Economy forecast for the 2nd half of 2013

By Todd Abelson NMLS #180858 on .

So what’s in store to for us the 2nd half of 2013? If you believe the Economists, here’s that they say:Rubenvent

  1. Consumer spending increased the 1st half of 2013 while real income decreased – This is unsustainable
  2. The “employment-to-population” ratio (%) is at the lowest level we’ve seen in years – indicates very slow job growth
  3. The Federal Government Sequester + increase in payroll tax will help keep inflation low – reduced spending
  4. Housing will be back on-track – but will interest rates stay low enough to entice people to buy?
  5. Europe continues as a drag on the world – will affect us as well

More Locally:

  1. Tucson Housing “bottomed” in 2012 and is up 4% since then
  2. Phoenix housing “bottomed” in 2011 and is up 11% since then
  3. Tucson could be hit harder than most cities with the Sequestor since our economy relies heavily on Procurement spending (manufacturing and professional services)
  4. Arizona is ranked 16th (state) in national “Technology & Science” index, and 5th ranked of all western states.

To see the data, click here to check out the University of Arizona Eller College of Management website.

Call Todd Abelson at Sunstreet Mortgage in Tucson Arizona for all your mortgage needs! (520) 331-LEND (5363)

FHA – like death and taxes, FHA MONTHLY MI is now FOREVER!

By Todd Abelson NMLS #180858 on .

Currently, Monthly MI is dropped automatically when the loan amount reaches 78% of the original purchase price of the house… which typically takes 10 years if making a 3 1/2% down payment on a 30-year loan (most typical usage). There are currently also provisions for reduced or NO Monthly MI if you’re making a 5% (or more) down payment and/or using a 15-year loan (less prevalent, but it does occur).

So what’s the change – like death and taxes, fha monthly mi is now FOREVER

Here’s the “party line”:

As part of the effort to strengthen the Federal Housing Administration’s (FHA) Mutual Mortgage Insurance (MMI) Fund, FHA published Mortgagee Letter (ML) 2013-04 on January 31, 2013.  This ML imposes several changes for case numbers issued on or after on June 3, 2013 that will allow the agency to improve the health of the MMI Fund by:

  • Collecting annual MIP on FHA-insured mortgages for the first 30 years the loan, for loans with an LTV greater than 90% at origination;
  • Collecting annual MIP on FHA-insured mortgages for the first 11 years of the loan, for loans with an LTV less than or equal to 90% at origination; and
  • Removing the exemption of MIP for loans with a term of less than or equal to 15 years and an LTV less than or equal to 78% at origination.

These changes apply to All Single Family FHA programs (including Streamline Refinances of mortgages originated on or before May 31, 2009) for which FHA charges an annual MIP except:

  • Title I; and
  • The Home Equity Conversion Mortgage (HECM) program.

To read the actual verbiage, click to view ML 2013-0 for more details concerning this policy.

Call Todd Abelson at Sunstreet Mortgage (520) 331-LEND (5363) for all your mortgage needs!

What the heck happened to mortgage rates this MONTH???

By Todd Abelson NMLS #180858 on .

Rate_IncreaseToday the 10-yr T-note’s yield closed at 2.15% after hitting lows in 2012 of 1.52%? What the heck happened?

What was bound and destined to occur – it was only a matter of “when” not “if”…  Let’s face it – the low rates we’ve been enjoying since last summer were clearly unrealistic and were only a result of the artificial market the Fed’s created when they began buying $85 BILLION per month.

Who stopped the music? When Bernanke and his band of Fed Committee members commented that Quantitative Easing Version 3 (“QE3”) would probably be scaled back sooner than expected as the economy was showing signs of recovery. GENERALITIES only … but the damage was done and the run on the Mortgage Backed Securities (MBS) Market began. Referring to the chart below, note that the price of MBS has dropped 472 basis points!

MBS 30-May


The results: Fixed rate loans of the 30,25,20 & 15 variety are way up. But let’s stop for a minute and reflect on what’s real:

  1. Rates are still historically phenomenal and while they’re clearly “up” from their lows, they’re fabulous!
  2. Home prices are “up” from a year ago.
  3. The economy is gaining strength… even though it’s not perfect.
  4. With the yield curve steepening on the long maturity side, ARM rates are still UBER Fabulous

While we may see some improvement in rates over the next few weeks/months, the tone is set and you can kiss the 3’s goodbye. Just like a great party, sooner or later it ends and we all have to go back to reality.

Anyway you slice it, rates are great – call me to get a great one for yourself! Todd Abelson at Sunstreet Mortgage (520) 331-LEND (5363)


Its all the talk – “Sequestration”

By Todd Abelson NMLS #180858 on .

