Mortgage Rules In 2011

  -extreme. There were too many abuses by the mortgage industry and some customers. There were too few restrictions on loan programs and lending overall. Basically, things were too loose. Fast forward to 2011. The mortgage industry is at a polar opposite from just a few short years ago. The industry has gone from loose to constrictive. In fact, constrictive may be too light a word to describe how regulations have changed, which completely altered the basic dynamics of getting a mortgage loan in today’s market. Full documentation loans rule the day. What this means is that everything has to be documented fully. Pay stubs, tax information, bank account information on every account used in the transaction. Almost any extraordinary deposit has to be documented as to where the money came from. This can be asked on very modest deposits, not just large deposits. If one submits tax returns for a loan, those returns have to be signed, whereas just a couple of years ago, stock transcripts from the IRS would satisfy the underwriters. Gone are the days of low documentation loans. Long ago, if one had excellent credit and a large amount of equity in their property, a bank would not have to document all the income or assets used for the loan. These days, no matter how much equity one has on the property being refinanced, everything must still to be documented. Income has to be checked, as does the asset information. If a homeowner is refinancing a loan for $500,000 against a value of $2 million there is equity of $1.5 million. Common sense would dictate that there is enough equity to allow for some relaxing of the documentation rules. But in today’s banking world, this loan too needs to be fully documented. The chances of a homeowner walking away from a home that has a loan for 25% of its value is very small. In a worst-case scenario if something unexpected happened and the financial institution ended up with the home, the institution would have property worth a lot more than the mortgage. For condominium mortgages the industry is now starting to ask for proof of walls in insurance to be in place. The logic is that in case of a fire, the industry wants to make sure that the condominium owner will restore the unit to its current condition. Credit criteria remain strict. On FHA loans, the minimum criteria on a basic loan requires a FICO score of 620. On conventional loans the requirements are higher. Credit scores on conventional loans will effect the overall pricing of the loan. No one expects the rules in the industry to relax anytime in the near future. Bill Starrels is a mortgage loan officer who lives in Georgetown. He specializes in purchase and refinance mortgage loans. He can be reached at 703 625 7355 or email

Interest Rates are Moderating

  -Not that long ago, the talking heads on CNBC and other cable shows were talking about the inevitable rise in interest rates. Virtually all were calling for the 10-Year Treasury to be well north of 4 percent by this summer. Mortgage rates were forecasted to head to 6 percent, and like many weather forecasts, these predictions were simply wrong. Instead of the 10-Year Treasury notes rising beyond 4 percent, rates on the T-bills have been falling. Most mortgage interest rates touched new lows in recent days. The stock markets are in a state of flux because of worries about the overall economy. Recent numbers on the American economy, along with news reports on the instability on European markets, has led to a sell-off in stocks and a flight to safety. Bonds are considered a safe harbor for money. When bonds do well, generally mortgage rates go lower. So in a depressed stock market, rates trend lower. New home sales reported on June 23 showed a very steep decline. Sales were down 32.7 percent over the previous month — only 300,000 sales versus 446,000 in April. The year-over-year numbers were also down by a sharp 18.1 percent. Reasons for the sharp drop in sales are attributed to the slow economy and to the expiration of the homebuyer tax credit. The tax credit enabled buyers of homes to receive tax credits from $6,500 to $8,000. It seems that the tax credit precipitated a front-loading of sales. Some buyers, who would have bought in coming weeks, accelerated their purchases in order to take advantage of the tax credits. The government lowered its estimate of how much the economy grew in the first quarter of the year, noting that consumers spent less than it previously thought. The Commerce Department says that gross domestic product rose by 2.7 percent in the January-to-March period, less than the 3 percent estimate for the quarter that the government released last month. It was also much slower than the 5.6 percent pace in the previous quarter. The good news in the GNP numbers is there have been three consecutive quarters of positive performance in the economy. The economy is clearly climbing out of the recession. The climb may be slow but it is positive. At its Open Market Committee meeting, the Federal Reserve made no change to its policy language following the June 22 and June 23 meeting, reaffirming that interest rates will remain “exceptionally low for an extended period.” Most economists now think the Fed will keep on hold any interest rate changes well into 2012. Bill Starrels is a mortgage loan officer residing in Georgetown. He can be reached at 703-625-7355 or by email at

