Tom Tousignant's Start with the House

Blog Moved to StartwiththeHouse.com

2009-09-24T20:48:00.001-04:00

Hello, and thanks for visiting my Blog. I've moved all my new posts over to my new website, www.StartwiththeHouse.com. Please click through to there to stay up to date with the latest mortgage strategies and news. When you "StartwiththeHouse" you can succeed financially.

Regards,
Tom Tousignant CMPS

How long will it take to recoup your closing costs

2009-07-29T10:24:00.001-04:00

I read an article in the paper this week from a home finance ‘expert’. She closed with the comment, “be sure your refinancing costs can be covered in about six months”. Great, meaningless, advice.

Where does the ’six months’ rule of thumb come from? (Hint: thin air.) If you are going to move in six months, that is great advice. If, however, you plan on staying in your home for more than a year or so, what difference does the time to recoup closing costs make? If you spend less money on interest over time, does it really matter if it takes you six months, or six years to recoup your refinancing costs?

The real number you need to know

What will be your total cost of financing over the period of time you expect to have your mortgage? A good loan agent should be able to calculate this for you. It’s a pretty simple calculation, but, unfortunately the vast majority of loan agents are never taught how to do this. Their training is ’sales based’ training. That is, they are trained to prospect, present, close, answer objections, and close again. That is why so many loan agents came from other industries, and so many more are now leaving the mortgage business to go back to other sales jobs.
The Total Cost of financing your house is the sum of the closing costs plus the interest you will pay on the mortgage. By knowing the Total Cost, you can make an informed loan decision. As an example, consider the case of Fred and Nicole. They are going to live in their house for at least ten more years. If they can refinance their current two year old mortgage from a current rate of 6.875% to 5.875%, they will save $274 per month. However, with the lender fees, appraisal, and legal fees, they need to spend almost $6,000 to do so. Our newspaper reporter mentioned above would simply divide the $6,000 by 274 and say, “That’s 22 months to recoup your costs, so that’s too long a time period. Don’t refinance and continue paying the bank an extra $274 each month”.

However, using some good mortgage software, or by looking at the amortization schedule, we showed Fred & Nicole that over the next 10 years, a refinance would have them spending $32,850 less on interest. Add back the $6,000 in closing costs, and refinancing now would save Fred and Nicole $26,850 in 10 years.

What to do with the savings

Using the priorities I spell out at StartwiththeHouse.com, the real benefit may not be the $274 per month or $26,850 in 10 years. More important that the Total Cost, may be “What will you do with the savings?” For Fred and Nicole, they had an adequate emergency fund (Step One), carried no credit card or “bad” debt (Step Two), had adequate protection for their house (Step Three), so they were in a position to choose what the best way to deploy the monthly savings was. (Step Four). Fred and Nicole decided, with advice from their Financial Planner, that the best use of that money for them was to continue making the same mortgage payment as before, but now more of their payment would go towards principal and less towards interest. In 10 years, they would have $41,500 more equity in their house by refinancing with a plan.
What this means for you:

Forget outdated rules of thumb, like the one that prompted this article. If Fred & Nicole needed to recoup their closing costs in an artificially low time frame, they never would have refinanced, and would have a much larger mortgage balance at the end of their 10 year time frame.
Make sure your loan agent can show you the real numbers. Remember, his training may only be in how to close the sale, so if he/she can’t answer your questions, find a mortgage professional who can. www.CMPSInstitute.org is a great place to find a local mortgage planner.
Know the Total Cost of home ownership. Your refinance decision is not about interest rates or closing costs. It’s about the amount of money you will spend to finance your house. Closing costs are irrelevant if you save more money over time with a lower rate. Conversely, the lowest rate with very high closing costs will be very expensive if you need to sell your house in 1-2 years.
(Commercial) If you can’t find someone who can show you the true “Total Cost’ of home ownership, give me a call - that’s what I do.

2009-06-26T09:58:00.001-04:00

For most of my clients, their mortgage payment is usually the largest check they write each month. I’ve found that when I assist someone with their mortgage, that if they look at their mortgage in the context of their overall financial picture, they make better mortgage decisions, and better financial decisions.
If the Mortgage is the largest monthly expense, and after time, home equity becomes many families’ largest asset, then isn’t it reasonable to assume that if your financial planning starts with your house, that you have a better chance of reaching your financial goals and succeeding financially?
The idea is to start with the house, and answer questions like these, when you are thinking of buying a house, or if you already own a house, make sure you have answers to these types of questions.

How expensive a house should we buy?
How big a mortgage payment should we accept, even if we can qualify for more?
How should the loan be repaid?
How should the actual closing costs of a new mortgage be paid
How important are the income tax consequences of our mortgage decision and how should we maximize our tax savings?
How can we protect our equity?
How can our mortgage help us create wealth?

It’s my belief that better decisions and better results come from asking a lot of questions – the fewer questions asked, the more likely that the result will not be as good as it could be. For example, if the only question asked is, “What is the current rate today?” a home buyer could end up with the wrong loan program, an inability to repay the loan, or find themselves unprepared to handle one of the curve balls that life can throw occasionally.
If you are thinking of buying, or thinking about your financial future, I encourage you to “Start With The House” and make sure that your mortgage and your house are helping you succeed financially. Spend some time at my new website, www.startwiththehouse.com and see if you recognize any gaps in your plan. Let me know if I can help.

How Important is Cash in the Bank?

2009-05-10T14:25:00.001-04:00

One of the first things I ask people to consider when building their mortgage plan is how much liquid cash they have on hand and how much do they need. In fact, of all the considerations, liquid cash is probably most important. A lot of people learned the hard way that equity in the house in not the same as money in the bank - only money in the bank is like money in the bank.
As you start to build your mortgage plan, you need to ask, "What could happen, good or bad, and does the mortgage / house equity help or hurt me?"
When you look at the threats to your wealth and financial safety, almost everything turns out better if you have $10,000 more cash in a liquid account. Conversely, almost everything turns out worse if you have $10,000 more equity in your house rather than in a bank account. Let's play a few rounds of the game: "Would you Rather":

If you lose your job, would you rather have an extra $10,000 in your savings account or a mortgage that is $10,000 lower($10,000 more equity in your house) in order to reduce your mortgage payment by $60 per month?
An ice storm hits, knocks out power for a week, and drops a tree limb onto your car. Would you rather have $10,000 cash in the bank, or $10,000 more equity in your house.
A friend's co-worker needs cash in a hurry and is willing to sell you his car $5,000 below blue book trace in. Would you rather have $10,000 available to you, or $10,000 home equity that can't be accessed to buy the car?

As you can see, good or bad, having extra cash in the bank is the cheapest and most versatile insurance you can buy - in fact, it's pretty much free. Having some liquid cash available is the first step to creating a mortgage plan that works for you.

I will often recommend people choose to put less money down on their house, or to take money out when they refinance, in order to make sure they have a start on their emergency fund. Most experts will tell you that you need 3-6 months' living expenses in a liquid emergency fund. What I've found is that a lot of people can't see themselves saving that much money all at once, so they never get started. They then develop a habit of not having enough liquid savings and have to turn to credit cards to bail them out of mostly minor problems. Then the credit card interest payments make saving even tougher.

When you put a lot of money in motion, like when you buy a house or refinance your house, it's a great opportunity to start a new habit as a saver and keep some of that money aside to start building that emergency fund if you haven't already. This is one habit you can live with!

If you don't have the ability to create a quick chunk of your emergency fund when you buy or refinance your house, make that the first priority - play another few rounds of 'Would you Rather' and discover for yourself how important is is to get some of your money in your bank account. Choose to build up your savings before you choose to pay extra on your mortgage, buy a new toy, or even pay off credit card bills - just ask yourself which would you rather have as you go through the next year.

Will you ever see your downpayment again?

