Home Sales to Be Revised Down, Mortgage Rates to Remain Low in 2012

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Home Sales to Be Revised Down, Mortgage Rates to Remain Low in 2012

Home Sales to Be Revised Down, Mortgage Rates to Remain Low in 2012

December 14, 2011 No Comments »

In yet another setback for the already fragile housing market, the eternally optimistic National Association of Realtors announced Tuesday that it will revise existing home sales data lower in its... Read More »

Bernanke Has Refinanced His Mortgage Twice in the Past Two Years

Bernanke Has Refinanced His Mortgage Twice in the Past Two Years

December 13, 2011 No Comments »

When deciding whether you should refinance your mortgage, you may look to your friends, family, and neighbors to see what they’re doing and/or to get advice. After all, if they’re... Read More »

Average Mortgage Down Payment is 12.29%

Average Mortgage Down Payment is 12.29%

December 8, 2011 No Comments »

Just a day after posting my primer on mortgage down payments, LendingTree came out with some rather timely mortgage down payment data. The online mortgage lender revealed that the average... Read More »

A Primer on Mortgage Down Payment Requirements

A Primer on Mortgage Down Payment Requirements

December 7, 2011 1 Comment »

If you’re in the market to buy a new home or condo, you’ve undoubtedly thought (or stressed) about the down payment. But how much should you put down? How much... Read More »

Foreclosures Halted for Holidays as Inventory Hits All Time High

Foreclosures Halted for Holidays as Inventory Hits All Time High

December 1, 2011 No Comments »

Government mortgage financiers Freddie Mac and Fannie Mae announced separate foreclosure moratoriums today as foreclosure inventories hit an all time high. Fannie Mae will suspend evictions of foreclosed single-family homes... Read More »

Homeownership Rate Expected to Fall to 62.1 Percent by 2015

Homeownership Rate Expected to Fall to 62.1 Percent by 2015

November 29, 2011 4 Comments »

U.S. homeownership is expected to fall a total of eight percentage points by 2015 from levels recorded in 2005, according to an analysis by John Burns Real Estate Consulting. The... Read More »

Buy and Rent the New Buy and Flip

Buy and Rent the New Buy and Flip

November 22, 2011 No Comments »

A while back, I wrote about whether it was a good time to buy real estate. While I argued that it certainly wasn’t a bad time, thanks to the reduced... Read More »

Maximum FHA Loan Limit Restored to $729,750

Maximum FHA Loan Limit Restored to $729,750

November 21, 2011 No Comments »

Late last week, Congress agreed to reinstate the temporarily inflated FHA loan limits that fell on October 1. So for the next two years, homeowners in high-cost regions of the... Read More »

Cash Out Refinance vs. Rate and Term Refinance

Cash Out Refinance vs. Rate and Term Refinance

November 18, 2011 No Comments »

It’s time for another mortgage match-up, though this installment is more about distinction than rivalry. If you’re in the market to refinance your current mortgage rate, you’ll most likely be... Read More »

Should You Bother Refinancing Your Current Mortgage Rate?

Should You Bother Refinancing Your Current Mortgage Rate?

November 15, 2011 1 Comment »

If you don’t mind, let me beat a dead horse. Mortgage rates are at or near record lows and you could save a ton of money by refinancing

"We have now achieved a new post-bubble low for house prices"

"We have now achieved a new post-bubble low for house prices"
By Anonymousone   Tue 29 Nov 2011   2,628 views   120 comments, latest 9 seconds ago
"The Case Shiller data released today was rather significant since we have now achieved a new post-bubble low for home prices. So much for hitting a bottom." "If we exclude distressed properties, Woodland Hills has roughly 200 non-distressed properties listed...
Should I buy this house?
By everything   Sun 04 Dec 2011   479 views   14 comments, latest 42 minutes ago
Here is the zillow listing, I am already the tenant, and the goof trying to sell it, it is family owned, I could buy it for 80k. http://www.zillow.com/homedeta It needs roof, dishwasher, bathroom ceiling vent fan, and landscaping to stop...
Short Sale Rip-Off in Chicago
By Cook County resident   Wed 30 Nov 2011   596 views   20 comments, latest 55 minutes ago
"An says they were told if they were still interested, that they should put in their best and highest offer and to do so quickly, because there was competition for the property and the investor wanted to get it done...
See more Real Estate topics or start a new Real Estate thread

Buy and Rent the New Buy and Flip

Buy and Rent the New Buy and Flip

for rent

A while back, I wrote about whether it was a good time to buy real estate.

While I argued that it certainly wasn’t a bad time, thanks to the reduced home prices and rock-bottom mortgage rates, I didn’t really touch on why one would buy now.

Back during the housing boom, the trend was clear. Buy as much as you can now and flip it in six months, a year, etc.

After all, home prices will definitively be much higher in a few months. And can you imagine how high they’ll be a year from now?

Well, we all know where that mentality got us…in this huge mess we’re in now, because after everyone and their mother got in, scores of homeowners got burned as unsustainable home prices plummeted back to earth.

