Many of you may have noticed that worldwide equity markets suffered big losses in the past day or two. Most of this is due to thoughts the US economy is heading towards recession and also an unfavorable view of President Bush’s economic bail out plan. As a result, the Fed cut the Fed Funds rate this am by ¾%. This was the first ¾% reduction in approx 23 years and also the first time since 9/11 that the Fed has made an emergency rate cut.
Interestingly, as we know, the Fed is scheduled to meet on the 30th of Jan and futures market traders are still pricing in a 100% chance of another ½% rate cut at that meeting.
The stock market and bond markets are very volatile at the moment; I will let you know of any further significant changes.
Tuesday, January 22, 2008
Thursday, January 10, 2008
The week in review for Jan 7
(from mortgagemarketdaily.com)
Last Week in Review
"THE BEST WAY TO APPRECIATE YOUR JOB IS TO IMAGINE YOURSELF WITHOUT ONE." Oscar Wilde And unfortunately, last Friday's Jobs Report indicated that many more Americans than expected are not just imagining themselves without a job, they truly are without a job.
The Unemployment Rate jumped up to 5.0% from 4.7%, and new job growth in December was reported at a paltry 18,000 jobs...with private-sector job growth actually falling by 13,000, the largest private sector drop in more than four years. And here's an interesting note - Hourly Earnings actually moved higher than expected. While this seems somewhat contradictory to a slowing jobs number, perhaps it means that employers are attempting to save money by paying more dollars to fewer workers, rather than hiring more staff.
Many experts feel that even the lower than expected number of jobs created is an overstatement, due to averaging that is used by the Labor department, and that this number will eventually be revised lower. Job growth is a leading indicator of economic health, and the latest read points to a strong possibility of a recession in 2008.
Overall, the Jobs Report was much weaker than anticipated - and remembering that negative economic news is generally bad for the Stock market, but good for the Bond market - Bonds enjoyed some nice gains, sending home loan rates about .25% lower throughout the week.
RIGHT UNDER YOUR NOSE, YOU MIGHT BE HELPING LARGE FINANCIAL INSTITUTIONS COVER THEIR LOSSES FROM THE PRESENT FINANCIAL MARKET TURMOIL...FIND OUT HOW TO PROTECT YOURSELF, IN THIS WEEK'S MORTGAGE MARKET VIEW!
Forecast for the Week
The economic event calendar slows down significantly this week, with only one meaningful report scheduled to arrive on Thursday - Initial Jobless Claims, giving a look at the most recent reports of filings for unemployment. Considering the recent stats on higher unemployment levels, this report will be given special attention.
And notice how prices have recently separated far from their 25-day Moving Average, shown as a green line. Many securities tend to gravitate back towards their 25-day MA once they stray too far above or below it. This is called the "Leash Effect". Imagine a puppy on a leash straying too far...its owner will tug on the leash to bring the puppy back. Mortgage Bonds have historically shown a similar reaction; once prices stray far from their 25-day MA, they tend to snap back towards it. Notice how this happened about a month ago in the chart below. It is likely that Bonds will again be reined in by the "Leash Effect" in the week ahead, which suggests a bit higher rates.
Bond prices have run up higher in recent days, and in turn, home loan rates have improved. In fact, they've improved so much, that they are somewhat ripe for a reversal. In the absence of any unexpected news - don't be surprised to see home loan rates worsen a bit in the coming week.
Last Week in Review
"THE BEST WAY TO APPRECIATE YOUR JOB IS TO IMAGINE YOURSELF WITHOUT ONE." Oscar Wilde And unfortunately, last Friday's Jobs Report indicated that many more Americans than expected are not just imagining themselves without a job, they truly are without a job.
The Unemployment Rate jumped up to 5.0% from 4.7%, and new job growth in December was reported at a paltry 18,000 jobs...with private-sector job growth actually falling by 13,000, the largest private sector drop in more than four years. And here's an interesting note - Hourly Earnings actually moved higher than expected. While this seems somewhat contradictory to a slowing jobs number, perhaps it means that employers are attempting to save money by paying more dollars to fewer workers, rather than hiring more staff.
Many experts feel that even the lower than expected number of jobs created is an overstatement, due to averaging that is used by the Labor department, and that this number will eventually be revised lower. Job growth is a leading indicator of economic health, and the latest read points to a strong possibility of a recession in 2008.
Overall, the Jobs Report was much weaker than anticipated - and remembering that negative economic news is generally bad for the Stock market, but good for the Bond market - Bonds enjoyed some nice gains, sending home loan rates about .25% lower throughout the week.
RIGHT UNDER YOUR NOSE, YOU MIGHT BE HELPING LARGE FINANCIAL INSTITUTIONS COVER THEIR LOSSES FROM THE PRESENT FINANCIAL MARKET TURMOIL...FIND OUT HOW TO PROTECT YOURSELF, IN THIS WEEK'S MORTGAGE MARKET VIEW!
Forecast for the Week
The economic event calendar slows down significantly this week, with only one meaningful report scheduled to arrive on Thursday - Initial Jobless Claims, giving a look at the most recent reports of filings for unemployment. Considering the recent stats on higher unemployment levels, this report will be given special attention.
And notice how prices have recently separated far from their 25-day Moving Average, shown as a green line. Many securities tend to gravitate back towards their 25-day MA once they stray too far above or below it. This is called the "Leash Effect". Imagine a puppy on a leash straying too far...its owner will tug on the leash to bring the puppy back. Mortgage Bonds have historically shown a similar reaction; once prices stray far from their 25-day MA, they tend to snap back towards it. Notice how this happened about a month ago in the chart below. It is likely that Bonds will again be reined in by the "Leash Effect" in the week ahead, which suggests a bit higher rates.
Bond prices have run up higher in recent days, and in turn, home loan rates have improved. In fact, they've improved so much, that they are somewhat ripe for a reversal. In the absence of any unexpected news - don't be surprised to see home loan rates worsen a bit in the coming week.
Wednesday, January 2, 2008
The week in review for December 31st
(from mortgagemarketguide.com)
"YOUTH IS WHEN YOU'RE ALLOWED TO STAY UP LATE ON NEW YEAR'S EVE. MIDDLE AGE IS WHEN YOU'RE FORCED TO." Bill Vaughn And battle weary Traders may be looking to hang it up early for the night, after enduring days and weeks on end of extreme market volatility. And last week was no exception, as the assassination of former Pakistani Prime Minister and current opposition leader Benazir Bhutto brought on even more volatile moves in the markets.
There is global concern over the possibility that the Pakistani government may become destabilized - and if this should happen, which political faction may end up in power with control over its nuclear arsenal. This is a very good example of how unforeseen political events from around the world can impact home loan rates, as Bonds trade in response to the headlines. Following the assassination, Bond prices moved higher upon the increased demand for the "safe haven" found in Bonds, and home loan rates improved by about .125% for the week overall.
BRING THE CHAMPAGNE...AND THESE FASCINATING BITS OF NEW YEARS TRIVIA...TO YOUR HOLIDAY CELEBRATIONS, BY READING THIS WEEK'S MORTGAGE MARKET VIEW. AND MOST IMPORTANTLY - I WISH YOU AND YOURS A VERY HAPPY AND HEALTHY 2008!
Forecast for the Week
The financial markets will be closed early on Monday, and fully closed on Tuesday in observance of the New Year. But the balance of the week contains several important economic releases, including the "Minutes" from the Federal Reserve's last policy meeting. Since not all voting members agreed with the decision to cut the Fed Funds Rate by .25%, the discussion between voting and non-voting members could be fairly interesting, and provide insight as to the Fed's moves in the New Year.
