Refinance ToolBox

Lock Now or Forever Hold Your P&I

2009-07-01T13:51:00.000-04:00

I know, I know, this is a cheesy title for the week’s blog entry, but it was inspired with the best of intentions. Since mortgage refinance rates hit their lows earlier this year, there has been a slow and steady drift upward. Mind you, we are still sitting at rates that are unbelievable taking the historical perspective, but none-the-less, not at the rock bottom yearly lows.

I have received an avalanche of inquiries recently from refinancing homeowners about when to lock their rate. Where will mortgage rates go from here? As I have said all along, there is no way to predict where mortgage rates will go as there are too many variables involved, particularly in today’s volatile US economy.

Rate shoppers are thinking, “sheesh, I didn’t lock when 30 Year Fixed mortgage rates were at 5 percent, and now they’re at 5.5 percent and that seems high”. To give a little perspective, last year’s rates at this very same time for 30 Year Fixed mortgage rates were near 6.5 percent!

At current home loan rate levels, the risk of movement is far greater to the upside than to the downside. Consider in the future that we encounter high inflation, continued housing market problems, and a flight out of US Treasuries. These variables alone, which are not out of the picture, could cause mortgage rates to climb rather rapidly, to 6.5 percent, 7.0 percent, or even further.

Now lets take the counter approach and say that the US government announces another buy-back program for bank toxic debt, mortgage backed securities and treasuries. This would cause rates to drop quickly, maybe back to the 5.0 percent level for a 30 Year Fixed rate mortgage.

This brings me to the main point of this week’s lamely titled post. RISK. What are you risking by delaying the lock of your new home loan by waiting for refinance rates to drop further?

If, by refinancing at current mortgage rates, there is little or no benefit for you, then of course it would be wise to wait on the market to see if rates drop further in the future.

On the other hand, if refinancing now creates a significant financial benefit for you, there is a real financial risk for you to delay your lock. Consider that even ‘IF” rates drop down by another one-half percent to match the historic lows of all-time, the net additional gain for your risk will not be substantial (about $60 per month for a $200,000 home loan).

The real pain occurs if rates go up from here while you delayed your rate lock, and never get the opportunity to refinance. As we have witnessed over the past year, mortgage rates can move swiftly and a current beneficial deal can turn sour in a heartbeat.

Citing the previous scenario, assume a borrower can save $250 per month refinancing a $200,000 home loan now. The homeowner would be risking the loss an in-hand benefit of $3,000 per year ($250 x 12) by delaying a rate lock in hopes of hitting the market bottom rate to net an additional savings of $720 per year ($60 x 12).

Anyone in business would tell you that the Risk/Reward analysis for this example weighs heavily in the favor of locking now, while the getting is good.

So, what if I lock at a 5.5% mortgage rate today, a perfect storm news story for rates hits the wires and rates drop to 5.0% tomorrow? Who Cares!

If you make your rate lock decision with sound financial reasoning examining the current risk and reward, you shouldn’t care either, because you made the proper decision for the current financial environment. Plus, you will already be sitting pretty with a better financial scenario at a lower interest rate.

Too many people have been hurt, or I should say, lost out on a significant financial benefit this year by delaying their rate lock for greener pastures. And who could blame them when financial “experts” on CNBC, CNN, FOX, etc, were telling people that rates were going down to 4.0 percent!

Just remember, there is no way to accurately predict where mortgage rates will go. You have to make your refinancing decision based in the “Now” and on your specific mortgage benefit scenario, utilizing Risk and Reward as your guide.

If you are considering a refinance now and need some help, have questions, or need some competitive rate quotes, please check out the popular Refinance Tool Box. Just give a call at 888-850-9888 or fill out a Rate Quote Request online for professional assistance without the aggressive high-pressure sales tactics.

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

Treasury Yields Down and Mortgage Spreads Up = Flat Refinance Rates

2009-06-23T13:14:00.000-04:00

After the battle at the 4.0 percent mark of the 10 Year Treasury Yield on June 10, we have experienced a rather nice retreat by more than ¼ percent in the past couple weeks, yet you may have noticed that mortgage refinance rates have remained somewhat flat in the interim. That is because of the increase in the mortgage spread premium that investors and lenders are adding to the interest rates to make up for their perceived risk of inflation, housing values, and other pesky economic perils.

The good news is that although, the mortgage spread has gone up, refinance rates are still looking very good at present levels.

The bad news is that lender underwriting is getting even tougher and home appraisals continue to drift downward in many home markets. The hardest hit home value states continue to be Arizona, California, Florida, and Nevada.

That is why I continue to harp on home values and how important it is for refinancing homeowners to check among the multitude of free online home value checkers. Even though interest rates are still nice and pretty, it will do you no good if your quoted refinance home loan rate and program is pre-qualified based on a higher than realistic perception of the value of your home. Depending upon the mortgage program you are applying for, your loan rate could go up, monthly mortgage insurance can enter the equation, or your loan could be outright declined if a lower than expected home appraisal comes in.

Of course, most of us know there are no guarantees at what number a home appraisal will come in at, but, you can increase your odds of home value accuracy at the onset by doing a little online research. A good lender will also check value numbers for you before you apply for your refinance loan, but don’t count on it.

Many of you will benefit significantly by refinancing into current low mortgage rates, but the accuracy of your pre-qualified numbers are very important. Accurate information for income, credit and home value at application will go a long way toward getting your new home mortgage closed efficiently, while avoiding potential headaches during the loan process.

Today, the FOMC begins its two-day meeting and mortgage industry is looking for some clarity on its economic outlook. As far as mortgage refinance rates are concerned, look for anything in their upcoming announcements relating to shifts to their November 4 announced purchase plan for mortgages, agency debt, and treasuries. Also look for any insight into how long it will keep current overnight lending rates intact.

The FOMC meeting announcements will result in mortgage refinance rates either going up, going down, or staying flat. Now, if that isn’t a wishy-washy statement, I don’t know what one is! In reality, barring a drastic announcement either restricting or bumping-up their mortgage related purchase plans, I would suspect things to remain even-keel on their announcement.

On the home value front, May existing home sales rose less than expected. Home sales rose 2.4 percent to a seasonally adjusted annual pace of 4.77 million, up from a downwardly revised rate of 4.66 million in April. About one in three homes sold last month was a foreclosure or distressed sale, dragging down the median price to $173,000 -- 16.8 percent below a year ago. Falling prices coupled with new rules for property appraisers have caused many transactions to fall apart or be delayed.

Yes, that pesky home value issue still remains a problem for many that could benefit with current low mortgage rates.

Rate/Term FHA loans continue to be offered at up to 97 percent LTV with conventional type interest rates, and can be a big help to those refinancing in hard-hit home value areas. For those that have a solid qualifying LTV refinance scenario under 80 percent with good to excellent credit, the mortgage rate world is still your oyster.