So if we can no longer expect home prices to rise exponentially, what’s the motivation behind buying a piece of property now?

Isn’t that the point of owning real estate? To experience explosive home price gains and sell in the future for a great profit?

Sure, but that’s simply not going to happen anymore. At least, not until the next big boom, which probably won’t be anytime soon.

Investors Are Buying Again, But Mentality Different

That brings us to who’s actually buying real estate. Per the latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey released today, it is investors that are snapping up properties at a steady clip.

In October, 22.4 percent of closed transactions were investor purchases, up from 19.6 as recently as July.

Last month also marked the third straight month investor participation has exceeded 20 percent.

Meanwhile, rental demand is strong, and Campbell Surveys estimates that 61.6 percent of investor properties purchased last month will be rented out.

The remainder will be flipped, but note that only experienced buyers will be able to pull off the latter with margins much thinner nowadays.

Most investors will buy, hold, and rent until home prices actually experience some positive appreciation. And that could take years.

So if you’re looking to buy right now, you should expect to hold on for a long time, regardless of whether you plan to reside in the property or rent it out.

Still, it seems like a good opportunity to get in, especially if you’re a first-time homebuyer with no home equity constraints.

Just make sure you actually generate rental income from the property, or if it’s for personal use, that you actually want to live in it for a while . Otherwise you’re probably wasting your time and money.

Maximum FHA Loan Limit Restored to $729,750

up

Late last week, Congress agreed to reinstate the temporarily inflated FHA loan limits that fell on October 1.

So for the next two years, homeowners in high-cost regions of the country will be able to take out FHA loans for amounts up to $729,750, as opposed to the $625,500 cap that previously applied.

While this may sound like a win for the badly bruised housing market, a recent study suggested otherwise.

Back in July, a pair of George Washington University researchers claimed that higher FHA loan limits would do little to positively affect housing.

In fact, they noted that the FHA loan limit could be slashed in half and still serve 95 percent of its historic target market.

But we all know times have changed, and the FHA’s target market isn’t the underserved, low-income borrowers of times past.

These days, it’s anyone who doesn’t want to come up with a large down payment to purchase a home.

Thanks to their flagship 3.5% down loan program, the FHA’s market share has risen to about 30 percent of loan origination volume, putting pressure on capital reserves and increasing the likelihood of a taxpayer bailout.

All this at a time when we’re supposed to be shrugging off government support and bringing private capital back into the mix.

For the record, those researchers feel the FHA should hold a nine to 15 percent share of the mortgage market and lower the max loan limit to $363,000.

Fannie and Freddie Still Capped at $625,500

Meanwhile, the conforming loan limit for mortgages backed by Fannie Mae and Freddie Mac is staying put at $625,500, likely because any more risk thrown their way would be considered unacceptable.

This is a blow for those in high-cost regions of the United States looking to avoid jumbo loan financing and the higher mortgage rates that come with it.

Why? Well, most homeowners seeking a loan over $625,500 probably won’t want an FHA loan either because of the cost of mortgage insurance.

So they may either opt to either bring in more cash to drop the loan amount below the conforming loan limit, take out a combo loan, or bite the bullet and go with a jumbo.

The upside is that it’s generally much easier to qualify for an FHA loan than a jumbo. But it’s still bittersweet news.

And it makes you wonder why interested parties, such as realtor and home builder groups, pushed for the increased limits.

It doesn’t sound like it’ll have much of a meaningful effect. Perhaps a more important measure would be restoring jumbo loan financing and other private capital to the housing market.

Cash Out Refinance vs. Rate and Term Refinance

gloves

It’s time for another mortgage match-up, though this installment is more about distinction than rivalry.

If you’re in the market to refinance your current mortgage rate, you’ll most likely be asked if you want any “cash out.”

This is similar to how you’re asked if you “want fries with that” at the drive-thru window.

Loan officers and mortgage brokers ask this question to determine what type of refinance you want/need.

And it’s important because the pricing and qualification will differ depending on which type you choose.

Rate and Term Refinance

If you don’t want any cash out, you’ll simply be looking to lower your interest rate and possibly alter the term of your current mortgage.

So if you currently have a 30-year fixed-rate mortgage at 6.5%, you may be inquiring about lowering your rate and reducing your term.

Example:

Loan amount: $200,000
Current mortgage rate: 6.5% 30-year fixed
Current mortgage payment: $1,264.14
New mortgage rate: 3.25% 15-year fixed
New mortgage payment: $1,405.34

In this scenario, you’ll notice that your loan amount remains unchanged, but your interest rate drops and your mortgage term is reduced from 30 years to 15 years.

At the same time, your monthly mortgage payment increases nearly $150. While this may seem like bad news, it’ll mean much less will be paid in interest over the shorter term and the mortgage will be paid off much quicker.

For those that don’t want a mortgage hanging over their head, this use of a rate and term refinance can be a good strategy.

But you don’t need to reduce your term to take advantage of a rate and term refinance. You can simply refinance from one 30-year fixed into another 30-year fixed, or from an adjustable-rate mortgage into a fixed mortgage to avoid a rate reset.

