Category Archives: Mortgage/Lending

Fed Funds Rate now at 3%

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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

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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?  😉

I Love Brian Brady's Twitter – You Will Too

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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.  😉

Surprise! Fed Cuts Funds Rate by 0.75%

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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]

CNN Money.com: Appraiser sues WaMu

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The intersection of ethics and real estate meet again

As if WaMu didn’t have enough on its public relations plate, CNN Money reports:

Jeniffer Wertz, who is seeking unspecified damages, says WaMu stopped accepting her appraisals in mid-2007 a month after she reported that her local housing market in California was “declining.”

Evidently, Wertz claims that Washington Mutual wanted her to change her forecast to “stable.”

And on the other side of the coin

Bloomberg reporting that inflated appraisals causing significant losses to lenders.

`You started to see more and more loan products that would keep payments low, and I see that as correlating with appraisal pressure because those products only work in a rising market.”

(and, which loan products might those be I wonder tongue in cheek?)

Former guest at Inman Connect, Jonathon Miller, a sought-after New York appraisal and real estate consultant remarked:

“Lenders and mortgage brokers routinely pressured appraisers to boost values, said Jonathan Miller, a New York property appraiser for more than two decades who writes a blog about the problem.”

And more from the Bloomberg article….First American and WaMu working together?

“In New York, Attorney General Andrew Cuomo subpoenaed Fannie Mae and Freddie Mac, the two biggest buyers of U.S. mortgages. He also sued First American Corp.’s eAppraiseIT LLC for allegedly caving to pressure from Washington Mutual Inc., its biggest customer and the largest U.S. thrift, to inflate values.”

Ethics in real estate: oxymoron?

Improving Your Credit Score

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With every point of your credit score being more crucial than ever, I thought it would be a good time to share some tips on how to improve your credit scores beyond paying your bills on time.   If you are considering obtaining a mortgage within the next 12 months, you should meet with your Mortgage Professional to help advise you on this process.   Some steps in repairing your credit may actually temporarily lower your scores (such as paying off a collection).   What steps you should take depends on how soon you plan on buying a home or refinancing.

  1. Obtain a copy of your report from www.annualcreditreport.com.  You are allowed one free report from each bureau annually.  This comes out to three free reports.   I recommend pulling one report at a time rotating the three bureaus every four months.   For example, this month, you could access your Experian report to review your credit and in May, pull your report from Transunion.  In September, you could obtain your report from Equifax.   This allows you to keep tabs on your credit for free throughout the year.   NOTE:  The bureaus will charge you a fee to access your credit scores (stinky, IMHO); if you’re really interested in obtaining your scores, I suggest you contact your Mortgage Professional and request a tri-merge report.  The cost should be around $20 and the scoring modules used for lenders is different than what you receive from www.annualcreditreport.com. 
  2. Review your credit report for errors and contact the creditors demanding they be corrected.  The contact information should be included with your credit report.   Keep a phone log of any conversations and follow up with a certified letter.  Request a confirmation letter for your records of any corrections the creditor offers to make.  
  3. Pay past due accounts current.  Your credit score is penalized for any accounts carrying a past due balance.    
  4. Keep your balances below 50% and 30% of their credit limit.  Review your credit report to see which accounts are just over 50% or 30% of the available credit line.   For example, if you have a credit card with a $1000 credit limit, and the balance is $550 pay down the account to where it stays below 50% of the line ($500 or less).   NOTE:  If you’re trying to reduce your credit debts, you should use a different strategy than maximizing your credit scores.
  5. Don’t close your old accounts in good standing. The scoring modules favor established credit and not new debt.  Keep your old card with a zero balance and use it once a month to fill your tank with gas and then pay it off each month.   Also, closing your accounts do not make them “go away” from your credit report. 
  6. Avoid obtaining new credit.  That new car will not only dramatically impact what you qualify for, it will also zap your credit scores as a new maxed out debt.   
  7. Before paying off old collections, contact your Mortgage Professional.   Depending on your scenario, you may be better paying off the collection after closing on your new mortgage than before.   The credit scoring modules will factor paying off the collection as new activity and ding your score as if the collection is currently “active”.  I actually had a loan declined last year after a client returned a library book that showed as a collection against my advice.   He just needed to wait until after closing (this was a condo conversion and there was a large time span for closing).
  8. If you’re allowing different LOs to pull your credit while “rate shopping” for your lender, do so during a short window (30 days) of time to avoid being hit for inquiries.  

The good news about your credit score is that it is not permanent.   It’s intended to reflect your current credit behavior.  If your credit is a mess, it will take more time, effort and determination to repair it…but it can be done!  

What it's like to be a mortgage originator today

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As a Correspondent Lender, it’s difficult for me to call myself a mortgage broker or a mortgage banker since I’m an odd [photopress:scrooged.jpg,thumb,alignright]mix of both.  I’m sure my sister-in-law who happens to be the President of our company would prefer to say the “best of both worlds” and she could be right.   This is not what this is post is about.  As a correspondent, we work with about 70 or so different lenders and all of their guidelines; the main difference between us and a broker is that we close in our credit line (more like a bank).   Although we process, underwrite and draw loan docs at our office, we still get to react to what our lenders send us as far as ever changing guidelines.   Here is one example.