If you are considering a refinance now and need some help, have questions, or need some competitive rate quotes, please check out the popular Refinance Tool Box. Just give a call at 888-850-9888 or fill out a Rate Quote Request online for professional assistance without the aggressive high-pressure sales tactics.

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

Small Dip in Weekly Mortgage Rates Meets New Housing Data

2009-06-16T11:09:00.001-04:00

For a while last week, there were many nervous refinance lenders and loan officers staring at the yield on the 10 Year Treasury. Intra-day, it pushed passed the 4.0 percent level, but closed below that pivotal mark. Many in the industry believe that a true breach of the 4.0 percent yield level could mean rising mortgage refinance rates.

Since the yield held at the key resistance point last week, we have actually had some nice downward action by almost one-quarter percentage point. Mortgage refinance rates have dipped a bit in movement with the yield as anticipated.

On a more longer-range mortgage related outlook, some key housing data was released today. On the surface, the numbers look great, but a deeper read into the numbers does not fare well for home prices in the near term.

New housing starts in May jumped by 17.2 percent. That nice number is still 45.2 percent below the housing starts at the same time last year. Another seemingly good bit of news was reported that applications for building permits jumped by 4 percent in May, and is usually a good sign of future housing activity.

In more normal times, these would be welcome signs of increased economic activity, but with the huge housing supply overhang already in place and with more supply expected due to heightened foreclosure rates, these numbers are not particularly helpful to a housing market already plagued with depressed prices.

In reality, builders are still being very cautious as home supply continues to build. With foreclosures and other distressed properties for sale at deep discounts, builders often can't compete. Rather than launching new developments, they are waiting for signs of a broader recovery.

This latest news is all the more reason for people considering a home refinance to react quickly to current mortgage refinance rates if their view is long-term, if they need to consolidate debt, or switch to a low fixed rate from a current variable rate home loan.

Why jump now? If home values continue to descend, it could very well knock a refinancing homeowner from reaping a current significant financial benefit, to a future non-beneficial or even non-qualified home refinance scenario.

Couple that with the fact that the future risk to the upside for mortgage refinance rates is much greater than a move to the downside at current levels and I think you get the point.

The key is to speak with a lender that can guide you through a thorough pre-qualification and give you the bottom-line financial options for your current refinancing scenario. It very well could be that your refinancing plans should in fact wait, but if there is true pre-qualified and significant benefit waiting on the table for your now, you just might want to jump into the pool.

If you are considering a refinance now and need some help, have questions, or need some competitive rate quotes, please check out the popular Refinance Tool Box. Just give a call at 888-850-9888 or fill out a Rate Quote Request online for professional assistance without the aggressive high-pressure sales tactics.

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

Treasury Yield Held 1st Battle with 4.0% Level

2009-06-12T08:45:00.003-04:00

A quick note for those looking to lock refinancing rates in the near future. The key 10-Year Treasury yield held at the resistance level of 4.0%. A breach of 4.0% could result in a rather quick run-up for mortgage refinance rates.

Mortgage Rates Rise with Drop in 10-Year Treasury Price

2009-06-12T08:40:00.000-04:00

For the better part of 2009, mortgage refinance rates have held their own, almost amazingly for 5 months, but the recent surge in the 10-Year Treasury Yield has caused rates to rise by almost one-half point over the past couple of weeks.

The closing treasury yield on May 1 was 3.174 percent, while the close yesterday stood at 3.858 percent for a total change to the upside of .684 percent for the period. This increase in yield (which is opposite to the bond price) pretty much accounts for the increase to mortgage rates currently being offered.

The national average 30 Year Fixed mortgage rate for borrowers with excellent credit and financing 80 percent or less of the value of their home currently sits at about 5.5 percent.

Remember what I said earlier this year, when the national average rate was below 5.0 percent? I will not say “I told you so”, really…. But, there were many borrowers that refused to lock back then, when the getting was good. The typical “fence-sitting” posture assumed that rates would go down even further. Now, those same refinancing homeowners are either locking at higher rates, in a panic, while there is still significant benefit available, or kicking themselves for not locking sooner. It can be a real stomach turner, when you miss out on a great opportunity.

To those that missed out on the lowest rates of the year, I say, Forget About It! You are not alone, as a good number of refinancing homeowners will typically wait for the lowest mortgage rate offer that never comes.

Now lets go to a reality check timeout. Current Mortgage rates are still an awesome deal for a good portion of US homeowners. Particularly if you are looking to consolidate debt, get out of an adjustable rate mortgage, or maybe want to combine your first and second mortgage into one fixed home loan.

So, where will mortgage rates go from here? I don’t know, and nobody can tell you with any degree of accuracy because there are just too many variables involved, particularly in our current volatile economic climate.

What I can do is relay some pivotal variables to be on the lookout for, pertaining to the direction of mortgage rates.

On the mortgage rate increase side. Continued increases in supply to US bond debt (and ensuing threat of inflation) will cause the treasury yields to increase. The continued threat of major bank implosions will continue the stranglehold on investment capital and hurt interest rates. Continued downside pressure in home pricing threaten rates. Home foreclosure numbers that continue to rise is a major concern. Unemployment rates that reach over 10 percent will help to put pressure on mortgage rates.

On the mortgage rate decrease side. Home value stabilization, better employment numbers, stabilized foreclosure numbers, increased pending home sales and new construction starts, an adopted measure for valuing bank toxic assets, demand in long term US treasuries, and stronger bank balance sheets will all have a positive effect on current mortgage rates. Also, don’t forget the power of the US government to save the day again with some more money thrown at mortgage-backed securities and/or a Fannie/Freddie loan program offering that really helps people to get into a new home with lesser credit score and out-of-pocket money restrictions.

Now, the previously mentioned factors are just some of the major variables, but there are many others, which I hope will let you cut me some slack when I say that I don’t know where mortgage rates are going.

All I do know, is that the risk to rates moving to the upside is much greater than the move they will make to the downside. That is all the more reason to weigh your options carefully when deciding to wait on a current rate lock that is providing you with significant benefit, in hopes that you might be able to get in at a lower rate. Many have been financially hurt with that mindset in the current refinancing mortgage market.

If you are considering a refinance now and need some help, have questions, or need some competitive rate quotes, please check out the popular Refinance Tool Box. Just give a call at 888-850-9888 or fill out a Rate Quote Request online for professional assistance without the aggressive high-pressure sales tactics.

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

Mortgage Rates Rise with Drop in 10-Year Treasury Price

2009-06-10T16:08:00.022-04:00

For the better part of 2009, mortgage refinance rates have held their own, almost amazingly for 5 months, but the recent surge in the 10-Year Treasury Yield has caused rates to rise by almost one-half point over the past couple of weeks.

The closing treasury yield on May 1 was 3.174 percent, while the close yesterday stood at 3.858 percent for a total change to the upside of .684 percent for the period. This increase in yield (which is opposite to the bond price) pretty much accounts for the increase to mortgage rates currently being offered.

The national average 30 Year Fixed mortgage rate for home loan borrowers with excellent credit and financing 80 percent or less of the value of their home currently sits at about 5.5 percent.

