March 2009

8 Things You Absolutely Shouldn’t Do Now That Your Mortgage Application Is In-Process

With mortgage rates are hovering near all-time lows, lots of Americans are taking advantage of refinance and home buying opportunities.

The downside of today’s unexpectedly-low rates, though, is that mortgage lenders are ill-equipped for the rush of new business.

As a result, the process of underwriting and approving new mortgage applications is taking some conforming lenders as long as 2 months to complete.

This is double the time needed as recently as six months ago.

Because there may be 60 days between the application date and the closing date, it’s important for applicants to remember that mortgage approvals can be revoked at any time prior to funding.

As mortgage applicants, there are many events that are out of our control — job security and health matters, for example. But there are also events that are within our control.

Knowing that mortgage approvals can be fragile, here are 8 things you should absolutely not do while your home loan is in process. It may be the difference between being approved by the bank, and being turned down.

1. Don’t buy a new car or trade-up to a bigger lease.
2. Don’t quit your job to change industries
3. Don’t switch from a salaried job to a heavily-commissioned job
4. Don’t transfer large sums of money between bank accounts
5. Don’t forget to pay your bills — even the ones in dispute
6. Don’t open new credit cards — even if you’re getting 20% off
7. Don’t accept a cash gift without filing the proper “gift” paperwork
8. Don’t make random, undocumented deposits into your bank account

Now, avoiding these items may not be practical for everyone. For example, if your car lease is expiring and you need a larger vehicle, it doesn’t mean you can’t buy the car — just check with your loan officer first to be sure the new payments won’t “break” your approval.

The same goes for accepting cash gifts from parents. There’s a right way and a wrong way to accept gifts and doing it the wrong way may prevent you from using the gift as a source of downpayment.

Mortgage lending is full of “gotchas” and with underwriting times stretching to 60 days, it’s a lot more likely that a mortgage applicant will trip into one. Following these 8 rules, though, is a good start.

What’s Ahead for Mortgage Rates This Week: March 30th

The stock markets made strong gains last week but the mortgage markets barely moved in the wake of the Treasury’s “toxic asset” plan.

After carving out wide trading ranges on most days, mortgage pricing ended the week slightly worse overall.

From an economic standpoint, though, last week was an interesting one.

* Existing home sales showed unexpected strength
* New home sales showed unexpected strength
* Data showed home prices rising unexpectedly

In addition, consumer confidence rose unexpectedly, too.

To rate shoppers, these “unexpected” developments are warnings worth heeding because mortgages trade on expectations of the future. And “the future”, you’ll remember was widely expected to be an economic abyss.

This is one of the many reasons why mortgage rates are so low right now — during uncertain times, investors flock to safe investments. But when those expectations change, mortgage rates usually do, too.

And quickly.

Our current recession has been thus far called “housing-led” and was predicted to last several years. Last week’s data, however, provides at least some evidence that the recession may be ending; that the economy may find its way forward sooner rather than later.

Indeed, even members of the Federal Reserve now call for a turnaround starting in as few as 6 months.

For now, market reaction to the unexpected data has been tepid. Therefore, watch for developments over the coming weeks and — perhaps more importantly — keep an eye on the investor mindset. If bond markets start to sell-off en masse, don’t be surprised if mortgage rates race higher by quarter-point leaps at a time.

Meanwhile, this week, the biggest data release is Friday’s jobs report. It’s expected to show unemployment reaching to 8.5% with another 656,000 Americans losing their jobs in March. As before, if the data isn’t as bad as expected, watch for stocks to rise and mortgage rates to go with them.

Weekly Economic Releases for Mar. 29th

This week brings us the release of only four important reports but three of those four are considered to be very important and one is arguably the single most important data we see each month. There is no relevant news scheduled for release tomorrow, so look for the stock markets to be a major influence on bond trading and possibly mortgage rates.

The first relevant report of the week comes late Tuesday morning when March’s Consumer Confidence Index (CCI) will be posted. This index gives us an indication of consumers’ willingness to spend. Bond traders watch this data closely because consumer spending makes up two-thirds of our economy. If this report shows that confidence is falling, it would indicate that consumers are more apt to delay making large purchases. If the report reveals that confidence looks to be growing, we may see bond traders sell, pushing mortgage rates higher Tuesday morning. It is expected to show an increase from February’s 25.0 reading to 27.0 for March.

The Institute for Supply Management (ISM) will release their manufacturing index late Wednesday morning. This index gives us an important measurement of manufacturer sentiment by surveying trade executives. A reading below 50 means more surveyed executives felt business worsened during the month than those who said it had improved. This month’s report is expected to show a reading of 36.0, which would be a slight increase from February’s reading of 35.8. This means that analysts think business sentiment remained close to last month’s level.

February’s Factory Orders will be posted early Thursday morning. This data is similar to last week’s Durable Goods Orders report, except that this report includes orders for both durable and non-durable goods. It is also the least important of this week’s four reports. Unless it varies greatly from forecasts of a 0.3% decline, I suspect that it will be a non-factor in the mortgage market.

