Everytime there seems to be some relief we get hit with a new headline. What is tomorrows?
Tuesday, September 30, 2008
Lost in the coverage, however, is how the "No" vote created a terrific opportunity for home buyers and mortgage rate shoppers.
Yesterday, as money fled the tanking stock market, most of it ended up getting parked in the relative safety of government-backed bonds which includes, of course, the mortgage bonds. This rising demand for mortgage bonds caused rates to fall, improving home affordability.
To investors, stock markets represent risk and bond markets represent safety. So, when market sentiment changes, as it did yesterday, Wall Street players often shift their dollars from one forum to the other. This is why yesterday's stock sell-off was good news for mortgage rate shoppers -- the added demand for "safe" securities drove down rates.
Conforming mortgage rates were lower by about an eighth-percent Monday.
Now, today, mortgage rates are opening flat, suggesting that markets are in a Wait-and-See Mode. Wall Streets knows that the defeated bill will re-emerge later this week and, when it does, expect traders to respond accordingly.
If the new-look bill is viewed as favorable to U.S. businesses without harming taxpayers, expect stock markets to improve and mortgage rates to rise. If the bill fails to accomplish that goal, however, expect mortgage rates to improve.
Monday, September 29, 2008
Thursday, federal regulators seized mortgage lender Washington Mutual. The Seattle-based thrift became the third "big name" lender to close its doors since July, joining IndyMac and Lehman Brothers.
In 2007, these 3 lenders represented about 10 percent of the mortgage market and their subsequent failures are confusing American homeowners.
The most prevalent question:
If my mortgage lender fails, are my payments still due?
And the answer is an unequivocal "yes". If a mortgage lender is seized, goes bankrupt, or is otherwise closed, it doesn't change the terms of the bank's mortgages whatsoever -- just maybe the mailing address.
This is because a mortgage (and its corresponding note) is a legal contract between the lender and the lendee, signed on the date of closing. It is binding and cannot be altered by either party. The only way to "end" the contract is to pay the loan in full.
This can happen in one of 3 ways:
- The home is sold and the mortgage is repaid
- The home is refinanced and the mortgage is repaid
- The home loan is paid down to $0 balance by the homeowners
So, if a mortgage company fails, its doesn't cause the loan to be paid-off and, therefore, the mortgage contracts is still valid. Payments are still due.
However, because its mortgages are an asset, the failed lender will usually transfer them to a new lender's servicing department. This means that homeowners will write the same check for the same mortgage but to a different company.
To reduce confusion around transactions like this, the government puts two safeguards in place. First, it requires the former lender to send a 15-day advance notice of the change to the homeowner. And second, it requires the new lender to do the same.
In situations like this, the onus is ultimately on the homeowner to open and read his mail, and make changes accordingly. It's especially important for people who pay their bills online as opposed by paying them manually; you likely won't get notified if you're sending payments to the wrong place.
Sunday, September 28, 2008
When functioning properly, gutters can extend the life of a home. By directing water away from the physical structure, gutters protect a home's foundation, its siding, and its landscaping.
The key to reliable gutter performance is simple -- keep them clean. Twice annually, experts recommend a thorough gutter cleaning and the project can be a do-it-yourselfer, if you're so inclined.
The basic toolset is likely already on hand:
- A ladder
- A scoop
- A trash bag
- A garden hose
- Protective gear
Watch the video above for a quick tutorial, or if DIY is not your thing, reach out to me anytime. I'd be happy to refer you to a reliable professional in the neighborhood.
Wednesday, September 24, 2008
In August, home builders broke ground on the fewest number of homes since January 1991.
It was the 16th straight month in which Housing Starts declined.
But, although the press labels these statistics indicative of a recession, home sellers nationwide quietly applaud them.
With fewer new homes coming on the market, home sellers are finding that there's less competition for buyers, helping them to command higher prices for their homes.
It's Supply and Demand in its most basic form.
