Thousands of Homeowners in our area still have Adjustable Rate Mortgages. Over the past two years I have often wondered why many people are keeping their ARM instead of refinancing to a fixed rate.
One of the reasons may be because their payments have decreased. There are many indexes but the two most common around here are the CMT and LIBOR. The math can be a little complicated but the historical figures are easy to document. The 1-year CMT index usually has a margin of 2.75 and caps of either 5 or 6 above the start rate. If your start rate was 5% then you are a happy camper because the current index of .37 plus 2.75 equals just a little over 3%. But do not forget, the maximum rate is either 10% or 11% over the life of the loan!!
The one-year CMT index has only been below one percent 11 months out of the past 20 years!!! Another way of saying it, 95.5% of the time over the last 20 years the index has been above 1%.
Just for kicks, I averaged this index for the month of January over the last 20 years and the result is 4.34%. If we add 2.75% (the margin) to that average it is over 7%. The conventional 15 year fixed rate is currently lower than the 4.34% average index (not including the margin) for the previous 20 Januarys.
It is fun riding the rate down on an ARM, but when rates rise, so does the index and that makes it hard to switch to a fixed rate. If you have an ARM and plan on keeping your home more than another five years, there is a very high probability it will cost an arm and a leg if you do not switch now while rates are low.
Monday, November 30, 2009
Wednesday, November 25, 2009
Changes on FHA Streamline Refinance Transactions
There are significant changes taking place with all FHA Streamline refinance transactions. The new guideline will read, "At the time of loan application, the borrower must have made at least 6 payments on the FHA-insured mortgage being refinanced and 12 months seasoning in the subject property." This is a very minor change from the previous guideline.
HUD Mortgagee Letter 2009-48 modifies FHA’s requirements for second appraisals (as described in Mortgagee Letter 2008-09), eliminating the need for a second appraisal on high balance loans in declining markets. This policy is extended to cash-out refinances that exceed $417,000 and is secured by a property located in a declining market. This change is effective immediately and actually favors the homeowner.
FHA will retain the second appraisal policy described in Mortgagee letter 2006-14, Property Flipping Prohibition Amendment. This policy requires a second appraisal when a property is resold between 91 and 180 days following acquisition by the seller, if the resale price is 100 percent (or more) higher than the price paid by the seller when the property was acquired. CLC must obtain a second appraisal from another appraiser and the cost of the second appraisal may not be charged to the homebuyer.
For example, if a property is resold for $80,000 within six months of the seller’s acquisition of that property for $40,000, the mortgage lender must obtain a second independent appraisal supporting the $80,000 sales price. The mortgage lender may also provide documentation showing the costs and extent of rehabilitation that went into the property as support for the increased value but must still obtain the second appraisal.
HUD Mortgagee Letter 2009-48 modifies FHA’s requirements for second appraisals (as described in Mortgagee Letter 2008-09), eliminating the need for a second appraisal on high balance loans in declining markets. This policy is extended to cash-out refinances that exceed $417,000 and is secured by a property located in a declining market. This change is effective immediately and actually favors the homeowner.
FHA will retain the second appraisal policy described in Mortgagee letter 2006-14, Property Flipping Prohibition Amendment. This policy requires a second appraisal when a property is resold between 91 and 180 days following acquisition by the seller, if the resale price is 100 percent (or more) higher than the price paid by the seller when the property was acquired. CLC must obtain a second appraisal from another appraiser and the cost of the second appraisal may not be charged to the homebuyer.
For example, if a property is resold for $80,000 within six months of the seller’s acquisition of that property for $40,000, the mortgage lender must obtain a second independent appraisal supporting the $80,000 sales price. The mortgage lender may also provide documentation showing the costs and extent of rehabilitation that went into the property as support for the increased value but must still obtain the second appraisal.
Tuesday, November 24, 2009
Rates Continue to Improve
It is a very strange market. A few days ago I commented that interest rates are nearing the bottom and that is still my position. But here we are two days before a four day weekend and rates are still improving. The markets are going to be closed Thursday and Friday and normally that alone would push rate higher.
My primary goal is to help buyers and sellers close transactions as quickly and smoothly as possible. Doing that is good for our local economy. Rates as low as they are today are creating all types of opportunities for both buyers and sellers.
Consider this, if you check out the rates on my application site you will find and FHA 30 year fixed under 5% without points. Click Here
FHA allows the seller to contribute funds for the buyer’s closing cost (payable at closing from the sale proceeds). This is a huge marketing tool that could give a seller a distinct advantage over other properties listed for sale. Consider a home selling for $200,000, a buyer could purchase with only 3.5% down or $7,000, roll the up front mortgage insurance premium into the loan amount making the loan $196,377. Based on today’s rate of 4.875% it is possible for the seller to provide a start rate of only 2.875% fixed for the first year, 3.875% for the second year and then 4.875% for the remaining 28 years!!! Cost to the seller for this example would be two points or $4,084. That is much better than a 5% reduction in the sale price, the seller would net almost $6,000 more and the buyer receives awesome payments.