2009-05-07T19:44:00.000-04:00

I was thinking of titling this post, "Why I no longer hate PMI, and maybe you shouldn't either". I was doing some math the other day for a presentation I made at a local Chamber of Commerce luncheon and it struck me - mush of a downpayment on a house will never be seen again by the owner! As an example, assume a buyer puts 20% down on a house purchase to avoid PMI (Private Mortgage Insurance). Some time later, they have a need to access the wealth they chose to store in the house. There are only three ways to get to your equity:

Open a Home Equity Line of Credit (HELOC)
Refinance the mortgage to get cash out
Sell the house.

With each option, a substantial amount of equity must be left behind. For the HELOC option, most of the money will be inaccessible, as the best HELOC's today only allow the owner to get up to 90% of the current value of the house. Several banks limit HELOC's to just 80% of the house value, so that leaves most or all of the equity trapped.

With a cash out refinance, rules changes with Fannie Mae, Freddie Mac and FHA guidelines limit the cash out amount to 85% of the appraised value of the house, leaving 15% of the wealth trapped inside the house.

To sell the house, you, as the seller, could expect to pay 5-6% in real estate commissions and anywhere from 1-3% in state taxes, and likely will not be able to sell the house for the full asking price. in the case of a sale, 6% to 10% could easily be lost in transaction costs, and the time to get access to the wealth could be as long as 6 months or more.

So, if you are thinking of putting 20% down on a home purchase to avoid PMI, maybe you need to run some numbers and scenarios and ask yourself, what if I need my money back? Might you be better off with a smaller downpayment, say 5-10%, even if you had to pay PMI? If you ever really needed the money and then find out the answer is, "you can't have your money back", due to declining property values, loan guideline changes, or a change in your ability to borrow, then suddenly PMI looks really cheap.

What if you only put 5% down, and then your home declines in value by 10% and you are now "upside down"? My first response is, "Who says your house declined in value?" If you aren't selling your house, it doesn't matter what someone says you house is worth, does it? You still have the same square footage, number of bedrooms, location, etc, so if you aren't moving, the alleged value of your house is really meaningless to you.

Your home's value does matter if you need to get some equity from it, and, forces beyond your control, namely property values and loan guideline changes, could make your equity inaccessible to you.

The lesson here - you might be better off with a larger monthly mortgage payment that includes PMI in order to have your money where you can access it rather that blindly following the advice of 'do anything to avoid PMI' and then finding out your wealth is gone.

What to do with an Inheritance, Part two

2009-05-04T16:06:00.002-04:00

In may last post, I discussed a case of a family that inherited some money and wanted to pay off their mortgage. The second homeowner I spoke to recently had also inherited money, this time as a result of her spouse's early passing and receiving life insurance proceeds. Her financial advisor is advising her to let him manage the money as he can earn more with it than if it is just sitting in the house. With four children, she is receiving enough social security survivor benefits to pay a mortgage and raise her children. The good news in this story, financially, is that the mortgage balance is much less than the insurance proceeds, so paying off the mortgage won't drain all her savings. Also, her husband had bought the life insurance so that she could pay off the house if anything ever happened to him.

In this case, paying off the mortgage with the inheritance seems like a smart idea: It was her husband's wish, she has more assets left over, other financial needs are covered. (for her, the primary concerns were daily living expenses and education for the four children). Since she will still have her assets diversified between the equity in the house and other savings, she has the structured, regular social security payments for monthly needs, paying off the mortgage doesn't put her financial priorities out of whack.

Most important of all, she and her husband are to be commended for thinking through the unthinkable, coming up with a plan and then funding it properly so that the family can be OK financially during this tough time.

Does your mortgage plan covers the "what if's" in life that could cause real hardship to important people in your life?

Inheritance: Pay off your mortgage?

2009-05-02T18:50:00.004-04:00

I've been asked twice in the past few weeks if a person should pay off their mortgage since they just inherited some money. As is most often the case, the answer is, "It depends".
In the first case, this family hated the thought of paying a mortgage for 30 years. The inheritance was just a little larger than the mortgage balance they had, so they could easily use that money to eliminate mortgage payments forever. When we reviewed the financial priorities for this family, we looked at the mortgage, financial protection (insurance), education for their children, and retirement. In each case, the family agreed that the other priorities they had were more important, on paper, than the peace of not having a mortgage. It boils down, as it often does, to the emotional pleasure of not having a mortgage, versus the logic of taking care of more important priorities first, and then paying off the mortgage. For this family, they decided to use some of the money to pay the mortgage balance down while refinancing to a shorter term mortgage. They are putting the rest of the money into retirement and college savings, so they are making progress on three financial goals with this inheritance, rather than putting it all into the house.
Have you been faced with this decision, or if you had this opportunity, what would you do?

Fewer Housing Starts - Good News or Bad?

2009-04-17T13:37:00.001-04:00

With respect to housing data, news is rarely positive or negative on a universal level. There's always two perspectives to consider, after all.
The home buyer's perspective
The home seller's perspective
Usually, when data is beneficial to one group, it's less beneficial to the other. This is true for rising home prices, average days on market and so forth.
Today, the group that gets the most benefit from data is the home seller group.
Published Thursday, a government report showed that Housing Starts fell 11 percent nationwide in March and also fell short of analyst expectations. A "Housing Start" is a new housing unit on which construction has started.
The press is calling this a stumbling block for the economy, but that's not exactly true.
Fewer Housing Starts last month means that fewer new homes will come on the market later this year. This is not necessarily bad news. Especially if you're planning to sell your home in the latter half of the year. With fewer homes for sale, the supply-and-demand curve should shift in favor of home sellers. This helps stabilize home prices at a time when they might otherwise be prone to fall.
If it's true that stable housing markets are key in an economic recovery, then fewer Housing Starts is actually a push in the right direction.
But there's more to the story (as always).
As footnoted in the Commerce Department's report, a statistical disclaimer states that the Housing Starts data's Margin of Error was so high that the report's conclusion is just a guess. Technically, the entire report is invalid anyway
So, the government won't issue its final March 2009 Housing Starts data for months, but if the initial figures stick, home sellers may be in position to command higher sale prices later this year to the detriment of home buyers. It's basic economics.
And from a home seller's perspective, that news is good.

Why does the President want you to Refinance now?

2009-04-14T08:48:00.002-04:00

Last Thursday, President Obama sat down with some homeowners who had recently refinanced their mortgages to declare some 'good news'. "We are at a time where people can really take advantage of this", he said. As far as I can tell, the President gets to live rent-free in the White House, so why is he urging refinances now?

Some quick back of the envelope calculations may give a hint. There are over $10 Trillion in outstanding mortgage debts in the US. $6 Trillion of that is under the guidelines issues by Fannie Mae / Freddie Mac with an average interest rate of 6.5%. If all those loans could be refinanced at 5.0%, it would save homeowners $900 million a month in interest charges. (The savings on a $200,000 mortgage dropping from 6.5% to 5.0% would be $190 per month). Let's hope that half of all the mortgages outstanding could qualify to refinance, and that half of those who can qualify, do. That results in $2.5 Trillion new mortgages this year with interest savings of $375 Million per month. This $375 million can then be used for further reducing debt, investing, or spending. I think the government prefers the last option, as consumer spending would cause the economy to grow.

The other factor I didn't mention is that many people who refinance will be able to and choose to extract additional equity from their home to pay of 2nd mortgages, credit cards, or to fund home improvements. This extra cash flow entering the economy will further expand the impact of refinancing now.

So, if you are wondering why does the president care if you refinance, think of the benefit to you personally, and to the country as a whole, if even just half of those who could benefit from a refinance get that done this spring.

