It’s Time to Get Fiscally Fit
Bad News Is Good News
Bill Starrels • February 27, 2014
The employment report for the month of March released March 5, was as ugly as it gets. The consensus among economists was that around 200,000 new non-payroll jobs would be created. The number released was 88,000. Lipstick would not help this report.
Not that much could be more troubling then the report; the numbers released on labor participation were equally unpleasant. Labor participation gages the percentage of potential workers that are actively looking for work. 500,000 people were estimated to have stopped looking for work. This is the largest one-month decline since December of 1979.
This explains why the unemployment rate dropped to 7.6 percent If 500,000 workers had not stopped looking for work, the unemployment rate would have either stayed stagnant at 7.7 percent or even gone higher. It is not unusual in a growing job market to see the unemployment rate tick higher when the job market grows. This is because the available labor market gets larger when unemployed workers get more optimistic and start actively looking for work. This is one of the reasons this job report coupled with the labor participation numbers is troubling.
Some economists are pointing to the payroll tax rise, not the sequester, as the catalyst for this job report. As part of the fiscal cliff deal in Congress earlier this year the Social Security payroll tax was allowed to revert back to 6.2 percent from the temporary level of 4.2 percent. This cost the average tax payer around $100 a month is income, which is less money a lot of consumers have to spend in the economy.
Effects of the sequestration are about to come on stage. Workers affected by sequestration are typically having their overall hours and pay cut back by five or ten percent. These workers will have less discretionary money to spend which will be a further drag on the economy.
Bad news can be good news for bonds, and ultimately mortgage interest rates. Before the jobs report, some economists and talking heads were debating when the Federal Reserve would take its foot off the accelerator, implying that this would happen sooner then what the was being stated. Well, the “experts” will have to find something to talk about on CNBC or on the internet. This report clearly reaffirms that the stimulus by the Federal Reserve, including keeping rates low is not going away anytime soon. The bond markets reflected this when 10-Year Treasury notes were trading at their lowest point since May of 2012. Mortgage rates are close to historic lows.
The lower rates are hitting at the same time as the spring housing market is starting. This should keep activity active and is good for buyers who need mortgages.
Bill Starrels lives in Georgetown he is a mortgage loan officer. He specializes in purchase and refinance mortgages. Bill can be reached at 703-625-7355, firstname.lastname@example.org
Bad News Is Good News For Mortgage Interest Rates
Mortgage interest rates continue to hit new lows as the economy plods ahead slowly. Rates declined in reaction to disappointing job growth, according to a report released on July 6. The number of non-farm payroll jobs for June was up by 80,000. The consensus was 100,000 jobs. Some Wall Street firms raised their guidance to 125,000 after the release of a stronger ADP employment report the previous day.
As the report confirms, the reason for this market reaction is the economy’s tepid recovery. Rates simply are unlikely to move higher with a slow moving economy. Additionally, the Federal Reserve Bank may be prompted to do some quantitative easing. The markets are already pricing in more stimulus by the Fed.
Mortgage rates are at historic lows. Purchase mortgage rates 30-year fixed rate mortgages are priced in the mid-3 percent range. Fifteen-year fixed mortgages are below 3 percent. Rates for 5/1 and 7/1 adjustable rate mortgages are below 3 percent.
For every 200,000 borrowed at 3.5 percent on a 30-year note, the payment is $895 a month. At 5 percent, the payment would be $1,069 a month. This represents a savings of $174 monthly.
With the low interest rates, a borrower can get a larger loan than was the norm just a year ago. In order to get approved for a loan, a borrower needs debt to income ratios of around 40 percent. With historically low rates and home prices coming off their lows, the affordability index is excellent.
Other monthly reports were less than upbeat. The manufacturing index went down to a reading of 49.7 percent, below the 50 percent threshold considered the equilibrium. Readings below 50 percent are considered bearish. A factor contributing to this decline is the worsening of the EU economies. Exports are important to the manufacturing sector.
Goldman Sachs has reduced its target GDP for the Q2 GDP to 1.5 percent, one-tenth lower than their previous prediction.
Will rates still go lower? There is always the possibility. If one of the EU states stumbles in the weeks and months ahead, more money could flee to the safety of bonds. This could spur even lower rates. Meanwhile, rates could tick higher, too. Locking in at today’s low rates seems like the prudent thing to do.
Take advantage of the historically low rates and refinance, or consider buying that house or condominium.
Bill Starrels lives in Georgetown. He is a mortgage loan expert specializing in refinance and purchase loans. Bill.email@example.com or 703-625-7355.
Mortgage:Bad News Is Good News
Georgetowner • January 29, 2014
Bad news for stocks can be good news
for mortgage rates. Spurred by slower
growth in China and unease in emerging
markets, the stock market has been in a correction
When the stock markets tank, bond markets
are often one of the safe-havens. Ten-Year
Treasury notes closely mirror movement in the
mortgage backed securities markets and often
sends mortgage rates lower. This has translated
into good news for mortgage interest rates.
