Mortgage rates up for first time in 2010
By Holden Lewis • Bankrate.com
For the first time this year, mortgage rates went up in Bankrate's weekly survey.
The benchmark 30-year fixed-rate mortgage rose 2 basis points this week, to 5.15 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.49 discount and origination points. One year ago, the mortgage index was 5.7 percent; four weeks ago, it was 5.26 percent.
The benchmark 15-year fixed-rate mortgage rose 1 basis points, to 4.55 percent. The benchmark 5/1 adjustable-rate mortgage rose 2 basis points, to 4.56 percent.
n January, rates fell every week in Bankrate's mortgage survey after ending 2009 at 5.33 percent. That should put this rate rise in perspective: Although rates have gone up a little, they were quite a bit higher just five weeks ago.
Homebuyers have more to worry about than merely higher rates. There are multiple deadlines coming up that encourage people to buy and borrow now rather than later: The Federal Reserve plans to stop buying mortgage-backed securities, the Federal Housing Administration is raising mortgage insurance premiums, and the homebuyer tax credits will expire.
"Bottom line, if you are planning on buying a home in 2010, get out and see some homes this weekend and start previewing them on the Web," says Jim Sahnger, mortgage consultant for Palm Beach Financial Network in Stuart, Fla. "Also, contact your mortgage broker or lender and get preapproved."
Fed deadline
For more than a year, the Federal Reserve has been buying mortgage-backed securities. The Fed has said repeatedly that the goal was to keep mortgage rates down. It appears that the plan worked. In October 2008, the month before the Fed announced its mortgage-buying plan, the 30-year fixed averaged 6.49 percent in Bankrate's surveys. Last month, the 30-year fixed averaged 5.19 percent. (Graph the trend of mortgage interest rates.)
The Fed says it is gradually slowing its purchases of mortgage-backed securities and that it will stop buying them by the end of March. There are widely differing predictions of what will happen after the Fed withdraws from the mortgage market. Some predict that there won't be much change in rates; others predict that rates could rise a percentage point. The rough consensus is that rates will rise about half a percentage point, but not overnight. It might take a few weeks.
FHA premium increase
When you get an FHA-insured mortgage, you pay the premiums in two chunks: First, an upfront premium that is paid at closing, and then an additional premium every month. The FHA will raise the upfront premium in April. Right now the upfront premium is 1.75 percent of the loan amount, andin April it will rise to 2.25 percent of the loan amount. That's a premium increase of $500 for every $100,000 borrowed.
Officially, the increase goes into effect April 5, a Monday. In practice, this means that your loan application has to be submitted to the FHA, and given a case number, by the end of business Friday, April 2. It's a good idea to get the ball rolling on the loan paperwork at least a day or two before that Friday deadline, in case you run into problems finding the financial documents you'll need.
Also in April, the FHA will reduce the "seller concessions" that it will allow. When the seller pays closing costs, or pays for discount points on the mortgage, that's a seller concession. Right now the FHA allows seller concessions worth up to 6 percent of the loan amount. In April, the maximum seller concessions fall to 3 percent.
This limitation will affect homebuilders especially. Many builders offer to pay for closing costs and rate reductions if you use the builder's affiliated lender. Under these incentive programs, the builder might pay your closing costs and, on top of that, get you a loan with an interest rate of 3 percent in the first year, 4 percent in the second year, and 5 percent every year after that. But the FHA's limited seller concessions will mean that you can have either the paid closing costs, or the temporarily reduced mortgage rates, but not both.
Homebuyer tax credits
The first-time homebuyer tax credit of up to $8,000 and the move-up homebuyer tax credit of up to $6,500expire at the end of April. The home has to be under contract by then, and the deal has to close by the end of June.
To claim the tax credit, it's not too late to start looking for a house. But time's getting short. "We've got all kinds of homes available that we can close immediately," says Chris Karageorge, senior home loan adviser for Universal American Mortgage Co., a unit of Lennar Homes. By that, he means it's possible to go from offer to closing in two weeks.
But, Karageorge adds, "to be on the safe side, if I was going to do it" -- look for a house -- "I'd probably do it now."
Thursday, February 4, 2010
Daily Mortgage Commentary 02/04/2010
Today's Commentary
By Al Bowman
Updated on Feb 4 2010 1:35PM EST
Thursday’s bond market has opened up sharply following an early sell-off in stocks. The stock markets are in selling mode as investors become wary of tomorrow’s key employment report. The Dow is currently down 192 points while the Nasdaq has lost 42 points. The bond market is currently up 24/32 as investors seek safe-haven, which should improve this morning’s mortgage rates by approximately .250 of a discount point.
This morning’s economic data gave us mixed results with the 4th quarter Employee Productivity and Costs data showing a 6.2% increase that fell short of expectations and December’s Factory Order’s data rising 1.0% compared to the 0.5% that was forecasted. Both of those can be considered negative for bonds and mortgage rates but neither is considered to be highly important.
