Rates improving again, economic data & global tensions favor the bond markets.

Rates are improving again, economic data & global tensions in Korea have favor the bond markets today.

The past 10 days have been a sit back and wait for rates to improve before you lock.

This morning is the morning to start locking again as rates are back to being good enough to move forward.

You can't wait 2 to 10 days to move forward, it's move forward now.

Mortgage Rates & Predictions of what they are doing & going to do.

Are you thinking about refinancing? Wondering if rates will rise or fall in the next few days?

Conforming Mortgage Rate Predictions Only

First, the fine print. These mortgage rate predictions are for conforming mortgages in Cincinnati, Ohio; Loudoun County, Virginia; and everywhere else that conforming mortgages are available.

Jumbo mortgages are not part of this survey because jumbos don't price like conforming loans. The same goes for FHA streamlines. Furthermore, unique property types including non-warrantable condos in Chicago, condotels in Florida, and loans for investors with more than 4 properties financed are excluded.

Email me anytime for a real-time rate quote.

Breaking Down The Predictions

Here's the mortgage rate outlook for the upcoming week:

• 50% think mortgage rates will increase
• 29% think mortgage rates will decrease
• 21% think mortgage rates will won't change

I expect mortgage rates to increase.

My advice not be appropriate for your individual situation and I'm not always right. Ultimately, you may find your time better spent listening to The Grapefruits of Wrath.

"Here come the inflation hawks. Mortgage rates rise."

This all has an unfortunate, familiar feel to it.

The 600 Billion Dollar Bond Backlash Begins

Two weeks ago, the Federal Reserve made a new, $600 billion commitment to the bond markets. The plan is commonly called QE2, or Quantitative Easing: Part II.

Upon the QE2 announcement, mortgage markets immediately improved, and for good reason. A bonus $600 billion in demand is enough to unhinge the Supply and Demand curve and that's exactly what happened. Bond prices rose and bond yields fell. Mortgage rates made new all-time lows. But only for a minute.

Just 40 hours after the Fed's plans for were made public, the Bureau of Labor Statistics released the October jobs report and it showed 151,000 new jobs created. Economists had been expecting about one-third of that. Mortgage rates rose on the notion that the economy isn't as weak as had been purported.

And then, a small firestorm erupted around QE2.

Some observers made the obvious point that the Fed is buying $600 billion in U.S. bonds and, to fund the project, the group is -- quite literally -- printing its own cash. This is inflationary because "printing money" creates new supply that devalues every other dollar in circulation.

The concern spread overseas as nations including China, Germany and Japan joined the chorus of critics.

Inflation is low today, it's argued, but the Fed is setting the stage for high inflation tomorrow, and inflation is awful for mortgage rates.

Inflation Concerns Mount; Mortgage Rates Are Rising

The specter of inflation is always present in bond traders' minds, but it has a nasty way of going viral. What begins as a few legitimate economic concerns, when given the right petri dish, can spread into a full-fledged panic in days.

The conditions look right for that kind of panic. 

The current bond market looks a lot like it did in May of 2009. Inflation fears took rates up 1.125% in 10 days back then.

If you'll remember back to May 2009, the first stimulus package was 3 months old and the Fed had just started another round of bond-buying. After a run of poor economic data, mortgage rates had made all-time lows and a mini Refi Boom had started.

Wall Streeters had piled into mortgage bonds as a safety play -- and then they got spooked. Investors couldn't sell their stuff fast enough. Stock markets rallied and bond markets reeled. Lenders were issuing 4 rate sheets per day just to keep up.

But it wasn't just how fast rates were changing -- it was by how much they changed:

• Tuesday, May 26, 2009: Rates up by 0.250 percent
• Wednesday, May 27, 2009: Rates up by 0.625 percent
• Thursday, May 28, 2009: Rates down by 0.250 percent
• Friday, May 29, 2009: Rates down by 0.375 percent
• Monday, June 1, 2009: Rates up by 0.500 percent

It was absurd, and the market looks poised to do it again. We're a single piece of inflationary data away from seeing the return of 5 percent mortgage rates.

It's Time To Lock Your Mortgage Rate

When mortgage rates move, they move quickly. Especially when markets are wound as tightly as they are right now.

