Whats happening with rates?

Hello.  Heres my disclaimer.  I didn't write this.  An account executive for a lender I work with wrote it.  But it sums up whats happening in the market right now nicely.  Were seeing rates go up - as result of "positive" things taking place in the economy.  Whether its really happening or just psychology we will see...  (when he talks bout "price" he refers to the price to buy the rate...so example, if a rate had no points and its a .25 point worse that means that "no point rate" now costs a 1/4 point.)

Jobs Report Has Bonds Down - Prices Worse The 30-year bond is down after the Jobs Report came in pretty much as expected. Pricing is worse from yesterday by 0.250 since bonds are selling off...now down -37bps on the day...Interbank has already priced this fall into this morning's rates.

The Jobs Report was not too far off expectations. 170,000 new jobs were expected and it came in at 175,000 new jobs...not monumental. Nevertheless, since there are more new jobs traders figure the economy is strong and therefore they sold off bonds to invest in stocks. When traders sell off bonds the price of bonds drops and lenders' rates/pricing worsen. To counter the nominal uptick in new jobs was the unemployment rate which went up slightly from 7.5% to 7.6%. An increase in the unemployment rate means more people are claiming they don't have jobs...a weak economic signal. But the increase was so small it had little impact.

As a result, we had an uneventful Jobs Report and Unemployment Report. But if you recall, I said yesterday that the market would react more vigorously to today's reports because of all the volatility of late. I also said there was more downside to upside because signs of a strong economy reinforce Bernanke's new position to taper QE. So, even though the reports this morning were far from exciting, traders still reacted to it by selling off bonds.

And so, this morning has not gone according to plan. It's not what I was looking for - that's for sure. I was really hoping for some upward motion in the price of bonds, but alas, my prayers were not answered in that respect. I am also confused as to why the price of bonds increased over the last few days but we did not get an improvement in pricing...very odd that completely omits the logic. However, the good news it appears the harsh drop in bonds has leveled out. Even if we don't get back the 400bps we lost in May we have some hope that things will not get dramatically worse. And I can assure you the Fed will not be eliminating QE any time soon. That's what I'm taking into the weekend....     

Fed Tax Credit extended for some

The Federal Tax Credit for first time buyers is set to expire here shortly. You need to be in escrow by April 30th and closed by June 30th to receive the credit. BUT - if you are a service member and you were outside of the US for 90 days or more on "official extended duty" your expiration date is year off! Thats right you get an extra year to find a home! You have to be in escrow by April 30th, 2011 and closed by June 30th 2011. There's more info on the IRS website!

Also - The State of California is bringing back (and enhancing) their homebuyers tax credit. See my facebook page for on on that!!

Dave

Fannie Mae will help you Buy

BIG NEWS! I have been pitching to you the Home Path program for a while now. It can be good alternative to FHA especially for condos. Because, its a low down payment, (3 to 5% for owner-occupied and 10% for investors), but there is NO PMI and with condos - NO condo cert needed. That means no issues with delinquency, FHA approval or owner occupancy...but just announced Fannie Mae will pay your buyers' closing costs! This announcement came today:

"Fannie Mae Announces 3.5 Percent Seller Assistance on HomePath® Properties
Incentive Part of Ongoing Effort to Stabilize Neighborhoods. Fannie Mae announced today that people purchasing a Fannie Mae-owned HomePath® property will receive up to 3.5 percent of the final sales price to be used toward closing cost assistance or their choice of appliances. The offer is available to any owner-occupant who closes on the purchase of a property listed on HomePath.com before May 1, 2010."

I have several Home Path lenders and here at Rancho we are direct lenders on this product too. One other thing about Home Path. If you are putting in an offer on a Home Path property, make sure your buyer is qualified to use Home Path financing. Because most listing agents will want a "Home Path Approved" buyer for that property!

