Archive for March, 2009

What about today’s rates?

March 28, 2009

Posted on March 28, 2009.

Some readers may have been confused by my last post about 4.5% (and how to position yourself to take advantage of crazy-low mortgage rates).

For some perspective, on Friday, mortgage rates ended the day around 4.75% to 4.875% on a 30 year fixed and around 4.5% for a 15 year loan for a 45 day lock-in. Of course, those rates could be higher based on your credit score, loan-to-value, combined loan-to-value, etc. (APR’s are 4.917, 5.043 and 4.787 respectively; what a rule follower, huh?)

So . . . if you are thinking about passing up 4.75% to wait for 4.5%, I would consider the math. For each month you wait for lower rates, you are passing up the opportunity to save $$ each month. Let’s say you are going to save $200 per month by refinancing; if you wait 5 to 6 months to refinance, you have lost $1,200 just in the time spent waiting and watching . . . all in an effort to hopefully save an additional $30 per month (0.25% for a $200,000 mortgage is about $30 per month). And the cost of waiting the 5 to 6 months will now take 40 months to recoup at the extra $30 you have saved (this all assuming that interest rates will still be at their all-time historic lows when you are ready to move forward).

I apologize in advance . . .

“So you can keep waitin’ [waitin’], waitin’ on rates to change . . . you keep on waitin’ [waitin’], waitin’ on ra-aa-ates to change.”

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Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.” Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing. For more information about available programs and interest rates, please visit www.hillsidelending.com

I was wrong about 4.5% . . . kind of.

March 27, 2009

If you have been following my blog, you may remember a certain post concerning my thoughts on 4.5%.  In the post I talked about the unlikely prospect of mortgage rates dipping down to 4.5% (also, for the record, at the end of the post, I mentioned how glad I would be, in this one instance, to be wrong in my prediction).  And at the time, the Feds had just announced their intentions on putting billions in to the mortgage backed securities market to help push mortgage rates lower.  Last week the “b” was replaced with a “t” . . . now $1.3 trillion dollars [see the previous post on Refinance Plan B(2)].  So, I was wrong . . . kind of.

So what about 4.5% ?  Can you get a mortgage at 4.5%?

Yes, you can.  And here is how.

Option 1:  Get a 15 year mortgage  (today’s rate for a 45 day lock-in with a 740+ credit score, 80% loan to value). 

Option 2:  A well-timed combination of catching the mortgage market and interest rates on the down-swing, and being positioned to take advantage of a shorter lock period on your rate lock-in.  How do you get positioned?  Read on.

When lenders publish rate sheets, the rates are based on a lot of different factors.  Some of the factors that affect available rates include your credit score, your loan-to-value, your loan amount, and your combined loan-to-value (1st and 2nd mortgage).  And in a crazy-volatile market like the one we are in, a big factor can be the number of days to lock-in and protect your rate.  For a purchase transaction, the time-frame for the rate lock-in are driven by the closing date.  For a refinance, there is little more flexibility on when to close (and when and for how long to lock). 

On a rate sheet, available rates can vary by 0.125% to 0.25% to 0.5% depending on if the rate is locked-in for 15, 21, 30, 45 or 60 days — the shorter the lock-in, the lower the rate.  Why?  Because on a shorter lock, the risk of a serious market-move in the wrong direction is less likely.  Think about it — if your interest rate is locked and protected for 45 days, the lender is not going to need to provide the funds for your closing (a wire to the closing agent) for another 35 to 40 days = this means more time for the market to deteriorate and possibly cost them more to deliver the rate promised to you.  The shorter the lock (and the less time for market variation and risk), the lower the rate.

So who is eligible for a short 15 day lock-in?  Anyone who already has his or her loan approved and ready to close.  So you want 4.5% on a 30 year fixed rate loan?  Be ready to close in 5 to 7 days.  And the only way to be ready to close in 5 to 7 days is to give up the old way of doing business and think about things a little differently.  I call it Plan B (read the longer explanation). 

If you have an interest rate at 6.0% or higher or if you have an adjustable rate mortgage, and are planning on being in your house for more than 3 years, you DO need to refinance.  If you want the best rate, don’t wait around for the best rate to come to you.  You need to get started with the paperwork sooner than later (and appraisal, and verifications, and the underwriting process, and the waiting in line for underwriting process, and the subordination approval process ifi you have a 2nd mortgage) and be ready to take advantage of a great rate on a short lock. 

Think about it this way . . . if rates go up 0.25%, by the time you are approved and ready to lock-in for 15 days, you’d still probably be able to get the same rate as today (0.125% to 0.25% better because of the short lock).  If rates stay the same as today, by the time you are ready, you’ll be able to get a rate that’s 0.125% to 0.25% better than today’s rate.  AND, if mortgage rates go down, by the time you are ready, you’ll be able to get a rate that’s even THAT much better than today’s rate (better because of lower rates and better because of a shorter lock-in period).  In this market, it’s the best way to refinance.  I could be wrong . . . but, come-on, twice in four months???

 

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com

Twice as much ain’t twice as good.

March 26, 2009

Last Wednesday’s announcement from the Feds — that they would add an additional $750 billion dollars to the already allotted $500 billion dollars to continue to purchase mortgage backed securities through the end of the year — was big, big news.  Their original $500 billion pledged was scheduled to be completely paid out by July; but, last week’s news now pushes the time-line out until December 2009.

But will the $750 billion actually push mortgage rates lower?  Will more than twice as much money make mortgage rates dip twice as low??? 

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Although I am certain it was not intended for this illustration, I agree with John Mayer, “twice as much ain’t twice as good.”

