Mortgage Rate, Lending Guidelines Round-Up - February 14, 2009

After dropping over 1 point over the last few months, mortgage rates are back up hovering just over 5 percent. Mortgage rates took a little dip last Tuesday after Tim Geithner's less-than-detailed/non-specific speech about the government's financial rescue plan and overall concern surrounding the stimulus bill.

As far as whether it's getting easier or harder to get a loan, that hasn't changed much. Getting a loan still requires good credit (typically 720 or higher), money down (at least 3.5% percent if you go FHA/VA) and full documentation (you mean I have to prove that I make what I say I make?!). Here's a quote from an article on BankRate.com regarding lending guidelines:

"In short, lending standards are a lot tighter than they were in the go-go period of around 2002 to 2007. On Wednesday, the House Financial Services Committee held a hearing in which financial services CEOs were asked what they did with their federal bailout billions. The CEOs said their institutions have been lending lots of money. Their implicit message was: Please don't ask us to loosen lending standards.

Vikram Pandit, chief executive of Citigroup, told the committee that his company lent $75 billion in new loans to consumers and businesses in the last three months of 2008 and that it will continue to lend "in a responsible and disciplined manner." Later in his statement, he said lenders have tightened credit and that, "in this difficult environment, Citi will not — and cannot — take excessive risk with the capital the American public and other investors have entrusted to the company." (Citigroup has received $50 billion in TARP money, or $351.87 from every working American.)"

Money is still available to those who are in the financial position to buy a home - it's just more strict than before (which is a good thing overall). If you have good credit and money to put down, you're sitting pretty right now.

Mortgage Rates Down…Again

Mortgage rates continued their downward trend over the last few weeks and are down an average of 1.2 points since November 1, 2008. The last time they were this low was in 2003, which was near 40 year lows.

Though the graph above shows the average 30 year fixed rate mortgage at 5.20 percent, I've had several buyers with excellent credit get sub-5 percent rates. One buyer client was quoted 4.875 percent with no points and another was quoted 4.625 percent with .25 points within the last 2 weeks (both were through Darran Anthony of Suntrust Mortgage in Loudoun County).

Though the Fed would love to see rates at 4.5 percent, I don't think that'll happen (without points). The Fed has fired their last shot by lowering their fund rate to pretty much zero and it can't go negative. What you see right now is probably at or very near the bottom so take advantage of it if you can.

Photo credit: BankRate.com

Mortgage Rate Update: 4 Year Lows, Cheaper for Buyers than Refi’s

The 30-year fixed-rate mortgage rate averaged 5.47 percent with an average 0.7 point for the week ending December 11, down from 5.53 percent last week and 6.11 percent a year ago. The rate hasn't been lower since March 25, 2004, when it averaged 5.4 percent. Great news, right?

It definitely is if you're a home buyer. But you may not be as pleasantly surprised if you're trying to refinance.

Why  is that? Because rates on refi's are higher than those for home buyers, even if you have substantial equity in your home and great credit. That means that your new neighbor who just moved in got a 5.5 percent rate while you were offered between 5.75 and 6.0 percent for your refi.

"Absurd!" Perhaps. But it's the reality of the times. There's a good post over at Bloodhound Blog that touches upon some of the reasons, which include the fact that lenders hate refi's due to their "nebulous valuations".

And think about it…those who are able to refinance already have equity built into their homes (you have to in order to refi) and are probably in a better financial situation when it comes to their home than those who can't refinance due to being "upside down". The people in the better financial situation are not the ones that the lenders or the Feds are worried about.

Lenders and the Feds are worried about those who are in financial turmoil and can't refi nor sell their house for more than what they owe on it. And they care about getting "fresh" loans and money out to home buyers in order to lower the inventory, keep the lenders afloat and stimulate the housing market and overall economy.

In order to to do that, they're sweetening the deal to home buyers, not those who are financially stable and have equity in their homes.

Unfair? If you're someone who has great credit, equity in your home and just wants to save a few bucks every month to put into savings to spend on goods/services (all of which help you and the overall economy), you're probably saying,

"Yes! Why should I have to pay a higher rate than someone who can only put 3% down and has worse credit than me?!"

But, if you're someone who wasn't able to buy until recently due to "inflated" home prices or higher rates, you may be saying,

"No, it's not unfair! It's about time I'm able to buy something! I, too, will someday have equity in my home, savings in the bank and be in the same position as my well-off neighbor, which will help the overall economy down the road."