The good economic news came from the Labor Department who reported that 480,000 new claims for unemployment claims were filed last week when analysts were expecting to see 455,000. While this data usually is not a major factor to the markets, it was enough of a variance from forecasts right before tomorrow’s monthly figures that it caused selling in stocks. That led to bonds being in favor this morning and mortgage rates improving.
The Labor Department will be in the spot light again tomorrow morning when they post January’s Employment data. This report will give us the U.S. unemployment rate and the number of jobs added or lost during the month among other related statistics. Analysts are expecting to see the unemployment rate remain at 10.0% and that approximately 15,000 new jobs were added to the economy. An increase in unemployment and a loss in payrolls would be great news for the bond market. It would probably create another bond market rally, leading to lower mortgage rates tomorrow morning. However, if the report reveals stronger than expected results, we can expect to see mortgage rates move higher tomorrow.
If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
©Mortgage Commentary 2010
By Al Bowman
Updated on Feb 4 2010 1:35PM EST
Thursday’s bond market has opened up sharply following an early sell-off in stocks. The stock markets are in selling mode as investors become wary of tomorrow’s key employment report. The Dow is currently down 192 points while the Nasdaq has lost 42 points. The bond market is currently up 24/32 as investors seek safe-haven, which should improve this morning’s mortgage rates by approximately .250 of a discount point.
This morning’s economic data gave us mixed results with the 4th quarter Employee Productivity and Costs data showing a 6.2% increase that fell short of expectations and December’s Factory Order’s data rising 1.0% compared to the 0.5% that was forecasted. Both of those can be considered negative for bonds and mortgage rates but neither is considered to be highly important.
The good economic news came from the Labor Department who reported that 480,000 new claims for unemployment claims were filed last week when analysts were expecting to see 455,000. While this data usually is not a major factor to the markets, it was enough of a variance from forecasts right before tomorrow’s monthly figures that it caused selling in stocks. That led to bonds being in favor this morning and mortgage rates improving.
The Labor Department will be in the spot light again tomorrow morning when they post January’s Employment data. This report will give us the U.S. unemployment rate and the number of jobs added or lost during the month among other related statistics. Analysts are expecting to see the unemployment rate remain at 10.0% and that approximately 15,000 new jobs were added to the economy. An increase in unemployment and a loss in payrolls would be great news for the bond market. It would probably create another bond market rally, leading to lower mortgage rates tomorrow morning. However, if the report reveals stronger than expected results, we can expect to see mortgage rates move higher tomorrow.
If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
©Mortgage Commentary 2010
Wednesday, February 3, 2010
Today's Commentary 02/03/2010
Today's Commentary
By Al Bowman
Updated on Feb 3 2010 11:39AM EST
Wednesday’s bond market has opened in negative territory despite early stock weakness. The stock markets are giving back some of the gains form the previous two days with the Dow down 45 points and the Nasdaq down 7 points. The bond market is currently down 8/32, which will likely push this morning’s mortgage rates higher by approximately .125 of a discount point.
The Institute for Supply Management released their services index late this morning, announcing a reading of 50.5. This was a little lower than expected, and as mentioned yesterday did not have an impact on this morning’s bond trading or mortgage rates.
There are a couple of relevant reports scheduled for release tomorrow. The first is Employee Productivity and Costs data for the 4th quarter will be released early tomorrow morning. It can cause some movement in the bond market, but should have a minimal impact on mortgage pricing. If it varies greatly from analysts’ forecasts of a 6.5% increase, we may see some movement in mortgage rates. However, the markets will be much more interested in Friday’s data.
Late tomorrow morning, December’s Factory Orders data will be posted. It is similar to last week’s Durable Goods Orders release in giving us a measurement of manufacturing sector strength, but this data includes new orders for both durable and non-durable goods. It is one of the less important reports of the week, but can influence mortgage pricing if it varies greatly from forecasts. It is expected to show a 0.5% increase in new orders.
The Labor Department will post last week’s unemployment figures tomorrow morning also, however, with January’s monthly figures coming Friday morning, this release will likely have less impact on rates than the minimal amount it usually does. Look for the other reports of the morning to have a bigger influence on bond trading and mortgage rates than the weekly unemployment figures.
If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
By Al Bowman
Updated on Feb 3 2010 11:39AM EST
Wednesday’s bond market has opened in negative territory despite early stock weakness. The stock markets are giving back some of the gains form the previous two days with the Dow down 45 points and the Nasdaq down 7 points. The bond market is currently down 8/32, which will likely push this morning’s mortgage rates higher by approximately .125 of a discount point.
The Institute for Supply Management released their services index late this morning, announcing a reading of 50.5. This was a little lower than expected, and as mentioned yesterday did not have an impact on this morning’s bond trading or mortgage rates.
There are a couple of relevant reports scheduled for release tomorrow. The first is Employee Productivity and Costs data for the 4th quarter will be released early tomorrow morning. It can cause some movement in the bond market, but should have a minimal impact on mortgage pricing. If it varies greatly from analysts’ forecasts of a 6.5% increase, we may see some movement in mortgage rates. However, the markets will be much more interested in Friday’s data.
