Friday, July 29, 2011

Week in Review - July 25 - 29

Rates were a bit better, then worse and now a bit better again. The volatility remains very high as the government continues to handle this debt ceiling like a monkey would handle your mom’s precious china…recklessly. It’s messing with our whole flow and because of that it keeps us from getting a solid handle on the actual market. Regardless of the above, we are ending July of 2011 very similar to where July of 2010 ended, which year over year isn’t too bad. Rates are still in the 4% range on the FHA and 30 YR fixed programs and the 3% range on ARM products. You can’t go wrong with those numbers.

Here is the rest of the week in review:

Debt Crises Looming – Clearly we have an issue between the House, the Senate and our President within our country. There comes a point, where the truth is, compromise is needed as President Obama stated this morning. I do understand the stance on the Republican side (though most of it falls on the tea party – which I probably hate the name of the group so much that I subconsciously avert from any “allegiance” to their cause) as it seems getting the spending in order is a real priority. I also understand the point on the democratic side (notably President Obama) and their need to increase the debt ceiling for longer than six months or at least until after the reelection…I would do the same thing if I was in his position. The hard part to grasp is the continued decision to blame each other. Has there ever been a time where compromise was reached when both sides blamed the other…I don’t think so. We have to stop blaming and start talking and discussing. We will see if they figure it out.

Mortgage Rates and Debt Crises – Just resolving the crisis isn’t enough…here are the potential two ways that this debt crisis could be resolved and how they both impact mortgage rates. If the debt ceiling is extended and the nation’s credit rating is downgraded – rates will inevitably increase across the board. If the spending is capped and we cut spending while keeping the credit rating high – then rates will hold steady to get fractionally better.

Cost of Interest and the US Consumer – As a mortgage consultant, it is true that I often saddle people with the largest debt they may ever have. While I do make my living in this arena, it truly is in the hopes that the mortgage they choose is not a burden but a commitment they are ready to make. Click on the title to this section and see a blog that tells the truth about the cost of the Consumer debt – mostly slanted towards credit card debt. In reality though, all interest that is owed to anybody else is money you are losing every month. Those who control the money…control the stakes…perhaps our government could learn a few things about wanting others to owe you vs. you owing them.

Changing your Mindset

With the debt crisis in full swing and still unresolved, wait, let me check...yep, still unresolved, it has a lot of people talking about saving, spending, managing debt, and balancing budgets both on a national level and on a personal level. Interestingly enough, many Americans have already begun the process of saving more than they spend. In 2006, the savings rate was at the lowest levels of the past 30 years, <2%. We have now increased this savings rate to somewhere between 6 and 8%. In addition, we are also seeing the decline in consumer credit card debt. We are "down 8.2% from the peak in the 3rd quarter of 2008."

Though we are on the right track, the way to really make headway is to become the lender not the borrower. For many years, prior to this century, most loans were short term loans. The 30 Year mortgage became popular after the great depression to increase affodability for borrowers. While this does help people get into an "affordable" home and help them "own" the home, it usually saddles people with debts that will be far to difficult to ever remove.

Consider that on average, over half of the mortgage payment that the average person makes goes toward interest against their loan. This means it is direct money away from you and into someone else's pocket. It isn't logical. Consider credit card debt, some credit cards have APR's in the 25+ range. That means for every $100 you purchase, if you pay the minimum requirement for 12 months it will actually cost you $12.56. Doesn't seem like much..but check this out, using some statistical averages from and a credit card calculator:

To eliminate that debt in 1 year it would take monthly payments of $1318.37 and you will have paid close to $1,133.44 in interest when it's all said and done. Of course, that interest is not yours and additionally, who can budget what is essentially a mortgage or rent payment to rid themselves of this debt? So let's be more realistic, instead it takes you 4 years to pay it off with a monthly payment of $400, by the end you will have paid $4,560.52 in interest to someone else. Talk about head scratching.

Who is the or the credit card company? I propose we work in a different manner. Let's work to find shorter term mortgages that are still affordable and let's eliminate the debt as quickly as possible. Then, become the lender yourself and now you begin to gain the windfall that once was not yours. Yes, it takes discipline and yes, it takes changing your mindset. But if we can just eliminate unnecessary interest paid to others, we will create a promising future with less financial worry and increased profitability for the work you do.