There's two sides to every argument and I'm not here to judge whether one is right or wrong. I'm here to pass on the information, offer some personal insight as to the reasons and let you come to your own conclusion. But, whatever your stance is, get used to seeing a difference between home buyer rates and refi rates because many are saying that this pattern will continue through 2009.

Loudoun Mortgage Rate Round-Up - November 28, 2008

If you're a home buyer right now, you're loving life. Prices are down and mortgage rates have  plummeted over the last few weeks. The national average is back under 6 percent - 5.91 percent with .13 in discount and origination points, to be exact.

Locally, rates tend to be slightly better with the 30-year fixed rate mortgage being around 5.8 percent with .13 in points (as of Wednesday). But, one of my buyer clients was just quoted 5.875 with no points and no origination fee…on a "jumbo-conforming" loan (above $417,000). The fact that it's a jumbo-conforming loan at that rate with no points is huge! (Those types of loans usually cost .25 to .75 more in interest than "conforming loans")

The reason for the plumetting interest rates? The effect of the Fed bail-out and continued influx of money into the credit markets is finally being felt. The move on Tuesday by the Federal Reserve to buy $500 billion of mortgage-backed securities over the next year and a half also helped. In fact, immediately after the Federal Reserve made the announcement on Tuesday, rates fell to as low as 5.25 before coming back up to just below 6 percent.

A drop in rates is exactly what the Fed was aiming for. In its announcement, the Fed said,

"This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally."

If you're looking to buy real estate or refinance right now, you're sitting in a great seat when it comes to interest rates.

Source: Bankrate.com

Interest Rates Drop As Fast As They Rise

Just last week, interest rates took their biggest jump in 21 years. Today, they dropped almost as much as they rose last week - almost a 1/2 point. The national average for a 30-year fixed-rate mortgage (with no points) went from 6.74 percent to 6.32 percent.

Wondering why interest rates are so volatilite? Bankrate has a pretty good explanation as to why we're seeing these crazy swings in interest rates. Here's an excerpt:

Mortgage rates' volatile behavior is part of the credit crisis. There have been wide swings in various interest rates and bond yields in the last few months, and mortgages aren't immune.

Three events are combining to push down on mortgage rates this week. First, governments and central banks in North America and Europe have been trying to loosen lending among banks, so that banks then will become more willing to lend to businesses and consumers. This week, that effort began to show results, as interbank lending rates fell.

Second, stock prices have been falling. Investors respond by pulling some money out of the stock market and buying bonds, including mortgage-backed securities. As a result, bond yields fall — and mortgage rates follow.

Third, it becomes increasingly clear that the U.S. economy is in recession, and investors and economists are coming around to the idea that the recession will be deep and long-lasting. Interest rates tend to fall in recessions.

Several buyers I'm working with held off on putting an offer on a property because of the jump in rates last week, but are now ready to move forward due to the drop in rates. If you're a buyer who put things on hold last week as they they did, here's your chance to get back in near the same rate as a few weeks ago.

Mortgage Guidelines More Important Than Mortgage Rates

Many buyers worry about one thing when it comes to a mortgage - the rate - and they pay little attention to mortgage guidelines. But in these market conditions, mortgage rates should be no higher than number 2, if not number 3 on the "worry list" with mortgage guidelines being number 1. 

Why? Because mortgage guidelines dictate whether you qualify for a mortgage in the first place, regardless of the rate. If you can't qualify, then the rate doesn't matter. Private lenders, as well as the FHA, are getting more strict on their guidelines every day.

Here are some examples of how guidelines are tigthening up:

• A few years ago, you needed a minimum of 620 score to qualify for a "prime" or "A-paper" loan. Now, most lenders require a 720 or higher
• Rather than one month's cash reserves, most lenders are now requiring 3 to 6 month's reserves
• The amount of the down payment required by the lender has gone from none or 3 percent to a minimum of 10, if not 20 percent
• "No-Doc" loans are a thing of the past. Now you have to have all your paperwork and records for several years back otherwise the lender won't even touch you 
• Banks are going belly-up left and right and the ones that are still standing and healthy (only a few left) are making it even more strict to get financing. 

Here's an excellent video by Dan Green over at The Mortgage Reports explaining mortgage guidelines and why they're becoming more strict…

As you can see, it's about much more than just rates these days. And as more banks go up in flames and credit gets tougher to get, these guidelines will get more strict. So rather than watching rates, watch mortgage guidlelines.

