3 Mortgage Secrets -- Lonnie Glessner, Mortgage Blogger

A Simple Explanation Of The Federal Reserve Statement (September 23, 2009 Edition)

Wed, 23 Sep 2009 13:37:16 -0700

The Federal Open Market Committee voted to leave the Fed Funds Rate within its target range of 0.000-0.250 percent.

It also reiterated plans to support the mortgage market to the tune of $1.5 trillion.

In its press release, the FOMC noted that the U.S. economy is "picking up following its severe downturn" and that financial markets have "improved further".

It's the second consecutive post-FOMC statement in which the Fed appears somewhat optimistic -- a signal that the recession will end soon, or has already ended.

That said, the economy still has some soft spots and the Fed made a point to single them out. Each poses a distinct threat to economic recovery.

Ongoing job losses
Sluggish income growth
Tight credit conditions

Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent "for an extended period" and to honor its $1.25 trillion commitment to the mortgage bond market.

However, the FOMC changed its timeframe on the mortgage-backed bond buys, extending its deadline to March 2010. This move should help the Fed keep mortgage rates from rising too high as the economic expansion takes hold.

Market reaction to the Fed's press release is positive. After an early day sell-off that drove rates higher by about a quarter-percent, most of the pressure is easing. Pricing is worse on the day overall, but well off its lows.

The FOMC's next scheduled meeting is November 3-4, 2009.

Home Prices Still On The Rise

Wed, 23 Sep 2009 07:45:00 -0700

As reported by the government, home prices are rising nationwide, up 0.3 percent in July.

Furthermore, versus November 2008, the Home Price Index has clawed back to unchanged.

The housing market appears to be holding its own.

However, we have to be careful about putting our full faith in the Federal Housing Finance Agency's data. It's somewhat flawed.

The Home Price Index is a national statistic and all real estate is local
The Home Price Index's methodology specifically excludes key housing demographics

As an obvious example, HPI only accounts for homes with Fannie Mae- or Freddie Mac-backed mortgage. Lately, the percentage of homes meeting that description is shrinking.

As FHA financing rises in popularity, Fannie and Freddie back far fewer loans than in the past. Furthermore, the HPI sample set also excludes newly-built homes and multi-unit properties.

Because of these exclusions, some analysts call the HPI incomplete. The same could be said of all home price metrics, however -- including the venerable Case-Shiller Index.

Therefore, what should be of interest to today's buyers and sellers is that all of "popular" home valuation models seem to be telling the same story -- home prices have stopped falling and look like they're beginning to rebound.

For a region-by-region breakdown of the Home Price Index, visit the FHFA website.

Should You Lock Your Mortgage Rate In Advance Of Tomorrow's Federal Reserve Announcement?

Tue, 22 Sep 2009 07:45:00 -0700

The Federal Open Market Committee starts a 2-day meeting today in Washington.

The scheduled get-together ends at 2:15 PM ET Wednesday after which the FOMC will issue a press release to the markets.

Consider locking your mortgage in advance of the press release.

The FOMC meets 8 times annually and its adjournments are among the biggest market-movers of the year.

The Fed's post-meeting press release is a direct look into the mind of the Federal Reserve and Wall Street is looking for clues anywhere it can find them.

After its August 2009 meeting, the FOMC said in its press release:

Financial markets have improved, relative
Household spending remains constrained
Although weak, the economy is "leveling off"

Since then, however, credit risks have lessened on Wall Street, consumer spending has shown signs of life and Fed Chairman Ben Bernanke said the recession is "very likely over".

This is why tomorrow's FOMC press release is so important. Markets don't expect the Fed to raise or lower the Fed Funds Rate, but they do expect the Fed to shed light on its next series of moves.

If the Fed alludes to inflation and stronger growth ahead, mortgage rates should rise. By contrast, reference to slower growth ahead should help keep rates steady.

The FOMC is expected to leave the Fed Funds Rate within its target range of 0.000-0.250 percent -- the lowest it's been in history. However, it's what the Fed says Wednesday that will matter more than what the its does.

