Mortgage Update -- Nicholas Sutterer, Mortgage Blogger

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.

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.