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Another day, another piece of inflationary data.
June’s Consumer Price Index showed a 5 percent year-over-year increase in what is now the largest annual Cost of Living increase for Americans in 17 years.
This is bad news for both home buyers and homeowners in want of a new mortgage because rising costs are inflationary and inflation causes mortgage rates to move higher.
Predictably, mortgage rates jumped Wednesday morning after the CPI data was released and they edged higher throughout the rest of the day.
This morning, mortgage rates are higher again on unexpected strength in housing starts and building permits across the country.
On most mortgage products, rates are now higher by 0.250 or more since Tuesday. This is equivalent to $192 in extra mortgage payments per year per $100,000 borrowed.
(Image courtesy: The New York Times)
For information about Tyler Ford and Todd Abelson and the Tucson Home Loan Lending Team visit: www.TucsonMortgages.com
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Dateline: Mortgage news brought to you by Tyler Ford and Todd Abelson
Mortgage rates fell slightly in a week that included a bank failure, more oil price spikes, and questions about the health of the nations’ mortgage market.
Rates would have fallen more if not for a late-Friday sell-off that added 0.125 percent to most products.
As financial markets fell under stress, most people missed the strong points that emerged about the U.S. economy last week:
And, also worth noting: homes under contract slipped but remained above the lowest levels of the year, suggesting a potential housing floor.
But, the biggest story of last week was the stock-price collapse and subsequent pressure on Fannie Mae and Freddie Mac. It should be the biggest story of this week, too.
So far, Fannie and Freddie’s issues appear to be more psychological in nature than fundamental, but to an already roiled market, negative perception can quickly become reality. This is one of the biggest reasons why both the Federal Reserve and the U.S. Treasury made public statements Sunday in support of Fannie and Freddie, and in advance of the Asian markets’ opening.
Other events that may move markets this week include Retail Sales data on Tuesday, consumer inflation data on Wednesday and Ben Bernanke’s two-day testimony to Congress which takes place over both Tuesday and Wednesday.
It’s unclear in which direction mortgage rates will go, but because the markets are on-edge, expect rate movements to be sharp and quick. In other words, if you’re in the market for a mortgage this week and you see a rate and payment you like, don’t mess around with it — just get it locked.
Click here for this week’s Mortgage Market Newsletter
(Image courtesy: Wall Street Journal Online)
“Economic uncertainty” is turning into a 2008 buzzword and there’s good reasons why.
On the one hand, there are precursors to inflation in the economy:
- Rising oil costs
- Rising food prices
- Higher Cost of Living
On the other hand, there are precursors to recession in the economy, too:
- Mounting job losses
- Less access to credit and/or loans
- Falling consumer confidence data
The pie chart at right illustrates just how uncertain the “experts” are about the state of the U.S. economy. They’re evenly split, right down the middle.
This isn’t good news or bad news for Americans, per se, but it does legitimize the idea that the economy’s future direction is in doubt. This is one of the biggest reasons why there’s been no clear direction for mortgage rates or stock markets since the start of the year.
Until the picture gets more clear, we can expect the volatility to continue.
(Image courtesy: Wall Street Journal)
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According to RealtyTrac, the rate of foreclosures across the U.S. is slowing. Versus May, June foreclosures fell at a 3 percent clip.
25 states showed improvement month-over-month, led by many of the same areas that had fueled foreclosure activity in 2007.
A sampling of RealtyTrac’s data includes:
- California : Foreclosures down 4.54 percent
- Georgia : Foreclosures down 14.91 percent
- Arizona : Foreclosures down 0.07 percent
- Michigan : Foreclosures down 6.00 percent
- Illinois : Foreclosures down 15.65 percent
However, the improving nature of the data is not what is making news this morning. Instead, the press is reporting that foreclosures are up by half since last year and that bank seizures have tripled.
And while the annual data may be accurate, that doesn’t mean that it’s necessarily relevant to home buyers and home sellers across the country.
This is because people buying and selling homes don’t usually boast an “annual” mentality; when someone’s an active participant in the real estate market, the mentality is “right now”.
In other words, annual data fits an economist, but month-to-month data fits you.
