Category — Mortgages

Well it finally happened, the federal reserve lowered interest rates. Its been my belief all year that the Federal Reserve would lower rates in the fall. Now that it has happened its important for consumers to understand what this Fed Rate Cut means to you and your mortgage.

First, for those that have a 30 year fixed rate mortgage it basically means nothing. The lower Fed Funds Rate DOES NOT mean that the 30 year fixed rate mortgage will go down. Actually, the 30 year can go higher as this chart illustrates. By December 2001, following 4.25% in cuts throughout the year, the 30 year mortgage was actually up to 7.07%.

Additionally, with the September 18th Fed cut the average 30 year fixed rate mortgage responded by increasing 5 basis points last week after the announcement. The chart above shows from the year 2001 to mid 20007, the 30 year fixed rate stayed relatively flat and has been predominately trading in a range of 5.875% to 6.25% since the spring of 2002.

But those that have short term adjustable rates, I myself having a monthly adjustable, may very well reap the rewards over the coming months and years if this rate reduction continues. You will notice by the two charts below, that the LIBOR rates, 1YR CMT and 11th District COFI have dropped nearly in tandem with the Federal Funds rate reduction. The LIBOR dropped from 7% in 2001 down to 1% not long after.

Fed Funds Rate since 1990:

Chart of LIBOR, CMT and COFI Indices since 1990:

The coming Fed rate reduction is why I have been a big fan of short term adjustable loans for the whole year. Short term adjustable rates are tremendous mortgage planning tools in a declining interest rate environment. Where people may tend to get into trouble, they get these loans in a increasing rate environment which makes no sense. Why would anyone get a short term adjustable in a increasing rate environment? Does not make sense to me.

Bookmark It

Hide Sites

President Bush announced a new Federal Housing Administration (FHA) initiative called FHA Secure to assist approximately 240,000 homeowners in refinancing out of adjustable rate mortgages and keep their homes. FHA Secure is a temporary program and all loan applications must be signed no later than December 31, 2008. With the new FHA Secure program homeowners with strong credit histories and have made all payments on time until their loan reset but are now in default will be eligible for refinancing.

“Many hard-working American families who were able to make their mortgage payments under the initial teaser terms of the exotic loan are now struggling to make ends meet because their rates have doubled or tripled,” said HUD Secretary Alphonso Jackson. “FHA Secure will bring stability to the housing market and give eligible families who were in good financial standing before their loans reset a chance to keep their homes.”

To qualify for FHASecure, eligible homeowners must meet the following five criteria:

1. A history of on-time mortgage payments before the borrower’s teaser rates expired and loans reset;
2. Interest rates must have or will reset between June 2005 and December 2009;
3. Three percent cash or equity in the home;
4. A sustained history of employment; and
5. Sufficient income to make the mortgage payment.

Bookmark It

Hide Sites

Consumer confidence came out this morning. The figure at 105, down from 111.9 in July but up from August 2006. Of course the doom and gloom headlines to quote “Consumer Confidence Falls To Lowest Level in a Year”, I mean come on, expectations were for 104.5 so how come the headline does not say “consumer confidence comes in much better than expected.” Listen to the media as an investor and you will be sure to go broke. That I can GUARANTEE you!

What I can tell you is,,,,,,,, 105 is a far cry from a recession (so far), considering the consumer is 1/3 of GDP, wages are another component and wages are growing at 4% and corporate profits are expected to be in the low double digits so I think the chances of a recession are slim, unless the consumer confidence number falls another 35 points. What this does show is the resiliency of the American consumer in wake of the so called “subprime crisis” or mortgage meltdown or any other name the media has created. Gas prices are still high although a lot lower than the highs, food costs increasing and mortgage rates have ticked up a bit. So IMO, I think the number is strong considering the environment.

The biggest worry for the number is that it was not worse and may be a reason for the stock sell off. Obviously over the next month or so this number could be dramatically lower and with back to school coming we will see if the retail sales numbers are any indication. But as always the media plays a big role in consumer sentiment so we will see how they spin the recession talk and what effect this has on the number going into the coming months.

The 10 year note is trading off its highs up .25bps and less effected is the 6% mortgage backed securities trading up .6bps and seems to be hitting a ceiling of resistance at 100.16. Bond prices have been on a tear since the end of July and rates have came down nicely but may be running out of steam.

At 2pm ET today the Fed will release the Minutes from the August 7th meeting. It will be interesting to get the Fed’s views on the credit crunch, since it was just beginning to unfold at the time they met. The Fed Fund Futures are currently showing a 72% probability of a .25% cut at the September 18th meeting, with some predicting a chance of a .50% rate cut.

Bookmark It

Hide Sites

Now that the market is changing its important to know what needs to be done in todays environment to get the best rates for home loans going forward. Its absolutely imperative that those needing a home loan start at least 90 days prior checking their credit and improving their scores.

