Archive for May, 2008
Mortgage financier Fannie Mae is toughening its mortgage application decision-making process effective Monday, June 2, 2008.
The new guidelines will force many Americans to face higher mortgage rates, higher loan fees, or to be shut out from “prime” mortgage rates altogether.
The new “mortgage rules” include the following changes:
- Higher income levels required for basic approvals
- Interest only loans are now considered high-risk
- Condos are now considered high-risk
- 60-day mortgage lates within 6 months are a major red flag
Not all of the changes are for the worse, though.
In the new guidelines, self-employed borrowers will no longer be viewed as more risky than a W-2 employee. This will help small business owners and commission salespeople get more mortgage approvals than in the past.
Fannie Mae agreed to honor all mortgage approvals granted prior to its changes, so if you’ve been putting off that pre-approval, consider talking to your loan officer before the weekend starts.
Your mortgage approval will be much more lenient today than if you wait until Monday.
The monthly S&P/Case-Shiller Housing Price Index is a popular and often-quoted measurement of the housing market’s health. The chart above is sourced from report published yesterday.
In 18 of the 20 largest metropolitan areas, home values declined at a slower pace than in the previously measured month. The report also showed that national home prices are down 14.4 percent from March 2007.
Unfortunately, it’s the more sensation “14.4″ figure that newspapers chose to report this morning. If you never went further than the headline, you’d miss a key piece of analysis.
Comparing today’s market to last year’s market is a lot less valuable than comparing it to last month’s market. That’s a better way to analyze the market’s health.
If we look beyond the headline and examine the data behind it, we see that housing may still be sagging in some areas, but it’s not sagging nearly as much as it used to.
(Image courtesy: Standard & Poor’s)
Brought to you by Tyler Ford and Todd Abelson, Tucson’s leading home mortgage team.
The market optimism that had pushed mortgage rates lower since late-March reversed last week on ever-rising oil prices
and a bleak outlook from the Federal Reserve.
When gas prices reached $3.93 Friday, it re-ignited inflation concerns and inflation, you’ll remember, is the enemy of mortgage rates.
As expected, mortgage rates spiked into Friday’s market close.
Markets were closed for Memorial Day but re-open this morning with traders feeling apprehensive about mortgage market investments. There are many reasons to park money elsewhere, after all.
- The U.S. dollar is trolling near all-time lows against the Euro
- Oil markets are returning incredibly high rates of return
- Big banks are still writing off large mortgage losses
All three of these reasons reduce demand for mortgage bonds and – because mortgage rates move in the opposite direction of mortgage bond prices — mortgage rates rise.
This week, a few inflation-related data points will cross the wires including the Fed’s preferred inflation gauge — PCE.
PCE stands for Personal Consumption Expenditures and it measures the cost of living for ordinary people. It’s the Fed’s preferred measurement because PCE accounts for Americans buying more chicken when meat gets expensive, or buying more fruits when vegetables get expensive, et cetera.
PCE is different from the Consumer Price Index because CPI is a “fixed” basket of products.
If PCE is running high, expect the exodus from mortgage bonds to continue and rates to run higher. If PCE is flat or lower, mortgage rates should fall.
(Image courtesy: www.gasbuddy.com )
Dateline: Mortgage market news, Tucson, Arizona, Tyler Ford and Todd Abelson
www.TucsonMortgages.com
Below is a link to the 2008 April real estate sales overview. There are a few encourage things in the April report.
- April pending contracts were up
- Active listings were down
This is encouraging because as the Tucson housing inventory levels decrease the average days a home is on the market will also decrease and values will begin to stabilize. It is all about supply and demand.
Click here for the April 2008 report: mls digest april 2008
Brought to you by Tyler Ford and Todd Abelson - Tucson’s home loan experts!
www.TucsonMortgages.com
Three weeks after adjourning, Federal Reserve officials release detailed minutes of their most recent meeting.
The April 30, 2008 minutes were released Wednesday and it affirmed traders’ beliefs that the Federal Reserve will not be in a hurry to lower the Fed Funds Rate again.
This is bad news for two groups of people whose borrowing costs are tied to Prime Rate, the interest rate that is 3 percentage points higher than the Fed Funds Rate:
- Homeowners with home equity lines of credit
- Americans with credit card debt
Because Prime Rate moves in lock-step with the Fed Funds Rate, it, too, has fallen by 3.25 percent since September and now rests at 5.000 percent.
