Zillow Launches On-Line Mortgage Rate Quotes

Earlier this month I wrote about Zillow stepping into the mortgage rate quote arena…well tonight’s the big night. They are scheduled to launch at 9 p.m. PST. I’m honored to have been included as one the mortgage professionals to review their product and it will be interesting to see how it develops.

Zillow is not creating a mortgage company; they are attempting to create an online tool consumers can use to shop lenders. Once I get past my first objection of rate shopping, here are some of the two features I like the most:

The consumers privacy is protected while shopping–the Loan Originator will not see their names and they do not provide their social security number. This is unlike other online rate-comparison tools where a consumers private information is resold to calling centers all over the world.

Consumers will have the ability to shop lenders by rate, cost and the Loan Originator’s Zillow reputation. Zillow has a rating system from 1 (bad) to 5 (great) that consumers can use to grade the LO. So let’s say LO Sally has an incredible rate and low costs but she’s rated a 1 vs. LO Joe who has a competitive rate and cost with a 5 rating: the consumer can make a choice between the two (or however many LO’s have submitted a rate quote). The consumer will be able to review the LOs lined up in an easy to read column format with this information easily viewed.

My only real concern, as I’ve voiced many times is that shopping for rate will not always land you the correct mortgage. The wrong mortgage with what appears to be a low rate/payment may be a very expensive mistake. Especially in this volatile market where mortgage rates can change 3-5 times per day. Any rate quote may be invalid the moment it’s sent to the consumer if the rate is not locked…this is true with Good Faith Estimates as well. Speaking of GFE’s, Zillow Mortgage quotes are not the same as a GFE–I do recommend that consumers who are seriously considering working with any of the Loan Originators participating on Zillow Mortgage obtain a Good Faith Estimate with the Federal Truth in Lending.

I’ll still stick to my guns and say that referrals from the people you trust and respect are the best way to select a Mortgage Professional…however for those of you that have a need to shop rates on line, Zillow’s mortgage tool could be the ticket.

Life in escrow: When we compete with American Idol.

There is only so much escrow can do when escrow receives loan docs at 5pm and the borrower must sign because an interest rate lock is about to expire and the rescission period puts their back against the wall, forcing them to sign the very same day (evening). Then the borrower (s), strangely unaware of the urgency, indicates:

1. Can you come to our house between 7:00-7:30 because American Idol is on at 8pm (like tonight, cough-cough) and we can’t miss it. Or, how about after the program is over?

or,

2. I drop Billy off at Basketball at 6:30 and pick him up at 7:30, so I won’t be home until 8:15 pm. Will 8:30 pm work for you? Oh, my spouse needs to sign as well? He does not get off his shift until midnight. Is that a problem?

Will these transactions close on time? If you do what Ardell suggests in Step #2, it is a sure thing..

I’m beginning to muster up the courage to ask management for new business hours: M-F 8-5pm; quick hour break for a run to Panda Express, sprint any last minute disbursed loan Payoff’s to the UPS terminal blocks from our office to make it on an airplane to wherever, do banking before the bank closes at 6pm; hustle back to the office, quickly re-check e-mail for more “last minute” loan docs promised days earlier, and then re-open from 6pm until midnight for signings from Bellingham to Olympia to Ephrata. Sat. and Sun. leave wide open for signings too.

Will St. Patty's Day Bring Us Luck with Conforming Loan Limits?

By mid-March, HUD is required to publish what they determine to be median home prices which Fannie Mae and Freddie Mac will be using for what the temporary loan limits will be (125% of the median home price). I’m hopeful that Fannie, Freddie and banks are working dilingently NOW on what the guidelines and pricing will be for this new bracket of loans priced from $417,001 to the new temporary limit and that we’re not waiting after the loan limits are announced for lenders to figure out how they’re going to deal with the new loans.

I’m currently working with a couple who are looking at homes priced around $600,000. They could be perfect candidates for the new conforming loan limit. With 20% down, they will have a loan amount of $480,000. Here are a few scenarios I shared with them:

Structuring the mortgage as a jumbo compared to with a conforming first and second mortgage (heloc):

10yr30

I am really favoring the 10 year ARM right now. Ten years is a heck of long time. Picture you and your life 10 years ago…and rhondawitt 1try to imagine your life 10 years from now. Mortgage planning is about selecting the right product that suits your long and short term financial pictures. If you select a 30 year fixed mortgage, yet you keep the home for less than 10 years, you may be losing hundreds of dollars every month. With that said, you cannot put a value on “peace of mind”. If you are going to lose sleep at night because you have an adjustable rate mortgage (that is fixed for ten years) then don’t do it. Go for the long term mortgage. Personally, I would lose sleep over not having the long term savings. It is a choice…YOUR choice. BTW…the photo of me might be closer to 13-14 years ago! ūüėČ

