Re-Approve Your Pre-Approval

By Todd Abelson NMLS #180858 on .

Proceed with your home buying, but proceed with caution -- your pre-approval may be outdated

Since December 2007, mortgage lending guidelines have changed very quickly and often without notice. 

Some of the more well-known changes include:

  • Broad restrictions on stated income home loans
  • Broad restrictions on 100 percent financing
  • “Risk-based fees” for credit scores under 740

Some of the lesser-known restrictions relate to property type and occupancy status as well as debt-to-income levels and mortgage payment histories.

Because of the number of changes and their collective scope, home buyers should be prudent and get re-pre-approved for their home loan.

Even if you last spoke with your loan officer four weeks ago, it’s important to know how market changes could ultimately impact your home loan approval.

The market really is that different.  Talk to your loan officer about a re-pre-approval today.

Expect A Fed Funds Rate Cut This Afternoon

By Todd Abelson NMLS #180858 on .

The Fed Funds Rate is currently 3.000 percent

The Federal Open Market Committee meets today and will issue a press release in addition to cutting the Fed Funds Rate at 2:15 P.M. ET.

The verbiage of the press release will be as widely watched as the rate cut itself because markets are curious about how far the Federal Reserve will go to lessen the impact of an economic recession.

With every Fed Funds Rate cut, recession becomes less likely, but the other side of the equation is that the probability of long-term inflation grows

Like recession, inflation can be bad for the economy, too.

The Fed Funds Rate now stands at 3.000% this morning and the FOMC is expected to lower it by 0.750% or more this afternoon.

Mortgage rates are rising today because cuts to the Fed Funds Rate weaken the U.S. dollar which, in turn, makes mortgage re-payments less valuable to investors.

How Gas Prices Are Impacting Mortgage Rates

By Todd Abelson NMLS #180858 on .

According to Gasbuddy.com, gas prices are at an all-time high (March 11, 2008)

Gasoline prices reached an all-time, inflation-adjusted high yesterday, averaging $3.23 per gallon nationwide. 

According to GasBuddy.com, this represents a 25% increase in the last 12 months.

Higher gas prices are leaving Americans with fewer discretionary dollars to spend and that is playing a role in the U.S. economy’s slowdown.  It’s one reason why mortgage rates have stayed low despite steady upside pressure from inflation.

High gas prices are also a reason why Thursday’s Retail Sales data will be closely watched; markets will gain insight into whether Americans are cutting back on personal spending because of rising energy costs.

Retail Sales are expected to have risen by a slight 0.1%.  If the actual number is lower, mortgage rates should fall on recession fears.  If it’s higher, rates should rise.

(Image courtesy: GasBuddy.com)

Looking Back And Looking Ahead : March 10, 2008

By Todd Abelson NMLS #180858 on .

Non-farm payrolls were weak for the second straight month in February 2008

Between Tuesday and Thursday, mortgage rates rose as much as during any three-day period in recent memory before settling back a bit on Friday’s jobs data.

Fourteen speeches from members of the Federal Reserve were partly to blame for the mortgage rate chaos, but several other factors played a part, too.

One of the biggest other factors last week was that multiple big-name investors were “margin-called”.

Now, margin is a basic financial concept, but to do a good job explaining it requires a lot of numbers and math.  So — if you’re curious — visit Wikipedia for the complete run-down.

Or, just know that last week’s margin calls forced the investors to sell ther mortgage bond holdings into a falling mortgage bond market.  This accelerated the mortgage bond markets freefall for home buyers and rateshoppers alike.

The extra supply from the margin calls created a stronger push downward on mortgage bond prices than markets would have seen without the margin calls. 

This, of course, caused mortgage rates to rise faster than they would have without the margin calls, too.

Only after February’s weak job numbers were reported Friday did mortgage rates recover.  Overall, rates were higher on the week and — at one point Thursday — touched their highest levels in several months.

This week will be fairly light on data and lacking of Federal Reserve speakers.  Therefore, watch for momentum trading to take hold.

The two data points to watch this week are:

  1. Thursday’s Retail Sales data
  2. Friday’s Consumer Price Index

Both are reasonable gauges of inflation in the U.S. economy and both are expected to show slowing from their previous readings.  Strength will be interpreted as inflationary and should cause mortgage rates to rise.

(Image courtesy: The New York Times)

How Picking Up The Telephone Can Reduce The National Foreclosure Rate

By Todd Abelson NMLS #180858 on .

Call for help on your mortgage BEFORE missing a mortgage payment

“Foreclosure” is the legal process by which a bank repossesses a home from a borrower and, according to RealtyTrac, 1 out of every 100 homes were in some stage of the foreclosure process in 2007. 

This figure is astounding because foreclosure is expensive to both homeowners and banks.  Both parties have an interest in avoiding foreclosure but the process has to start with the homeowner — banks are just too big to start it themselves.

Every mortgage statement has a 1-800 phone number on it.  If you’re about to fall behind on your mortgage payments, make a phone call first.  When you call the toll-free number, a customer service representative talk about your repayment options, or help you design a work-out plan to get your mortgage back to current.

Banks know that more than 80 percent of all foreclosures result from one of the following:

  • Job loss/reduction in salary
  • Medical issues
  • Divorce
  • Death

These are life events that draw compassion from banks.  They understand that bad things can happen to people. 