My advice: There's no penalty for refinancing twice (or thrice!) so take the bird-in-hand. Refinance now. Then, if the market goes lower in 2011, refinance again later. Just make sure you're asking your loan officer about "zero cost loans". It would be silly to pay closing costs twice.

If you're shopping for a loan, those that have their files prepared and ready to submit to underwriting when the rates have the right pricing will get the right pricing.  Those that wait to start to put the loan process when rates are there will miss the boat.  Why?  When a file is submitted, to ensure the best chance of meeting deadlines, you must have a complete file from start rather than waiting until the moment is right to start it.  By then it's usually too late to get the rate that the consumer would like to get.

I've seen this over 20 times in the past 30 days alone with families that think the rate that we quote one day will still be there in 5 days or 3 weeks later by waiting until they think or hear interest rates are where they need to be to move forward.  In the past 3 business days, since Tuesday November 9th, 2010, rates have deteriorated by .5% in rate.

As mentioned above, the bond markets this past few weeks and over the next few weeks are very volatile.  They are constantly changing, not just daily, but sometimes 3 to 4 times a day in rates going up or down enough to make it so the pricing great enough to have us help the consumer in paying closing costs or the opposite in the borrower having to pay more in closing costs if you want a rate when the pricing has deteriorated.

To ensure the lowest rate possible, you don't wait until rates are back to the desired rate or where they've been to start the loan application and/or , having your conditions and checklist of items sent in is critical and important to verify your income documentation and

submit file   ask me what I can do for you.

1. Send me an email  or call me with the basics of what you're trying to do. We will discuss your scenario.
2. I'll have some follow-up questions for you.
3. Next, I'll get you pricing and tell you what can be done and what is realistic or not realistic.

If you like the rate, I'll lock it for you and we'll start working toward closing. That's it!

Expect me to reply to your phone call or email within about an hour, during business hours.

Seller concession, FHA vs. Conventional

When  buying and selling a home, one of the big motivating factors a buyer will buy one house over another is based on seller concessions.  In simplistic terms, seller concessions is the seller contributing money that the seller would receive and crediting those funds back to the buyer to assist in paying for closing costs.  This is a very big motivating factor for many first time home buyers as well as move-up buyers.

There are two (2) types loans that have drastically different guidelines of seller concessions to each other with residential mortgage loans, FHA and conventional loans.  If you are a seller, a buyer or a real estate agent or real broker and you are involved in this process of buying or selling a home, then understanding the difference between an FHA and a conventional loan for seller concessions is going to save headache right before closing when the lenders doc drawer is trying to send docs to the title company and everything is co-sure.  When those involved don't understand what is permitted and what is not permitted, then deadlines are missed an finger pointer and relationships can be ruined by those that don't understand the basic guidelines of these differences of loan products.

     1) FHA Seller Concessions

6%

There are no limitations to what percent base on credit scores nor based on the buyers down payment and LTV (loan to value).

Seller contributions allowed up to 6% of the sales price, but seller contributions may not exceed the actual amount of closing costs, pre-paid expenses and discount points

§ UFMIP, when paid by the seller, is included in the 6% limitation o Seller must pay all or no UFMIP – Partial financing of UFMIP is not allowed

§ Any seller contribution exceeding 6% of the sales price results in a dollar for dollar reduction to the sales price before calculating the maximum loan amount

Job Loss Insurance

§ May be paid by builder or seller of property

§ HUD-I must reflect payment made directly to the insurance company

§ Amount paid on behalf of the borrower is included in the 6% seller contribution limitation

§ A copy of the insurance policy is required at closing

Homebuyer Counseling

§ May be paid by builder or seller of property

§ Amount paid on behalf of the borrower is included in the 6% seller contribution limitation (typical fees are $250)

