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Anticipating the Future of the Mortgage Market

0 Comments By Mark Logue on September 13th, 2011
Tags: , ,      Categories: Mortgage

As the summer of 2011 rapidly comes to an end, it is time to reflect on what has passed us by, and it is now time to anticipate what the next 12 -18 months will look like.

The financial world is built on the premise that U.S. Treasury securities are very close to RISK FREE. However, the question has to be asked what damage was done to that perception as a result of the messy handling of raising the debt ceiling due to political posturing by the Democrats and Republicans. Additionally, it is very hard to quantify the effect that the near calamitous inability to raise the debt ceiling had and will have on commerce in the short term.

So, the economy is limping along at an anemic pace with growth expected to come in at a whopping 2% (approx) for 2011. Unemployment is still over 9% and there does not seem to be an improvement coming in the short term mainly due to the fact that smaller companies are struggling. Consumer confidence continues to fluctuate between, occasional cautious optimism, and the reality that we are in a recession.

Combine the weak job market with weak consumer confidence, and you have many homebuyers playing it safe, and sitting on the sidelines for fear of a deeper recession. Home ownership levels have declined to levels not seen since the mid 1990′s. With demand tepid, home prices (nationally) are drifting lower, as a result, I worry that we may see banks asking for higher down payments to tighten lending terms and reduce risk.

The one bright spot amidst these troubling economic times is the fact that interest rates remain at historically low levels. Lenders are lending. I will agree with you that it is tougher to get a loan today than it was 4 years ago (a pulse and an ability to sign one’s name allowed one to get financing” back in the day”) However, common sense prevails. A borrower who is gainfully employed, has credit scores over 600, does not exceed the standard DTI (debt to income) %’s, and has the requisite down payment of 3.5% on FHA and 20% on Jumbo monies, IS getting financing.

Does today’s consumer have to provide more paperwork than days gone by, and is the process more intrusive than in the past? The answer is of course. However, banks are closing loans.

My advice is to come prepared, don’t take it personally, and realize that we are just coming out of an environment that was almost a worldwide economic “Armageddon” due to a mortgage market that had lost its senses for several years. There has been so much fraud in the mortgage industry in the last several years that underwriters dig deeper than they have to. The consequence is that there are more questions asked of the buyer, and there is more paperwork required to validate the authenticity of the buyer and the transaction.

The Federal Reserve has pledged to keep short-term rates near zero for a minimum of two more years. That means commercial banks will keep their prime lending rate at 3.25%. The rate for the 10-year Treasury note will probably remain around 2.1% – 2.35% until growth picks up. The Fed really has no direct control over long-term rates, though it has sought to lower them by buying Treasury bonds over the last three years. I would be very surprised if the Fed decided to dive into another round of Treasury purchases.

Join the Renovation Generation

0 Comments By Mark Logue on June 8th, 2011
Tags: , , ,      Categories: Buying, Mortgage

Recognizing a “Diamond in the Rough”.

Thinking of buying a home that needs some work, then turning it into a dream home? You are not alone. Savvy buyers everywhere are searching for fixer-uppers with dream home potential.

If you are one of those buyers who can spot the “Diamond in the Rough”, and envision everything that home could become, you may open the door to a wealth of financial advantages:

  • You may get a bargain by paying less than market price.
  • Bargain prices can get you into a more expensive area than you could otherwise purchase.
  • You may be able to buy a larger home than you imagined.
  • Improvements you make can increase the fair market value of your home.
  • The renovated property will be done just the way you want it, reflecting your tastes and serving your needs.

Whatever the condition of the homes you consider – from quick fix to major makeover – you must be able to identify needs, estimate costs, weigh potential, and know when to make an offer. Asking yourself some questions can help:

  • How much money are you able to spend on renovation and repair?
  • How long will the project take?
  • Will your completed home be comparable in value and amenities to neighboring homes, without being overvalued or over-improved for the neighborhood?

When searching for opportunities, it makes good sense to work with a real estate agent. They know their areas well and provide access to multiple listing service resources, both of which can really open up your field of choices.

Persevere, have a clear understanding of your priorities, knowledge of current market values, and a sense of how much effort different types of renovation require. With these things on your side, you have the power to turn a “possibility” into a home that provides comfort, enhanced quality of life, and financial security.

