Mortgage Acumen

Fannie Mae Mortgage Bonds 48 Hour Reversal of Fortune

It seems as if it were just yesterday that everyone in the financial sector was astounished how low the yield for the Fannie Mae 30 year fixed mortgage bonds had been pushed. Wait a second…it was yesterday.

Fast forward to the closing bell today and it was a complete reversal of fortune for Fannie Mae mortgage bonds. Take a look at the chart below and observe the performance from yesterday through today.

It should be noted that when the price increases on the Fannie Mae mortgage bond, it actually has an inverse relationship with mortgage rates. Coincidentally, mortgage rates on 30 year fixed rate home loans would go down. The opposite holds true as well. When Fannie Mae mortgage bonds decrease in price, 30 year fixed mortgage rates increase.

As you can see in the chart from the past 48 hours, Fannie Mae mortgage bonds are actually worse than where they opened Thursday morning. Although this occurs often in today’s volatile bond market, it is the extreme range in price movement that was all the buzz.

Rarely do you see Fannie Mae mortgage bonds increase and/or decrease more than 50 bps a day. In this case, they changed near 100 bps both days. What does all this mean to you as a home buyer or someone who was interested in refinancing their home?

Mortgage rates literally decreased by more than 0.250% – 0.375% on Thursday to only increase 0.375% – 0.500% today. If you’re uncertain as to which way mortgage rates are trending, we don’t blame you. The quickest and easiest way to monitor the daily rate trend is to keep an eye on the rate meter to the right.

Don’t have the time or the patience to keep close tabs on how Fannie Mae mortgage bonds and mortgage rates are trending? Call or text me at 512-522-7284 to get your personalized rate monitor service.

Mortgage Acumen

Shopping Around for a Mortgage? Ask Four Simple Questions

Here’s the inside scoop on how to shop for a mortgage today.

Always make sure you are working with an experienced, professional mortgage loan originator. The largest financial transaction of your life is far too important to place into the hands of someone who is not capable of advising you properly and troubleshooting the issues that may arise along the way.

But how can you tell?

Here are four simple questions your lender absolutely must be able to answer correctly. If they do not know the answers immediately leave and go to a lender that does.

1. What are mortgage interest rates based on? The only correct answer is Mortgage Backed Securities or Mortgage Bonds, not the Fed or the 10-year Treasury Note. While the 10-year Treasury Note sometimes trends in the same direction as Mortgage Bonds, it is not unusual to see them move in completely opposite directions. Do not work with a lender who has their eyes on the wrong indicators.
2. What is the next Economic Report or event that could cause interest rate movement? A professional lender will have this at their fingertips. To receive an up-to-date weekly calendar of weekly economic reports and events that may cause rates to fluctuate, contact a Certified Mortgage Planning Specialist (CMPS) professional today.
3. When Bernanke and the Fed “change rates”, what does this mean… and what impact does this have on mortgage interest rates? The answer may surprise you. When the Fed makes a move, they are changing a rate called the “Fed Funds Rate”. This is a very short-term rate that impacts credit cards, credit lines, auto loans and the like. Mortgage rates most often will actually move in the opposite direction as the Fed change, due to the dynamics within the financial markets. For more information and explanation, contact a CMPS professional today.
4. What is happening in the market today and what do you see in the near future? If a lender cannot explain how Mortgage Bonds and interest rates are moving at the present time, as well as what is coming up in the near future, you are talking with someone who is still reading last week’s newspaper, and probably not a professional with whom to entrust your home mortgage financing.

Be smart… Ask questions… Get answers!

More than likely, this is one of the largest and most important financial transactions you will ever make. You might do this only four or five times in your entire life but CMPS professionals do this every single day. It’s your home and your future. It’s our profession and our passion. We’re ready to work for your best interest.