Remembering that when Bond pricing moves higher, home loan rates move lower - and vice versa - the chart below shows how volatile the action has been in recent days and weeks. This is why we feel it is so important for us to be well informed, and in turn, keep you advised. The climate has been volatile both for rates and the mortgage industry at large - so we know that it is more important than ever that you, your friends, family members, clients and neighbors have an association with a real professional who is "in the know". If you know anyone who would like to receive this informative newsletter - just let me know, and I will add them free of charge. And as this New Year opens, please contact me if I can be of service to you at this time.
"YOUTH IS WHEN YOU'RE ALLOWED TO STAY UP LATE ON NEW YEAR'S EVE. MIDDLE AGE IS WHEN YOU'RE FORCED TO." Bill Vaughn And battle weary Traders may be looking to hang it up early for the night, after enduring days and weeks on end of extreme market volatility. And last week was no exception, as the assassination of former Pakistani Prime Minister and current opposition leader Benazir Bhutto brought on even more volatile moves in the markets.
There is global concern over the possibility that the Pakistani government may become destabilized - and if this should happen, which political faction may end up in power with control over its nuclear arsenal. This is a very good example of how unforeseen political events from around the world can impact home loan rates, as Bonds trade in response to the headlines. Following the assassination, Bond prices moved higher upon the increased demand for the "safe haven" found in Bonds, and home loan rates improved by about .125% for the week overall.
BRING THE CHAMPAGNE...AND THESE FASCINATING BITS OF NEW YEARS TRIVIA...TO YOUR HOLIDAY CELEBRATIONS, BY READING THIS WEEK'S MORTGAGE MARKET VIEW. AND MOST IMPORTANTLY - I WISH YOU AND YOURS A VERY HAPPY AND HEALTHY 2008!
Forecast for the Week
The financial markets will be closed early on Monday, and fully closed on Tuesday in observance of the New Year. But the balance of the week contains several important economic releases, including the "Minutes" from the Federal Reserve's last policy meeting. Since not all voting members agreed with the decision to cut the Fed Funds Rate by .25%, the discussion between voting and non-voting members could be fairly interesting, and provide insight as to the Fed's moves in the New Year.
Remembering that when Bond pricing moves higher, home loan rates move lower - and vice versa - the chart below shows how volatile the action has been in recent days and weeks. This is why we feel it is so important for us to be well informed, and in turn, keep you advised. The climate has been volatile both for rates and the mortgage industry at large - so we know that it is more important than ever that you, your friends, family members, clients and neighbors have an association with a real professional who is "in the know". If you know anyone who would like to receive this informative newsletter - just let me know, and I will add them free of charge. And as this New Year opens, please contact me if I can be of service to you at this time.
Thursday, December 13, 2007
Credit Scores and how they are calculated
One of the more common questions I am asked is regarding credit scores and how they are determined. Below are some answers from experian.com (one of the 3 major credit bureaus).
What is a credit score?
A credit score is a number lenders use to help them decide: "If I give this person a loan or credit card, how likely is it I will get paid back on time?" Credit scores are also called risk scores because they help lenders predict the risk that you will not be able to repay the debt as agreed. Scores are generated by statistical models using elements from your credit report, however scores are not stored as part of your credit history. Rather, scores are generated at the time a lender requests your credit report and then included with the report.
Credit scores are fluid numbers that change as the elements in your credit report change. For example, payment updates or a new account could cause scores to fluctuate. There are many different credit scores used in the financial service industry. Scores may be different from lender to lender (or from car loan to mortgage loan) depending on the type of credit scoring model that was used.
How scores are calculated:
Developers of credit scoring models review a set of consumers – often over a million. The historical credit profiles of the consumers are examined to identify common variables they exhibited. The developers then build statistical models by selecting the credit variables most predictive of future behavior and assigning appropriate weights to each variable.
Models for specific types of loans, such as auto or mortgage, more closely consider consumer payment statistics related to these loans. Model builders strive to identify the best set of variables from a consumer's past credit history that most effectively predict future credit behavior.
What's in a credit score?
The information that impacts a credit score varies depending on the score being used. Credit scores are affected by elements in your credit report, such as:
Number and severity of late payments
Type, number and age of accounts
Total debt
Public records Credit scores do not consider the following information:
Your race, color, religion, national origin, sex or marital status. U.S. law prohibits credit scoring from considering these facts, as well as any receipt of public assistance, or the exercise of any consumer right under the Consumer Credit Protection Act.
Your age.
Your salary, occupation, title, employer, date employed or employment history. However, lenders may consider this information in making their approval decisions.
Where you live.
Certain types of inquiries (requests for your credit report). The score does not count "consumer disclosure inquiry” requests you have made for your credit report in order to check it. It also does not count "promotional inquiry" requests made by lenders in order to make a "pre-approved" credit offer – or "account review inquiry" requests made by lenders to review your account with them. Finally, inquiries for employment purposes are not counted.
History of credit scoresCredit scores came into wide use in the 1980s. Long before credit scores, human judgment was the sole factor in deciding who received credit. Lenders used their past experience at observing consumer credit behavior as the basis for judging new consumers. Not only was this a slow process, but it was also unreliable because of human error.
Lenders eventually began to standardize how they made credit decisions by using a point system that scored the different variables on a consumer's credit report. This point system helped to eliminate much of the bias that previously existed; however, it was still tied to intuitive measures of creditworthiness and was not based on actual consumer behavior.
Credit granting took a huge leap forward when statistical models were built that considered numerous variables and combinations of variables. These models were built using payment information from thousands of actual consumers, which made scores highly effective in predicting consumer credit behavior. When combined with computer applications, scoring models made the credit granting process extremely fast, efficient and objective, facilitating commerce and helping consumers quickly get the credit they need.
What is a credit score?
A credit score is a number lenders use to help them decide: "If I give this person a loan or credit card, how likely is it I will get paid back on time?" Credit scores are also called risk scores because they help lenders predict the risk that you will not be able to repay the debt as agreed. Scores are generated by statistical models using elements from your credit report, however scores are not stored as part of your credit history. Rather, scores are generated at the time a lender requests your credit report and then included with the report.
Credit scores are fluid numbers that change as the elements in your credit report change. For example, payment updates or a new account could cause scores to fluctuate. There are many different credit scores used in the financial service industry. Scores may be different from lender to lender (or from car loan to mortgage loan) depending on the type of credit scoring model that was used.
How scores are calculated:
Developers of credit scoring models review a set of consumers – often over a million. The historical credit profiles of the consumers are examined to identify common variables they exhibited. The developers then build statistical models by selecting the credit variables most predictive of future behavior and assigning appropriate weights to each variable.
Models for specific types of loans, such as auto or mortgage, more closely consider consumer payment statistics related to these loans. Model builders strive to identify the best set of variables from a consumer's past credit history that most effectively predict future credit behavior.
What's in a credit score?
The information that impacts a credit score varies depending on the score being used. Credit scores are affected by elements in your credit report, such as:
Number and severity of late payments
Type, number and age of accounts
Total debt
Public records Credit scores do not consider the following information:
Your race, color, religion, national origin, sex or marital status. U.S. law prohibits credit scoring from considering these facts, as well as any receipt of public assistance, or the exercise of any consumer right under the Consumer Credit Protection Act.
Your age.
Your salary, occupation, title, employer, date employed or employment history. However, lenders may consider this information in making their approval decisions.
Where you live.
Certain types of inquiries (requests for your credit report). The score does not count "consumer disclosure inquiry” requests you have made for your credit report in order to check it. It also does not count "promotional inquiry" requests made by lenders in order to make a "pre-approved" credit offer – or "account review inquiry" requests made by lenders to review your account with them. Finally, inquiries for employment purposes are not counted.
History of credit scoresCredit scores came into wide use in the 1980s. Long before credit scores, human judgment was the sole factor in deciding who received credit. Lenders used their past experience at observing consumer credit behavior as the basis for judging new consumers. Not only was this a slow process, but it was also unreliable because of human error.