If you're floating a mortgage rate or wondering if the time is right to lock, the safe approach is to lock prior to 2:15 PM ET Wednesday.

What's Ahead For Mortgage Rates This Week : September 21, 2009

Mon, 21 Sep 2009 07:45:00 -0700

After improving in the two prior weeks, mortgage markets finished last week unchanged overall.

Mortgage rates were down early in the week but managed to give up all of their gains late-Friday afternoon. It's the same volatility variety we've seen in most weeks this year.

Markets moved on to both positive- and negative-type news last week. On the positive side:

Fed Chairman Ben Bernanke said the recession is "very likely over"
Retail Sales were much stronger than expected
Warren Buffett confirmed to CNBC that he was back in the market

On the negative side, Housing Starts idled and corporate earnings fell flat.

This week, the market moves on.

Investors will watch several key releases including Existing Home Sales on Thursday, and Consumer Sentiment and New Homes Sales on Friday. The most important event of the week by far, however, is the scheduled, 2-day meeting of the Federal Open Market Committee.

The FOMC is the policy-setting group of the Federal Reserve and each time it meets, markets have a tendency to get volatile.

Markets expect the FOMC to leave the Fed Funds Rate within its current "target range" of 0.000-0.250 percent but that doesn't mean mortgage rates will remain unchanged as well. Depending on the verbiage of the FOMC's post-meeting press release, mortgage rates could rise or fall by a lot.

The FOMC adjourns from its 2-day meeting Wednesday at 2:15 PM.

(Image courtesy: Wikipedia, licensed under Creative Commons)

Housing Starts Slip, But Don't Think The Recovery's Been Halted

Fri, 18 Sep 2009 07:45:00 -0700

Housing Starts on single-family homes took a step backwards last month, falling month-over-month for the first time since January.

A "housing start" is new home on which construction has started.

Don't let the slowdown fool you, however -- the housing market's recovery is still very much underway.

Sales volume is up in most cities
Home values are up in most places
Low mortgage rates are making homes affordable

Builders were bound to take a construction breather sometime -- especially with the looming expiration of the First Time Home Buyer Tax Credit. The last thing they want is to be saddled with excess supply.

Some of the news coverage categorized August's Housing Starts as troubling. That's likely overstating it. One down month after 8 consecutive increases is not only acceptable, but it's expected, too.

Single-family starts are up 34 percent on the year. The housing market is recovering just fine.

The Housing Market Index Reaches A 16-Month High

Thu, 17 Sep 2009 07:45:00 -0700

According to home builders around the country, the housing market is looking good.

Each month, the National Association of Home Builders releases its Housing Market Index report, a survey meant to "take the pulse of the single-family housing market".

Respondents report on three facets of their business, each series weighted and averaged:

How are market conditions today?
How do market conditions look 6 months from now?
How is the traffic of prospective buyers of new homes?

For the 3rd straight month, the Housing Market Index improved. It's now at its highest level since May 2008.

The housing market has shown signs of life since March. Both Existing Home Sales and New Homes Sales have soared and home values are up in a lot of towns. Builders showing confidence is another positive signal.

Fed Chairman Ben Bernanke said that the recession is "very likely over" and strong housing data corroborates that statement.

As the economy strengthens and housing does, too, home sellers will start to regain the upper-hand in contract negotiations. If you're an active home buyer, therefore, and looking for "a deal", be aware that time is close to running out.

Ben Bernanke Leaves Clues About The Future Of Mortgage Rates

Wed, 16 Sep 2009 07:45:00 -0700

On the 1-year anniversary of the Lehman Brothers collapse, Fed Chairman Ben Bernanke said Tuesday that the "recession is very likely over at this point".

His comments were supported by a Retail Sales report for August that was much better-than-expected.

Equities improved on the day, mortgage markets worsened, and home affordability suffered.

The days of ultra-low mortgage rates may be coming to an end.