Late tomorrow morning, December’s Factory Orders data will be posted. It is similar to last week’s Durable Goods Orders release in giving us a measurement of manufacturing sector strength, but this data includes new orders for both durable and non-durable goods. It is one of the less important reports of the week, but can influence mortgage pricing if it varies greatly from forecasts. It is expected to show a 0.5% increase in new orders.
The Labor Department will post last week’s unemployment figures tomorrow morning also, however, with January’s monthly figures coming Friday morning, this release will likely have less impact on rates than the minimal amount it usually does. Look for the other reports of the morning to have a bigger influence on bond trading and mortgage rates than the weekly unemployment figures.
If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
Tuesday, February 2, 2010
Good financial advice on a budget
Good financial advice on a budget
By Ismat Sarah ManglaFebruary 1, 2010: 4:36 AM ET
(Money Magazine) -- After a tough 2009, you may be looking for some help in getting 2010 off to the right start financially. Unfortunately, finding objective, affordable, individualized advice from a live person can be a challenge.
Many "financial advisers" are simply brokers who get paid to push products. And while fee-only planners, who don't earn any commission, may have fewer conflicts, they typically prefer to work on contract with people who are already quite wealthy. Then too, the cost can go well into the thousands per year.
What to do? Below, you'll find some better ways to get the help you need, no matter what your resources.
For free
What you can get: Answers to basic strategy questions, like "What percentage of my retirement money should be in stocks given my age?"
How to find it: Individuals and firms that offer free advice typically have a vested interest in selling you something. But you may be able to get some limited help from a financial pro with no agenda via your employer.
More than 90% of large companies offer investment education as a benefit, says consulting firm Hewitt Associates. Third-party companies are often contracted for group seminars, and some also have trained advisers who will answer questions by phone. Ask your human resources department whether your firm has such a program and what it provides.
For up to $500
What you can get: Two to three hours with a fee-only planner who charges hourly. It's enough time to solve one major issue, such as "How much should I save for college?"
How to find it: While advisers that charge this way are in the minority, it's easy to find them. MyFinancial-Advice.com links you with planners who will answer questions by e-mail or phone for a fee based on an hourly rate of around $150. (You can get a quote before committing.)
Or, if you'd like to meet in person, choose from the 300-plus hourly planners associated with Garrett Planning Network. Gather the relevant paperwork in advance, or you'll end up paying for more hours than you'd like.
For $500 to $3,000
What you can get: A full financial review and workup. While most fee-only planners get paid on a percentage of assets under management, a large number are willing to provide a comprehensive one-time assessment -- on everything from budgeting to real estate to retirement -- for a flat fee, says Bill Baldwin, who is the chair of the National Association of Personal Financial Advisors.
How to find it: Start by visiting napfa.org and clicking "Find an Advisor." Contact three to five planners in your area, explain that you are looking for a one-time financial review, and ask for a quote. It's likely that many planners will be willing to create a session for you.
By Ismat Sarah ManglaFebruary 1, 2010: 4:36 AM ET
(Money Magazine) -- After a tough 2009, you may be looking for some help in getting 2010 off to the right start financially. Unfortunately, finding objective, affordable, individualized advice from a live person can be a challenge.
Many "financial advisers" are simply brokers who get paid to push products. And while fee-only planners, who don't earn any commission, may have fewer conflicts, they typically prefer to work on contract with people who are already quite wealthy. Then too, the cost can go well into the thousands per year.
What to do? Below, you'll find some better ways to get the help you need, no matter what your resources.
For free
What you can get: Answers to basic strategy questions, like "What percentage of my retirement money should be in stocks given my age?"
How to find it: Individuals and firms that offer free advice typically have a vested interest in selling you something. But you may be able to get some limited help from a financial pro with no agenda via your employer.
More than 90% of large companies offer investment education as a benefit, says consulting firm Hewitt Associates. Third-party companies are often contracted for group seminars, and some also have trained advisers who will answer questions by phone. Ask your human resources department whether your firm has such a program and what it provides.
For up to $500
What you can get: Two to three hours with a fee-only planner who charges hourly. It's enough time to solve one major issue, such as "How much should I save for college?"
How to find it: While advisers that charge this way are in the minority, it's easy to find them. MyFinancial-Advice.com links you with planners who will answer questions by e-mail or phone for a fee based on an hourly rate of around $150. (You can get a quote before committing.)
Or, if you'd like to meet in person, choose from the 300-plus hourly planners associated with Garrett Planning Network. Gather the relevant paperwork in advance, or you'll end up paying for more hours than you'd like.
For $500 to $3,000
What you can get: A full financial review and workup. While most fee-only planners get paid on a percentage of assets under management, a large number are willing to provide a comprehensive one-time assessment -- on everything from budgeting to real estate to retirement -- for a flat fee, says Bill Baldwin, who is the chair of the National Association of Personal Financial Advisors.
