For all of my loans closed between now and the end of February, I will donate $100 to the Red Cross for relief in Haiti.
If you are a California homeowner and would like an assessment of refinancing, please let me know. Interest rates have trended lower this week in light of the worse-than-expected Initial Jobless Claims report. The long-term opportunity for low interest rates won’t last forever.
Have you ever wondered where Jobs and Unemployment Rate unmbers come from? The short answer is “surveys,” but you may find this interesting.
Economists were expecting a Jobs Report number of 520,000 jobs lost for the month of May. Everyone was pleasantly surprised when the number came out today at 345,000. In addition, previous months’ numbers were amended positively (less jobs lost than previously reported).
In contrast to the positive (relatively speaking) Jobs Report number, the Unemployment Rate went up from 8.9% to 9.4%. I have always wondered why there can be such discrepancies in similar reports, so I want to share with you what I have learned.
The Unemployment Rate is calculated from a survey of 60,000 households. These households respond to questions about their current employment situation, and it is supposed to be a more accurate reflection of our current situation.
Now, although the Jobs Report is always an interest-rate driver, it isn’t very accurate and is subject to revisions (as above). This number is based on the birth-death ratio, which is a ratio based on averages – over several years – of new businesses over businesses that are no longer around. In addition to using averages, this ratio considers historical data and a whole lot of assumptions. You can imagine how inaccurate this number can be, especially when taking into account “good” economic times right along with today’s rough economic times.
The way the difference between these two reports was explained to me was that the Unemployment Rate is a reflection of our current situation, whereas the Jobs Report is a reflection of potential future trends. Both have significant effects on both the bond and stock markets, but the Jobs Report strategy seems like quite a stretch!
The mortgage bond market got pummeled yesterday and we got multiple interest rate increases. From yesterday morning to this morning, interest rates went up by a full quarter percent (.25%), which is a significant day-over-day increase. From Thursday of last week, they have gone up by a full half a percent (.50%).
What caused this? Well, a few factors that have been in the making, but first I have to backtrack.
The first thing to know is that what has caused these extremely low rates throughout the year was the Fed’s guarantee that they would purchase $1.25 Trillion in Mortgage-Backed Securities (MBS). These securities – and the price they’re trading at – are what drive interest rates. With the guarantee that the Fed will buy packaged loans on the secondary market, banks know that they have a guaranteed buyer, which will free up liquidity for them to lend to other people. So the cycle continues … The Fed’s ultimate goal is to spur activity in the housing industry, which it has definitely done so, both in the purchase and refi markets.
Now, back to what has been happening this past week, and especially yesterday: it’s finally coming to a point where the Fed (after purchasing packaged loans) is also trying to sell them off, but is having trouble. We are relying on foreign investors, and foreign central banks, to buy our debts. So far they have done so, but some are starting to threaten that they will no longer buy. In addition, the 10-Year Treasury bond is a lot more attractive than the lower yields on MBS, and traders would much rather gain more money through the 10-Year Treasury, meaning that mortgage bonds will start to increase in price, meaning that interest rates go up.
I am definitely not an expert and there are so many other driving factors that we can’t even grasp our heads around, but this is just to give you an idea of one of the reasons rates are going up. I don’t see the steep uphill just yet, but the Fed-selling problem is definitely an issue that means we may have hit bottom a few weeks ago. Regardless, please remember that these interest rates are still amazing!
There are two sub-plans to The Homeowner Affordability and Stability Plan. The first provides homeowners who lack sufficient equity the ability to refinance their loans. The second helps homeowners who have fallen behind on their mortgage payments the ability to modify their loans. Let’s take a look at them:
The Home Affordable Refinance:
For homeowners who have made timely payments on their existing mortgage that is owned by Fannie Mae or Freddie Mac. You may be eligible for this opportunity if you meet the following guidelines:
Even though this program has been passed and will be available, the details for how loans will be priced have not yet been hashed out yet by Fannie Mae and Freddie Mac. From my understanding, Fannie and Freddie have until April 1st to determine guidelines and rules for pricing hits and policies. Once Fannie and Freddie determine these, they will communicate their requirements to banks, who will then in turn determine their own impacts.
If you fall into this category and want or need to take advantage of today’s historically low rates, I recommend contacting your mortgage professional immediately to complete a loan application. You should also gather any relevant financial documentation, such as:
I will be happy to help you out with this refinance process and to keep you in the loop of any additional changes.
The Home Affordable Modification:
For homeowners who are struggling with their mortgage payments and have already fallen behind and missed 2 or more mortgage payments. To be eligible for this program, you must fall into the following guidelines:
To take advantage of the Home Affordable Modification Program, you will need to contact your current service provider (the company that you make your payments to). A more detailed description of this program can be found by clicking here.
