It’s Time to Get Fiscally Fit
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
Mortgage:November 20, 2013
Georgetowner • November 21, 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 Federal Reserve Surprises
Georgetowner • September 25, 2013
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 firstname.lastname@example.org
Looking Beyond the Squall
Georgetowner • July 17, 2013
Sometimes, it is a good idea to look beyond the debris left behind by the squall and do an assessment of where things are.
Yes, interest rates have spiked from recent historical lows of several weeks ago when mortgage rates were in the middle three-percent range. However, mortgage rates are now moving in a relatively narrow range with the best execution for thirty-year fixed rate mortgages hovering in the mid four percent range.
Jumbo rates, for loans above $625,000 in the D.C. metropolitan market are priced very competitively to conventional rates. Rates on 15-year fixed rate money are below 4 percent for purchase rates. Adjustable rate mortgages, including seven-year ARMs are below 4 percent.
Today’s rates are similar to rates in late 2011. By historical standards, interest rates are in a very good range. The problem is that most people remember only the lowest of the low rates.
After the release of the mid-September FOMC minutes, Federal Reserve Chairman Ben Bernanke made a statement in order to calm the wild market reactions to his early speech from a week earlier which had caused a wild spike in interest rates and unease on Wall Street.
In his statement, Bernanke most notably referred to the unemployment rate. He said that the 7.6-percent unemployment rate overstated the strength of the labor market. This is very significant because the announced policy of the Fed has been that they would not think about raising interest rates until the unemployment rate was driven to 6.5 percent. Clearly, there is a long way to go for employment to get close to the Fed’s target.
By making these comments, the stock market regained its footing and the bond markets moderated. This helped mortgage rates go to the lower range of their recent range.
There will be increased volatility this summer. Economic news, good or bad, is likely to cause an occasional spike in the markets which will drive rates a little higher or a little lower depending on the news of the day.
Other economies are slowing, most notably China. The European Union is in the midst of stimulus for its economies. There are clearly a lot of pressures that should help the Fed keep rates in a relative narrow range this summer. ?
Bill Starrels lives in Georgetown and is a mortgage loan officer, who specializes in refinance and purchase mortgages. He can be reached at email@example.com, or 703-625-7355.
Mortgage Standards Getting Tougher
Georgetowner • January 16, 2013
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 firstname.lastname@example.org.
Not Out of the Woods YetMay 2, 2012
Georgetowner • May 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, email@example.com***
DC Home Prices Increase, Despite National Trends
Gregg Busch • July 26, 2011
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.
The Difficulties for the Self-Employed Borrower
Gregg Busch • March 25, 2011
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.
Georgetowner • November 17, 2010
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