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The press loves to talk about the stock markets. People can identify with stocks like Pepsi, Apple, IBM, and Facebook. What most people don't know, however, is that the average daily trading volume of Treasury instruments is 5-10x more than the New York Stock Exchange and NASDAQ combined. And when one adds in other fixed income securities, such as corporate debt, municipal bonds, and mortgage-backed securities, well, stocks just can't compete.
What difference does this make to Landmark's borrowers? They need to keep in mind that the rates and prices that they see on rate sheets are directly determined by the prices of mortgage-backed securities. And there are many factors that determine those prices, not the least of which is supply and demand – and last week the demand dropped a little, moving prices lower and rates higher.
Decisions to buy or sell investments are most generally made based on information that leads investors to believe the value of the investment will go up or down in the future. High demand raises prices and vice versa, it is simple supply and demand. Mortgage Backed Bonds and MBS have a price, a face value and a stated yield. It sounds confusing, but you pay a lower price to get a higher return: price is down, interest rate is up. You pay a higher price to get a lower return: price is up, interest rate is down. Price goes up, rate goes down. As price goes down, rate goes up.
In predicting bonds and MBS, as your Landmark Advisor can tell you, if there is good economic news today, or probably tomorrow, then bond and MBS price will go down-and rates up. If there is bad economic news today, or probably tomorrow, then prices will go up-and rates down. Good economic news generally means higher rates; bad economic news generally means lower rates.
When unemployment goes down, as it did Friday, and consumer spending up, means rates up and vice versa. (A somewhat new factor tossed into mortgage rates and prices of MBS is the entry of the Federal Reserve which has been buying MBS for over a year to prop up prices and hold down rates. This narrows the market for private investors, but when the Fed leaves there will be a $40 billion a month void.) But few believe that the economy is doing well enough to support much higher rates. Asking someone such as your Landmark Advisor to predict rates is not necessarily the right thing to do, but we encourage our clients to be aware of the factors that influence rates.
Thanks in good part to the role played by the Federal Reserve, rates for home loans have been low for quite some time. But that doesn't stop lenders from advertising about the lowest rates in town. As our Landmark Advisors tell their clients, the absolute best rates available to borrowers shown in advertisements are for those who probably have squeaky-clean credit, high income, low debt ratios, a 30% down payment, and want to buy a property that appraises above contract price.
This perfect alignment of all contributing factors just doesn't happen that often in real life. Rate sheets received from mortgage companies usually show these same "best available" rates and are intended to help realtors give buyers some idea of current rates for different types of loans, but don't always mention the qualifying standards that must be met to get these "teaser" rates.
With an advertisement for enticingly low rates, our Advisors tell clients to be sure to read the fine print, which includes the assumptions and disclaimers made in order to legally offer that particular rate to the public in print. The mortgage interest rate that a borrower actually receives from a lender takes into account the purchase price, down payment, borrower's income, assets, and credit score and report, the property's type and use, and any details specific to the transaction. It is extremely important for buyers to understand that each real estate transaction is unique, and therefore the interest rate available to finance any particular transaction is equally unique.
Our Advisors tell Realtors that they should explain to a potential borrower how rates work before quoting a rate off a lender's rate sheet. The client may interpret the rate pulled off this week's generic rate sheet as what they can get if they put an offer in on the property showed to them. Due to new federal laws, telling a buyer about a particular rate without giving the necessary caveats and disclaimers could put a realtor in violation of these laws. Reputable lenders such as Landmark are intensely focused on risk, and with current regulations, the resulting decrease in lenders' risk tolerances has made for a very conservative lending environment.
To eliminate deception and mistrust, our Advisors work closely with clients so he or she can provide an accurate, real-world analysis of the deal and the interest rate for which the buyer may really qualify.
Landmark Mortgage and our clients were reminded last week of the Fed's ability to move interest rates. Remember, however, that the Fed only determines very short-term rates, such as overnight Fed Funds or the Discount Rate. It does not directly set interest rates.
But last week interest rates were impacted by three major events: the delay in truly addressing the fiscal cliff (we still have the major fight about the debt ceiling ahead of us), the release of the Federal Open Market Committee meeting minutes, and the monthly unemployment data numbers (roughly as expected, and by the end of the day Friday mortgage rates were unchanged).
