In a quarterly survey of 84 banks, 75 percent of respondent banks tightened mortgage guidelines over the last 3 months for the most qualified of home loan applicants.

“Prime” is a vague term when it comes to mortgages, but, historically, a prime borrower is one that can document:

• A well-documented credit history
• Very high credit scores
• Very low debt-to-incomes

Historically, banks bent over backwards to lend money to this class of borrower.  Today, they’re thinking twice.

The chart’s steep ascent reinforces that members of all tax brackets face consequences from the current credit market turmoil.  And, although some corners of credit looked poised to recover — interbank lending, for one — the mortgage market is yet unaffected and should be among the last to thaw.

All prospective home buyers should prepare for the likelihood that mortgage guidelines continue to toughen before they start to ease.  Mortgage applicants on the cusp of being approved today will almost certainly be turned down for a mortgage in 2009.

Owning real estate can require a tremendous amount of advance planning and, sometimes, looking at the past is the best way to prepare for what’s coming ahead. 

According to the Federal Reserve’s survey, what’s coming ahead is more mortgage application scrutiny.

To see if you have what it takes, call Tyler Ford and Todd Abelson at Sunstreet Mortgage in Tucson, Arizona or visit our website at www.TucsonMortgages.com

Their prevailing thought was that once the President-Elect was identified, credit markets will systemically unfreeze and housing markets will return to normal.

If history is a guide, this is an unlikely scenario.

Election Day doesn’t figure to alter markets any more in 2008 than it did after the four previous presidential elections. 

If anything, post-Election Day market reaction has been muted:

• 1992 : Dow closes down 0.9 percent the day after Election Day
• 1996 : Dow closes up 1.6 percent the day after Election Day
• 2000 : Dow closes down 0.4 percent the day after Election Day
• 2004 : Dow closes up 1.0 percent the day after Election Day

But just because the stock market has a history of idling on the day after the election doesn’t mean that mortgage rates will rest easy this week.  The likely outcome is the opposite, actually. 

If investors believe the President-elect will successfully stimulate the economy, stock markets would likely rally, causing mortgage bonds to sell off and mortgage rates to rise.

Or, if investors think the winning candidate will fail to revive the economy, money would flock to government bonds as a place of safety.  This dollar flow would occur at the expense of the mortgage market, causing rates to rise in this scenario, too.

Of course, it’s as difficult to predict post-Election market conditions as it is to predict the election itself but one thing is for certain — rates may rise and fall before the week is out, but credit guidelines will remain extra-tight.  Getting approved for a mortgage won’t be any easier — no matter which party wins the Presidential Election.

For up to the minutes news, and for all your BEST mortgage options in Tucson, Arizona, call Tyler Ford and Todd Abelson at Sunstreet Mortgage, LLC or visit our site at www.TucsonMortgages.com

Source
Will the election drive the Dow?
Eamon Javers
Politico
https://news.yahoo.com/s/politico/20081022/pl_politico/14826

The Federal Open Market Committee voted to cut the Fed Funds Rate by one-half percent today.  The benchmark rate now stands at 1.000 percent.

In its press release, the Fed wasted no time addressing the key issue at-hand, stating that economic activity has “slowed markedly”, pointing to three main causes:

1. Consumer spending is falling
2. Business equipment spending is falling
3. Slowing foreign economies are hurting U.S. businesses

Furthermore, the voting FOMC members are wary of an “intensification” of the current financial market turmoil.

The announcement’s 4th paragraph is noteworthy, too.  It lists the plethora of growth-stimulating steps that the Fed has taken so far this year and concludes that credit conditions should improve in time.  It does notes, however, that if markets don’t improve in good time, the committee will “act as needed”.

In the wake of the announcement, stock markets rallied.  Investors liked what the Fed had to say and it drew funds into the stock market from all corners of Wall Street.  Unfortunately for mortgage rate shoppers, one of those corners happened to be the mortgage bond market.