Remember what I said earlier this year, when the national average rate was below 5.0 percent? I will not say “I told you so”, really…. But, there were many borrowers that refused to lock back then, when the getting was good. The typical “fence-sitting” posture assumed that rates would go down even further. Now, those same refinancing homeowners are either locking at higher rates, in a panic, while there is still significant benefit available, or kicking themselves for not locking sooner. It can be a real stomach turner, when you miss out on a great opportunity.

To those that missed out on the lowest rates of the year, I say, Forget About It! You are not alone, as a good number of refinancing homeowners will typically wait for the lowest mortgage rate offer that never comes.

Now lets go to a reality check timeout. Current Mortgage rates are still an awesome deal for a good portion of US homeowners. Particularly if you are looking to consolidate debt, get out of an adjustable rate mortgage, or maybe want to combine your first and second mortgage into one fixed home loan.

So, where will mortgage rates go from here? I don’t know, and nobody can tell you with any degree of accuracy because there are just too many variables involved, particularly in our current volatile economic climate.

What I can do is relay some pivotal variables to be on the lookout for, pertaining to the direction of mortgage rates.

On the mortgage rate increase side. Continued increases in supply to US bond debt (and ensuing threat of inflation) will cause the treasury yields to increase. The continued threat of major bank implosions will continue the stranglehold on investment capital and hurt interest rates. Continued downside pressure in home pricing threaten rates. Home foreclosure numbers that continue to rise is a major concern. Unemployment rates that reach over 10 percent will help to put pressure on mortgage rates.

On the mortgage rate decrease side. Home value stabilization, better employment numbers, stabilized foreclosure numbers, increased pending home sales and new construction starts, an adopted measure for valuing bank toxic assets, demand in long term US treasuries, and stronger bank balance sheets will all have a positive effect on current mortgage rates. Also, don’t forget the power of the US government to save the day again with some more money thrown at mortgage-backed securities and/or a Fannie/Freddie loan program offering that really helps people to get into a new home with lesser credit score and out-of-pocket money restrictions.

Now, the previously mentioned factors are just some of the major variables, but there are many others, which I hope will let you cut me some slack when I say that I don’t know where mortgage rates are going.

All I do know, is that the risk to rates moving to the upside is much greater than the move they will make to the downside. That is all the more reason to weigh your options carefully when deciding to wait on a current rate lock that is providing you with significant benefit, in hopes that you might be able to get in at a lower rate. Many have been financially hurt with that mindset in the current refinancing mortgage market.

If you are considering a refinance now and need some help, have questions, or need some competitive rate quotes, please check out the popular Refinance Tool Box. Just give a call at 888-850-9888 or fill out a Rate Quote Request online for professional assistance without the aggressive high-pressure sales tactics.

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

Pending Home Sales Rise in April – Could be a Good Sign for Home Loans

2009-06-03T10:25:00.000-04:00

Yesterday, a somewhat unexpected surprise was reported with the pending home sales report for April. Pending home sales surged by 6.7 percent for the month, which represents the largest jump in nearly eight years.

Now, we all know not to get too excited about home sales numbers for one month’s worth of data, but at least it is a positive sign.

The concern is that home sales will continue to increase into the summer, but that prices will continue to go down. Continued high jobless numbers is also a major concern and could be a barrier to any real short-term sales and pricing momentum.

Much of the jump in home sales is being attributed to the $8,000 first time homebuyer tax credit initiated by the Obama administration this past February. Since home purchases need to be completed by November 30 to claim the credit, we could experience better than expected home sales numbers into the summer.

There are still too many variables involved to call a bottom in the US housing market, but the near-term outlook does look better than it did even a few months ago.

How do home sales affect my home refinance plans? Well, home sales affect two major components of a refinance mortgage. Home value and interest rate. Generally speaking, the higher volume of home sales, the more the demand, and eventually the higher the price. This of course affects your home’s “appraised value” which is use to qualify your Loan-to-Value ratio (LTV). A home value difference of as little as $5,000 to $10,000 or so can change your qualified home refinance options significantly for mortgage rates. Also, you may fall into the “above 80 LTV” range and be required to pay monthly mortgage insurance. That relative small home value difference to the downside can result in a rather large increase to your monthly refinanced mortgage payment.

As far as mortgage rates go, a stabilized or increasing value for the housing market makes lenders feel a little bit better about lending funds. Their risk declines and they lower their mortgage-spread premium to remain competitive with all the other lenders that now want to make a more secure profit. So more liberal programs may be offered along with a decrease to offered mortgage rates.

So, even if you don’t care what home sales do because you already own your own home, keep an on the home sales numbers just in case you are considering a home refinance. The better the numbers, the better your deal may become when you are ready to get that new home loan.

If you are considering a refinance now and need some help, have questions, or need some competitive rate quotes, please check out the popular Refinance Tool Box. Just give a call at 888-850-9888 or fill out a Rate Quote Request online for professional assistance without the aggressive high-pressure sales tactics.

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

Treasury Yield Creeping Up While Mortgage Refinance Rates Level

2009-05-27T11:01:00.001-04:00

The 10-Year Treasury Yield has breached 3.5% to the upside intra day, a level we have not witnessed since last November. Part of the reason for the reversal in fortune is due to the major upswing in the stock market off its 2009 lows. As investment money flows back into stocks, it is taken out of government bonds. Also, the government bond buy-back program is running its course as of late. As more US bond supply hits the market (to pay for the immense government spending programs), bond prices continue to drop and the yield increases.

Normally, a significant rise in the 10 Year Treasury Yield would result in higher mortgage rates, but this latest bump-up in the yield has been tempered by what appears to be a drop in the mortgage spread premium, which is keeping refinance rates at nice levels still.

With that said, it might be a good time to lock that rate now, if you are qualified for a current mortgage rate producing a nice financial benefit for you. If the government does not announce any more buy-backs or toxic debt fixes in the near future, interest rates could go up rather sharply because the housing and job markets are still projected for further pain.

U.S. home prices are at levels not seen since the end of 2002. The Standard & Poor's/Case-Shiller National Home Price index reported home prices tumbled by 19.1 percent in the first quarter 2009 compared to the first quarter last year, the largest drop in its 21-year history. Home prices have fallen 32.2 percent since peaking in the second quarter of 2006.

Unfortunately, there is still no evidence of a bottoming in the housing markets.

That’s the bad news, but for those with equity in their homes, refinancing into lower rates is still looking great. Remember that for cash-out refinances, you will pretty much be limited to 85 percent of the value of your home. For higher LTV Rate/Term refinances, FHA is still offering great mortgage rates at up to 97 percent of the value of your home.

If you are considering a refinance now and need some help, have questions, or need some competitive rate quotes, please check out the popular Refinance Tool Box. Just give a call at 888-850-9888 or fill out a Rate Quote Request online for professional assistance without the aggressive high-pressure sales tactics.

