The Federal Reserve Surprises

The Federal Reserve Board of Governors surprised almost all Fed watchers when it decided at its Sept. 18 meeting not to start tapering with its $85 billion bond-buying program. The program consists of the Fed buying $45 million in 10-Year Treasuries and $40 in mortgage-backed securities. In explaining why it chose not to start tapering, the Fed cited continued weakness of the overall economy. They pointed to a few concerns in the current economy; employment, inflation, a recent spike in rates as well as the government sequester. The unemployment rate remains elevated. The labor participation rate is low. This means that there are many workers who are not looking for work, which means the actual unemployment rate is higher, perhaps significantly higher than what is being gauged and reported these days by the Department of Labor. Other worrisome factors that made influenced the Fed’s decision included pullback of government investments because of the ongoing sequester and other cutbacks. The uncertainty of the raising of the debt ceiling and the possible government shut down also part of the concerns. These items are ultimately a drag on the economy. The inflation rate, or lack thereof, was also cited. The Fed has called for a steady 2-percent rate of inflation to one of the foundations for a healthy economy. Currently, the inflation rate is 1.3 percent. This is well below the target. The Fed is concerned about possible disinflation. In chairman Ben Bernanke’s press conference, he showed charts by the Fed that predicted that the 2-percent inflation target would not be reached until 2016. The Chair reiterated that the Fed would not raise the Fed Funds Rate until the goals are archived. Taken at his word, the Fed is not likely to raise the key Fed Funds rate, which is currently at 0 to ¼ percent, until late 2015 or early 2016. In explaining its accommodative monetary policy, the Fed states: “It will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.” The Fed also expressed concern about the recent increases in mortgage interest rates. The Fed is worried the recent spike in rates is hurting the economic recovery. For the time being, the Fed will be very accommodative in an effort to keep the overall economy moving forward. Expect the bond markets and mortgages to readjust yields lower in order to reflect the Fed’s current outlook. Bill Starrels lives in Georgetown where he works as a mortgage loan officer. He can be reached at 703-625-7355 or bill.starrels@gmail.com

Mortgage Standards Getting Tougher

There is one constant in the mortgage industry these days. It is not easy getting a mortgage. Well, folks, coming to you in 2014 – even tougher mortgage standards. The Consumer Financial Protection Bureau (CFPB) has announced new rules for a new class of “qualified mortgages” unveiled on Jan. 10. Banks that underwrite mortgages that meet the criteria as “qualified mortgages” will be protected from homeowner lawsuits which is a big win for the banking industry. This comes on the heals of the multi-billion dollar settlements the nation’s largest banks just paid to Fannie Mae and Freddie Mac. Some of the basic changes in the new rules include; •Lowering the maximum loan to value ratio to 43% •Eliminating interest only mortgages •Limiting up front fees charged on a mortgage •Eliminating most low documentation loans •Raising the amount of down payment required on mortgages Reactions by various industry leaders where mixed. Debra Still, chairman of the Mortgage Bankers Association, said that the MBA agrees that the goal of the regulations, ensuring that borrowers receive loans they can repay, is in everyone’s best interests. The MBA did express some reservations about some aspects of the new rules that could curb competition and perhaps increase some costs. Fred Becker, the president and CEO of the National Association of Federal Credit Unions, embraced the inclusion of credit unions in the new umbrella. Becker said, “NAFCU strongly believes that the safe harbor approach is preferable for all parties involved in a mortgage loan transaction as it provides parties clarity and certainty, and consequently discourages frivolous lawsuits, claims or defenses.” It appears that industry leaders see the protection against lawsuits as a good tradeoff for the tightening of constraints of underwriting standards. The National Association of Home Builders was cautious in its reaction, stating that the new rules should strike a “proper balance” that encourages lenders to appropriately provide credit to qualified borrowers while assuring financial institutions they will be protected from lawsuits if they follow the rule’s criteria. The industry has gone from very lax underwriting standards which helps lead to the housing crisis of 2008. Many have commented that standards had swung to the other extreme. Now, the rules are getting tighter. We hope he new, stricter rules will not constrain the market further. Bill Starrels lives in Georgetown and is a mortgage loan officer. He can be reached at 703- 625-7355 or bill.starrels@gmail.com.

Economic Numbers Continue to Impress

The February employment numbers blew the doors off consensus numbers. In February, the economy produced 236,000 new non-farm payroll jobs. The consensus was around 165,000. So the new numbers were 71,000 higher then predicted. The unemployment rate fell from 7.9 percent to 7.7 percent. It was an excellent report. Interest rates after the release of the employment numbers hit the highest levels since May of 2012. Generally speaking good news on the economy means higher mortgage interest rates. Consumer spending continues to be strong. This is likely attributable to continued robust consumer spending. Many economists expected consumer spending to decline after the increase in payroll taxes in January, which resulted in a decline in take home pay. One theory is the wealth effect. Household wealth is at its highest level since the third quarter of 2007. This figure represents the difference between the value of household assets and liabilities. The record highs of the stock markets, which in the first full week of March were at its highest level ever helps contribute to the good feeling of the consumer. Household income has held up surprisingly well in recent months. House prices are strong. Housing inventory is at very low levels. With demand rising and inventory at low levels, prices are increasing. Merrill Lynch increased its prediction for home appreciation. The new prediction is for single-family houses to appreciate by 8 percent in 2013. Prices were up 7.3 percent nationally in 2012. The housing affordability index is excellent. Mortgage interest rates are at low levels and house prices are still attractive. Both are off of their historic lows. The Federal Reserve Board of Governors has repeatedly stated that they will not stop their current foundation of low rates until the unemployment rate reaches 6.5 percent. No matter how pretty the February numbers were, the distance between an unemployment rate of 7.7 percent and 6.5 percent is a long one. There will be more fluctuations in the economy in the near term. Mortgage rates will likely stay in a relatively narrow range in the near term. Rates have bounced higher off of the recent historically low levels. Economists warn that sequestration may temper economic progress starting in the next couple of months. One strong employment report is good. Economists are anxious to see if the accelerated employment can be sustained in the next couple of months.?