But that's not all that home buyers have to worry about. The most recent Existing Home Sales report showed an increase in sales nationwide, plus a reduction in the number of single-family homes for sale.
Again, Supply and Demand. Good for sellers, bad for buyers.
However, we should keep in mind that real estate is local. What we see in national and regional trends are not as important as what's happening in your town, your neighborhood, and your street. But, if we learn one thing from the chart above, it's this: builders are rational.
If homes won't sell, builders will stop building them. And, sooner or later, the market -- and home prices -- will catch up.
(Image courtesy: The Wall Street Journal)
Tuesday, September 23, 2008
Getting a great, low mortgage rate is often a combination of luck and preparation.
Consider what happened in conforming mortgages last week:
- Monday, mortgage rates plunged to their lowest levels of the year
- Tuesday, they bounced back in full
- Wednesday, they clicked higher by a eighth-percent
- Thursday, they clicked higher by another eighth-percent
And so, here we on are Friday, four days after the best rates of the year, and the mortgage market barely resembles itself. Despite what the papers tell you, mortgage rates are not low anymore.
That's the luck element -- you can't plan for rates moving up and down.
But, if you missed Monday's plunge, and don't want to miss the next one, all you have to do is get prepared. Then, you're waiting for luck when it happens.
There are 4 basic steps to prepare for low rates and the key is to follow them before rates plunge, not during. That way, you're ready to pounce on low rates at the moment they present themselves.
The first step is to contact your loan officer.
If you don't have a loan officer, or your loan officer is no longer in the business, ask a friend for a referral. Do not call the 800-number on your mortgage statement -- you'll almost always get a better "offer" from a live person than from a call center representative.
Next, give your loan officer a complete mortgage application, including a "credit pull". Be honest and accurate and don't worry about the credit check harming your score -- the bureaus protect it for a period of 30 days.
Then, ask your loan officer what supporting documentation will be required to approve your eventual home loan. Whatever it is, gather it and send it in -- either by fax or email.
And lastly, be ready to act when your loan officer calls with the good news. If rates have dipped to lower-than-normal levels, it likely won't last long.
This preparation process is very similar to what home buyers do before making an offer on a home. Getting ready for a refinance is like getting pre-approved, but instead of waiting to pick out a home, it's waiting to pick out a rate.
So, to summarize:
- Contact your loan officer
- Give a complete application
- Gather and submit supporting documentation
- Be ready to act
Mortgage rates don't plunge often, but when they do, it's usually short-lived. If you're prepared for when it happens, you can lock in the best mortgage rate available at the best possible time.
It will be your lucky day and you will have been ready for it.
Sunday, September 21, 2008
Thursday, September 18, 2008
On all principal + interest home loans, the first few years of payments include a lot more money going to interest than to principal.
This is because mortgage repayment schedules are front-loaded with interest, meaning large-volume principal reduction won't occur until late in the mortgage's lifecycle.
Comparing products at a 6% mortgage rate, did you know that after 15 years:
- A 15-year mortgage will be paid in full
- A 20-year mortgage will have 41.21% of its loan balance remaining
- A 30-year mortgage will have 73.19% of its loan balance remaining
Of course, this doesn't mean that 15-year mortgages are better than their 20-year or 30-year brethren. It just means that 15-year mortgages pay off faster.
Yet, there are reasons for homeowners to avoid 15-year mortgages.
For example, versus 20-year or 30-year products, 15-year mortgages require the highest monthly payment because the payback period is compressed to a shorter time. In addition, mortgage interest tax deductions to which most homeowners are entitled are reduced.
So, just because the 15-year pays off quickly doesn't mean that it's best for everyone.
Wednesday, September 17, 2008
Yesterday, the stock market suffered its largest one-day point loss since September 17, 2001, and its sixth-largest point loss in history.
