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Summertime Mortgages

The summer of 2011 has been an interesting one in the world of mortgage lending. Rates have continued to hover at near-record levels. Thirty-year fixed rate conventional mortgages (mortgages with loan levels of $729,000 or less in high cost areas like the D.C. Metro area) have been in the mid to high 4 percent range for several weeks. Rates are slightly lower for purchase money loans. Credit scores and loan to value can also influence rates. Rates for investment property are also higher. Rates on 15-year fixed rate mortgages and adjustable rate mortgages are actually lower then before, even last fall when 30-year fixed rate mortgages were at their lowest point. In recent weeks, 15-year fixed rate mortgages have been in the mid to high 3’s. Adjustable rate mortgages have been in the 3’s for five-year adjustable rate mortgages to the low four percent range in recent weeks. Rates are lowest for purchase money and primary mortgages. Loan limits are being lowered for high conforming mortgages. The “old” limit is $729,000 in high cost areas. This includes the Washington, D.C. metropolitan area. This does not include Baltimore and a lot of other areas. The new limits will be $629,000. Jumbo rates, which are slightly higher, are needed above these limits. There are rumors that the change in the high-conforming loan limits will not be changed as planned this fall. There is fear that in the high-cost areas, the lowering of the loan limits will put a damper on already weak real estate markets. The logic of lowering the high-conforming loan limits is the government is trying to unwind the exposure of the government-sponsored entities, Fannie Mae and Freddie Mac. Underwriting standards continue to be very strict. In order to get a mortgage loan these days, one has to be fully documented. Pay stubs and W-2’s are in order. For those that are self-employed, 1099’s and tax returns are needed and both personal and business returns will be required. For attorneys and business owners, K-1’s will also be required. For assets 60 days of statements with all pages intact will be required. Most non-payroll deposits will require a letter of explanation. Do not expect the standards in the industry to be relaxed anytime in the near future. If you are thinking about buying a home or refinancing in the near future, take some extra time to prepare and be patient. Everyone is being treated equally. Bill Starrels lives in Georgetown. He is a mortgage loan officer who specializes in purchasing and refinancing mortgages. He can be reached at 703-625-7355 or at bill.starrels@gmail.com.

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.

What’s Behind Today’s Underwriting Guidelines

One question frequently asked is why mortgage standards are so strict these days. The reason for the stringent underwriting standards imposed is because of the very tight standards all mortgage loans go through after the bank has underwritten, closed and funded the loan. When a mortgage loan fails an audit by Fannie Mae or Freddie Mac, the major loan servicers to the banks, the loan can be sent back to the bank that originated the loan, and the institution can be forced to buy the mortgage back. According to the industry publication, American Banker, Sun Trust Mortgage in the fourth quarter of 2011 had $636 million in repurchase demands and a $215 million repurchase option. Sun Trust is a $177 billion-asset, Atlanta-based bank. Sun Trust’s CEO Bill Rogers was said that the increase in buy-back demands from the government-sponsored enterprises (Fannie Mae and Freddie Mac) was frustrating and hard to predict. Another institution, Flagstar received $190 million in buy-back requests in the fourth quarter. The only way to avoid mortgage buybacks is by delivering perfect loans. This is why underwriting standards are what they are. Until Fannie Mae and Freddie Mac lessen their post-closing audits, the standards will not and cannot be relaxed. A perfect loan five years ago would not necessarily be acceptable in 2012. Expect the process for loan approval to be tedious and slow. Be proactive. Manage the bank accounts you will be using in the mortgage application. Try to avoid non-payroll deposits. If applicants do this ahead of time, they will experience less aggravation later in the process. If there are non-payroll deposits, work on that information and have it ready to share. Some mortgages these days qualify for the president’s initiative, Making Homes Affordable (MHA) program. This enables some borrowers with loans backed by Fannie Mae and Freddie Mac to refinance their loans with no appraisal and no ratios. These are bank-to-bank transactions. You need to go back to the institution servicing your loan. MHA mortgages do not require the usual documentation and are relatively easy loans to get done. If you need a purchase mortgage or a non-MHA refinance, you have to prepare yourself for the reality of today’s underwriting standards. ? Bill Starrels is a mortgage loan professional who lives in Georgetown. He can be reached at 703-625-7355 or by email, bill.starrels@gmail.com