The media loves extreme news.  They will take extremely good news stories, although I think they prefer extremely bad news (more of an eye-catcher).  One story that recently ran on money dot com was talking about how in this current market a homeowner needs to have 20% equity in his or her home in order to refinance their mortgage.  When I emailed the editorial staff to let them know that this information was absolutely incorrect — that people can refinance their homes with very little equity in their homes (FHA streamline refinance) or even 5% equity in their homes for a conventional mortgage — the response was basically — yes, we saw that and made a choice to leave that information out because it “made an already complex story even more complex to understand.”

Hmmm . . . I think things are harder to understand when you don’t tell the whole story (just my opinion).

So, while the media began to buzz last week about the possibility of mortgage rates in the 4.0% range (a friend even stopped me in the grocery store and said he heard 3.875% from the radio consumer guru who certainly has enough money to not need a mortgage), most mortgage experts are taking a slightly different position.

Twice as much money in to the mortgage backed securities market may just mean that the current historically low mortgage rates will last twice as long.  Even if the technical signs point to lower mortgage rates, because of staffing issues and the fear of early pre-payment, there is not much evidence that lenders will be willing to pass on savings to homeowner’s and push mortgage rates much lower than where they have recently been . . . but, hey, I’m not the one with the $1.3 trillion dollars to play with in the market.

 

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com

Refinance Plan B(2).

March 18, 2009

In one of my previous posts, I mentioned a time-line of the Feds purchasing mortgage backed securities until July of 2009, and based on that time-line, was recommending that clients start the refinance process now to be in the optimal position to lock-in on a great mortgage rate.  Remember, once your loan is approved and out of underwriting, you can take advantage of a lower interest rate on a shorter term 15 day lock-in (usually 0.25% better in rate than a 45 or 60 day lock-in). 

Today, the Feds announced that in addition to the $500 billion dollars they had previously committed to purchase mbs’s, they will be purchasing another $750 billion dollars in mortgage backed securities, extending their current plan through the end of the year. 

This makes the argument of needing to get in line for underwriting that much more convincing as THE way to get ready to refinance your mortgage.  It is too early to tell if this move will cause mortgage rates to go lower or if it will simply help keep mortgage rates at their current (historically low) levels.

More coming soon . . .

 

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com

Maybe you ARE being bailed-out?

March 18, 2009

Politics — generally a topic not to be entered in to lightly with neighbors, friends or family, probably not clients and customers either.  I think there is a saying about religion and politics, isn’t there?  We should probably add “bailout” to that saying and make it a list of three.

Hate it or love it (hate it or tolerate it; hate it or accept it), the US Government is spending billions and billions of dollars to try and get the economy moving again.  And while I do hate the idea of corporate executives getting millions of dollars in congratulatory “thanks for running the company into the ground at the expense of the American public,” I actually do think that the new Housing Stimulus Plan has some merit.

And unless you believe the screaming trader on the floor of the Chicago Mercantile complaining about paying someones mortgage (I refuse to give him the extra air-time of a YouTube insert in to my blog), you might want to think about some of the positives of the new plan.  Chances are you are being bailed out and you may not even know it. 

The new plan (more details to be rolled out in April) will allow perfect-paying borrowers to refinance their mortgages to take advantage of today’s historically low rates.  A lot of people who should and would like to refinance their mortgages (and save $150 to $250+ per month) can’t because of one of two issues.  1 — Their house won’t appraise high enough to allow them to refinance; or 2 — Their income is not high enough to allow them to qualify for a new loan to refinance (either because of loss of income, reduction of income, an increase in monthly debt, or an increase in payment due to a rate adjustment, etc.).  In either of the two cases, these borrowers are currently continuing to make their mortgage payments, but are in jeopardy of NOT making their payments.

In essence, the new Housing Plan will allow borrowers with perfect payment histories to refinance their mortgages and lower their payments despite the value of their house or their current debt to income.  The plan will only allow loan-to-values up to 105% — borrowers who are more upside down than that will not be eligible and allows for lenders to modify payments and interest rates based on a benchmark debt-to-income percentage). 

So why are some people so mad about it?  I am not really sure, but let me tell you why I think it’s a good thing.

While you might not get a check in the mail signed by President Obama, the implications of the stimulus plan could save you thousands and thousands of dollars.  By helping your neighbor keep his or her house and by keeping your neighbor’s house from going in to foreclosure, the plan is helping to keep the value of your house from falling any further.  Don’t believe me?  Look at some of the houses already listed for sale in your neighborhood.  Would you rather that person to be still living in the house and making their payments with a little help from the US Treasury (to allow them to get today’s low mortgage rates) or would you rather the house go up for sale for $20, $30, $50 or $100,000 less than where you might hope it would be?  If the house does sell for $50,000 less than the market value . . . that IS the new market value, and at least for the time being, you just lost about $50,000.  Fannie Mae and Freddie Mac will no longer discount “distressed sales” and since these sales have to be included in appraisals, the climb to get values up the dollars lost will be a slow one (now that house has sold for $50,000 less, the NEXT person who tries to buy a similar house in the neighborhood is going to have an appraisal problem when they try to get financing on anything for sale much more than the “new” market value).

So the next time you hear someone complaining about not wanting to pay for someones mortgage, let them know that if they have refinanced in the last 60 days, they were bailed-out by being able to get 4.75% on a 30 year fixed rate loan (US Treasury induced) and remind them that the bailout might just help them be able to sell their house one day in the distant future without having to write a big check at closing.  If you hear someone complaining about it and they don’t have a house, have them call me, there is bailout money for them too ($8,000 free money for first time homebuyers).

 

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com.