Mortgage and Real Estate News -- Ken Caiani, Mortgage Blogger

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.

Home Prices Keep Rising, Rising, Rising

Wed, 26 Aug 2009 09:43:24 -0700

18 of 20 markets tracked by the Case-Shiller Index showed rising home values in June. It's the 5th consecutive month with strong numbers and the best showing for the benchmark housing index since home values began deflating in 2006.

Some would argue it's a sign that housing has finally bottomed out. Even Case-Shiller representatives acknowledge that home prices are "on an upswing".

Despite the Case-Shiller Index's popularity with economists and the press, though, it's falls short of being a perfect housing indicator. As examples:

Its data is reported with a 2-month lag
Its sample set includes just 20 U.S. cities
Real estate isn't a "national" market -- it's local

Nevertheless, flaws aside, Case-Shiller is still important. It helps identify broader trends in housing and many people believe the housing is the keystone of the economy right now.

This is why June's Case-Shiller Index gives cause for hope. The nascent housing recovery has a long road ahead but June's Case-Shiller data shows that we're heading in the right direction.

The Long-Term Trendline For Existing Home Sales Points To A Housing Recovery

Tue, 25 Aug 2009 07:45:00 -0700

The housing market continues to surprise. Last week, the latest good news came in the form of the monthly Existing Home Sales report.

An "existing home" is a home sold by an existing owner as opposed to a developer. It's non-new construction property.

The data on Existing Home Sales was noteworthy for its trends:

Sales volume rose over four straight months for the first time in 5 years
Sales volume rose year-to-year for the first time in 4 years
Median home prices fell for the first time since April

Furthermore, first-time home buyers and buyers of "distressed" homes accounted for nearly one-third of the market activity each.

But, before we declare a bottom in housing, it's important that we remember the First Rule of Real Estate -- All Real Estate Is Local.

The Existing Home Sales report is not neighborhood-specific. It lumps cities like San Diego and Saint Paul into a giant sample set and fails to account for regional differences in real estate, let alone neighborhood ones.

This is the primary reason why on-the-ground real estate agents are better sources for a market pulse versus a report from a national trade group. The national group can't know the happenings of every street and every home in a market.

That said, however, the national data isn't completely useless.

Looking at the long-term patterns in the Existing Home Sales report, we can infer that ample supplies, low mortgage rates and tax credits are spurring home sales in a lot of U.S. markets.

Eventually, this will lead home prices higher.

What's Ahead For Mortgage Rates This Week : August 24, 2009

Mon, 24 Aug 2009 07:45:00 -0700

Mortgage markets finished the week unchanged last week but don't let that make you think the markets were flat. It was a bumpy five days and rates were volatile.

Friday was the worst day of the week by far.

An all-day deterioration, sparked by better-than-expected housing data, caused mortgage rates to tack on a quarter-percent by the noon hour and markets never recovered.

Rates closed out at their worst levels of the week and the unfavorable momentum figures to carry into this week's trading, too.

There are two major reasons why rates could rise higher this week:

Fed Chairman Bernanke said Friday that the near-term growth prospects "appear good". Comments like this draw money from bond issues to the stock market -- a move that's bad for rates.
Crude oil hit a 10-month high, a potentially inflationary development. Inflation often leads mortgage rates higher.

Furthermore, rate shoppers should take note that this week will feature the release of two key housing reports -- the Case-Shiller Index (Tuesday) and the New Homes Sales report (Wednesday). Both have handily beat expectations in recent months and should that trend continues, mortgage rates would likely rise because of renewed economic optimism.

What's good for the economy, lately, has tended to be bad for rates.

Whether you're shopping for a new home or looking to refinance an existing one, be wary of the ever-changing mortgage market. Rates move quickly and without warning. However, they tend to rise faster than they fall.

If you know you will need a rate lock this week or next, consider locking in at the first sign of trouble. Once rates spike, they likely won't be so quick to fall.

How To Keep Burglars From Knowing You're On Vacation

Fri, 21 Aug 2009 08:00:00 -0700

There's some common sense ways to protect your home from burglary -- keep the doors locked, the windows shut, and the alarm system on, for example.

But drawing from a series of interviews with ex-convicts, NBC's The Today Show reveals there are ways by which a vacationing homeowner can unwittingly make his home a theft target. Awareness is the key to prevention.