The 2% Rate drop Myth

2009-04-02T15:59:00.003-04:00

It is 1970’s era thinking that interest rates must drop by 2% + to justify the cost of refinancing.
First problem with that: If you are currently at 6% waiting for a 2% drop in rates, you are unlikely to see 4%.
Second problem: In 1978 the price of home was about $38,000 which meant $2000 in closing costs took a while to recoup.
With the average home now closer to $200,000 the dollar savings on smaller interest drops is bigger. Yes, 2% is nice, but not a universal number.
What if you can save $150-200 each month for 30 years? That certainly adds up.
Skip the temptation to make decisions based on rules of thumb. Watch this video. Run the numbers. Make an informed decision based on your circumstances, not rules of thumb you hear on TV.

More good housing news - homes under contract up 2%

2009-04-02T10:22:00.003-04:00

The number of homes under contract to sell is rising, another signal that the housing market may be regaining its footing.
As reported by the National Association of Realtors, an industry trade group, the Pending Home Sales Index gained 2.1 percent in February. The report measures MLS-listed homes in "pending" status -- sold but not yet closed.
Pending Home Sales is not a perfect statistic, though, by any means.
For one, the Pending Home Sales Index doesn't account for non-MLS listed homes including For Sale By Owner properties and mass foreclosure auctions. In certain markets nationwide, these two categories represent a large percentage of the overall transaction volume.
Secondly, Pending Home Sales samples just 20 percent of all MLS-based transactions -- hardly a complete listing.
But most importantly, a "pending" home sale is not the same as a closed home sale. A lot of things can go wrong between the time a home goes under contract and the supposed closing date. For example, the home inspection could fail, the contract could fall apart, and/or the buyer's financing could be denied in underwriting.
All things equal, though, Pending Home Sales is a fair forward-looking indicator for the housing market as a measurement of buy-side demand for homes.
When Pending Home Sales rise, it's tells us that buyers and sellers are matching up, clearing out market inventory. And actual home sales often follow "pending" ones -- 80 percent of Pending Home Sales will close within 60 days.

So, this isn't a guarantee, but another positive indicator for the housing market.

Are home prices really falling?

2009-04-01T11:37:00.002-04:00

Depends On Who You Ask.
A report published Tuesday showed that home values fell nearly 3 percent in January 2009 versus the month prior and by 19 percent from last year.
On the surface, data from the study looks like more bad news for housing. With deeper inspection, though, we uncover reasons to discount the report's finding.
For one, the report includes home price data from just 20 cities around the country -- and they're not the 20 most populated cities, either.
For example, data from #4-ranked Houston is not included and neither is #7 San Antonio nor #10 San Jose. #54 Tampa, however, is included.
Secondly, the report is two months lagging.
Published March 31, its data is only accurate as of January and a lot has happened in the last 2 months. This includes a record-drop in interest rates and the introduction of an $8,000 tax credit for qualified first-time home buyers. The stimulus has helped raise home sales volume on both new homes and previously-owned ones.
And lastly, one more reason to question the relevance of the Case-Shiller report is that a government study on the same topic showed home values rising over the same period, not falling. According to the Federal Housing Finance Agency, home values grew 1.7 percent from December 2008 to January 2009.
In the end, home values are a local phenomenon that can't be summarized as a national "summary". National data can be helpful for watching longer-term trends, but it shouldn't be used to make a "Buy or Not Buy" decision.
For many, the reports of home values should just be one criteria. You also need to look at quality of life issues, that is, are you living where you want to live, are your kids in the school you want them in, etc.
Source List of United States cities by population http://en.wikipedia.org/wiki/List_of_United_States_cities_by_population

8 things you shouldn't do if you are refinancing

2009-03-31T11:04:00.001-04:00

With mortgage rates are hovering near all-time lows, lots of Americans are taking advantage of refinance and home buying opportunities.
The downside of today's unexpectedly-low rates, though, is that mortgage lenders are ill-equipped for the rush of new business. As a result, the process of underwriting and approving new mortgage applications is taking some lenders as long as 2 months to complete.
With all the lending guideline changes of the past fwe years, it's important for applicants to remember that mortgage approvals can be revoked at any time prior to funding.
As mortgage applicants, there are many events that are out of our control -- job security and health matters, for example. But there are also events that are within our control.
Knowing that mortgage approvals can be fragile, here are 8 things you should absolutely not do while your home loan is in process. It may be the difference between being approved and being turned down.

Don't buy a new car or trade-up to a bigger lease.
Don't quit your job to change industries
Don't switch from a salaried job to a heavily-commissioned job
Don't transfer large sums of money between bank accounts
Don't forget to pay your bills -- even the ones in dispute
Don't open new credit cards -- even if you're getting 20% off
Don't accept a cash gift without filing the proper "gift" paperwork
Don't make random, undocumented deposits into your bank account

Now, avoiding these items may not be practical for everyone. For example, if your car lease is expiring and you need a larger vehicle, it doesn't mean you can't buy the car -- just check with your loan officer first to be sure the new payments won't "break" your approval.
The same goes for accepting cash gifts from parents. There's a right way and a wrong way to accept gifts and doing it the wrong way may prevent you from using the gift as a source of downpayment.
Mortgage lending is full of "gotchas" and with underwriting times stretching to 60 days, it's a lot more likely that a mortgage applicant will trip into one. Following these 8 rules, though, is a good start.

Mortgage Rate Forecast for the week of 3/30/09

2009-03-31T06:59:00.004-04:00

The stock markets made strong gains last week but the mortgage markets barely moved in the wake of the Treasury's "toxic asset" plan.
After carving out wide trading ranges on most days, mortgage pricing ended the week about where they ended
From an economic standpoint, though, last week was an interesting one.
-Existing home sales showed unexpected strength
-New home sales showed unexpected strength
-Data showed home prices rising unexpectedly
In addition, consumer confidence rose unexpectedly, too.
To rate shoppers, these "unexpected" developments are warnings worth heeding because mortgages trade on expectations of the future. And "the future", you'll remember was widely expected to be an economic abyss.
This is one of the many reasons why mortgage rates are so low right now -- during uncertain times, investors flock to safe investments. But when those expectations change, mortgage rates usually do, too.
And quickly.
Our current recession has been thus far called "housing-led" and was predicted to last several years. Last week's data, however, provides at least some evidence that the recession may be ending; that the economy may find its way forward sooner rather than later.
Indeed, even members of the Federal Reserve now call for a turnaround starting in as few as 6 months.
For now, market reaction to the unexpected data has been tepid. Therefore, watch for developments over the coming weeks and -- perhaps more importantly -- keep an eye on the investor mindset. If bond markets start to sell-off en masse, mortgage rates could jump higher by quarter-point leaps at a time.
Meanwhile, this week, the biggest data release is Friday's jobs report. It's expected to show unemployment reaching to 8.5% with another 656,000 Americans losing their jobs in March. As before, if the data isn't as bad as expected, watch for stocks to rise and mortgage rates to go with them.
Even with a trickle of good news starting in the housing sector, the Fed and the Treasury still have a strong interest in keeping interest rates low - I think the target is the 4.5 to 5.0% range on the 30 year fixed.

Last Call for FHA cash out refinances

2009-03-27T11:51:00.002-04:00

If you're in want of a cash out refinance, the most liberal cash-out program in town is about to make qualification more difficult.
Effective April 1, 2009, the FHA is reducing the maximum loan-to-value on cash-out refinances by 10 percent, dropping the loan size limit from 95% of the home's value to 85%.
In its official press release, the FHA days it's making the change to "limit its exposure to undue risk".
It also lists the following cash-out requirements:
With less than 12 months since the purchase date, a home's value cannot exceed its original purchase price -- even if home improvements were made.
A homeowner must be current on his mortgage payments to qualify
A second, verifying appraisal may be necessary, depending on loan traits
Co-signers may not be added to the mortgage note in order to qualify
The last day to register a FHA 95% cash out refinance is Tuesday, March 31, 2009. The loan does not need to be "locked" -- only registered.
after April 1st, the highest Loan to Value for any refinance will be 85%. FHA loans are for loan amounts up to $303,750 in the Charlotte Area. If you think you could benefit from a refinace to get some cash to pay off other debts, buy a second home, or other reasons, please call us at 704-541-1171 or visit www.Piedmont-Mortgage.com.

