Higher rates for FHA mortgage insurance

The Wall Street Journal reported today that the FHA is raising monthly insurance premiums on loans with less than 20% down. The rates will almost doulble from 0.55% per year (on the loan amount) to 0.9%. For an average home this will translate into about $500 per year. At the same time the upfront insurance premium will drop from 2.25% to 1% of the loan amount.

Also the maximum amount that a seller can contribute to the sale is dropping from 6% to 3%.

What will the Fed do?

Today, the Wall Street Journal reported that the Fed is rumored to be considering a second round of mortgage buybacks, whereby they would buy billions of mortgages in the secondary market. The last program, which ended in March 2010, had the effect of reducing mortgage rates for consumers to near record lows. When it ended, everyone expected rates to increase, but due to unforseen, unfolding economic factors, rates continued to decline to their current lows, which have not been seen in over 50 years.

Stay tuned to see what rates will do........

Mortgage rates drop again, and again, and again....

In case you haven't noticed, mortgage rates dipped again for the 6th straight week. Freddie Mac's weekly report said teh 30 year rate slipped to 4.87% last week. This puts them at the lowest levels in about 50 years. Everyone is nervous about the sustainability of the economic recovery and this is driving down demand for money and reducing the threat of underlying inflation. The low rates are also spurring a surge in mortgage applications - up 15%. If you have questions about your rate or your mortgage, give us a call.

John Graham, at Neighborly Financial Mortgage, in Roseville, California.

HAMP - Mortgage Modification Program update

Last week there was a review of the White House Mortgage modification program, HAMP. The program has been in place about a year now and the results have been considered unsuccessful. To date, about 1.2 million people have applied for mortgage relief. Of that about 300 thousand have had their mortgages modified. Over 400 thousand have dropped out of the program, either giving up or being denied. The credit rating Fitch Ratings is projecting that about 2/3 of the homeowners that received modifications, will ultimately default on their modified loans.

Thinking of walking away from your mortgage???

In the past, if you defaulted on a mortgage thru bankruptcy or foreclosure, you could count on a major hit on you FICO score and a wait of about 4 years before you could think about buying another home.

For some people today, the thought of paying a mortgage that is worth more than their home value has them thinking about a strategic foreclosure, just to get out from the debt. After all, it's pretty appealing to think that if you owe $300,000 on a home and it's only worth about $200,000, you could walk away, take a hit to your FICO score, save $100,000 in debt payments, and than buy another home in about 4 years.

But, the picture may be changing. The industry is considering changes that may double the time people would have to wait for a "strategic" foreclosure of this type. New rules could soon be in place that would make these people wait 8 years, pay higher rates, and be required to pay higher down payments.

For the folks that lost their homes due to layoffs, or some other unforseen economic hardship, such as a huge medical bill, they old rule would still apply. What is unclear, is how they would handle the situations, where the borrower got in over their head with too much borrowed on a adjustable rate mortgage and then lost it all when rates went higher. Time will tell.... I'll keep you posted.

If you have questions, let me know. John Graham at Neighborly Financial. www.NeighborlyFinancialMortgage.com

So what's going on with rates ?????

Right now, rates are incredibily low. We thought at this time last year, we were seeing the bottom. Everyone was in a mad scramble to refi to historically low rates. Now, a year later we are seeing rates at even lower levels. And this, at a time when we thought rates would begin to rise, following the government subsidies of the last year.

Well, it all goes back to the recession that we are supposedly coming out of. We seem to go from euphoria to fear and panic, then back again, from week to week. The stock market is going thru a funk now and the same in happening with interest rates on mortgages.

So the real question is what is triggering the fear? Well, it's pretty simple. As some of the smaller European countries like Greece, Spain, Portugal, and Italy have racked up huge government debts, there is growing fear about their ability to repay. In Greece, the government workers are having to make huge concessions to the government in order to keep the government out of bankruptcy. Even with these concessions, other European countries are having to bail out these smaller countries. This extra tax load on the citizens of Europe could trigger a second wave of recession. It's too early to tell, but some folks are nervous. But, in any case, big debts, racked up by governments are not good. (Oh and did I mention that the US debt has more than doubled in the last year........)

But, in any case, if you need a refi, now is a great time to get one. Give us a call at Neighborly Financial (www.NeighborlyFinancialMortgage.com)

What's next?

During the past year, the Fed purchased over $1 trillion worth of mortgages in the form of mortgage backed securities. This had the effect of driving interest rates down about 1/2 % point. During FY'09 rates were running about 5% or a little less for a 30 year fixed mortgage. Had the Fed not purchased these, rates would have been running about 5.5%. The net effect was that many homeowners were able to refi their homes and increase their cash flow, which translated into increased consumer spending and a stimulus to the economy.

But, now that the Fed purchased these mortgages and is holding a huge amount of these, at some point they have to unload them. As they do, this will have the negative effect on interest rates - pushing them higher. At this time the Fed it contemplating how to unload them. They have several options, but the most important question is when and how quickly. Since the Fed has said they have no intentions of raising any interest rates soon, they will probably hold these mortgages for several months.

In any case, once they begin to unload them, interest rates will be pushed artificially higher than they would be at that time.

Rates rise when Fed buyback ends

On March 31, the Fed ended its yearlong program of buying mortgage backed securities - a program aimed at keeping mortgage interest rates low. When they stopped, the impact was immedidate. Rates have risen over a quarter point in the last couple of days.

