Underwriting Guidelines Will Begin To Loosen

The mortgage market has changed. Back in April we were enjoying historically low interest rates and many mortgage companies were leaning on the easy picking of re-financing loans to make money. Then May 3rd came and the unemployment rate dropped to 7.5, which is still overwhelmingly high, but it is at it's lowest since 12/08. The market reacted to this news coupled with the idea that the FED would begin tapering off the purchasing of MBS and rates began to climb, and climb and climb. Rates have stayed higher than they have been in over a year. This has all but dried up the refinance market and lenders now must find a way to make up for the lost loans. The easiest answer is probably to loosen the lender overlays that sit on top of the FNMA guidelines to allow more people to qualify for mortgages. Another step is to start participating in more programs, the more options that you have for people the more likely you are to get business right? We can see an example of this in the company I work for. Freedom mortgage has recently announced that they are lowering the minimum Credit Score requirements on FHA and VA loans, and also has started to participate in the manufactured housing program through FHA.

What does this mean for you?
What this means is that more people are going to be able to qualify for mortgages, which will create a higher demand for the already limited inventory that is out there, which means that after several years of being a buyers market the housing market is rapidly changing to a sellers market, this will lead to further increasing in home prices, which will ultimately lead to more people trying to sell their houses, once the values of the homes catch up to the remaining balance on their mortgages.
The bottom line is that now is likely to be the best time to purchase a new house for the foreseeable future, especially if you are in the situation where previously tight underwriting guidelines left you unable to obtain a mortgage.

What Rising House Values Mean To You As A Buyer

Those of us in the real estate and mortgage industry have been telling clients that we are seeing housing prices on the rise, now there is empirical data to support our anecdotal evidence. The Case-Shiller 20 City Composite report is showing that the average of the 20 cities has the housing prices on the rise, back to the levels of April 2004. In news that is a little more pertinent to our market, Tampa FL is back to the levels of November 2003 and on the upswing with a 10% rise when comparing May 2012 with May 2013.

What does this information mean to you?
This means several things for the prospective home buyer.

1. The days of offering 75% of the asking price on a short sale or bank owned property and getting an offer accepted are likely over, unless the comparable sales in the market show a substantially lower value than the asking price. This is no longer a market where it makes sense for the bank to take whatever they can get and cut their losses as quickly as possible. In today's market if a bank has to keep the house on the market even for 6 months, at the end of those 6 months the property is going to be worth 3-5% more than it was when it was listed. Offers now have to make sense and what we are seeing be accepted today is typically offers within 5% of the asking price
2. It may be time to start thinking of accepting higher loan values and paying Mortgage Insurance rather than depleting your savings, in a market where houses are gaining 10% of their value year over year, many times it makes more sense to keep your money in your own pocket, put less money down, pay a years worth of Mortgage Insurance and let the increase in value remove the Mortgage Insurance for you. To illustrate, let's look at an example home sale of $100,000 to make the math easy. In order to avoid paying mortgage insurance you would have to put down 20% or $20,000.00, which would have a principal and interest payment of $417.00 / month. Instead you could put 10% down, save $10,000.00 and have a principal and interest payment of $469.00 / month. Mortgage insurance would be required and carry a premium oc about $37.00 / month. The math looks like this. 469 (principal + interest at 10% down) - 417 (principal and interest at 20% down) + 37 (monthly mortgage insurance premium) * 12 = $1068. The following year pay for an appraisal, let's estimate high at $500.00. You have spent a total of $1,568.00 to save $10,000.00. If the housing market should increase only by 3% over the next 3 years you are still saving a substantial sum of money looking at a total cost of $3,704.00 paid over three years including the estimated $500.00 for the appraisal vs saving $10,000.00 at closing.
3. Adjustable rate mortgages are about to start making sense again. While the rates were at historic lows in the 3% range, it only made sense to lock that rate in for as long as possible, as mortgage rates climb higher towards historical norms in the 5-6% range, it could make sense to lock in a 3.75% rate for three years. While the mortgage rates are likely to rise, they are also likely to stay within a point or two for the next 3 years, Interest rates haven't started with a 7 since 2002 coming out of the dot com boom. At this juncture it is likely to take significant growth from the economy to raise the interest rate more than a point. When you look at locking in a rate in the 3's for 3 years and the interest rate not likely to be much higher than it is now in three years coupled with the rising price of houses. It may make sense to take a low interest rate for three years, especially for a first time home buyer on a starter home, then sell in three years to move up rather than taking in the higher rate for 30 years.

In summary, now is an excellent time to buy as the market is still in the infancy of the rebound, this is a time where the housing prices are less expensive that they are likely to be at any time in the near future, with rates that are still on the low side historically speaking, but with rising mortgage rates, it may be time to start considering all of the financing options available and not just locking in the rate for as long as possible.

Roller Coaster Ahead For Mortgage Rates

All indicators point to a turbulent week ahead for mortgage rates. There is a plethora of reports scheduled to hit this week. All of them are expected to be good news for the economy in general, which is bad news for mortgage rates. Let's break each of these reports down

Tuesday: Consumer Confidence Index
This report measures the consumers willingness to spend, because consumer spending makes up a large portion of our economy, this report has the potential to move bond prices and thus mortgage rates either way. Currently it is expected that the report will come in at 81.6 which would be a slight increase from the previous month. If the forecasts are accurate mortgage rates will inch higher.

Wednesday: Second Quarter GDP Report
This report is considered the best indicator of economic strength and thus has the ability to significantly impact mortgage rates either positively or negatively. The current forecasts are expecting a rate of growth of about 1% a higher number will drive rates even higher, a lower number will likely mean cheaper rates after Wednesday this week.

                     FED Post Meeting Statement
The FED is holding their fifth meeting of the year Tues.-Wed. It is expected that afterward, they will release a statement to try and assuage the fears of the market and try to help out interest rates. I am expecting this to have minimal impact on the mortgage rates, much like the last few times that Mr. Bernanke has spoken to the press and tried to calm the markets. Everyone knows that as the economy continues it's slow rebound, that eventually the FED will have to stop supplementing the housing market with it's purchasing of Mortgage Backed Securities.

Thursday ISM Manufacturing Index This report is one of the more important economic indicators that we have, this report measures the sentiments of business executives on business conditions. Last month we saw a reading at 50.9, any reading above 50% is likely to keep rates high, if the report comes in under 50% though rates would likely fall on Thursday, currently the forecast is for just above 51.

Friday. Department of Labor - Employment Report This is one of the most important reports that we get, if this report shows a decrease in unemployment numbers , which is what is currently expected, then rates are likely to continue their climb. It would likely take a higher unemployment rate coupled with a loss of jobs to ipact the mortgage rates positively. This is not likely to happen. Bottom Line:
I'm not much of a gambler, so I have all of my lock eligible clients locked and I will be maintaining a locking stance until I see some significant report that would lead me to believe gains are on the horizon.