June’s foreclosure data may be the start of a trend, or it may be a blip. It’s really too soon to tell. But the RealtyTrac data reinforces what real estate professionals already know — that markets all over the country are showing signs of life.
Brought to you by Tyler Ford and Todd Abelson of the Tucson Mortgage Team.
It’s a terrific time to buy a home, but not because homes happen to be affordable.
It’s a terrific time to buy because the variety of mortgage products available to home buyers looks poised to shrink.
Monday, Alt-A mortgage lender IndyMac Bank stopped accepting mortgage applications and it’s likely that other Alt-A lenders will likely follow suit.
Alt-A loans are ones in which borrowers can’t (or won’t) verify one of two major underwriting criteria:
- Evidence of income
- Evidence of assets
Since the Credit Crunch began last July, Alt-A mortgages have been a steady source of funds for ”in-between” borrowers — those that are not quite prime, and not quite sub-prime. IndyMac was among the largest lenders of its type and had outlasted many of its peers.
Its position as a market leader and subsequent exit from lending means that the remaining Alt-A lenders will likely make one of two choices in the coming weeks:
- Raise rates and fees because of greater Alt-A mortgage risk, or
- Follow IndyMac’s lead and exit mortgage lending altogether
Both outcomes would be harsh for home buyers of all types because when any large bank takes mortgage-related losses like IndyMac just did, it tends to create major risk aversion in the market.
Risk aversion impacts everyone – even the “good” borrowers.
Banks have been nervous about lending for several months and so they’d rather pass on an “average” mortgage application rather than risk getting stuck with a potentially “bad” one. IndyMac’s exit may cause fewer mortgages to get approved.
In other words, buyers eligible for financing today may be ineligible tomorrow.
Therefore, if you’re a home buyer and you know your credit profile is less-than-ideal, consider writing a purchase contract sooner rather than later. Your mortgage options may be thinning, and the ones you have may be getting more expensive.
Last week was fairly uneventful in the mortgage markets, with rates slightly edging lower across the board and without much data to influence trading.
Even Thursday morning’s hotly-anticipated jobs report was met with lukewarm interest; many traders had already left for the weekend.
Mortgage rates just drifted — a little up and little down, but mostly unchanged.
Mortgage insiders may have found last week to be boring, but for active home buyers, the semi-lull was a welcome break from the up-and-downs that have gripped the markets since January.
It’s been three consecutive weeks without a substantial increase to mortgage rates.
This week, rates aren’t expected to be as calm because Fed Chairman Ben Bernanke is taking two heavy topics and making public speeches about them.
The first speech is to the FDIC on Tuesday. The speech will focus on mortgage lending. The second is to House Financial Services Committee on Thursday and it will cover financial market regulation. In both speeches, expect Bernanke is expected to address inflation and the health of the U.S. banking system.
These two subjects are closely linked to mortgage rates so watch for rate movement during, and after, the speeches.
- If Bernanke says inflation is moderating, mortgage rates should fall
- If Bernanke says the financial system is stabilizing, mortgage rates should rise
From a data perspective, there’s not much doing other than Friday’s Consumer Confidence survey. Confidence surveys don’t have a direct impact on the economy, but markets are watching them more closely. A strong reading could benefit the stock market which should, in turn, cause mortgage rates to rise.
(Image courtesy: Wall Street Journal Online)
In the summer of 2005, sub-prime mortgage lending was at its peak. Rates were relatively low and lending guidelines were relatively loose.
At the time, the “standard” sub-prime mortgage product was the 3/27 ARM.
The 3/27 had a few basic traits:
- A fixed, 3-year “starter rate”
- Every six months thereafter, the mortgage rate changed
- The formula by which it changed was (4.999 percent + the 6-month LIBOR rate)
If the loan was interest only, it usually converted to principal + interest at the first adjustment, too.
Because the summer of 2005 was the peak of sub-prime lending, it makes sense that the summer of 2008 is the peak of sub-prime adjusting.
For homeowners with adjusting sub-prime loans, there is some (relative) good news out there.
Today, the 6-month LIBOR hovers near 3.15 percent, meaning that an adjusted mortgage rate will be in the neighborhood of 8.15 percent.