Mortgage Acumen

Why All The Confusion About The Good Faith Estimate 2010

Although the Good Faith Estimate (GFE) 2010 became effective nationwide on January 1st of this year, there is no other federal form in the home loan application package that creates more anxiety and confusion. 

The Good Faith Estimate is suppose to help consumers become better shoppers of real estate settlment services by creating more transparancy of home loan fees for the borrowers, which also happens to be one of the primary goals of RESPA (Real Estate Settlement Procedures Act of 1974).

So…why all the confusion then?

On November 17, 2008 the US Department of Housing and Urban Development published new RESPA regulations that created a tidal wave of regulatory change in the real estate industry. Watch this short video.

Here is a brief recap of both the good and the bad highlights of new Good Faith Estimate 2010.

Good Faith Estimate 2010 – PROS:

• Discloses if a borrower has an escrow account
• Discloses the rate lock period to the client
• Discloses to the borrower if the rate can adjust

Good Faith Estimate 2010 – CONS:

• Borrowers total housing payment (PITI+MI) is missing
• Borrowers cash-to-close is not shown
• CANNOT issue a GFE without having a complete loan application

In HUD’s effort to simplify the disclosure of home loan fees, they took a one page document with itemized breakdown of estimated costs and converted it to a 3 page discosure with lump sum totals.

Still confused? Don’t fret. There is also a mandatory, 48-page supplemental, HUD’s Settlement Cost Booklet to help clarify any questions you may now have. Otherwise, contact me anytime for all your mortgage needs.

Mortgage Acumen

Like It Or Not “Cash-In” Refinancing Is All The Rage

If you own a home and/or know someone who owns a home, you have most likely heard of a cash-out refinance. During the economic and housing boom in the early part of the decade, cash-out refinances were all the rage and fueled consumer spending.

Fast forward to the present and check out these recent news headlines.

• “Cash-In Refinancing Rise in Second Quarter: Tied for Third Highest Cash-In Share on Record” – Freddie Mac, July 28, 2010
• “US Borrowers Pay Down Mortgages” – Financial Times, July 28, 2010
• “More Borrowers Are Paying Down Their Mortgages: Freddie Mac” – DSNews.com, July 29, 2010
• “Cash-In Refinancing Nears Record High in Q210: Freddie Mac” – HousingWire.com, July 28, 2010

So what exactly is a ”cash-in” refinance? A “cash-in” refinance is when a borrower brings cash to closing to get the home loan they desire. Yes you heard that correct. A borrower would bring their own money to pay to get the loan they desire.

Frank Nothaft, Freddie Mac’s vice president and chief economist, gives the following statement as to the rationale behind a “cash-in” refinance.

“Interest rates on fixed-rate mortgages are at 50-year lows, making refinancing attractive if borrowers qualify, and similarly rates on savings instruments like CDs are also very low, which makes the choice of paying down mortgage principal very attractive to borrowers with extra cash reserves.”

“If you pay down your mortgage balance you save the interest you would pay on the loan, about 4.6 percent at today’s rates, over the life of the loan versus earning a percentage point or less in CDs and money markets and without the riskiness of stock market investments, which have not performed well in the past couple of years either.”

It seems to make sense unless you read the details of the Freddie Mac 2nd Quarter Cash-Out Refinance Analysis. The report actually states the following as the main causes in the decline of cash-out refinancing:

1. Reduced Home Prices
2. Tighter Underwriting Standards for Loan-To-Value Ratios
3. Negative Appreciation Rates – Declining Home Values

Freddie Mac was quick to declare that “22 percent of homeowners who refinanced their first-lien home mortgage lowered their principal balance by paying-in additional money at the closing table”.

“Cash-In” refinancing is all the rage, not because homeowners want to, but because they have to.

Mortgage Acumen

Inflations Impact on the Rise or Fall of Home Loan Rates

Homes are more affordable across Northwest Indiana as the housing market emerges from a slow winter season with mortgage rates still near 5 percent.