How to find it: Start by visiting napfa.org and clicking "Find an Advisor." Contact three to five planners in your area, explain that you are looking for a one-time financial review, and ask for a quote. It's likely that many planners will be willing to create a session for you.
FHA Losses: What it Means
FHA Losses: What it Means
What Do They Do
FHA loan options make it easier to qualify for a home mortgage. Your loan is guaranteed by the government, making your application more attractive to lenders.
The FHA mortgage requires a low 3.5% down payment, and that money can come from a variety of sources including HUD down payment assistance grants. Typical closing costs for FHA home loans are around 2% or 3% of the total mortgage.
Loan Loss is Below Govt Mandate
Its capital reserves have fallen below the threshold mandated by Congress. The FHA has no recourse but to find ways to reduce their portfolio risk. Generally, when an investment portfolio needs to lower its risk profile, it means that requirements will tighten and costs will rise until the risk profile is better balanced.
What it Means To You
Harder to Qualify
The FHA is considering a variety of changes like requiring larger down payments for FHA insured mortgages, demanding higher credit scores and raising mortgage premiums. The FHA has taken on an enormous role in the marketplace. It dominates the new mortgage business. The FHA is one of the tools the Obama administration is using to take up the vacuum left by the banks. Generally, they are not lenders of such magnitude. In the second quarter, nearly 50% of all first-time buyers in the market used a loan insured by the FHA (via cbsmarketwatch.com).
Normally, a low risk lender because FHA home loans have income requirements, maximum loan amounts and most loans are 30 year fully amortizing fixed-rate mortgages. But the FHA has had its neck out since the housing crises began. They like many other Govt institutions are filling the gap left by private lenders. And will continue to do so until the market normalizes, but it clearly is taking a toll.
FHA and Fannie Tighten Up
FHA and Fannie Mae Propose Rule Change
FHA and Fannie Tighten Up
Because of ongoing weakness in the real estate sector, the institutions that have filled the vacuum left by lenders, have run into trouble... they need to change the rules.
In order to assure that mortgage originations continue, its become necessary for FHA and Fannie Mae to reduce risk. The FHA proposes to increase the net worth requirements of FHA-approved lenders, strengthen lender approval criteria, and make lenders liable for the practices of their correspondent mortgage brokers.
Lender Approval
1.FHA-approved Mortgagees must assume liability for all the loans they originate and/or underwrite
2. Mortgage brokers will no longer receive independent approval for origination eligibility. The FHA-approved mortgagee will have to assume responsibility and liability for the FHA-insured loan underwritten and closed by the approved mortgagee.
3. FHA has required approved mortgagees have a minimum net worth of $250,000. To assure financial vialbility in the future, the proposed rule would require mortgagees maintain a minimum net worth of $1 million in the first year and at least $2.5 million within three years.
New Credit Policy Rule Changes
1. Mortgagees will be required to submit audited annual financial statements to the FHA.
2. Proposed rules to establish new requirements for seasoning, payment history, income verification, and demonstration of net tangible benefit to the borrower
3. A cap maximum on LTV at 125 percent.
Appraisals Rules May Change Too
1. An appraisal will be required in all cases where a borrower wants to add closing costs to the transaction.
2. Mortgage brokers and commission based lender staff are prohibited from ordering appraisals.
Fannie Mae Also Changes The Rules
loans for those who can afford it and prove they can keep it
Data now shows that buyers with lower FICO scores/excessive debt defaulted at rates nine times higher than those with solid FICO scores and more manageable debt load. So beginning Dec. 12, Fannie Mae will reject borrowers who have at least a 20% down payment but a credit score below 620.
Whats it Mean For Buyers and Sellers.
Many buyers that were pre qualified may now find they no longer qualify for the price range they had been shopping.
Tighter financial requirements may mean they have to settle for less house.
Buyers expectations may have to adjust downward, given stricter financing rules.
Seller pricing strategies will adjust, buyers will have more trouble meeting new debt-to-income requirements.
We should see more private equity come into the market to fill the vacuum and possibly more seller financing.
The higher end may suffer as buyers that could have stretched into more home, no longer can.
It will hurt the younger person with 20% down, but no credit history.
* Some of these rules may be applied at this writing. The FHA and Fannie Mae web site will have updates and changes to proposals.
*Photo thanks to Queens University Canada
FHA and Fannie Tighten Up
Because of ongoing weakness in the real estate sector, the institutions that have filled the vacuum left by lenders, have run into trouble... they need to change the rules.
In order to assure that mortgage originations continue, its become necessary for FHA and Fannie Mae to reduce risk. The FHA proposes to increase the net worth requirements of FHA-approved lenders, strengthen lender approval criteria, and make lenders liable for the practices of their correspondent mortgage brokers.
Lender Approval
1.FHA-approved Mortgagees must assume liability for all the loans they originate and/or underwrite
2. Mortgage brokers will no longer receive independent approval for origination eligibility. The FHA-approved mortgagee will have to assume responsibility and liability for the FHA-insured loan underwritten and closed by the approved mortgagee.