Rates Are At Record Lows

  -In a July 22 release by Freddie Mac’s Primary Mortgage Survey, the 30-year and 15-year fixed-rate mortgages reached record lows. The survey for 30-year fixed-rate mortgages began in 1971 and for the 15-year began in 1991. The average fixed rate for a 30-year mortgage was 4.56 percent with around one point. The average for the 15-year mortgage was 4.03 percent with a 1 percent origination fee. Adjustable rate mortgages (ARMs) also saw new lows. The average for a five-to-one ARM was 3.79 percent with a 1 percent origination fee. One year ago the averages were substantially higher: 5.20 percent on 30-year fixed, 4.68 percent on 15-year fixed and 4.74 percent on 5-year ARMs. Besides the significant fall in rates, another item of importance is the new spread between ARMs and fixed rate mortgages. A year ago, a five-to-one ARM was actually more expensive then a comparable rate on a 30-year fixed-rate mortgage. Today an ARM carries a significantly lower rate of around 80 basis points. Folks with ARMs that are adjusting now will end up with fully adjusted rates around 3 percent. This would be for “A” paper loans. ARMs for less credit-worthy clients would adjust higher. The interest rate nadir is due to a combination of weakening confidence in the economy which causes a flight to safer investments. Another factor is the lack of inflation and the prospect of deflation. These factors ultimately drive interest rates lower. Last week, Federal Reserve Chairman Ben Bernanke testified before Congress, stating that the “Fed expects a gradual recovery to continue, and it believes the current policy stance is appropriate to support a recovery.” Translation? The Fed is not changing rates any time soon. There will be small likelihood of a rate hike well into 2012. Some well respected economists are calling for the yield on the 10-year Treasuries to go to the mid 2 percent range, and perhaps down further to the 2.2 percent range. If so, one will need to meet the demands of today’s underwriting standards. Expect a full documented loan. This means pay stubs and possibly tax returns will be required for income verification. Assets will be verified using bank and stock statements and good credit. Expect mortgage rates to continue to remain attractive for the near future at least. This is truly a great time to refinance or buy a home. Bill Starrels is a senior mortgage loan officer who specializes in refinance and purchase money mortgages. He lives in Georgetown and can be reached at 703-625-7355.

Mortgage Interest Rates Respond To World Events

Bad news can be good news for the bond markets and ultimately for mortgage interest rates. When investors are uncertain about national and world events, money is taken out of the equity markets and goes into safer instruments like United States-backed Treasury Bills. Investors are now driven by events centering on the epic earthquake and resulting events in Japan. Investors as a rule do not like uncertainty. The devastation the earthquake has caused, coupled with the unraveling of the nuclear reactors, is sending uncertainty off the charts. The week after the disastrous earthquake and tsunami and the resulting tragedy in Japan, the yield on the 10-Year Treasury Bills hit lows not seen since December of 2010. 10-Year Treasury notes reached a recent high water mark at 3.725% on February 8th, 2011. On March 2, 2011 the rate fell to 3.212%. This represents a spread of fifty basis points in a very short period of time. Another driving force in bonds continues to be oil prices. Oil prices have found their way north or $100 a barrel. The events in Japan have tapered the surge in oil prices. The theory here is that with Japan’s economy being driven off the tracks due to the earthquake, their use of oil is greatly diminished for now. The concern over oil is that oil is inflationary. What is not being talked about is Japan’s great dependence on nuclear power and how that relates to oil. It is possible that Japan will be more dependent on oil when their economy starts to build again. Granted it will take a lot of time for Japan to get back on its feet, but when they do the Japanese government will have to find a replacement for the Fukushima nuclear power plant that is now permanently offline and is still posing the threat at this time of a meltdown. Who knows what deficiencies will be found at the numerous other nuclear power plants. In an article published by “Knowledge at Wharton” they talk about the impact of Japan and oil. The “fallout of the earthquake and tsunami in Japan has added to oil market confusion,” it says. It is also noted that there are upside pressures on oil at the same time. The unrest in the Middle East, most recently in Bahrain, Libya and Egypt, causes speculators to drive up oil prices. Every $10 dollar rise in a barrel of oil results in a 25-cent increase in gas prices according to the folks at Wharton. Wharton professor Jeremy Siegel states, “Based on the amount of oil the US imports, every $10 increase in the price of oil equates to about a quarter of 1% of the country’s gross domestic product (GDP).” Although rising gas prices do fuel rate increases, they will temper the growth of the economy, which may temper the future rise in interest rates. The bottom line is that there is a lot of uncertainty in the world and in the financial markets. Expect a lot of volatility in interest rates for the near term.

