Monday afternoon, the U.S. House of Representatives defeated the $700 billion “Bailout Bill”, surprising Wall Street and the world.
The Dow Jones Industrial Average responded by falling 777.68 points — its largest one-day loss in history and, this morning, every newspaper in America is covering the story as front page news.
Lost in the coverage, however, is how the “No” vote created a terrific opportunity for home buyers and mortgage rate shoppers.
Yesterday, as money fled the tanking stock market, most of it ended up getting parked in the relative safety of government-backed bonds which includes, of course, the mortgage bonds. This rising demand for mortgage bonds caused rates to fall, improving home affordability.
To investors, stock markets represent risk and bond markets represent safety. So, when market sentiment changes, as it did yesterday, Wall Street players often shift their dollars from one forum to the other. This is why yesterday’s stock sell-off was good news for mortgage rate shoppers — the added demand for “safe” securities drove down rates.
Conforming mortgage rates were lower by about an eighth-percent Monday.
Now, today, mortgage rates are opening flat, suggesting that markets are in a Wait-and-See Mode. Wall Streets knows that the defeated bill will re-emerge later this week and, when it does, expect traders to respond accordingly.
If the new-look bill is viewed as favorable to U.S. businesses without harming taxpayers, expect stock markets to improve and mortgage rates to rise. If the bill fails to accomplish that goal, however, expect mortgage rates to improve.
While home electronics advance, the basic extension cord has been slow to catch up.
This has created a size mismatch because today’s devices tend to carry large size plugs, but the standard 6-outlet power strip is only meant for “skinny” ones.
Pictured at right: the solution.
Matching form and function, the ezSpace UFO provides 6 outlets in a recessed, circular pattern, eliminating the need for multiple power strips in a home or workplace environment.
In additon, the UFO’s On/Off switch is located on its bottom instead of on top. This makes it far less prone to accidental shut-offs than a traditional power strip device.
These features, plus its tiny 6.25″ footprint, have generated terrific press for the ezSpace UFO available for sale at Target, among other places.
Thursday, federal regulators seized mortgage lender Washington Mutual. The Seattle-based thrift became the third “big name” lender to close its doors since July, joining IndyMac and Lehman Brothers.
In 2007, these 3 lenders represented about 10 percent of the mortgage market and their subsequent failures are confusing American homeowners.
The most prevalent question:
If my mortgage lender fails, are my payments still due?
And the answer is an unequivocal “yes”. If a mortgage lender is seized, goes bankrupt, or is otherwise closed, it doesn’t change the terms of the bank’s mortgages whatsoever — just maybe the mailing address.
This is because a mortgage (and its corresponding note) is a legal contract between the lender and the lendee, signed on the date of closing. It is binding and cannot be altered by either party. The only way to “end” the contract is to pay the loan in full.
This can happen in one of 3 ways:
The home is sold and the mortgage is repaid
The home is refinanced and the mortgage is repaid
The home loan is paid down to $0 balance by the homeowners
So, when a mortgage company fails, its loans are paid-off in full and, therefore, all of the failed company’s mortgage contracts remain in effect. Payments are still due.
When this happens, failed lenders will usually transfer their mortgage assets to a new lender’s servicing department. This means that homeowners will write the same check for the same mortgage but to a different company.
To reduce confusion around transactions like this, the government puts two safeguards in place. First, it requires the former lender to send a 15-day advance notice of the change to the homeowner. And second, it requires the new lender to do the same.
In situations like this, the onus is ultimately on the homeowner to open and read his mail, and make changes accordingly. It’s especially important for people who pay their bills online as opposed by paying them manually; you likely won’t get notified if you’re sending payments to the wrong place.
The August Existing Home Sales report was released Wednesday, showing a decline in the number of homes sold nationwide, and a reduction in the median sales price.
Not surprisingly, the media singled these two statistics out, playing them as a big negative.
They’re not.
The decline in sales wasn’t good, but it wasn’t terrible, either — sales were actually up in half of the regions around the country.
And, citing “median sales price” is somewhat pointless because median sales price only measures the price point at which half the homes sold for more, and half sold for less.
No, it’s the third statistic in the report that deserves as much — if not more — attention that the previous two. According to yesterday’s press release, the national home supply is decreasing.