The biggest news of the week will come early Friday morning when the Labor Department posts March’s Employment report, giving us the U.S. unemployment rate and the number of jobs added or lost during the month. This is an extremely important report to the financial and mortgage markets. It is expected to show an increase in the unemployment rate from February’s 8.1% to 8.5% and that approximately 655,000 payrolls were lost during the month. A higher unemployment rate and a larger number of lost jobs would be good news for bonds and would likely push mortgage rates lower Friday.

Overall, I expect to see the most movement in rates either Wednesday or Friday. Friday is the most important day of the week with the employment numbers being released, but we will likely see a fair amount of movement in rates Wednesday morning also. I am expecting tomorrow to be the calmest day of the week, but the week in general will probably be pretty active. Accordingly, it would be prudent to maintain contact with your mortgage professional if still floating an interest rate.

If I were considering financing/refinancing a home, I would…. Float if my closing was taking place within 7 days… Float if my closing was taking place between 8 and 20 days… Float if my closing was taking place between 21 and 60 days… Float if my closing was taking place over 60 days from now… This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

FHA Cash Out Refinances Getting More Strict as of April 1, 2009

If you’re in want of a cash out refinance, the most liberal cash-out program in town is about to make qualification more difficult.

Effective April 1, 2009, the FHA is reducing the maximum loan-to-value on cash-out refinances by 10 percent, dropping the loan size limit from 95% of the home’s value to 85%.

In its official press release, the FHA days it’s making the change to “limit its exposure to undue risk”.

It also lists the following cash-out requirements:

• With less than 12 months since the purchase date, a home’s value cannot exceed its original purchase price — even if home improvements were made.
• A homeowner must be current on his mortgage payments to qualify
• A second, verifying appraisal may be necessary, depending on loan traits
• Co-signers may not be added to the mortgage note in order to qualify

The last day to register a FHA 95% cash out refinance is Tuesday, March 31, 2009. The loan does not need to be “locked” — only registered.

So, if you know that a 95% cash out FHA refinance is in your future, talk to your mortgage planner before Wednesday morning about registration.

New Home Sales Figures Show Unexpected Improvement

The national housing market got its third piece of good news in 3 days:

• Monday: Existing Home Sales up
• Tuesday: Home values appear higher nationally
• Wednesday: New Home Sales up

And although national real estate statistics are irrelevant to the local markets in which real estate transactions happen, to a country of would-be and wanna-be home buyers, repeated positive news on housing can be a strong signal that it’s time to get off the sidelines.

At least, that’s what the data is showing us. According to an industry trade group, first-time home buyers accounted for half of all sales of previously-owned homes.

The stimulus package’s $8,000 tax credit likely played a role in this 50 percent figure, as well as sagging home prices in most markets and low mortgage rates nationwide.

But lest we carried away, we can’t forget that February’s New Home Sales is still the second-lowest tally on record and that two months of data doesn’t define “turnaround”.

On the other hand, if the trend continues through the Spring Buying Season, we’ll likely look back at Winter 2009 as the low point in housing.

(Image courtesy: LA Times)

Watch Out for Mortgage Rates When Gas Prices Rise

Don’t look now but oil prices are climbing.

This should worry today’s home buyers and would-be refinancers because some of the same forces that helped to push crude past $50 for the first time in 4 months also cause mortgage rates to rise.

March 18, the Federal Reserve committed an additional $1.15 trillion to support the economy.

Since the announcement, investors have questioned whether the Fed is purposefully spurring inflation. The Fed’s total debt purchases now total $1.75 trillion.

And to finance its purchases, the Federal Reserve is printing new money, devaluing the U.S. dollar along the way. This then leads to inflation which, all things equal, causes oil prices to rise, gas prices to rise, and mortgage rates to go with them.

As we’ve seen the last few summers, oil prices and mortgages seem to touch their yearly high points while the weather is warmest.

(Image courtesy: The Wall Street Journal)

Monthy Home Sales Rise 230,000 in February 2009

Each month, the National Association of REALTORS® releases a study called the Existing Home Sales report. It’s a detailed look at “used” home sale data from all four regions of the country.

Among the key findings of each Existing Home Sales report is something called the “median sales price”, the statistical price point at which half of the homes in the U.S. sold for more, and half sold for less.

Last month, the median sales price in the United States fell to $165,400, down 15.5 percent from a year ago.

Nevertheless, just because the median sales price is lower from last year doesn’t mean that the housing market is losing steam. The median sales price is just the middle point of all home sales in all U.S. markets. By definition, it groups New York City and Danville, Illinois; Los Angeles and Cheyenne — markets that have little do with one another.

When median sales prices are falling, it doesn’t point to housing weakness, per se — just that more homes are selling at the lower end of the pricing spectrum than at the higher end.