So there are plenty of options here – just be sure that you’re actually saving money by refinancing, as the closing costs can eclipse the savings if you’re not careful.

Cash Out Refinance

For those who do want cash out, which is only an option for those with home equity (not as many homeowners as it used to be), your mortgage balance will grow as a result of the refinance.

In short, your new mortgage amount will be the combination of your existing mortgage amount plus any cash out you elect to receive.

While this means more money in your pocket, it also means a larger mortgage balance and possibly a higher monthly payment.

Example:

Loan amount: $200,000
Current mortgage rate: 6.5% 30-year fixed
Current mortgage payment: $1,264.14
Cash out amount: $50,000
New loan amount: $250,000
New mortgage rate: 4.25% 30-year fixed
New mortgage payment: $ 1,229.85

In this scenario, you’d refinance from a 30-year fixed into another 30-year fixed, but you’d lower your mortgage rate and get $50,000 cash out.

At the same time, your monthly mortgage payment would actually fall $35 because your former interest rate was so high relative to today’s rates.

While this all sounds like good news, you’ll be stuck with a larger mortgage balance and a fresh 30-year term on your mortgage.

So if you’re looking to pay off your mortgage, this isn’t the move. But if you need cash for something, whether it’s for an investment or to pay off other debts, this could be a worthwhile decision.

Just note that cash-out refinances typically come with pricing adjustments that raise the interest rate. So instead of receiving a 4% mortgage rate, you may be stuck with a 4.25% rate or higher.

Additionally, qualifying for a cash-out refinance will be more difficult because the larger loan amount will raise your loan-to-value ratio and put pressure on your debt-to-income ratio.

In closing, be sure to do the math and plenty of shopping around to determine which type of refinance is best for you.

Read more: 7 reasons why you can’t refinance your mortgage.

(photo: eckes/bernd)

Should You Bother Refinancing Your Current Mortgage Rate?

refinance

If you don’t mind, let me beat a dead horse.

Mortgage rates are at or near record lows and you could save a ton of money by refinancing.

There. I won’t say it again because I know how cliché and annoying it is to talk about how much money you can save by doing “X.”

The funny thing is I tell my family the same exact thing, though they don’t bother looking into refinancing either.

They bring it up to me here and there, but don’t do much beyond that.

And you can only tell someone something so many times before you give up.

Perhaps this explains why there are millions of homeowners out there with mortgage rates well above current rates that are indeed “refinanceable.”

Don’t Have the Time to Refinance?

But for some reason, they haven’t bothered looking into a refinance. Maybe they don’t have any spare time to do so? Or it could be that the task is seemingly so daunting that they avoid it altogether.

Or maybe they don’t want to deal with a shady mortgage lender or a crusty mortgage broker?

The reasons are probably endless, but it still blows my mind that more homeowners don’t take action, considering “how much money you can save!”

It could just be that it sounds so darn “sleazy” to refinance, given all the negative attention the mortgage industry has received over the past five years.

So, how many homeowners are actually missing out?

Well, a couple months back a company named CoreLogic noted that twenty million borrowers with positive equity, or 53 percent of all “above-water borrowers,” had above market mortgage rates.

They defined an above market mortgage rate as 5.1 percent (or higher), which is more than a percentage point above current rates for the popular 30-year fixed-rate mortgage.

Pretty surprising, no? I thought the number was high, considering all the news about the “record low rates” that seems to permeate the airways.

But no, many of us still don’t bother, and instead continue making inflated monthly mortgage payments.

All that said, it doesn’t make sense for everyone to refinance all the time. Like anything else in the world, it can be good or bad, depending on your unique financial situation and future plans.

(When to refinance a mortgage.)

On top of that, it’s a lot more difficult to actually get approved for a refinance these days, so it’s not the slam-dunk it was back during the boom.

See 7 reasons why you can’t refinance your mortgage for more on that.

But if nothing else, you should at least look into refinancing your mortgage. After all, there are few other things you can do to save so much money so easily.

Tip: Does refinancing hurt your credit score?

Barely Any Mortgages Offered to Home Buyers With Credit Scores Below 620

no vacancy

The National Association of Realtors recently noted that home purchase contract failures have doubled, with 18 percent of NAR members reporting fallout in recent months.

Put simply, a contract failure is a cancellation related to a declined mortgage application, a low appraised value, or other various problems.

In other words, it’s a lot more difficult to actually purchase a home these days if you need a mortgage to finance it (which most of us do).

And of all the things that could go wrong during the mortgage underwriting process, a low credit score seemed to be the highlight, though you have to wonder how much short sales are mucking things up.

Per a NAR analysis, the average credit score for home buyers taking out conventional mortgages was 760 in 2010, up from 717 back in 2007, when just about anyone could qualify for a loan.

Since then, the average FICO score for loans purchased by Fannie Mae and Freddie Mac eased a bit, falling to 755 in the second quarter of 2011.

Still, it’s an excellent credit score, meaning only the most creditworthy of borrowers seem to be buying homes (or at least getting their hands on them).