3. FHA has required approved mortgagees have a minimum net worth of $250,000. To assure financial vialbility in the future, the proposed rule would require mortgagees maintain a minimum net worth of $1 million in the first year and at least $2.5 million within three years.
New Credit Policy Rule Changes
1. Mortgagees will be required to submit audited annual financial statements to the FHA.
2. Proposed rules to establish new requirements for seasoning, payment history, income verification, and demonstration of net tangible benefit to the borrower
3. A cap maximum on LTV at 125 percent.
Appraisals Rules May Change Too
1. An appraisal will be required in all cases where a borrower wants to add closing costs to the transaction.
2. Mortgage brokers and commission based lender staff are prohibited from ordering appraisals.
Fannie Mae Also Changes The Rules
loans for those who can afford it and prove they can keep it
Data now shows that buyers with lower FICO scores/excessive debt defaulted at rates nine times higher than those with solid FICO scores and more manageable debt load. So beginning Dec. 12, Fannie Mae will reject borrowers who have at least a 20% down payment but a credit score below 620.
Whats it Mean For Buyers and Sellers.
Many buyers that were pre qualified may now find they no longer qualify for the price range they had been shopping.
Tighter financial requirements may mean they have to settle for less house.
Buyers expectations may have to adjust downward, given stricter financing rules.
Seller pricing strategies will adjust, buyers will have more trouble meeting new debt-to-income requirements.
We should see more private equity come into the market to fill the vacuum and possibly more seller financing.
The higher end may suffer as buyers that could have stretched into more home, no longer can.
It will hurt the younger person with 20% down, but no credit history.
* Some of these rules may be applied at this writing. The FHA and Fannie Mae web site will have updates and changes to proposals.
*Photo thanks to Queens University Canada
Should You Stop Paying Your Mortgage
Should You Stop Paying Your Mortgage
by Howard Bell
Moral Failure or Strategic Decision
According to the Mortgage Bankers Association More than 40% of borrowers are 60 or more days past due on payments. So many homes have lost value and never recover. About one in four homeowners, or 10.7 million Americans, are considered underwater.
This is far from over. The sub prime mess may be behind us, but the Alt A implosion is now. More and more home owners will find themselves paying off homes that will never recover.
A moral dilemma for many home owners is what to do when you believe that you will never see your money back. If you owe more than your home is worth, you have to struggle with some uncomfortable options.
We have been raised to pay our debts and never be a deadbeat. But what do you do when its clear that the best financial decision may be to walk away from an investment that will never recoup.
What Happens If You Take a Walk
Your ability to borrow becomes severly constrained. You are a bad risk, but not forever. Fannie Mae won't back another loan for five years for a borrower involved in a foreclosure, except because of an extreme circumstance like a medical event or unemployment. Missed mortgage payments and defaults show up on your credit report and remain for seven years
White, a University of Arizona law school professor, said to the Washington Post, that in anti-deficiency states such as Arizona and California, mortgage lenders have limited or no legal rights to pursue defaulting homeowners assets beyond the house itself. In fact its not that simple. Some mortgages that have been refinanced may no longer be non recourse loans. Its a very complicated and should not be taken lightly.
Homeowners who decide that having a foreclosure on their credit report rather than continue to throw good money after bad is not necessarily immoral. It may just be realistic. In fact, a good business decision.
The lenders are also responsible. Im not absolving bad decisions made by borrowers to take on more excessive debt, but the poor decisions to lend as if real estate could only go up is the other half of the equation. They also made irresponsible business decisions and should play a bigger part in the cost of the bust.
Its imperative that the Banks Step Up
The FDIC acquires failed banks, some 124 just this year and may soon be require failed banks to cut principal mortgage debt rather than forbearing a portion until a later day or lowering interest rates.
FDIC Chair Sheila Blair told Bloomberg news that the FDIC is considering a loss-sharing for failed banks, requiring the banks to write down mortgage principals because job loss is driving mortgage distress.
For lenders, watching debtors walk away from their mortgages is harsh lesson, but bankers partnered with the homeowner in the deal. If they dont begin to take responsiblity along with the borrower for bad business decisions, they will simply be laying the groundwork for the next bubble.
by Howard Bell
Moral Failure or Strategic Decision
According to the Mortgage Bankers Association More than 40% of borrowers are 60 or more days past due on payments. So many homes have lost value and never recover. About one in four homeowners, or 10.7 million Americans, are considered underwater.
This is far from over. The sub prime mess may be behind us, but the Alt A implosion is now. More and more home owners will find themselves paying off homes that will never recover.
A moral dilemma for many home owners is what to do when you believe that you will never see your money back. If you owe more than your home is worth, you have to struggle with some uncomfortable options.
We have been raised to pay our debts and never be a deadbeat. But what do you do when its clear that the best financial decision may be to walk away from an investment that will never recoup.