Soft housing and low rates are an excellent combination for home buyers but whereas home values rise with a gradual pace, mortgage rates change in an instant.  It’s something worth watching.

Each 0.25% increase to conventional or FHA rates adds approximately $16 per month for each $100,000 borrowed. Mortgage rate volatility can change your household budget.

If you’re trying to gauge whether rates will be rising or falling, one keyword for which to listen is “inflation”. Mortgage rates are highly responsive to inflation.

By definition, inflation is when a currency loses its value; when what used to cost $2.00 now costs $2.15. As consumers, we perceive inflation as goods becoming more expensive.  However, it’s not that goods are more expensive, per se. It’s that the dollars used to buy them are worth less.

This is a big deal to mortgage rates because mortgage bonds are denominated, bought, and sold in U.S. dollars.  As the dollar loses value to inflation, therefore, so does the value of every mortgage bond in existence. When bonds lose their value, investors don’t want them and bond prices fall.  Mortgage rates move opposite of bond prices. 

Prices down, rates up.

In today’s market, the relationship between inflation and mortgage rates is helping home buyers. The Cost of Living made its smallest annual gain in 6 years last month and the Fed has repeatedly said that inflation will stay low for some time. The combination is driving investors to buy mortgage bonds which, in turn, is suppresses rates.

So long as it lasts, the cost of homeownership will remain relatively low in Chesterton, Crown Point, Highland, Munster, Portage, Saint John, Schererville and Valparaiso. Combined with the expiring tax credit, the timing to buy a home may be as good as it gets.

Contact James K Barath in Northwest Indiana to Qualify for Your FREE FHA Home Loan Approval Today!

Mortgage Acumen

Holiday Home Loan Shoppers Should Be Extra Vigilant

Mortgage pricing worsened Monday, driving mortgage rates to their highest levels since October.

The day’s action was drastic, too. 

Some banks issued as many as 3 rate sheets Monday – each worse than the preceding and one reason why rates got so bad, so quickly, is because this week marks the beginning of mini-Vacation Season on Wall Street. 

Between now and January 4, 2010, be prepared for big swings in pricing from day-to-day.  Shopping for a mortgage could be a challenge.

The relationship between vacation days and mortgage rate volatility is rooted in how mortgage rates are “made”.

1. Conforming mortgage rates are based on the price of mortgage-backed bonds, a security that is sold on Wall Street
2. Mortgage-backed bonds can’t sell without a bond buyer and a bond seller agreeing to a specific sale price

So, during vacation week, when the total number of market participants are less, there are fewer opportunities for buyers and sellers to meet at a specific price.  As a result, bond prices rise and fall with a higher velocity than on a “normal” day.  Rallies and momentum plays are exaggerated, too.

Now, mortgage market action like this can work in your favor, or it could work out of your favor. Unfortunately, on Monday, rates moved out of favor.

This rest of this week is stacked with market-moving economic data. The data could be better-than-expected, or worse-than-expected.  Either way, markets will react a little more feverishly than normal.  Therefore, if you have a chance to lock a favorable rate, consider taking it.

Before long, the rate could be gone.

Need more expert advice? Ask the team of Certified Mortgage Planning Specialists at Benchmark Mortgage.

Mortgage Acumen

What Is APR?

APR is an acronym for Annual Percentage Rate.  It’s a government-mandated calculation meant to simplify the comparison of mortgage options.

A loan’s APR can always be found in the top-left corner of the Federal Truth-In-Lending Disclosure.

Because APR is expressed as a percentage, many people confuse it for the loan’s interest rate.  It’s not.  APR represents the total cost of borrowing over the life of a loan.  “Interest rate” is the basis for monthly mortgage repayments.

The main advantage of APR is that it allows an “apples-to-apples” comparison between loan products. 

As an example, a 5.000 percent mortgage with origination points and fees will almost certainly have a higher APR than a 5.500 percent mortgage with zero fees.  In this sense, APR can help a borrower determine which loan is least costly long-term.