Most Mortgages Go To Buyers with 740+ Fico Scores

Oh, and 70 percent of purchase-money mortgages went to borrowers with credit scores of 740 or higher, which is still pretty much an excellent score.

Meanwhile, less than one percent of loans went to home buyers with credit scores of 620 or below, which is traditionally considered “subprime.”

(How to get a mortgage with a low credit score.)

So if you’re wondering just how important credit score is when it comes to getting mortgage financing, wonder no longer.

I’ve touched on this topic before, mainly because I believe it’s the most important factor out there. And one of the few you can actually control 100%.

Not only does it determine if you’ll qualify for a mortgage, but it also greatly impacts what mortgage rate you’ll receive.

That’s right. A bad credit score could raise your interest rate several percentage points, costing you thousands over the life of the loan. Or deny you that much needed refinance to lower your monthly mortgage payment.

Conversely, an excellent credit score could make qualification a snap and allow you to shop around for the lowest mortgage rate with the fewest fees. And refinance in the future if rates improve.

In summary, don’t be one of the many naive prospective homeowners that doesn’t stay on top of their credit, let alone know where they stand before applying.

Check your credit scores several months before applying for a mortgage to ensure everything is where it should be. And if it isn’t, fix it.

Otherwise you could just be spinning your wheels.

Read more: What credit score do I need to get a mortgage?

Most Bankers Don?t See Home Price Recovery Until Beyond 2020

Most Bankers Don’t See Home Price Recovery Until Beyond 2020

reduced

A new survey conducted for FICO by the Professional Risk Managers’ International Association (PRMIA) revealed some less-than-pleasant news.

The hotly anticipated home price recovery seems to be getting further and further away.

Nearly 60 percent of bankers surveyed by the popular credit score creator expect home prices to stay below peak-2007 levels until at least 2020.

In other words, don’t expect a quick flip – a buy and hold mentality would probably be best here.

And purchasing real estate because you actually want to live in a home would be prudent, as opposed to buying for investment purposes.

An overwhelming 73 percent of the survey respondents also expect mortgage delinquencies to “remain elevated” for at least another five years.

This would obviously dampen any sign of a recovery, as it would keep the already bloated supply inflated for years to come.

It also means a large number of former owners would be ineligible for home loan financing for some time as well.

Catfish Recovery

Meanwhile, RealtyTrac head honcho Rick Sharga expects a housing price bottom this year, though he referred to it as a “catfish recovery.”

In other words, home prices should finally stop falling at year-end, but remain on the bottom until 2014, at which point they should begin to rise slowly.

Of course, both these predictions are for home prices on a national level, and some areas will certainly improve quicker than others.

So there are likely areas of the country where home prices are depressed enough to support buying as opposed to renting, especially with mortgage rates as low as they are.

(Mortgage rates vs. home prices)

In fact, estimates from CoreLogic last year found that many underwater homeowners in Boston and Washington D.C. will have a decent chunk of home equity by 2020 (if they choose to ride it out).

But in hard-hit Detroit, Michigan, the current underwater borrower would still have negative equity of $7,156 by then.

In Vegas, 2020 home equity for current underwater borrowers would rise to $1,039 – not a whole lot to look forward to.

Especially if they could somehow ditch their current property and get in at today’s prices.

If you happen to be a first-time homebuyer, you could actually see some healthy appreciation, and gain some precious home equity.

After all, if current homeowners stick around, you’ll have quite the head start on them.

Just don’t expect the explosive home price appreciation seen in previous decades.

Read more: Should you buy a house now or wait?

A Quarter of Homeowners Still Have More Than 50 Percent Equity

equity

Despite all the doom and gloom news outfits (myself included) spew out on a weekly basis, things could actually be a lot worse.

A new study conducted by CoreLogic for the LA Times revealed that roughly a quarter (24.6%) of U.S. homeowners with a mortgage have more than 50 percent home equity.

In other words, they actually own half of their home at its present value, and could easily refinance to a lower rate, sell, move on, or move up to a better home.

And nearly half (48.5%) of those with a mortgage have at least a 25 percent stake, putting them in a relatively good position to snag a lower mortgage rate, move on or stay put, assuming they still have jobs.

But like anything in the real estate world, it’s hard to look at things from a national perspective. You’ve got to take it local.

New York is the Home Equity Leader

In New York state, nearly half (48.8%) of homeowners have more than 50 percent equity, thanks to their relative affluence and lack of new construction, along with the exploding home prices that came with it.

Conversely, just 7.5 percent of Nevada homeowners have more than 50 percent home equity. And those who do probably purchased their homes years ago, before the boom, and never pulled cash out when prices skyrocketed.

At the same time, 30 percent have underwater mortgages that exceed their current property values by more than 50 percent.

In other words, they can’t refinance or take advantage of a loan modification. And many are probably beyond the point of no return.

(Can I refinance with negative equity?)

Overall, about 58 percent of Nevada borrowers are in a negative equity position, making it the hardest hit state in the nation.

Arizona is a close second with 49 percent of homeowners with a mortgage underwater, followed by Florida at 45 percent.