Since last September, mortgage bonds markets have been in Rally Mode. As the Financial Crisis of 2008 worsened, investors fled the relatively risky world of stocks and moved dollars into safer investments like cash and bonds -- including the mortgage-backed kind.

Risk aversion is common when market uncertainty exists but last year's aversion was so strong that, by late-November, it had forced mortgage rates down to an all-time low.

Since November, however, rates have been on the rise. Stronger economic data and a general feeling of optimism have helped stock markets recover and some of those gains are coming at the expense of low mortgage rates.

Therefore, if you're wondering what mortgage rates might do going forward, listen to the words of the Federal Reserve Chairman. If he sees economic recovery ahead, it's probably going to happen.

It should spell higher mortgage rates into 2010.

Using 401(k) Funds For A Downpayment? First, Consider The Tax Implications.

Tue, 15 Sep 2009 07:45:00 -0700

As downpayment requirements increase, anecdotally, home buyers are tapping 401(k) plans for extra cash.

Classified as a "hardship withdrawal", loans against your retirement funds can be cheap and simple.

There's no credit check or approval process
There's only a small set of paperwork
Money can be available in as little as a day

But just because you can get access to your retirement money doesn't mean that you should. 401(k) withdrawals should only be made after careful consideration.

There are some serious negatives, specifically with respect to taxation.

If you open a 401(k) loan and don't repay according to the loan terms, the withdrawal ends up getting taxed as income, plus a 10 percent penalty for people under 59 1/2.

That's a stiff penalty.

But, even if you do repay the loan on time, you're still getting leaving yourself subject to double-taxation.

Taxation #1 occurs when the loan is repaid using post-tax dollars
Taxation #2 occurs upon final withdrawal at retirement

Furthermore, when you borrow against a 401(k), you assume the opportunity costs of having that money out of the market. Since March, the Dow Jones Industrial Average is up 44 percent. If your 401(k) was empty, you'd have missed those gains forever.

Taking a loan against a 401(k) isn't necessarily a bad idea, there just may be better choices. If you're planning to withdraw from your 401(k) to make a downpayment on a home, talk with a qualified financial professional first.

You can never have too much good information.

What's Ahead For Mortgage Rates This Week : September 14, 2009

Mon, 14 Sep 2009 07:45:00 -0700

Mortgage markets improved last week, briefly touching their best levels in 3 months.

However, a rough Friday afternoon took away some of those gains.

Mortgage rates touched their lowest levels of the week Friday morning before tacking on an eighth-percent or more over the last 90 minutes of trading.

It's the second straight week in which mortgage rates fell.

Last week was an odd week, of sorts, because economic data was lacking. Markets, therefore, improved mostly on momentum plays and a general shift from cash positions into bonds.

This week, data returns.

In addition to the Consumer and Producer Price Indices -- "Cost of Living reports" for households and businesses, respectively -- markets will also digest a Retail Sales report, Housing Starts for August, and 3 speeches from members of the Federal Reserve.

Each has the power to move markets.

Furthermore, Wall Street will be taking positions ahead of next week's Federal Open Market Committee meeting. The Fed is expected to leave the Fed Funds Rate in its current range near 0.000 percent but don't forget -- the Fed doesn't control mortgage rates.

Just because the Fed Funds Rate won't change doesn't mean mortgage rates won't. Expect volatility Tuesday and Friday, and be wary of momentum. Mortgage rates tend to rise faster than they fall.

If you've been floating your mortgage rate over the past few weeks, it may be prudent to lock in Monday or Tuesday.

Why An 800 Credit Score Doesn't Really Matter

Fri, 11 Sep 2009 07:45:00 -0700

Since 2007, mortgage lenders have clamped down in many areas of underwriting, but none more so than in the area of credit scoring.

Minimum FICO levels are up 120 points or more and conforming mortgage lenders now levy large fees on borrowers whose scores are below 740.

Keeping your credit scores high is a worthwhile goal, but it's not always easy to do -- especially when you don't know the ins-and-out of how the credit scoring system works.