Lenders eventually began to standardize how they made credit decisions by using a point system that scored the different variables on a consumer's credit report. This point system helped to eliminate much of the bias that previously existed; however, it was still tied to intuitive measures of creditworthiness and was not based on actual consumer behavior.
Credit granting took a huge leap forward when statistical models were built that considered numerous variables and combinations of variables. These models were built using payment information from thousands of actual consumers, which made scores highly effective in predicting consumer credit behavior. When combined with computer applications, scoring models made the credit granting process extremely fast, efficient and objective, facilitating commerce and helping consumers quickly get the credit they need.
Getting Pre-qualified and Pre-approved
Knowing how much you can afford to spend on your new home is one of the first steps in the home buying process. By looking at your income, liabilities and cash available for down payment, I will be able to pre-qualify you to determine the approximate price range for you and your Realtor to search in. This will save both you and your agent time by focusing your search on properties that are within your qualifying range.
An additional step that has become very popular in recent years is getting Pre-Approved. This step is highly recommended and requires a little more work, but is worth the effort. By either filling out a form, or answering some questions over the phone or in person, I can input your information into a computer and run the data through an underwriting program. Once this is done, the credit report is ordered and I will receive a determination on your loan. The information you provided to me may need to be verified, so I will let you know what documents will be needed, but usually it is bank statements and pay stubs.
Once you are pre-approved, the amount of time required for the mortgage contingency and the closing are significantly reduced. Being Pre-Approved lets sellers know that you are serious about purchasing a home and that you are qualified for the purchase.
An additional step that has become very popular in recent years is getting Pre-Approved. This step is highly recommended and requires a little more work, but is worth the effort. By either filling out a form, or answering some questions over the phone or in person, I can input your information into a computer and run the data through an underwriting program. Once this is done, the credit report is ordered and I will receive a determination on your loan. The information you provided to me may need to be verified, so I will let you know what documents will be needed, but usually it is bank statements and pay stubs.
Once you are pre-approved, the amount of time required for the mortgage contingency and the closing are significantly reduced. Being Pre-Approved lets sellers know that you are serious about purchasing a home and that you are qualified for the purchase.
Monday, December 10, 2007
The week in review, December 10
(mortgagemarketguide.com)
"SURVEY SAYS...?" Richard Dawson's classic line on Family Feud is exactly the question that was on many minds at 8:29am ET last Friday morning, awaiting the official results of the November Jobs Report. After Automatic Data Processing (ADP) had released their hot numbers earlier in the week, indicating well over 200,000 new jobs created - traders and analysts began to wonder if Friday's official number might not come in far higher than the expectations of 70,000.
So when the results came in, it did show 94,000 new jobs created during November - but prior month's revisions took back 48,000 jobs previously counted in September and October. So...given this overall tame to semi-weak Jobs number - which generally would cause Bonds and home loan rates to improve - what happened that caused Bond pricing to worsen, and home loan rates to increase by .25%?
First, Bonds and home loan rates had recently improved to levels not seen in well over two years - so Bonds were almost looking for a reason to correct - and a few strong elements inside the Jobs Report were all the reason they needed. The Unemployment Rate stayed at a low 4.7%, which was better than expected. Additionally, the closely watched Hourly Earnings number was up 0.5%, higher than anticipated, and the largest read in over two years. Higher wages and a tight job market are both inflationary...inflation is bad news for Bonds and home loan rates...hence the large worsening in Bond prices and home loan rates. And the action isn't likely to let up soon - read on for a look at what's in store during the action packed week ahead!
Forecast for the Week
The wild ride is quite likely to continue, with the coming week packed full of economic events and happenings. The headliner of the week will be the Fed's Rate Decision and Policy Statement due on Tuesday afternoon. A cut to the Fed Funds Rate is expected - but what remains in question is whether the cut will be .25% or .50%.
Remember, a cut by the Fed makes many borrowing rates lower - like Home Equity Lines, credit cards, and the like - but can often have the exact opposite impact on home loan rates. Why? Because a Fed cut often drives inflation, since spending by consumers and businesses generally picks up in light of more favorable financing rates. And inflation is the worst kind of enemy to Bonds, which provide a fixed rate of return - and the true value of that return is diminished by the eroding effects of inflation. Bottom line: Following the Fed announcement, home loan rates are likely to make some moves, depending on the tone of the Policy Statement, and the size of the Rate Decision itself.
As if that weren't enough excitement, the rest of the week will bring several heavyweight economic reports, including Retail Sales, and the inflation measuring Producer Price Index (PPI) and Consumer Price Index (CPI). Take a look at the Economic Calendar below, and check in with me this coming week for all the details as they unfold.
"SURVEY SAYS...?" Richard Dawson's classic line on Family Feud is exactly the question that was on many minds at 8:29am ET last Friday morning, awaiting the official results of the November Jobs Report. After Automatic Data Processing (ADP) had released their hot numbers earlier in the week, indicating well over 200,000 new jobs created - traders and analysts began to wonder if Friday's official number might not come in far higher than the expectations of 70,000.
So when the results came in, it did show 94,000 new jobs created during November - but prior month's revisions took back 48,000 jobs previously counted in September and October. So...given this overall tame to semi-weak Jobs number - which generally would cause Bonds and home loan rates to improve - what happened that caused Bond pricing to worsen, and home loan rates to increase by .25%?
First, Bonds and home loan rates had recently improved to levels not seen in well over two years - so Bonds were almost looking for a reason to correct - and a few strong elements inside the Jobs Report were all the reason they needed. The Unemployment Rate stayed at a low 4.7%, which was better than expected. Additionally, the closely watched Hourly Earnings number was up 0.5%, higher than anticipated, and the largest read in over two years. Higher wages and a tight job market are both inflationary...inflation is bad news for Bonds and home loan rates...hence the large worsening in Bond prices and home loan rates. And the action isn't likely to let up soon - read on for a look at what's in store during the action packed week ahead!
Forecast for the Week
The wild ride is quite likely to continue, with the coming week packed full of economic events and happenings. The headliner of the week will be the Fed's Rate Decision and Policy Statement due on Tuesday afternoon. A cut to the Fed Funds Rate is expected - but what remains in question is whether the cut will be .25% or .50%.
Remember, a cut by the Fed makes many borrowing rates lower - like Home Equity Lines, credit cards, and the like - but can often have the exact opposite impact on home loan rates. Why? Because a Fed cut often drives inflation, since spending by consumers and businesses generally picks up in light of more favorable financing rates. And inflation is the worst kind of enemy to Bonds, which provide a fixed rate of return - and the true value of that return is diminished by the eroding effects of inflation. Bottom line: Following the Fed announcement, home loan rates are likely to make some moves, depending on the tone of the Policy Statement, and the size of the Rate Decision itself.
As if that weren't enough excitement, the rest of the week will bring several heavyweight economic reports, including Retail Sales, and the inflation measuring Producer Price Index (PPI) and Consumer Price Index (CPI). Take a look at the Economic Calendar below, and check in with me this coming week for all the details as they unfold.
Thursday, December 6, 2007
The sub-prime bailout....one person's perspective.
The predominant message at today's national housing forum, put together by the Office of Thrift Supervision is....we just need some time. The big topic of discussion is a plan to freeze the introductory interest rates that some subprime borrowers pay on their mortgages so they can continue making payments.
You know, to give them some time.
The subprime bailout plan goes something like this: You can afford your payments under the introductory rate on your subprime adjustable-rate mortgage. And you've been making the payments on time. But you won't be able to afford the payments after the rate jumps at the first or second reset. If that scenario describes you, the lender would be encouraged to freeze your interest rate for a few years.
For a few years. And then what?
That's the question that no one is answering. Another way of asking it is: When people say "we gotta buy some time," whose time is being bought?
Let Angelo Mozilo give a hint. "I'd rather be breathing than dead," said the chief executive of Countrywide Financial Corporation, the nation's largest mortgage lender.
