Arm rates resetting lower than current market rates
May 15, 2008
Home owners who have mortgages that may be adjusting in the next few months could be pleasantly surprised to find out their mortgage rates may actually be adjusting down. Their has been a great deal of speculation that the large number of arm’s scheduled to reset in 2008 would have a crippling effect on the housing market.
The Federal Reserve has worked agressively to try and restore the credit markes by reducing the Fed Funds rate down to 2%. While this has no direct correlation to mortgage rates, their is a correlation to other economic indexes such as the LIBOR. Most arms are now utilizing the LIBOR as the index of choice for future adjustments. This is good news for millions of home owners as the rates on the LIBOR have dropped in conjunction with rates on the Fed Funds rate. The LIBOR has several indexes including 1 year, 3 months, and 6 months. All three of these indexes are now under three percent. Most adjustabe rate mortgages have margins (amount added to index to determine new rate) of 2 to 3 percent. This essentially means that most home owners with arms will be adjusting under six percent if the market does not move significantly in the near future.
Long term fixed rate mortgage are still hovering around six percent so it would probably make sense to explore refinancing your mortgage if you plan to stay in the home beyond the next 12 months and want to have payment certainty for the long haul.
Jumbo Loan Options Expanding
May 11, 2008
Millions of Americans have started to receive their rebate checks from the government in the mail over the past few weeks. This part of the economic stimulus package has received the most attention in the news, however there is another key benefit of the program that has also begun to trickle through. The legislation has also allowed for home owners hwo have jumbo loans to refinance these loans under conventional financing terms.
This new alternative should be welcome news to anyone who has a mortgage that is over 417k. The spread between conventional loan rates and jumbo loan rates has been in excess of two percent form the better part of the past six months. The secondary market for jumbo loan financing has all but disappeared and the result has been a dramatic increase with the mortgage rates on jumbo loans. Lenders such as CitMortgage, Countrwide and IndyMac are now able to qualify home owners in select counties for loan sizes up to $729,000 and have their loans underwritten and sold to either Fannie Mae of Freddie Mac. This is welcome news for anyone owning a home above $450,000 as this should help to bring some home buyers into this marketplace and provide realistic refinance options for home owners who may have chosen an adjustible rate mortgage a few years back.
Countrywide Drops & Foreclosure Filings Rise At Record Paces
April 29, 2008
The bad news for the U.S. economy continues to come out in mass. On the eve of another meeting by the FOMC, the countries largest mortgage lender reported losses totaling near 800 million dollars. Countrywide is continuing to be hit hard by the fall out in the real estate markets and their is little hope that the market will improve any time soon. There is a strong possibility that the U.S. housing market will continue deteriorating at record paces as the number of foreclosed homes on the market grows. RealtyTrac today announced that foreclosed home filings are now at the largest level in history and that they were up over 25% from the fourth quarter of 2007.
It is becoming more apparent that the U.S. housing market will not rebound simply based on lower mortgage rates. This puts the government in a tough position as they are going to be left with two choices allow the market to continue to fall until all of the bad loans have worked their way through the system (potentially 2-3 years from now) or offer a true stimulus package that will provide the necessary components to help the market. If the government offers a stimulus package it will need 3 key ingredients. Financial incentives for lenders to offer loan programs for lower qualified applicants (increase demand base), tax incentives for purchasing foreclosed homes, and a true strategy for dealing with home owners facing foreclsoure.
Mortgage rates continue to trend around six percent and the balance of the economy is still producing above expectations, but one is left to wonder how long this can last.
Ten common refinance mistakes
April 26, 2008
The window to refinance your existing mortgage for a low fixed rate home loan is still available. There are some simple things every home owner should know to ensure they get the best loan for their refinance scenario. Some of the most common mistakes made by home owners who want to refinance their loan are as follows:
- Not knowing what their credit (Fico) score is
- Avoiding calling their existing loan servicer
- Increasing their house payment by shortening their loan term. ( you can always add extra on a 30 year term)
- Focusing too heavily on the rate and not examining the cost and loan apr
- Shopping with multiple lenders, but not calling them on the same day
- Trying to find a deal that does not exist in the market
- Accepting a loan with a prepayment penalty
- Ignoring the benefit of buying down the mortgage rate through discount points
- Failing to eliminate ineffecient debt (credit cards/revolving debt)
- Not working with a professional who establishes a plan and review your goals in detail
This list could certainly go on and on as home owners have discovered over the years that shopping for a mortgage can certainly be a stressful process. The best advice to anyone who may be considering refinancing their mortgage is to start with a complete review of their finances, closely examing all of their debts and establishing a long term financial plan for their debts as well as growing their assets.
Refinance Rates Moving Up!