DC Home Prices Increase, Despite National Trends

Case Shiller Index reported that of the 20 cities it recorded, home prices are off to a dismal start, with 18 cities down in price. Only 1 city actually had a 3.6% increase in prices. Guess which city that was…? You got it right, the Washington, DC area. So with all the negative press these days about housing being in the dumps and prices poised to drop further, one needs to recognize that these are national numbers, not local. Why is the District fairing better than the national average? Low unemployment with a rate of 5.6%, high affordability, above average home price growth, falling foreclosure rate, less houses under distressed sale, cheaper to buy then rent, and an increasing population. All these bode well for the future of housing in the Washington region. This is why we are actually seeing multiple offers this spring with low inventory levels. Realtors’ biggest complaint is that there is not enough inventory to sell, which is starting to drive up prices. So now you ask yourself why you should pull the trigger today. Here are the best reasons why now is a good time to jump off the sidelines and get into the housing market: 1.) You can still find a good price if you look hard. The MRIS (multiple regional listing service) and Delta Associates are estimating that the increasing number of jobs into the area will continue the price gains long term. Buying now makes sense as clear statistics show prices are on the incline. 2.) Mortgages rates are still low, but not for long as the economy shows continued signs of improvement. Today you can get a loan around 4.75%, where just 2½ years ago rates were at 6.25%. Over a 30-year period, that can save you many thousands of dollars. 3.) You will save on income taxes to be able to afford more per month. You can deduct the mortgage interest and real estate taxes off your net taxable income. 4.) You will be able to hedge against inflation in the long term. You are not guaranteed a quick return in 2 years, but history has shown that owning a home over an extended period of time does beat inflation by a couple of points a year over average. 5.) It’s forced savings. As you continue to make your mortgage payment monthly, more dollars go into principal to pay the loan down which builds up equity. On top of those savings you have the appreciation of the property over the long term. Like the stock market, it is risk capital. As the stock market continues to go up and the economy improves the price will start to appreciate again. Just look at history. As populations continue to grow in our country and here in the DC area, strain is going to be felt in the price of homes if new housing is not being created. New building permits are only growing at 4%, and while this is sufficient to cover population growth, it won’t be enough to cover those moving to the market or the people coming from being renters to buyers. Act now, and don’t pay attention to the negative headlines about housing.

Mortgages at Record Low

It has been an interesting summer in the mortgage industry. The following are highlights of where things are in the world of the mortgages. Mortgage rates have stayed at or near record low territory for the last portion of the summer. There are a few factors that are keeping rates low. First and foremost, the economy is weak. Job creation is inching along with the loss of government jobs wiping out the slow growth of private sector jobs. Without strong job creation, the economy will not be able to grow at a faster pace. Lack of jobs also squashes existing job holders from demanding more money from their employers. Without more money, folks cannot buy more goods, which is still another drag on the economy. The dysfunctional Congress and their recent spectacle on the merits of raising the debt ceiling cast a pale on consumer and business confidence. With low consumer confidence, consumers tighten their belts – they spend less money. With businesses recoiling from the dysfunction on Capitol Hill, businesses spend less on expansion and find yet another reason not to hire new workers. The downgrade of the nation’s debt by Standard and Poors further drove confidence down. The stock market recoiled at the news. Remember, when the stock market goes down, bonds go up. When bonds go up, yields go down. This is exactly what happened when the circus got out of control and Wall Street took a pounding. The yield on the 10-Year Treasury note finished at 2 percent on Sept. 2, the same day the dismal jobs report was released. This represents a change in the yield of -24.5 percent from the same period last year. The Federal Reserve Board of Governors recently announced that the Fed Funds rate will not be raised for the next two years. Most adjustable rate mortgages are tied to the LIBOR index. The LIBOR index is trading near record lows. This means most adjustable rate mortgages are actually adjusting down. In order to compute how an adjustable rate mortgage is going to adjust you need a few things. First look at the note. The note tells the consumer what the index is. Next look at the margin. The margin will never change. To figure out the future rate, add the margin and the note. In early September the 1-Year LIBOR was at 0.8. Most loans have a margin of 2.25. This means the new rate would be 3.25 percent. The LIBOR index is likely to stay low for the near term. Underwriting continues to be very strict and time consuming. A customer has to be fully documented in order to get a loan approved. Pay stubs, W-2’s for salaried folks and 1099’s and tax returns for self-employed are mandatory. Deposits that show on bank statements have to be explained. Loan files are now going through multi-stage audits which slow down the process and keeps the fact checking very stringent. The days of “common sense” underwriting are a memory from a few years ago. Hopefully, one day in the not-too-distant future the industry will be able to move to more of a middle ground. Presently, the system has gone from one bad extreme to another extreme. The constraints imposed in the mortgage industry are stagnating refinancing and the purchase of homes. Many people who would like to entertain selling their homes and moving cannot do so because of the more rigid underwriting guidelines. For those who are in a position to refinance or purchase a home, now is a fantastic time to do so. Rates are quite low, and prices of homes are also at low levels. Eventually, rates and prices will go up.