What Happens If You Take a Walk
Your ability to borrow becomes severly constrained. You are a bad risk, but not forever. Fannie Mae won't back another loan for five years for a borrower involved in a foreclosure, except because of an extreme circumstance like a medical event or unemployment. Missed mortgage payments and defaults show up on your credit report and remain for seven years
White, a University of Arizona law school professor, said to the Washington Post, that in anti-deficiency states such as Arizona and California, mortgage lenders have limited or no legal rights to pursue defaulting homeowners assets beyond the house itself. In fact its not that simple. Some mortgages that have been refinanced may no longer be non recourse loans. Its a very complicated and should not be taken lightly.
Homeowners who decide that having a foreclosure on their credit report rather than continue to throw good money after bad is not necessarily immoral. It may just be realistic. In fact, a good business decision.
The lenders are also responsible. Im not absolving bad decisions made by borrowers to take on more excessive debt, but the poor decisions to lend as if real estate could only go up is the other half of the equation. They also made irresponsible business decisions and should play a bigger part in the cost of the bust.
Its imperative that the Banks Step Up
The FDIC acquires failed banks, some 124 just this year and may soon be require failed banks to cut principal mortgage debt rather than forbearing a portion until a later day or lowering interest rates.
FDIC Chair Sheila Blair told Bloomberg news that the FDIC is considering a loss-sharing for failed banks, requiring the banks to write down mortgage principals because job loss is driving mortgage distress.
For lenders, watching debtors walk away from their mortgages is harsh lesson, but bankers partnered with the homeowner in the deal. If they dont begin to take responsiblity along with the borrower for bad business decisions, they will simply be laying the groundwork for the next bubble.
Housings Weak Recovery: Lets Follow The Money
Housings Weak Recovery: Lets Follow The Money
by Howard Bell
Quarterly reports are out. NAR, Case Shiller, Consumer Confidence reports all indicate that the housing recovery is faltering to flat. Much of the Govt supports will be slowly exiting as the Fed tests the normal functions of an economy replace Federal aid.
Residential
Case Shiller and NAR reports show continued weakness and everyone is wondering whether the recovery is waning. Case Shiller notes that the rate of decline in home prices slowed in October from the previous month, and prices remain flat after the spring and summer gains. Home price Indices of its its 10-city and 20-city composite indices declined 6.4% and 7.3%, putting home prices at 2003 levels. A flat report is not as bad as much of the last two years, but some Govt programs are being phased out see chart
NAR site points out that on a month-to -month basis,only seven of the 20 cities showed improvement. NARs data for November showed prices down 4.3% year-over-year. Foreclosures continue to be the problem, making up 30% of the third quarter’s home purchase.
Moodys points out that there are 3 million more homes in the pipe and that another 3 million are 30-60 days late. These homes are in a foreclosure pattern. New Home Sales: The government reported that sales of new homes dropped a sharp 11.3 percent, an indication that supply is still greater than demand.
Apartments
The apartment market is showing signs of improvement, according to the National Multi Housing Council’s latest Quarterly Survey of Apartment Market Conditions. Although the survey still indicates higher vacancies and lower rents, we see increased sales activity and greater availability of debt and equity capital compared with three months ago. Apartments have long been considered the better investment, partly because there is financing available and they didnt participate in the building boom of single family homes
Follow The Money
The American Recovery and Investment Act of 2009
Will pump more economic stimulus money into federally subsidized apartment units, while HUD’s budget proposal for next year seeks another $1.8 billion for construction of rental housing.
Green
HUD and the U.S. Department of Energy are working together to offer more financial incentives for owners to retrofit properties for energy efficiency. Another economic stimulus plan enacted earlier this year provided funds for green retrofits. Larger property owners of commercial buildings including apartment complexes where
conservation of energy had the greatest impact. Hopefully, some of this money will trickle down to smaller owners.
Fannie and Freddie
Congress had placed a cap on spending of $200 billion dollars on each. On Christmas eve, Obama lifted the cap through 2012, giving the two quasi public institutions a blank check. I think this points very clearly to the next big wave of foreclosure that will stem from the Alt A and commercial mortgage recasts that will be coming due between now and 2012. A blank check (read big money problems) is whats next.
The Stock Market
REITS
The Dow Jones Equity All REIT Total Return Index is up 31% this year, reversing a 38% decline in 2008, beating the S&P 500 by 25%. Given all the flat to downright ugly news still coming out it seems counter intuitive that real estate funds would be doing so well.
They have been raising money issuing new shares and selling property whenever they can. In short, they have been raising money for whats expected to be a generational opportunity in good properties coming on the market at great prices. The ishares industrial/office and retail REITS are up 10.7% and 11.2% respectively in November/December alone. Even mortgage REITS are up 3.8% for the same period. Heres what they are looking at...
Real Estate Rubble
Bloomberg reports that commercial property prices have fallen by 30 percent to 50 percent wiping out the equity in most debt financed real estate deals since 2005. This equals as much as 54 percent of the $1.4 trillion in loans that will come due in four years, according to Randall Zisler, chief executive officer of Zisler Capital Partners LLC (via Bloomberg News).