If you have a subprime loan and can barely afford the payments before rate reset, and you won't be able to afford the payments after rate reset, is your lender doing you any favors by extending the lower rate for a few years? Eventually, the rate will reset. And then what?
Is it better to lose your home to foreclosure now or a few years from now? If your introductory rate is frozen for a few years, and you keep making your payments, who benefits from that? If you are foreclosed on now, rather than a few years from now, and in the meantime you make thousands of dollars in loan payments, who wins?
You know, to give them some time.
The subprime bailout plan goes something like this: You can afford your payments under the introductory rate on your subprime adjustable-rate mortgage. And you've been making the payments on time. But you won't be able to afford the payments after the rate jumps at the first or second reset. If that scenario describes you, the lender would be encouraged to freeze your interest rate for a few years.
For a few years. And then what?
That's the question that no one is answering. Another way of asking it is: When people say "we gotta buy some time," whose time is being bought?
Let Angelo Mozilo give a hint. "I'd rather be breathing than dead," said the chief executive of Countrywide Financial Corporation, the nation's largest mortgage lender.
If you have a subprime loan and can barely afford the payments before rate reset, and you won't be able to afford the payments after rate reset, is your lender doing you any favors by extending the lower rate for a few years? Eventually, the rate will reset. And then what?
Is it better to lose your home to foreclosure now or a few years from now? If your introductory rate is frozen for a few years, and you keep making your payments, who benefits from that? If you are foreclosed on now, rather than a few years from now, and in the meantime you make thousands of dollars in loan payments, who wins?
Wednesday, December 5, 2007
A note from one of my lenders
Below is a cut and paste of a portion of an email sent to me by a rep with a large National bank regarding some recent changes. Among other things, the email is quite clear that liquiduity for Jumbo mortgages (loans over $417,000) will be tight.
____________
Fannie Mae will be making an announcement shortly that they will be charging an additional 25 bps in pricing on ALL products/loans to make up for present and future losses. I don't have any other information at this time other than it looks like it will be effective for loans that fund on or after February 1st.
Liquidity is getting worse with the non-agency products, so you can expect to see significantly higher rates in these products (i.e., Jumbo Fixed, Jumbo Standard ARM's, Portfolio ARM). This could happen fairly quickly with everyone.
Last, and this won't surprise many of you, there will be a 5% haircut on LTV's in markets with declining values.
I appreciate everyone's patience through these tough times. Despite these changes, we are still having a great winter and rates are fantastic right now. We still have some great niche products (Equity Bridge, Lot Loans, etc) that help set you apart from the competition out there.
____________
Fannie Mae will be making an announcement shortly that they will be charging an additional 25 bps in pricing on ALL products/loans to make up for present and future losses. I don't have any other information at this time other than it looks like it will be effective for loans that fund on or after February 1st.
Liquidity is getting worse with the non-agency products, so you can expect to see significantly higher rates in these products (i.e., Jumbo Fixed, Jumbo Standard ARM's, Portfolio ARM). This could happen fairly quickly with everyone.
Last, and this won't surprise many of you, there will be a 5% haircut on LTV's in markets with declining values.
I appreciate everyone's patience through these tough times. Despite these changes, we are still having a great winter and rates are fantastic right now. We still have some great niche products (Equity Bridge, Lot Loans, etc) that help set you apart from the competition out there.
Monday, December 3, 2007
The week in review for December 3rd
(mortgagemarketguide.com)
"WE'RE SO BUSY WATCHING OUT FOR WHAT'S JUST AHEAD OF US...THAT WE DON'T TAKE TIME TO ENJOY WHERE WE ARE." Bill Watterson in the comic strip, Calvin & Hobbes And while these are certainly wise words for the upcoming holiday season - they also aptly describe the mood in the markets, as Bond Traders look ahead to the end of the coming week, with the arrival of the important Jobs Report. But maybe they should take a moment to enjoy where they are, as despite massive volatility, Bonds saw nice gains last week with home loan rates improving by about .125%.
Bond prices improved on a number of factors, including a tame read on inflation via the Personal Consumption Expenditure (PCE) index. Why? Look at it this way - if Bonds were Superman, inflation would be its Kryptonite, because of inflation's ability to erode and weaken the buying power of the fixed return provided by a Bond. So when news arrives indicating that inflation appears to be under control, Bond prices and home loan rates improve on the favorable news.
Another interesting bit of recent news is that major mortgage entities Fannie Mae and Freddie Mac will be moving to "Risk Based" pricing models, meaning that consumers with credit scores that traditionally have been considered "average" may soon be subject to higher interest rates. The best defense is always a good offense - so get in touch with me to discuss your own credit, even if you don't necessarily have the need for a home loan in the cards at the moment. I can help you examine your credit and determine what actions could be taken to improve your credit score - which will save you dollars on all your credit across the board. I'm glad to help - just send me an email at the link above, or give me a call.
This coming Friday commemorates the 66th anniversary of Pearl Harbor Day, "A day that shall live in infamy," and it also features the week's main economic event - the monthly Jobs Report for November, which might touch off some fireworks of its own.
Last month's report came in at twice the number of job creations than had been expected, so the market will be wary of another surprise in the upcoming Jobs number due on Friday - or a large revision to last month's number. Current estimates are for around 75,000 new jobs created in November - and if the headline number or revisions come in to be well above this number, we could see Bonds and home loan rates worsen. On the other hand, if the Jobs number is worse than expected, or if revisions take some of the heat out of last month's number - Bonds and home loan rates may see some improvement.
The chart below shows how Bond prices have been trending higher in recent months, bringing improvement to home loan rates. If you, or one of your clients, friends, family members or neighbors have been thinking about refinancing your home loan or buying a property - now is the time to act. Rates are historically low - and homes are on sale - but it won't stay that way forever. If it's on your mind, let's discuss options together so that we are prepared to act when the time is right for you.
Chart: Fannie Mae 6.0% Mortgage Bond (Friday Nov 30, 2007)
The material contained in this newsletter has been prepared by an independent third-party provider. The content is provided for use by real estate, financial services and other professionals only and is not intended for consumer distribution. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is not without errors.
"WE'RE SO BUSY WATCHING OUT FOR WHAT'S JUST AHEAD OF US...THAT WE DON'T TAKE TIME TO ENJOY WHERE WE ARE." Bill Watterson in the comic strip, Calvin & Hobbes And while these are certainly wise words for the upcoming holiday season - they also aptly describe the mood in the markets, as Bond Traders look ahead to the end of the coming week, with the arrival of the important Jobs Report. But maybe they should take a moment to enjoy where they are, as despite massive volatility, Bonds saw nice gains last week with home loan rates improving by about .125%.
Bond prices improved on a number of factors, including a tame read on inflation via the Personal Consumption Expenditure (PCE) index. Why? Look at it this way - if Bonds were Superman, inflation would be its Kryptonite, because of inflation's ability to erode and weaken the buying power of the fixed return provided by a Bond. So when news arrives indicating that inflation appears to be under control, Bond prices and home loan rates improve on the favorable news.
Another interesting bit of recent news is that major mortgage entities Fannie Mae and Freddie Mac will be moving to "Risk Based" pricing models, meaning that consumers with credit scores that traditionally have been considered "average" may soon be subject to higher interest rates. The best defense is always a good offense - so get in touch with me to discuss your own credit, even if you don't necessarily have the need for a home loan in the cards at the moment. I can help you examine your credit and determine what actions could be taken to improve your credit score - which will save you dollars on all your credit across the board. I'm glad to help - just send me an email at the link above, or give me a call.
This coming Friday commemorates the 66th anniversary of Pearl Harbor Day, "A day that shall live in infamy," and it also features the week's main economic event - the monthly Jobs Report for November, which might touch off some fireworks of its own.