New Rules for Loan Oficers and Good Faiths

Sunday’s paper had an article on the new Good Faith Estimate, (GFE) that went in effect on January 1, 2010. Everyone, including the author of Sunday’s article, seems to be confused by it. To be honest, I am still sorting out all the new changes as well. Although, I can appreciate, and agree with HUD’s effort to try to protect the borrower, the new GFE and rules regarding it will probably confuse more than help; at least initially. (Refinances are a whole other story, and since this is directed to buyers, and their Realtors, I will keep this information towards the purchase side of home lending.)

In the past, after meeting with a client and pre-approving them, I could fire off a GFE to simply show them how much money they would need to come in with or how much they should ask the seller to credit back for closing costs. My practice has always been to estimate high and it will continue to be so….especially when the file is in the beginning stages, (also called an “Address To Be Determined” or “TBD”). Certain fees like the sellers choice of title and escrow and days of prepaid interest or taxes due have to be estimated at this “TBD” stage. It seems more often than not fees, by vendors like the (REO) seller’s escrow are always higher than if I had selected my escrow company. And so, I estimate high.

However, we can no longer give a client the new GFE when the borrower is still in the “TBD” status. We must wait until we have a sales price, loan amount and most importantly an address. The reason is because once the GFE is given, were responsible for those fees. (There will be a lot of re-disclosing during escrow as we put together and learn about any changes in fees.) So unlike before where we could estimate high then and there, our estimate now has to be nearly exact and if its not (and not properly disclosed) that difference comes out of our paycheck. So, you can see why it is impossible to write out a binding estimate of costs to someone who may be 6 months out from getting into escrow. We cannot verify the 3rd party fees, (title, escrow, even the appraiser has not been officially selected yet) nor can commit to rates/points. I can’t tell someone today your rate is 4.875% and you will have to pay 1 point and then hope that, that same rate and point combination is still available six months later once they’ve found a home, (or after the short sale negotiator has finally gotten an answer back).

What I can do, and have always done, is tell the borrower you will have choices when it comes to rates and points. I will explain that they can do a “one point” loan and the rate will be lower than a “no point” loan – but the closing costs will be more (or vice - versa). And I can explain the pro/cons to both and advise which way I think is best for them. I can give them current examples that apply to that day’s market and answer their questions. I just can’t put it on an “official” GFE form until we’re in escrow.

In an effort to comply with these new rules and still be able to advise my client (and their Realtor) of approximate closing costs in the early stages of their home shopping, I will be giving them an estimate – that is not on an official GFE form. And despite the outcry by the author of Sunday’s article in the Union Tribune, this is what we will have to do.

Then, once an offer has been accepted and we have a sales price, a loan amount, an address, a title/escrow company to call and verify fees, and rates that are current for that time frame I will be happy to complete that official Good Faith Estimate and deliver it to the borrower. I will be happy that I can do that estimate with confidence.

I will also be happy to keep my borrower current with changes in rates, points or changes in lending while they are shopping for a home. It’s going to be crucial to keep our potential buyers current and to be available to them to answer questions and provide updates or changes. This has always been my practice and will continue to be so.

What’s good about this new process is that it should weed out, hopefully, all those shady loan officers, (and 3rd party vendors) that right before close of escrow try to surprise the borrower with an extra point or fee into the closing costs. After all, it is because of those individuals that were recreating the Good Faith Estimate wheel now anyways.

interesting article on CNN...(finally we agree on something)