But more than one in every six Florida homeowners still has 50 percent or higher home equity, as do one in every eight in Arizona.

Home Price Depreciation Drives Default

All these numbers matter because home price depreciation is the largest driver of default.

A new study, conducted by credit scoring company VantageScore, revealed that real estate default rates (missed mortgage payments, foreclosure) were highest in areas with the greatest home price depreciation, regardless of unemployment levels.

In short, the company found that consumers who experienced high home price depreciation and low unemployment had higher default rates than those with high unemployment but low depreciation.

So apparently home values matter more than jobs when it comes to paying the mortgage, meaning banks and mortgage lenders are still missing the mark by not offering principal reductions.

Some 30-Year Mortgage Rates Aren’t Really Fixed

fixed

Let’s talk about mortgage marketing for a moment.

I’d hate to call it deceptive, since that’s a term used by the FTC and other government outfits to call out shady companies doing less than kosher things. So that may be a bit harsh.

But I would define some of the mortgage advertising out there as slightly “misleading.”

You see, there are ads, whether they’re in your local newspaper, on a billboard, at a bus stop, or online, which advertise a “low fixed rate” on your mortgage.

Unfortunately, many of these aren’t really fixed-rate mortgages. In fact, they’re quite the opposite.

Your Fixed-Rate Mortgage Is an ARM

Say what? That’s right. These seemingly fixed-rate mortgages are often adjustable-rate mortgages, otherwise known as ARMs, and also referred to as “exploding ARMs” by those who got burned by interest rate resets.

You see, somewhere along the way mortgage lenders got the bright idea that they could advertise super low mortgage rates on popular 30-year mortgages by exploiting the amortization period.

Most mortgages, whether they’re truly fixed for the life of the loan or adjustable, have a 30-year term.

So a 5/1 ARM is still a 30-year mortgage, but the mortgage rate is only fixed for the first five years before becoming annually adjustable for the remaining 25.

This makes it a so-called “hybrid ARM,” because it has both a fixed and adjustable-rate component during the mortgage term.

A 30-year fixed mortgage, on the other hand, has an interest rate that’s fixed for 30 years. That means the mortgage rate never changes. Ever.

As a result, you would expect the hybrid ARM to come cheaper than the 30-year fixed for that future interest rate uncertainty.

And indeed, the 30-year fixed is currently pricing around 4%, while the 5/1 ARM is pricing around 3%, per the latest Freddie Mac data.

(30-year fixed vs. ARM)

The Gray Area

Advertisers can use this gray area to offer you a remarkably low mortgage rate by highlighting the fixed portion of hybrid ARMs, while brushing aside the adjustable period that follows.

So that “3% 30-year mortgage rate” you’re seeing is indeed too good to be true. You’re simply being offered an ARM at the standard market price, while probably thinking the rate is fixed for 30 years.

That isn’t to say this won’t be explained before you sign on the dotted line, but it may be enough to get you in the door before the bait-and-switch happens.

For this reason, it’s very important to read the fine print and ask plenty of questions before agreeing to anything.

Mortgage professionals know home loans are complicated business, and some bank on borrowers not knowing the difference.

Read more: What mortgage rate can I expect?

Should You Buy a House Now or Wait?

last chance

With mortgage rates on long-term fixed-rate mortgages finally slipping into the 3% range, mind you just barely, more fence-sitters may be pondering this very question.

From a mortgage rate perspective, it’s a no-brainer. Now could be the best time to buy a house…EVER.

Heck, homeownership is starting to look pretty darn attractive with those ultra-low monthly mortgage payments, especially coupled with depressed home prices.

But from a broader economic standpoint, not so much.

Economy is Ugly

Things still look bleak, with unemployment expected to remain high for the foreseeable future, and fears of a complete economic collapse still swirling.

An economic outlook released this week by mortgage financier Freddie Mac perhaps said it best:

“With monetary policy expected to keep interest rates low for a while, affordability will remain high for potential homebuyers. In the meantime, many will choose to rent.”

Huh? Affordability will remain high, but many will choose to rent? How does that make sense?

And why are they choosing? If they have a choice, how could they not possibly buy a home right now?

Current Homeowners Banking on Prospective Buyers

If they’re choosing not to buy a home, what about those who currently own a home worth half the balance of their mortgage?

You know, those with deeply underwater mortgages that aren’t quite ready to walk away, who are banking on seeing positive home equity at some point in the next decade.

Pretty scary notion that prospective homeowners who could enter the market in positions much better than existing homeowners aren’t willing to.

But the way they see it, it’s scarier to take the plunge, given the economic uncertainty in the air.

After all, it doesn’t make a whole lot of sense to start a family and form a household when you’re not sure if you’ll keep earning what you’re earning, let alone keep your job.

And so that may explain why the low rates aren’t causing many to bite, at least not home buyers.

Refinance Share Nearing 80 Percent

Meanwhile, the refinance share of loan applications is rising, and is now near 80 percent, per the Mortgage Bankers Association.

Previous estimates saw the purchase-money mortgage share rising to 50 percent by now…not even close. Just wait until the traditionally slow fall and winter home buying seasons.