The exodus from bonds caused mortgage rates to rise.

It’s a common misconception that the Federal Reserve controls mortgage rates and today’s market action should help dispel that myth.  As the Fed Funds Rate falls back near its 50-year low, mortgage rates are bumping up against a 3-year high.

Source
Parsing the Fed Statement
The Wall Street Journal Online
October 29, 2008
https://online.wsj.com/internal/mdc/info-fedparse0810.html

www.tucsonmortgages.com

Versus August, foreclosures fell by 12 percent in September 2008 as more than half of the states showed month-over-month improvement. 

Most interesting in the data is that several states that led the foreclosure boom in 2007 now appear to be leading the charge out of it.

For example:

• In Arizona, foreclosures are down 9.43 percent
• In California, foreclosures are down 31.64 percent
• In Colorado, foreclosures are down 6.22 percent
• In Illinois, foreclosures are down 5.14 percent
• In Michigan, foreclosures are down 22.43 percent

But despite September’s promising data, the press is choosing to report that foreclosures are up 71 percent over the same period last year.  The data is accurate, but not necessarily relevant. 

When home buyers and sellers engage real estate markets, they rarely think in annual terms.  For them, it’s about buying or selling this month, or next month, or the month after that.  When someone is “in” the market, their mentality is “right now”.

In other words, annual data is more befitting of an economist, while month-to-month data is more befitting of you.  Of course foreclosures are up 71 percent since last year — a lot has happened since then.  But on a monthly basis, signals point to improvement.

September’s foreclosure data may be a signal of market recovery, or it may just be a blip.  Time will tell, really.  Either way, RealtyTrac’s foreclosure data reinforces what most real estate professionals already know and that’s that markets all over the country are showing signs of life.

The government’s effort to boost bank lending to end the credit crisis is hurting one of the areas critical to the nation’s recovery: mortgage rates. In the past week, the average mortgage rate on a 30-year fixed home loan has jumped more than one half a percentage point to 6.74%, according to Bankrate.com. That might not sound like much, but it is the biggest one-week rise in the normally stable lending rate in 21 years. Some economists say mortgage rates could soon top 7%, a level they have not seen in more than six years.

“Certainly the moves the administration have made so far are not directly attacking the financial issues that affect American homeowners,” says John Vogel, a finance professor at Dartmouth’s Tuck School of Business. “We need to refinance million of homeowners into affordable mortgages, and if rates go up that makes that job just much harder to do.”

Rising mortgage rates could also put downward pressure on housing prices, which have already dropped 20% since their peak in July of 2006, according to the S&P/Case-Shiller Home Price index. The increase in mortgage rates means that the average borrower will pay $1,296 a month in mortgage payment for a $200,000 loan. That’s $100 more a month, and $1,200 more a year, than the same loan would have cost them a few weeks ago. For buyers on a budget, that means they can afford less house for the same amount of money. Conversely, sellers would have to drop their prices to attract that same buyer.

What’s more, a new “Adverse Market Fee” recently instituted by lenders for borrowers with less than perfect credit (regardless of the market) could raise the cost of a loan another half a percentage point - or an additional $70 a month on that same $200,000 loan - for nearly 20% of Americans. “For individuals looking to buy a home this is going to be just one more obstacle in their way,” says Barry Ziggus, who tracks housing issues for the Consumer Federation of America.

The story is worse for people in areas of the country, such as Scottsdale, AZ, or Glen Ellyn in suburban Chicago, where even modest houses can be in the $500,000 range. A $600,000 mortgage will now cost $4,319 a month, or nearly $500 more a month, and $6,000 more a year, than it did six months ago.

Last month, when the government took control of mortgage giants Fannie Mae and Freddie Mac and pledged to inject $200 billion in capital into the home loan guarantors, administration officials said the moves would make it easier and cheaper for people to get home loans. Unfortunately, it hasn’t worked that way. Mortgage rates fell sharply after the move, but soon reversed quickly, and are now higher than they were before the Fannie/Freddie rescue plan was launched.

