, which is the highest level since 1993.  Obviously it is good to see American’s start to save money, which will hopefully lead to less dependency on personal credit in the future, but this also hurts the economy as it tries to dig its way out of the current recession.  The savings rate could be a good indicator on how the U.S. consumer is confident in the economy and job security moving forward.  Right now, it looks as though there isn’t much confidence there.

Current Outlook: Cautiously floating

Fixed Mortgage Rates are even with yesterday.

The Fed’s announcement yesterday was very anticlimactic as no rate change was made, nor any plans were released regarding an expansion of their Bond purchase program.  The Bond market finished the day even on the news (or lack thereof) and Mortgage Rates have remained the same for the past few days now.

The 200 day moving average is still just ahead for Mortgage Backed Bonds so we will have to wait and see if they can break through this resistance.  The stock market is also up against some resistance of their own with the 50 day moving average.  If stocks get pushed lower, it may be enough to help Bonds make the push past their 200 day moving average.  Also being worked into the mix will be the $27 Billion in 7 year notes that will be auctioned off later today.  The first two auctions of the week have been successful and Mortgage Rates will need the next auctions to go well also if they are going to be moving lower any time soon.

Current Outlook: Cautiously floating

Fixed Mortgage Rates are even with yesterday.

Two important events are taking place today that can drastically change Mortgage Backed Bond prices moving forward.  The first event is the Fed releasing their Monetary Policy Decision at 11:15 pacific time.  I have been saying for the past couple days that they will not be changing the Fed Funds Rate but their comments afterwards could be a market mover.  If there is no mention about any continuing long term debt purchases, it would be bad news for Mortgage Backed Bond prices and we would likely see higher interest rates in the coming days.  Read yesterday’s Rate Update for a reminder on why this would happen. 

The second event that is occurring today is the auction of $37 Billion in 5-year notes.  Yesterday’s $40 Billion auction was received rather well (as you can see rates remained the same today) but will there be enough demand to buy up these auctioned notes?  If not, we could see mortgage rates increase as well.  What should out trump any negative news for Mortgage Backed Bonds however is if the Fed announces further plans to purchase long term debt (Treasuries), which would allow some breathing room for Mortgage Rates.  It is expected that an announcement similar to this will be made and therefore we will advise to carefully float heading into the announcement.

Current Outlook: Very cautiously floating