Not Out of the Woods Yet

The economy is not out of the woods yet.  In order for the economy to stabilize further the housing market has to get stronger. A just released S&P Case Shiller report is headlined, “2012 Home Prices Off to a Rocky Start.” In a comparison of January 2012 with January 2011 of major metropolitan areas, only Washington, D.C. , Miami and Phoenix showed price increases.  Merrill-Lynch pointed out that only Washington, D.C., and Miami had increases in unadjusted data.  The worst performing metropolitan area was Atlanta, Ga., which posted a one -year change of -14.8 percent. Even major metropolitan areas including New York, Chicago and Los Angeles posted declines. Federal Reserve Chairman Ben Bernanke spoke at George Washington University, and he highlighted the same cautious tone he has been stating for months.  He was noted as saying that that it is too early to declare victory on the latest economic recovery. The Fed will continue its accommodative monetary policy. Bernanke said that the depression of the late 1920s and '30s was much more disruptive and severe than the recent Great Recession.  He stated that without the forceful response by the Fed the outcome would have been much more severe. Bernanke spoke to a likely slowdown in the second half of the year and did not rule out future monetary easing by the Fed.  Speaking on employment, he noted that the numbers were “significantly below pre-crisis levels” and that unemployment is well above sustainable levels. The chairman said the Fed is not paying attention to the election calendar and will not allow the election to influence its actions.  If the Fed enacts more simulative actions in the fall, it will be in reaction to economic conditions -- and not because of the pending election. Pending home sales for February showed a decline of 0.5 percent month-over-month in February. January had posted an increase of 2 percent. The consensus was for an increase of 1 percent.  This was another sign of the fragility of the economic recovery. The Washington area seems to be one of the more stable economic areas and housing is doing better here than in most areas.  Mortgage rates continue to be near-historic lows.  Rates remain in a narrow range in the next several months.  With the Feds cautious tone, the fear of a spike in interest rates seems remote at best. Bill Starrels is a mortgage loan officer who lives in Georgetown.  Starrels specializes in refinance and purchase mortgages. He can be reached at 703-625-7355; bill.starrels@gmail.com

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, bill.starrels@gmail.com***

Homebuyer Tax Credit Lives

On November 6th, 2009 The Worker, Homeownership and Business Assistance Act of 2009 was signed into law. The law extends and expands the first-time homebuyer credit allowed by previous Acts. Highlights of the new law include the following: - Extends deadlines for purchasing and closing on a home. - Authorizes the credit for long-time homeowners buying a replacement principle residence. - Raises the income limitations for homeowners claiming the credit. Under the law, an eligible taxpayer must buy or enter into a binding contract to buy a principal residence on or before April 30, 2010. Closing on the home must take place no later than June 30, 2010. Taxpayers on qualifying purchases made in 2010 have the option of claiming the credit on either their 2009 or 2010 tax return. Long-time homeowners who purchase a replacement principal residence may also claim a homebuyer credit of up to $6500 for married couples or $3,500 for single filers. The homeowner must have lived in the principle residence for no less then five of the last eight years ending on the date the replacement home is purchased. Another enhancement to the legislation includes higher income limits for homes purchased after Nov. 6. The credit phases out for individual taxpayers with modified adjusted gross income (MAGI) between $125,000 and $245,000 for joint filers. The existing MAGI phase-outs of $75,000 to $95,000 or $150,000 to $170,000 for joint filers still apply to purchasers of home on or before Nov. 6. The maximum purchase price of the home under the new rules is $800,000. Additional information includes: - Credits apply only to homes used as a principle residence by the taxpayer. - The credit will either decrease a taxpayer’s bill or increase their refund dollar for dollar. - Is fully refundable, and will be paid out to eligible taxpayers even if they owe no tax or the tax credit is more than the tax owned. The homeowner does not have to pay back the tax credit unless the home ceases to be their primary main residence within a three-year period following the purchase. This means the home cannot become a rental property or a second home during the three-year period. According to statistics from The National Association of Realtors upwards of 350,000 homes were sold as a result of the homeowners tax credit legislation, and upwards of 500,000 additional home sales are anticipated as a result of the new legislation. With the extension and expansion of the legislation, this continues to be an excellent time to purchase a home. Bill Starrels lives in Georgetown and is a senior mortgage loan consultant. He can be reached at 730-625-7355 or [bill.starrels@gmail.com] (mailto:bill.starrels@gmail.com).