Going forward, it’s believed that a reduction in home supplies is the key to a complete, national housing recovery. It’s encouraging, therefore, in a month known for a high volume of new listings, that the number of homes sold kept pace with the number of new homes available for sale.

The current housing inventory stands at 9.7 months, flat from January.

(Image courtesy: The Wall Street Journal)

What’s Ahead for Mortgage Rates This Week: March 23rd

Mortgage markets scored big gains last week, sparked by the Federal Reserve’s pledge to buy $750 billion more mortgage-backed bonds in 2009.

Conforming mortgage rates fell on the week, overall.

But Federal Reserve intervention wasn’t the only good news for rate shoppers last week. New evidence showed — for the time being, at least — that the U.S. economy may be reversing direction:

• Homebuilders are breaking ground on new homes again
• First-time jobless claims are falling
• Inflation is present and, therefore, deflation is not

Should the economy continue trend stronger through the summer, it will likely fuel stock market gains, drawing cash away from mortgage bonds. This would lead mortgage rates higher — perhaps for good.

Today’s levels are artificially low, after all, supported by government intervention more than economic fundamentals. After the Fed’s Wednesday afternoon announcement, rates fell to all-time lows before recovering sharply into the weekend on economic optimism and fears of inflation.

This week, the trend higher may continue.

In addition to the economic data set to be released this week, the U.S. government is expected to unveil its “toxic asset” plan Monday. If the plan includes issuance of new federal debt, inflation concerns will grow and that should lead mortgage rates up once more.

Some of the week’s key events include Monday’s Existing Home Sales report, Wednesday’s New Home Sales report and Friday’s consumer spending report, as well as President Obama’s Tuesday evening address to the nation.

Rates can make huge changes from day-to-day and even from hour-to-hour. If you’re shopping for a new home loan and find a mortgage offer that “fits”, consider locking it right away. With so much news hitting the wires this week, the rate quote is likely to expire quickly.

Weekly Economic Releases for Mar. 22nd

This week brings us the release of six monthly and quarterly reports for the bond market to digest. Two of these reports can be considered much less important than the others, but with data scheduled for release four out of the five days we will still likely see movement in rates from day to day.

The first report of the week is February’s Existing Home Sales late tomorrow morning. It will give us a measurement of housing sector strength and mortgage credit demand, but is usually considered to be of low importance to the financial markets. Its’ sister report – New Home Sales, will be posted Wednesday morning. Since tomorrow’s release is the day’s only data, it may influence bond trading enough to cause a slight change in mortgage rates if it varies greatly from forecasts. Current forecasts are calling both reports to show a decline in sales.

Wednesday’s important data comes from the Commerce Department, who will post February’s Durable Goods Orders. This report gives us a measurement of manufacturing sector strength by tracking new orders for big-ticket items, or products that are expected to last three or more years. This data is known to be volatile from month to month but is still considered to be of high importance. Analysts are expecting it to show a decline in new orders of approximately 2.0%. A smaller decline would be considered a negative for bonds and could lead to higher mortgage rates Wednesday morning.

The next relevant data is Thursday’s final revision to the 4th Quarter GDP. This is the second and final revision to January’s preliminary reading and is expected to show a downward revision of 0.4% to the reading that was posted last month. Analysts are now more concerned with next month’s preliminary reading of the 1st quarter than data from three to six months ago, so I don’t expect this report to affect mortgage rates much.

There are two relevant reports scheduled for release Friday. The first is February’s Personal Income & Outlays report. This data helps us measure consumers’ ability to spend and current spending habits, which is important to the mortgage market because of the influence that consumer spending related information has on the financial markets. If a consumer’s income is rising, they are more likely to make additional purchases. This raises inflation concerns and has a negative affect on the bond market and mortgage rates. Current forecasts are calling for a 0.1% drop in income and a 0.3% increase in spending.

The second report comes from the University of Michigan at 9:45 AM ET. Their revision to the March consumer sentiment index will give us an indication of consumer confidence, which hints at consumers’ willingness to spend. It is expected to show little change from the previous reading of 56.6.

Overall, it is difficult to label one particular day as the most important of the week. The single most important report will likely be the Durable Goods Orders, but none of the week’s data has the potential to be a major market mover. It will be interesting to see whether last week’s Fed news influences this week’s trading. After the huge rally, we saw some weakness in bonds at the end of the week, but this did not come as a surprise. If the stock markets start to move lower again, we should see gains in bonds and improvements in mortgage rates. But, if stocks continue to move higher, further pressure in bonds are possible, leading to higher mortgage pricing.

If I were considering financing/refinancing a home, I would…. Lock if my closing was taking place within 7 days… Float if my closing was taking place between 8 and 20 days… Float if my closing was taking place between 21 and 60 days… Float if my closing was taking place over 60 days from now… This is only my opinion of what I would do if I were financing a home. It is only an opinion and c annot be guaranteed to be in the best interest of all/any other borrowers.

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