However, the other 20 percent of foreclosures are the result of an inability to sell, an unwillingness to pay, and budget mismanagement.  These reasons are not as acceptable to the banks.

But when a homeowner fails to forewarn his lender of a missed payment, the lender assumes the worst.  It puts the homeowner in the 20 percent category. This makes a work-out plan much less likely and can quickly lead to foreclosure and a loss of the home.

Lenders want to avoid foreclosure as much as homeowners do.  If you’re a homeowner and you’re facing trouble with your mortgage payment, give your lender a call in advance and try to work it out.

If you never call, you can’t possibly get help.

(Image courtesy: Countrywide Financial)

Good News for Pima County Arizona – FHA Loan Limits Increase

By Todd Abelson NMLS #180858 on .

fhaThe FHA maximum mortgage limits for Pima county Arizona have been increased. The new mortgage limit for a single family home in Pima county is now $316,250.

This is good news for the Tucson housing market!

An FHA loan allows potential home owners to purchase a home with only 3% down. The seller can contribute up to 6% of the buyers closing costs. Plus the buyer can get 100% of the down payment as a gift from a family member. So it is possible for someone to buy a home with an FHA loan with NO money out of pocket.

Below is a break down of the new FHA loan limits as of March 6, 2008.

  • One – Family – $316,250
  • Two-Family – $404,850
  • Three-Family – $489.350
  • Four-Family – $608,150

Both Tyler and Todd are FHA experts and have helped many Tucson folks purchase a home using FHA financing. Give us a call today so we can help you purchase a home with as little as 3% down.

For more information visit www.hud.gov

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The Right Question: “How Much Do I Want To Spend On Housing Each Month?”

By Todd Abelson NMLS #180858 on .

By focusing on a home's payment instead of its list price, home buyers exert more control over their short- and long-term financial goals.

One of the most popular questions that home buyers ask real estate and mortgage professionals is “How much home can I afford?”

It’s a normal question to ask, but it’s not the most effective way to plan your finances. 

Banks will almost always approve you for a home loan in excess of your household budget.

The more appropriate question is: “How much do I want to spend on housing each month?” 

By focusing on a home’s payment instead of its list price, home buyers exert more control over their short- and long-term financial goals.  List price is only one piece of the monthly payment puzzle. 

The cost of owning a home month-after-month is the sum of multiple expenses:

  1. The mortgage payment
  2. The real estate taxes on the property
  3. The condo/management fees to an association (if applicable)
  4. The cost of homeowner’s insurance
  5. The cost of mortgage insurance (if applicable)

In other words, because monthly payments are combination of costs, buying a home based on its list price does very little to help plan a budget.  A home selling for $300,000, for example, may cost a homeowner anywhere from $1,800 to $3,000 monthly.

This is why “How much do I want to spend on housing each month?” is a better starting point than “How much home can I afford?”. 

Home affordability comes from more than just the list price.

Recession or Inflation? Even Fed Members Don’t Know For Sure.

By Todd Abelson NMLS #180858 on .

With Friday's jobs report looming, mortgage markets are especially skittish about whether the economy is in a recession, or facing inflation.

With Friday’s jobs report looming, mortgage markets are especially skittish about whether the economy is in a recession, or facing inflation.

Four Fed speakers Tuesday did little to quell the debate:

  • 9:00 A.M.: Fed Chairman Bernanke stayed on message that foreclosures and falling home values are dragging down the economy.
  • 10:00 A.M.: Fed Vice Chairman Kohn said that banks will “face challenges” but will not fail en masse.
  • 1:00 P.M.: Federal Reserve Governor Mishkin said that deflation is more concerning to him than inflation
  • 1:00 P.M.: Dallas Fed President Fisher said fighting inflation is more important than fighting recession.

Four speeches, four different perspectives. 

The speakers’ mixed messages confused market participants and, as a result, mortgage rates varied wildly from hour to hour.

The confusion was so great that several mortgage lenders had to shut down their rate lock desks on three separate occasions Tuesday to re-price rates to the “new” market.

That’s a highly unusual occurrence and the market’s volatility underscored the uneasiness exiting in mortgage markets lately.  Without a clear picture of where the economy is headed, investors are left to guess (and they’re not very sure of themselves).

Friday’s job report may add some clarity, but until Friday comes, consider locking a mortgage rate if you see one you like — it probably won’t stick around for very long.

What High Oil Prices Mean To Mortgage Rates

By Todd Abelson NMLS #180858 on .

Oil closes at an all-time high, creating inflationary pressures

After briefly exceeding its all-time high, oil closed Monday at $102.45. 

Rising energy costs can lead to inflation because American Business eventually passes on its higher costs to American Consumers.

When consumers have to spend more money for the same amount of product, it’s called “inflation”. 

Another way to look at inflation is like an erosion in the value of a dollar.

The presence of inflation causes mortgage rates to rise because mortgage debts are repaid in dollars.  If those dollars are losing their value, the rates tied to those debts have to increase to “cancel out” the erosion.

This is why mortgage rates spiked Monday.  As oil prices rose, the fear of inflation grew larger.

Over the next few weeks, expect mortgage rates to be highly sensitive to oil prices.  As oil prices rise, mortgage rates should, too.  As oil prices fall, mortgage rates should follow.

(Image courtesy: New York Times)