On top of those not willing to take the plunge, there are plenty out that there can’t even buy a home if they wanted to, thanks to that unemployment issue, along with more stringent mortgage underwriting guidelines.

And roughly 20 percent can’t buy because they fudged up their previous mortgage.

Imagine if the loose underwriting that was in place during the boom was still in place…everyone would own a home. But we know that’s bad news…

All that said, you’ve got to figure that buying a home right now can’t be all bad. As mentioned earlier, you’d be much better off than those who bought five years ago from a home price, equity and interest rate perspective.

The question is whether you need to hurry up and make the decision. Given the relatively high chance of more bad economic news, along with forecasts of lower home prices in the near future, it may pay to wait and buy next year if you’ve got time.

You may find a lower home price and a similar mortgage rate in six months.

And in the meantime, you can get your finances in order to ensure you qualify without worry when that time comes.

Read more: Tips for first-time homebuyers.

Short Sales Can Save You Money If You’re Extremely Patient

short sale

If you’re reading this, you’ve undoubtedly heard of a short sale, which allows a distressed homeowner to unload their property for less than the current mortgage balance.

Short sales have surged in popularity over the years thanks to the precipitous drop in home prices and the overwhelming presence of zero down mortgages taken out during the boom.

This led to a huge negative equity problem, which is in part being dealt with via short sales.

And while these transactions can be a great alternative to foreclosure for the homeowner, they can also greatly benefit the homebuyer as well.

But like anything that saves you money, there are plenty of hoops to jump through, and patience is a requisite.

Short Sales Are 27 Percent Cheaper

Per the latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, released this morning, the average short sale price was 27 percent lower than a non-distressed property.

This explains why they’ve been quite popular among first-time homebuyers, despite waning recently.

Last month, first-time homebuyers accounted for 39.7 percent of the short sale transactions completed.

While a sizable share, it’s down from the peak 54.1 percent share seen in November 2009, just before the original expiration of the homebuyer tax credit.

It also represents a third straight monthly decline, and the lowest share since the survey began.

Why Are Short Sales Becoming Less Popular?

Well, as mentioned earlier, short sales aren’t for the faint of heart.  And they aren’t so, ahem, short – they require patience, as the bank needs to approve the deal. And homeowners must wait, often months, before getting word back.

In fact, the average time-on-market for a short sale is now 16.6 weeks, or about four months.  Most of this time is simply waiting to get a decision.

Clearly the wait time can be daunting, especially if the mortgage lender comes back with a simple “no.”

Short sales also require a lot of cooperation from lenders, servicers, investors, appraisers, and so forth.

There’s also the worry of what happens during those months of waiting. Do mortgage rates rise and eclipse the savings associated with the short sale price?

(Home prices vs. mortgage rates)

Despite all the uncertainty, it’s clear you can save a pretty penny if you’ve got the time and are willing to wait.

They’re also a safer alternative than buying an outright foreclosure, which may be riddled with problems.

So if you’re a “would-be buyer,” you may want to consider a short sale. Just realign your expectations and remember not to get your hopes up.

Read more: How short sale fraud works.

6 Things Holding Renters Back From Becoming Homeowners

rent buy

A new survey from real estate listing service Trulia revealed that 59 percent of renters aspire to be homeowners, but there are six main issues holding them back.

Let’s take a closer look at what they are, and what you can do to overcome them.

Saving Enough for a Down Payment

This is the biggest obstacle for prospective homeowners. But what many may not realize is that you can still get a home for as little as 3.5 percent down with an FHA loan.

Or if you buy a Homepath property via Fannie Mae, you can come in with as little as 3 percent down, all while avoiding mortgage insurance.

So there are certainly options if you don’t have a ton of assets. There are even no money down options in some “rural” parts of the country.

Qualifying for a Mortgage

The second biggest roadblock is actually qualifying for a mortgage. This is why I stress preparation so much.

This means getting your income, assets, and employment information together long before applying for a loan.

In other words, holding a steady job for two years or longer, seasoning the assets you plan to use in your bank account (not your mattress) for several months, and getting pre-approved so you know what mortgage amount you can actually obtain.

A Good Credit Score

Along these same lines, you need pristine credit to ensure you qualify for a mortgage at the lowest interest rate. In fact, without a great credit score, your mortgage rate alone could make you ineligible for financing.

While there are mortgage options for those with low credit scores, you’ll be much better off it you apply for a mortgage with an excellent credit score.

Not only will you have a much easier time qualifying, you’ll also save a ton of money in interest over the years.

(Credit score needed for a mortgage.)

Existing Debt

Another killer is existing debt. If you’ve got a ton of credit card debt and who knows what else, it’ll work against you when applying for a mortgage.

Mortgage lenders use a measure called debt-to-income ratio to determine how large of a housing payment you can handle.

Put simply, the more existing debt you have, the less you’ll be able to borrow for your mortgage. So pay down what you can before applying without exhausting your assets. This will also give your credit score a boost!