For Fannie Mae loans there are basically 3 types of approvals. The first and the best is Approve / Eligible. The others in graded order are EA 1, EA 2 and EA 3. [Read more →]

Bookmark It

Hide Sites

Well Countrywide CEO, Chief Executive Angelo Mozilo, was on CNBC today and uttered the dreaded R word. Mr. Mozilo seems to think that the current housing market will throw the US economy into a recession. I guess anything is possible, though highly unlikely. Funny thing is you never know you are in a recession until you are out of one. “Recession” by definition, is two consecutive quarters of negative GDP growth. Yes, the housing is bad, yes many jobs will be lost within construction, real estate and mortgage divisions. Seems I heard around 40,000 jobs have been lost so far but really, a recession? When I hear this “R Word” I always want to ask them what a recession really means. Its so funny to hear these people that catch on to these “buzzwords” and talk like they know what they are talking about. I would have loved to say “well Mr. Countrywide CEO, tell me sir, how exactly would you define a recession?”

The only real losers in the game where and will be those that came to the party a little too late. [Read more →]

Bookmark It

Hide Sites

Over the last few weeks there has been a lot of action from the Federal Reserve. First the Federal Reserve implemented two cash infusions into the market and very unexpectedly cut the Fed Discount Rate. Its important to understand what led up to this and I will put into perspective what all this means. [Read more →]

Bookmark It

Hide Sites

There are currently dramatic and sweeping changes occurring within the mortgage industry. If you or any one you know needing a mortgage within the coming months, you need to read this!

Just last week there were two high profile lenders that shut their doors. One being the Wells Fargo subprime unit and more importantly American Home Mortgage and its wholesale counterpart, American Brokers Conduit. American Home Mortgage was no small potato. American Home Mortgage was the 10th largest lender in the U.S. and last year closed over $58 BILLION in loans. Its been reported, this shutdown left billions in UNFUNDED loans. Imagine a day, a week or an hour before closing and you get the call from a mortgage loan officer that the loan is not closing. [Read more →]

Bookmark It

Hide Sites

This week has been a busy week on the mortgage front with 2 high profile lenders closing its doors. Wells Fargo shut down its subprime unit and American Home Mortgage, AHM, which is to close all corporate doors today. I think the American Home shutdown is an important point because American Home and its affiliate American Brokers Conduit or ABC was not a “Subprime” lender, matter of fact, the amazing part is American Home was the 10th largest in the country, originating nearly $60 BILLION in mortgage loans. This shows how far from over this cycle is and how much we are facing a liquidity crisis across all mortgage lenders, prime and subprime. [Read more →]

Bookmark It

Hide Sites

Applying for a mortgage? Be prepared for your phone to ring off the hook with unscrupulous lenders calling offering their services. How did they get the information when you did not give it to them? From the credit bureaus. Equifax, Transunion and Experian all sell your personal information to lenders and lead providers. [Read more →]

Bookmark It

Hide Sites

I am a regular reader of Ken Harney’s articles in the Washington Post. Sundays article “Buyers often clueless on their loans” just caught my eye and I continued to read through. At the end I just thought how off base the article was.
Come on Ken, give us credit. First off don’t you think ADJUSTABLE RATE is about a clear disclosure as you can get. Remember these people sit on front of a closing attorney, in most cases. Which leads me to make another point. [Read more →]

Bookmark It

Hide Sites

A Loan Officers Point of View
Me like every one else has been watching the news concerning the so called “Subprime Woes”. Of course all the talk is blaming the lender, brokers and anyone else but the borrower. The fact is during the course of 2000-2005 and even today many, not most, sub prime AND prime borrowers only care about the lowest rate and fees with no regard to how the loan will affect their overall financial well being. [Read more →]

Bookmark It

Hide Sites

Dow 13,000… Are we heading to a recession or is the Fed on track to tame inflation? The latter seems to be the thought of many. The GDP numbers came out on Friday and were way below expectations at 1.3%. But those who looked deeper in the numbers saw that wage inflation was lurking around in the ECI or Employment Cost Index. The Subprime market and gas prices have the consumers on edge. I am still on the side that feels rates will be lowered in the late fall or mid winter. With this in mind, I would still opt for short mortgage terms, ie. 1 to 3 years.

Bookmark It

Hide Sites

There is a little known way that you can own a home with no money. No down payment and no “out of pocket” closing costs. The idea is called a “seller concession”. Seller concessions are when the home seller agrees to offer a percentage of the sales price, anywhere from 1% to 6%, as a credit for your down payment or closing costs.Very simply, Lets say you were buying a home for $150,000. In the contract to buy the home its written that the seller agrees to pay 3% or $4,500 towards all closing costs, pre-paids or points. [Read more →]

Bookmark It

Hide Sites

I thought this was a pretty interesting article. Speaking with many of my customers they informed me that they had previously believed using mortgage brokers in Virginia was somehow more expensive.J.D. Power and Associates Reports: Mortgage Brokers Provide Valuable Service for Home Loan Customers. Although slightly fewer than one-third of mortgage shoppers use a broker to help them find their current mortgage, those customers who do tend to be very satisfied with the lending experience, according to the J.D. Power and Associates 2005 Home Mortgage StudySM released today.Among consumers who responded to the survey, 29 percent indicate that they contacted a broker to help them find their current mortgage. Those customers who used mortgage brokers tend to be substantially more satisfied with the broker personnel compared with those who interfaced directly with the lender’s personnel.

Bookmark It

Hide Sites