Not Out of the Woods YetMay 2, 2012

The real estate market and mortgage rates have come together, forming a perfect time to be buying a home in Georgetown or in greater D.C. The nation?s economy is still recovering from the recession of a few years ago. If one remembers, the housing sector crashed, which was one of the catalysts for the collapse of Wall Street. Credit came to a halt and the Federal Reserve Board of Governors slashed interest rates in an effort to keep the economy from going into a depression. As a result, house prices collapsed in many markets (including some outlying areas of the Washington metropolitan area). Interest rates fell and continue to drift lower. Overall, the housing markets are showing some signs of recovery nation-wide, but the Fed?s statement warned that the housing sector still remains depressed. The D.C. market remains more stable then most. In the Federal Reserve Board?s most recent meeting in late April, the Fed did not deviate from its more recent statements on the outlook for the economy. The Fed is holding firm on interest rates. According to Merrill Lynch, the markets are not looking for any rate hikes until May 2014 at the earliest. Typically predictions longer than 24 months out are very rare and very hard to forecast. Mortgage rates continue to flirt with historic lows. As we close out the month of April, 30-year purchase mortgage rates ranges in the Freddie Mac Survey showed 30-year fixed rate money averaging 3.8 percent with 0.7 of a point, and 15-year money averaging 3.18 percent with 0.6 of a point. Conforming money is for loan amounts up to $417,000. High conforming purchase money (up to $629,000 for conforming money and $729,000 on FHA money) rates are higher. Jumbo money rates are still higher. Rates on ARMs (adjustable rate money) are around 3 percent or lower. If one is buying a home with firm plans to move in the next four or five years, an ARM can be an attractive option. With house prices close to historic lows, and mortgage rates close to historic lows, it is a perfect time to look at buying a house. The cost of housing is very attractive. Housing prices are likely to go higher in the future. In order to get approved, a customer has to be able to show income documentation and source of funds. Low documentation loans are not available. With decent credit, some cash for a down payment (3.5 percent down for an FHA loan to $729,000) one can take advantage of today?s perfect storm. ***Bill Starrels is a mortgage loan officer who lives in Georgetown. He specializes in purchase and refinance mortgages. He can be called at 703-625-7355, email,***

Mortgage:November 20, 2013

Economic events drive mortgage rates. The month of November showcased how events drive markets and cause mortgage interest rates to fluctuate. The employment report released on Nov. 8 showed job growth of 204,000 non-farm payroll jobs created in October. This number was considerably higher than the consensus estimates of 120,000. This good news on jobs was very bearish for the bond market and mortgage rates. On the heels of the employment report were the confirmation hearings for Vice Chairman Janet Yellen who has been nominated to replace the current Federal Reserve Chairman Ben Bernanke. Yellen?s remarks had the potential of moving the markets. If confirmed, Yellen will be the first female Chairperson of the Federal Reserve Bank in its 100-year old history. In her testimony Yellen stated that the quantitative easing made a meaningful contribution to economic growth. She went on to say that the resulting ?lower interest rates have been instrumental? for the growth in the housing sector. Yellen addressed the labor participation rate and the long-term unemployed. She said that there should be special focus on employment and didn?t argue when the point was raised that the employment numbers may be potentially higher due to the slack labor participation numbers. Inflation goals are the same as outgoing Fed Chairman Bernanke. It was reiterated that the rate of inflation is well below the goal of a twopercent inflation rate. Yellen stated that the quantitate easing program by the Fed cannot go on forever, but she did not signal that the program was ending anytime soon. The markets liked Yellen?s testimony. After Yellen?s testimony mortgage rates, there was a collective sigh of relieve reflected in the markets after her testimony. Yellen reaffirmed her reputation as someone who has been supportive of Bernanke?s rate and monitory policy. Rates moderated from the higher levels reached after the strong employment report. Rates were basically back to October levels. Jumbo money ? which can be used for loan amounts north of $418,000 with 20-percent down payments ? has been priced better than comparable super conventional money. Expect rates to keep in a relative narrow range for the near term. Historically, mortgage rates are in excellent shape. Bill Starrels lives in Georgetown, where he works as a mortgage loan officer. He can be reached at bill.starrels@ or 703-625-7355. NMLS#485021


