Looking Back And Looking Ahead : February 25, 2008

By Todd Abelson NMLS #180858 on .

The biggest story this week is Fed Chairman Ben Bernanke's Wednesday testimony to Congress.
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.

The biggest story, though, is Fed Chairman Ben Bernanke’s Wednesday testimony to Congress.

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.

(Image courtesy: West Linn Tidings)

Spreadsheet Formulas: Calculating Home Payments

By Todd Abelson NMLS #180858 on .

For a lot of homebuyers, calculating a prospective mortgage payment is an online experience.  For example, a search on Google for “mortgage calculator” returns 39 million options.

Some people, however, prefer to plan on their local hard drive using spreadsheets.  For these people, the hardest part is often figuring out what formulas to use.

Interest Only Payments

The spreadsheet formula for principal + interest home loan payments

Home loans with interest only payments are much more simple to calculate than amortizing loans.

Using the graphic at right as a guide, enter your loan size and your interest rate into two separate spreadsheet cells.

Then, create a third cell and input the following formula that calculates the “Monthly Payment”.  The formula is:

= (Loan Size) * (Interest Rate) / 12

Principal + Interest Payments

Spreadsheet showing P+I formula

For a home loan with (principal + interest) payments, the formula is a little bit more complicated than with an interest only home loan.

Using the graphic at right as a guide, enter your loan size, your interest rate and the duration of your home loan into three separate spreadsheet cells.

Then, create a fourth cell and input the following formula that calculates the “Monthly Payment”.  The formula is:

= – PMT(Interest Rate/12, Loan Term in Months, Loan Size)

For additional spreadsheet formulas and more in-depth reporting, explore your software’s “Help” feature to see what you can find.

6 Things To Avoid While Waiting For A Mortgage Approval

By Todd Abelson NMLS #180858 on .

6 Things To Avoid While Waiting For A Mortgage Approval

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.

  1. Don’t buy a new car (or take on a larger lease payment)
  2. Don’t quit your job or change industries (and certainly don’t switch to a heavily commissioned role)
  3. Don’t transfer large sums of money into or out from your bank accounts (and remember that “large” is relative)
  4. Don’t miss a payment to a creditor (even if you don’t think you owe it)
  5. Don’t open a new credit card (even if you’re getting 10% off your new bedding)
  6. 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.

Looking Back And Looking Ahead : February 19, 2008

By Todd Abelson NMLS #180858 on .

Short-term rates are staying flat as long-term rates are rising

Early last week, mortgage rates rose on strong consumer spending and Warren Buffett’s offer to assume $800 billion in debt from three major bond insurers.   

Both reports were interpreted as signs of long-term strength in the economy, leading mortgage rates higher for long-term products such as the 20- and 30-year fixed rate mortgage.

Meanwhile, Fed Chairman Ben Bernanke painted a different picture about the economy’s health. 

In his testimony to Congress, Bernanke called attention to credit market weakness and alluding to a need for future Fed Funds Rate cuts.

The chairman’s testimony, coupled with the worst consumer sentiment reading in 16 years, helped to hold short-term mortgage rates flat, even as long-term rates were rising. 

In this holiday-shortened week, there is very little data and only one Fed speaker to influence the markets.  Therefore, expect external pressures to weigh on market sentiments this week.

The lingering questions about the economy’s health remain and so long as that uncertainty exists, mortgage rates will stay unsettled. 

We’ve seen extreme bouts with volatility since December and there’s little reason to suspect it will stop now.

(Image courtesy: Bankrate.com)

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The Last Lecture on SonyRadio.com

By Todd Abelson NMLS #180858 on .

Click on the link below to watch a video about a message that Dr Oz and Oprah Winfrey have to give:


“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.

May God bless this dear man and his family.”



What The New Conforming Loan Limits May Mean To You

By Todd Abelson NMLS #180858 on .

Currently, homeowners whose loans exceed $417,000 pay a premium because their loans are not securitized the way that conforming loans are.

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:

  1. You suspect you live in a high-cost area
  2. 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.

Good News For First Magnus Financial Corp. Employees

By Todd Abelson NMLS #180858 on .

Good news for First Mangus Financial Corp. Employees!

There was an article today in the AZSTARNET newspaper about the the bankruptcy approval. Looks as though Judge James Marlar will have a decision as soon as this week.

According to the AZSTARNET “First Mangus representatives have said that the employees would be completely repaid, up to $10,000 per person, under the plan.”


Looking Back And Looking Ahead : February 11, 2008

By Todd Abelson NMLS #180858 on .

This week, expect more of the same volatility with January's Retail Sales data and five Fed speakers including Fed Chairman Ben Bernanke

Mortgage markets are conflicted about the U.S. economy and the confusion is impacting home buyers.

If you’ve recently tried to lock a mortgage rate, you’ve probably experienced it personally

On one hand, reports of plunging sales suggest that the economy is slowing more quickly than expected. 

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.

(Image courtesy: CNN)


By Todd Abelson NMLS #180858 on .

Through an official announcement just received, MGIC and other MI companies have just reclassified all of Arizona, mipCalifornia, 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…


Note that FHA and VA loan programs are not affected.