As cited in the video, when vacationing:

Have neighbors pick up mail and newspapers daily
If it snows, have somebody drive tire tracks on your driveway
Don't announce your vacation on social media networks
If you don't have a safe, consider moving valuables to a child's room

You can't protect a home 100 percent from burglary, but you can at least make it "not the easiest target" on the street. Use your common sense, and follow the steps outlined in the video.

It's what the burglars don't want you to know.

To Use The $8,000 First-Time Home Buyer Tax Credit Program, There's Now Just 6 Weeks To Find A Home

Thu, 20 Aug 2009 08:00:00 -0700

If you plan to use the First-Time Home Buyer Tax Credit program, time is running out. The program expires November 30, 2009 and closing on a home can take up to 60 days.

That leaves you 6 weeks from today to find a home and go under contract.

The First-Time Homebuyer Tax Credit program was passed as part of the 2009 economic stimulus plan. It credits up to $8,000 in tax payments to qualified buyers.

The qualification criteria are as follows:

Buyer may not have owned a "main home" in the past 36 months
The home may not be purchased from a parent, spouse, or child
Adjusted gross income for the household must be below $95,000 for single tax filers and $170,000 for joint tax filers

Furthermore, not everyone who's qualified will get the full $8,000. The credit can't exceed 10 percent of a home's purchase price, for example, and households with income approaching program limits get lesser benefits, too.

Meanwhile, an interesting note about the First-Time Home Buyer Tax Credit is that it's a true tax credit and not a deduction. . A person or couple claiming the $8,000 credit whose "normal" tax liability is $5,000 would get back $5,000 or whatever had been withheld for federal income taxes plus an additional $3,000 from the US Treasury when their tax return is processed by the IRS.

Review the program's criteria at your leisure, but don't wait until October to start looking for homes. If you can't close by November 30, 2009 for any reason whatsoever, you won't qualify for the tax credit.

Better to be ahead of the deadline than chasing it.

If Builders Are Building, It's Got To Be A Good Sign

Wed, 19 Aug 2009 08:00:00 -0700

Single-family Housing Starts rose for the 4th straight month in July, another sign that the battered housing market may be making its comeback.

"Housing starts" are new homes on which construction has recently started.

Not surprising, in a related story, homebuilder confidence moved to a 12-month high.

Ironically, an increase in newly-built homes could actually slow a nationwide housing rebound because values are driven by supply and demand. More in-the-pipeline supply means that buyer demand has to stay strong or else prices will eventually fall.

So far this year, though, demand has kept pace.

Over the past 6 months, the combination of low mortgage rates, aggressive home valuations, and federal and state tax credits has kept buyer activity up and home values on the rise.

Is Mortgage Underwriting Getting More Friendly?

Tue, 18 Aug 2009 08:00:00 -0700

It looks like banks are less scared of mortgage loans these days.

In its quarterly survey to member banks, the Federal Reserve asked senior bank loan officers whether "prime" residential mortgage guidelines had tightened in the last 3 months.

Just one-fifth of banks said guidelines tightened last quarter, a dramatically lower figure versus last quarter -- a signal that mortgage underwriting may get less restrictive in the months ahead.

It is worth noting, however, that not a single responding bank said its guidelines had eased. For now, getting through underwriting is still much tougher than it was 2 years ago.

Some of the changes today's borrowers face include:

Higher minimum FICOs
Larger required downpayments and equity ownership
Higher income levels versus monthly debts
Larger reserve requirements

Furthermore, second mortgages are scarce when loan-to-values exceed 80 percent.

The underwriting changes of the last 24 months preclude many Americans from getting access to today's low rates if the Fed's reported trend continues, that could reverse before the end of the year.

Some analysts claim that credit tightening started the U.S. recession. Credit loosening, therefore, could help end it.

What's Ahead For Mortgage Rates This Week : August 17, 2009

Mon, 17 Aug 2009 08:00:00 -0700

Mortgage markets improved last week on weaker-than-expected data and a neither-good-nor-bad statement from the Federal Reserve.

Mortgage rates regained most of their lost ground after touching a 6-week high the week prior. Conforming mortgage rates were down last week.

News of the Federal Reserve's announcement made headlines last Wednesday, but it was the less-reported stories that helped shape markets and improve home affordability.

For one, Consumer Confidence unexpectedly fell. This is a key gauge for economists and for Wall Street because, in theory, a confident consumer is more likely to buy goods and services -- a key element in any economic recovery.