Immigration Policy Could Solve Housing Crisis

2009-03-27T07:59:00.002-04:00

An interesting editorial in the WSJ proposes allowing immigrants to be allowed in the US if they buy a home - eat up the excess inventory, stabilize prices, buy furniture, start companies. If they sell or rent in the first two years, they have to return home, after 5 years, they would get permanent resident status. Read more here: http://online.wsj.com/article/SB123725421857750565.html. This is a bi-partisan idea that has a lot of merit - maybe add net worth, education, or job skills requirements - attract the best and brightest who are able to immediately contribute to society.

New Home Sales Figures Show Unexpected Improvement

2009-03-26T20:39:00.000-04:00

The national housing market got its third piece of good news in 3 days:
Monday: Existing Home Sales up
Tuesday: Home values appear higher nationally
Wednesday: New Home Sales up
And although national real estate statistics are irrelevant to the local markets in which real estate transactions happen, to a country of would-be and wanna-be home buyers, repeated positive news on housing can be a strong signal that it's time to get off the sidelines.
At least, that's what the data is showing us. According to an industry trade group, first-time home buyers accounted for half of all sales of previously-owned homes.
The stimulus package's $8,000 tax credit likely played a role in this 50 percent figure, as well as sagging home prices in most markets and low mortgage rates nationwide.
But lest we carried away, we can't forget that February's New Home Sales is still the second-lowest tally on record and that two months of data doesn't define "turnaround".
On the other hand, if the trend continues through the Spring Buying Season, we'll likely look back at Winter 2009 as the low point in housing.

Will the Mortgage Relief Program Help YOU?

2009-03-09T21:16:00.002-04:00

The Original Objective: When the White House first introduced the "Making Home Affordable" program in February 2009, it was positioned as a mortgage program with two goals: 1)To help financially-needy homeowners get the mortgage relief they needed, and 2) To help homeowners who’ve lost equity to qualify for today’s low rates
The Result Of The New Program: On March 4th, the U.S. Treasury finally introduced new details about Making Home Affordable. It also created an ”Am I Eligible For Making Home Affordable” form on its website. It’s pretty handy, you should also check IT out.
In the press release, the Treasury detailed the President’s original plans from February. Mostly, it provided explicit loan modification instructions that will assist up to 4 million delinquent homeowners and their respective mortgage servicers.
Get ready to read though, the modification guidelines are a thorough 17 pages long and leave little question about the whole loan modification process, and how it must be carried out. I guarantee it’s not an easy process. Loan modifications aren’t new, they’ve been around for a while.
The Disappointment: For as much that was as said for helping delinquent homeowners, the Treasury gave surprisingly little guidance to the estimated 5 million homeowners for who’s homes value have declined significantly. This makes it practically impossible for these folks to refinance.
For these Americans, the Treasury instead offers a basic Q&A and directs homeowners to call Fannie Mae and/or Freddie Mac to confirm their eligibility. The “refinance plan”, in summary, says that a homeowner who has paid his mortgage as agreed and whose home value is “about the same or less” as the amount owed on his first mortgage may be eligible.
Until Fannie or Freddie release details on this (none as this is written), you can pretty much call this a tease. There’s nothing available that is different at this point.
If after browsing the website, you still have questions about the Making Home Affordable program, call me or your mortgage lender with specific questions. Realize if you call your current mortgage servicer, they will be overwhelmed with phone calls and you will just be dealing with someone in a call center each time you call. If you are in the Carolina's and prefer talking with the same person each time, I’d be happy to help! All of my contact information is on the right side of this page.

From The IRS : The First-Time Homebuyer Credit Form

2009-03-04T10:16:00.000-05:00

From The IRS : The First-Time Homebuyer Credit Form
As part of the American Recovery and Reinvestment Act of 2009, the IRS has officially released Form 5405 -- better known as the First-Time Homebuyer Credit Form.
True to tax code standards, the 10-field form is accompanied by 3 pages of instructions.
Form 5405 is a helpful, go-to resource for home buyers with questions about the tax credit.
For example, the form distinguishes tax consequences for homes bought in 2008 versus 2009, and clearly defines the term "first-time home buyer".
In addition, Form 5405 highlights the math behind the tax credit. In general, the First-Time Homebuyer Credit is equal to the lesser of:
$8,000 for homes bought in 2009
10 percent of the home's purchase price
Married couples filing separately are entitled to half of the expected credit, and homes sold within 3 years are subject to a credit repayment in the year the home ceases to be the "main home".
Form 5405 is a comprehensive reference. However, be sure to check with your accountant for specific questions about your personal returns and how the First-Time Homebuyer Credit may impact your finances. There is no substitute for professional, paid advice.

The Key Fact Missing From Today's Existing Home Sales Headlines

2009-02-26T12:00:00.001-05:00

In reading the headlines this morning, you'd think that last month's Existing Home Sales figure signaled more trouble ahead for the housing market.
Quite the contrary.
Beyond the attention-grabbing headlines is the real story; the one that shows -- once again -- that housing market fundaments are coming back into balance.
As home values tick lower, it appears, value buyers are stepping in and snapping up supply. It's true that the number of homes sold fell to its lowest levels in 12 years, but we can't ignore the fact that the number of homes available to buy fell, too.
Banks have put the brakes on foreclosures
Economic uncertainty is reducing job-related relocations
Builders have all but stopped building new homes
The national housing supply is as low as it's been in more than a year.
Based on the current rate of sales activity, the national housing supply would be 100% sold in 9.6 months -- a two-month improvement from the high point set in June 2008.
Demand for homes is expected to rise, too:
The Federal Reserve is trying to hold mortgage rates low
Fannie Mae is opening its checkbook to real estate investors
The stimulus package is granting tax credits to first-timers
So, it's not that the headlines are wrong; it's just that they're incomplete.
In looking at all of the data and not just one sliver of it, we can find hope. Falling supply plus rising demand leads home values higher and that's the basis for a recovery.

2009-02-25T10:35:00.002-05:00

The Relative Cost Of Owning Versus Renting Is Back At Historical Norms
One popular housing theory is that -- before a bona fide housing recovery can begin -- the cost of owning a home versus renting one must return to historical levels.
If that belief is a truth, a national return to rising home prices may be in store for 2009.
Falling home prices coupled with falling mortgage rates, too, have dropped the relative, after-tax cost of owning a home to 125% of the cost of renting a home.
This is the exact 18-year historical average and not since 2001 has the gap been this small.
As reported by the Wall Street Journal, though, the study has some flaws. For example, the data doesn't account for ongoing home maintenance costs, nor does it consider real estate tax bills and insurance policies.
But, combining a relatively low cost of ownership with the government's $8,000 tax credit for first-time home buyers is likely to convert long-time renters into never-before homeowners.
This, too, is thought to be a key element of the housing recovery.
In many markets (but not all), home prices are expected to edge lower through 2009. Provided mortgage rates stay low, the cost gap between owning and renting will shrink even more.