Perhaps the governement could learn from what Americans are apparently beginning to figure out. Save more, spend less, and provide a better future for everyone around you.

Friday, July 15, 2011

July 15th Week in Review

There was a bit of turmoil in the world of economic news and this typically bodes well for rates and in corresponding fashion that is how the week turned out. As the uneasiness continues in the market, we may see one more dip in rates, though no one can predict the actual rates day to day, we can say that there is the possibility they will hold for the near future (or until August 2nd). I would suggest that if you haven’t refinanced or looked into it…now may be the time.

Cash Out Refinances – Less than 6 Months Ownership – Currently most investors still require a minimum of 6 months for the owner to be on title in order to complete a cash-out refinance. We sell directly to Fannie Mae and so we have the option of using their exception policy to this rule. We can now complete the cash-out refinance for borrowers that have owned the home less than 6 months and had previously purchased the home for cash or through a LOC. Who this helps?

o Investors – Buyers at an auction that plan to rent the home. Instead of dealing with financing up front, they can pay cash and then enact the financing after to recoup some of their investment.

o Auction Buyers – There are not a ton of people that do this, but some have the means to buy their home with cash and then just need to get the cash back after the purchase is complete.
If you have someone that might fit the above or even a different scenario not mentioned, have them contact me and I can see what we can do.

FHA Concessions and Loan Limit Changes – Don’t forget that FHA does allow up to 6% seller concessions to go towards closing costs and pre-paid items. Plus Fannie Mae and Freddie Mac have incentives for Buyer’s agents and buyer’s with the properties they have on their books (Homepath and Homesteps). Take advantage of these opportunities! On October 1, 2011 the Maricopa County Loan limits will change and go from $346,250 to $271,050. This is a drop in purchasing power of $75,200 through FHA. Keep that in mind as you work with your clients.

US Debt Ceiling, Causes Market Uneasiness – Here is a nice piece that offers a bit of explanation into what the debate is all about. At the end of it all is the horrifying realization (I know…strong language) that we, the U.S. can’t get its act together. I do know that I work to stay within the lines of my obligations with bills and make sure that what comes in doesn’t go below what is spent. Unfortunately, the government hasn’t held to that scenario and so here we stand. I don’t know how it will all end…who really does. But I can say that it should be an awakening and call to action for those in charge to better manage what we do. I am by no means an expert, but I do know that something needs to change. Apparently you can’t spend your way out of debt…sometimes I really wish you could. But unfortunately, the only way out is with sacrifice.

Tuesday, July 12, 2011

Cash-Out Refinances Less than 6 months

Fannie Mae unveiled an exception to their cash-out refinance seasoning requirements. Up until now, they have required the owners to have owned the home for 6 months prior to completing a cash-out refinance. For example, f the borrower paid 100% cash for the home, they would have needed to wait at least 6 months before considering a refinance to take cash out. With Fannie Mae releasing the information we now have an option for them so they don’t have to wait. I will give you a few bullet points to consider, but if you or a client has a need to do this, I would be happy to talk to them and see if they fit all the criteria.

Main Points:

• Loan Amount can’t be more than original purchase price

• Purchase must have been an Arms Length Transaction

• No Mortgage financing was used to obtain the property and that must be confirmed by HUD-1 from cash purchase

• Must document the source of funds used to purchase the property (bank statements, personal loan documents, etc.)

Call me with any questions.

Friday, July 8, 2011

Week in Review - July 5th - July 8th

Mortgage bond prices rebounded last week, which helped mortgage interest rates improve as the weaker than expected data resulted in positive rate movements. Factory orders and the employment report both failed to meet expectations. Factory orders rose 0.8% in contrast to the expected 1.0% increase. Unemployment came in at 9.2%, higher than the expected 9.1% mark. Payrolls increased 18k, considerably weaker than the expected 110k increase. Mortgage bonds ended the week better by about 5/8 of a discount point.