Understanding the Basics of Mortgages

0 Comments By Mark Logue on May 10th, 2011
Tags: , ,      Categories: Mortgage

Basic Mortgage Education
One of the main topics in the news over the last three years has been mortgages. There is not a day that goes by where there is not a discussion about foreclosures, short-sales, mortgage fraud, the failure of Freddie Mac and Fannie Mae, adjustable rate mortgages, fixed rate mortgages, interest rates, robo-signing, etc. Yet – earlier this month, the results of a survey conducted by Zillow Mortgage Marketplace shows that nearly half of the home buyers it surveyed were unable to answer basic questions about mortgages or the mortgage process.

Zillow partnered with Ipsos, a global survey-based market research company, and asked 1,005 randomly selected U.S. adults to gauge the level of their knowledge about mortgages and to answer questions about the costs, eligibility, and processes involved in obtaining financing.

Here are their findings:

  • More than half (57 percent) of prospective home buyers who were polled did not understand how adjustable mortgages (ARM’s) work. When asked if interest rates on 5/1 ARM’s always reset higher after five years, the majority of home buyers incorrectly answered yes.
  • More than one-third (37 percent) of prospective home buyers believed that pre-qualifying for a loan means they have secured financing when it is merely the first step in the process where the lender estimates the size of the loan for which a buyer can qualify.
  • Nearly half of all respondents believed that they should always buy discount points rather than recognizing that it is a decision based on factors such as how long the buyer plans to stay in the house.
  • More than two in five (42 percent) of the polled prospective home buyers do not understand that Federal Housing Administration (FHA) loans are available to ALL buyers. Instead, they believe only first-time buyers qualify. Additionally, one-third (34 percent) of the prospective home buyers believe that lenders are required by law to charge the same fees for credit reports and appraisals rather than their being a negotiable item from lender to lender.

I am amazed that, each year, so many people commit to the largest loan of their lives without understanding essential information about mortgages. Well-informed consumers can serve as their own advocates so long as they find themselves reliable, credible sources of useful information, presented in a simple and understandable way.

A Look Into the Mortgage Market

0 Comments By Mark Logue on March 15th, 2011
Tags: , , , ,      Categories: Buying, Mortgage

A Look Back
At the end of 2007, as we were falling into one of the worst economic periods in the history of the United States, economists were predicting that it would be 2011 – 2012 before we would start to see signs of growth in the economy again. Well, here we are almost at the end of the first quarter in 2011 and we are starting to see signs of growth again.

Over the last four years, the unemployment rate was as high as 10% while the under-employment rate (people who worked part time, less hours, or who took themselves out of the employment market altogether) was as high as 18.5%. As of Friday, March 4th, 2011, the unemployment rate is now at 8.9% which represents the best rate in over two years. Additionally, this is the third straight month of positive news in the employment sector.

On a very simplistic level, there are three major areas to look at to forecast inflation; cost of goods and services, consumer spending, and The Federal Reserve.

Cost of Goods
We are going to continue to see an increase in the cost of gasoline prices due the fear in the market over what is going on in the Middle East. Even though supply has not been affected, the perception is that it could be, and as a result the price of gasoline could reach $4 per gallon by the summer of 2011. As a result of climbing gas prices, there will be upward pressure on food costs and we have already seen a significant rise in the cost of many commodities. Beer, coffee, tires and breakfast cereals, to name a few, have already seen increases of 20% – 100%.

Consumer Spending
The American Consumer will continue to keep a tight hold on their wallets as there is still a major concern over job stability. The American consumer will need to see a longer period of job growth before they start to spend more freely.

The Federal Reserve
Ben Bernanke, the Chaiman of the Federal Reserve, has indicated that inflation will remain low through 2013. Mr. Bernanke clearly stated that the Fed will not pare back their QE2 stimulus package until there is a “sustained period of stronger job creation”. With the benchmark federal funds rate staying near zero, look for the prime rate to remain at 3.25% through 2011. The existing stimulus package in tandem with the Fed’s ongoing purchases of long-term Treasuries, I would be surprised to see the 10-year Treasury note climb above 3.8% in 2011.

A Look Ahead
So what does this mean for interest rates? We should see the interest rate environment for 30 year fixed money; vacillate between 4.875% and 5.375% in 2011. The one note of caution is the cost of oil; this could have a negative impact on long term rates if oil climbs to higher than expected price levels.

For anyone considering buying a home, 2011 is the time to buy, as the cost of money will be significantly higher in 2012. Why will this happen? Well, growth leads to inflation and inflation is the nemesis of the bond market so rates will climb as a result.