Last month's report came in at twice the number of job creations than had been expected, so the market will be wary of another surprise in the upcoming Jobs number due on Friday - or a large revision to last month's number. Current estimates are for around 75,000 new jobs created in November - and if the headline number or revisions come in to be well above this number, we could see Bonds and home loan rates worsen. On the other hand, if the Jobs number is worse than expected, or if revisions take some of the heat out of last month's number - Bonds and home loan rates may see some improvement.
The chart below shows how Bond prices have been trending higher in recent months, bringing improvement to home loan rates. If you, or one of your clients, friends, family members or neighbors have been thinking about refinancing your home loan or buying a property - now is the time to act. Rates are historically low - and homes are on sale - but it won't stay that way forever. If it's on your mind, let's discuss options together so that we are prepared to act when the time is right for you.
Chart: Fannie Mae 6.0% Mortgage Bond (Friday Nov 30, 2007)
The material contained in this newsletter has been prepared by an independent third-party provider. The content is provided for use by real estate, financial services and other professionals only and is not intended for consumer distribution. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is not without errors.
Wednesday, November 28, 2007
How is my interest rate determined?
Interest rates are not “one size fits all”. Lenders evaluate a number of factors when setting the interest rate for each particular loan. These factors generally represent different levels of risk to the lender, which in turn, determines how much the lender will charge. For example, a borrower who is purchasing an investment property is considered a higher risk than a buyer who is purchasing an owner occupied primary residence.
The above example is very basic, but is important to know. Lenders often advertise rates, but in order to know what rate may apply to your transaction requires that all the details be discussed with the lender. Listed below are some of the common factors that can influence your interest rate.
Purchase or Refinance
Purchases get the best rates. If this is a refi, your rate may be higher if you are taking cash out.
Loan Size
Jumbo interest rates (for loan amounts over $417,000) may be higher than loan amounts below $417,000. Also, very small loans, or large loans can have higher rates.
Length of Lock
The longer the lock period, the higher the rate
Property Type
Multi-unit buildings, high rise condos, co-ops may have a higher rate
Credit Score
Lower credit scores may mean higher rates
Loan-to-Value
Zero down loans, or loans with little down payment are considered more risky than loans with larger down payments. Generally speaking, low or no down payment will lead to a higher rate
Occupancy Type
Owner occupied primary homes get the best rate. Second homes and investment properties may be higher.
Pre-Payment Penalty
If the buyer is willing to have a pre-payment penalty, the rate may be slightly lower.
Level of Income and/or Asset Verification
Full disclosure of income and assets will get you the lowest rates.
Tax Escrows
Waiving your tax escrows combined with a low down payment may lead to a slightly higher rate.
The above example is very basic, but is important to know. Lenders often advertise rates, but in order to know what rate may apply to your transaction requires that all the details be discussed with the lender. Listed below are some of the common factors that can influence your interest rate.
Purchase or Refinance
Purchases get the best rates. If this is a refi, your rate may be higher if you are taking cash out.
Loan Size
Jumbo interest rates (for loan amounts over $417,000) may be higher than loan amounts below $417,000. Also, very small loans, or large loans can have higher rates.
Length of Lock
The longer the lock period, the higher the rate
Property Type
Multi-unit buildings, high rise condos, co-ops may have a higher rate
Credit Score
Lower credit scores may mean higher rates
Loan-to-Value
Zero down loans, or loans with little down payment are considered more risky than loans with larger down payments. Generally speaking, low or no down payment will lead to a higher rate
Occupancy Type
Owner occupied primary homes get the best rate. Second homes and investment properties may be higher.
Pre-Payment Penalty
If the buyer is willing to have a pre-payment penalty, the rate may be slightly lower.
Level of Income and/or Asset Verification
Full disclosure of income and assets will get you the lowest rates.
Tax Escrows
Waiving your tax escrows combined with a low down payment may lead to a slightly higher rate.
Tuesday, November 27, 2007
No Change to Loan Limits for 2008
Inman News
The conforming loan limit for mortgages purchased by Fannie Mae and Freddie Mac will remain at $417,000 next year, while debate continues over whether it will be lowered in 2009 to reflect falling home prices.
The Office of Federal Housing Enterprise Oversight (OFHEO) determines the conforming loan limit according to the average home price as reported each November by the Federal Housing Finance Board (FHFB).
OFHEO today followed through on a previous promise to leave the conforming loan limit unchanged in 2008, despite today's announcement by FHFB that the average U.S. house price fell 3.49 percent in 2007, to $295,573.
"While the house-price survey data used in determining the conforming loan limit show a decline over the past year, as previously announced and consistent with the proposed new conforming loan limit guidance, the level will remain at $417,000 for the third straight year," OFHEO Director James Lockhart said in a press release.
FHFB calculated that prices fell 0.16 percent in 2006, which OFHEO determined was a small enough decline to allow a corresponding adjustment in the conforming loan limit to be postponed. That means there has now been a cumulative two-year decline in average home price of 3.65 percent without an adjustment to the conforming loan limit.
In October, OFHEO said it would leave the conforming loan limit at $417,000 in 2008, no matter how drastically prices declined in 2007. But if cumulative home-price declines in 2006, 2007 and 2008 exceeded 3 percent, the limit would be adjusted accordingly in 2009, OFHEO proposed.
By looking at cumulative price declines over a three-year period, OFHEO left open the possibility that any reduction in the conforming loan limit could be lessened or eliminated altogether if home prices rebound in 2008. But industry groups representing lenders, home builders and Realtors have objected to the plan, questioning whether OFHEO has the legal authority to reduce the conforming loan limit.
OFHEO initially put forward the proposal on June 20, and published revised procedures for calculating the conforming loan limit on Oct. 22. The comment period on the revised procedures has closed and OFHEO said it is reviewing comments received.
Because investors have shunned the secondary market for "jumbo loans" that exceed the conforming loan limit, some lawmakers want to raise the conforming loan limit to allow Fannie and Freddie to play a greater role in purchasing or guaranteeing such loans.
A bill approved by the House in May, HR 1427, would allow Fannie and Freddie to securitize loans up to $625,000 in areas where the median home price exceeds the conforming loan limit.
Although Bush administration officials have said they might go along with allowing Fannie and Freddie to guarantee loans that exceed the $417,000 conforming loan limit on a temporary basis, they object to allowing the mortgage repurchasers holding such loans in their investment portfolios.
The conforming loan limit for mortgages purchased by Fannie Mae and Freddie Mac will remain at $417,000 next year, while debate continues over whether it will be lowered in 2009 to reflect falling home prices.
The Office of Federal Housing Enterprise Oversight (OFHEO) determines the conforming loan limit according to the average home price as reported each November by the Federal Housing Finance Board (FHFB).
OFHEO today followed through on a previous promise to leave the conforming loan limit unchanged in 2008, despite today's announcement by FHFB that the average U.S. house price fell 3.49 percent in 2007, to $295,573.
"While the house-price survey data used in determining the conforming loan limit show a decline over the past year, as previously announced and consistent with the proposed new conforming loan limit guidance, the level will remain at $417,000 for the third straight year," OFHEO Director James Lockhart said in a press release.
FHFB calculated that prices fell 0.16 percent in 2006, which OFHEO determined was a small enough decline to allow a corresponding adjustment in the conforming loan limit to be postponed. That means there has now been a cumulative two-year decline in average home price of 3.65 percent without an adjustment to the conforming loan limit.
In October, OFHEO said it would leave the conforming loan limit at $417,000 in 2008, no matter how drastically prices declined in 2007. But if cumulative home-price declines in 2006, 2007 and 2008 exceeded 3 percent, the limit would be adjusted accordingly in 2009, OFHEO proposed.