The Wall Street Journal wrote a terrific piece on credit scoring this week. It's full of helpful, relevant tips for home buyers, homeowners, and everyone else.

Aside from covering the five basic components of a credit score -- shown at right -- the piece provides insightfukl advice on credit-related topics including:

The difference between a "hard inquiry" and a "soft inquiry"
Why paying for your credit report is a foolish use of funds
Why it doesn't matter if you have an 800 FICO

The article also talks about the optimal balance a person should carry on their credit cards to get the biggest FICO boost.

Credit scores determine your mortgage rate. Therefore, do what you can to keep your scores high. Follow the tips in the Wall Street Journal article and lean on public resources like myFICO.com.

Having good credit can be a real money-saver. Month after month after month.

The Geographical Concentration Of Foreclosures

Thu, 10 Sep 2009 07:45:00 -0700

Once again, the country's foreclosures are concentrated in just a few states.

As reported by foreclosure-tracking company RealtyTrac.com, more than 50 percent of the country's foreclosure-related actions in August occurred in just four states:

California : 25.76 percent
Florida : 17.4 percent
Michigan : 5.4 percent
Nevada : 5.0 percent

The rest of the "Top 10" foreclosure states included Arizona, Illinois, Georgia, Ohio, Texas and New Jersey.

Versus July's numbers, the U.S. foreclosure rate improved last month. However, the August data is awful in comparison to last year -- foreclosures are up nearly 18 percent.

The silver lining? High foreclosure rates are yielding tremendous opportunities for today's home buyers. Buyers of distressed properties now account for about one-third of all home sales and low mortgage rates and a federal tax credit are spurring sales.

Search the complete August 2009 foreclosure report for yourself, including foreclosure heatmaps and other trends on the RealtyTrac website.

Simple Real Estate Definitions : Quitclaim Deed

Wed, 09 Sep 2009 07:45:00 -0700

By its most common definition, a quitclaim deed is a document by which one person passes legal and financial ownership of a home to another person.

It's also a way for an owner of a home to remove himself from the title to the property.

Often misspelled as "quick claim deed" or "quit claim deed", quitclaim deeds have a multitude of applications, including:

Assigning a home to a trust or entity
Adding a partner to title after marriage
Removing a partner from title after divorce

In order to quitclaim a property, the grantor must have the legal right to assign the property to a grantee, or else the quitclaim deed is worthless. For example, you can quitclaim your interest in City Hall to your neighbor, but it would have no practical or legal consequence because you don't actually own City Hall.

This is where quitclaim deeds vary from warranty deeds (or grant deeds) -- the types of transfers that occur when real estate is sold. In instances of the former, the title to a home is guaranteed to be clear.

Before using a quitclaim deed on your own home, consult an estate planning attorney. Transferring real property can trigger ruin a will, or trigger taxes -- it's important to consult a professional for help.

What's Ahead For Mortgage Rates This Week : September 8, 2009

Tue, 08 Sep 2009 07:45:00 -0700

Mortgage markets improved slightly last week overall, but closed out the week much worse from the best levels of the week.

On Wednesday, briefly, mortgage rates touched an 8-week low. Following that, mortgage rates began to climb and stayed on an upward trajectory clear through Friday's closing.

Rate shoppers suffered, realizing a 0.250 percent rise in rates -- roughly $32 per month per $200,000 borrowed.

The biggest story of last week was the U.S. jobs report. It showed the Unemployment Rate climbing to 9.7 percent and a loss of 216,000 jobs nationwide.

Neither figure was a surprise, per se, but Wall Street had visions of a stronger showing. Investors want to see strength in housing and employment and, for now, they're only getting the former. And so long as the U.S. economic future is unclear, mortgage rates will remain unpredictable.

This week, there isn't much news, but there are some stories to keep an eye on:

The Fed's regional economic summary releases Wednesday. Strength should drive rates up. Weakness should lower them.
Gas prices are easing, a positive for the economy (and negative for rates) as the Holiday Shopping Season nears
Two consumer confidence polls are released this week. Confidence can lead to spending, a spur for the economy.

