It’s Time to Get Fiscally Fit
End of Summer Rates Remain Hot
Bill Starrels • August 29, 2012
The summer of 2012 was one of the hottest on record, and mortgage rates were almost as hot as the weather.
Mortgage interest rates have established or flirted with record lows for most of the summer months. Thirty-year fixed rate mortgages have been in the mid 3-percent range for purchase mortgages and closer to 4 percent for refinance money. Fifteen-year money has been below 3 percent on purchase mortgages and slightly higher for refinance transactions.
The closely watched interest rate on 10-Year Treasury notes has been trending up in recent weeks as the stock market has been moving higher. The rates on the 10-Year note have most recently been around 1.85 percent as of late August. This has been a direct result in traders taking a more bullish sentiment on recent news. The 10-Year note has moved up around 40 basis points since early July.
The yield on the 1-year LIBOR (London Interbank Offered Rate) actually went down slightly in August to 1.05 percent. The low watermark for the 1-Year LIBOR was 0.78 percent in January 2011. The 1-Year LIBOR is the most important index for most mortgage holders. This is because most adjustable rate mortgages (ARMs) are tied to the LIBOR index. The LIBOR index has been kind to holders of ARMs. A typical loan carries a margin of 2.25 percent. In order to figure out the newly indexed rate on an ARM, you take the index value and add that to the margin.
1.05% 1-Year LIBOR (as of 8/22/12) + 2.25% margin value = 3.30% is the new rate
Many homeowners have done just fine after their adjustable rate mortgages have reset. Many times, the mortgage holder has enjoyed the maximum allowable adjustment, which resulted in a savings of hundreds of dollars. If a mortgage holder has an ARM at 5 percent for $200,000 their principle and interest payment is $1,074. The new payment at 3.3 percent would be $875 which represents a savings of $199.00 a month.
Everyone wants to know where the markets and interest rates will be as students repopulate Georgetown, and everyone comes back from vacation. A lot hinges on the September employment report and what the Federal Reserve Board of Governors does in its September meeting. If they do more to stimulate the economy, then expect to see the yield on Treasuries and mortgages to come back to early July ranges. The Fed will not act in its October meeting as the presidential election is only two weeks away from that meeting.
If one steps back from the volatility, one thing is clear, mortgage interest rates are in a great zone for homeowners, and rates are likely to stay in this level for some time to come.
It Is a Great Time to Buy a Home
Bill Starrels • August 10, 2012
With mortgage interest rates bouncing off all-time lows and house prices near recessionary levels, this is a great time to buy a house or condominium.
The National Association of Realtors’ Housing Affordability Index rose to its highest level ever in the first quarter of 2012. The index measures median home prices, median family incomes and average mortgage interest rates. The index rose to 205.9 in the first quarter, the first time the index was above 200. The index has been tracked since 1970.
NAR president Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami, says market conditions are optimal for homebuyers: “For those with good credit, we’ve never seen better housing affordability conditions or market opportunities than we see at present.” He adds, “although home prices are stabilizing and sales are rising, some buyers still have to jump through a lot of hoops to convince a lender that they are creditworthy, even for a mortgage that would be well within their means. This is especially true for self-employed buyers.”
The comments by the NAR president explain why it is important for homebuyers to be pre-approved for a loan. There are a few basic reasons why a pre-approval makes sense. First, with a pre-approval, the prospective buyer will find out how much of a mortgage he or she can qualify for and afford. The old affordability ratios have changed. Credit requirements are more stringent and can affect interest rates. Documentation standards have changed, as well.
The old rule of thumb was individuals could qualify to purchase a home around three times their gross income. Now, the ratio is significantly higher. It takes a professional to look at actual income and liabilities to come up with that exact number.
Credit scores are important. If the scores are too low, the borrower may not qualify for a loan. If he or she does qualify for a loan, the rates may be adversely affected. If the credit is pulled early enough, these problems can be addressed. Sometimes, the borrower can be re-scored, and sometimes those scores can go up by 50 to 100 points.
Documentation standards are strict, and verge on the unreasonable side of rationality. Full income documentation is now standard. For self-employed folks who write off almost all their income, they have likely written-off their chance to buy a house at a price level that matches their true pre-deduction income. Bank statements that are being used for the house purchase should be devoid of most non-payroll deposits. Any non-payroll deposits will have to be documented. To minimize things, a borrower should use direct deposit of payroll checks avoid small miscellaneous deposits.
With a little preparation, one can better negotiate the home buying environment and take advantage of this great home-buying opportunity.