By looking at cumulative price declines over a three-year period, OFHEO left open the possibility that any reduction in the conforming loan limit could be lessened or eliminated altogether if home prices rebound in 2008. But industry groups representing lenders, home builders and Realtors have objected to the plan, questioning whether OFHEO has the legal authority to reduce the conforming loan limit.
OFHEO initially put forward the proposal on June 20, and published revised procedures for calculating the conforming loan limit on Oct. 22. The comment period on the revised procedures has closed and OFHEO said it is reviewing comments received.
Because investors have shunned the secondary market for "jumbo loans" that exceed the conforming loan limit, some lawmakers want to raise the conforming loan limit to allow Fannie and Freddie to play a greater role in purchasing or guaranteeing such loans.
A bill approved by the House in May, HR 1427, would allow Fannie and Freddie to securitize loans up to $625,000 in areas where the median home price exceeds the conforming loan limit.
Although Bush administration officials have said they might go along with allowing Fannie and Freddie to guarantee loans that exceed the $417,000 conforming loan limit on a temporary basis, they object to allowing the mortgage repurchasers holding such loans in their investment portfolios.
Monday, November 26, 2007
Understanding ARMs
Adjustable Rate Mortgages (ARMs) can be intimidating to new borrowers, but should not be overlooked. The key is to understand the variables involved, and then compare them against your short/long term goals. ARM's feature an interest rate that can change and Lender's offer superior rates on ARMs compared to fixed rate loans because they are not locked into providing the exact same rate to you for the next 30 or so years. ARM's let the lender adjust according to market conditions and inflation. When interest rates go up, your ARM can go up as well.
Comparing the difference between ARM's is more complicated than fixed rate loans because the start rate is only important until the rate begins to change. How much it can change, and when it will change are just as important to consider.The period of time between when your rate can change is the first variable to consider. Some ARM's can actually change every single month, starting in the next month after you close. Ever here those 1% ads on the radio? It's likely tied to a loan that changes monthly. It's more common for an ARM to change once a year, and in many cases, it will have a period of a fixed rates for a few years before it becomes adjustable.
For instance, a 5/1 ARM is fixed at the start rate for the first five years, then adjusts yearly. A 3/1 ARM is fixed for three years, then adjusts yearly. If you are pretty confident that you are going to move again in the next five years, a 5/1 has almost no downside to it. How much your loan can adjust, once the fixed period is over, is the second variable to consider. ARM's have caps that limit how much the rate can move at one time. Let's say your caps are 2 & 5. That means the rate can adjust as much as two percent a year (assuming your loan only adjusts once a year), and can never go above 5% over your original start rate. With a 5/1 ARM and 2&5 caps, in a worse case scenario, your rate would change as follows: Year One through five would be at 6%, Year Six - 8%, Year Seven - 10%, Year Ten through 30 - 11%.
Obviously, if you plan to live in a home for the next 30 years, with no intention of ever refinancing, an ARM like this may be a bad idea. But most folks would refinance or sell by the seventh year. That's a worse case scenario. Now let's look at how the rates will actually adjust. It might seem like the start rate is the only important number to consider here, but that's a mistake. The MARGIN plays the biggest role in how much your rate can change. Margin is one of those obscure figures that many loan companies try to breeze over. Always look at the margin if you think it's possible that you'll have this mortgage once it starts adjusting. So what is margin? It's a set number that gets added to an index, to determine what your rate will be. This is where it gets tricky, but stay with me.Different ARM's are based on economical standards called indexes. One index is the Monthly Treasury Average (MTA). Another and perhaps the most popular is the London Inter-bank Offered Rate (LIBOR) and yet other loans are based on US Treasury Bills.
Essentially indexes go up and down, depending on the market. In times of higher rates, these indexes are higher. Some indexes move up and down faster than the others. Currently, LIBOR is at are about 4.75%. Here's where the margin kicks in. When your rate starts to adjust, the margin is added to whatever the index is at the time, and that is your new rate. Let's look at a 5/1 ARM and assume that your five years are up today. Lets also say that your loan has a margin is 2.375% and the Start Rate was 6% with 2&5 Caps. If the Margin is 2.375% and the current LIBOR rate is 4.75% the rate for year 6 would be 7.125% (Index + Margin).
The rate for year 7 is determined the same way, index + margin. Keep in mind that ARMs don't just go up. If the index goes lower, so do your rates. Because ARM loans typically offer lower start rates than 30 yr fixed rate loans, if used properly, they can offer a nice savings to the borrower.
Comparing the difference between ARM's is more complicated than fixed rate loans because the start rate is only important until the rate begins to change. How much it can change, and when it will change are just as important to consider.The period of time between when your rate can change is the first variable to consider. Some ARM's can actually change every single month, starting in the next month after you close. Ever here those 1% ads on the radio? It's likely tied to a loan that changes monthly. It's more common for an ARM to change once a year, and in many cases, it will have a period of a fixed rates for a few years before it becomes adjustable.
For instance, a 5/1 ARM is fixed at the start rate for the first five years, then adjusts yearly. A 3/1 ARM is fixed for three years, then adjusts yearly. If you are pretty confident that you are going to move again in the next five years, a 5/1 has almost no downside to it. How much your loan can adjust, once the fixed period is over, is the second variable to consider. ARM's have caps that limit how much the rate can move at one time. Let's say your caps are 2 & 5. That means the rate can adjust as much as two percent a year (assuming your loan only adjusts once a year), and can never go above 5% over your original start rate. With a 5/1 ARM and 2&5 caps, in a worse case scenario, your rate would change as follows: Year One through five would be at 6%, Year Six - 8%, Year Seven - 10%, Year Ten through 30 - 11%.
Obviously, if you plan to live in a home for the next 30 years, with no intention of ever refinancing, an ARM like this may be a bad idea. But most folks would refinance or sell by the seventh year. That's a worse case scenario. Now let's look at how the rates will actually adjust. It might seem like the start rate is the only important number to consider here, but that's a mistake. The MARGIN plays the biggest role in how much your rate can change. Margin is one of those obscure figures that many loan companies try to breeze over. Always look at the margin if you think it's possible that you'll have this mortgage once it starts adjusting. So what is margin? It's a set number that gets added to an index, to determine what your rate will be. This is where it gets tricky, but stay with me.Different ARM's are based on economical standards called indexes. One index is the Monthly Treasury Average (MTA). Another and perhaps the most popular is the London Inter-bank Offered Rate (LIBOR) and yet other loans are based on US Treasury Bills.
Essentially indexes go up and down, depending on the market. In times of higher rates, these indexes are higher. Some indexes move up and down faster than the others. Currently, LIBOR is at are about 4.75%. Here's where the margin kicks in. When your rate starts to adjust, the margin is added to whatever the index is at the time, and that is your new rate. Let's look at a 5/1 ARM and assume that your five years are up today. Lets also say that your loan has a margin is 2.375% and the Start Rate was 6% with 2&5 Caps. If the Margin is 2.375% and the current LIBOR rate is 4.75% the rate for year 6 would be 7.125% (Index + Margin).
The rate for year 7 is determined the same way, index + margin. Keep in mind that ARMs don't just go up. If the index goes lower, so do your rates. Because ARM loans typically offer lower start rates than 30 yr fixed rate loans, if used properly, they can offer a nice savings to the borrower.
Interest rate buy-downs
Buying down the interest rate for the buyer of a property is a popular tactic among builders when the market slows. Builders will drop their prices if they must. But that's usually a last-ditch effort to move product.
First, most will try to broaden the market by offering to pay a lender to drop a buyer's rate a percentage point or two for the first two or three years. If builders do it, then there is absolutely no reason why individual sellers can't do it too. Not only does the technique stretch the market further than lowering prices, it has a greater impact on the buyer's monthly mortgage payment. And for most buyers, the bottom line is not so much the actual price of the house but how much they'll have to pay each month.