Current mortgage interest rates are at the
lowest they have been for a few
months. The trend appears to be
that rates are drifting even lower.
If a borrower has locked in a
loan over the last several weeks
and the loan is not closing immediately,
they should go back to
their lender and ask if they have a
price renegotiation policy. Most banks do have
a policy which allows a one-time rate change. It
doesn’t cost anything to ask.
In recent weeks Ten-Year Treasury notes
reached a high of 3%. Currently Ten-Year
Treasury notes are around 2.72%, a drop of over
twenty-five basis points in the first part of the
year. This is a large move.
The new Dodd-Frank rules have kicked in
for the banking industry. These rules have put
further limits on the institutions and how they
must qualify a borrower for a mortgage. No
one seemed to think the rules were easy in 2013,
and now the new rules are tougher. Ratios have
been contracted to a total allowable debt ratio of
43%. Credit lines now must be counted against
a borrower even if they are untouched. A lot of
homeowners do have lines of credit which have
no balances which may be a determent to their
ability to refinance or buy a second home.
The Dodd-Frank rules pose a downside risk
for the housing market. If these regulations
restrict the supply of credit, some households
looking to purchase a home could find themselves
shut out of the market, which would
weaken demand. A lot of observers
think the Dodd-Frank rules
may slow the recovery in the housing
Time will tell if the current
downturn in the equities markets
persists or moves to the sidelines.
If it becomes sustained for a period
of time, it will tamp down economic growth
prospects for 2014. This would potentially help
keep mortgages lower.
One of the most important reports around
the corner is the employment report on February
7. Most expect a strong report in January and
revised (higher) numbers for December. The
report will be the foundation for the near term.
Bill Starrels lives in Georgetown. He specializes in
residential mortgages. He can be reached at 703-625-
7355 or firstname.lastname@example.org NMLS#485021
Touting Local Lending, EagleBank Hits Mortgage Milestone
Nico Dodd • January 17, 2014
This September, EagleBank passed a milestone of $1 billion in mortgages. With 17 branches in the Washington metropolitan area and the bank’s 18th on the way in January, EagleBank is showing serious strength as the largest community bank in the Washington metropolitan area.
The Georgetowner discussed this milestone with EagleBank chairman Ronald Paul. Paul was a founding board member of EagleBank. It was founded in Bethesda, Md., in 1998.
“We’re the largest community bank in the metropolitan area based on deposits,” Paul said. Investing in the community is important to Paul. “We’ve been active in staying local,” he said. “And, to me, that’s an important part about business. That’s what’s going to support our economy.”
“We promoted a bill [which calls for local governments to switch deposits from national to local banks] in Montgomery County, and we have one proposed in the District,” Paul said. “For every dollar the District government deposits in EagleBank, we’ll match it with two dollars in lending in that marketplace. We’re working with Jack Evans in the District for it.”
“You know, we put money into a restaurant in Bethesda that hired 68 employees, in which a third of those were unemployed,” Paul said. “So, obviously the big banks are not going to do that. That’s why Eagle has been as successful as it is. If it weren’t for a community bank like EagleBank, that restaurant would probably have never opened. Those 30 people might still be unemployed. And that’s why it’s so important for us to be supporting these community banks.”
Relief for FHA Customers is on the Way
In the Feb. 21st Georgetowner, the newspaper ran its mortgage with the headline, “It Is Time For Refinance Relief for FHA Mortgage Loan Holders.” My article highlighted the problem Federal Housing Administration-backed mortgage homeowners were experiencing with their desire to refinance their mortgages because of the new, much higher mortgage insurance premiums that all but wiped out their interest rate savings.
You never know who is reading the Georgetowner. On March 6, President Barack Obama announced changes in fees charged to FHA-Insured borrowers. The following is the president’s statement released by the White House:
Reducing Fees for FHA Borrowers Seeking to Refinance: As part of the president’s aggressive effort to reduce barriers and costs for refinancing, the administration is also announcing that the FHA will cut its fees for refinancing loans already insured by the FHA. An estimated 2 to 3 million borrowers could be eligible for this savings, providing the typical FHA borrower with the opportunity to save about a thousand dollars a year through refinancing than they could have under today’s fee structure.
The president announced rule changes that do not require approval by Congress. Considering how productive this latest Congress has been, this is a good thing for homeowners.
Borrowers with FHA-backed mortgages who use the FHA streamline refinancing program currently are being charged an upfront mortgage insurance premium of 1 percent of the loan balance and an additional 1.10 percent for an annualized premium. FHA is lowering the upfront premium to .01 percent for streamlined refinances for loans originated before June 1, 2009, and the annual mortgage insurance premium is being reduced to .55 percent (which is what these mortgage holders are presently paying).
As an enhancement, the government is removing streamlined loans from the tracking mechanism called the “compare ratio” that tracks lender performance. By relaxing the requirement on streamlined loans the folks at FHA are in essence encouraging lenders to do more streamlined loans.