Tax Credit Closing Date Extension Approved

0 Comments By Elizabeth Nunan on July 1st, 2010
Tags: ,      Categories: Buying, Mortgage, Relocation

capital dome 150x150 Tax Credit Closing Date Extension ApprovedThere has been much confusion and misinformation lately regarding the extension of the Homebuyer Tax Credit closing deadline.

On Tuesday, the United States House of Representatives passed  HR 5623, the Homebuyer Assistance and Improvement Act of 2010, by a vote of 409-5.  But the bill still needed to pass the Senate, and it didn’t seem like such a sure thing.

Well, now it’s official.  Last night, on the eve of the deadline, Congress passed the extension of the Homebuyer Tax Credit closing deadline. The bill is now awaiting signature by President Obama. It’s important to note that the extension applies ONLY to transactions that had ratified contracts in place as of April 30, 2010 and have not yet closed.  This legislation is designed to create a seamless extension with the new closing deadline for eligible transactions now being September 30, 2010.  There will be no gap between June 30th and the date the President signs the bill into law.

The National Association of Realtors worked closely with Congressional leaders on both sides of the aisle to enact this legislation. They believe extending the Tax Credit Closing deadline will help provide additional stability to real estate markets across the Country. This extension will likely benefit thousands of homebuyers who, for whatever reasons, were unable to close by the initial deadline of June 30th.

For additional information on the extension visit www.realtor.org/government_affairs

Mortgage Rates on the Move

0 Comments By Mark Logue on April 14th, 2010
Tags: , , ,      Categories: Buying, Mortgage, Selling

As we all know, interest rates have plummeted to historical lows in recent months. Average long-term interest rates remained below 5% throughout March 2010. That is well below the 6% average that we were seeing in 2008, not to mention the lowest rates seen in decades. All good things must come to an end (clearly not said by anyone from the optimistic Emerald Isle) and we have already seen rates climb over 5% to an 8 month high of 5.25%.

So what does the future hold for interest rates? As I am NOT clairvoyant with a crystal ball I can only look to the past to try and get an indication of what the future holds. History shows that periods of significantly low interest rates are generally followed by sky-high rates.  Case in point: From 1970 to 1972, 30 year fixed mortgage rates hovered around 7.25% before leaping to 10% by the end of 1973. Murphy’s law applies here (Murphy was a well known pessimist in Ireland ), when rates move downwards, it is typically a slow creep to the downside.  However, when rates rise, it is typically violently quick to the upside.

So why are rates rising?

  • Good economic news is one reason that rates are rising: Government debt, a safe bet during the recession is losing its appeal as stocks and corporate bonds are becoming the investments of choice by investors.
  • The Federal Reserve has ended its program of buying Mortgage Backed Securities. When the Fed was buying, rates were in the mid 4% range for most of last year. Today, according to the Mortgage Bankers Association, the national average for a 30-year fixed rate mortgage is 5.31%.

For people putting their home on the market this spring, rising rates may actually be a good thing. Buyers are racing to complete their transaction for two main reasons

  • Buyers want to lock in their interest rate before they go higher.
  • Buyers want to have a signed Purchase Agreement in place before April 30th in order to qualify for the (up to) $8,000 Tax Credit offered by the U.S. Government.

I am expecting a frenzied last two weeks in April as there will be a near panic (in some cases) to meet the April 30th deadline. As a seller, price your home right as you will not have time to “test the waters”. As a buyer, get pre-approved and lock in your interest rate before it is too late.

Homebuyer Tax Credit Extended

0 Comments By Mark Logue on November 10th, 2009
Tags: ,      Categories: Buying, Mortgage

Good news for homebuyers! On November 6, President Obama signed a bill to extend the Tax Credit for first-time homebuyers through June 30, 2010.

The program also gives current homeowners a tax credit as long as they have owned and occupied a primary residence for 5 of the last 8 years.

For further details and qualifications, contact our mortgage team or view our Thoroughbred Mortgage Newsletter.

 

Looking For the Bottom Of The Market?

0 Comments By Mark Logue on September 28th, 2009
Tags: , ,      Categories: Buying, Market Conditions, Mortgage

Today, everyone  looks for the “bottom of the market” when they are in the market for a home. But it’s not just the price that determines the real cost of buying a home. Interest rates and financing options also have a huge impact on monthly costs.

Should you buy now or does it make sense to wait? While  there’s no doubt that property values have declined vs. a year ago, the rate of decline has slowed significantly in the past few months. And while there are endless predictions, the exact timing on when prices will stabilize is unknown. But waiting for the lowest possible  purchase price could ultimately end up costing you more if the rates and financing opportunities are not as favorable as they are today.  Here are a few important factors to consider before you make a decision.

