-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 email@example.com.
-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.
-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 firstname.lastname@example.org
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.
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.
Mortgage underwriting rules have gone from a bad extreme of four or so years ago to an equally bad extreme today. In order to obtain a mortgage, you basically need to be prepared to go into a full documentation loan. You will need pay stubs, W-2’s, asset statements for a couple of months. If you’re self-employed add to the pile your tax returns. All pages will be necessary. (If your accountant sends you them in a PDF, send the PDF). If you own a business or are a partner in a law firm, be prepared to include business returns including K-1’s. If the income of the applicant has fallen over the last year, then be prepared for a letter of explanation so the underwriter gets comfortable with your income. For self-employed income from tax returns, it is generally averaged for the last couple of years. For assets, one needs to start with bank statements for sixty days, all pages, even if the last page is an advertisement for other bank products. Next are stock and 401K statements for sixty days. If there are deposits on the bank and or stock statements, the underwriter is likely to ask for explanations for those deposits. Even small deposits of one or two hundred dollars will be scrutinized. With all the introspection of assets these days, it makes sense to plan ahead on what monies one wants to use for an eventual home purchase. For starters, try using direct deposit for paystubs. Do not cash and then redeposit paychecks. Otherwise one is making a simple transaction more involved then necessary. If a consumer is getting gift money, it is a good idea to know ahead of time what is going to be asked. First, the person who is gifting the money will need to produce a bank statement showing where the money is coming from. (If the account has a lot of recent deposits, the underwriter may ask questions). Next, the recipient has to show the money going into their account. Proof of deposit will be asked for. The bank will provide a form that the donor will have to fill out along with the recipient. Keep in mind the donor has to be a relative of the applicant. Credit reports and scores are more important today than ever before. If you know you are going to be in the market for a new mortgage in the next several months, pull a credit report. If there are problems, it gives one time to correct them. It is also important to have enough lines of credit to qualify for a mortgage in today’s market. Three lines of credit used for at least twelve months are required. Even if you don’t believe in credit cards, maintain at least a few and charge a few items and pay them off each month. This will help satisfy the credit requirements. Knowledge is power and will help make the process a little easier to handle. Bill Starrels is a mortgage loan officer who lives in Georgetown. Bill specializes in purchase and refinances. He can be reached at 703 625 7355 or Bill.Starrels@gmail.com.
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 GBusch@FSavings.com or 202-256-7777.
Interest rates continue to be in a narrow range, being pulled in different directions depending on the events of the week. Generally speaking, turmoil and unrest in the world create anxiety. Anxiety causes the markets to gravitate to bonds, which tends to help rates go down. When the markets highlight the strengths in the economy, rates tick up. When the markets concentrate on political instability, then bonds and rates gain favor. When events in Egypt quieted down and Libya, although far from settled, seemed manageable, the events painted a picture of relative stability for investors. This triggered a flight to stocks and money came out of the bond markets. So rates started to move higher again. The housing markets continue to sputter. House prices are stable to moving slightly higher in the Washington, DC marketplace. Once outside of the DC metropolitan area, the housing markets tend to be less stable, with prices stable to declining. Condominium pricing is still trying to find stability. One trouble spot for condos these days are the strict rules Fannie Mae and Freddie Mac have on approving condominiums. When owners have a difficult time selling their unit, many owners turn their condos into investment/rental units. If too many apartments turn into rental units then the investor ratio can get out of whack. If this happens it can be difficult for Fannie Mae or Freddie Mac to write mortgages on the property. Another item one has to keep in mind is the budget for the condominium can be put at risk if there are any delinquencies in the property. This can temporarily wreck condominiums reserves. Underwriting standards remain strict. Full documentation is required on almost all loans these days and account for most of the mortgages being underrated today. Standards do remain strict. Credit standards remain high. In order to get the back rates on conventional loans it takes a credit score of 770 or higher to get the best rates. When credit scores get significantly lower then the fees and ultimately the pricing is more expensive. This is why it is a good idea for a homeowner to get a copy of their credit report every couple of years or so. If there is a problem with the credit report, a consumer can get it repaired. If problems are left alone the credit scores will continue to stay low or go lower. Housing continues to lag. The Federal Reserve noted that the real estate markets showed “some gains from still weak levels”. Oil prices may prove to be a drag on the overall strength of the economic recovery. It will be interesting to see how the spike in oil will affect interest rates. Stay tuned. Bill Starrels lives in Georgetown. He is a mortgage banker who specializes in purchase and refinance money. He can be reached at 703 625 7355, Bill.Starrels@gmail.com
A couple of years ago, if a homeowner was offered a jumbo-sized mortgage for a home in Washington for 4.375% they would beg for the loan to be locked. In fact, the customer would probably think the mortgage loan officer was misquoting his or her rate sheet. But that was 2009. Today clients sometimes let greed take over. A lot of borrowers are taking their time in making the decision to move forward in anticipation of even lower rates. Remember 2008 – 2009? The sky was falling. Banks were failing by the hundreds. The Treasury Department headed by Henry Paulson, formerly of Goldman Sachs, launched the TARP program under President George W. Bush in order to stabilize the financial system. Fast forward to the recent midterm elections. Democrats lost the House to the Republicans because many voters believed that among other things that the Democrats were the architects of TARP and that TARP did not work. TARP did pass with the help of Democrats and TARP did salvage the banking system. In fact the Government may make a profit from TARP. The country is climbing out of the deep recession slowly. The recovery is proving to be a slow one that will take time. In reaction to the slow pace of the recovery, the Federal Reserve Bank announced “Quantitative Easing 2,” or “QE2,” which entails the buying of $600 billion dollars of Treasury bills in order to stimulate the economy by keeping Treasury prices at lower levels. With the stimulus program, the Feds also are attempting to keep interest rates down. In early November, before the Treasury started its pre-announced buyback, rates reached the lowest levels that the markets have seen since the 1950s. Unfortunately, even when interest rates hit new lows, perspective mortgage clients can let greed take over. Some folks are always hoping for still lower rates. There are a few reasons why rates have moved higher since the Treasury buyback was announced. First, everyone on Wall Street and elsewhere knew what the Federal Reserve and its Chairman Ben Bernanke were planning on doing. The prices of the 10-year Treasuries and those of the mortgage market reflected the anticipated program. Others are talking about the potential inflationary effects of a devalued dollar. Since the buy back program was announced, the rate on the 10-Year Treasures has gone up and interest rates have also ticked up. Interest rates should stay in a relatively narrow range for the near term. If you can save hundreds of dollars now, go ahead and pull the interest rate trigger. Your next worry will be how to spend the money you will be saving. Bill Starrels lives in Georgetown and is a mortgage loan officer. He can be reached at 703 625 7355 or by email, bill.Starrels@gmail.com