The decline in home prices, the reduced number of home buyers, the $8,000 tax credit and the low interest rates may make the Spring of 2009 the best time in many years for first time home buyers.
(Image courtesy: Wall Street Journal)

2009-02-18T10:29:00.001-05:00

How The Stimulus Bill Indirectly Lowered Mortgage Rates
The American Recovery and Reinvestment Act of 2009 was signed into law Tuesday in Denver, Colorado. Also Tuesday, stock markets fell near their November 2008 lows.
The two moves are related.
With each new stimulus; with each potential jumpstart of the economy, Wall Street questions whether the federal push will be enough to make an impact.
Traders ended undecided on that issue today, but resolute in something else -- that whatever change the stimulus bill will bring, it's not going to come fast enough to help.
The sell-off in equities was a boon to home buyers. For the first time since early-December, mortgage markets gave a sustained rally, extending gains from the 8:30 AM market open through the 4:00 PM market close.
Conforming mortgage rates were down on the day. Longer-term, though, this pattern won't likely last. Not only will the stock market regain its balance and draw dollars back, but, more importantly, the stimulus bill contained verbiage increasing the national debt ceiling by 53.4 percent. Government debt is often financed by printing more money and this leads to inflation, the enemy of mortgage rates.
For now, the stimulus plan is helping mortgage markets, albeit indirectly. If you're shopping for home loan, consider locking quickly. When markets flip -- and they always do -- it figures to be sudden.
(Image courtesy: Recovery.gov)

How Today's Mortgage Rates Impact Home Affordability

2009-02-05T11:02:00.003-05:00

Comparing July's conforming mortgage rates to today's average rates, there's a 1.5 percent difference in favor of homeowners.
Rate drops like that make big differences in a household budget. Look at these before-and-after payments, based on rates from the chart:
$150,000 mortgage ($144 savings/month)
July 2008: $958 monthly
February 2009: $814 monthly
$250,000 mortgage ($240 savings/month)
July 2008: $1,597 monthly
February 2009: $1,357 monthly
$350,000 mortgage ($335 savings/month)
July 2008: $2,235 monthly
February 2009: $1,900 monthly
Of course, the other side of the story is that while mortgage rates fell in late-2008, the mandatory lender fees that accompanied them rose. That lessened some of the benefits of getting lower rates, but certainly not all of them.
According to recent housing data, buyers are back writing contracts and listed homes are selling quickly. Considering how mortgage rates have led monthly payments lower, maybe it shouldn't be much of a surprise.
There has never been a better time to buy. Rates are the lowest in 50 years, prices are lower than they have been in years, and there is not much competition for desirable homes. The only problem is for people who need to sell their home first. Maybe this is a good time to lose some money on the sale of your home and make even more of the purchase of your next home?

(Image courtesy: The Wall Street Journal) www.piedmont-mortgage.com

Did We Just See The First 2 Signs Of A Housing Recovery?

2009-01-27T10:08:00.000-05:00

Don't let the plunging median sales price fool you -- December's Existing Home Sales data has home sellers smiling.
Just one month after falling below the 5-million unit trend line, sales volume roared back by 300,000 homes in December, surprising housing analysts and making a case that this spring's Buying Season could be a competitive one.
Falling home prices helped fuel home sales. Nationally, the median sales price -- the point at which half of all homes sold for more and half sold for less -- was $175,400, down $32,000 from last year.
However, the most important part of December's Existing Home Sales report isn't making headlines.
At December's sales pace, it would now take 9.3 months to exhaust the existing home supply. Last month it was 11.2 months. This means that buyers are competing to purchase fewer homes which, in turn, puts upward pressure on home prices.
This is Supply and Demand at its most basic definition.
Economists have long said that the keystone of housing's recovery will be rebalancing in home supply. Coupled with the all-time low in housing starts, December's Existing Home Sales data signals future strength.

Fannie Mae pricing adjustments and paying points

2009-01-23T13:51:00.001-05:00

In response to the higher mortgage default rates being experienced by Fannie Mae and Freddie Mac (the largest buyers of 30 year fixed, conforming mortgages), the formal announcement of “Risk Based Pricing” was established during 2008. Before this was announced, a 30 year fixed loan was basically the same price for any borrower with a credit score of 660 or higher and a loan amount up to 95% of the home value. But now, Fannie and Freddie require pricing “add-ons” using a matrix of credit score and loan to value percentages. This risk based pricing is MANDATED by Fannie and Freddie, and is required of ALL lenders originating a conforming 30 year fixed.

Sometimes the interest rate can be increased to cover these add-on’s without having to pay them out of pocket, but that is becoming increasingly difficult in today’s market. Investors have changed the way they create rate sheet options, and they offer very little in the way of what is called “premium pricing”, which used to allow options for closing costs or points to be covered in return for a higher interest rate. But in today’s environment, sometimes the add-on’s must be paid in the form of points – to either keep the rate and corresponding payments as low as possible, or sometimes because there simply is no other way they can be covered.

The bottom line is – consumers can’t just call a lender and say “what’s your rate and closing costs?” There are simply so many unknowns with the combination of credit score, loan to value percentages, property type, etc… that any reputable lender should be upfront, and be clear that any quote given is based on an assumption of certain parameters.
We are here to provide honest, straightforward advice. If we can be of any assistance to you, your friends or your family feel free to contact us. We will take care of you and your referrals in the same upfront fashion as we always have. www.piedmont-mortgage.com

Interactive Home Values Chart

2009-01-21T10:03:00.003-05:00

An Interactive Chart For Home Values

The S&P/Case-Shiller Home Price Index is a popular measure of domestic home prices, released monthly.
The index reports on the largest 20 U.S. markets, painting a broad picture of real estate values nationwide.
Despite the Case-Shiller Index's two obvious flaws -- (1) it only counts repeat sales on single-family residences, and (2) it only includes 20 major housing markets -- the model is helpful in identifying broader real estate trends in our nation's largest cities.
But data is just data. Sometimes, it takes a good picture to bring it all home. Enter The New York Times.
On its website, The Gray Lady posted an interactive Case-Shiller graphic. For each of the 20 cities studied, users can compare how home values rose versus the national composite throughout the early part of the decade, and how values have fallen since.
Not surprisingly, of the 20 cities that showed stable growth pre-2006, nearly all are outperforming in the current real estate climate. From looking at it, it seems Charlotte has fared better than most if not all.

Mortgage Rates Are Falling But Loans Require More "Points"

2009-01-16T11:21:00.001-05:00

Mortgage Rates Are Falling But Loans Require More "Points"
Another week, another screaming headline about mortgage rates falling to an all-time low.
Freddie Mac published its weekly mortgage rate survey Thursday and found that the "average" mortgage rate is now 4.96 percent, the lowest since the survey started in 1971.
But, if we look beyond the headline, we find that there's another part of the story worth watching. Mortgage rates are falling but the number of points required to lock those rates is not.
Lenders now require an average payment of 0.7 points to get the 4.96 percent rate from the headlines. That's up from 0.6 percent last week and 0.4 percent a year ago.
A "point" is a fee equal to 1 percent of the loan size.
Therefore, to get access to a 4.96 percent interest rate on a $200,000 home loan, today's lender would require an extra $200 versus last week and $600 versus last year. Today's mortgage borrower would be subject to a $1,400 closing cost in addition to the "typical" closing costs accompanying a purchase or refinance.
This is a period of historically low rates -- there's no doubt about that. However, the cost of getting access to low rates is increasing. The press doesn't always tell that part of the story and it's one more reason to look deeper than the headlines.

The rates here are the national averages. Rates in the Soputheast US tend to be below the national average, and by comparing 54 lenders in real time, we consistently are offering better than average rates. www.piedmont-mortgage.com

The slowing economy is good news for Home Buyers

2009-01-15T16:07:00.001-05:00

After a weak holiday shopping season, annual retail sales declined in 2008.
It marks the first annual Retail Sales decline since the government started tracking the data 40 years ago.
It also gives credence to the notion that the U.S. economy is suffering through a deeper recession that previously thought. A pullback in spending -- especially during the shopping-heavy month of December -- highlights the cautious nature of today's American shoppers.
And in a strange sort of way, all of this may end up being good news for Spring home buyers.
Because Retail Sales are reflective of consumer spending, a dramatic pullback helps to keep the economy in slow gear, countering the inflationary impact of government stimulus and direct intervention. Inflation, you'll remember, causes mortgage rates to rise. It's absence, therefore, helps to keep mortgage rates low.
In addition, it's earnings season on Wall Street and weak corporate guidance has spurred a 6-day decline in the Dow Jones Industrial Average. As dollars leave the stock market, investors are parking them in the safer world of bonds. This includes mortgage bonds, of course, which further pressures rates lower.
As we're seeing, economic weakness -- to a point -- can be the friend of a person in need of a new home loan. For active home buyers or people entering the market this Spring, therefore, the timing may be just right.