When there's a lack of economic data, mortgage rates tend to trade on trends. If you're shopping for a mortgage, watch for developing patterns and be ready to lock at a moment's notice if mortgage rates are rising -- rates tend to worsen with more speed than at they improve.

Why The Day Before Labor Day Weekend Is Tough On Home Affordability

Fri, 04 Sep 2009 08:01:27 -0700

Volume figures to be light on Wall Street today as traders get a head start on Labor Day weekend. It could make shopping for a mortgage a bona fide challenge.

Expect rate volatility this morning and afternoon and, therefore, by extension, expect wild swings in the Home Affordability Index.

As mortgage rates rise and fall, monthly mortgage payments do, too.

The relationship between "vacation days" and mortgage rate volatility stems from 2 facts -- (1) Conforming mortgage rates are based on the price of mortgage-backed bonds, and (2) mortgage-backed bonds trade just like stocks. You can't make a deal without matching a buyer and a seller at a specific price.

With so many traders on vacation today, therefore, there are fewer opportunities to match buyers and sellers. As a result, expect mortgage bond prices to rise and fall with more velocity than on a "normal" day -- especially because the August jobs report was just released.

So far this morning, mortgage rates have been jumpy and are higher versus Thursday's close.

That said, mortgage pricing is fluid, changing every minute of every day. Today, expect those changes to be exaggerated. If you have a chance to lock a favorable rate, consider taking it because, before long, the rate could be gone.

How To Increase Your Household Cashflow By $500 Monthly

Thu, 03 Sep 2009 07:45:00 -0700

There are two ways to boost your personal cash flow -- increase your income or reduce your spending. The former can be a challenge but the latter doesn't have to be.

The headline of the above video -- "Cut Your Spending By $500 Per Month" -- is somewhat sensational but the advice given during the video is spot-on.

From NBC's The Today Show, the 5-minute piece offers a half-dozen ways to reduce your cash outflows each month, including:

How to negotiate a lower credit card interest rate
Why it's important to go grocery shopping with "a list"
How to "time" certain purchases like tires, linens, and clothing

It also covers saving money on a family pet.

It's often easier to save money than to make money. This video shows how easy it can be.

Why Home Prices Are Almost Certain To Rise This Fall

Wed, 02 Sep 2009 07:45:00 -0700

In what's becoming a regular occurrence, housing data blew away economists expectations Tuesday.

As reported by the National Association of Realtors�, the Pending Home Sales Index posted its 6th consecutive monthly gain in July.

After a meteoric rise that started in January, the index is now at its highest levels in more than 2 years.

A "pending home sale" is a home that is under contract to sell, but not yet closed. It's not the same as an actual home sold, but data shows that nearly 80% of homes under contract close within 2 months and many more close in months 3 and 4.

Home buyers -- take note. When the Pending Home Sales Index is rising, it means that market activity has picked up. This can lead to any one, or a combination, of the following:

Multiple-offer situations
Reduced negotiation leverage over sellers
Higher home sale prices with fewer concessions

So, consider yourself alerted. If you're buying a home in the next several months, expect the recent run in Pending Sales to lead to a run in closed sales, too. That should lead home prices higher in most markets.

Indeed, we're already seeing it. Case-Shiller says prices are on the upswing.

Another Sign Of Economic Recovery : Consumer Sentiment Rising

Tue, 01 Sep 2009 07:45:00 -0700

In a bit of good news for the economy, Consumer Sentiment fell to 4-month lows in August. The drop wasn't "good news", per se, but because it wasn't nearly as large as economists expected, Wall Street cheered it.

The index, jointly published by the University of Michigan and Reuters, measures how Americans feel about their situation today, and how they envision it six months in the future.

Since bottoming 5 months ago, consumer sentiment has added more than 10 points.

Rising Consumer Sentiment figures can foreshadow economic growth because confident consumers are more apt to spend money on big-ticket items including appliances, automobiles, and, of course, new homes.

The recent run of sentiment data is one more reason to believe a full economic recovery is underway.