§ A copy of the homebuyer counseling certification is required prior-to-closing

2) Conventional Guideline for Seller Concessions

Contributions/Concessions

Borrower closing costs paid by the property seller or by any other interested party to the transaction (i.e. builder, developer, real estate agent, lender or any of their affiliates) are considered contributions. Items paid by the property seller that are the responsibility of the seller are not contributions (i.e. real estate sales commissions, charges for pest inspections or costs that the property seller is required to pay under state or local law). Funds the purchaser receives from a non-participant to the sales transaction are not considered contributions, even when they are used to pay closing or settlement costs (i.e. the property purchaser’s employer or a family member). Standard Conforming ·  Primary residence/second home > 90% LTV = 3% of value. ·  Primary residence/second home > 75-90% LTV = 6% of value. ·  Primary residence/second home < 75% LTV = 9% of value. ·  Non-owner occupied properties = 2% of value. Super Conforming ·  Primary residence/second home = 3% of value. ·  Non-owner occupied properties = 2% of value. The amount of any contributions in excess of the limitations set forth above will be considered a sales concession. Any amount contributed by an interested party that exceeds the costs to close the loan, must be considered a concession and subtracted from the purchase price. Additional examples of contributions granted by any interested party to the transaction that are considered to be sales concessions (regardless of the of the limits above) are: Vacations. Furniture or decorator allowances. Personal property items being left in the property. Automobiles. Moving costs or other "giveaways.". For purposes of determining the LTV and CLTV, the dollar amount of any sales concessions or contributions that exceed the maximum allowed must always be deducted from the purchase price. The LTV and CLTV are then calculated using the lower of the reduced purchase price or the appraised value. The appraisal must reflect the effect that any subsidies, contributions or sales concessions have on the market value for the property. The AU Feedback must accurately reflect the LTV and CLTV adjusted for any financing or sales concessions in the transaction.

Must pay all or no UFMIP – Partial financing of UFMIP is not allowed

§ Any seller contribution exceeding 6% of the sales price results in a dollar for dollar reduction to the sales price before calculating the maximum loan amount

Job Loss Insurance

§ May be paid by builder or seller of property

§ HUD-I must reflect payment made directly to the insurance company

§ Amount paid on behalf of the borrower is included in the 6% seller contribution limitation

§ A copy of the insurance policy is required at closing

Homebuyer Counseling

§ May be paid by builder or seller of property

§ Amount paid on behalf of the borrower is included in the 6% seller contribution limitation (typical fees are $250)

§ A copy of the homebuyer counseling certification is required prior-to-closing

If you are a buyer with a limited amount of down payment and you need seller concessions, you ough to be leaning towards having an FHA mortgage rather than  a conventional loan.  Everyone wants to have a conventional loan based on what the stigma in the air is.  When you look at the benefits that come with an FHA loan, it may just outway a conventional loan and you will find this is the way to have your financing work out.  This is why there is mortgage insurance to help individuals and families that are good borrowers.

Go with refinancing and pay your house off in 20 years or less & save ten's of thousands of dollars.

Question:

Dear Ben,
My wife and I are trying to figure out if it's a smart move to refinance our current loan -- we just finished paying off the first year -- and go from a 30-year fixed-rate mortgage to a 20-year fixed-rate mortgage.

I don't know if it is better to use the money we spend on the origination fees and settlement fees or to put that money directly toward the current mortgage principal. Here are the numbers:

Current loan

·         30-year fixed-rate loan of $317,400 at 5.375 percent.

·         Paying $1,777.35 a month plus $479.79 for escrow for a total monthly payment of $2,257.14.

We've paid off one year of the original loan to a loan balance of $312,649.24. I had put down 25 percent when I bought the house for $423,000.

New loan

·         20-year fixed-rate loan for what I assume will be $312,649.24 at 4.375 percent.

·         Pay $1,956.94 a month plus $479.79 for escrow.

I will also have to put down $7,500 for closing costs.

Added bonus: We were also thinking of putting another $30,000 toward the principal since this money is currently in a money market account and not earning very much. Should we put this money toward the new loan or the old loan? Any insight would be greatly appreciated. 

Answer:

I ran the numbers for you, too. At $7,500, I think your closing costs are a little high.  A Closing cost study has the national average for closing on a $200,000 purchase mortgage at $3,741. Have your lender walk you through the projected costs.

Mortgage rates are lower now than the rates you provided, but I've used your 20-year rate for the illustration below:

 20-year rate expense

	Existing 30 year Mortgage	Refi with a  20-year mortgage
Loan amount:	$312,649	$312,649
Interest rate:	5.375 percent	4.375 percent
Loan term (months):	347 months remaining	240
Mortgage payment:	$1,777.34	$1,956.94
Total payments:	$616,738	$469,666
Total interest:	$304,089	$157,016
Effective interest expense1:	$228,067	$117,762

¹ Assumes 25 percent marginal federal income tax rate and no state income tax impact.