Rumblings at the Federal Reserve

There was a shot across the bow in the financial markets on Feb. 18, when the Federal Reserve raised the interest rate it charges banks for emergency loans. The markets reacted predictably to the news. The bond market sold off with the yield on the 10-year treasuries, moving to 3.8 percent, a level not seen since late last summer. Mortgage interest rates, which follow the lead of the 10-year treasuries, also moved higher. Earlier in the day, rates for conforming 30-year fixed rate loans were around 5 percent with no points. By the end of the day the same rate commanded three-fourths of a point more in fees. The rates on 15-year fixed rate products essentially moved 12.5 percent higher in rate. Similar moves were seen in government-backed mortgages, otherwise known as FHA or VA loans. Rates essentially were an eighth higher then before the Federal Reserve’s actions. The slight tightening reminded people that the Fed is looking forward to exiting some government-sponsored programs and future tightening of interest rates. The Fed still views the overall economy as recovering from the severe recession, but highlights that the economy is still not strong. Until the economy proves that it is in much stronger condition, the Fed is not likely to do any broader policy hikes. Some called the reaction to the Fed’s decision overblown and highlighted the rise in the discount rate of .25 bps was not reflective of the economy as a whole and was a normalization of some aspects of the credit markets. Remember, Wall Street loves volatility. One has to keep in mind that traders make money when markets move. Most economists still think true tightening by the Feds is a ways off. Most are calling for tightening to begin no earlier then 2011. Others think the tightening may further down the road. The bottom line is the economy has to show stronger signs of economic strengthening before rates are raised. Mortgage interest rates will eventually rise, but presently remain low. It is still an excellent time to refinance or purchase a home. The Federal tax credit for buying homes is still in place. House prices remain low compared with prices of a few years ago. As we all know, what goes down eventually moves back up. Bill Starrels lives in Georgetown. He is a mortgage loan consultant. Contact him at 703-625-7355 or bill.starrels@gmail.com.

The State of Mortgages

  -Mortgage rates remain in a narrow and favorable range. In recent days, rates for 30-year fixed-rate mortgages as gauged by Freddie Mac averaged below 5% percent again. This means for a primary house mortgage with at least 20 percent down and very good credit, rates are quite attractive. Interest rates on government insured FHA and VA mortgages were slightly higher. Fifteen-year mortgage rates typically carry rates that are around a half to three-eighths lower then typical 30-year rates. Interest rates on adjustable rate mortgages that have fixed terms of three, five and seven years were approaching a rate of 4 percent. The turmoil in the European markets produced instability in stock markets worldwide. When stock markets falter, investors put money into safer investments, which include the bond market. When bonds do well, so do interest rates. The yield on the 10-Year Treasuries was testing the 4 percent level before the turmoil in the stock markets. The yield for 10-Year Treasuries is now in the 3.5 percent range. The “flight to safety” should continue for at least the short term. Inflation or the fear of inflation is the major driving force for a rise in interest rates. There is little fear of inflation, nationally or globally. Some economists state that the long-term trend in inflation globally is titled in the direction of less inflation or even deflation. In the short term, there is no doubt that inflation is well under control and there is no fear of inflation rearing its head. If the European Union slides towards recession, then there will be no chance of interest rate rises by the Federal Reserve in the foreseeable future. Employment is starting the long road back to recovery. Jobs are starting to increase. However, more people are coming back into the job market, looking for jobs. That is why the unemployment rate rose to 9.9 percent, even though there was healthy job growth. There is a lot of work yet to be done. Underwriting standards remain strict. This means a loan has to be well documented with all the income and asset statements. If there is a gray area on a loan, the underwriter will cast doubt instead of giving the benefit of the situation. Mortgage loans are available, but the client has to be well qualified. If you are in the market for a mortgage, this can be a good time for you. Rates are low and as long as you can meet the underwriting criteria, you should end up with an excellent mortgage. Bill Starrels lives in Georgetown, specializing in residential mortgages. He can be reached at 703-625-7355 or bill.starrels@gmail.com.