Of course this couple could wait and see what the new loan limits may be…this plan has potential to backfire however. I’m hearing that the add to rate may be anywhere from 0.25% to 1.000% to rate for loans over $417,000. Worse case, the new conforming loan limit would still have rates where our jumbo rates currently are. Plus, we still don’t know what the new limits are. It’s highly speculated that our area will see the limit just shy of $500,000 (speculated being the key word). However if the add to rate is significant enough, then the new limit will make little difference to our current “jumbo” rates.

With the Fed meeting on March 18, 2008 and an anticipated 0.50% rate cut in the works, mortgage rates may very well be higher by that time . The Fed cutting rates typically causes mortgage bonds to react for the worse as it is an inflationary sign. It’s great for your HELOC, not so for your unlocked mortgage rate.

My advise is for my clients to proceed with an approval now. If the new conforming rate proves to be a better scenario for them while we’re in transaction, it’s easy for us to change plans (as long as we’re more than a week from closing).

Fed Funds Rate now at 3%

Today the FOMC reduced the Fed Funds rate by a half point to 3%.   A half point rate cut was expected by Traders and so far we do not have significant changes (yet) to mortgage interest rates.  However, if you have a HELOC, your interest rate has just gone down again.   The Fed also reduced the Discount Rate to 3.5%.   The Fed is leaving the door open for future cuts as needed.   You can read the press release here.

We still have Thursday’s PCE report and Friday’s Jobs Report which both highly impact mortgage interest rates.¬† If either indicate strong inflation, we will see mortgage rates increase.

 

Lock It or Lose It

Mortgage rates have been very volatile these past few days.   Yesterday morning, I posted that the 30 year conforming fixed was under 5% and by the end of yesterday, mortgage rates had increased by 0.375% to rate or around 1% in fee. 

Rate shoppers lost out big time if they did not lock.

Rates are continuing to rise at this time.¬† Please don’t dilly dally with your mortgage interest rates.¬† There are fewer Mortgage Professionals to assist you in our current market and many of us experienced (and I’m still seeing it today) banks being “clogged” with people trying to lock…websites “down for maintainance”…etc.¬† By the time a Mortgage Professional can get through to lock in a loan, the rate¬†is gone.¬† Bam.

Next week has offers a full menu of events that promise to impact mortgage interest rates:

  • FOMC Meeting on¬†Wednesday, January 30th.¬†¬† (If the Fed drops the Funds Rate…mortgage rates may rise).
  • Thursday, January 31 will bring us several economic reports which will indicate inflationary levels such as the PCE and the Chicago PMI.
  • And¬†as next Friday is the first Friday of the month, we will wrap up the week with the Jobs Report.

Again, I highly recommend that you lock in your interest rates for conforming loans and make sure it’s for enough time for your transaction to close.¬†¬† A possible bright spot:¬† the conforming loan limit may be increased…no promises but this will be great help for the JUMBO market from $418,000 – $620,000.

Bye for now! 

Update January 24, 2008 at 2:55 p.m.:¬† I just priced the 30 year fixed conforming at 1% origination/discount…I can barely lock in 5.5% (APR 5.642%) based on my usual criteria for “Friday’s Rates” (which I will be posting tomorrow).¬†¬† Is it 5 yet?¬† ūüėČ

I Love Brian Brady's Twitter – You Will Too

I wish I could save this post for Valentines Day!¬†¬† Earlier this month, fresh from Inman NY, Brian announced that he is going to start posting tidbits of rate¬†info on Twitter.¬†¬† If you subscribe to Brian’s Twitter, Mortgage Report, you’ll be notified if he feels you should be locking or floating…this is similiar to what I receive by investing my subscription to Mortgage Market Guide (bond quotes).¬† However, this service is free and priceless!¬†¬†

Here are the alerts I received from Brian just today (which was an exceptional day):

  • 5:10 a.m. Stock futures are down 5%.¬† Good for mtg bonds and rates –¬†FLOAT long purchases, LOCK all others – update later
  • 5:48 a.m. Emergency Fed Cut
  • 7:05 a.m. Mortgage bonds up close to half a point.¬† Expect lenders to offer 30YFRM below 5.5% today (conforming limit)
  • 1:37 p.m. FYI: I locked a 30YFRM at 5.25% with 1 point for a 5.53% apr today.¬† Expect ARMS to drop this week
  • 6:11 p.m. FLOAT loans closing >15 days, LOCK loans closing <15 days.¬† Wild day today, tomorrow promises to be as nuts.¬†¬† You will hear it here 1st