You may have heard a great deal of rumor about what’s going to happen as a result of the “Sequester” – but what exactly is it?. “Sequestration” refers to a series of automatic, across-the-board spending cuts to federal government agencies that are scheduled to take place  starting March 1, 2013. 

While it’s hard to know exactly how things will play out as the cuts are implemented, most individuals are probably not going to notice a significant, immediate effect. It is important to understand that the government will not be shutting down.

How much cutting will there be and what will be affected? totaling $1.2 trillion, the cuts will be split evenly between defense and domestic discretionary spending: approx $500 billion from the Defense Department and other national security agencies. The remaining cuts will affect a variety of domestic programs, including education, public safety, energy, national parks, food inspections, housing aid, transportation, and law enforcement. Social Security, Medicaid, and Medicare benefits are exempt from sequestration.

How did this happen? Sequestration was created from the August 2011 standoff over the U.S. debt ceiling. The idea was that sequestration would be a measure of last resort and that Congress would act to replace the sequestration cuts with an equal amount of alternate spending reductions. As a result, the Budget Control Act of 2011 created a deficit reduction “supercommittee” that was charged with reaching consensus on additional budget cuts that would avoid sequestration. But the supercommittee failed so here we are…

Ok, so the Feds cut the budget and that’s the end of it, right? WRONG!

While it hasn’t received the same level of attention as sequestration, there’s another problem rapidly approaching–the government is running out of money again. Federal funding for the current fiscal year expires on March 27, 2013 and so unless Congress authorizes ANOTHER Debt ceiling hike a partial government shutdown would result. And it doesn’t stop there either! The federal government reached its $16.394 trillion debt ceiling limit at the end of 2012. Congress subsequently suspended the debt ceiling limit until May 19, 2013, and although the U.S. Treasury has some ability to continue operations beyond that date, at some point the debt ceiling debate will need to be addressed AGAIN. Thus, it’s conceivable that any short-term agreement on sequestration would include provisions that address these deadlines as well.

Given Congress’ inability to do ANYTHING lately, its best to — breath, continue to watch, and HOPE rational minds prevail in the coming months.

Call Todd Abelson at Sunstreet Mortgage in Tucson Arizona for all your mortgage needs! (520) 331-LEND (5363)

CFPB rules on “Qualified Mortgages” released

By Todd Abelson NMLS #180858 on .

After a LONG wait, CFPB finally released its ruling on “Qualified Mortgages” or QM.

Generally, QM rules prohibit loans with negative amortization, Interest-only payments, balloon payments, loans with repayment terms greater than 30 years, and loans where the points and fees are greater than 3% of the loan amount. The QM rule also generally requires the consumer to have a debt-to-income (DTI) ratio less than 43% (similar to FHA standards).

The QM definition appears to leave plenty of room for exceptions as well as second “temporary QM” definition with more flexible underwriting requirements for GSE loans – Fannie and Freddie (while they operate in conservatorship) and FHA/VA loans. It looks like CFPB heeded the cries from the lending community and were wary of negatively impacting the real estate markets. All of these shenanigans originate from the Dodd-Frank Act that requires creditors to determine whether the consumer has the ability to repay their mortgage. Under the Act, a creditor can assume that the borrower has met the “ability-to-repay” requirement if the loan is deemed a QM.  

Per the final rule, creditors must generally consider the following factors in determining ability-to-repay

  1. current income or assets
  2. current employment status
  3. credit history
  4. monthly mortgage payment
  5. monthly payments on any other loans associated with the property
  6. the monthly payment for other related obligations (i.e. property taxes)
  7. other debt obligations
  8. monthly debt-to-income ratio the borrower would be taking on with the new mortgage.

As I mentioned above, the final rule also provides for a second, “temporary QM” definition that allows for more flexible underwriting requirements. The release notes that this exemption is driven by the “fragile state of the mortgage market” and the fact that in many cases borrowers can afford a DTI ratio above 43%. To qualify under the “temporary QM” definition, a mortgage must meet the general requirements and be eligible to be purchased or guaranteed by either the GSEs – Fannie and Freddie (while in conservatorship), the FHA, VA, or Department of Agriculture or Rural Housing Service. Could these be Special rules for the especially gifted borrower???? Isn’t that what started the whole “exotic mortgage product” market in the first place???!!!!