STOP!! He said something other than "fixed rate" - no I didn’t. The example is a fixed rate of 4.875% for 30 years, it is temporally bought down for 2 years. And it works very well if the buyer is qualified for the payment based on the highest rate. I have closed about a kazillion of these loans over the years.
In our example above the APR is 5.843% assuming a note and payment rate of 4.875%, fixed for 30 years.
My primary goal is to help buyers and sellers close transactions as quickly and smoothly as possible. Doing that is good for our local economy. Rates as low as they are today are creating all types of opportunities for both buyers and sellers.
Consider this, if you check out the rates on my application site you will find and FHA 30 year fixed under 5% without points. Click Here
FHA allows the seller to contribute funds for the buyer’s closing cost (payable at closing from the sale proceeds). This is a huge marketing tool that could give a seller a distinct advantage over other properties listed for sale. Consider a home selling for $200,000, a buyer could purchase with only 3.5% down or $7,000, roll the up front mortgage insurance premium into the loan amount making the loan $196,377. Based on today’s rate of 4.875% it is possible for the seller to provide a start rate of only 2.875% fixed for the first year, 3.875% for the second year and then 4.875% for the remaining 28 years!!! Cost to the seller for this example would be two points or $4,084. That is much better than a 5% reduction in the sale price, the seller would net almost $6,000 more and the buyer receives awesome payments.
STOP!! He said something other than "fixed rate" - no I didn’t. The example is a fixed rate of 4.875% for 30 years, it is temporally bought down for 2 years. And it works very well if the buyer is qualified for the payment based on the highest rate. I have closed about a kazillion of these loans over the years.
In our example above the APR is 5.843% assuming a note and payment rate of 4.875%, fixed for 30 years.
Monday, November 23, 2009
FHA Financing For Condos
The recent Mortgagee Letter from HUD is going to impact the availability of purchase money for condos. In theory the new guidelines are supposed to make the process easier. At first glance I thought it would be (see post July 30), until I read the entire publication.
The item that alarmed me the most is the Recertification Process. All of the condos on the existing approved list will be moved a new list that requires recertification every two years. This is a big change.
Consider the unlucky buyer that purchases a condo under this system and finances it using an FHA loan. Three years later they try to sell it and the project is no longer approved unless someone has recertified the entire project. This could have a huge impact on values. It is possible a homebuyer could close on a loan today and the same loan would not be available for a new buyer tomorrow. A loan on the exact same condo may require only 3.5% down payment one day and then require 10% down the next. That difference would eliminate many buyers and that impacts value.
Here is something to consider, there are 322 projects in Kentucky on the existing approved list. This means someone will need to recertify 13+ projects per month, or roughly 3 per week - and do it for FREE??? Good luck with that.
The item that alarmed me the most is the Recertification Process. All of the condos on the existing approved list will be moved a new list that requires recertification every two years. This is a big change.
Consider the unlucky buyer that purchases a condo under this system and finances it using an FHA loan. Three years later they try to sell it and the project is no longer approved unless someone has recertified the entire project. This could have a huge impact on values. It is possible a homebuyer could close on a loan today and the same loan would not be available for a new buyer tomorrow. A loan on the exact same condo may require only 3.5% down payment one day and then require 10% down the next. That difference would eliminate many buyers and that impacts value.
Here is something to consider, there are 322 projects in Kentucky on the existing approved list. This means someone will need to recertify 13+ projects per month, or roughly 3 per week - and do it for FREE??? Good luck with that.
Friday, November 20, 2009
Time For A Budget
Many credit issues are caused by overextending credit or another way of stating that - not adhering to a budget. Underwriters frequently face the problem of increased housing expense while reviewing loan applications. Stated simply, if the homebuyer is asking for a loan that will have a payment higher than their current housing expense, is it possible for them to make the higher payment? If the applicant has been saving an amount each month that covers the difference, it is a strong indication they can afford a higher payment.
This issue came up recently in a class I taught for first time homebuyers. One of the participants asked, "What if you aren’t saving by choice?"
My answer, "What are you proposing to give up after you buy a home? Nice shoes by-the-way, are they new?" Even she had to laugh with the rest of the class, exactly the point.
The loan officer that originates the loan application must include any documents provided by the applicant that supports the loan request. Fight fire with fire!!! This is the slickest trick I have ever thought up for using the system to trump the system. Freddie Mac publishes a sample budget on their web site under some obscure section (and I think it gets moved around). I saved a copy long ago. What is the underwriter going to think when he or she discovers a budget in the file that documents the ability to afford a higher housing expense AND it is on a form provided by Freddie Mac and contains the Freddie logo? I promise you it will be like finding a candy bar in the file. Well, lookie what I found!
In all the years originating loans I have never had a homebuyer offer a copy of their budget as part of the support documents. What a killer tool this would be especially if it documents a turn around contained in the credit report.