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

Refinancing and Break Even Analysis

2009-05-19T13:04:00.001-04:00

Too often, refinancing homeowners will take one look at the closing costs total on their good faith estimate and run to the hills, exclaiming that they are “too high”, before they actually examine the whether the proposed new home loan will be a benefit for them or not.

One thing is for sure. Everyone wants the lowest mortgage rate possible, but that “lowest” rate available will come at a cost called “discount points”. Now, discount points get a bad rap, but they can actually end up being your best friend if you plan on staying in your new mortgage for the long-term.

But, you don’t even really need to bother yourself with how many discount points are included in your quote to figure your net benefit or non-benefit for the loan. This can be determined rather easily by using “Breakeven Analysis” to get down to the bottom line.

For example, suppose you have a lender quote and good faith estimate for a shiny new low interest rate. Forget how many points, fees, and all that stuff. You need to pay attention to the bottom-line closing costs. Bottom line closing costs include everything on your good faith estimate except any estimation for property tax escrow deposits, homeowner's insurance (and homeowner's association dues if applicable) escrow deposits, and pre-paid interest estimations. That leaves you with the true cost of the loan.

So, your bottom line closing costs amount to $6,500 for a super low mortgage rate that is going to save you $250 per month. Divide the cost ($6,500) by the monthly savings ($250) to result in your Break Even Point of 26 months. If you plan to stay in your new mortgage for more than 26 months, this is a good deal. If not, then you might want to pass on that deal. Yes, it is that simple!

In many cases, a little bit higher interest rate with lesser fees is a better overall deal when the borrower’s timeframe is relatively short. But now that you know the breakeven analysis method, you can figure out different options within minutes and pick the best deal for you. It can also prevent you from making a financial mistake when the overall figures do not work in your favor. The numbers don’t lie.

With that said, mortgage refinance rates have been rather consistent for a second week in a row. This is a good thing when interest rates are near historic bottoms as they stand at the moment.

If you need a quote or someone to go over your specific refinance scenario, including a breakeven analysis, don’t hesitate to call or request a quote online with the Refinance Tool Box. We are here to help and never use the high-pressure sales tactics that many refinancing homeowners encounter.

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

Calm, but Good Week For Mortgage Refinance

2009-05-12T13:24:00.000-04:00

During the past couple months, it seemed like a new major event was occurring each week relating to home loan refinance. Big news on government plans causing rates to plummet, while loan program restrictions increased. Housing values, construction numbers, employment, and the stock market bounce caused quite a joy ride on the refinance front.

It’s nice to catch your breath every once in a while, and the past week has allowed just that. Mortgage rates had been steadily rising off the 3.0 percent breach of the 10-Year Treasury Yield, but the last several days has brought a reprieve for the rate sensitive consumer, allowing them to lock rates at near all-time lows once again.

On the home value front, The National Association of Realtors said today that the median sales prices of existing homes declined in 134 out of 152 metropolitan areas compared with the same period a year ago. Prices rose in the other 18 cities. The median home sales price nationwide was $169,900, down 13.8 percent from a year ago. The median price is the midpoint, which means half of the homes sold for more and half for less.

It is expected that home sales will increase into the second half of this year, and that could finally bring the brakes to falling prices. Home price stabilization would be just the kick-start we need for a healthy home mortgage lending environment and a revitalized economy.

I keep getting the question “Are rates going to drop further”? Unfortunately, I do not know whether they will or not. There are too many major variables (currently volatile) involved to give any mortgage to give a prediction with any degree of accuracy at all.

About the only thing that I do know for certain is that mortgage rates are currently at historic low levels for conventional and FHA refinancing programs.

Remember though, the best deals for conventional are for 80 LTV and under loans for those with good to excellent credit. FHA also has great deals for over 80 LTV loans for those with a 620 mid credit score or higher, but the cap LTV for a cash-out refinance is at 85 percent, while a regular rate-term FHA refinance remains at 96.5 percent.

Holding off now for lower rates in the future could be a risky proposition on your part if you are pre-qualified on a program providing significant benefit. My suggestion is to lock while the getting is good and not worry where rates go from there. Waiting for a slight decrease in mortgage rate is too much of a risk to take when you are sitting on a current good to excellent refinance benefit scenario.

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

Could Home Values Be Stabilizing?

2009-05-05T15:11:00.000-04:00

If you have looked through the Refinance Tool Box website, then you are acutely aware of how crucial the current market value of your home is to your refinancing plans. It can mean the difference between a great rate and a good rate or a loan approval to loan denial.

Tougher lender underwriting guidelines have made home value at the forefront of today’s home refinance. Loan-to-Value (LTV) ratios for cash-out refinances have been reduced from almost 100 percent to 85 percent. What’s more is that qualified mortgage rates can change significantly as your LTV increases.

Recent reports on pending home sales and home construction spending have shown a glimmer of hope that the housing market may be stabilizing. At the present time, it is too difficult to tell whether we are in fact at the market bottom.

Pending home sales numbers are most likely being skewed as people scramble to buy-up foreclosure and distressed homes for sale. Mortgage rates are still near all-time lows, so that is only adding fuel to the increased buyer momentum.

There is still an overstocked home environment in the US and basic supply-demand law would point toward some further price drops until the current home inventory is diminished. The good news is that home inventories are being reduced. The bleak jobs environment may slow the home-buying pace a bit, but I think we are heading in the right direction.

We may focus on the micro-view (refinancing) here, but the macro-view (economy) will become much brighter once we have actually hit the housing price bottom. In fact, our US economic recovery depends upon it.

Keep a lookout to the housing market sales reports and new construction spending as a key indicator that we are coming out of the doldrums of our current recession. Also, expect a “loosening of the belt” from both refinance and purchase mortgage lenders once they feel that they can count on solid home values. Lenders are still being very cautious in backing high LTV mortgages in a declining home value environment.

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

Mortgage Refinance Rates Continue Low and Steady Ride

2009-04-28T19:28:00.000-04:00

After what has been a volatile year for mortgage refinance rates, mostly to the good side for refinancing homeowners, we have experienced somewhat of a steady rate state in the market over the past several weeks. After the dip in rates off the government announcement that it would buy US Treasuries and Fannie/Freddie mortgage-backed securities, the market bounced back up a bit into the current low and steady interest rate environment.

The biggest changes in the interim regarding mortgage refinance has really been the change to the Loan-to-Value (LTV) cap on cash-out refinances and the FHA minimum credit score change from 580 to 620. For the most part, 85 percent is the cap and most likely will not change upward until home prices act in kind. Expect the same for lower credit score qualifications. Lenders and HUD are just not willing to expose themselves to any undue risk until the housing market stabilizes.

FHA rate/term and cash-out refinance programs continue to offer excellent rates for those with high LTV’s and those with less than perfect credit down to a 620 mid FICO score. Conventional home loan rates for those with excellent credit and refinancing less than 80 percent of the appraised value of their home continue at historic low levels.