This is versus the rate of 10.30 percent that sub-prime borrowers faced last summer when LIBOR was much higher than it is today.
Adjustments of any size can strain a household budget, though, so if you’re a sub-prime borrower and your pending adjustment will cause financial strife, be proactive — talk to your lender before you miss a payment.
Lenders are often more willing to talk with “current” borrowers than with delinquent ones.
(Image courtesy: Washington Post)
Let Tyler Ford and Todd Abelson help you for all your mortgage needs.
Mortgage rates improved last week, marking the first time since mid-May that has happened.
The rate drop is the result of how mortgage markets interpreted the Federal Reserve’s Wednesday press release.
In it, the Fed said:
- Inflation pressures should lessen soon
- Growth should remain steady this year
- The credit market is currently fragile
Separately, none of this was news to the markets. But considering all three statements together, investors grew nervous of leaving money in the stock market — specifically in financials.
Post-Fed announcement, there was a wave of selling that dropped the Dow Jones Industrial Average nearly 20 percent from its October 2007 high.
As stocks sold off, though, mortgage shoppers were benefiting.
Rates ticked down in the Fed announcement’s wake because the mortgage bond market acted as a “safe haven” for traders. More demand for mortgage-backed bonds caused rates to fall, accented by a favorable run very late in the day Friday.
This week, the momentum may continue, or it may not. There is a lot to capture traders’ attention in this holiday-shortened, four-day work week.
The biggest data release of the week will undoubtedly be Thursday’s Unemployment Report, but there are also two Fed speakers stumping, as well as Treasury Secretary Paulson speaking about the economy.
As the week goes on, more and more traders will be leaving for the long weekend so expect rates to move with greater force as Thursday afternoon gets nearer. And, if stocks haven’t regained favor with investors by then, expect that mortgage rates will have a good week.
A Home Equity Line of Credit is bank product that grants homeowners access to the equity in their home at anytime, usually using checks.
Often called a HELOC, these equity-based credit lines function very much like credit cards:
- The rate is adjustable, tied to Prime Rate
- There is a minimum monthly payment
- There is a pre-set spending/credit limit
But different from credit cards is that a HELOC is “guaranteed” by real estate and with real estate values in question nationwide, many banks are exercising a little-known clause in the HELOC contract.
With alarming frequently, banks are reducing the pre-set spending limits on their active equity lines. Via USPS, lenders are notifying homeowner with $100,000 HELOCs that their new HELOC limit is $25,000, for example.
And the banks aren’t being discriminate based on payment history or local real estate conditions, either — it’s happening everywhere with equal force.
The good news is that banks will accept appeals on HELOC reductions on a case-by-case basis.
One way to appeal a HELOC reduction is:
- Call your lender’s Customer Service line. Do not send an email.
- Politely ask why the HELOC limit was reduced. Listen carefully to explanation.
- Explain why you would like your HELOC reinstated. Acceptable reasons may include home improvement projects or improper home valuation by the lender.
- Be prepared to write a formal letter, if asked. Address the issues explained in #2.
Banks will typically not reinstate a HELOC if a borrower has been delinquent on payments, or lives in a severely depressed neighborhood. However, because lenders rely on computer models to assess risk, it’s always a good idea to ask.
Sometimes the Human Element of an appeal can work in your favor.
MORTGAGE ALERT!
Please note that effective with all new FHA loans (defined as new Case number assignments) on/after July 14th, HUD is 
implementing new “risk based premiums” on both the up-front and monthly mortgage insurance. The chart is based upon FICO scores and Loan-to-Value (LTV).
In some cases the up-front premium is actually lower and in most typical cases the monthly premium is slightly higher. As a comparison, currently the typical 3% down, 30-year loan carries an up-front premium of 1.50% and monthly premium on .50% (150/50).
Please be aware that these changes will affect both the final loan amount AND the monthly payment.
If you are working with a buyer that might be negatively affected by these changes, get them in process before July 14th!
There are other key points addressed in the FHA announcement.
For detailed guides click on the link below.
FHA CHANGE GUIDELINES