Bill Starrels lives in Georgetown and is a mortgage loan officer who specializes in refinance and purchase mortgages. He can be reached at 703-625-7355 or email@example.com
As Mortgage Rates Drift Lower, it’s Time to Buy
Bill Starrels • June 8, 2012
Mortgage rates are being driven by continued European debt crisis. With the recent elections in Greece and France, further uncertainty rules the day in the European economies. In recent days headlines in The Wall Street Journal and other publications have talked about the European Union preparing for the departure of Greece from the EU.
While the European economy continues to generate uncertainty, the United States economy is showing signs of strength. Consumer sentiment in May was at its highest levels since January 2008 according to studies from the University of Michigan. Industrial production is strong. Projected automobile sales for this year have been increased.
Housing starts are strengthening. In April, Housing starts rose to an annualized rate of 717,000 homes in April. This is well over consensus numbers. Existing home sales reached an annualized rate of 4.62% in April.
Mortgage rates are continuing to reach lower levels. In the May 24, 2012 mortgage rate survey by Freddie Mac, the rate of thirty-year fixed-rate mortgages averaged 3.79%. The rate for fifteen-year fixed rate mortgages averaged 3.04%, all with 0.7 of a point.
In the January 5, 2012 the averages in the Freddie Mac Survey were 3.91% and 3.23% with 0.7 of a point. In January 2011, the rates were 4.77% and 4.13%
Since January 2011 the rates for 30-year fixedrate mortgages have been down approximately 100 basis points and 109 basis points on 15-year fixed rate mortgages. For homeowners who refinanced in late 2011 it may be worth refinancing—or considering refinancing—again.
Rates on adjustable rate mortgages are attractive these days. Rates on a 10-to-1 mortgage, the rate is around 3% and is fixed for ten years. An ARM can be an excellent choice if the homeowner who is planning on owning a home for ten years or less.
The Federal Reserve Board of Governors has already stated that it will not raise rates well into 2014. Economists are also pointing to continued turbulence and weakness in Europe. Thus it is likely mortgage rates will remain low for well over a year—and perhaps longer.
Finally, the affordability index is at its most attractive levels in recent times. With home prices well off their highs from five or more years ago—and interest rates at or near record lows—now is a great time to buy a home.
Bill Starrels lives in Georgetown and is a mortgage loan officer who specializes in refinance and purchase mortgages. He can be reached at 703-625-7355 or firstname.lastname@example.org
Where Is Common Sense Underwriting?
Bill Starrels • May 3, 2012
2011 was quite the year in the mortgage industry. Underwriting standards got even tougher even for the most qualified consumers.
The mortgage industry has gone from one bad extreme to another.
Before the housing and financial crisis hit, there was little quality control. If a potential customer was alive, had a social security number, one could get a mortgage. Income did not have to be verified, and sometimes assets didn’t have to be verified either. Basic standards had to be improved.
There are four major components needed to qualify for a mortgage. First, sufficient income is needed to obtain good ratios. A customer had to have a mortgage that requires no more than 40 percent of one’s income. Second is good credit. Third is decent equity, which means a decent loan to value (LTV). Fourth are adequate assets.
What is happening in today’s over-regulated mortgage environment are underwriting and auditing standards which are out of control. One can have perfect credit, strong income and assets a low LTV, and your loan will still be scrutinized for the most minor of details.
Virtually all of your non-payroll deposits will require letters of explanation. If you make the “mistake” of depositing that $200 reimbursement check from your son for concert tickets you will have to write a “letter of explanation” as to where the $200 came from. If you received $400 for some side job, you have to write a letter of explanation. You get the idea. Why is this required? Good question.
If you have any credit inquiries on your credit report, you will have to write a letter of explanation.
The best advice is to plan ahead of time. Avoid non-payroll deposits for 60 days leading up to your mortgage application. Do not apply for any additional credit up to and during the mortgage process, your credit will be checked prior to approval.
The days of common sense underwriting are over for mortgages. Will common sense underwriting standards come back one day? Hopefully. It’s going to take some thoughtful lobbying from consumers and bank executives alike. Today’s standards are simply inappropriately tough.
Bill Starrels lives in Georgetown and is a mortgage loan officer who specializes in residential refinance and purchase mortgages. He can be reached at 703-625-7355 or email@example.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 firstname.lastname@example.org
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 email@example.com.
Mortgages at Record Low
It has been an interesting summer in the mortgage industry. The following are highlights of where things are in the world of the mortgages.
Mortgage rates have stayed at or near record low territory for the last portion of the summer. There are a few factors that are keeping rates low.
