It’s a big week for mortgage markets (again) and that should cause rates to fluctuate wildly (again).
The volatility we’ve seen since December has not been for the faint of heart. Even this past Friday, as mortgage rates were poised to end the week lower, a late-afternoon stock market rally reversed it.
In the last 45 minutes of trading, the Dow Jones Industrial Average swung 225 points. Mortgage rates rose, too, peeving Americans who planned to go house-hunting over the weekend.
This week, mortgage rates will take direction from a handful of economic reports including the Federal Reserve’s preferred inflation marker — the Personal Consumption Expenditures report. PCE is a Cost of Living index.
While he’s not expected to say “the economy is in a recession”, or “the economy is doing just fine”, markets expect Bernanke to give guidance about how far the Fed would cut the Fed Funds Rate to stimulate the economy.
The Fed Chairman won’t say outright, “The Federal Reserve intends to lower the Fed Funds Rate to 1.000%”. Therefore, it will be the guessing of how low the Fed will go that should cause markets to buck.
But remember: Cuts to the Fed Funds Rate do not necessarily lead to lower mortgage rates. To the contrary: Since the Fed started cutting the Fed Funds Rate in 2008, mortgage rates have moved higher. As they cut, though, ARM interest rates should become more attractive versus fixed-rate mortgage rates.
This is because additional cuts the Fed Funds Rate will fan inflation fires longer-term and inflation erodes the value of long-term mortgage bonds.
When buying a home, there are two stages in the home loan approval process.
Stage 1 starts when a homebuyer submits a mortgage application to his loan officer for a pre-approval.
A pre-approval is a “walk-through” mortgage approval that says — at a given purchase price and downpayment amount — the home loan application will very likely be approved.
Stage 1 ends when the buyer signs a purchase contract on a home. At this point, the “walk-through” approval is useless because the buyer now needs a real home loan approval from an underwriter and not a loan officer.
Thus begins Stage 2.
During the second phase of the approval process, a mortgage underwriter is reviewing income, assets, credit, job history, and other items, too; the underwriters job is to make sure that the buyer meets the bank’s criteria for lending.
If the loan officer did his job in Stage 1, Stage 2 is just a formality. And most times, it all goes according to plan.
Occasionally, though, a homebuyer sabotages his own mortgage approval by inadvertently changing his “risk profile”. It doesn’t happen on purpose, of course — it just happens.
So, consider this a quick primer of what not to do while you’re between Stage 1 and the completion of Stage 2 of the home loan approval process. Following these pointers will help keep the risk profile consistent.
Don’t buy a new car (or take on a larger lease payment)
Don’t quit your job or change industries (and certainly don’t switch to a heavily commissioned role)
Don’t transfer large sums of money into or out from your bank accounts (and remember that “large” is relative)
Don’t miss a payment to a creditor (even if you don’t think you owe it)
Don’t open a new credit card (even if you’re getting 10% off your new bedding)
Don’t accept a cash gift without talking to your loan officer first (because there’s rules on how to accept them)
There’s other items, too, but this a good start.
Now, avoiding these mistakes may not be practical for everyone. Therefore, if you know you’re going to violate a “rule”, check with Tyler Ford or Todd Abelson first.
There are a lot of “gotchas” in mortgage lending and it helps to have professional guidance for your individual questions.
“46 year old Carnegie-Mellon Professor Randy Pausch is a dreamer.
His positive outlook on life is remarkable, given his circumstances. After watching his story, in this The Last Lecture, your life may never be the same again. Please watch the entire video. After you do, you’ll understand why.
The $168 billion economic stimulus plan signed Wednesday includes a temporary increase to conforming loan limits in some parts of the country.
Currently, many homeowners whose loans exceed $417,000 are paying higher interest rates because their loans are not securitized the way that smaller loans are.
The loan limit increase is intended to make housing more affordable in certain “high cost” areas around the United States.
However, the loan limit changes are not immediate. The stimulus package grants HUD 30 days to determine which metropolitan areas should be designated as “high cost” and it should take another few weeks for Fannie Mae and Freddie Mac to remodel their mortgage pricing engines.
All told, it could be mid-April before the new limits are in place.
Author’s Note: There is a lot of speculation about which areas will be designated as “high cost” and nobody knows for certain until HUD decides. Rather than misreport the facts, we’ll save our coverage until something is concrete. However — if you’re in a “high cost” area, you probably already know it.
When the new limits are official, though, expect that many homeowners will take advantage. That will lead to underwriting delays because mortgage refinance activity will surge.
Therefore, consider being proactive about your financing options if:
You suspect you live in a high-cost area
You have liens on your home exceeding $417,000
If you don’t live in a high cost area, you can’t take advantage of the new loan limits; and if your outstanding liens total less than $417,000, you won’t want to be helped.
Converting from a jumbo home loan will not be appropriate for everyone, but it will be right for some. Get personal advice and figure out what’s best for you.
And then hope the HUD fingers your neighborhood as high cost.
This is recessionary and tends to be good for mortgage rates. So, some days, rates have been down.
On the other hand, some pundits (including a Federal Reserve official) are saying that recent Fed cuts may stoke inflation in the second half of 2008.
This is inflationary and tends to be bad for mortgage rates. So, some days, rates have been up.
Neither side is wrong — 2008 will likely show signs of both recession and inflation at some point. Markets are waking up to this fact.
And this is why mortgage rates have changed so much from day-to-day — investors can’t agree upon exactly when the Fed rate cuts will work their way through the economy. With each “target date” change, mortgage rates change.
This week, expect more of the same volatility with January’s Retail Sales data being released and five Fed speakers (including Fed Chairman Ben Bernanke) stumping.
The spoken word of the Fed Chief can be a very powerful influence on markets.
If you’ve recently gone under contract for a home, you may find peace of mind by concentrating on a mortgage payment as opposed to a mortgage rate; rates could change multiple times each day and timing a market-bottom can be futile.
Through an official announcement just received, MGIC and other MI companies have just reclassified all of Arizona, California, Florida, Nevada as well as many counties in several states as “restricted markets”.
As such, here are their new guidelines for issuing Mortgage Insurance beginning March 3rd.
Mortgage Insurance will still be available on the following loans:
• 95% Loan-to-Value with a credit score of 680 (90% LTV with 620) based upon full documentation for Primary & Second Homes only.
Mortgage Insurance will NO LONGER BE AVAILABLE on the following loans:
• Any loan greater than 95% Loan-to-Value (good-bye 100% financing)
• Reduced Documentation or A-Minus (“Expanded Approval”) loans
• Investment properties of any kind
• Cash-out refinances of any kind
• Any loan with the potential of negative amortization.
New rules will also apply to any loan with LPMI (lender paid mortgage insurance) or One-time (up front) mortgage insurance policies.
These changes go into effect on March 3rd so if you’re considering something like this…
GET THE DEAL UNDER CONTRACT AND SECURE FINANCING NOW!!!
Note that FHA and VA loan programs are not affected.