Saving 1 percent on the interest rate and shortening the loan term to 20 years cuts your interest expense in half. The effective interest expense assumes you can fully utilize the mortgage interest deduction on your federal income taxes.

I also ran the numbers for your additional payment scenario. The additional principal payment is larger for the existing mortgage by $7,500 because you don't have to pay any closing costs. You would want to make sure there isn't a prepayment penalty before making that big of an additional principal payment on the existing loan.

Additional payment expenses

	Existing mortgage  w/additional principal  of $37,500	20-year refi  w/additional principal  of $30,000
Loan amount:	$275,149	$282,649
Interest rate:	5.375 percent	4.375 percent
Loan term (months):	265	240
Mortgage payment:	$1,777.35	$1,769.16
Total payments:	$470,722	$440,599
Total interest:	$195,573	$141,950
Effective interest expense1:	$146,680	$106,462

¹ Assumes 25 percent marginal federal income tax rate and no state income tax impact.

As you can see, there's a $40,000 difference, after-tax, in interest expense by refinancing, plus making the additional principal payment. You'd want to make sure you're not emptying out your emergency fund to make the additional principal payment.

My rule of thumb with additional principal payments is to go ahead and make them if you expect to earn less after-tax on your investments than the effective rate on your mortgage. This is assuming you can fully utilize the mortgage interest deduction.

Even if closing costs are to be on the high side,  I'd go with a refinance, presuming you plan to be in the house long enough to justify those closing costs.

FHA Higher Loan Limits Extended, a necessary evil for the housing market!

There wasn't much fanfare, and it literally happened in the cover of night, but sometime after midnight Thursday morning, the U.S. Congress passed an extension of the increased Fannie/Freddie/FHA loan limits for high cost housing markets to a maximum $729,750.

Big deal, right? Well, yes. 

The higher loan limits for high-priced housing markets were instituted back in 2008, when President George W. Bush signed the Housing and Economic Recovery Act.

At the time, the mortgage market had crashed entirely, and the only games left in town were Fannie, Freddie, and FHA.

They each had a loan limit of $417,000, which knocked an awful lot of potential borrowers out of the game. The move was designed to moderate the credit crunch and promote borrowing and buying. 

Since the peak of the housing boom in 2006, home prices are down 28 percent (S&P/Case-Shiller). That means many higher-priced markets aren't quite so high-priced anymore. Of course there are still hot spots, many in California, where the median home price is well over $417,000, but the national median home price currently stands at $178,600 (National Association of Realtors). 

More important than home prices, however, are the players in the mortgage market today, or, shall I say, the lack of players in the market. Fannie, Freddie and FHA are originating around 90 percent of all new loans today. Higher loan limits therefore afford higher risk to these entities. The Federal Housing Administration (FHA) reports that loans over $400,000 have a higher risk of default. 

Government officials continue to claim they want to increase private sector mortgage activity, and they have to. In order for the Obama Administration to expunge Fannie and Freddie from the U.S. mortgage market successfully, they have to ensure there's a market in existence behind them. Right now there isn't. Investors don't want to touch anything that doesn't carry a government guarantee. 

 Letting the loan limits drop to the previously legislated $625,000 limit, some argue, would have at least been a little boon to the jumbo market, which is struggling for business right now. But would it really juice the private mortgage market?

Some claim the only way the private market will ever recover is to start rolling back the loan limits, at least slightly, because if we continue the government loan limit status, nothing will change and the government will control 90 percent plus of the mortgage market for the foreseeable future. 

The trouble with that argument is that at the present time there are no investors for the loans.

There has been exactly one jumbo securitization in the past year, and it wasn't all that big.

Why?

Because potential investors in potential private label mortgage securities need to know what the new structures of these loans will be; they need comfort that their interests are aligned with the interests of all the players that exist between them and the borrowers (servicers, appraisers, etc.).

The Dodd-Frank financial reform bill did not mandate risk retention by any of the intermediaries, at least not yet. Policy makers have a year to define what exactly is a "qualified residential mortgage." So bottom line, without the increase in the loan limits, a fairly sizeable part of the mortgage market would have ground to a halt.

Lawmakers had no choice.