Here’s an except from some of the pablum released by the CFPB to “protect consumers from irresponsible mortgage lending”:

Under the Ability-to-Repay rule announced today, all new mortgages must comply with basic requirements that protect consumers from taking on loans they don’t have the financial means to pay back. Among the features of the new rule:

Financial information has to be supplied and verified: Lenders must look at a consumer’s financial information. A lender generally must document: a borrower’s employment status; income and assets; current debt obligations; credit history; monthly payments on the mortgage; monthly payments on any other mortgages on the same property; and monthly payments for mortgage-related obligations. This means that lenders can no longer offer no-doc, low-doc loans, where lenders made quick sales by not requiring documentation, then offloaded these risky mortgages by selling them to investors.

A borrower has to have sufficient assets or income to pay back the loan: Lenders must evaluate and conclude that the borrower can repay the loan. For example, lenders may look at the consumer’s debt-to-income ratio – their total monthly debt divided by their total monthly gross income. Knowing how much money a consumer earns and is expected to earn, and knowing how much they already owe, helps a lender determine how much more debt a consumer can take on.

Teaser rates can no longer mask the true cost of a mortgage: Lenders can’t base their evaluation of a consumer’s ability to repay on teaser rates. Lenders will have to determine the consumer’s ability to repay both the principal and the interest over the long term − not just during an introductory period when the rate may be lower.

QUALIFIED MORTGAGES – Lenders will be presumed to have complied with the Ability-to-Repay rule if they issue “Qualified Mortgages.” These loans must meet certain requirements which prohibit or limit the risky features that harmed consumers in the recent mortgage crisis. If a lender complies with the clear criteria of a Qualified Mortgage, consumers will have greater assurance that they can pay back the loan. Among the features of a Qualified Mortgage:

  • No excess upfront points and fees: A Qualified Mortgage limits points and fees including those used to compensate loan originators, such as loan officers and brokers. When lenders tack on excessive points and fees to the origination costs, consumers end up paying a lot more than planned.
  • No toxic loan features: A Qualified Mortgage cannot have risky loan features, such as terms that exceed 30 years, interest-only payments, or negative-amortization payments where the principal amount increases. In the lead up to the crisis, too many consumers took on risky loans that they didn’t understand. They didn’t realize their debt or payments could increase, or that they weren’t building any equity in the home.
  • Cap on how much income can go toward debt: Qualified Mortgages generally will be provided to people who have debt-to-income ratios less than or equal to 43 percent. This requirement helps ensure consumers are only getting what they can likely afford. Before the crisis, many consumers took on mortgages that raised their debt levels so high that it was nearly impossible for them to repay the mortgage considering all their financial obligations. For a temporary, transitional period, loans that do not have a 43 percent debt-to-income ratio but meet government affordability or other standards − such as that they are eligible for purchase by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac) − will be considered Qualified Mortgages.

Click here to see the CFPB Fact Sheet on “Irresponsible Mortgage Lending”

Call Todd Abelson at Sunstreet Mortgage in Tucson, AZ for all your mortgage needs! (520) 331-LEND (5363)

What the heck happened with rates this week?

By Todd Abelson NMLS #180858 on .

Yesterday the 10-yr T-note’s yield closed at 1.90% after hitting lows early in 2012 of 1.52%? What the heck happened?

What happened was that the Federal Reserve released the minutes from its last Open Market Committee (FOMC) meeting, and although 12 voting members thought the bond purchases would be warranted through the end of this year others felt the purchases should be slowed or stopped altogether before the end of 2013. This group was concerned that too much bond buying by the Fed might destabilize the economy. Federal Reserve policy makers said they will probably end their $85 billion monthly bond purchases sometime in 2013; Participants who provided estimates were “approximately evenly divided” between those who said it would be appropriate to end the purchases around mid-2013 and those who said they should continue beyond that date.

Suddenly the market answered what folks have been asking for a while: “Where would rates go if the Fed wasn’t there to support the yields and prices?” Asset purchases are not forever: it’s not that markets think that The Fed’s purchases of MBS (the “mortgage backed securities” that most directly influence mortgage rates) or Treasuries will be stopping any time soon, but however long a particular market participant thought that Quantitative Easing (QE) would continue, that time frame was either shortened or called into question after yesterday’s data.  

Rates on 30-year Fannie Mae (FNMA) loans worsened .25 while the 10-year note rate increased to 1.90%.

So… maybe the “free ride” (if you can call a $15 TRILLION deficit “free”) is almost over? My suggestion:

Short term (days/weeks) – the damage is already done but you may still want to lock in your mortgage rate now.

Long term (weeks/months) – once the market digests the data and realizes nothing is imminent, rates may come down a bit so floating might be prudent.

Either way, rates are great – call me to get a great one for yourself! Todd Abelson at Sunstreet Mortgage (520) 331-LEND (5363)