However, APR is not without its shortcomings.

First, different banks includes different fees into their APR calculations.  By definition, this spoils APR as a choose-between-lenders, apples-to-apples comparison method.

And, second, when calculating APR, “life of the loan” is assumed to be full-term.  When a 30-year mortgage pays off in 7 years or fewer – as most of them do – APR comparisons are rendered moot.

In other words, APR is just one metric to compare mortgages – it’s not the only metric.  The best way to compare your mortgage options is to review all the loan terms together and determine which is most suitable.

Need more expert advice? Ask the team of Certified Mortgage Planning Specialists at Benchmark Mortgage.

Mortgage Acumen

Move-Up Homebuyers Face New Lending Challenges This Spring

When a homeowner sells his home and decides to buy a new one, there are 3 basic options for the residence — sell it, keep it, or rent it.

Unfortunately, no matter which path they choose, move-up homebuyers in need of a new conforming mortgage will find qualifying for a home loan to be more difficult this season than in the past.

Mortgage guidelines are dramatically tighter for people “carrying two mortgages”.

Among the changes this spring’s buyers face:

Selling the primary residence
If you plan to close on your new home prior to the closing of your existing home — even if it’s only by a day — both payments must be listed as monthly debts on your mortgage application. This will disqualify the majority of homebuyers.

Converting your residence to a second home
If your current home has less than 30 percent equity in it, your mortgage application for the new home will not be approved unless you can show 6 months worth of mortgage payments + taxes + insurance in reserves for the current home and new home combined.

Converting your residence to an investment property
If your current home has less than 30 percent equity in it, any rental income derived from a tenant is disallowed on your mortgage application for the new home. You must still count the mortgage payment + taxes + insurance as a monthly debt.

In other words, being a move-up buyer isn’t as simple as it used to be. New lending rules make buying a new home an exercise in timing and financial planning. And the rules are expected to get tougher, too.

Therefore, if you expect to be a move-up buyer in the next 12 months, consider moving up your timeframe or — at least — planning ahead for it.

Understanding the new mortgage landscape and how they can influence your upcoming purchase may be the difference between getting approved for a home loan, and getting turned down.

Mortgage Acumen

For Real Estate Investors, Finding Good Loans Is Tougher Than Finding Good Deals

With home prices falling across most parts of the country, investors in real estate are finding good value in certain rental properties. Unfortunately, they’re also finding it harder to get approved for a home loan.

After getting stung by defaults, conforming mortgage standards for non-owner occupied home loans tightened dramatically last quarter.

One major change was the reduction in the total number of homes Fannie Mae or Freddie Mac will finance for any one borrower.

Prior to the chance, the number of financed properties could be as high as 10. Today, that number is 4, stinging investors with large real estate portfolios. Going forward, buying properties isn’t the problem; financing them with conforming mortgage money is.

Another guideline change mandates larger downpayments.

Versus early-2008, when a real estate investor could buy a home with 10 percent down, today’s investor is required to pay 15. But, as an added wrinkle, few private mortgage insurers write policies against rental homes anymore, rendering the 15 percent downpayment insufficient. The de facto requirement, therefore, is now 20 percent down.

And then came the fees.

As part of its “pay-for-risk” pricing model, Fannie Mae added mandatory fees to all of its investor property mortgages this year. Based on loan-to-value, the fees are:

• 75% LTV or less: 1.750 percent of the borrowed amount
• 75.01 – 80.00% LTV : 3.000 percent of the borrowed amount
• Greater than 80% LTV : 3.750 percent of the borrowed amount

So, if your personal plan includes the purchase of investment properties in 2009, consider the impact that tighter conforming guidelines, larger downpayments and higher fees will have on your bottom line.

All things considered, now may be a good time to make that rental property bid. Sure, prices may fall going forward, but increased acquisition costs may wipe out the long-term gains.

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