Mr. Zisler goes on to say that much of the debt is likely worth about 50 percent of par. Many banks will end up insolvent as they reduce the value of their holdings, he wrote, adding that regional and community lenders are especially vulnerable.
Stock markets are forward looking mechanisms and the REITS are looking passed the problem to great future buying opportunities. If the banks are holding so much bad paper, then it will be taxpayer money (those blank checks) and private investment money (REITs) likely final owners of all this real estate rubble. I know that investors will cherry pick and to drive hard deals to profit. I wonder if that leaves us, the taxpayers, to buy whats left.... Its all in the oversight
by Howard Bell
Quarterly reports are out. NAR, Case Shiller, Consumer Confidence reports all indicate that the housing recovery is faltering to flat. Much of the Govt supports will be slowly exiting as the Fed tests the normal functions of an economy replace Federal aid.
Residential
Case Shiller and NAR reports show continued weakness and everyone is wondering whether the recovery is waning. Case Shiller notes that the rate of decline in home prices slowed in October from the previous month, and prices remain flat after the spring and summer gains. Home price Indices of its its 10-city and 20-city composite indices declined 6.4% and 7.3%, putting home prices at 2003 levels. A flat report is not as bad as much of the last two years, but some Govt programs are being phased out see chart
NAR site points out that on a month-to -month basis,only seven of the 20 cities showed improvement. NARs data for November showed prices down 4.3% year-over-year. Foreclosures continue to be the problem, making up 30% of the third quarter’s home purchase.
Moodys points out that there are 3 million more homes in the pipe and that another 3 million are 30-60 days late. These homes are in a foreclosure pattern. New Home Sales: The government reported that sales of new homes dropped a sharp 11.3 percent, an indication that supply is still greater than demand.
Apartments
The apartment market is showing signs of improvement, according to the National Multi Housing Council’s latest Quarterly Survey of Apartment Market Conditions. Although the survey still indicates higher vacancies and lower rents, we see increased sales activity and greater availability of debt and equity capital compared with three months ago. Apartments have long been considered the better investment, partly because there is financing available and they didnt participate in the building boom of single family homes
Follow The Money
The American Recovery and Investment Act of 2009
Will pump more economic stimulus money into federally subsidized apartment units, while HUD’s budget proposal for next year seeks another $1.8 billion for construction of rental housing.
Green
HUD and the U.S. Department of Energy are working together to offer more financial incentives for owners to retrofit properties for energy efficiency. Another economic stimulus plan enacted earlier this year provided funds for green retrofits. Larger property owners of commercial buildings including apartment complexes where
conservation of energy had the greatest impact. Hopefully, some of this money will trickle down to smaller owners.
Fannie and Freddie
Congress had placed a cap on spending of $200 billion dollars on each. On Christmas eve, Obama lifted the cap through 2012, giving the two quasi public institutions a blank check. I think this points very clearly to the next big wave of foreclosure that will stem from the Alt A and commercial mortgage recasts that will be coming due between now and 2012. A blank check (read big money problems) is whats next.
The Stock Market
REITS
The Dow Jones Equity All REIT Total Return Index is up 31% this year, reversing a 38% decline in 2008, beating the S&P 500 by 25%. Given all the flat to downright ugly news still coming out it seems counter intuitive that real estate funds would be doing so well.
They have been raising money issuing new shares and selling property whenever they can. In short, they have been raising money for whats expected to be a generational opportunity in good properties coming on the market at great prices. The ishares industrial/office and retail REITS are up 10.7% and 11.2% respectively in November/December alone. Even mortgage REITS are up 3.8% for the same period. Heres what they are looking at...
Real Estate Rubble
Bloomberg reports that commercial property prices have fallen by 30 percent to 50 percent wiping out the equity in most debt financed real estate deals since 2005. This equals as much as 54 percent of the $1.4 trillion in loans that will come due in four years, according to Randall Zisler, chief executive officer of Zisler Capital Partners LLC (via Bloomberg News).
Mr. Zisler goes on to say that much of the debt is likely worth about 50 percent of par. Many banks will end up insolvent as they reduce the value of their holdings, he wrote, adding that regional and community lenders are especially vulnerable.
Stock markets are forward looking mechanisms and the REITS are looking passed the problem to great future buying opportunities. If the banks are holding so much bad paper, then it will be taxpayer money (those blank checks) and private investment money (REITs) likely final owners of all this real estate rubble. I know that investors will cherry pick and to drive hard deals to profit. I wonder if that leaves us, the taxpayers, to buy whats left.... Its all in the oversight
Freddie Mac Weekly Mortgage Rate Commentary
Feb 1, 2010 (yesterday)
by Howard Bell
30-year fixed-rate mortgage: Averaged 4.98 percent with an average 0.6 point for the week ending January 28, 2010, down slightly from last week when it averaged 4.99 percent. Last year at this time, the 30-year FRM averaged 5.10 percent.