Buy-downs work like this: For a fee that is usually paid by the seller, a lender agrees to lower the buyer's mortgage rate in stair-step fashion for one to three years.
A typical buy-down, known as a "2-1" buy-down, calls for a rate that's 2 percentage points below market for the first year. In the loan's second year, the rate rises to 1 percentage point below the rate at the time the loan was made. And after two years, it goes up once again, this time to the original rate, where it remains for the life of the mortgage. Other popular versions include a 3-2-1 buy-down in which the rate is 3 points below market the first year, 2 points during the second year and 1 point in the third, and a condensed buy-down in which the rate rises every six months instead of every 12.
To see how the concept works, and why it's almost always a better bet than lowering your price, let's assume a $165,000 selling price. If a buyer puts up $16,500 in cash as a down payment, he or she would have to finance $150,000. And at 6 percent, the payment for principal and interest would be $899 a month.
However, if the seller agrees to pay the cost of a 2-1 buy-down, the buyer's monthly principal and interest payment at 4 percent for the first year would be $716, a difference of $183 a month or $2,196 a year. The payment would rise to $805 in the second year, but that's still a savings of $94 a month or $1,128 for the entire year. The payment would rise to $899 in the third year. But over the 24 months, the buyer's total savings is $3,324.
That's also what it would cost the seller to buy-down the buyer's interest rate. Of course, as an alternative, you could cut your price by the same amount. But since most conventional loans are approved based on the borrower's first-year interest rate, your universe of potential buyers would not be nearly as great.
Because most loans these days are based on the borrower's credit score instead of debt-to-income ratio, it's difficult to say with any certainty exactly how many more potential buyers would qualify to purchase your house at a lower rate. But it's easy to see how much more meaningful it is to lower the rate rather than the price by returning to the above example: If you cut the price by $3,324, which is the cost of the buy-down, the monthly payment at 6 percent would be $879. That's only a $20 difference versus $183 in savings resulting from the buy-down. With the buy-down, the eventual buyer in the example above only has to earn enough to afford a $716 a month house payment rather than $879.
The differences are even more striking on higher priced houses or when mortgages are more expensive. For example, on a $250,000 mortgage at 6 percent, the monthly payment is $1,499. But at 4 percent, it's just $1,194, a difference of $305. At 5 percent, the second year payment would be $1,342. But the total two-year savings would be $5,544. If the seller in this case "spent" that amount to lower the selling price and thus the buyer's mortgage to $244,456, the payment at 6 percent would be $1,465, or just $33 a month less than if the seller did absolutely nothing. There's a big difference between $305 a month and $33
First, most will try to broaden the market by offering to pay a lender to drop a buyer's rate a percentage point or two for the first two or three years. If builders do it, then there is absolutely no reason why individual sellers can't do it too. Not only does the technique stretch the market further than lowering prices, it has a greater impact on the buyer's monthly mortgage payment. And for most buyers, the bottom line is not so much the actual price of the house but how much they'll have to pay each month.
Buy-downs work like this: For a fee that is usually paid by the seller, a lender agrees to lower the buyer's mortgage rate in stair-step fashion for one to three years.
A typical buy-down, known as a "2-1" buy-down, calls for a rate that's 2 percentage points below market for the first year. In the loan's second year, the rate rises to 1 percentage point below the rate at the time the loan was made. And after two years, it goes up once again, this time to the original rate, where it remains for the life of the mortgage. Other popular versions include a 3-2-1 buy-down in which the rate is 3 points below market the first year, 2 points during the second year and 1 point in the third, and a condensed buy-down in which the rate rises every six months instead of every 12.
To see how the concept works, and why it's almost always a better bet than lowering your price, let's assume a $165,000 selling price. If a buyer puts up $16,500 in cash as a down payment, he or she would have to finance $150,000. And at 6 percent, the payment for principal and interest would be $899 a month.
However, if the seller agrees to pay the cost of a 2-1 buy-down, the buyer's monthly principal and interest payment at 4 percent for the first year would be $716, a difference of $183 a month or $2,196 a year. The payment would rise to $805 in the second year, but that's still a savings of $94 a month or $1,128 for the entire year. The payment would rise to $899 in the third year. But over the 24 months, the buyer's total savings is $3,324.
That's also what it would cost the seller to buy-down the buyer's interest rate. Of course, as an alternative, you could cut your price by the same amount. But since most conventional loans are approved based on the borrower's first-year interest rate, your universe of potential buyers would not be nearly as great.
Because most loans these days are based on the borrower's credit score instead of debt-to-income ratio, it's difficult to say with any certainty exactly how many more potential buyers would qualify to purchase your house at a lower rate. But it's easy to see how much more meaningful it is to lower the rate rather than the price by returning to the above example: If you cut the price by $3,324, which is the cost of the buy-down, the monthly payment at 6 percent would be $879. That's only a $20 difference versus $183 in savings resulting from the buy-down. With the buy-down, the eventual buyer in the example above only has to earn enough to afford a $716 a month house payment rather than $879.
The differences are even more striking on higher priced houses or when mortgages are more expensive. For example, on a $250,000 mortgage at 6 percent, the monthly payment is $1,499. But at 4 percent, it's just $1,194, a difference of $305. At 5 percent, the second year payment would be $1,342. But the total two-year savings would be $5,544. If the seller in this case "spent" that amount to lower the selling price and thus the buyer's mortgage to $244,456, the payment at 6 percent would be $1,465, or just $33 a month less than if the seller did absolutely nothing. There's a big difference between $305 a month and $33
The Week in Review for November 19
(mortgagemarketguide.com)
"I CAN SEE CLEARLY NOW, THE RAIN IS GONE..." Johnny Nash hit number one on the charts with this classic tune in 1972...and 35 years later, Fed Chairman Big Ben Bernanke is singing the same tune, mentioning in comments last week that the Fed would be more transparent so we all can see their policies clearly.
The new, improved, and more transparent Fed is a far cry from the days of "The Cryptic One"...Former Fed Chair Alan Greenspan, who was famous for his hidden messages. After a Greenspan speech, many traders were left scratching their heads and wondering what exactly was said. In sharp contrast, Bernanke has been very clear and easy to understand.
More importantly, Ben has done a good job of keeping inflation under control. The latest read on inflation was tame for last month, as a large jump in energy costs were offset by meek automobile, housing, and clothing prices. This suggests that higher oil prices haven't yet pushed up the prices of other goods overall.
But one topic that is still cloudy is the Fed's next move on December 11th. The latest chatter from the "more transparent" Fed indicates that the Fed will not cut - but traders in the pits are betting the ranch on another quarter-point cut. One thing is very clear - this topic will be debated right up until the Fed makes the announcement.
Bonds and home loan rates saw quite a bit of activity in the holiday shortened week, but ended up exactly where they started.
THANKSGIVING WITH ALL THE TRIMMINGS IS RIGHT AROUND THE CORNER...WILL YOUR WAISTLINE END UP EXACTLY WHERE IT STARTED? READ THIS WEEK'S MORTGAGE MARKET VIEW FOR SOME INTERESTING TABLE TOPICS.
Forecast for the Week
What little economic news we'll have during this Thanksgiving Holiday shortened week takes place this Tuesday and Wednesday...and the market is scheduled to close early on Wednesday and Friday with a full-day close on Thursday.
The most interesting news of note for the coming week will be the latest housing data, coming with Tuesday's release of the Housing Starts and Building Permits report. Also on Tuesday, the Fed "unplugged"...the Minutes from the last Fed meeting will be released, providing the commentary and discussion between both voting and non-voting members. This may provide additional insight into the Federal Reserve's recent decision to cut rates by another quarter percent - and any unexpected comments could cause some movement in Bonds and home loan rates prior to the Thanksgiving Holiday.
In general, Bonds and home loan rates have improved in recent weeks - and until a catalyst arrives to knock Bonds and home loan rates off the "Up Escalator" of improvement, we will likely continue to see more of the same.