A Stable Job

As mentioned earlier, a stable job is very important for qualification purposes, and also plain confidence in knowing you’ll be able to keep making your mortgage payments.

Without a job you can count on, it’d be a foolish decision to purchase a home. After all, you certainly don’t want a foreclosure on your record.

Falling Home Prices

Lastly, there’s the issue of declining home prices. Yeah, it can be pretty scary to see your “investment” lose value. But when it comes down to it, a home is a home first, and an investment second.

Is it a good time to buy right now? That’s debatable. Mortgage rates are certainly at their lowest levels in history, which makes it attractive to carry a mortgage. But do home prices have some more downward pressure? Absolutely.

(Home prices vs. mortgage rates)

That said, I wouldn’t say there is a rush to buy a home, but now could be the perfect time to get your finances in order for a possible purchase next year.

Interest rates should remain low for a fair period of time, and if home values slip a bit lower, it could be an ideal time to finally become a homeowner.

Read more: How to get a mortgage.

Mortgage Volume Declined in 2010 Despite Record Low Rates

lower

Mortgage loan origination fell between 2009 and 2010, despite a drop in home prices and the presence of record low mortgage rates, according to HMDA data parsed by the Fed.

Interestingly, purchase money mortgage volume suffered less than refinance volume, though that could be partially attributed to the homebuyer tax credit, which spurred buying somewhat.

And the fact that purchase activity was already depressed, so it didn’t have as much room to slip lower.

Still, home purchase loans were off nearly nine percent from 2009 and 62 percent lower than numbers seen in 2006, before everything went so very wrong.

Meanwhile, refinance volume fell about 14 percent as compared to 2009, while the 30-year fixed hit a record low 4.17 percent.

Of course, it wasn’t for a lack of interest; it had more to do with issues holding back homeowners.

A lack of home equity, more rigorous underwriting carried out by mortgage lenders, and the presence of second mortgages all hindered refinancing.

The Home Affordable Refinance Program was implemented to address some of these concerns, by allowing homeowners to refinance up to 125 percent loan-to-value, but it has done much less than anticipated.

mortgage volume

Who Got to Refinance?

You may be wondering who exactly got to take advantage of the record low rates last year.

Well, the data points to consumers with credit scores of 820 or higher whose loans were originated between 2006 and 2008, when interest rates were relatively high.

This appeared to be the single most important factor – all the more reason to have a great credit score folks.

(What credit score is needed for a mortgage?)

Refinancing was also much more common in areas that didn’t experience significant home price declines, as LTV constraints shut many out of the market, namely because they purchased homes with zero down or refinanced previously and pulled cash out, thereby zapping their home equity.

Without these limitations, the Fed estimates an additional 2.3 million owner-occupied refinance loans would have been originated in 2010, on top of the roughly 4.5 million actually funded.

Since last year, mortgage rates have touched new lows, spelling more opportunity for those looking to save on their monthly mortgage payments.

But it also means millions more will miss out on the potential savings unless banks/the government ease underwriting standards to accommodate these festering problems.

Perhaps the new underwater refinance program on the way could do some good?

For the record, HMDA data covers roughly 90 to 95 percent of FHA loans and between 75 and 85 percent of other first-lien home loans.

19 Percent of Borrowers Who Owned a Home in 2007 No Longer Qualify

no

Some 19 percent of borrowers who owned a home in 2007 no longer qualify for a mortgage based on payment history alone, according to testimony from Laurie S. Goodman, a Senior Managing Director at Amherst Securities Group LP.

Goodman explained to a Senate banking subcommittee that of the 55 million homeowners with a mortgage in June 2007, five percent have defaulted and another 14 percent reached 90+ day delinquency status.

As a result, they can’t qualify for another mortgage anytime soon.

Additionally, many others have been shut out of the housing market thanks to harsher loan-to-value (LTV) ratio and credit score constraints.

(What credit score is needed for a mortgage?)

Gone are the days of zero down mortgages, at least for most.

In fact, for 2009/2010 loan origination, the average LTV ratio was a very conservative 67 percent, while the average Fico score was a very excellent 762.

At first glance, it looks like good news because it reveals that most newly originated mortgages have gone to more sound borrowers.

But upon closer inspection, it means a ton of lower income and less creditworthy borrowers are missing out on homeownership.

Clearly this is adding to the glut of housing inventory, while presenting a dilemma. Do banks and mortgage lenders ease standards to promote buying? Or will that create the same problem all over again?

(What caused the mortgage crisis?)

Buy and Rent Homes With Tenants in Them

Goodman thinks she has a solution. Investors, ironically. She wants them to buy up the distressed properties in big blocks (including foreclosures and non-performing loans) and rent them out to the existing owners.

Of course, these disgruntled homeowners would have to agree to stick around in a property they no longer own.

And investors would have to hold 80 percent of the properties off the market for a minimum of three years before flipping them.

This, she believes, would stabilize the housing supply/demand imbalance.

In effect, the housing overhang would be reduced and downward pressure on home prices would ease.

As a result, fewer homeowners would hold underwater mortgages. This is pretty important, as she and her firm have determined that LTV is the number one driver of default.