April 20, 2008
This year has provided a unique opportunity for home owners to refinance their mortgage into fixed mortgage rates at levels last seen in 2003. In January of this year fixed mortgage rates reached their lowers levels of the past five years and were around 5.25% as the yield on the ten year bond dropped to 3.33%. This brief opportunity to lock into near historical low levels did not last long as mortgage rates jumped shortly their after.
Since early January the market has been under enormous stress following further fallout in the credit markets. Mortgage interest rates have been under pressure due to the tightening of the credit markets and the spread in mortgage securities has increased as investors are looking for a larger premium to hold mortgage loans. This larger spread has elevated the rates on mortgages, even as the yiled on bonds has declined with the turbulent movements in the stock market.
The market is now under further strain as rising oil prices are adding enormous strain on the markets through inflationary pressure. The yield on the ten year bond has moved well above the January lows and mortgage rates are now trending above six percent. The Federal Reserve will be meeting again in a few weeks and may further reduce the Fed Funds rate which would be good for home owners with adjustable raete mortgages or home equity loans, but it is unlikely to aid in helping bring down the rates of fixed rate mortgages. Those homeowners who have been on the fence when considering a refinance should explore locking into a fixed mortgage or securing a fixed mortgage with a float down option.
Credit Squeeze
April 17, 2008
You can not open a newspaper without hearing the term credit crunch and falling home prices. The financial mess is going full circle, first from main street down to wall street and now back to main street…
The worst time to borrow money is when you really need it desperately, and as many American home owners are finding out, even if they had planned for tough times, lenders are now pulling in their options. This past week Wachovia made headlines for freezing open lines of credit on home equity loans. Large lenders such as Indymac and Countrywide began doing this earlier in the year. The default rates on second mortgages have spiked to such high levels that most lenders are no longer offering second lien products. This puts homeowners in a difficult spot, already banks are being flooded with calls from customers who are trying to pull out all of the equity they can from the home equity lines in fear that the lender could freeze them out.
Complicating matters is most mortgage lenders have now also reduced the amount of equity a home owner is eligible to reifnance. In years past it was not uncommon for home owners to refinance at 95 to 100% of their homes value. Those options are long gone, most lenders now cap the loan amount at 90% of the homes value and even lower if your zip code is categorized as being in a “declining market”. The only option a home owner has to cash out refinance above 90% is through an FHA backed mortgage.
Many economists are predicting the limited access to home equity will result in a dramatic rise in the default of consumer credit cards. Homeowners who have historically used their homes equity to pay off their revolving debt have run out of options and will be stuck to make difficult financial decisions if the market does not improve in the near future.
Government Bailout Options
April 9, 2008
The long anticipated government housing bailout should be announced within the next two weeks. The economy has seen a number of indirect initiatives in assisting to help the housing market with both fiscal and monetary policy coordinating efforts to help the troubled market. There have been a wide variety of reports on what form of bailout and to what extent the government would become involved.
Critics have argued that the government does not need to increase the tax burden for individuals who did not make poor financial decisions or get greedy trying to refinance their homes into teaser rate programs. However, even the most staunch critics of the government having a direct role in fixing the problem are now beginning to ease on their opposition as the economy heads into a full blown recession and U.S. home values have dropped almost 10% in value over the past twelve months.
There are a number of items all but guaranteed to be incorporated in the upcoming legislation including:
- A larger role for the Federal Housing Administration (FHA)
- Tax incentives to buy foreclosed homes
- Financial incentives for lenders to reduce the balance on mortgages where home owners owe more than the value
- The role of the Fed continuing to grow in oversight of the mortgage market
- Better funding of education and home counseling programs
The real challenge in correcting the downward spiral of the housing market is a simple lesson in economics, supply versus demand. The supply of homes continues to grow with foreclosures and bank owned homes being a large contributor and the demand from buyers is limited because of lenders restricting underwriting guidelines. Fixing this balance will be critical in bringing back the real estate market.
Unemployment rate is now above 5%
April 5, 2008
The nations unemployment rate shot above 5% for the first time since 2003.
For the second month in a row, the job market posted a negative figure, this month a total of 80,000 jobs were lost. The job market is simply another indication that the U.S. economy is in a period of recession. The interesting part of yesterday’s news is that the stock market has already priced in a negative figure and did not have a significant sell off, even with the disappointing news. Many economists are now predicting that the Fed will be forced to cut the Fed funds rate by and additional half percent later in the month. The yield on the ten year bond dropped below 3.5% which is good for long term mortgage rates. The market mentality has shifted from fears of a recession, to acknowledging that the economy is in a recession and simply trying to determine how long it will last. This is good news for individuals looking to refinance their mortgage as you should expect fixed mortgage rates to continue to hover under six percent.