The big market-mover turned out to be the release of the Fed's meeting minutes. As we know, the Fed has been purchasing mortgage-backed securities, whose rates do directly impact rate sheets, at a $4 billion per day clip. The Fed is, in effect, soaking up all the supply, therefore driving the price up and rates down. So the question often comes up, "What would happen to mortgage rates if the Fed stopped buying all the mortgages?"
Well, Wednesday afternoon and Thursday we found out. Remember that prior to a few years ago it wasn't, and at some point it will stop. The minutes of the meeting addressed that very topic, with several members of the Committee ranting about too much accommodation: "Several others thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013."
Is that a material change? Absolutely not, as the majority of the members are still in favor of buying MBS until the unemployment rate drops significantly, and many don't see rates rising until 2014 or 2015. The market, and thus mortgage rates, probably over-reacted. Two days prior the US economy was supposedly on the brink of meltdown, and on the verge of the fiscal cliff. Recessions were being forecast by all the usual suspects and clouds of gloom hung over the risk asset complex. But it was a false alarm. Surprise, surprise Armageddon didn't arrive - AGAIN.
Welcome to 12/12/12, not that it really means much, does it? Guess what is usually a hot topic but has slipped under the radar?
FNMA and FHLMC loan limits: yes they will stay the same, FHA has followed suite they also stay unchanged for another year.
Speaking of FHA quick look at FHA BENEFITS
• 3.5% DOWN TO $729,750 (ALAMEDA COUNTY)
• CREDIT SCORE AS LOW AS 640.
• 100% GIFT FOR DOWN AND CLOSING
• NONOWNER OCCUPIED COSIGNER
• 6% CREDIT FROM SELLER
• WORK VISA'S: ACCEPTABLE
• UP TO 55% DEBT TO INCOME RATIOS ACCEPTED
• NO CASH RESERVES NEEDED
• DID YOU KNOW? . THIS IS AN ASSUMABLE FIXED RATE LOAN.
Rate-wise, the markets continue to grind along, although Treasury rates have crept up. Today there is a "smorgy" of economic updates. Rates traditionally increase a tad as we approach the end of the year. Refi's just won't stop! Applications were up over 6% last week, with refi's shooting up 8% and even purchase applications up almost 1% - their third straight high point on the year.
When embarking upon the mortgage loan journey, the typical Landmark borrower's number one concern is how they can get the lowest interest rate possible. It's inevitable that the rate question is asked early on, as it's an essential part of judging if taking out a mortgage is a sound financial decision. Borrowers, whether they shop around or not, want to rest assured that they're not being swindled, particularly at a time when "rock-bottom rates" are making headlines.
Our Landmark Advisors always tell clients that consumers should be aware, however, that it's very possible that the rates they see published won't apply to their particular situations. Property type, down payment amount, amortization term, credit score, and rate-lock duration are all variables that factor into the equation, as do points paid or rebates credited against closing costs. As such, loan originators aren't able to quote a rate (an accurate one, anyway) on command, as it takes a bit of time to obtain and analyze that information.
Given that they're dictated by the whims of the market, rates are also subject to massive fluctuations over the course of a day, which makes pinning down the absolute lowest possible rate unlikely. Some lenders do offer the option to lock a loan a second time if rates fall, but "floating down" comes at a cost that is passed onto the borrower. Floating can also backfire if rates rise instead of fall.
Concisely stated, mortgage loan transactions are too complex for lenders to quote rates on a lark or simple supply and demand. Some borrowers contact multiple lenders and shop around for the best rate, which the federal government endorses—lenders are required to present borrowers with documentation that encourages consumers to make comparisons—but it's tough, if not impossible, to outsmart the market. In the spirit of capitalism, compare Lender A with Lender B; however, it's unlikely that one will quote a rate that's dramatically lower than the other. And then it comes down to service – something at which we at Landmark excel.
Late last week we all saw the Federal Open Market Committee announcing Quantitative Easing 3 (nicknamed QE3, which has since changed in some sources to QE Unlimited. But although security prices rose for those backed by mortgages (versus "regular" Treasury securities), many rate sheets barely budged. Although Landmark improved our rates, why did some lenders not change their rates?