This is terrific news for home sellers.
In its report, the National Association of REALTORS said that the nation’s existing supply of homes for sale fell by 7 percent in August.
At the current pace of sales, that represents a 10.4-month supply, down from 10.9 months in July. With a reduced supply of homes for sale, all things equal, home prices would increase.
This is Supply and Demand in its most basic form.
Economists and experts have long noted that reducing the housing supply is one of the key elements to a sustainable housing recovery and we’ve seen several indications that this is happening, including builders not building as much.
Longer-term, this is good news for home sellers because a reduction in housing supply tends to lead to higher prices.
Partly to keep FHA home loans affordable, and partly to comply with new laws, the FHA is rolling back its up-front fees and ongoing mortgage insurance requirements and replacing them with new ones.
The new up-front FHA fees are as follows:
1.750% : All purchase and “standard” refinances
1.500% : All “streamline” refinances
3.000% : All FHASecure programs for delinquent mortgagors
These fees are paid as a one-time cost at closing, and are calculated by multiplying the loan size by the fee. A $200,000 FHA purchase, for example, now carries a $3,500 one-time charge.
Ongoing mortgage insurance requirements have changed, too. These changes are based on the loan type and the amount of equity in the home.
15-year fixed with 90% borrowed or less: 0.000% annually
15-year fixed with more than 90% borrowed: 0.250% annually
30-year fixed with 95% borrowed or less: 0.500% annually
30-year fixed with more than 95% borrowed: 0.550% annually
Mortgage insurance premiums are calculated by multiplying the initial loan size by the annual premium. The same $200,000 FHA purchase outlined above, using a 95% 30-year fixed mortgage, would require a monthly mortgage payment add-on of $83.33 until the loan is paid in full.
FHA-insured mortgages have grown in popularity this year because, while the guidelines of other mortgage products have tightened, FHA guidelines have remained relatively loose. FHA allows 3.500 percent downpayments on purchases, for example, and allows “cash out” refinances to 95 percent.
This is an unwelcome development for home buyers and homeowners alike because higher oil prices means higher commuting costs, putting renewed pressure on household budgets.
But the budgetary strains are not isolated to just oil prices. Mortgage rates are spiking, too.
Yesterday, conforming mortgage rates rose by a quarter-percent which — when added to the recent run-up — brings the 5-day, mortgage rate increase to 0.750 percent.
A three-quarter percent increase equates to $576 extra per $100,000 borrowed per year.
When functioning properly, gutters can extend the life of a home. By directing water away from the physical structure, gutters protect a home’s foundation, its siding, and its landscaping.
The key to reliable gutter performance is simple — keep them clean. Twice annually, experts recommend a thorough gutter cleaning and the project can be a do-it-yourselfer, if you’re so inclined.
The basic toolset is likely already on hand:
A ladder
A scoop
A trash bag
A garden hose
Protective gear
Watch the video above for a quick tutorial, or if DIY is not your thing, reach out to me anytime. I’d be happy to refer you to a reliable professional in the neighborhood.
Getting a great, low mortgage rate is often a combination of luck and preparation.
Consider what happened in conforming mortgages this week:
Monday, mortgage rates plunged to their lowest levels of the year
Tuesday, they bounced back in full
Wednesday, they clicked higher by a eighth-percent
Thursday, they clicked higher by another eighth-percent
And so, here we on are Friday, four days after the best rates of the year, and the mortgage market barely resembles itself. Despite what the papers tell you, mortgage rates are not low anymore.
That’s the luck element — you can’t plan for rates moving up and down.
But, if you missed Monday’s plunge, and don’t want to miss the next one, all you have to do is get prepared. Then, you’re waiting for luck when it happens.
There are 4 basic steps to prepare for low rates and the key is to follow them before rates plunge, not during. That way, you’re ready to pounce on low rates at the moment they present themselves.
The first step is to contact your loan officer.
If you don’t have a loan officer, or your loan officer is no longer in the business, ask a friend for a referral. Do not call the 800-number on your mortgage statement — you’ll almost always get a better “offer” from a live person than from a call center representative.