When is a 5.0% mortgage really 3.6 Percent?

2009-01-14T11:46:00.000-05:00

An oft-touted benefit of homeownership is its tax benefits. However, like most IRS-related items, understanding how the benefits work is not always clear.
In general, homeowners are entitled to two home-related tax deductions -- one for annual mortgage interest paid, and one for real estate tax bills paid.
Not everyone is eligible, though. Some of the exclusionary traits include total amount borrowed, and whether or not the home is a primary or secondary residence.
The official IRS publication is filled with notes and explanations but, in general, you can calculate your approximate mortgage interest tax deduction using the following math:
Sum your annual mortgage interest and real estate taxes paid
Find your tax rate on the IRS tax bracket schedule
Multiple your tax rate by the sum from Step 1
This is grossly simplified, but fairly accurate.
As an example, a homeowner paying a combined $20,000 in 2008 mortgage interest and real estate taxes, and who is in the 28% tax bracket, may be due $5,600 in tax credits.
The availability of mortgage interest tax deductions is one reason why loan officers make reference to "after-tax mortgage rates". An after-tax mortgage rate is effective interest rate, post-tax code, and can be calculated using the formula below:
(After-Tax Mortgage Rate) = (Mortgage Rate) * (1 - Marginal Tax Rate)
The same homeowner with a 5.000% mortgage rate, therefore, has an after-tax mortgage rate of 3.600%.
Because not every homeowner is eligible for home-related deductions, and because not every homeowner should claim them, talk with your personal accountant before making any tax-related decisions.

Rates lower, FNMA / Freddie Fees higher

2009-01-07T10:27:00.002-05:00

With respect to mortgage rates, you can't always believe what you read in the papers. Or what you see.

A terrific example is the chart at right.

Published by Freddie Mac, it shows the 30-year fixed mortgage's "going rate" as reported by the nation's mortgage lenders. On December 30, 2008, that rate was 5.1 percent.

But 5.1 percent is only half of the relevant information. There's a mandated fee schedule that accompanies the Freddie Mac-reported rate survey.

Currently, the published fee required to get a 5.1 percent mortgage rates is 0.7% of the borrowed amount, or $700 per $100,000 borrowed. This fee is more commonly known as "points" and versus last year, it's nearly doubled from 0.4 points.

So, yes, conforming mortgage rates are low and they have fallen near all-time lows but there's more to the story than just the interest rate -- there are the fees that go with them, too.

Mortgage rates and loan fees often move in opposite directions so to get lower rates, consider paying additional points. Conversely, to face fewer fees, accept a higher rate. It's a trade-off and your loan officer can help you best understand the choices.

2009 predictions

2009-01-06T10:09:00.001-05:00

Predictions For 2009? Keep 'Em To Yourself, and I will, too!

The New Year is not yet one week old but that's not stopping market "experts" from predicting what's in store for 2009.

The calls on housing and mortgage rates run the gamut:

Home prices have farther to fall
Home prices have touched bottom
Mortgage rates will dip
Mortgage rates will rise
Put it all together and it's clear that the experts have no better idea about the future than you or I. Their guesses are educated ones, but they're guesses nonetheless.

A terrific example of how poorly experts can predict the future comes from a Wall Street Journal performance analysis of 1,700 mutual funds.

In 2008, only one earned a positive return. That one fund represents zero-point-zero-six percent of all tracked mutual funds. Surely, the fund managers of the other 99.94% didn't expect to post negative returns on the year.

So, before you use predictions about the demise (or recovery) of the broader economy to make "personal economy" decisions, consider that the oft-quoted experts have a hugely better track record in analyzing the past than the future.

All we know for sure right now is that home prices are, in general, lower than at the time point last year, and mortgage rates are, too. By 2010, both could be lower still.

Or they may not.

Bottom line: if you need a new place to live, this is a great time to buy. If you sacrice your quality of living while hoping for lower prices or rates, you may only end up with lower quality of life!

Who should do your next mortgage?

2008-12-24T08:00:00.000-05:00

It surprised me how many people I talked to this week that don't have a 'mortgage guy'. What do I mean by 'mortgage guy' (or gal, if she's from Texas)? That's the person that did your last loan, set some targets for you to consider refinancing, and then called you when those targets were met.

I've heard stories that 60% of the loan officers in the country have not renewed their licenses for next year. If your mortgage guy was one of them, maybe that's a good thing for you.

So, who should you work with next time? Well, there are 4 basic sources for you.
1. Go to your local bank. You should find a nice, well-dressed, loan officer, who also wants to open a checking account for you to meet his/her bank's goals. They have one set of rates/products, so if they happen to have the best rates on the day you walk in, and the market is also at a low point, you have it made. Trouble is, you'll never know if they have good rates or not, as they can't shop for you.

2. Check out an Internet loan shopping site. Yikes! It's usually more enjoyable easier to visit the dog pound wearing ground beef underwear. When you fill out a form on a loan searching website, your email and phone number will be sold to several companies who hire aggressive tele-marketers to sell you their service. The rates may be lower, but the path to that low rate can be really tough.

3. Work with a Mortgage Broker. Independent, a variety of lenders, and usually more experienced than a local bank loan officer. They get paid by matching up borrowers with lenders. Mortgage brokers will be paid either an Origination Fee by the borrower, or 'Yield Spread Premium' (YSP) from the lender. The lender will pay YSP when the broker brings the lender a loan with a higher rate that the 'Par' offering. With a Broker, you have the choice to pay an Origination Fee in exchange for the lowest Par rates, or, accept a slightly higher rate and the lender will compensate the Broker with the YSP. Be sure to ask the Broker about his total compensation, and the breakdown between YSP and Origination Fees. Mortgage Brokers don't lend their own funds, so they don't control the underwriting or funding of the loans. This can sometimes be nerve-racking, especially when the lenders get busy, as the broker just hopes for the best.

4. Work with a Mortgage Banker. Like Brokers, Mortgage Bankers are usually more experienced and work with a variety of lenders so that they can shop interest rates for you. The key difference is that Mortgage Bankers control the whole transaction from start to finish, and after closing will transfer your loan to the lender that they originally locked in the interest rate with.

I've worked for Banks, Mortgage Brokers and Mortgage Bankers. I found the Mortgage Banker business plan gives me the best opportunity to get great rates and superior service for my clients. I get the flexibility of multiple lenders to shop for rates but keep control of the process so I can meet my clients expectations and time frames.

When you are looking for your next mortgage, find out what business model a prospective loan officer works in, and decide in advance what is most important to you: variety of rates, service level, ease of transaction, and control of the process. For more information, visit my website at www.piedmont-mortgage.com.

Refinance basics & Strategy

2008-12-22T08:00:00.000-05:00

As mortgage rates have fallen (and risen) in the past couple of weeks, there are a lot of homeowners considering refinancing their home. If you are one of those people, don’t just lock it in and close it. It’s all about timing. If you lock a rate out of emotion or fear (which most loan officers force you to do), you’ll end up paying more than you should.

If you have patience and work with someone that will watch rates for you, you can lock in when rates swing lower. These rate dips normally lasts for a couple of hours, but if your lender is watching things closely, they can lock you in, based on targets that you agree on ahead of time.