  -The fourth quarter of 2010 is proving to be a most interesting time in mortgages. Rates are fluctuating at near record lows. House prices are trying to stabilize. Underwriting is as stringent as ever. With house prices hovering around their recession-driven lows, this is an excellent time to buy a house in the Washington area. You will need some cash, and you will need to be able to qualify for it with full income and asset disclosure. Underwriters are being very careful when they underwrite mortgages these days. The mortgage application has to be complete, and everything has to be pretty perfect. Credit scores also factor in both the pricing models and underwriting. In non-government mortgages you need very good credit to qualify and excellent credit for the best prices. One of the best gauges of house prices is the Case-Shiller house price index, released by Standard and Poors. Standard and Poors’ August report revealed that 15 of 20 metropolitan areas in the survey showed a decrease in house values. The District of Columbia was one of five metropolitan areas that demonstrated an increase in house prices. The stabilization of home prices in DC has allowed lenders to allow for higher loan to values to be used for conventional loans. A year ago most lenders had to lower loan to value requirements because values were unstable. Appraisals are still problematic, but at least values are stabilizing. Refinancing is picking up its pace again. With mortgage at or near record lows, a lot of people are refinancing again. Even homeowners who refinanced a year ago are now refinancing again. The Washington metropolitan area has another advantage over other areas. DC metro is considered a “high cost” area. What this means is a homeowner can get a conventional or FHA mortgage up to $729,000. In areas not considered high cost, the loan limits are considerably lower, which means those homeowners who have large mortgages will need jumbo money. These typically carry higher rates and are more restrictive. Jumbo money traditionally carries interest rates a half point or higher in rate then a comparable conventional rate. Conventional loans can be sold to Fannie Mae or Freddie Mac. Jumbo loans need to be portfolio by lenders or secured by Wall Street. Beyond fixed rate loans, adjustable rate mortgages are priced very competitively. The two most popular adjustable rate products are 5/1 and 7/1 ARMs. These are fixed for five or seven years before they adjust. If you are going to move in five or seven years, an ARM can be a great loan. If you have a mortgage with a rate with a “5” or higher, consider a refinance. You may be very happy after your initial phone inquiry. Bill Starrels is a mortgage loan officer who lives in Georgetown. He can be reached at 703-625-7355 or emailed at,

The Difficulties for the Self-Employed Borrower

As all of us are aware by now, after the largest housing bust since the great depression, getting a mortgage is far from the pre-bubble days where just filling out an application gave you an over 70% chance of getting a loan if you had good credit. Everything you can think of involving your financial picture now needs to be disclosed and reviewed by a lender. For those of you that are self-employed or own your own business, getting a loan can be even more toilsome. Pre-housing bubble days allowed the "self-employed" to just state their income and put a decent amount down in cash. We, the lenders, just focused on the borrowers' credit scores, the value of the property, and in most cases savings in the bank. As the housing market nationally started to crash, so did more of these stated income loans, referred to these days as "liar loans." Not all self-employed borrowers that used stated income loans were lying about their income, but since the program was abused it went "pop" with the bubble. Here is what you need to know about getting approved as a self-employed borrower: 1) You must have a 2-year history of being self-employed with reported 1040s to qualify for a mortgage. There are some exceptions, so e-mail me if you have any questions. 2) Lenders are looking for several months of "cash reserves," which are total mortgage payments in liquid assets. Many mortgage programs, especially if the loans are over the Fannie Mae/Freddie Mac loan limits, are looking for as little as 6 months or up to 12 months of cash reserves, depending on the loan size and down payment. 3) Lenders are now using income reported to the IRS as taxable income to qualify for a loan. If you are writing-off a lot of deductions then you are going to have a harder time qualifying for a loan. You have to be more conservative in your business deductions, which is hard in this economic climate. Bottom line: pay more in taxes to qualify for a larger loan. 4) Declining income is a red flag for an underwriter. If your business is still reeling from the economic tsunami of 2009, getting a loan can be even more difficult. Lenders will only use the lower of the two years of income to qualify you if, for example, 2010's income is lower than 2009's. We can make exceptions for declining income for a health issue or call to active duty, for example. 5) The higher your credit scores are, the better chance you have of getting a higher loan and qualifying for more. Reducing credit card debt is one of the easiest ways to improve your credit score, since credit card debt has an immediate impact on your score. Work with a credit repair company to get rid of any inaccurate information and make sure you check your credit scores regularly. Gregg Busch is Vice President of First Savings Mortgage Corporation. For more information or a free pre-approval contact him at or 202-256-7777.