Next, give your loan officer a complete mortgage application, including a “credit pull”. Be honest and accurate and don’t worry about the credit check harming your score — the bureaus protect it for a period of 30 days.
Then, ask your loan officer what supporting documentation will be required to approve your eventual home loan. Whatever it is, gather it and send it in — either by fax or email.
And lastly, be ready to act when your loan officer calls with the good news. If rates have dipped to lower-than-normal levels, it likely won’t last long.
This preparation process is very similar to what home buyers do before making an offer on a home. Getting ready for a refinance is like getting pre-approved, but instead of waiting to pick out a home, it’s waiting to pick out a rate.
So, to summarize:
Contact your loan officer
Give a complete application
Gather and submit supporting documentation
Be ready to act
Mortgage rates don’t plunge often, but when they do, it’s usually short-lived. If you’re prepared for when it happens, you can lock in the best mortgage rate available at the best possible time.
It will be your lucky day and you will have been ready for it.
But, although the press labels these statistics indicative of a recession, home sellers nationwide quietly applaud them.
With fewer new homes coming on the market, home sellers are finding that there’s less competition for buyers, helping them to command higher prices for their homes.
It’s Supply and Demand in its most basic form.
But that’s not all that home buyers have to worry about. The most recent Existing Home Sales report showed an increase in sales nationwide, plus a reduction in the number of single-family homes for sale.
Again, Supply and Demand. Good for sellers, bad for buyers.
However, we should keep in mind that real estate is local. What we see in national and regional trends are not as important as what’s happening in your town, your neighborhood, and your street. But, if we learn one thing from the chart above, it’s this: builders are rational.
If homes won’t sell, builders will stop building them. And, sooner or later, the market — and home prices — will catch up.
For the third consecutive meeting, the Federal Open Market Committee left the Fed Funds Rate unchanged at 2.000 percent.
Of interest to mortgage rate shoppers, the FOMC led its press release with comments about the health of the financial and labor markets, calling them “strained” and “weakened”, respectively. The relative weakness in both of these areas has contributed to low mortgage rates of late.
The FOMC also noted in its release that, although economic growth has slowed this year, the historically-low 2.000% Fed Funds Rate should foster “moderate economic growth” in the future.
In the wake of the announcement, Wall Street is rallying. Investors like what the Fed had to say and this is attracting money to the stock market at the expense of bonds.
Mortgage rates have given up all of Monday’s gains, and then some.
Source Parsing the Fed Statement The Wall Street Journal Online September 16, 2008 http://online.wsj.com/internal/mdc/info-fedparse0809.html
Yesterday, the stock market suffered its largest one-day point loss since September 17, 2001, and its sixth-largest point loss in history.
Not everyone got punished, however. Two groups of people, in particular, welcomed yesterday’s losses:
Home buyers out shopping for a mortgage
Homeowners that snoozed through last week’s mortgage rate drop
See, as the stock market dropped yesterday, investors anxiously moved their money away from risky investments like stocks and into the safe haven of government-backed debt.
As traders poured into bonds, bond prices rose. They did so beginning at Market Open, all the way into Market Close. And, because mortgage rates move in the opposite direction of mortgage bonds prices, mortgage rates fell Monday. A lot.
Today, the Federal Open Market Committee meets, adjourning from its scheduled conference at 2:15 P.M. ET. In the Fed’s press release, among other things, markets expect Ben Bernanke & Co. to address the financial system’s stability — or lack thereof — that helped to fuel Monday’s selling action.
If markets find the Fed sympathetic, expect stock markets to rally, and mortgage rates to rise.
Granite countertops are a popular feature in American homes and new evidence suggests some stone slabs may be hazardous to homeowner health, emitting minute levels of radiation.
In a 4-minute story, NBC’s The Today Show addresses the “millions of Americans that have installed granite countertops because of their beauty and durability”. It offers a balanced report of the risks that may — or may not — accompany the quarry-mined stone.
On all principal + interest home loans, the first few years of payments include a lot more money going to interest than to principal.
This is because mortgage repayment schedules are front-loaded with interest, meaning large-volume principal reduction won’t occur until late in the mortgage’s lifecycle.