DC Market is Getting Hotter: Get Pre-Approved Now

Over the last several months, I keep hearing DC realtors saying the same thing, "Buyers are wanting to buy, but there is very little inventory on the market to sell." In desirable areas, multiple offers seem to be common once again and buyers are getting frustrated loosing out in these competitive situations. According to a report released by the national housing research firm, Metro study Report, the volume of DC metro listings on the market has dropped down to 3.6 months of supply from a peak of 11 months existing supply back in 2008. The limited home inventory in our area is likely to continue through 2012 with strong local job growth, decreasing short sales and foreclosures, and a lack of new buildings coming to market. The best advice for someone looking to purchase is to get pre-approved. Don't wait till you find the house of your dreams, as it may be too late. Do it up front - maybe even before finding a realtor . With the implementation this year of the Dodd Frank bill and FHA (Federal Housing Administration) tightening lending guidelines, sellers are sure to scrutinize, more than ever, a buyers' ability to get to closing. Nobody wants to accept a contract from a wishy washer buyer, even if they may be offering a little more. Getting pre-approved lets the seller know that you are credible, with FICO scores and income that meet the strict criteria of today's lending climate. The benefits of getting pre-approved are many, First, it saves you time and heartache by looking in the right price range. Second, as described above, it makes you a stronger candidate when you do make an offer, thereby increasing your negotiating power. Here are some great tips in starting the pre-approval and buying process: 1) Determine how much you can afford up front, Remember that when you hear the total monthly payment make sure you are looking at the approximate after tax payment. If your lender tells you that you can not qualify for what you want to buy think about a family member co-signing., 2)Have a lender run your credit report to check your scores, sometimes the credit scores you get on line can vary from the scores lenders get from mortgage credit reporting companies, good credit scores are important if you want a good rate, Sometimes it can take as much as 6 months to improve your scores so act now before you start looking for a house. 3)Make sure you enough for a down payment and closing costs. Have your lender calculate what you need for cash in the bank. A rising numbers of young people struggling to buy their first home are being forced to ask their family for help with down payment and closing costs, Work out an arrangement where one day you will pay them back with interest, With FHA and conventional financing you can put down as little as 3% these days!!!! 4) Hire a real estate agent: As a buyer of a home, especially being a first time buyer, you will want to have an agent represent you on your purchase. A buyers agent that you hire will have your best interest in mind and help you in evaluating the value of the property and negotiating the best possible price and terms in making an offer. Additionally your agent can help you with the many facets of the transaction process, connect you with a reputable lender and inspector and other service people. The buyer agent is paid from the transaction by the seller. One of the best ways to select a Realtor to help you find a home is through a referral from a friend, work colleague or neighbor. Another is by going to open houses and talking to the different agents holding the various homes open. Finally, since a full mortgage approval is taking somewhat longer these days it is to your advantage when you make an offer to shorten your financing contingency to 21 days or sooner. Being pre-approved can allow the lender to speed up the loan process and get the appraisal ordered immediately once you have a ratified sales contract. If you can accomplish a faster close date your offer will be looked at more seriously by the listing agent and seller if there are multiple offers. Gregg Busch is a licensed mortgage loan officer and Vice President of First Savings Mortgage. Gregg has over 20 years of mortgage banking experience and can be reached at Gregg@Greggbusch.com.

Let’s Have Some Refinance Relief for FHA Mortgage Loan Holders

On April 18, 2011 the mortgage insurance premiums (MIP) were increased on all Federal Housing Administration mortgages.  The old monthly premium was .55 percent.  The new premium is 1.1 percent, or double the older ratio. This change means an increase in premiums for those looking for purchase money loans, plus existing FHA mortgage holders interested in refinancing. The increase affects FHA-to-FHA refinances. If the president is serious about encouraging refinances of government-backed FHA mortgages, then the rules need to be relaxed on refinances.  The rule now means that individuals who have an FHA mortgage that pre-dates the MIP increase are subject to the much higher MIP if they want to refinance. The 100-percent increase negates most of the savings on refinances. From 2006 to 2010, there were approximately 3,200,000 FHA mortgage loans taken out (excluding reverse mortgages).  All these mortgage holders would be subject to the higher MIP if they refinanced today.   On a 300,000 mortgage, the older monthly mortgage insurance premium on a 95-percent FHA loan would increase by $140 a month. Unless the customer is coming down from a very high mortgage interest rate, the higher MIP would all but wipe out the savings of the lower rate. The government should grandfather the older MIP formula for customers who have been paying on time with their older FHA loans. The rules need to be modified for these folks. The rational for the premium increase was to bolster the reserves used for FHA mortgages that result in default.  The default rate for FHA mortgages has been in the eight- to nine-percent range for the last few years.  The percentages of defaults have lessened some because of the higher quality of originations, due to vigorous underwriting standards.   This rule fix should be a priority for the president and Congress when they tackle economic issues this year. It is a simple fix that would help tens of millions of homeowners who hold government-sponsored FHA mortgages. If 40 percent of the mortgage holders from 2006 to 2010 refinanced and the average savings was $250 a month, this would amount to a “stimulus” to the tune of just under $500,000.00 with little cost to the government.   Bill Starrels lives in Georgetown and is a mortgage loan officer specializing in refinances and purchase mortgages. He can be reached at 703-625-7355 or 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

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.

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 bill.starrels@gmail.com.

Navigating A Mortgage In Today’s Market

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.