The problem is that other moves the government has made to render bank debt safer has had the unintended consequence of making Fannie and Freddie’s bonds less safe by comparison. So Fannie and Freddie’s investors have to be compensated for the increased risk. In particular, traders say, the move in the past week by the Federal Deposit Insurance Corp. to temporary offer unlimited deposit insurance for non-interest bearing accounts and guarantee roughly $1.4 trillion in new unsecured bank debt has caused a rush of selling of the bonds of Fannie and Freddie. That’s because the FDIC’s move makes bank debt more attractive at a time when traders are looking for safety. Sheila Bair, the head of the FDIC, was initially against backing this new bank debt, but eventually went along with Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson.

Lower prices (and thus higher interest rates) for Fannie and Freddie bonds make it more expensive for the government mortgage guarantors to borrow, and that means that Fannie and Freddie have less money to purchase home loans. Which means a lower supply of capital available for mortgage issuers. The result is higher mortgage rates for the average American. The higher mortgage rates have left some people wondering just what the government can do next. “Just what would you do differently,” says John Weicher, a director at the Hudson Institute and a former assistant security at the U.S. Department of Housing and Urban Development. “I’m inclined to believe that the efforts we have made to help homeowners have been successful, they just haven’t been enough.”

Call Tyler Ford and Todd Abelson at Sunstreet Mortgage in Tucson Arizona for up to date mortgage rates and status!

With PMI defaults up 40 percent over last year, though, private mortgage insurers are taking big losses.

They’re also taking outsized steps to prevent additional claims going forward and that is bad news for low-equity homeowners and home buyers.

The first PMI change new, higher insurance rates.

Like home insurers that adjust premiums after a worse-than-expected storm season, PMI insurers are raising mortgage insurance rates for all homeowners, regardless of credit history.  The higher premiums are meant to offset the higher losses.

And, the second change is that some PMI firms are discontinuing coverage for “high-risk” transaction types.  This includes purchases of non-owner occupied properties, and cash out refinances above 85 percent loan-to-value.

Both changes, however, point to similar conclusion about home loans: Home equity is increasingly important for today’s homeowner. 

PMI rates are higher than they were six months ago and the rising number of defaults makes it likely that rates will rise again soon.  As PMI rates increase, so does the cost of homeownership for people whose lenders require it.

This is because most conforming ARMs made since 2003 are based on a borrowing cost called LIBOR and LIBOR is up an uncharacteristic 2 percent since September.

LIBOR stands for London Interbank Offered Rate and is the rate at which banks lend money to each other. 

Historically, LIBOR has tracked the U.S. treasury market, plus a half-percent increase.  This suggests that banks are only slightly less likely to default versus the U.S. government.

Today, that spread is close to 4.5 percent.

Since Lehman Brothers failed in September 2008, banks are fearful that their peers will meet a similar fate.  Looking at the chart, we can see how LIBOR has responded. 

The LIBOR spike is harming homeowners with adjustable-rate mortgages because adjusted rates on conforming mortgages are often calculated by adding 2.250 percent to the current 12-month LIBOR rate. 

On sub-prime mortgages, the adjustments are even more steep.

In general, though, as LIBOR rises, household payments rise, too, so if your home loan is adjustable and is due to reset soon, call or email your loan officer to talk about how LIBOR may impact your adjusted mortgage rate and payment.

For many homeowners, it’s less expensive to refinance into a new home loan that to just let the adjustment happen.

If you have an adjustable rate give Tyler Ford and Todd Abelson of Sunstreet Mortgae a call so see what we can do for you.

(Image courtesy: Wall Street Journal Online)

The move is meant to stimulate the U.S. economy.

When the Federal Reserve changes the Fed Funds Rate, it often takes 9 months for the changes to work their way through the economy. 