Recent housing reports suggest that we are still nowhere near stabilization for home prices. The best we can hope for is that inventories decrease over the next several months. This would be a nice way to alter the supply-demand while mortgage rates are still ultra-low.

Refinance shoppers keep telling me that they heard that refinance rates will hit a 4.0 percent “par” or “even” rate shortly, so they are waiting on the refinance fence. Be very careful if you are sitting on a current pre-qualified mortgage rate that is providing a significant benefit, and waiting for that coveted 4.0 percent par rate. The likelihood of that event occurring is not in your favor and with the 10-Year Treasury now breaching 3.0%, you run the risk of losing your “sure-thing” benefit, possibly for months, years, or forever. That could be a costly mistake, a tens-of-thousands dollar mistake.

You know what they say … “Get it while the Getting is Good”!

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

Loan-to-Value and Locking Mortgage Rates While the Getting is Good

2009-04-22T13:09:00.000-04:00

Home loan shoppers ask me all the time … “Should I wait to lock my rate? Aren’t mortgage rates supposed to drop again?” My pat response is to ask my client whether they are willing to risk the benefits available to them now in the event that rates do not drop, and possibly go up, possibly causing them to lose future benefits and maybe scratch the refinance plans altogether.

If the history of financial reporting relating to mortgage rates is any indication, you actually might want to wait to lock your rate if the pundits exclaim that interest rates are going up…(laughter fills the room). All bad jokes aside, there is no way to predict with any degree of accuracy, where mortgage rates will go. In fact, at the present, we are near all-time lows for mortgage rates. If you already have a significant benefit available at the current low rates, how much do you think rates will fall, if they do drop again? Most likely, rates will not drop much further from the lows of this year.

It’s boils down to risk and reward when it comes to locking your rate. Depending upon the current benefit available and the current state of mortgage rates, the borrower stands to risk a large benefit by delaying a rate lock for a relative small reward if rates drop further.

Declining home values across the US are create another valid reason to lock your rate while the getting is good, and the timeframe for you new home loan is long-term.

The continued decline in home sales, makes each current home sale (sale of a comparable home to yours) in your area, that much more critical in how it affects the appraisal value of your home. For instance, if home sales in your area have been low for the previous 12 months and a couple foreclosure sales come through at rock bottom prices, your home stands to lose appraisal value for refinance Loan-to-Value (LTV) qualification purposes.

It is not uncommon that people wait to lock and their home value declines in the interim, raises their LTV, and makes the current refinance program a worse scenario than if they had locked when market mortgage rates were higher.

The LTV grading tiers for qualified interest rates are tightening, which makes home value a crucial decision point for rate lock decisions. Not to mention the huge impact of a declining home value for the homeowner that is currently at or near an 80 percent LTV.

The recent lender reductions in refinance cash-out caps, also makes home value king for qualifying LTV’s near 85 percent.

The moral of the refinancing story in today’s market is that if you have a pre-qualified loan program that gives you the benefit that you want or need, it would be wise to think twice about risking your “Bird-in-the-Hand”, for visions of a future drop in mortgage rates.

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

Frozen on the Refinance Fence

2009-04-15T11:24:00.000-04:00

A funny thing happens to many refinancing home loan shoppers once they begin their journey to a new and improved mortgage. They will gather loads of quotes, study their good faith estimates, read the latest news on mortgage rate trends, then freeze when it comes time to pull the trigger and submit their loan application.

This “freezing” reaction is actually quite understandable, especially for those that are gathering multiple quotes and really trying to study the mortgage market. Sometimes, the more you know about a subject, the more difficult it is to react.

What’s more, you can talk to 5 different lenders and receive 5 different quotes, including significant differences for rates and fees. Now comes the different advice and information relayed by these same mortgage lenders and it’s enough to put a twinge of doubt into the borrower’s mind to say the least. Who is blowing smoke and who has the real deal?

Waiting for rates to drop further is another reason that homeowners put a freeze on their refinancing plans, even when they have a deal in-hand that meets their initial goals for their new mortgage. CNBC or CNN financial experts say that 30 year fixed rates will go down to 4.0 percent, so people wait. Unfortunately, they don’t tell you these same experts predicted rates to go up to 8.0 percent last fall, right before mortgage rates dropped to 5.0 percent.

It is also human nature to want to keep things as they are. Even though someone may be shopping for a better mortgage deal while interest rates are so low, subconsciously, it is much easier to maintain the status quo.

The truth of the matter is, that no one can predict with any degree of accuracy where mortgage rates will go. If you try to time the mortgage rate market bottom, odds are that you will end up either not refinancing at all, or panic into a higher rate than current if rates suddenly go up. It is good advice to treat refinancing decisions just like the most successful traders in the stock markets, as they do not predict price movements, but only react when conditions are in their favor.

Dealing with a lender that holds the third party designation as an “Upfront Lender” will help you to end your insecurity as to whether your quoted rates and fees will be the same by the time you close your loan. Your Upfront Lender will guarantee most if not all fees and also guarantee your rate lock so that you don’t have to worry about getting the rug pulled out from under you.

I hope this helps those considering a refinance loan now, so that they don’t freeze when they have a deal-in-hand that will bring a significant financial benefit to them. Most people find that once they make their decision, calm and confidence soon follows.

May the Mortgage Refinance Rates be with You!

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Cash-Out Refinance and Further Lender Tightening

2009-04-08T10:05:00.001-04:00

Just last week, it was announced that the Cash-Out cap for FHA refinance loans would be reduced to 85 percent of home appraised value (LTV). Now, it appears that many conventional loan programs are following suit and reducing Cash-Out amounts as low as 80 percent for some lenders, even for those with excellent credit.

The lowered cash-out limits may be a direct reflection of continued downward pressure on home prices across the nation, but may also reflect credit-tightening measures by lenders battling in a cash-flow conscious industry.

Mortgage rates are still at excellent levels, particularly for those refinancing less than 80 percent of the value of their home with good to excellent credit.

The bigger picture for future low mortgage refinance rates and higher LTV limits will be heavily dependent upon two crucial factors.

The first is home value. Until the housing market stabilizes, banks and investors will continue to be strict with their funds, limit LTV limits and charge a higher-than-normal premium on interest rates for risk associated with home value.

The second is lender liquidity. An agreed upon method for valuing toxic assets held by banks (namely mortgage related investments) has yet to be found. Private investors (backed by the US government) are willing to buy these risky assets, but their price is much lower than what the banks are willing to sell them for. This story has been playing out for months, and a resolution does not appear in the cards any time soon. If the banks ultimately end up unloading these pesky liquidity killers, their balance sheets will allow a much more robust dive into mortgage lending.

It’s almost like the chicken and the egg… which one needs to occur first? It’s tough to say, but if the banks are able to unload their toxic assets, offered home purchase programs could become much less restrictive than current, drive competition among lenders, and bring an influx of willing and able buyers to the home-purchase closing table. Home supplies will decrease to meet an increasing demand and home prices could stabilize.