That said, the Consumer Sentiment survey has its flaws.

For one, the survey's sample set includes just 500 households nationwide and that's not a true cross-section of America. And second, just because people feel more confident about their finances doesn't always mean they'll spend more money -- sometimes, they choose to save.

For now, though, stronger-than-expected sentiment data should help propel both retail sales and home sales volume through the fall season, and may even create some inflationary pressure on the economy.

If these levels are sustained, expect that mortgage rates will rise.

What's Ahead For Mortgage Rates This Week : August 31, 2009

Mon, 31 Aug 2009 07:45:00 -0700

Mortgage markets were flat last week overall, although mortgage rates were somewhat volatile from day-to-day.

For rate shoppers, the best pricing was available Monday morning and Friday afternoon -- everything in between was slightly elevated.

It's the second consecutive week in which rates finished unchanged.

There was a string of good news last week about the economy, led by housing. New Home Sales, Existing Home Sales, and the Case-Shiller Index all surprised to the high-side and consumer confidence numbers came in higher-than-expected, too.

In prior weeks, strong data like this would have caused mortgage rates to rise. Last week, however, it didn't. Mostly because foreign demand for mortgage-backed bonds has remained strong.

This week, there's only one major data release and its timing may prove to be problematic.

Friday, the Bureau of Labor Statistics releases the August Non-Farm Payrolls report. With housing's rebound seemingly underway, the jobs report takes on added significance. Joblessness can undermine consumer confidence and spending and cause harm to the recovering U.S. economy.

This is one reason why rate shoppers should be cautious toward the end of the week -- the jobs report will move markets. The other reason to be cautious is because Friday is the day before Labor Day and Wall Street will be short-staffed.

Fewer traders means more volatility -- if rates start to pop, they'll really pop.

The New Conforming Mortgage Guidelines, Effective September 1, 2009

Fri, 28 Aug 2009 07:45:00 -0700

As a reminder, Fannie Mae is rolling out new lending guidelines Tuesday, September 1, 2009.

Starting next week, being approved for a home loan could be much more difficult.

The new rules mark the first major underwriting update since April of this year. The changes are mostly geared at fraud prevention.

Among the updates:

Stock options are no longer eligible for "reserves"
Relocating families can't use the "trailing" spouse's projected income
"Tip" income must be documented and verified
Lenders must call employers to verify employment
Lenders must verify tax transcripts against IRS records

But there are other changes, too. As examples:

Owners and buyers of 2-unit homes are subject to new minimum FICOs with larger downpayment and equity requirements.
Only 70% of stock, bond and mutual values may be used as reserves
Only 60% of retirement assets may be used as reserves

Consider this post to be your advance warning. Not everyone that qualifies for a mortgage on Monday, August 31 will qualify on Tuesday, September 1.

Therefore, if you have a pending need for a mortgage -- for either a purchase or a refinance -- it's probably best to talk with a lender as soon as possible. The deadline is based on the date of application -- not the date of closing.

Read the complete Fannie Mae announcement online.

Home Supplies Plummet, Putting Pressure On Home Prices To Rise

Thu, 27 Aug 2009 07:45:00 -0700

It's no wonder that builder confidence is soaring -- their inventory of homes for sale is depleting at a furious pace.

For the 4th straight month, New Home Sales gained, posting the best numbers since last September's meltdown and handily beating economist expectations.

The available supply of homes is down to 7.5 months nationwide.

It's further evidence that the housing market may have bottomed at some point this past spring.

To be sure, the strong housing data is, in part, a reaction to three outside factors:

Low mortgage rates
An expiring government tax credit
Hefty builder incentives

But, buyers are buyers and the clearing out of outstanding inventory provides terrific support for home prices. It also gives them reason to rise.

Coupled with the blowout Existing Home Sales numbers from July, therefore, this months' New Homes Sale report may be a signal that the Buyers' Market is ending and the Sellers' Market is beginning.

If you're planning to buy a home this year or next, it may be time to get a move on. Wait too long, and prices may be up.