The FOMC's announced plan of attack was partly designed to ease further the cost of mortgages, but many lenders did not change their rates, saying they were already backlogged, and they just don't have the staff to process any increase in business.
So in the near term, the FOMC's move may have little impact on lending. One Wall Street analyst said, "Very little of that is likely to make it through immediately to consumers. There's nothing that will force mortgage originators themselves to lower the rates that they're offering to consumers. Right now they have their hands pretty full in terms of the pipeline and managing paperwork and making loans. These folks are busy. There's not a bunch of people on long cigarette breaks."
But Landmark Mortgage Group's rates did indeed improve. That being said, our Advisors are telling clients to plan on processing times that will take several weeks. Many pieces of the business required for a residential loan to close, such as appraisals, are backlogged, slowing things down. And in today's compliance and regulatory-heavy environment, ensuring that the loan process is done accurately is of paramount importance.
In the long run, low rates cannot but help the housing market and the economy in general. But it will take a while. Regardless, be sure to check with a Landmark Advisor for current rates, prices, and programs – you will be pleasantly surprised.
Sales are up! Rates are down! But why is it such a struggle to finish a loan? Well.......
In today's mortgage world. The underwriting is getting more and more strict, not only how we calculate income and what we will use, but the Credit scores system is changing, and as we all know is an essential element of what is looked at. So I thought I would put a few thoughts out there that might help.
Here is a quick article that will help borrowers that are looking to buy their first home. Click on; Young Adults and Credit
There are some good credit repair agencies out there that I can recommend if need be too. Cost can be about $500-$1000, but might be well worth it. Did you know that for the minor issues there is a "what if" call number and one can get an idea, if we fix something small what the score would be. We also have a rapid rescore department with the reporting agency we use. So the idea is to help borrowers fix some minor issuses and get them preapproved, before the contract is written and be prepared to enable to close the deal on time.
At Landmark we are your total lending resource.
Once in a while, or every day, Landmark Advisors are asked about rate lock period. This is dependent on a variety of reasons such as documentation requirements, appraisals, constant guideline changes, type of financing, and a lender's current volume.
It is important for our clients to know why lock periods are as long as they are. We rely on the borrower to return the required documents within a few days of the request. Sometimes they are good about this, sometimes not – but it is important.
By federal regulations, a lender cannot request documentation or payment for the appraisal until the borrower gives us their intent to continue with the loan application. The regulations allow the borrower up to 10 days from application to make up their mind on which lender they intend to use, if they happen to be shopping. All of this usually means the appraisal cannot be ordered on the same day the contract is received. Once the appraisal is ordered, receiving the completed report can easily take five to seven business days, sometimes longer, depending on the complexity of the report. Once the file goes to underwriting for review, there may or may not be additional documentation required from the borrower, a required change/correction to the appraisal, or sometimes an issue comes up where we have to change loan programs in order to keep the client qualified.
Once the loan is fully approved, the file moves on to the closing department. This preparation takes a few days, then another day or so for the title agent to get the HUD-1 prepared and approved by the lender. Then, if the property is a short sale or foreclosure, the seller generally needs two to three days to get the settlement statement approved by the selling authority. So, all of these closing details require a fully approved loan at least a week before the scheduled closing date. Ask your Advisor for the latest time frames!
Rates jumped end of last week and this week. The markets are being reminded that increased economic activity can lead to higher rates. No one is talking "double dip" anymore, and the inflation word is creeping back into vocabularies given the price of gasoline. Refinance activity fell last week as did purchases slightly.
HARP 2.0 has officially started this week. Realize the rates are slightly higher. But I am seeing some people are getting a good savings. (remember property value is not an issue)
Increased FHA Premiums are coming. Get those FHA buyers into housing. They need to have a sense of urgency on this. It will affect their buying power! Case numbers need to ordered prior to the change date.
Changes in underwriters guidelines are happening weekly right now. They are sure to keep all of us on our toes!...Keep informed...If you are unsure of a certain scenarios just call and ask.
Our Local market is moving sharply right now. We all should be happy, it is not like this everywhere.
Where we go the country goes...We are so lucky to live where we do!
Landmark Mortgage Group is a division of Opes Advisors and licensed by the CA Dept. of Real Estate, Real Estate Broker license 01458652 and NMLS 235584. Equal Opportunity Lender.