Comparing products at a 6% mortgage rate, did you know that after 15 years:
A 15-year mortgage will be paid in full
A 20-year mortgage will have 41.21% of its loan balance remaining
A 30-year mortgage will have 73.19% of its loan balance remaining
Of course, this doesn’t mean that 15-year mortgages are better than their 20-year or 30-year brethren. It just means that 15-year mortgages pay off faster.
Yet, there are reasons for homeowners to avoid 15-year mortgages.
For example, versus 20-year or 30-year products, 15-year mortgages require the highest monthly payment because the payback period is compressed to a shorter time. In addition, mortgage interest tax deductions to which most homeowners are entitled are reduced.
So, just because the 15-year pays off quickly doesn’t mean that it’s best for everyone.
Conforming mortgages are limited by loan size, based on “typical” housing costs around the country. Since 1980, as home prices have increased, so have conforming loan limits.
The current conforming limit on a single-unit property is $417,000.
Earlier this year, as part of the Economic Stimulus Act of 2008, Congress authorized conforming loan limits increase in “high-cost” areas around the country. In Los Angeles County, for example, a mortgage can be as large as $729,750 and still be considered “conforming”.
But beginning in 2009, those increases roll-back. Effective January 1, conforming mortgage in high-cost areas will be limited to $625,500.
Changes to conforming loan limits impact everyone with a stake in real estate, even if their neighborhoods are not considered “high-cost”. This is because conforming mortgages offer the widest selection of home loan products, and often at the lowest rates. The widespread availability of conforming mortgages helps to support home sales nationwide as well as providing ample refinancing options for people that need it.
Starting with the New Year, fewer people will be eligible.
To lookup the conforming loan limits in your neighborhood, visit the HUD Web site. If you have specific questions related to your home or an upcoming purchase, contact me directly anytime.
In its last act as a semi-independent company, Fannie Mae altered mortgage guidelines for real estate investors last Friday. It was Fannie’s 22nd update this year.
The first part of the guideline change limits the number of properties owned by any one person.
Fannie Mae will now decline any mortgage application for a second home or investment property if the mortgage applicant already finances, or will finance, more than 4 properties in total.
The former guidelines allowed for 10.
There is a loophole, however. Fannie Mae will not count properties against the 4-property limit if they are held in the name of a corporation. This holds even if the real estate investor is the sole owner of said corporation.
Investors, therefore, should consider moving their properties into a corporate structure to avoid triggering Fannie Mae’s 4-property limit. Many take this step for liability and taxation reasons, but it’s now a good idea for mortgage approval reasons, too.
The second part of the guideline change cannot be so easily avoided. Fannie Mae is assessing new, loan-to-value based loan fees on all investment property mortgages.
Loan-to-value less than 75 percent : 1.75% loan fee
These fees are mandatory and are in addition to any whatever other risk-based loan fees Fannie Mae may assess. Currently, those fees amount to a half-percent at minimum for real estate investors.
Since its Fannie/Freddie takeover, government officials have not addressed whether mortgage guidelines will be rolled back to “a looser time”. If they are, it would be a big deal for real estate investors because, as many are finding out, low rates don’t matter much if you can’t qualify for them.
If you’re currently in the market for an investment property (or two), consider that it may be cheaper and simpler to purchase over the near-term versus the long-term. And consider moving your existing properties into a corporate structure first.
Monday afternoon, the U.S. House of Representatives defeated the $700 billion “Bailout Bill”, surprising Wall Street and the world. 
Thursday, federal regulators seized mortgage lender Washington Mutual. The Seattle-based thrift became the third “big name” lender to close its doors since July, joining IndyMac and Lehman Brothers.
Earlier this year — and for the first time in its history — the FHA changed its 
Getting a great, low mortgage rate is often a combination of luck and preparation. 
The first step is to contact your loan officer. 
On all principal + interest home loans, the first few years of payments include a lot more money going to interest than to principal. 
In its last act as a semi-independent company, Fannie Mae altered mortgage guidelines for real estate investors last Friday. It was Fannie’s 22nd update this year.
Since its Fannie/Freddie takeover, government officials have not addressed whether mortgage guidelines will be rolled back to “a looser time”. If they are, it would be a big deal for real estate investors because, as many are finding out, low rates don’t matter much if you can’t qualify for them.
