2010 Is Upon Us

Few people in the real estate or mortgage industries are sad to see 2009 slip in to the history books. Our company actually had a record volume year but there was nothing easy about it. The changes that took place this year were a challenge to say the least.

Next year is going to have some major adjustments right out of the chute, a new Good Faith format and corresponding booklet kick off January 1st. The new GF is supposed to be simpler for the consumer, so much for that. The old version was one page and the new one is four pages. The information I received from HUD explaining this simplified version of the Good Faith Estimate is 85 pages long! But guess what, I actually like the new version. It is going to make it difficult for loan officers to bait-and-switch which has been my biggest pet peeve with the industry. Hopefully, that is going to change next year because of this form.

HUD’s Settlement Cost Booklet has grown up as well, the old version is 20 pages and the new one is 49 pages. I am not a conspiracy buff, but the paper industry sure looks guilty.

Here is some really good news; FNMA is predicting stable rates throughout the year. They predict the 30 year fixed will remain about where it is now for the first half of the year and then trend up very slightly the last half. Click Here to see the entire chart.

I expect the low rates, extension and expansion of the tax credit to have a very positive impact on the first quarter. The sharp spike we saw in September and October should continue until April.

In another report they state:

The mortgage market should turn into more of a purchase market next year. With projected increases in home sales and more moderate declines expected in home prices, purchase mortgage originations are expected to increase about 12 percent in 2010.

Click Here to read the full report.

Biweekly Mortgages On The Way Out?

My Calyx application software was updated on Monday and it looks like there were several changes. This morning I received an email regarding the changes in Desktop Underwriter®. The one that caught my eye concerns biweekly mortgages being sold to Fannie Mae. This was announced back in September in FNMA Announcement 09-29:

“Due to a lack of demand and increased operational costs, Fannie Mae is retiring the biweekly payment mortgage product, which requires the borrower to make biweekly payments in accordance with the note. Fannie Mae is also discontinuing the standard first-lien notes and riders that were used in connection with the biweekly payment mortgage.” CLICK HERE to read the entire announcement.

Lenders can still offer the option on portfolio loans, but it sounds like the largest player is out of the game on these.

Looking Back at Local Stats

The volume of real estate sold as reported by the Greater Louisville Board of Realtors over the last four years is very interesting. Comparing year-to-date dollar volume on sales reported until 11/30 of each year says a lot. The first thing I noticed is the total volume for the period was highest in 2006. Then the number decreases slightly in 2007, only a 1% decrease.

The following year, 2008, the figures dropped a whopping 23.5% compared to the same period in 2007!!! I personally felt the difference. This year versus last year is off almost exactly 6% which isn’t anything to celebrate but at least it isn’t double digit.

We compiled the report gathering monthly sales figures for the first 11 months of each year and looking at the spreadsheet it is clear that this year the direction changed in July. Prior to that the last positive month was August 2007 – two years of straight decline!

There is nothing scientific about my method and of course there are many other factors that could be considered such as a percentage of listing verses properties sold, average sale price, median sale price, etc. Or you can do what I did and look at simple monthly totals of sales figures. Last month the number was a whopping 45% increase over November 2008 and this October was 30% above last. Well now, it appears the first time homebuyer tax credit dumped about $82,000,000 (or $122M adding the average monthly loss for the rest of the year) extra into our local economy in October and November this year. Prior to October we were down $182,000,000 for the year, an average of slightly $20,000,000 per month. The last two months cut the loss almost in half.

Many thanks to Debbie Rood with RE/MAX Properties East for supplying the figures.

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.