Other recovery-slowing news included:

Retail Sales falling well short of expectations
An increase in Initial Jobless Claims

To be fair, there were a handful of good-for-the-economy stories last week, too, but markets dwelled more on the negative ones. While the stock market's 4-week winning streak was ending, investor cash was moving to mortgage bonds, causing rates to fall.

This week, there isn't much data with which traders can play so expect mortgage rates to trade on emotion and momentum instead. This is good for rate shoppers when mortgage rates are falling, but if they start to rise, last week's gains could be wiped out in the span of an afternoon.

It's happened twice like that already since Memorial Day.

If you're not locked in to a mortgage rate yet, keep a watchful eye on the markets and your loan officer on speed dial. Remember -- every 1/8 percent rate hike adds nearly $100 per $100,000 borrowed annually.

Foreclosures Continue To Concentrate Across Just 3 States

Fri, 14 Aug 2009 08:00:00 -0700

Foreclosure-tracker RealtyTrac reports that the number of foreclosures nationwide rose 7 percent on a month-to-month basis last month.

However, 3 states dominated the foreclosure list, tallying more foreclosures between them than the rest of the country combined.

California : 30.0 percent
Florida : 15.7 percent
Arizona : 5.4 percent

On a per-household basis, the states ranked 2, 3 and 4. Only Nevada's foreclosure rate was higher.

Now, we point out these statistics for two reasons.

The first is to remind you that foreclosures can be highly local. For all of the foreclosure-related stories that run in the papers and on TV, defaults make a much larger impact on home values in some areas versus others.

And, second -- foreclosures can represent a terrific buying opportunity. Not every foreclosed home is in pristine condition, but there is a plethora of affordable housing out there, suitable for first-time buyer, move-up buyers and investors, too.

Furthermore, as banks get better at disposing of foreclosed homes, the process of buying one isn't as challenging as it was, say, 12 months ago.

As part of its research, RealtyTrac.com catalogues a lot of foreclosed homes and lists them online. However, you may find it better to start your search with a local real estate agent that knows the foreclosure market.

So long as buying foreclosures is a high-touch process -- and it is a high-touch process -- you may want to have a human face and agent to guide you through it.

The complete RealtyTrac report is available online.

A Simple Explanation Of The Federal Reserve Statement (August 12, 2009 Edition)

Wed, 12 Aug 2009 14:37:30 -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 "leveling off" and that financial markets continue to improve.

The change in verbiage is the rosiest from the Fed since the start of the recession and it may signal that the downturn's end is near.

That said, the Fed highlighted lingering economic soft spots that could still impact a recovery through the end of 2009 and into 2010.

Ongoing job losses
Reduced "housing wealth"
Tight credit conditions

Furthermore, rising energy costs remain a threat to inflation.

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.

Market reaction to the Fed's press release is muted. With no real change in message and a basic confirmation of what most investors already knew, Wall Street sees no reason to panic. Mortgage rates are unchanged.

The FOMC's next scheduled meeting is September 22-23, 2009.

Closing On Or Near Labor Day? Plan Ahead.

Wed, 12 Aug 2009 08:09:08 -0700

As the unofficial end of summer, Labor Day weekend is popular vacation time for American families.

And this year, with home sales on the rise and mortgage rates relatively low, early-September figures to be a popular closing date, too.

These points may appear unrelated, but there is an important connection between them.

Like workers in every other industry, employees of the mortgage, title, and real estate industries are just as likely to be taking time off on and around Labor Day.

For buyers with pending contracts, therefore, the closer that early-September closing date gets, the fewer industry folks that will be working to help close on your new house.

The same goes for households in the middle of a refinance.

With less than 4 weeks until Labor Day, you can take steps today to prepare for other people's time off. Here's a few of them:

Notify your lender of any planned vacation time between now and your scheduled closing.
Purchase a homeowners insurance policy and prepay the first year, effective your closing date. Send proof of payment to your lender.
Have Power of Attorney forms lender-approved and signed by all parties, if applicable.
Deposit gift monies and/or retirement fund withdrawals into an acceptable bank account, if applicable.
Schedule your final walk-through far enough in advance to resolve any issues that may arise
Have your funds ready for closing at least 1 day early.