Basic Questions
Lots of people have asked me what ‘refinancing’ actually is. It’s not a silly question, it’s not like you learn this stuff in school! So, here’s my ‘Refinancing basics′ blog post. Of course, if you have questions — feel free to contact me (tom@piedmont-mortgage.com).

In general, a mortgage is a contract between a bank and borrower, defining the terms by which a home loan must be repaid.

The paperwork, signed by both parties, includes agreements for things such as:

The interest rate
The length of the loan
The amount of money to be borrowed
But, like all loans, a mortgage loan can be paid off at any time. So, when market interest rates fall, homeowners will often exercise their right to an “early payoff” by securing a new loan that pays off the old one. (prepayment penalties can complicate things - if you have one or aren't sure, I can review your original paperwork and help you strategize a way around that).

This process is most commonly known as a refinance.

What Is It?
A refinance is the changing of the loan terms against a property, often for a better interest rate or a lower monthly payment. When the refinance process is complete, the original lender’s loan is paid in full using the money from the new lender’s loan and the former’s relationship is officially terminated.

There’s no rule against how many times a person can refinance, nor are there any rules of thumb to determine whether or not a refinance makes sense. In general, if you can reduce your total financing costs over time, refinancing is a sound financial decision.

What if you just purchased or refinanced your home? The money you spent on your existing loan closing can't be recovered - Points, Origiantion Fees, etc were all related to the previous loan. When you refinance, you get a brand new loan, so most of the costs will will have to recur. However, if the new loan and closing costs save you money over time compaered to your existing loan, there is no reason to stick with a more expensive loan just because you already paid for it.

Besides a lower monthly payment, there are other reasons to consider refinancing, including:

Convert from an ARM (or Adjustable Rate Mortgage) into a fixed rate mortgage (or vice versa)
To extract equity for paying off third-party debts or for cash
To extend a loan from 15 years to 30 year for payment relief
To shorten the term of the loan from 30 years to 15 or 20

When you refinance, there are a couple of other things to be aware of:
- You will get a refund of your currrent escrow account after your existing lender is paid off. Your lender has 30 days to mail you a check for your escrow balance.
- You always skip one or two mortgage payments when you refinance. Often, the skipped payment can cover all the closing costs. When your current loan is paid off, the payoff balance will include the interest since your last payment (so the payoff is higher than the balance). At closing, you prepay the interest from the funding date to the end of the month, so no payment if due on the 1st of the next month. If your new mortgage funds before the 15th of the month, you can skip your last payment to your existing lender, and the prepaid interest means you skip the next payment, so you end up skipping two payments if you close early in the month.
You still pay interest every day you have a mortgage, but the way interest is paid on the old loan and the new loan allows you to skip 1-2 payments. It's really an accounting trick, however, not free money.
- Your existing lender has no special offers for you, just a good marketing idea. On your mortgage statement, there is always a toll-free number to call to refinance. When you do this, you will usually get a college intern that is trained to a) keep you in your same loan at the current higher rate or b) keep you with them although you refinance into a new loan. Your existing lender only has one option for you - theirs. An independant mortgage banker (like myself) can compare more than one lender's rates, so if your current lender doesn't have the lowest rate, an independent mortgage banker can find you a new lender who really wants your business. realize that if you work directly with a bank, your loan officer is employed by the bank, so he can't represent you. An independent loan officer can represent you.

Don’t Rush It. Work With Someone That Has YOUR Best Interests In Mind. I like to say that the lowest interest rate we offer is your best interest.

Make sure you’re waiting until a ‘bottom’ for mortgage rates. Make sure your loan officer can help you set a target interest rate that is realistic. Be ready to move quickly by having a completed application on file and credit report run. Then wait for the call that we love to make - it's time!

Trust me, it will not be a large window of time, work with someone that knows what they’re doing. There are some extremely talented mortgage professionals in town. If they are not certified, ask them why, or find someone who is - shouldn't the person trying to help you acquire the largest debt you likely have, care enough to get an advanced certification?

Refinancing - Act now, or wait?

2008-12-18T11:05:00.002-05:00

You'll Get The Best Mortgage Rates If You Watch Certain Patterns
When it comes to mortgage rates, sometimes it's better to "act now".
On Tuesday, mortgage rates fell to their lowest levels in 4 years. It happened because the Fed said it would "employ all available tools" to resuscitate the economy.
On Wednesday, however, the markets had second thoughts.
After considering the long-term implications of a near-zero percent Fed Funds Rate and the cumulative cost of government intervention to-date, suddenly, traders grew fearful that U.S. government action would devalue the dollar and lead to inflation -- the enemy of low mortgage rates.
As a result, mortgage markets unwound.
At first, the exit was a slow and orderly. Then, without warning, investors began a full-on sprint for the exits. By the end of the day, mortgage rates were higher by as much as a half-percent. Nearly all of Tuesday's big gains were erased.
In hindsight, the reversal Wednesday wasn't all that surprising -- it's the same trading pattern we've seen twice already this year. The first time was after the Fed's "surprise" rate cut in January, and the second time was after the federal takeover of Fannie Mae and Freddie Mac in September.
Sharp rate drops tend to be followed by immediate bounce-backs, it seems.
But, unfortunately, not every would-be refinancing homeowner saw the increase coming. While those that locked at the first opportunity to save money are sitting pretty today, the rest that "waited for rates to go lower" are likely kicking themselves about it.
Going forward, mortgage rates may fall, or they may not. We can't possibly know. But we've now seen the pattern 3 times now -- when mortgage rates plunge like they did Tuesday, they rarely stay that low for long. When you find a rate you like, get in and get locked as soon as possible.
Sleeping on it for even one night may end up costing you dearly.

However, all is not lost - rates today are again very volatile and very low, so be ready, work with a mortgage planner that is watching the market and set a target lock rate so that you are ready to pull the trigger when you get the rate you want.

Fed Rate cuts please Mortgage Market

2008-12-16T18:18:00.003-05:00

Explaining The Federal Reserve In Plain English (December 16, 2008)
The Federal Open Market Committee voted to cut the Fed Funds Rate by at least three-quarters percent today. The benchmark rate now rests in a range of 0.000-0.250 percent.
In its press release, the FOMC identified three key economic sectors in which activity has weakened since October. The FOMC noted that:
The U.S. job market is deteriorating
Consumer spending levels are falling
Business investment is contracting nationwide
The Fed intends its rate cut to provide stimulate to each of these areas.
In addition, the voting members of the FOMC singled out inflation as a diminishing threat to the economy. This is an important admission because it's well-known that cuts to the Fed Funds Rate can spark inflation. Rapidly falling oil prices and commodity costs, therefore, likely paved the way for today's historic cut.
In its announcement to markets, the Fed gave The People what they wanted -- a reassurance that the policy-making group would "employ all available tools" to help turnaround the economy. Lowering the Fed Funds Rate to an all-time low is one such step; its plan to purchase mortgage-backed debt in the open market is another.
After the announcement, stock markets rallied and mortgage bonds did, too. Rates ended the day slightly lower. http://www.piedmont-mortgage.com/
SourceParsing the Fed StatementThe Wall Street Journal OnlineDecember 16, 2008http://online.wsj.com/internal/mdc/info-fedparse0812.html

Short Term ARMs a solution?

2008-12-10T09:00:00.002-05:00

Should People with Jumbo loans be looking at the 1 month LIBOR ARM as a solution? Now that the LIBOR spread has come back to normal, the 1 month LIBOR may be the best way to finance a home for the next few years. With the LIBOR at 1.82% and a margin of 1.75%, the interest rate today is 3.57%. The best rate for a Jumbo 30 year fixed right now is around 7.0%. The monthly savings on a $600,000 mortgage is $1,273 per month. Keep that $1,273 per month aside in a CD at 4.0% and it will grow to $43,000 in just 3 years. The LIBOR will go back up again, but not until the current financial mess is over and the Federal Reserve starts raising rates again.