The 15-year fixed-rate mortgage: Averaged 4.39 percent with an average 0.6 point , down slightly from last week when it averaged 4.40 percent. A year ago at this time, the 15-year FRM averaged 4.80 percent.
Five-year indexed hybrid adjustable-rate mortgages ARMs: Averaged 4.25 percent this week, with an average 0.6 point, down from last week when it averaged 4.27 percent. A year ago, the 5-year ARM averaged 5.27 percent.
One-year Treasury-indexed ARMs: Averaged 4.29 percent this week with an average 0.5 point, down from last week when it averaged 4.32 percent. At this time last year, the 1-year ARM averaged 4.90 percent.
Freddie Sayz
Mortgage rates held steady this week ahead of the Federal Reserve's (Fed) policy committee meetings ,said Frank Nothaft, Freddie Mac vice president and chief economist. The Fed announced on January 27th that economic activity has continued to strengthen. It also noted that with substantial resource slack continuing to restrain cost pressures and with longer term inflation expectations stable, inflation is likely to be subdued for some time. Last year was rough on the housing market. The number of new one family housing starts hit a historical low of just under 1/2 million units since records began in 1959. Similarly, new home sales were under 400,000 homes, an all-time record since data compilation began in 1963. Total existing home sales, however, rose to almost 5 million houses, which was the first annual increase in four years.
by Howard Bell
30-year fixed-rate mortgage: Averaged 4.98 percent with an average 0.6 point for the week ending January 28, 2010, down slightly from last week when it averaged 4.99 percent. Last year at this time, the 30-year FRM averaged 5.10 percent.
The 15-year fixed-rate mortgage: Averaged 4.39 percent with an average 0.6 point , down slightly from last week when it averaged 4.40 percent. A year ago at this time, the 15-year FRM averaged 4.80 percent.
Five-year indexed hybrid adjustable-rate mortgages ARMs: Averaged 4.25 percent this week, with an average 0.6 point, down from last week when it averaged 4.27 percent. A year ago, the 5-year ARM averaged 5.27 percent.
One-year Treasury-indexed ARMs: Averaged 4.29 percent this week with an average 0.5 point, down from last week when it averaged 4.32 percent. At this time last year, the 1-year ARM averaged 4.90 percent.
Freddie Sayz
Mortgage rates held steady this week ahead of the Federal Reserve's (Fed) policy committee meetings ,said Frank Nothaft, Freddie Mac vice president and chief economist. The Fed announced on January 27th that economic activity has continued to strengthen. It also noted that with substantial resource slack continuing to restrain cost pressures and with longer term inflation expectations stable, inflation is likely to be subdued for some time. Last year was rough on the housing market. The number of new one family housing starts hit a historical low of just under 1/2 million units since records began in 1959. Similarly, new home sales were under 400,000 homes, an all-time record since data compilation began in 1963. Total existing home sales, however, rose to almost 5 million houses, which was the first annual increase in four years.
Daily Mortgage Commentary 02/02/2010
Mortgage Market Commentary
Tuesday February 2 2010
By Al Bowman
Tuesday's bond market has opened flat with no relevant economic data on tap. The stock markets are showing gains with the Dow up 54 points and the Nasdaq up 7 points. The bond market is currently up 2/32, which will likely keep this morning's mortgage rates at yesterday's levels.
Tomorrow's only data is not likely to affect mortgage rates. The Institute for Supply Management will post their services index late tomorrow morning. This is the same organization that posted Monday's manufacturing index that is considered to be influential on the markets. Tomorrow's index surveys service providers rather than manufacturers. But unless we see a wide variance from the 50.9 reading that is expected, I don't see mortgage rates reacting to its results.There is no relevant economic data scheduled for release today. Neither of the two speaking engagements were market movers. Treasury Secretary Geithner spoke before a Senate Finance Committee about the U.S. budget while Paul Volcker, who is the Chairman of the President's Economic Recovery Advisory Board, spoke to the Senate Bank Committee about high-risk banking activities. Neither has resulted on any market movements.
Thursday brings us the release of two reports to watch. Employee Productivity and Costs data for the 4th quarter will be released early Thursday morning. It can cause some movement in the bond market, but should have a minimal impact on mortgage pricing. If it varies greatly from analysts' forecasts of a 6.0% increase, we may see some movement in mortgage rates. However, the markets will be much more interested in Friday's data.
Late Thursday morning, December's Factory Orders data will be posted. It is similar to last week's Durable Goods Orders release in giving us a measurement of manufacturing sector strength, but this data includes new orders for both durable and non-durable goods. It is one of the less important reports of the week, but can influence mortgage pricing if it varies greatly from forecasts.
If I were considering financing/refinancing a home, I would....
Lock if my closing were taking place within 7 days...
Lock if my closing were taking place between 8 and 20 days...
Lock if my closing were taking place between 21 and 60 days...
Float if my closing were taking place over 60 days from now...
This is only my opinion of what I would do if I was financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
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