And, perhaps most important, fulfill your mortgage lender's requests for additional supporting documentation within 24 hours of notice. This includes requests for updated paystubs, bank statements, and tax returns.

The best reason to handle these tasks in advance is that, by the time Labor Day is around the corner, basic mortgage approval tasks will already take longer to complete -- from clearing conditions to sending a wire. Reduced staff means slower response times.

Stay ahead of the curve and help save yourself from potential headaches down the road. And, if possible, avoid closing on the Friday before Labor Day and the Tuesday after.

On these days, staffs are the most lean of all.

A Reason To Lock Your Mortgage Rate Within The Next 29 Hours

Tue, 11 Aug 2009 08:00:00 -0700

The Federal Open Market Committee kicks off a two-day meeting this morning.

It's one of 8 scheduled meetings the FOMC holds annually.

The FOMC purpose is to discuss the nation's economic health and, as appropriate, makes new policy that either stimulates or retards economic growth.

The FOMC's most well-known tool for reaching this goal is the Fed Funds Rate, currently stationed in a highly-stimulative range of 0.000 to 0.250 percent.

Recent data suggests that the economy is recovering, but as of this morning, Wall Street expects the FOMC to leave the Fed Funds Rate as-is, in its current range.

However, it's not what the Fed does at its adjournment that should matter to today's rate shoppers and home buyers -- it's what the Fed says.

At 2:15 PM Wednesday, the Federal Reserve will issue a statement about the U.S. economy with the policy-making body's outlook for the rest of 2009 and 2010. If the FOMC's overall message is one of economic strengthening, expect stock markets to rally and mortgage markets to sink on the news.

This would push mortgage rates higher.

On the other hand, if the FOMC alludes to weakness in labor markets and capital investment, it should help buoy rates lower.

The Federal Reserve does not control mortgage rates, but it can definitely exert an influence. For this reason, floating a mortgage rate into Fed's official announcement is risky. Moreover, given the recent momentum in mortgage rates and in the markets, it seems more likely that rates could go up versus come down.

The Fed's press release hits the wires at 2:15 PM ET Wednesday. If you're the cautious type, consider locking your mortgage rate prior to its release.

What's Ahead For Mortgage Rates This Week : August 10, 2009

Mon, 10 Aug 2009 08:00:00 -0700

To say that the mortgage markets took a beating last week would be an understatement.

After better-than-expected consumer spending, housing and employment data, stock markets rallied and mortgage markets suffered.

Mortgage rates unwound completely their gains of the last six weeks and now rest near the loftiest levels from June.

Headed into Monday's market activity, mortgage rate momentum is moving away from home buyers and would-be refinance.

This week, there isn't much data to reverse the tide but there is a Federal Open Market Committee meeting.

The FOMC is the policy-setting group of the Federal Reserve and, each time the FOMC meets, markets can get volatile. This is because of the Fed's power to speed up or slow down economic growth via the Fed Funds Rate.

When the Fed Funds Rate is rising, the economy is generally expanding at too fast of a pace for the Fed's comfort and when the Fed Funds Rate is falling, the economy is generally slowing.

Today, the Fed Funds Rate is as low as it's even been -- resting in a "target range" of 0.000-0.250 percent. The Fed isn't expected to change that.

However, just because the Fed Funds Rate won't be changing doesn't mean that mortgage rates won't be changing. Depending on what the FOMC says in its post-meeting press release, mortgage rates could rise or fall -- maybe even by a lot.

If the Fed shows concern for inflation, rates should jump; worry of a recession retread would draw rates down.

The FOMC adjourns from its 2-day meeting Wednesday at 2:15 PM so consider locking prior the official announcement.

July Jobs Data Is Weak, But Strong Enough To Sock Mortgage Rates

Fri, 07 Aug 2009 08:59:01 -0700

This morning's jobs report is doing a number on mortgage rates, putting another dent in home affordability nationwide.

Despite the slightly flat Unemployment Rate, the government's July Non-Farm Payrolls report reinforced the notion that the recession may be ending soon, if it hasn't already.

Just 247,000 jobs were lost last month -- much fewer than analysts had expected.

Now, if it seems strange to be talking economic recovery while Americans are still losing jobs -- 5.7 million in the last 12 months, in fact -- remember that we have to take the data in context.

Job loss doesn't lead to economic growth, per se, but analysts tend to treat employment data as a lagging indicator. Business is often slow to hire and slow to fire, so the jobs report rarely reflects the "right now".