Not everyone got punished, however. Two groups of people, in particular, welcomed yesterday's losses:
- Home buyers out shopping for a mortgage
- Homeowners that snoozed through last week's mortgage rate drop
See, as the stock market dropped yesterday, investors anxiously moved their money away from risky investments like stocks and into the safe haven of government-backed debt.
This includes mortgage-backed debt, of course.
As traders poured into bonds, bond prices rose. They did so beginning at Market Open, all the way into Market Close. And, because mortgage rates move in the opposite direction of mortgage bonds prices, mortgage rates fell Monday. A lot.
Today, the Federal Open Market Committee meets, adjourning from its scheduled conference at 2:15 P.M. ET. In the Fed's press release, among other things, markets expect Ben Bernanke & Co. to address the financial system's stability -- or lack thereof -- that helped to fuel Monday's selling action.
If markets find the Fed sympathetic, expect stock markets to rally, and mortgage rates to rise.
Tuesday, September 16, 2008
For the third consecutive meeting, the Federal Open Market Committee left the Fed Funds Rate unchanged at 2.000 percent.
Of interest to mortgage rate shoppers, the FOMC led its press release with comments about the health of the financial and labor markets, calling them "strained" and "weakened", respectively. The relative weakness in both of these areas has contributed to low mortgage rates of late.
The FOMC also noted in its release that, although economic growth has slowed this year, the historically-low 2.000% Fed Funds Rate should foster "moderate economic growth" in the future.
In the wake of the announcement, Wall Street is rallying. Investors like what the Fed had to say and this is attracting money to the stock market at the expense of bonds.
Mortgage rates have given up all of Monday's gains, and then some.
Parsing the Fed Statement
The Wall Street Journal Online
September 16, 2008
Saturday, September 13, 2008
In its last act as a semi-independent company, Fannie Mae altered mortgage guidelines for real estate investors last Friday. It was Fannie's 22nd update this year.
The first part of the guideline change limits the number of properties owned by any one person.
Fannie Mae will now decline any mortgage application for a second home or investment property if the mortgage applicant already finances, or will finance, more than 4 properties in total.
The former guidelines allowed for 10.
There is a loophole, however. Fannie Mae will not count properties against the 4-property limit if they are held in the name of a corporation. This holds even if the real estate investor is the sole owner of said corporation.
Investors, therefore, should consider moving their properties into a corporate structure to avoid triggering Fannie Mae's 4-property limit. Many take this step for liability and taxation reasons, but it's now a good idea for mortgage approval reasons, too.
The second part of the guideline change cannot be so easily avoided. Fannie Mae is assessing new, loan-to-value based loan fees on all investment property mortgages.
- Loan-to-value less than 75 percent : 1.75% loan fee
- Loan-to-value 75.01-80.00 percent : 3.00% loan fee
- Loan-to-value 80.01-90.00 percent : 3.75% loan fee
These fees are mandatory and are in addition to any whatever other risk-based loan fees Fannie Mae may assess. Currently, those fees amount to a half-percent at minimum for real estate investors.
Since its Fannie/Freddie takeover, government officials have not addressed whether mortgage guidelines will be rolled back to "a looser time". If they are, it would be a big deal for real estate investors because, as many are finding out, low rates don't matter much if you can't qualify for them.
If you're currently in the market for an investment property (or two), consider that it may be cheaper and simpler to purchase over the near-term versus the long-term. And consider moving your existing properties into a corporate structure first.
Friday, September 12, 2008
A Great Song for a Wet Friday Afternoon - More about Philadelphia as a historical place- Where the surveyors were based, who drew the Mason-Dixon line -
And here are the lyrics;
Sailing To Philadelphia
I am Jeremiah Dixon
I am a Geordie boy
A glass of wine with you, sir
And the ladies I'll enjoy
All Durham and Northumberland
Is measured up by my own hand
It was my fate from birth
To make my mark upon the earth...
He calls me Charlie Mason
A stargazer am I
It seems that I was born
To chart the evening sky
They'd cut me out for baking bread
But I had other dreams instead
This baker's boy from the west country
Would join the Royal Society...