The Markets are Volatile

  -The roller coaster ride in the financial markets continues. Some of the swings are good for interest rates — some are not so good. At best, it is a nerve-racking time for anyone who is watching their investments. The severe economic problems in Greece precipitated a flight to quality — a rapid switch by investors to less risky investments such as gold or bonds — in the markets. Investors sold off stocks in a large way. The Standard and Poors 500 index has had a wild ride in the last few months. The index topped out on April 23 at 1,217 points, and on May 25 dipped to 1,025 — a swing of 16 percent. The 10-Year Treasuries on April 23 yielded 3.82 percent, just shy of its high watermark on April 7, when the yield was 3.86 percent. On May 25, the yield dipped to 3.16 percent. The London Interbank Offer Rate (LIBOR) index, to which many adjustable rate mortgages (ARMs) are tied, spiked to 1.016 percent in May from a low of 0.846 percent in February. Most adjustable rate mortgages add a margin of 2.00 percent to the index that gives the mortgage holder their newly adjusted interest rate. This means those newly adjusted ARMs would be around 3 percent. These rates are still very low by any standards. This is a good time to be educated on locking and floating interest rates. When you take out a mortgage for a purchase or refinance mortgage you have to choose when you want to lock in your interest rate. You can lock it in at the time of application on a refinance (though on a purchase loan you need to have a contract in place). The lock exploration can be anywhere from 30 to 90 days. If your settlement date on a purchase is 45 days out, then you need a 45-day lock. Once you decided to lock in, the rate will not go up or down during the lock-in period. If you locked for 45 days at 5 percent with no points, this will not change during the 45-day period. If your lock expires before the settlement can be completed, then the lock has to be extended. If the “new” rates are higher then the “original” rate, then the “worst case” scenario is used. In this example, if 5 percent now costs a half point, then the new rate will be 5 percent with half of a point. If rates are lower when the lock expires, then the original lock is used. So if the “new” rates are 4.875 percent with no points, the customer does not get the lower rate. They would have to stay with the 5 percent rate. Sometimes rate locks can be extended before the locks expire. There is no advantage in letting a mortgage lock expire. The only time the newer rates can be used is if the rate has expired and over 30 days have elapsed. During this period of turbulence, interest rates have gone lower, which has caused a lot of customers to question if it is a good time to lock in or if they should look for even lower rates. Those who were locked in questioned if they could float down to a new, lower rate. On rare occasions a float down can be accomplished. For this to happen there has to be a very significant drop in rates that allows for an adjustment to be made. The bank has to add on some additional pricing so it does not lose money on the adjustment. The usual outcome is the prevailing rate, plus 1/8. The latest fluctuation in rates was not enough for a float down to be triggered. During these periods of market instability, instead of trying to time the markets, jump on rates when they tick down. If you are offered a fixed rate with a “4” in front of it, be happy. Remember that rates generally rise faster than they fall. Bill Starrels is a mortgage loan officer who lives in Georgetown and specializes in refinance and purchase mortgages. He can be reached at 703-625-7355 or bill.starrels@gmail.com.

Rent or Buy?

  -With mortgage interest rates low these days and the rental market in the Georgetown area stubbornly high, many prospective renters are taking the time to examine if the time is right to purchase a property. Rates on mortgages range from around 4 percent for adjustable rate mortgages to 5 percent or slightly higher for fixed rate conforming mortgages. A conforming mortgage is a mortgage backed by Freddie Mac or Fannie Mae, which can range up to $729,000 in Washington, D.C. The District is a high-cost area that allows for this high mortgage limit. Rates are about the same for government-backed FHA mortgages. Loan limits for FHA loans also go up to $729,000 in the District. The required down payment, if the house is a primary or second home, ranges from 10 percent on conventional mortgages to as little as 3.5 percent on FHA-backed mortgages. What would the payments look like? Per every $100,000 borrowed at 4 percent, the payment would be $477 a month for a principle and interest loan. The payment on an interest-only would be even lower: $333 a month. These figures do not include taxes or insurance. Appreciation is another motivation for buying instead of renting. Georgetown area real estate has held up well during the Great Recession. A lot of real estate watchers think that prices have stabilized and prices will likely go higher over the next few years. Tax incentives are another motivator. The mortgage interest deduction is alive and well in America. One can deduct the mortgage interest expenses on a primary or secondary home. Investment properties also have a lot of tax advantages. In recent years, parents of some university students in Washington have even bought houses instead of paying rent for their sons and daughters. If one buys a house for their son or daughter and rents other parts of the home to four or five other students, it is not too hard to produce adequate, after-tax cash flow. If a mortgage is around $4,000 a month and one has four renters, in addition to their son or daughter living on the property, the numbers can work. This is one of the reasons for the number of rental houses around area universities. Up until a few years ago one could buy a house in the Georgetown area and in four years sell the home at a handsome profit. The days of a guaranteed profit have not yet returned. If the money for a down payment and closing costs is not a problem, then buying a house can be a smart alternative to renting. Even amid a volatile stock market, Washington area real estate is stabilizing, which makes putting money into local real estate an attractive option. As one should do when looking at any other investment, consult your financial professional when making this type of decision. Bill Starrels lives in Georgetown. He is a mortgage loan officer who specializes in purchase and refinances mortgages. He can be reached at 703-625-7355 or by e-mail at bill.starrels@gmail.com.