This is¬†simply a brilliant idea and a huge commitment from Brian Brady of Mortgage Rates Report and Bloodhound Blog.¬†¬† If you can’t wait until¬†the end of the work week for¬†“Friday’s Rates”,¬†subscribe out Brian’s Twitter!¬† You’ll be twitterpated.¬† ūüėČ

Surprise! Fed Cuts Funds Rate by 0.75%

We took our boys snowboarding last night at Snowqualmie where I began to receive text message alerts on my Treo about various markets being slammed from around the world based on fears of a US recession.   The Fed met last night deciding to make an intermeeting cut to the Funds Rate to 3.5%.  This is the biggest single Fed Funds rate cut since 1984.   

“The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth.¬† While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households.¬† Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.”

The Fed also reduced the Discount Rate to 4.0% (this is the rate banks can borrower directly from the Fed) in an attempt to add liquidity to the markets.

Unless you have a HELOC, this will not directly impact mortgage rates except for how investors react to the cut.  Should they seek the safety of bonds (like mortgage backed securities) rates will go down as they have slightly this morning.   The markets are all ready off their low lows of this morning.  Mortgage rates will continue to be very volatile.

Remember, the Fed is scheduled to meet on January 30 where another rate cut is still heavily anticipated.  

Update 1/22/2008 1:00 p.m.:  Here is a graph that I came across compliments of my subscription to Loan Tool Box which shows the impact to mortgage interest rates when the Fed has recently cut the Funds rate.

[photopress:Rate_Chart.jpg,full,alignright]

5 Steps for Shopping Mortgage Interest Rates

[photopress:693_kick_tire.jpg,thumb,alignright]What?  I’m writing about something I don’t agree with in principle?  True.  I think that many people are spinning their perfectly good wheels in order to try to find a rate they cannot have unless they’re prepared to lock at the precise moment they are shopping.  But, the practice of rate shopping and kicking the tires of Loan Originators appears to be a necessary evil in the mortgage process. 

Here’s my advice, if you feel you must shop rates.

Step 1:  Contact at least three different people you trust financially and ask for referrals.   I suggest family members, friends, co-workers, your real estate agent, CPA, Financial Planner, etc.   Ask your sources what they liked and did not like about their Loan Originator.   Gather their contact information and visit their web sites and blogs, if they have one.  

Step 2:  Prepare your personal financial story.  You’ll need to retell the exact scenario to each Loan Originator so they can each provide you a rate based on the same information.   If you just want to see how skinny someone will quote a rate to you, you can make up a vanilla story of “I’m putting 20% down on a $500,000 house.  My mid credit score is 700 and I would like a 30 year fixed rate with no origination or discount points, please.  I would like the loan priced with a 30 day lock

What's the Point?

[photopress:MPj03853990000_1__1.jpg,thumb,alignright]

Brian Brady recently suggested that I explain how mortgage interest rates can be priced with or without a discount point since I’m now posting mortgage interest rates on¬†Fridays here at RCG.¬†¬†

One point is one percent of the loan amount.¬†¬† Typically, but not always, one point equals 0.25% in interest rate.¬†¬† You may hear lenders refer to discount points or origination fees…for me, they’re one in the same.¬†¬† I’m paid eitiher way.¬† If you’re a buyer shopping rates, look on the Good Faith Estimate for the origination fee and discount points and add them together.¬†¬† That’s how many points you’re paying to buy that interest rate for a certain period of time.
For example, if a 30 year fixed rate has a rate of 5.75% with paying 1 point, zero points would probably be 6.00%.   Whether or not someone pays for a point should be decided by how soon they will break even on the point as it is a significant cost.   A simple formula to determine when you break even is to divide the difference in payment between the 1 point and the 0 point scenario into the cost of the point paid.   The scenario below is based on a loan amount of $400,000.

Rate:  5.75% based on 1 point = $4,000
Principle and interest payment:   $2,334.29
Monthly savings over the 6% payment at zero points = $63.91
How long to break even on the $4000 = 63 months

Rate:  6.000% based on 0 points = $0
Principle and interest payment:  $2,398.20

If a borrower is planning on living in their home more than 5 years and not refinance during that time, then paying the point may be the right choice.  
A borrower can also have their loan priced to pay their closing costs. 

Rate:  6.125% = 0 points and approx. $2000 in rebate to cover closing costs (a.k.a. the “no cost mortgage