The 1 Month LIBOR mortgage is a great way to save a tremendous amount on interest payments over the next few years. Be ready to refinance when Jumbo fixed rates drop or LIBOR rates look like they will increase higher than current fixed rates.

Gas Prices Fall and Real Estate sells?

2008-12-03T18:50:00.003-05:00

Today was the 78th consecutive day that gas prices have fallen. (Anyone want to buy a real nice 2006 Ford Expedition? I need to get the bigger Ford Excursion to pull our camper!) What do gas prices have to do with real estate sales? it's a thing called the wealth effect, or the emotional impact people feel when they have more money in their pocket. So, since gas is lower by half since July, consumer confidence is rising from its October lows, and Black Friday was better this year than last year for retailers.

The wealth effect does a lot to get prospective home buyers out looking and closer to buying.

Also, with oil & commodity prices dropping, the threat of inflation is dropping, so interest rates are as low as they've been in at least three years.

Forecast for the week of Dec 1st

2008-12-01T10:05:00.002-05:00

Government action fueled a mortgage market rally last week, leading mortgage rates lower for the second consecutive week.
Despite soft housing numbers and evidence of a slowing economy, mortgage rate shoppers found reason to celebrate:
Citigroup was "rescued"
Wall Street liked the new economic team
The government pledged $600 billion to buy investment-grade mortgage bonds
These 3 elements helped drive mortgage rates to their lowest levels since January 2008 -- in some cases shaving a full percentage point off the offered rate.
Homeowners responded to the dip and refinance activity reached "a frenzy". As evidence, at least one national mortgage bank reported more loans were locked on Tuesday, November 25 than for the first 24 days of the month combined. Anecdotally, other lenders saw similar action.
However, low rates rarely stick around.
The last time that rates like they did last week, markets recovered within a week and rates returned to "normal". This week provides ample chance for that to happen again.
Throughout the early part of the week, 5 members of the Fed will make public appearances, including Fed Chairman Ben Bernanke. With the Fed's next meeting scheduled for December 15, markets will be looking for clues about how the Fed may change the Fed Funds Rate.
When the Fed Funds Rate falls, mortgage rates tend to rise on the news.
Then, on Thursday, retailers start announcing their "same store" sales figures for November. This will clue us in to the true health of the economy because consumer spending accounts for two-thirds of it. If same-store sales are dramatically lower, expect calls for a large Fed Funds Rate cut.
And lastly, Friday brings us the jobs report. As terrible as the employment reports have been this year, it will take an especially higher number of jobs lost in November, or an exceedingly high Unemployment Rate to have much of an impact on mortgage rates.
This month, weak jobs data should be harmful to mortgage rates because more out-of-work Americans may lead to more mortgage defaults nationwide, plus additional Fed Funds Rate cuts.

Rates Recap

2008-11-28T17:10:00.002-05:00

Happy Thanksgiving. After a day off, Bond traders started slowly and then changed their mood, finishing the week with a late day rally in bond prices. Rates finished the week at the best level of the week, about 0.375% to 0.5% lower than we started on Monday. The Fed's decision to buy $500 Million of Mortgage Backed Securities on tuesday was the biggest catalyst to lower the rates.

Not so fast

2008-11-26T12:49:00.001-05:00

Rates are holding most of yesterday's gains today with more dismal economic news.

History Repeat?

2008-11-26T10:34:00.001-05:00

History Repeating Itself
Like everything else on Wall Street, mortgage markets are based on supply and demand. When demand outweighs supply, mortgage rates fall.
So, Tuesday, when the government unexpectedly announced a $500 billion budget for buying mortgage debt from Fannie Mae and Freddie Mac, the demand side of the mortgage market ballooned.
The surprise demand helped push mortgage rates to their lowest levels since January 22, 2008. 30-year fixed mortgage rates were down by as much as three-quarters of a percent Tuesday before retreating higher.
Not coincidentally, January 22, 2008, was the date of another unexpected government intervention -- a surprise 0.750 percent Fed Funds Rate cut that was meant to spur the economy forward.
Interventions like these are a big reason why predicting mortgage rates is tough business -- just when you discover the market's balance point, an outside force shifts that balance, creating tremendous amounts of uncertainty about the future.
Uncertainty on Wall Street is typically bad for mortgage rate shoppers because it leads to high levels of volatility. Look at the trading pattern from Market Open to Market Close yesterday:
8:30 AM ET: Markets open with rates falling on the news
10:00 AM ET : Rates fall more on momentum trading
12:00 PM ET : Rates level at their lowest levels of the day
2:00 PM ET : Rates rise as profit-taking begins
3:30 PM ET : Rates rise more on momentum trading
4:00 PM ET : Markets close with rates down by half
Again, not coincidentally, this is the exact trading pattern from January 22, 2008. On that day, rates were at their lowest about 3 hours into trading, and then consistently rose all the way into Market Close -- just like we saw Tuesday.
Unfortunately, in the 30 days that followed January 22, mortgage rates rose from a 3-year low to a 3-year high. And, it's not to say that the same thing will happen from now through December 25, but trading patterns have a tendency to repeat themselves over time.
Mortgage markets seek balance and when there's a dramatic shift, chaos can creates opportunity. Tuesday's $500 billion pledge added new demand and shocked the mortgage market system. Before long, it recovered to find balance.
As of today, mortgage rates are still hovering near their 3-year lows so if you haven't spoken to your loan officer about a refinance, consider calling today.

Looking ahead Nov 24th-26th

2008-11-25T06:44:00.001-05:00

As the stock market retraced to its 1997 level, mortgage markets improved last week -- but not by much.

Mortgage rates closed out the week slightly lower, but the week wasn't without fireworks.

Calls of deflation grew louder
The automakers left Washington without a bailout
Citigroup's stock price fell to the equivalent of its ATM fee
Separately, each of these elements would have created confusion on Wall Street. Together, they created near chaos. Stocks traded at a pace last week that has never been equaled.

As a result, mortgage rates were volatile, too.

Over the 5-day workweek, multiple mortgage lenders issued 11 distinct rate sheets, meaning that consumer mortgage rates changed every 3 hours, 38 minutes on average last week.

This is why home buyers should rate shop quickly. Wait too long and the mortgage rate is gone. And this week doesn't figure to be any less volatile.

To start, it's a holiday-shortened week. Fewer traders will be working as the week moves forward, making the Price Discovery process more difficult. With fewer active buyers and sellers, wild price swings are likely and mortgage rates should feel the impact.

Next, markets will debate the Citigroup Bailout, wondering whether this will (finally) mark the market bottom. It's a conversation about which Wall Street never tires and with each bit of optimism, money should flow into stocks to the detriment of mortgage bonds and mortgage rates.

And lastly, there are 9 economic releases crammed into Monday, Tuesday, and Wednesday of this week, including two housing reports and an inflationary gauge behind which the Fed puts a lot of credence.

Signs of stabilization should buoy both stock markets and mortgage rates -- Wall Street is craving balance of some sort to carry it into the New Year.

There are no Fed speakers scheduled for this week so watch for data and market sentiment to lead the markets. For rate shoppers, this means more rate sheets.

(Image courtesy: The Wall Street Journal)

Things are still changing

2008-11-25T06:23:00.000-05:00

There is still money to lend, but things are still changing with many lenders. Yesterday, Wells announced they were no longer going to approve second mortgages behind their interest only first mortgages. The previously announced that they were cancelling the 30 year fixed with the 10 Year Interest Only repayment feature.
Is this to protect consumers or themselves? The principal portion of your payment is used by the banks to lend out again, or today, to shore up their capital base. Interest only loans give the borrower the choice to pay principal or use that money elsewhere. Today, the banks are more interested in shoring up their capital bases than in the financial flexibility of the borrowers.