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Mortgage Rate Round-Up - September 13, 2008

This was a great week for borrowers locking in their rate - rates plunged almost half a point. Rates are below 6 percent. Several loan officers I spoke with yesterday said that they saw rates as low as 5.75 percent with no points.

Why did rates suddenly plunge? They plunged due to the Fannie Mae/Freddie Mac take-over by the Feds which brought some much-needed calm and (some) stability to the market. Now that the Feds are running Fannie and Freddie, GSE mortgage-backed securities are more appealing to investors. That effect is felt by you and I in the form of lower rates.

What will rates do in the short to mid term? Many are expecting rates to stay at or below 6 percent through the end of the year (and the election).

What affect does this have on the real estate market in Loudoun County? We should see a tick up in buyer demand as buyers take advantage of the very low mortgage rates and prices. This summer saw less inventory and greater buyer demand and this trend should accelerate this month and next due to the even lower rates.

Source: Darran Anthony, Suntrust Mortgage and BankRate.com

Mortgage Rate Round-Up - August 23, 2008

Rates dipped down for the second straight week despite the not-so-good news about inflation. Wholesale prices jumped 1.2 percent in July, much more than expected (and at the fastest pace since 1981). Normally, you would expect interest rates to rise on such news, but they didn't.

Despite the lower rates, mortgage applications fell to their lowest level in almost eight years. The Mortgage Bankers Association's index of loan applications was down 1.5 percent compared with the previous week, and was down 34.2 percent compared with the same week last year.

One thing to keep a close eye on is the Fannie/Freddie situation. Both suffered further losses to their stock prices especially after the Barron's article "The Endgame Nears for Fannie Freddie" was published August 18. Some say that a government takeover would lead to an increase in rates because of uncertainty regarding the transaction. Others say that a takeover would end the period of uncertainty, not start one, and the effect on rates would be minimal, if any. We'll have to wait and see…

Source: BankRate.com

***UPDATE: The Department of Veterans Affairs (VA) is raising their loan limits from $417,000 to as much as $729,000 in some areas. The increases are effective immediately under the Housing and Economic Recovery Act of 2008.

Think It’s All About Prices and Rates? Think Again…

Many buyers think mainly (or only) about real estate prices and mortgage/interest rates. But don’t forget one very important thing - the ability to obtain financing. Unless you’re paying cash, the ability to get financing will directly affect your ability to buy real estate.

In a recent Fed survey, due to the credit crisis of recent years, 75 percent of banks tightened their standards for prime mortgages during the second quarter of this year. Of the 32 lenders that were writing non-traditional loans such as interest-only loans, 85 percent said they’d tighten standards. As for sub-prime lenders (of the few that are left), 86 percent said they had tightened standards in the last three months.

What does this mean to you as a home buyer?

1. Your previously good credit score is no longer good enough to qualify. Credit (FICO) score requirements are one of the first things lenders tighten up on.
2. More money out of your pocket for a down payment. Trying to get a 5-percent down loan these days is next to impossible. You’re looking at 10, 15, 20 sometimes 30 percent down minimum.
3. Work history, 1099 contractor documentation and other back-end requirements are being tightened up on. What was ok before may not be good enough now or tomorrow.
4. If you previously qualified, but are now on the fine line (or over), the lender may say "ok," but you may be stuck with a higher interest rate and/or higher closing costs than before.

If you do not qualify under the new (or future) tighter standards, neither prices nor interest rates will matter.

You will either pay a higher interest rate due to being "higher risk" based on the new guidelines or you won’t be able to buy at all. And the decrease in your monthly mortgage payment you hoped lower prices would bring may be wiped out once you factor in the higher interest rate’s effect on your monthly mortgage payment.

It’s not only about real estate prices and interest rates. Don’t get caught up on just one factor and get blind-sided by the other(s).

Source: InmanNews

Mortgage Rate Round-Up - August 9, 2008

This week saw mortgage rates mixed. Here are the national figures:

• Conventional 30-year fixed-rate mortgage rates rose slightly to a national average of 6.74 percent
• Jumbo 30-year fixed-rate mortgage rates rose to a national average of 7.68 percent
• 15-year fixed-rate mortgage rose slightly to 6.27 percent
• 5/1 ARMs fell slightly to 6.32 percent
• 1-year ARMs fell slightly to 6.24 percent

Though rates didn’t move much at all, there’s some not-so-good news for borrowers. Fannie Mae announced this week that it will be doubling their "adverse market delivery charge" fee which will be passed on to borrowers.

Source: Bankrate.com

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