It will take some time for both FHA and the banks to update systems so the new FHA streamline rules can be implemented. Expect the new streamline loan program to be available in a couple of months.
The president’s latest initiative will provide significant savings for millions of current FHA mortgage holders. Many non-FHA mortgage loan customers with loans backed by Fannie Mae and Freddie Mac can presently refinance under the HARP2 program, otherwise know as the Making Homes Affordable (MHA) program.With the latest presidential initiatives, it is proving to be a great year to refinance a home mortgage loan.
Bill Starrels is a mortgage loan officer who lives in Georgetown. He can be reached at 703-625-7355; email Bill.Starrels@gmail.com.
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.
Mortgage: Dodd-Frank Brings Changes for 2014
Georgetowner • January 6, 2014
As we close out 2013, the mortgage industry is bracing for significant changes.
The new year will usher in updated rules, emanating from the Dodd-Frank legislation, as well as the tightening of FHA loan standards. These changes will make obtaining a mortgage more challenging for some folks.
The high-cost loan limits on FHA loans are being lowered in 2014. The present high loan limit is $729,000. The new limit will be $625,500. This will put the FHA high limits in line with the high-cost loan limits. Washington, D.C., and most of its close-in jurisdictions are treated as high-cost areas. FHA mortgages enable a borrower to buy a home with a down payment of only 3.5 percent. There are no income limits on FHA borrowers.
The allowable debt ratios will be tightened in the new year. The new rule limits the debt limit to 43 percent of income. This number is derived by taking the overall house payment and dividing it by the required payments on installment and credit card debts. The old limits were 45 percent or higher.
These rules pertain to any mortgages that will be sold to Fannie Mae or Freddie Mac, which back up the vast majority of mortgages.
One option that some lenders will have is to issue mortgages that are not backed by Fannie and Freddie. These are commonly called portfolio mortgages. A portfolio mortgage is a mortgage that is held in a specific bank’s portfolio, instead of being bundled and sold to Fannie or Freddie. The rules on portfolio loans can be more flexible than the rules for non-portfolio mortgages. Portfolio mortgages are usually jumbo mortgages, which start above $417,000, the limit for non-high-cost conventional mortgages.
Among the more flexible rules for portfolio mortgages are higher debt-to-income limits and, in some cases, high LTV loans with no mortgage insurance. Expect strict asset requirements with the jumbo portfolio loans. Also, for the super jumbo portfolio loans (higher than $1,000,000), larger down payments are typically required. These requirements get stricter as the loan amounts increase.
One result of the new rules will be seen in the once “more nimble” smaller lenders losing some of their flexibility. The larger banks which have large cash reserves will tend to be more eager to lend the jumbo money. This will be seen in aggressive rates and more flexibility.
Bill Starrels lives in Georgetown. He specializes in home purchase and refinance mortgages. He can be reached at email@example.com or 703-625-7355. NMLS #48502
Bill Starrels • November 21, 2013
-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, Bill.Starrels@gmail.com.
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
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
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@
gmail.com or 703-625-7355. NMLS#485021
The Government Shutdown and the Effect on Mortgages
Bill Starrels • October 24, 2013
The short-term agreement that ended the partial government shutdown and raised the debt limit ceiling, reached by Congress and signed by President Barack Obama, was greeted by a collective sigh of relieve by the mortgage industry.
The immediate reaction by mortgage markets saw an immediate moderation in mortgage rates. Conventional mortgage rates for 30-year fixed rate mortgages were up to 4.625 percent before the agreement was reached. After the agreement was inked, the rates on 30-year fixed rate mortgages came down to 4.25 percent with no points.
FHA mortgages were pricing around 4.25 percent to 4.375 percent before the agreement. Post debt-ceiling gridlock, FHA rates on 30-year fixed money was around 3.75 percent. This represented an improvement of more than 50 basis points.
If the debt ceiling was not raised, and the government defaulted on its debt, the markets would have been turned on their heads. Interest rates would have skyrocket that quickly. The only folks who disagreed with this dire assessment were the self-proclaimed economists of the Tea Party, which engineered the shut down and the threat of default.
The serious consequences of what default would have meant to the economy of the United States and to the world was one of the few conclusions that virtually all economists could agree on.
During the shutdown of the government, there were issues for folks trying to close on their loans and move into their new homes. Verification of employment was problematic for many banks which were doing what was once routine. Verifications of government workers buying new homes with a mortgage was a problem. Tax transcripts were unavailable during the shutdown. Some banks put a temporary waiver on this requirement. Rural loan products were stopped during the shutdown.
There were many home buyers who could not perform on their contractual dates due to the above circumstances. There are no provisions in contracts that deal with unexpected government shutdowns. How some of these played out will be interesting.
Perhaps Sen. Ted Cruz, R-Texas, who engineered the shutdown could explain to these innocent homebuyers what they were supposed to do.
Everyone hopes that there will not be a repeat performance by Congress in January. The ramifications on when someone can or cannot close on a home is far reaching for our economy, and this shows how “local” politics can be.