Last chance to refinance below 5%
By Les Christie, staff writerJanuary 7, 2010: 11:26 AM ET
NEW YORK (CNNMoney.com) -- If you want to refinance your mortgage into a loan with a sub-5% interest rate, better hurry. Your window of opportunity is closing fast.
Lenders are still advertising rock-bottom interest rates, but for most borrowers, rates are rapidly rising into the 5%-plus category.
During the week of Jan. 7, the average 30-year, fixed-rate loan closed at 5.09%, according to mortgage giant Freddie Mac. That is significantly higher than the 4.71% it averaged at the beginning of the month, and experts say rates will go higher yet.
"Interest rates are up and they're not going to go down below 5% again," said Mark Zandi, chief economist for Moody's Economy.com, not for a while at least.
While homebuyers are still excited about these low mortgage rates, people who already have a loan and want to lower their costs are scrambling to lock in.
Refinancers act when the difference between the rate they're currently paying and the new one is at least a point or two wide, otherwise the costs of going through the refinancing wipes out any savings. In fact as rates rose in December, refinancings plunged, down more than 30%, according to the Mortgage Bankers Association.
A big reason for the jump is that a government program that has kept rates very low is winding to a close. The Federal Reserve has been purchasing mortgage-backed securities since early 2009, scooping up as much as $1.25 trillion worth. That has dampened rate increases by providing a ready market for the securities.
But the Fed's program lapses on March 31, when it cedes the playing field to private investors, who will almost surely demand higher rates. The Fed has already been slowing its purchasing, and that has corresponded with the recent rate increases.
As Treasurys go . . .
Not just mortgage rates have turned north. Treasury yields have as well, another indication that mortgage rates are headed skyward.
The yield on the benchmark 10-year Treasury has grown steeply over the past few weeks. It stood at 3.2% at the beginning of December and has soared to 3.84% as of Tuesday, a 20% jump.
Mortgage interest does not track Treasury yields in lockstep, but the two tend to mirror each other's movements.
Mortgage securities rates are always higher than Treasury yields because investors demand a premium above practically risk-free Treasurys.
The difference between mortgage rates and Treasury yields is usually somewhere near 1.7 percentage points, according to Keith Gumbinger of HSH Associated, a publisher of mortgage information. The current spread of about 1.2 percentage points is quite narrow.
That's bound to change, according to David Crowe, chief economist for the National Association of Home Builders. He believes mortgage rates will go up to about 5.5% by late summer. But other factors could push them into a larger-than-expected jump.
Economy bouncing back
For example, as the economy improves (it's hoped), businesses will expand production, hire new workers and open new sales outlets. All that requires borrowing in capital markets and the demand for lending will expand interest rates of all kinds.
A recovering economy also boosts corporate profits, making stocks a better bet for investors.
"Stocks tend to do better when the economy improves," said Stuart Hoffman, chief economist for PNC Financial Services. "Mortgage rates will rise to attract investment."
Hoffman's forecast is for rates to stay quite constant the rest of the winter and then elevate gradually during the spring buying season, the busiest time of year for home sales. He said they should hit about 5.5% by the end of June.
After that, the increases will slow, according to Hoffman, but still approach 6% toward the end of the year. He believes they'll cap at around 5.75% and are not likely to fall back to the 5% level again

Happy New Year! Rates going up?

I read this today, by Barry Habib, and wanted to pass it on..."One very important note – the Fed took the time to reiterate that their Mortgage Backed Security purchase program will end on March 31, 2010 as previously stated. There had been some speculation that the program might continue beyond the March 31st
date, but the inclusion of this reiteration in the Fed’s Policy Statement leads us to believe that the Fed is trying to make it clear that this program will terminate as scheduled. It’s important for us to get the word out to our clients, who may be banking on this program being available for a longer period of time."

Although I have no crystal ball, this does make us believe that we will see rates go up in 2010 if the Feds stop buying MBS. Those of you that have buyers wavering on buying still, (hoping that prices may drop more), may like to know that an increase in interest rates could offset any potential savings in their payment should prices dip. Also, anyone who may be wanting to refi, would probably benefit from doing so now while rates are staying down.

Rates stay down, Fannie tightens guidelines

Rates continue to stay low with the 30 year fixed under 5%.

Lots of changes coming in for next year...but effective December 12th, Fannie Mae has put a max debt to income ratio of 45% on borrowers. So, buyer's total outgoing debt, including their future mortgage payment, taxes, insurance, HOA will have to be 45% (max) of their household / qualifying income.

This is going to lower a lot of pre-qualified borrowers' approval amounts and make it harder for others to qualify for what they want....but we can still look at portfolio lenders, FHA, VA and possibly some Freddie Mac products that haven't yet implemented this new guideline. So, a good thing to investigate with your borrowers. What they were pre-approved for last month may not be the case anymore.....

Dave