Let’s hope that an agreed-upon valuation method for toxic assets occurs soon. It would be a huge help for home values and mortgage financing opportunities, especially for those that require high LTV refinancing or home purchase mortgages.

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

FHA Temporarily Reduces Cash-Out Refinance LTV

2009-04-01T11:39:00.000-04:00

Effective for April 1, 2009, the loan-to-value (LTV) of any cash-out refinance to be insured by FHA may not exceed 85 percent of the appraiser’s estimate of value. This restriction refinances is being instituted on a temporary basis while FHA further analyzes the housing and mortgage industry as well as its own portfolio to determine whether permanent measures should be taken.

It appears as though the US Department of Housing and Urban Development (HUD) is all too aware of the declining home values across the United States and is looking to limit their exposure for the cash-out refinance loan scenario. Hopefully, the previous 95 percent loan-to-value limit will be reinstated at some point down the road.

The current FHA 96.5 percent LTV limit on Rate/Term refinances (refinancing your existing mortgage only) has not been changed.

In a somewhat rosy on the surface report issued today, sales of existing home sales rose 5.1 percent in February, the largest increase in nearly six years. Unfortunately for property values, the increase is being attributed to falling home prices and mortgage interest rates.

There is a debate as to whether the housing market will begin to heat up into 2009. On one side, you have the folks that feel current low home prices and low mortgage rates will bring the offers in. The other side thinks that continued mounting job losses and declining incomes will keep people on the home-buying sidelines. New housing starts are still dismal, so it may be a stretch to call a housing market bottom this year.

On a bright note, the 10-year Treasury has declined a bit on the week and mortgage rates are still looking awesome.

If you are thinking about refinancing now, and plan to stay with your new mortgage for the long term (at least 5 years or more), now might be the time to act if you have a good credit score and are near that 80 percent loan-to-value ratio. The reason being that home values have been very volatile by area. Just one or two recently purchased foreclosure or rock-bottom priced homes in your area could bring the appraised value of your home down quickly, and possibly out of the “Under 80 LTV” sweet spot for refinance rates.

Many homeowners in the refinance market feel that rates will drop further and are holding off for even lower rates. This could prove costly if the value of their home drops in the meantime, and results in an “Over 80 LTV” refinance scenario.

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

Fed’s $1.2 Trillion Announcement Great for Mortgage Refinance Rates

2009-03-25T11:03:00.001-04:00

Last Wednesday, the Fed announced a bold new effort to lower interest rates on mortgages and other consumer credit. The Fed announced that it will spend up to $300 billion for long-term government bonds, plus an additional $750 billion for mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac.

On this news, the 10-year Treasury yield dropped by almost one-half percentage points and mortgage refinance rates dropped almost immediately. Since the initial rate-drop off the news, the market has been moving sideways, with maybe a slight blip up in rates.

You know how they say that you usually don’t get a second chance? Not this year. Those that were sitting on the refinancing fence in January and missed out on the big rate drop now have the chance to refinance at awesome interest rate levels once again.

The government’s announcement on Monday for a plan to buy back toxic bank assets really didn’t cause much movement in mortgage rates. Most likely, last week’s rate drop already had that figured in to the mortgage spread premium.

The latest released numbers on per-existing home sales and new home sales shows the first percentage increases in months, but it’s way to early to get excited about that. The underlying numbers are still dismal and on the pre-existing home sales side, a large percentage of the increase is attributed to foreclosure sales at rock bottom prices, which is continuing to hammer on national home sale prices.

Yes, mortgage rates are great, but remember that the very best offered rates will be to those refinancing conventional with good to great credit and a loan-to-value (LTV) ratio under 80 percent. The value of your home and credit score is key!

FHA mortgage rates are still the way to go for LTV’s over 85 percent (even over 80 percent in some instances). The qualifying credit scores for FHA loans seem to be creeping upward from the 580 minimum score requirement for many lenders, but offer great rates for those in the 620 credit score range and up.

Many people shopping loans right now feel that rates will drop even further, so they are waiting on the fence. Unfortunately, many people get burned with this rationale, trying to pick the bottom. Same as the stock market, those who try to pick the bottom either end up with no transaction or end up buying at a higher than originally available price in panic as the market moves up.

The bottom line is that if you have a current offered loan scenario that creates a significant financial benefit for short-term goals and for your long-term horizon, it’s better to lock now and forget about picking the bottom. Yes, rates could drop further, but is it worth the risk of forgoing a beneficial loan in hand, on the gamble that rates might drop by another quarter to half percent? That is a big gamble, especially when considering where mortgage rates are at currently.
May the Mortgage Refinance Rates be with You!

Refinance Tool Box

FHA Mortgage Refinance Credit Score Qualification Creeping Upward

2009-03-17T13:14:00.000-04:00

It appears that banks and lending institutions are becoming even more stingy with their money, not only as it relates to business and short-term lending, but also for mortgage loans. One of the bigger shifts in qualification standards for refinancing homeowners pertains to the FHA loans program.

Throughout the subprime meltdown, FHA loans appeared to be the saving grace for many borrowers, as it allowed people with poor credit to get refinanced at awesome refinance rates, and up to a 97 percent LTV to boot.

Even though FHA loans are not technically credit score driven, the actual lenders underwriting and funding the loans have a minimum credit score limit that they will accept in order to qualify for the mortgage. That low limit was set at a 580 score throughout 2008 and for the beginning months of 2009. Unfortunately, that lower limit threshold has drifted upward for most lenders. As of this moment, most refinancing homeowners will have to have a minimum 600 to 620 mid fico score in order to qualify for an FHA loan.

There are most likely some lenders out there that will accept the older scoring limits, but my best guess is that you will have to pay a premium with a higher qualified mortgage rate, than the current market is bearing for the same loan scenario with a 600 to 620 credit score.

Yes, FHA rates are still great for lower qualified credit scores, but I’m afraid that a rather large percentage of poor credit score homeowners will be left out in the cold when they try to refinance.

If you find yourself with a sub 600 credit score and really need to refinance, especially if your major motivation is for cash-out or to consolidate debts, then you might want to consider the aid of a credit restoration company. Many times, credit reports have false information or negative items that can be removed. A credit repairer can take care of these items rather quickly and possibly have your score raised into refinance qualification range within 90 days or so.

If you do contact a credit repair company, make sure that they go over your credit report with you first, and also let you know if they can raise your score to the appropriate level, along with the timeframe anticipated to do this. There are many credit restoration companies that are long on fees and short on results. A reasonable fee should be no more than $300 to $400 for a year’s service for one individual.

Also consider that an improved credit score not only helps with mortgage qualification, but also for all other financial (credit related) matters, and even job opportunities.

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

Mortgage Refinance Rates Holding Steady Amidst Credit Tightening

2009-03-11T12:34:00.001-04:00

After the initial bounce up in mortgage refinance rates off the January ultra-low levels, interest rates have remained in a somewhat sideways holding pattern. This is good news for those still on the fence waiting to refinance, because actually, mortgage rates are still at historic low levels.