A terrific real-world example of jobs data as a lagging indicator is that the peak of recent job loss -- January 2009 -- occurred 4 months after the peak of the financial crisis in September 2008.

The same pattern was present during the Recession of 2001.

Government data shows that job loss peaked during the recession in October 2001, 1 month before the recession's official end. Meanwhile, job losses continued nationwide for the next year and didn't turn net positive until October 2002 -- nearly 12 months into the recession's subsequent recovery.

This is what we mean by lagging indicator and it's why investors are cheering today's jobs data. Strength in today's report may be signaling the end of the recession.

Unfortunately for today's rate shoppers, it pushing mortgage rates higher. As stock markets soar, bond markets sink.

Why Now's A Good Time To Consider An Adjustable Rate Mortgage

Thu, 06 Aug 2009 08:00:00 -0700

At least one thing is back to normal in the mortgage markets -- it's no longer cheaper to go with a fixed rate mortgage than an ARM.

As reported by Freddie Mac, a conforming 5-year ARM is priced a half-percent lower than a comparable 30-year fixed.

Earlier this year, the pricing was reversed.

It's uncommon for fixed rate mortgages to be cheaper than comparable ARMs because, with fixed rate mortgages, lenders commit to a particular interest rate over long period of time. There is a lot of risk that comes with doing that.

By contrast, an adjustable rate mortgage is designed so that after a certain number of years, the mortgage rate changes to reflect the current market conditions.

In theory, ARMs are less risky for lenders than are fixed rate mortgages and, therefore, we would expect them to have lower mortgage rates. That wasn't the case for the 6 months ending in early-May, however. When fixed rate mortgages were scraping the 4.500 percent marker in January, 5-year ARMs weren't struggling to stay sub-5.

The same goes for late-April's mortgage rate dip.

Historically, there's been a trade-off between ARMs and fixed rate mortgages.

ARMs give lower mortgage rates with less predictability
FRMs give higher mortgage rates with more predictability

Earlier this year, market conditions rendered fixed rate loans the best of both worlds -- lower rates and predictability. Today, we're back to "normal".

No matter how long you plan to live in your home, talk to your loan officer about your adjustable rate options, if only to know your options. Given today's interest rate disparity and how it can affect your monthly mortgage obligation, you may find the unpredictable nature of an ARM to be acceptable risk.

5 Months In A Row : Pending Home Sales Rise Again

Wed, 05 Aug 2009 08:00:00 -0700

The number of homes under contract to sell rose in June for the fifth straight month.

It's the Pending Home Sales Index's longest winning streak since 2003 and another piece of evidence that the housing market may be rebounding.

The supply of new homes is falling
The supply of existing homes is falling
The Case-Shiller Index showed home value increases in many of its markets

Separately, the data is interesting. All together, it paints the portrait of a recovery.

That said, we can't forget that the Pending Home Sales Index is somewhat unique versus other real estate reports. Whereas data on existing and new home sales measures closed transactions, the Pending Home Sales Index only measures intent to buy.

Just because a home goes under contract, in other words, doesn't mean that it actually will sell.

Purchase transactions can fall apart for a multitude of reasons including, but not limited to, buyer-seller disputes, failed home inspections, and an inability to secure mortgage financing. The Pending Home Sales Index doesn't account for these types of issues.

In general, though, as the number of homes under contract increases, Existing Home Sales increase, too -- usually on a 2-month lag. Home sale data should remain strong through early-Fall, at least.

For active home buyers, be conscious of the fact that that more home sales plus falling home supplies leads to higher home values. If you're looking for a bargain, the longer you wait, the less likely you may be to find it.

Where Does The Money Go?

Tue, 04 Aug 2009 08:00:00 -0700

Where does the money go?

If you're like most U.S. consumers, more than half of it goes to housing and transportation costs.

According to the government's most recent Consumer Expenditure Survey, spending patterns are little changed from years prior.

More money is spent on entertainment and less money is spent on dining out. Beyond that, the figures are somewhat static.

Meanwhile, using on the survey's industry-by-industry breakdown, we can see how monthly housing payments and daily commuting costs impact a household's budget.

For the budget-conscious, going out less often and bargain-shopping can help pad the bottom line, but not as much as living in a less expensive home or moving closer to work.

Even a refinance into lower rates can make a difference.