If you would like to speak to a HUD-approved housing counselor, contact 1-888-995-HOPE (4673)
Part of Obama’s attempt to stabilize our housing market is the Homeowner Affordability and Stability Plan. There are two initiatives that are included within this plan. One is for homeowners that have between an 80% and 105% Loan-to-Value ratio in their home (meaning less than 20% equity and up to owing 5% more than their home is worth), and the other initiative is to lower monthly payments for homeowners that are at risk of losing their home.
The details will be announced on March 4th, but the following is the initial announcement with Frequently Asked Questions.
I’ll blog about the details once I know them.
Many of you know that the high balance conforming loan limit decreased from $729,750 to $625,500 in January 2009. This has hurt many people whose loans fall into that bracket. But there is good news! The House and Senate passed the American Recovery and Reinvestment Act of 2009, which will temporarily revert the loan limit back to last year’s maximums. These were based per county with a maximum of $729,750.
Nothing has been implemented yet, but I wanted to share the news. Things of this nature take a while to get sorted out. What will happen now is that Fannie Mae, Freddie Mac and FHA will determine if there are any additional pricing hits and additional minimal loan requirements. Once the agencies have determined their requirements, they will let the banks know and then banks will let us know. We are talking about bureaucratic agencies, so don’t hold your breath expecting this to happen quickly. But it will happen.
I wrote a blog post on this subject in September. To get a better understanding of its foundation, see my previous post:
Essentially, the Home Valuation Code of Conduct prohibits brokers, realtors or loan agents from ordering appraisals through independent appraisers; instead, we will have to order through individual lenders’ specified departments, who will in turn order the appraisal with an Appraisal Management Company (AMC).
Here’s what we’re looking at so far:
A main highlighted feature of the Home Valuation Code of Conduct:
I’m sure I’ll have much more to write about in regards to the Code as I learn more, so I’ll keep you posted.
Interest rates are incredible, but I want to point out some recent limitations to these excellent rates.
Normally, in terms of points vs. no points vs. no points/no fees, interest rates tend to work in .25% increments. For example, you would be quoted in the following manner (this is a general example, not an interest rate quote):
You can see how this generally works in increments of .25% to the rate. (And yes, you should always consider the overall cost to the rate you’re being quoted. I help you determine the cost/benefit of paying fees and/or points versus no fees or points).
Lately, this has not been the case, and instead, rates have been all over the place. I quoted a client yesterday a 30 Year Fixed conforming loan at 4.875%, no points, but with closing costs of $2900 max (APR 4.936%) OR 5.375% no points/no fees (APR 5.375%). This half a percent difference in rate is pretty significant in comparison to how rates usually work.
In “Agency Jumbo” loans (loan amounts between $417,000 to $625,500), it is hard to find any rate that doesn’t carry some fraction of a point, in addition to normal closing costs.
But why is this happening?
Well, I don’t have a definite answer, but I do an have a strong opinion. The only reason that I can think as to why rates are being priced this way is because banks want consumers (you) to pay closing costs or closing costs plus points. By doing so, it will make less sense for you to refinance if rates drop further and this is more profitable for them because this way they keep your business.
Regardless of this discrepancy, these rates are incredible! I haven’t seen them this low since the lows of October 2003. To get a rate in the 4% range without paying points … wow.
GREAT news: The Federal Reserve announced last week that it would buy $600 billion worth of Fannie Mae and Freddie Mac Mortgage-Backed Securities. With the guarantee that the government will buy these mortgages, rates dipped dramatically. This action by the Fed will also allow banks to free up some of their money that is currently tied up in mortgages, increasing liquidity and an ability to lend out to more people.
I haven’t seen rates this low in a long time, so a lot of people are taking advantage of the opportunity. Please let me know if you are seeking a rate quote or want me to run the numbers for your situation.
And lastly, just a note that one of the bigger challenges in the refi market is the reality of lowered property values. Lenders are requiring more equity in the home and so not everyone can take advantage of this timing.
Please let me know how I can help.
The Fed Minutes from the October meeting were released yesterday, and the hot topic was the concern over deflation. This news caused stocks to tumble and investors to pour their money into the security of Treasury Notes.
Generally, the Fed has two jobs: the first is to promote economic growth and the second is to combat inflation.
And now deflation has come into play … Deflation occurs when prices drop, generally on account of the money supply and credit. So what’s the problem with falling prices? Well, it leads to declining employment because companies scale back on production and salaries.
In times of deflation, the Fed usually cuts interest rates, but these are unprecedented times, especially when you consider that the Fed has been cutting rates steadily since September 2007, a period that has been inflationary. Times of deflation also tend to bring lower mortgage interest rates as people take their money out of risky stocks and pour them into stable bonds.
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