NOTE: The Treasury will auction 3Y notes on Tuesday, 10Y notes on Wednesday, and 30Y bonds on Thursday. If foreign demand falters rates may come under pressure.
Pressure eased on rates but it didn’t necessarily cause them to decrease, mostly because early in the week we had a strong upward pressure on rates. It’s all evened out this week and we are pretty much back to where we started…save for FHA and ARM loans that dropped about .125% in rate.

Week in Review

Bank Fees – I feel like Bank’s can get mad like an angry hive of bees. Perhaps this time around they have a right to be…then on second thought…the government continues to cap other people and their pay structure (See: Loan Officers new compensation requirements), so why should they be any different. We continually strive to help the consumer, which makes complete sense, but aren’t Loan Officers consumers? Bank employees? If they, the banks, lose the revenue from fees they used to charge retailers, only in a perfect world do those savings actually pass to the consumer. More than likely the retailer pockets the difference and the consumer pays higher fees to the bank elsewhere. Either way, it’s just money switching hands with each player in between working to make a profit. Is that all bad? I say it’s not. It is just that some people go the extreme and take advantage of consumers…hence we are all made to suffer and have rules imposed on us that are “in the interest of consumers”. Perhaps transparency is the best solution.

Foreclosures: Why they will never go away? – The answer is actually easy, because no one can ever predict what will happen in life. As long as there are 30 YR Mortgage loans there will be foreclosures. People get sick, pass away, lose their job, etc. in a good economy as well as in a bad economy. Either way, foreclosures will never completely go away. With that in mind…at least they, the banks, are getting their acts together. Doesn’t matter whether it is because they have to or choose to. At the very least, the sound practices should go a long way to proper communication in the event a foreclosure happens.

QRM – Qualified Residential Mortgages - What are your thoughts?

Friday, July 1, 2011

Weekly Review - June 27 - July 1

It is always – Only a Matter of Time! The hardest part of my job is to give news that is not wanted. However, when faced with reality it is better to approach it head on then to stick your head in the sand so here goes:

• Since the MBS market opened on Monday the FNMA 4.0 security has lost over 1.5 points in price. A move of this size and speed is unlikely to be reversed quickly. It has happened before, but chances are it will be quite some time before we see rates and prices like we did last Friday.

In English, it means that rates are higher and that the trend to reverse them may prove to be difficult in the short term. This isn’t to say that rates aren’t still favorable, because they are…but intuitively the consumer is so spoiled because of the recent low trend in rates, that when they go up people act shocked as if it shouldn’t happen. The good news is that rates are still below 5% on a 30 YR Fixed, the bad news is that how long is really…Only a Matter of Time!

Some other links and News from this week:

Paying off a Mortgage Early – Did you know that the evolution of the 30 YR Mortgage Term is relatively new. It actually started after the Great Depression (the original one not the one from 2008.) It was created because people were making less money and needed to “afford a home” on their small salaries. So Bankers (in all their glory) decided that if you just extend the term, the cost is less and voila – increased affordability. The bad news is that before then, they were often less than 10 year terms and the country was in a lot less debt. But you can always be one of the few to say that you actually “own your home” as opposed to leasing it from the bank until they take as much money from you as they possibly can. Check out the article on ways to pay-off your mortgage early and see if it might work for you. If nothing else, call 602-670-3272 for a free consultation and we can discuss your options.

Electricity Costs High as Summer Heat Increases – Every year at this time, people remember why Arizona can be so much fun. Mostly it’s the 115 degree heat but it is also the electricity bills that come with it. It is Christmas time when you open the bill, except the gift goes to the electricity company because the Sun decided to bake your air conditioner into submission. This isn’t even just Arizona, it’s all over the nation (see 97 degrees in Minnesota). But again, we face reality and can make choices as to what we can do. First let’s be mindful and stop giving money to the electric companies. You can see that just a few simple ideas may help to lessen the gifts you give to the electric company. Unless of course you are a giving person, then by all means – be as wasteful as you want.

Have a Happy 4th of July and enjoy the time celebrating the Country and the time you have with your family. They are lasting memories and you will hopefully share in many more to come.

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