First and foremost, the economy is weak. Job creation is inching along with the loss of government jobs wiping out the slow growth of private sector jobs. Without strong job creation, the economy will not be able to grow at a faster pace. Lack of jobs also squashes existing job holders from demanding more money from their employers. Without more money, folks cannot buy more goods, which is still another drag on the economy.
The dysfunctional Congress and their recent spectacle on the merits of raising the debt ceiling cast a pale on consumer and business confidence. With low consumer confidence, consumers tighten their belts – they spend less money. With businesses recoiling from the dysfunction on Capitol Hill, businesses spend less on expansion and find yet another reason not to hire new workers.
The downgrade of the nation’s debt by Standard and Poors further drove confidence down. The stock market recoiled at the news. Remember, when the stock market goes down, bonds go up. When bonds go up, yields go down. This is exactly what happened when the circus got out of control and Wall Street took a pounding.
The yield on the 10-Year Treasury note finished at 2 percent on Sept. 2, the same day the dismal jobs report was released. This represents a change in the yield of -24.5 percent from the same period last year.
The Federal Reserve Board of Governors recently announced that the Fed Funds rate will not be raised for the next two years.
Most adjustable rate mortgages are tied to the LIBOR index. The LIBOR index is trading near record lows. This means most adjustable rate mortgages are actually adjusting down. In order to compute how an adjustable rate mortgage is going to adjust you need a few things. First look at the note. The note tells the consumer what the index is. Next look at the margin. The margin will never change. To figure out the future rate, add the margin and the note. In early September the 1-Year LIBOR was at 0.8. Most loans have a margin of 2.25. This means the new rate would be 3.25 percent. The LIBOR index is likely to stay low for the near term.
Underwriting continues to be very strict and time consuming. A customer has to be fully documented in order to get a loan approved. Pay stubs, W-2’s for salaried folks and 1099’s and tax returns for self-employed are mandatory. Deposits that show on bank statements have to be explained. Loan files are now going through multi-stage audits which slow down the process and keeps the fact checking very stringent.
The days of “common sense” underwriting are a memory from a few years ago. Hopefully, one day in the not-too-distant future the industry will be able to move to more of a middle ground. Presently, the system has gone from one bad extreme to another extreme.
The constraints imposed in the mortgage industry are stagnating refinancing and the purchase of homes. Many people who would like to entertain selling their homes and moving cannot do so because of the more rigid underwriting guidelines.
For those who are in a position to refinance or purchase a home, now is a fantastic time to do so. Rates are quite low, and prices of homes are also at low levels. Eventually, rates and prices will go up.
What’s Behind Today’s Underwriting Guidelines
One question frequently asked is why mortgage standards are so strict these days. The reason for the stringent underwriting standards imposed is because of the very tight standards all mortgage loans go through after the bank has underwritten, closed and funded the loan.
When a mortgage loan fails an audit by Fannie Mae or Freddie Mac, the major loan servicers to the banks, the loan can be sent back to the bank that originated the loan, and the institution can be forced to buy the mortgage back.
According to the industry publication, American Banker, Sun Trust Mortgage in the fourth quarter of 2011 had $636 million in repurchase demands and a $215 million repurchase option. Sun Trust is a $177 billion-asset, Atlanta-based bank. Sun Trust’s CEO Bill Rogers was said that the increase in buy-back demands from the government-sponsored enterprises (Fannie Mae and Freddie Mac) was frustrating and hard to predict. Another institution, Flagstar received $190 million in buy-back requests in the fourth quarter.
The only way to avoid mortgage buybacks is by delivering perfect loans. This is why underwriting standards are what they are. Until Fannie Mae and Freddie Mac lessen their post-closing audits, the standards will not and cannot be relaxed. A perfect loan five years ago would not necessarily be acceptable in 2012.
Expect the process for loan approval to be tedious and slow. Be proactive. Manage the bank accounts you will be using in the mortgage application. Try to avoid non-payroll deposits. If applicants do this ahead of time, they will experience less aggravation later in the process. If there are non-payroll deposits, work on that information and have it ready to share.
Some mortgages these days qualify for the president’s initiative, Making Homes Affordable (MHA) program. This enables some borrowers with loans backed by Fannie Mae and Freddie Mac to refinance their loans with no appraisal and no ratios. These are bank-to-bank transactions. You need to go back to the institution servicing your loan. MHA mortgages do not require the usual documentation and are relatively easy loans to get done.
If you need a purchase mortgage or a non-MHA refinance, you have to prepare yourself for the reality of today’s underwriting standards. ?
Bill Starrels is a mortgage loan professional who lives in Georgetown. He can be reached at 703-625-7355 or by email, firstname.lastname@example.org
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; email@example.com
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, firstname.lastname@example.org***