Chart: Fannie Mae 6.0% Mortgage Bond (Friday Nov 16, 2007)
The Mortgage Market View...
A DAY OF THANKS
Thanksgiving is upon us! This popular autumn holiday traces its roots back to a three-day feast held in 1621 to celebrate the blessing of a bountiful harvest. It took more than 240 years, however, for Thanksgiving to become a national holiday. In 1863, President Abraham Lincoln finally proclaimed the last Thursday of November as a national day of thanksgiving. Years later, President Franklin Roosevelt stated that Thanksgiving should always be celebrated on the fourth Thursday of the month--as opposed to the occasional fifth Thursday.
Mmmm... Eel and Seal. My favorite!
What exactly did the pilgrims eat at the first Thanksgiving? According to food historian Kathleen Curtin, the answer may surprise you. In addition to wild turkey, other popular sources of meat that were likely served include eel, clams, lobster, wild goose, eagles, venison, and seal...yes, seal. Peas, beans, and carrots were probably on the table, but sweet potatoes and corn on the cob weren't. And although pumpkins were likely consumed, pumpkin pie wasn't...because no such thing existed at that time.
Talking Turkey...272 Million Turkeys!
The popularity of turkeys during the holidays and throughout the year has turned turkey farming into a big business. In fact, the USDA National Agricultural Statistics Service estimates that 272 million turkeys will be raised in the US this year alone. That's an increase of 4% over 2006!
Weighing In on What We Eat
Ever wonder how many cranberries, pumpkins, and other Thanksgiving Day foods we go through each year? The US Census Bureau has the skinny! According to their research, the US produces some serious poundage when it comes to these holiday favorites, including:
690 million pounds of cranberries
1.6 billion pounds of sweet potatoes
1 billion pounds of pumpkins
841,280 tons of snap green beans
No wonder we feel so full after those holiday meals!
Can Turkey Really Make You Tired?
Here's how the story goes. Turkey contains tryptophan...which helps the body produce niacin...which then helps produce serotonin. And serotonin is the key to this theory because it calms the brain and induces sleep.
The problem with that theory is that tryptophan actually works best on an empty stomach-which most of us don't have after our Thanksgiving feast! So, it's more likely that the heaviness and the high carbohydrate content of the entire Thanksgiving meal are responsible for that sense of lethargy you feel, as your body works to digest it all. Add a glass of wine or a cocktail to your meal, and you'll increase that sense of sleepiness even more.
Here's to another happy Thanksgiving Day for you and yours! As always, if you have any questions or need any assistance, please don't hesitate to call.
The material contained in this newsletter has been prepared by an independent third-party provider. The content is provided for use by real estate, financial services and other professionals only and is not intended for consumer distribution. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is not without errors.
"I CAN SEE CLEARLY NOW, THE RAIN IS GONE..." Johnny Nash hit number one on the charts with this classic tune in 1972...and 35 years later, Fed Chairman Big Ben Bernanke is singing the same tune, mentioning in comments last week that the Fed would be more transparent so we all can see their policies clearly.
The new, improved, and more transparent Fed is a far cry from the days of "The Cryptic One"...Former Fed Chair Alan Greenspan, who was famous for his hidden messages. After a Greenspan speech, many traders were left scratching their heads and wondering what exactly was said. In sharp contrast, Bernanke has been very clear and easy to understand.
More importantly, Ben has done a good job of keeping inflation under control. The latest read on inflation was tame for last month, as a large jump in energy costs were offset by meek automobile, housing, and clothing prices. This suggests that higher oil prices haven't yet pushed up the prices of other goods overall.
But one topic that is still cloudy is the Fed's next move on December 11th. The latest chatter from the "more transparent" Fed indicates that the Fed will not cut - but traders in the pits are betting the ranch on another quarter-point cut. One thing is very clear - this topic will be debated right up until the Fed makes the announcement.
Bonds and home loan rates saw quite a bit of activity in the holiday shortened week, but ended up exactly where they started.
THANKSGIVING WITH ALL THE TRIMMINGS IS RIGHT AROUND THE CORNER...WILL YOUR WAISTLINE END UP EXACTLY WHERE IT STARTED? READ THIS WEEK'S MORTGAGE MARKET VIEW FOR SOME INTERESTING TABLE TOPICS.
Forecast for the Week
What little economic news we'll have during this Thanksgiving Holiday shortened week takes place this Tuesday and Wednesday...and the market is scheduled to close early on Wednesday and Friday with a full-day close on Thursday.
The most interesting news of note for the coming week will be the latest housing data, coming with Tuesday's release of the Housing Starts and Building Permits report. Also on Tuesday, the Fed "unplugged"...the Minutes from the last Fed meeting will be released, providing the commentary and discussion between both voting and non-voting members. This may provide additional insight into the Federal Reserve's recent decision to cut rates by another quarter percent - and any unexpected comments could cause some movement in Bonds and home loan rates prior to the Thanksgiving Holiday.
In general, Bonds and home loan rates have improved in recent weeks - and until a catalyst arrives to knock Bonds and home loan rates off the "Up Escalator" of improvement, we will likely continue to see more of the same.
Chart: Fannie Mae 6.0% Mortgage Bond (Friday Nov 16, 2007)
The Mortgage Market View...
A DAY OF THANKS
Thanksgiving is upon us! This popular autumn holiday traces its roots back to a three-day feast held in 1621 to celebrate the blessing of a bountiful harvest. It took more than 240 years, however, for Thanksgiving to become a national holiday. In 1863, President Abraham Lincoln finally proclaimed the last Thursday of November as a national day of thanksgiving. Years later, President Franklin Roosevelt stated that Thanksgiving should always be celebrated on the fourth Thursday of the month--as opposed to the occasional fifth Thursday.
Mmmm... Eel and Seal. My favorite!
What exactly did the pilgrims eat at the first Thanksgiving? According to food historian Kathleen Curtin, the answer may surprise you. In addition to wild turkey, other popular sources of meat that were likely served include eel, clams, lobster, wild goose, eagles, venison, and seal...yes, seal. Peas, beans, and carrots were probably on the table, but sweet potatoes and corn on the cob weren't. And although pumpkins were likely consumed, pumpkin pie wasn't...because no such thing existed at that time.
Talking Turkey...272 Million Turkeys!
The popularity of turkeys during the holidays and throughout the year has turned turkey farming into a big business. In fact, the USDA National Agricultural Statistics Service estimates that 272 million turkeys will be raised in the US this year alone. That's an increase of 4% over 2006!
Weighing In on What We Eat
Ever wonder how many cranberries, pumpkins, and other Thanksgiving Day foods we go through each year? The US Census Bureau has the skinny! According to their research, the US produces some serious poundage when it comes to these holiday favorites, including:
690 million pounds of cranberries
1.6 billion pounds of sweet potatoes
1 billion pounds of pumpkins
841,280 tons of snap green beans
No wonder we feel so full after those holiday meals!
Can Turkey Really Make You Tired?
Here's how the story goes. Turkey contains tryptophan...which helps the body produce niacin...which then helps produce serotonin. And serotonin is the key to this theory because it calms the brain and induces sleep.
The problem with that theory is that tryptophan actually works best on an empty stomach-which most of us don't have after our Thanksgiving feast! So, it's more likely that the heaviness and the high carbohydrate content of the entire Thanksgiving meal are responsible for that sense of lethargy you feel, as your body works to digest it all. Add a glass of wine or a cocktail to your meal, and you'll increase that sense of sleepiness even more.
Here's to another happy Thanksgiving Day for you and yours! As always, if you have any questions or need any assistance, please don't hesitate to call.
The material contained in this newsletter has been prepared by an independent third-party provider. The content is provided for use by real estate, financial services and other professionals only and is not intended for consumer distribution. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is not without errors.
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