Send me an email if you want a copy of this form and I will send it ASAP: jsimms@cmcloans.com
This issue came up recently in a class I taught for first time homebuyers. One of the participants asked, "What if you aren’t saving by choice?"
My answer, "What are you proposing to give up after you buy a home? Nice shoes by-the-way, are they new?" Even she had to laugh with the rest of the class, exactly the point.
The loan officer that originates the loan application must include any documents provided by the applicant that supports the loan request. Fight fire with fire!!! This is the slickest trick I have ever thought up for using the system to trump the system. Freddie Mac publishes a sample budget on their web site under some obscure section (and I think it gets moved around). I saved a copy long ago. What is the underwriter going to think when he or she discovers a budget in the file that documents the ability to afford a higher housing expense AND it is on a form provided by Freddie Mac and contains the Freddie logo? I promise you it will be like finding a candy bar in the file. Well, lookie what I found!
In all the years originating loans I have never had a homebuyer offer a copy of their budget as part of the support documents. What a killer tool this would be especially if it documents a turn around contained in the credit report.
Send me an email if you want a copy of this form and I will send it ASAP: jsimms@cmcloans.com
Thursday, November 19, 2009
Mortgage Rates Hit The Low Point
Here is the most frequent question I am asked about interest rates, "How much lower do you think they can go?" Whenever asked this question (everyday) my answer is a simple observation, "There are more numbers above the current rate than there are below it."
The most common rate mistake I have witnessed over the years is when people wait for another 1/8% improvement and then lock when the market moves up ¼% or ½% instead of down. Consider this, on a 30 year fixed rate loan of $200,000 with a rate of 5% the monthly payment is $1,073.64. An 1/8% improvement to 4.875% results in a payment of $1,058.42 which is a monthly savings of $15.22. Over the life of the loan that is a potential savings of $5,479. Not bad if the loan is not paid off early.
Now let us assume the rates move up instead of down, many people will lock on a ¼ point up tick but almost everyone that does not will when it hits ½ point higher. The same loan amount of $200,000 with a rate of 5.5% will have a monthly payment of $1,135.58 or $61.94 per month higher than the 5% rate. Over the life of the loan that is a $22,298 mistake!
Of course the majority of homebuyers will not keep the loan for 30 years. This is the reason I warn against any rule of thumb approach. It is personal, what works for your neighbor may not be the right path for you.
The most common rate mistake I have witnessed over the years is when people wait for another 1/8% improvement and then lock when the market moves up ¼% or ½% instead of down. Consider this, on a 30 year fixed rate loan of $200,000 with a rate of 5% the monthly payment is $1,073.64. An 1/8% improvement to 4.875% results in a payment of $1,058.42 which is a monthly savings of $15.22. Over the life of the loan that is a potential savings of $5,479. Not bad if the loan is not paid off early.
Now let us assume the rates move up instead of down, many people will lock on a ¼ point up tick but almost everyone that does not will when it hits ½ point higher. The same loan amount of $200,000 with a rate of 5.5% will have a monthly payment of $1,135.58 or $61.94 per month higher than the 5% rate. Over the life of the loan that is a $22,298 mistake!
Of course the majority of homebuyers will not keep the loan for 30 years. This is the reason I warn against any rule of thumb approach. It is personal, what works for your neighbor may not be the right path for you.
Wednesday, November 18, 2009
There Is Good News If You Look
There is so much negative in the headlines today that it may not be easy to find something good, but it is there if you search hard enough. Rates for example, I just posted some of the lowest rates in my career on my application web site: http://centurymortgageco.lendingstation.com/products.aspx
Folks, those are fixed rates! But some of them have points, you say!!! And we all know the late night real estate gurus tell us not to pay points. For years I have suggested that homebuyers can control the payment by how they manage the transaction from the beginning. What happens if you negotiate and have the seller pay the points on your behalf? Then it is possible to receive the new tax credit if you qualify and an additional tax deduction.
http://www.irs.gov/taxtopics/tc504.html
We are seeing the beginning of the influx of people because of the new jobs at Fort Knox, this can only be a plus for the entire region.
My company is having a bumper year; in fact a few weeks ago we surpassed the largest annual volume in the company’s history with two months to go. Rates are only partially responsible. Our staff has expanded while competitors have laid off personnel. There really is good news if you look for it.
Folks, those are fixed rates! But some of them have points, you say!!! And we all know the late night real estate gurus tell us not to pay points. For years I have suggested that homebuyers can control the payment by how they manage the transaction from the beginning. What happens if you negotiate and have the seller pay the points on your behalf? Then it is possible to receive the new tax credit if you qualify and an additional tax deduction.
http://www.irs.gov/taxtopics/tc504.html
We are seeing the beginning of the influx of people because of the new jobs at Fort Knox, this can only be a plus for the entire region.
My company is having a bumper year; in fact a few weeks ago we surpassed the largest annual volume in the company’s history with two months to go. Rates are only partially responsible. Our staff has expanded while competitors have laid off personnel. There really is good news if you look for it.
Subscribe to:
Posts (Atom)