We are sailing to Philadelphia
A world away from the coaly Tyne
Sailing to Philadelphia
To draw the line
A Mason-Dixon Line
Now you're a good surveyor, Dixon
But I swear you'll make me mad
The West will kill us both
You gullible Geordie lad
You talk of liberty
How can America be free
A Geordie and a baker's boy
In the forests of the Iroquois...
Now hold your head up, Mason
See America lies there
The morning tide has raised
The capes of Delaware
Come up and feel the sun
A new morning has begun
Another day will make it clear
Why your stars should guide us here...
We are sailing to Philadelphia
A world away from the coaly Tyne
Sailing to Philadelphia
To draw the line
A Mason-Dixon Line
When comparing two investments with equal risk, a rational person will choose the investment with a higher rate of return.
This behavior is called Risk Aversion and is a basic tenet of personal investing.
An off-shoot of Risk Aversion is that a rational person will only invest in an instrument of greater risk if the returns are greater, too.
The chart at right illustrates this concept, comparing return rates on two investments:
- U.S. Government bonds
- Mortgage-backed bonds
The difference in investment return rates is sometimes called a "spread" and the historical spread between government debt and mortgage debt is somewhere near 1.5 percent.
However, notice how the spread started to grow starting in July 2007.
July 2007 marked the "official" start of the Credit Crunch and as mortgage delinquencies grew nationwide, so did the market's perceived risk of investing in them.
By the start of this month, the spread had nearly doubled.
But that all changed Sunday. When the government announced its takeover of Fannie Mae and Freddie Mac, it put the same "risk-free guarantee" on mortgage debt that has helped keep U.S. government debt so cheap to finance and the spread immediately shrunk.
This is one reason why mortgage rates fell Monday and why they should continue to stay low over the near-term. With the U.S. government backing the mortgage market, there's no room for the risk premium that helped keep rates high this past year.
It doesn't mean more people will qualify for conforming home loans, but for the ones that do, financing should be cheaper.
Thursday, September 11, 2008
Others are taking steps to buy, realizing that the combination of low interest rates and adfordable housing is creating an opportunity to buy now that may not be available later - or that they may end up spending more for less huse if they wait for someone to signal that the market is better -
Which one are you?
Tuesday, September 9, 2008
Sunday, the U.S. government assumed control of Fannie Mae and Freddie Mac.
The papers have done a terrific job talking about the political perspective of the takeover, and the economic perspective of the takeover, but very few people have addressed the key news for homeowners.
Mortgage rates are plummeting.
The reason why mortgage rates are falling post-takeover is because of Fannie Mae and Freddie Mac's collective role in the U.S. mortgage market.
- They guarantee about half of the nation's $12.1 trillion in mortgages
- They purchased and securitized four-fifths of the nation's home loans as recently as six months ago
See, earlier this year, Wall Street punished Fannie Mae and Freddie Mac for their weak balance sheets and large numbers of delinquencies. This led to Wall Street to raise the borrowing costs for the two firms across the board which, in turn, led to higher mortgage rates for Americans.
But today, with their balance sheets backed by the U.S. government, Fannie and Freddie are now viewed as "safe" by the eyes of Wall Street.
This has lowered their borrowing costs, pushing down mortgage rates for the four-fifths of the country that is currently channeling their home loans through Fannie or Freddie.
(Image courtesy: The New York Times)
Monday, September 8, 2008
On the first Friday of every month, the government releases its Non-Farm Payrolls report.
More commonly called the "jobs report", the two-page analysis examines the nooks and crannies of the U.S. economy to see which industries are hiring and which are firing.
The August jobs report was released last Friday and it shows that the U.S. economy shed 81,000 jobs in August.
This marks the eighth straight month in which payrolls declined and puts the annual job loss total at 605,000. The Unemployment Rate jumped to 6.1% -- its highest level in 5 years.