At 4:45 p.m. today I received a memo from one of our lenders dated today stating important changes effective tomorrow.  I’m honestly not sure if this lender operates based on west or east coast times.   The memo states:

[Major Lender] is deeply committed to achieving two extremely important short-term goals: 

1) Responding to the current market turmoil in a manner that ensures continued strength and prosperity. 

2) Communicating these changes in a manner that reduces confusion and allows you to focus more time and energy on your customers. 

As new information is processed regarding loan credit performance, we all must be prepared to react quickly and decisively to eliminate the problem areas….This announcement is the result of feedback received from our investors and has our own analysis of the guideline characteristics that are driving under-performance of some loans, and an exhaustive project involving all areas of [Lender] to find opportunities to preserve the intended value proposition of our products while solving the specific credit problem. 

We have new memos constantly being issued per each individual lender we work with regarding what loans they’re wanting and not (what their new guidelines are).   We’re going through another “tightening” with underwriting.   Here are a few samples of what I’m witnessing from various lenders:

  • Credit based pricing all ready in effect for Fannie/Freddie (conforming) loans.  (Some banks are taking advantage of the circumstances and are increasing the rate now.  Possibly to re-coup current or future losses).
  • Non-conforming mortgages topped out at a 90% total loan to value.
  • Stated income and no-income verified mortgages are the ghost of Christmas past. 
  • 45% debt to income ratios for non-conforming no matter what your AUS (computer response) says.
  • Second mortgages are less available (we’ve gone from several lenders offering them to just a couple).
  • Bridge loans are less available.

Not all lenders (banks) have the same guidelines so as a Loan Originator who has many lenders to work with, you need to know you client and put on your dancing shoes!   As a potential home buyer or someone considering a refinance, the more time you have to work with a Mortgage Professional to get yourself in the best postion to have a mortgage, the better off you will be.

A D-I-Y Don't: Divorce

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Legal disclosure:  I am not an attorney, nor do I play one on TV.  Please do seek legal council if you are considering a divorce and before DIY legal documents relating to your marriage or mortgage or real estate.  🙂

I recently met with newlyweds who wanted to start developing a plan to purchase a home together.   The bride was previously married and terminated that union with a do-it-yourself divorce decree and saved money (or thought she did) by not utilizing an attorney.  When they did this several years ago, it made sense to them.  They were amicable and agreed to how they would divvy up their debts and what assets they had acquired at that time.   He would keep the house and the mortgage.   She would sign and record a quit claim deed.    This is where the trouble begins.

A quit claim deed does not remove borrowers from the mortgage and a divorce decree does not remove one’s liability from a mortgage (or other joint debts).

In my clients case, she is now liable for a mortgage on a property she has no interest in except for the debt. 

You would think a borrower could contact the lender and ask to have the mortgage modified by removing one of the ex’s assuming the person retaining the property qualifies for the debt on their own.    This is just not the case.

My client’s ex-husband decided to no longer pay the mortgage.   Foreclosure proceedings are scheduled to begin next month.   Her credit score has plummeted and the mortgage company couldn’t care less about her situation.   She is being sucked into the foreclosure on a property she has not lived in for years.    And she will not be able to qualify for a mortgage at this time.  It is emotionally and financially devastating.

Unfortunately, the only way to safely remove someone’s responsibility to the mortgage is by paying it off.   This can by accomplished by:

  1. Cash (paying off the mortgage)
  2. Selling the property
  3. Refinancing the mortgage

In addition, an ex’s debts from a divorce are factored into the debt-to-income ratio unless the ex has made the payments on time for the past 12 months and the debts are clearly listed in the divorce decree.   If the ex has been late once on an account over the past 12 months, that monthly payment is factored into the debt to income ratios of other ex trying to qualify for a new home.    This isn’t limited to mortgages; it can be joint credit cards, car payments…any joint debts. 

If you own mortgaged property with someone (married or not) and are considering dissolving your relationship, please do not “do it yourself

Major Proposed Changes for Residential Closings in 2008

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Alternative sexier titles to this post are: “Your Escrow Officer is a NARC” or “No More Quicky Closings” or how about “The Escrow Hills have [photopress:detctive_1.jpg,thumb,alignright]Eyes”. There are some major changes brewing with how escrow will be practicing their business in 2008. Escrow companies may become “undercover

Fed Funds Rate now at 4.25%

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The FOMC announced that the Fed Funds Rate and Fed Discount Rate are both being reduced by 0.25%.   Remember (I can never say this enough) this has no direct impact on your mortgage interest rate EXCEPT for home equity lines of credit which are based on Prime Rate.  If you have a HELOC, your rate will decrease by 0.25%.  Lucky you!

Mortgage rates are based on mortgage backed securities (bonds) and will adjust based on how the markets react to this adjustment.  The 0.25% drop is pretty much what was being anticipated by the markets and has been priced into mortgage rates.   This is why I’ve been urging borrowers to lock in before today and last Friday’s Jobs Report since mortgage rates (bonds) tend to react negatively to inflation.

What will happen now is everyone will be interpreting what the future may hold based on the Fed’s Statement.   Although this cut is what they expected, many are disappointed with the statement:

“Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending…. core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation.”

The closing comment suggests they are prepared to cut again or do what ever they feel is needed:

“The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.”

The Fed has now cut rates a full point since September.  Currently the stock market is reacting negatively.  I will update this post should we see dramatic changes to mortgage rates following this action by the FOMC.