How long this will last is anyone’s guess, but the renewed state of credit tightening among lending institutions could prove to slant an upside bias onto mortgage refinance rates. The current widening of credit spreads is an indication that lending may be in a restricting phase once again.

In fact, in the face of a rising in the current 10-year Treasury yield, offered mortgage rates have experienced little change. This means that refinance lenders are actually taking a hit to their profit margin in face of the true cost of money. My guess is that this may have to so with a contraction of new mortgage applications following the flood of activity experienced in January and February of this year. It’s all about supply and demand.

I wish there was better news on the home pricing front, but dismal existing home sales and new home starts reports are not painting a pretty picture. It appears that the major buying in the US housing market it being directed toward foreclosed homes and one’s offered at bargain basement prices. This is creating a swift downtrend for housing market values, not only in the previous high-cost risk regional areas, but all across the country.

On the positive side, inflation numbers still remain in check, and believe it or not, Citi Bank actually provided some positive news about it’s profitability through the first 2 months of 2009. We’ll take any bit of good news that we can at this point about the economy.

If the recent Citi numbers are any reflection, maybe the banking community is actually going to come out of this mess as stronger companies, which in turn, will make a better lending environment for us all. I don’t think that we’ll revert back to the easy money mortgage days of years prior, but for people that can fully document their income and have some equity in their homes, refinancing programs may become a bit less restrictive.

Keep an eye on the employment reports and housing sales numbers, as positive news in these areas will be the key to our economic recovery.

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

Whitehouse Unveils Home Mortgage Assistance Program

2009-03-04T12:15:00.000-05:00

Well, the day has finally come for the government to unveil the details of its home assistance mortgage program, aimed at helping up to 9 million homeowners to stay in their homes and avoid foreclosure. Overall, it is targeted to provide subsidized payment to lenders and mortgage servicers in exchange for a modified home loan for borrowers that qualify for the plan.

One to four unit primary residence homes will qualify under the plan, but investment properties are excluded.

The Treasury will partner with lenders to reduce monthly mortgage payments to a 31% front end dti (new principle, interest, taxes and insurance payment divided by individual’s gross monthly income). There is no restriction on the back end dti (which includes PITI plus all other credit items), but those that come in at 55% or over will be required to work with a HUD approved counselor.

Loan servicers will receive an upfront incentive payment of $1,000, and an additional $1,000 yearly payment for three years, as long as the borrower stays with the modified loan program. Borrowers will receive a pay-for-performance success payment up to $1,000 for five years (as long as all monthly payments are made on time) that will go directly to reducing principal. Also, a one-time bonus incentive payment of $1,500 for lenders and $500 for servicers, will be paid for loan modifications done for borrowers that are current on their home mortgage. No modification charges or fees will be borne by the borrower.

Lenders will only be compensated when the front end dti of 31% is achieved. The Treasury will pay half of the difference between the monthly payment reduction from 38% dti to 31% dti.

Will this be enough incentive for lenders to modify loans for those that cannot, or are having difficulty making their monthly mortgage payments? The incentives will most likely help, but it will most likely come down to a case by case situation. The cost of added administrative duties, coupled with the current high fallout by borrowers that have already had their home loans modified, may be enough for many lenders to limit their participation in the program.

Only time will tell whether the program is successful, and hopefully we will have a more accurate picture of it’s impact in the coming months. Anything that will help people to stay in their homes and prevent further foreclosures will be a benefit for us all.

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

Home Price Drop Effect on Refinancing Your Home

2009-02-24T16:05:00.000-05:00

Standard & Poor's/Case-Shiller home price index released on Tuesday reported that prices of U.S. single-family homes plunged 18.5 percent in December from a year earlier as the monthly pace accelerated. There seems to be no area immune from the downward trend. As to add insult to injury, since the housing market peak in the second quarter of 2006, home prices have plummeted 26.7 percent, on average.

So how does this effect the refinancing of my home? Well, for some, it will have little or no effect, but for others, it can mean the difference between a great rate and a good rate, or even downright non-benefit for the homeowner.

The key number is 80 percent. That is, for those refinancing 80 percent or less of the value of their home, they will be eligible for current low advertised refinance rates. But, as you move up above the 80 percent ranks, interest rates will move upward and mortgage insurance will be added to your new monthly payment. Depending upon the loan scenario, this can create a no-win end game for those financing well over 80 percent of their home’s value.

But hey, this is the time to be checking on refinancing if you are looking for low rates. Rates are still near all-time lows and you may stand to receive substantial benefits by refinancing now. If you have a good idea on the value of your home and the numbers show that you would be refinancing less than the 80 percent key value, it is definitely worth a look.

Yes, credit scores also play an important role for the great offered rates. Those with credit scores above 720, coupled with a loan-to-value ratio under 80 percent are in the greatest position to close on current low refinance rates.

So, what about us refinancing over 80 percent of the value of our home, with sub 720 scores to boot? Glad you asked.

FHA refinance loans are definitely the way to go for high LTV loan scenarios and for those with credit scores in the 600 to 720 fico range. The qualified rates are almost as good as current prime conventional loan rates for those under 80 LTV and with great credit. So there is a place for most homeowners to cash-in on low refinance rates.

Again, home value is key. Have a good idea about the value of your home before getting a quote. If you are below 80 LTV for your loan scenario, then you are in good shape. Above an 80 LTV, then you will want to get a comparison between prime conventional home loan rates and FHA refinance rates.

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

Obama Plan for Troubled Housing Market

2009-02-18T11:39:00.001-05:00

Today, President Obama unveiled his plan to help the US to stabilize its housing market by pledging up to $275 billion in an effort to help ward off a wave of home foreclosures. By the end of 2008, over 9 percent of home loans in the US were either in arrears or already in the foreclosure process. It is estimated that up to 16 percent of all households with mortgages could fall into foreclosure by 2012.

Yes, it is a tough pill to swallow, but bailing out overextended homeowners with taxpayer dollars appears to be a better scenario to an all-out collapse in the housing markets.

The plan also calls for a $75 billion fund to reduce mortgage payments for up to 4 million Americans that are stuck in subprime mortgages that they cannot afford.

For the rest of the refinancing public that have current adequate equity, good credit scores, and manageable payments, mortgage rates are still at historic low levels. Those in current mortgages at 6.25% and higher stand to benefit with significant savings by refinancing into lower rates or into lower terms. For those that want, or need to consolidate debts, this is a great time.

The key for the current awesome refinancing loan options, (I know, I sound like a broken record), is your home’s current market value. All of this foreclosure activity, combined with tighter lending standards has done a number on home prices, depending upon the area that you live. Getting a solid handle on your home’s “real” market value will help you to choose the proper refinance program, or help you to avoid a potential non-benefit situation by getting pre-qualified with an inflated home price.