For American workers, this is bad news. But, for American home buyers, the news couldn't be better.
Mortgage rates are improved this morning on the weak jobs data.
If this seems counter-intuitive, remember that earlier this year, lingering concerns about inflation in the U.S. economy caused mortgage rates to rise to their highest levels in more than 5 years.
Lately, however, those fears are subsiding and as today's jobs report shows worse-than-expected weakness, it's one more reason for markets to put inflation concerns to rest. With fewer Americans working, there are fewer dollars are available to propel the economy forward, after all.
So, today's jobs data is good for mortgage rates because it reduces inflationary pressures on the economy and as inflation levels fall, mortgage rates tend to do the same.
Lower rates mean more affordable housing payments each month.
Sunday, September 7, 2008
New quote of the day "If you're afraid of being criticized, Say nothing, Do nothing, Be Nothing!'
Just got that from a friend on the Interpretations and Procedures Subcommittee of NAR's Professional Standards Committee. She said she got it from her Grampa - I think Grampa was a pretty smart guy -
Today the Federal Government moved into a conservator position with Fannie Mae and Freddie Mac. While I'm not sure how that will affect the mortgage market, the fact that they have thrown the full strength of the government into supporting the housing market is encouraging.
Now we need to wait and see what happens.
Saturday, September 6, 2008
Blogging and Social Media have become such a serious topic in our industry that sometime we forget just how silly it would all be if we translated our virtual world to the real world.
Thankfully there are talented people to remind us just not to take it all too seriously!
A home inspection is a complete, top-to-bottom, visual check-up of the structure and systems of a house.
It is meant to be an objective determination of a home's condition.
A home inspection usually takes 3-6 hours to complete, depending on the size of the home.
During the inspection process, the inspector will examine all of the following components of a home:
- Home exterior including doors, decks, and vegetation
- Heating and cooling systems for leaks and efficiency
- Electrical systems for safety and soundness of design
- Plumbing systems for venting, distribution, and drainage
In addition, the inspector will review the roofing system, the home's interior, and several other parts of the property.
A home inspection may be ordered by a home owner or by a home buyer.
For a home owner, an inspection can detail a home's shortcomings and provide a roadmap for repairs. This can help a person prepare his home for sale because "major issues" can be addressed in advance of listing.
For a home buyer, a home inspection physically reviews a home under contract, identifying structural flaws that may impact the home's desirability. This is essential for the negotiation process because no home is "perfect" -- even new ones!
A home inspection highlights potential long-term trouble spots and the likelihood for expensive home repairs. This is why real estate professionals often recommend inspecting a home immediately after signing a purchase contract.
To find a qualified home inspector in your area, ask your real estate agent for a referral, or visit the American Society of Home Inspectors Web site. Bear in Mind however, the Home Inspectors in Pennsylvania are not licensed or regulated, and are merely bound by the rules and regulations of the professional societies they belong to. Be sure that your inspector carries Errors and Omissions Insurance for your protection.
American Society of Home Inspectors
Frequently Asked Questions on Home Inspections
(Image courtesy: Anderson Home Inspections)
Thursday, September 4, 2008
With Labor Day behind and Cold and Flu Season approaching, consider taking a high-tech approach to staying germ-free at home and at work.
The Zadro Nano UV Disinfectant Light looks like a clamshell mobile phone but acts like a high-power germ killer.
With one wave of your hand, intense ultra-violet radiation emanates from the wand, safely killing 99.9 percent of bacteria and viruses on any surface in any location. It's the same type of UV light that hospitals often use to sterilize surgical rooms.
Some practical places to use the disinfectant light include:
- On phones, keyboards and copiers in the office
- On the subway, bus and train
- In public restrooms, airplanes, and hotel rooms
Of course, around the home works, too.
The handheld Zadro device costs $80. It's available at Amazon.com and other retailers.
Wednesday, September 3, 2008
As compact fluorescent bulbs gain favor across the country, it's important to remember that they contain mercury and mercury is harmful to humans.