On a broad scale, therefore, we won’t know if the cut truly “worked” until Summer 2009.

But, as it relates to Americans in general, the rate cut spurred two immediate changes.

First, because Prime Rate is directly tied to the Fed Funds Rate, Prime Rate fell by 0.500 percent today, too.  That means that interest rates on credit card debt and home equity lines of credit are now lower, reducing monthly interest costs for the majority of American households.

The second change is that mortgage rates are rising today.

The Fed’s actions today sparked optimism in some corners of Wall Street and money is now flowing into the stock market at the expense of bonds.   Because mortgage rates move in the opposite direction from bond demand, mortgage rates are higher this morning. 

As always, mortgage markets and mortgage rates remain on edge.  Therefore, rates are subject to change.  And quickly.  If you see a rate and payment you like, be ready to commit to it because it likely won’t last long.

(Image courtesy: USA Today)

Monday, the Dow Jones Industrial Average closed below the psychologically-important 10,000 level for the first time since 2004. 

Despite the milestone-marker breach, however, there was a large group of Americans with reason to cheer.  As stocks sold off, mortgage markets rallied to the benefit of home buyers and mortgage rates shoppers everywhere. 

Conforming mortgages rates improved yesterday.

Most interesting here is that rates improved for the same reason that the stock market fell.  Because of lingering concerns about the worlds’ economies, investors lost their collective appetite for risk Monday.  In response, they sold their stock positions and parked the proceeds in the “safe haven” of U.S. government-backed debt. 

The extra demand for safe investments pushed up the prices on mortgage bond which, in turn, pushed down mortgage bond rates.

Now, we can’t predict when the market’s risk appetite will return, but when it does, expect money to flow into stocks just as quickly as it left. 

All year long, with respect to stock markets, it’s been either “everybody in” or “everybody out” and, for now, it’s everybody out.  This is why mortgage rates fell Monday. 

But, when the momentum shifts — and it will shift — mortgage rate shoppers would do well to be prepared.  Be ready to lock that mortgage rate because as soon as the stock market reverses course, mortgage rates will head higher. 

And if stocks recover as quickly as they tanked, expect mortgage rates to spike badly.

Give Tyler Ford and Todd Abelson of Sunstreet Mortgage a call today to see if lowering your interest rate and monthly payment makes sense.

(Image courtesy: USA Today)

Will they or won’t they pass it?

The uncertainty prior to the vote created huge market swings that ultimately sent the Dow Jones Industrial Average to its worst week since the 2001 terrorist attacks, while causing similar damage in the mortgage markets.

Mortgage rates worsened for the third straight week last week.

However, if we take the congressional vote out of the picture and look strictly at last week’s data, we would have expected mortgage rates to fall instead of rise.

For example, the economy shed another 159,000 jobs, bringing the 2008 total to 760,000 lost jobs.  This reduces the likelihood of inflation and is normally good for mortgage rates.  In addition, the U.S. dollar had its strongest week ever against the Euro.  This usually attracts buyers to the mortgage bond market, driving down rates.

And third, Fannie Mae eliminated one of its mandatory loan fees.  This improves mortgage bond pricing for borrowers, ultimately leading to lower rates.

But, mortgage rates rose didn’t fall last week and that shows how deep the economic uncertainty really ran.  And this week, with the bill now passed into law, we would expect the market to turn its attention back to fundamentals.  But it can’t.

Unfortunately, there’s no new data for release this week so, in the absence of data, markets should take their cues from the following sources:

1. The 8 scheduled Fed speakers, including Bernanke on Tuesday
2. Wednesday’s Pending Home Sales report
3. Persistent rumors of a “surprise” Fed Funds Rate cut

Regardless of to what markets react, though, be prepared for them to react swiftly and for mortgage rates to dip and spike — often in the same day. 

In other words, a mortgage rate quote from the morning is likely to be “expired” by the afternoon so if you see a rate and payment that you like, consider locking it.  It likely won’t last long.