With the release of the April FOMC Minutes, though, it appears that Prime Rate is more likely to increase than to decrease moving forward.
If your home equity line of credit offers a “convert-to-fixed-rate” option, now may be a good time to consider switching over. Be sure to talk with your loan officer first, though — he/she may have alternate options for you.
(Image courtesy: The Wall Street Journal Online)
Tyler Ford Tucson’s Home Loan Specialist
Between Memorial Day and Labor Day, home buyers should take special care to schedule their purchase closings with three simple rules in mind:
- Don’t close on a Friday
- Don’t close in the afternoon
- Don’t close on the last day of the month
You stick with that, the rest is cream cheese.
These are three rules to live by because home purchases require a lot of man-hours and during the summertime, man-hours are in short supply.
And, if you didn’t already know, home purchases are a carefully orchestrated dance.
Check out the people involved in a typical home purchase:
The buyer(s) of the home- The seller(s) of the home
- The buyer’s real estate agent
- The seller’s real estate agent
- The buyer’s attorney
- The seller’s attorney
- The buyer’s mortgage lender
- The title company agent
- The buyer’s appraiser
And that’s before we count assistants, interns, and the other staffers involved. Closing on a home purchase is a 20-person collaboration and each is needed to make the process smooth.
This is why mid-week closings are preferable in the summer months — it’s more likely that all 20 people will be around. By the time Friday rolls around, at least one person will have started their weekend early. You can count on that.
And often, it’s more than one.
It’s also why mornings closings are preferred to afternoon ones. In the summer, people leave their offices early for all sorts of reasons — baseball games, golf outings, Caitlin’s Cooking on Fountain Square.
It’s harder to reach people when they’re oat and a boat and not tethered to their desks. That’s bad news if you need to reach somebody now.
So, let’s say you’ve scheduled a 9:00 A.M. closing on a Wednesday and all parties to your purchase are standing by, ready to assist. There’s another issue about which to be aware — title company agents are overworked.
Every day, title agents work hard to close home purchase and have to work even harder as the month goes on. This is because home buyers tend to schedule closings at month-end.
When there is more work to finish, there is less room for error.
Unfortunately, mistakes happen and title companies on their busiest days are a lot like airports on Thanksgiving — a delayed landing in the morning starts a chain reaction that delays every other landing later that day.
Therefore, to minimize the chance that of closing delays, avoid closing during peak hours, the time when everyone else is trying to close, too.
Peak title company hours are:
- Fridays
- Afternoon
- The end of the month
Purchase closings are complicated because there are loads of moving pieces and 20 different people are working to coordinate them. It won’t always be perfect, but you can make your home purchase closing easier by scheduling for an appropriate date and time.
(Image courtesy: Think Twice)
It’s not often that a mainstream media publication taunts renters into buying homes, but that’s exactly what Smart Money does in its latest issue.
The Smart Money Web site “lead-in” reads 5 (Lame) Excuses for Not Buying a Home. That’s a forceful title!
It’s unfortunate that renters could feel antagonized by the author’s tone because the article raises very good counter-points to the more popular reasons why renters avoid homeownership.
Owning a home is a serious responsibility and does require commitment. However, a renter should not feel bullied or hurried into buying because for as much as personal economics are at play, personal emotions are at play, too. Both deserve respect.
So, renters: Put your blinders on and give the Smart Money article a read. There’s good advice in there once you get past the author’s bias.
Loan-to-value is a math formula that represents the relationship between how much a home is “worth” and how much money is borrowed against it.
Loan-to-value is often abbreviated as “LTV” and is one of the many factors that lenders consider when underwriting a mortgage application.
The math formula is straightforward:
In the LTV equation, Loan Size is the amount of money borrowed from the bank and Home Value is the lower of the home’s purchase price or appraised value.
Home loans with low loan-to-value ratios are usually less risky for banks. This is one reason why mortgage rates tend to be more favorable for home buyers and homeowners when their respective LTVs are low.
Typically, a “low” LTV loan is one in which the loan-to-value is 80 percent or less. In some instances, however, 70 percent is considered “low”. The cut-off point depends on the mortgage lender and the mortgage product.
On a home purchase, the one way to lower LTV is to make a larger downpayment, thereby reducing the LTV equation’s numerator. Buying a home for below-market value would not reduce LTV, for example, because the purchase price would be used as the equation’s denominator.
On a home loan refinance, the denominator is always the home’s appraised value.
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