Because even though CFLs contain small amounts of mercury -- less than 4 milligrams per bulb -- it's still enough mercury to cause brain damage.
If you're interested, this 4-minute video from the University of Calgary shows how mercury damages neurons in the brain.
But don't let the presence of mercury stop you from using CFLs -- they are much more positive than negative if you exercise good care.
The Environment Protection Agency provides some basic handling tips:
- CFLs are made from glass. Therefore, screw and unscrew the bulb using the base and not the bulb.
- Never force a CFL into a light socket.
- When the bulb burns out, take it to a specially-designated recycling center in your area. Do not throw out a CFL with the "normal" trash.
In addition, the EPA drafted guidelines for dealing with broken bulbs within a household. Among the recommendations: Don't wash your mercury-covered clothing, and don't vacuum up the poison. This is somewhat counter-intuitive for most people.
The EPA's review of CFL safety is 3 pages long and can be viewed on its Web site.
CFLs are more expensive than traditional bulbs but offer long-term savings in both energy and environment costs. And, with common sense care, CFLs pose no household health risks.
Tuesday, September 2, 2008
Watching Tuesday Night Soiree at Second City in LA - Funny folks
I don't usually like the Case-Shiller Home Price Index because it doesn't include our Metropolitan Statistical Area, and without data from Philadelphia (which is usually better than most parts of the nation) I don't think the study can have validity to us, But even with their poorly weighted (IMHO) information, it seems that we may have hit the bottom of the real estate market in many parts of the country.
According to the June 2008 Case-Shiller Home Price Index, home prices in 15 of the 20 largest U.S. real estate markets either improved, or showed growth from the month prior.
This is the fourth straight month in which that happened which means that a national housing recovery may already be underway.
Now, it's worth stating that all real estate is local and that there's no such thing as a "national real estate market", but for home buyers looking to to maximize their negotiation power to get the best possible "deal", spotting trends like this before the media does is a good thing.
So far, only Bloomberg and a few others have chosen to highlight the positives from the otherwise-negative Case-Shiller report. By contrast, most publishers are focusing on annual home price figures which show a hefty drop of 15.9 percent.
We shouldn't dismiss annual trends because they're helpful in the theoretical sense, but for real, live home buyers trying to identify trends and market bottoms, it's the month-to-month data that matters most.
After looking at 4 consecutive months of Case-Shiller data, the month-to-month data appears to show that home prices have stabilized in most major markets. And, in some, they've already started to recover from their lows.
U.S. House-Price Slide Eases, S&P/Case-Shiller Shows
Bloomberg.com, August 26, 2008
Monday, September 1, 2008
As we get closer to Labor Day, volume on Wall Street is dwindling as market players get a head start on their long weekend.
Today could be a difficult day to shop for mortgage rates and that can impact home affordabilility.
This is because mortgage rates are based on the price of mortgage bonds and, on Wall Street, bonds trade a lot like stocks.
There has to be a buyer and a seller at a specific price to make a deal.
With so many traders on vacation today, though, there are fewer opportunities to match buyers and sellers. This can cause mortgage prices rise or fall faster than on a "normal" day, directly leading to mortgage rate volatility.
Each 0.125% mortgage rate increase is an extra $96 cost per $100,000 borrowed on a principal + interest home loan.
For a light-volume trading day, there is a lot of information for markets to digest:
- The weather reports on Tropical Storm/Hurricane Gustav
- Reports that inflation is rising
- Reports that Consumer Spending is slowing
- Ongoing political tension between the U.S. and Russia
By themselves, each of these points can move markets. Together, however -- and aided by Labor Day -- they can move markets a lot.
Mortgage bond pricing is fluid, changing every minute of every day. Today, those changes will be exaggerated and, as an example, in the first 30 minutes of trading, mortgage rate pricing swung from rate improvement to rate deterioration in a flash.