Refinance rates have been relatively flat over the past week, which is actually a good thing at current levels. We’ll have to wait and see whether Obama’s plan for the housing market will relieve some fear (reduce risk) in the mortgage lending market. If this is the case, the risk premium could drop a bit and home loan rates could fall a bit more.

The economy is still a mess and there is no end in sight, so treasury yields will likely stay in the 2.5 to 3.0 percent range for the immediate future (a good thing for mortgage refinance rates).

Let’s look on the bright side. The economy stinks, many have lost jobs or anticipating a job loss, salaries are on the decline, retirement accounts have been slashed, and the housing market is colder than Alaska in January, but at least mortgage rates are low! Hey, you have to take good news where you can get it!

May the Mortgage Refinance Rates be with You!

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Mortgage Rates Dip on Government’s Bank Bailout Plan

2009-02-10T18:42:00.001-05:00

Investor’s in the stock market were not very pleased with the government’s latest attempt at a bank bailout plan. The Dow tumbled 382 points, led by the financials. About the only bright spot pertaining to financial matters was that the 10-year Treasury yield dropped by almost a .2% margin, which in turn, created a bit of a dip in mortgage rates. Interest rates have been steadily climbing over the past couple weeks, so we’ll take the short term dip, but look at the bigger picture.

Treasury Secretary Timothy Geithner outlined the plan today, which in the ears of many, lacked specifics. Anything that creates major financial doubt usually ends up with a sell-off in the market, which we encountered today. Bonds were bought up in a flight to safety and the yields dropped. Although the short-term action is good for mortgage rates, the longer-term view is not so clear as it pertains to risk, and it’s effect on mortgage rates.

The market really wanted to hear a specific and solid plan by the government relating to banks soured assets, and how their balance sheets would be cleared of the mess. Instead, they heard a more general plan of attack, and one that involves the assistance of private sector investment to help buy-up the bad assets. The realization that this issue is going to take more time than anticipated to remedy did not set well with the market.

There is question as to whether the government really has an idea of how to initiate the financial rescue plan. The incredible difficulty of valuing these soured assets on its own, could cause a major delay in any balance sheet magic for the troubled financial community. If there’s no price tag or value for the bad assets, no one is going to buy them.

So, how will this affect mortgage rates in the coming months? Keep in mind that the tow major components that make up mortgage rates are the 10-year Treasury yield and the mortgage spread risk premium. With the current unsettled and risky investment environment, treasury yields might actually stay in the 3 percent range in the near future. On the other side, risk premiums could rise even higher than their current historic lofty levels and cause rates to rise a bit more from here.

Undoubtedly, there will be much more spin from the government on their bailout specifics, as they make more headway into valuations and create investment channels. This may result in major mortgage rate movements, one way or the other. In short, expect a volatile season for not only mortgage rates, but the economy as a whole.

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

Will a Governmental “Bad Bank” Cause a Dip in Mortgage Rates?

2009-02-04T14:18:00.000-05:00

The financial world is abuzz with the pending new stimulus package proposed by the Obama administration. That package will encompass many areas of the economy, with a major focus on the financial sector. One potential new program of the stimulus would be aimed at the bad debts held by banks. Yes, originally, the TARP program was supposed to do just that, buy-up bad mortgages held by banks, in an effort to stimulate new lending. Unfortunately, the plan failed upon implementation and the government instead, decided to invest in the preferred stock of banks and financial institutions.

The “Bad Bank” proposal does sound like a promising proposal to help banks to get the bad debt off of their books. This, in theory any way, would free up the banks to begin more liberal lending from short-term loans to long-term mortgages. The problem is, that banks are likely to continue hoarding cash unless their bad debt reprieve comes with an important string attached. Namely, that they won’t have their junk mortgages cleared off the books by the government, unless they begin lending on more liberal terms.

Whether this program gets off the ground is anyone’s guess, but it will most likely come down to an agreeable method used to price these bad assets. It is possible that, if the pricing model is done wisely, that both the banks and the government (taxpayers) will make out very well in the long run. The banks will receive a sound balance sheet, creating more leverage to fund low to moderate risk loans at low interest rates. This in turn, will aid in stabilizing the housing markets, which will benefit everyone, including the economy. The government will receive underwater mortgage securities that they can hold until they are even or above water once home appreciation begins again. Yes, the taxpayers could actually make a profit on the deal, long term.

So, how would a bad bank setup affect current mortgage rates? Most likely, we would experience a significant dip in mortgage rates, at least for the short term. With more clear bank funds available, and a government kick in the butt to make home loans, the mortgage spread would probably decrease from it’s current high levels and directly be reflected in lower offered mortgage rates.

If this stimulus creates more demand for housing, then stabilization for housing prices could finally be achieved. With home prices stable, mortgage risk decreases, and the spread will decrease in kind.

Yes, a bad bank can be a good thing for us all.

May the Mortgage Refinance Rates be with You!

Refinance Tool Box

High Mortgage Demand Keeping Refinance Rates Up at Low Levels

2009-01-27T18:22:00.000-05:00

Way back in December 2008, immediately following the US government’s announcement that it would buy back $500 billion in mortgage backed securities glutting the market, mortgage refinance rates dropped significantly to all-time lows. Although treasury yields have subsequently remained rather stable at or near historic lows, mortgage rates have bounced back upward a bit. Don’t get me wrong, rates are still at excellent levels for those with good to great credit and those with at least a 20 percent equity stake in their home. It’s just that the mortgage spread has ballooned once again.

The reason? Well, its because the rates have been so low, people have been flocking to submit their new home loan applications. Mortgage demand is at its highest level in five years, yet lender capacity to process these loans is not at full steam, rather at the barebones level. You can’t blame the lenders as they were forced to downsize, as loan applications prior to the December rate drop were woeful at best.

It may seem hard to believe, but lenders are jacking up the spreads to slow down the volume until staffing is at appropriate levels. Again, don’t blame the lenders, they are reacting out of necessity. The good news is that even with high spreads, refinance rates are still at historic low levels.

If you are currently getting ready to apply for a refinance home loan, it is now more important than ever to choose the proper mortgage lender. Those that are increasing staff levels and those that have strong loan processing procedures already in place. Locking a great rate is wonderful, but only if your lender can get your loan closed, and in an appropriate timeframe. You don’t want to have your rate lock expire before close or have prolonged delays in processing for underwriting stipulation requests. Remember that recent and stricter underwriting guidelines have made loan processing a bit tougher. Add an increase in refinance application volume, and you want to be with the right lender.

I know, we all want to know what the rates and fees will be with any quote, but now you should ask one more question. Mr. Lender, will you please describe your loan process flow and expected turnaround time? Also, is your company currently hiring extra staff to help expedite the processing of current loans?

The mortgage spread should decrease in the coming months as lenders return to a proper balance between staff and application levels. It is for this reason that one should expect current low refinance rates to stick around for a while longer. Even if mortgage yields increase, the reduction in spread could keep rates at this level for a long time.

May the Mortgage Refinance Rates be with You!

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