Interest Rates – The Good News

The Federal Reserve initiated a program to buy mortgage-backed securities, which control the rates that people pay for their home loans. Over the last 7 months, rates have been bouncing between 4.625% and 5.25% for 30-year fixed rate loans.

Interest Rates – The Bad News

Rates are artificially low. The Federal Reserve will not continue to buy mortgage-backed securities indefinitely. Economists are predicting that rates will increase significantly in the first quarter of 2010. Historically, interest rates have been above 6%. The opportunity to obtain a home with an interest rate in the low 5′s will not be available for much longer.

Mortgage Financing

Fannie Mae and Freddie Mac have set temporary loan limits in “high balance” areas of many metropolitan areas at $729,750.  This limit is probably going to be reduced on December 31, 2009.  Although not confirmed, the new limit could be as low as $417,000.

The Clock is Ticking on Free Money

From now until November 30, 2009, first time home buyers are able to take advantage of an $8,000 Tax Credit. The transaction must close and fund by November 30th in order to take advantage of the credit.

Mortgages Made Easy

0 Comments By Mark Logue on September 18th, 2009
Tags: , ,      Categories: Buying, Mortgage

With the expiration of the First Time Home Buyer Tax Credit getting close, the most common question that I am asked is “what are the all the steps in the process of buying a house?” Having been in the mortgage business for close to 20 years now, I have a great deal of experience making this process as painless as possible.

Here’s a quick walk-through on how purchase loans are made.

  1. Loan Search – Seek the advice of an experienced mortgage professional to better understand which financing options suit your needs now and in the future.
  2. Loan Application- Supply the lender with as much information as possible, as accurately as possible.
  3. Documentation- Submit paperwork supporting application. Commonly required items include pay stubs, two years of tax returns, two months of bank statements verifying the source of down payment, funds to close and reserves.
  4. Pre-Approval – This allows you to know how much you can afford to spend on a home and gives you greater negotiating power.
  5. The Search – Now is the time to begin your search. Once the right house is found, the terms of the sale will be negotiated, including the potential terms of the loan being sought.
  6. Inspection – You will need to hire licensed professionals to inspect the property for defects, termites and water damage.
  7. Appraisal – Your lender will require an appraisal of the home you wish to buy. An appraisal determines the marketability of the property relative to the rest of the market.
  8. Title Search – This process reveals any liens against the property. All liens must be cleared before a transaction can be completed.
  9. Processor’s Review – The mortgage processor reviews all the information and sends it to underwriting. (Always be nice to your processor)
  10. Underwriting Review – Underwriters make the final decision as to whether or not a loan is approved.
  11. Decision – The lender issues a letter stating an approval, denial or counter offer.
  12. Clear to Close- Assuming the loan is approved, all terms and conditions of the approval need to be accepted and satisfied by the applicant. The loan is clear to close once underwriting receives the acceptance from the buyer.
  13. Closing – During this step, the final loan and closing documents are signed.
  14. Funding- At this point, the lender sends a wire or check for the amount of the loan to the closing company.
  15. Close of transaction – Documents transferring title will now be recorded with the county.
  16. Congratulations! You now own your new home.  Now begins the most important step of all.  Enjoy your new home.

The Importance of Your Credit Score

0 Comments By Mark Logue on August 21st, 2009
Tags: , ,      Categories: Buying, Mortgage

What does it mean to you as a prospective buyer?

In the world of real estate, the three most important words are “location, location, location.”  In today’s post sub-prime mortgage world, the three most important words are “credit, credit, credit.”  Today’s home buyer needs to understand the importance and significance of their credit score from a lender’s perspective.

The credit score is an indicator of the likelihood that a consumer will pay off debt without being more than 90 days late.  Credit scores range from a low score of 300 to a high score of 850.  In order to (a) qualify for mortgage financing and (b) get the most competitive interest rate in today’s mortgage world, I recommend that you have a credit score of 700 or above. 

A high credit score means a low interest rate, which can save you tens of thousands of dollars in interest over a 30-year mortgage.

Credit scores should be checked at least once a year.  The three main credit reporting agencies (CRA’s); Equifax, Experian and Trans Union have created a central website Annualcreditreport.com, to allow you to get a copy of your credit report. Many people ask me, “What are the factors that affect my credit score”?  The answer is simple but not well known. To view my full article and to download the full list of credit score factors, click here.

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