Interest rates rise in spite of the Fed

It's interesting that this week the Fed stated that they see no need to raise interest rates because the US economy is still fairly weak. In spite of that, mortgage rates took a small step up. Why? Because some of the members of the European Union have overextended their credit. Greece has been in trouble for several weeks and now it is becoming more clear that Portugal has some problems. What has happened is that these countries have borrowed too much and now are at risk of not paying back the loans. This has resulted in Greece having to cut government services and this is causing riots in the streets. As lenders see increased risk, they raise rates on everyone to cover the losses from the default of a few borrowers.

What does this mean to us? First, it means that in spite the Fed wanting to keep interest rates low, they are going to rise anyway. This, in turn, means that our weak economy has another burden to bear in the form of higher interest rates. The hopes for a quick recovery and getting people back to work quickly is not very good.

Second, the problems that Greece has only foreshadow the issues we have in the US. We are piling on huge deficits in the US and record levels. This puts us at increased risks as well. It will take huge tax increases in the coming years to pay back the debt and many years to do it. As this debt gets repaid, it will mean every taxpayer will be funneling money into paying off the debt and paying interest on the debt - money that could be spent on something beneficial...........

underwater??

For those of you that are underwater, don't feel alone. Last week Zillow reported that in the 4th quarter of '09, 21% of all homeowners are underwater with their mortgages.

John
www.NeighborlyFinancialMortgage.com

underwater??

I thought it would be fun to see where 30 year mortgages have been lately. This shows where they have been for the last 5 years. Interesting, but they peaked at 6.35% about 3 times, with lows near 5%.

If you taken out a $300k mortgage at the high and the low, your mortgage payments would have been $1870 and $1610 respectively. That's about $260 per month, or 16% higher.

It will be interesting to watch the impact that inflation has on interest rates in the next year or two and the subsequent impact on home demand and prices............

you can find us on the web at www.NeighborlyFinancialMortgage.com

Get ready for even tougher documentation on loans ?

In 2009, Freddie and Fannie spent a lot of time idenfying bad loans. They are digging in and forcing banks to buy back bad loans that had some type of incorrect or incomplete documentation. As defaults on sub-prime loans have begun to improve, defaults on conventional loans has risen. Since most conventional loans are resold to Freddie and Fannie, they are seeing the biggest problem. As these loans get pushed back to banks, there will be repercussions into the documentation from borrowers. Fortunately, the bad loans tend to be from 2007 and 2008, before most documentation standards were raised. So, there probably will be additional increases in documentation required, but we may have seen most of the requirements already.

Fed to stay the course in mortgage buyback plans

Yesterday the Federal Reserve Board, reiterated its plans to discontinue its program to purchase huge quantities of mortgage backed securities. For the past several months the Fed has kept mortgage rates artifically low by buying large quanities of these instruments. At the end of March, they will discontinue the program. This will allow mortgage rates to be set by normal market processes.

What does this mean? Well, that is the big question. It may not mean a whole lot given that they have already begun to ramp down the purchases, very slowly over the past several weeks. But when the purchases stop, we will see the real impact that they have had. It is a given that rates will go up, but with overall interest rates so low, mortgage rates may not climb much until the economy picks up - and that may be several months away. Time will tell..........

Where is the FHA headed?

The FHA has a dilema on it's hands. Recently the FHA has been a huge player in insuring loans - as many as 20% of loans in the last few months. This is much different than in the early 2000's when they only insured 2%. Then, most borrowers bypassed the FHA and pursued sub-prime loans. Now that these have dried up, people are returning to the FHA loans for the financing they need. The problem is that default rates are climbing for FHA loans.

Now, the dilema, is that the FHA needs to tighten the qualifying rules to control defaults, at the same time they need to encourage lending to help the still unstable housing market. We'll have to wait to see how this unfolds.

you can visit us on the web at http://www.neighborlyfinancial.com/ or http://www.neighborlyfinancialmortgage.com/

What is a FICO score ??
FICO stands for Fair Isaac Corporation. They invented credit scoring. Your FICO score is a way for lenders to evaluate your potential to repay a debt. The FICO score is a number from 300 to 850. Anything below 620 is considered a bad credit risk. Between 620 and 720 is considered a marginal credit risk and anything over 720 is considered an acceptable credit risk.

There are 5 main areas to the scoring. I'll give an overview today and then more details in future postings.

1) the first area is your past history of payments on debts. If you are on time with all debt payments, you get a high score.

2) The second area has to do with credit balances on credit cards. (not total $, but the percentage of your allowable limit). The more you use/carry, the lower your score.

3) the length of time you've had credit. The longer you have had a single line of credit the higher the score.

4) the number of times someone inquires into your credit score, the lower the score. Generally this occurs at your request, when applying for a new credit card or some other line of credit. Lots of new credit requests, means a lower score.

5) Different types of credit impact your score differently. More on this later.

Stay tuned as we delve more into this in future postings.

www.NeighborlyFinancial.com

more details on new Good Faith Estimates

Just a little more clarification on the new Good Faith Estimates - mentioned in my previous posting.... There are 3 areas that are impacted: 1) the fees collected by the lender/broker as "origination fees" cannot change once provided in the GFE, 2) fees collected for recording, title, etc. cannot change by more than 10%, 3) fees on services selected by the borrower, have no limits on the changes since they are selected by the borrower.