Additionally, loan servicers would need to get more aggressive on their loan modifications, by offering principal reductions, something that has proven to be a sticking point for years now.

Without action, her company estimates nearly one out of every five borrowers is in danger of losing their home. That represents about 10.4 million homeowners.

30-Year vs. 10-Year Mortgages

10

It’s time for another mortgage match-up folks. Today, we’ll look at 30-year vs. 10-year mortgages to see how they stack up.

Before we get started, it’s important to note that there are two very different types of 10-year mortgages out there.

There are 10-year fixed mortgages, which have a mortgage term of 10 years. And there are 10-year adjustable-rate mortgages, which have a term of 30 years.

The first type of mortgage is pretty straightforward. It’s similar to a 30-year or 15-year fixed mortgage, just shorter.

What this means, if you happen to be brave enough to go with the loan program, is that your mortgage payment will be quite high.

After all, if you only get 10 years to pay off your entire mortgage balance, you’ll need to come up with some sizable payments to get it down to zero in a hurry.

However, doing so will save you a ton in interest.

The “other” 10-year mortgage you’ll see out there is the 10/1 ARM, which is fixed for the first 10 years, and adjustable for the remaining 20.

This makes it a hybrid ARM because of its fixed/adjustable nature. It also means the loan payments have the ability to adjust both higher and lower once those 10 years are up.

So, are either programs a better choice than the classic 30-year fixed? Let’s see.

10-Year Fixed Mortgages

If you’re really, really serious about paying off your mortgage fast, this option could be for you.

Just note that your mortgage payment will be huge relative to other, more traditional options.

For example, on a $250,000 loan amount, a 10-year fixed with an interest rate of 3% would come with a monthly mortgage payment of $2414.02.

Compare that to a monthly payment of $1787.21 on a 15-year fixed at 3.5%, and a payment of $1193.54 on a 30-year fixed at 4%.

While the payment on the 10-year fixed is significantly higher, you’d only pay roughly $40,000 in interest over those 10 years.

On the 15-year, you’d pay about $72,000, and on the 30-year, you’d pay nearly $180,000 in interest.

So that right there is why someone would opt for the shorter term. A lower mortgage rate and much less interest paid.

But it only makes sense if you really want to pay off your mortgage fast, and have the means to do it without breaking the bank.

Tip: The difference in rate between a 15-year fixed and 10-year fixed may be marginal or even insignificant, so taking the longer term could provide you with some much needed breathing room.

10-Year ARMs

Here’s where things get misleading. Many mortgage companies advertise 10-year ARMs as if they’re fixed mortgages.

They basically use that initial 10-year fixed period to their advantage when putting together marketing materials.

And mortgage lenders can make 10-year ARMs appear really attractive by touting the low mortgage rates that accompany them.

After all, an ARM will always be priced lower than a 30-year fixed mortgage.

Per Bankrate, the 10-year ARM averaged 3.76 percent last week, while the popular 30-year fixed hit a record low 4.32 percent.

So you can see why a customer may think the 10-year ARM is the better choice.

But the fact of the matter is that these loans are still adjustable-rate mortgages in fixed-rate clothing.

Put simply, if you’re not comfortable with a loan program that may adjust, steer clear.

However, if you plan to move within 10 years (or refinance somehow), going with a 10-year ARM will provide you with a fixed rate for a significant period of time while you figure things out.

Just be sure you know which 10-year mortgage you’re actually getting…

Read more: 30-year vs. ARM

The State of the Housing Market

housing

Over the past few years, economists and housing advocates have predicted a recovery in “x” or “y” year, only to push those estimates back by a year or two after each year passed.

In fact, it wasn’t too long ago that experts were predicting an end to the madness in 2009, 2010, 2011, and so on.

Heck, back in 2007, Fannie Mae’s president saw a possible housing recovery in late 2009.

We’re now rapidly approaching the end of 2011, and as we do, things seem to be getting worse rather than better.

This has been great news for mortgage rates, as the shaky news has pushed interest rates to their lowest levels on record (will they go lower?).

Low Rates Aren’t Helping

Unfortunately, it’s not doing much to salvage housing, primarily because no one has any confidence in housing.

This is evidenced by the lackluster purchase-money mortgage application volume of late.

During the latest week, the Mortgage Bankers Association noted that applications to purchase a home increased seven percent on a seasonally adjusted basis.

But they were off 7.2 percent compared to a year earlier, which makes you wonder where the recovery is.

Even with mortgage rates nearly a half-point lower than they were last year, nobody seems to be biting.

Forget about whether these people are actually approved – they aren’t even applying.

“It Has Never Been a Better Time to Buy”

Meanwhile, real estate agents are proclaiming that, “it has never been a better time to buy than right now.”

And hey, it’s hard to disagree with them, what with mortgage rates really, really low, and home prices well below levels seen a few years ago.

(Mortgage rates vs. home prices)

So what gives? Why isn’t anyone taking advantage of this once in a life opportunity?

For the first-time homebuyers, perhaps it’s a widespread lack of confidence, coupled with the fact that without steady employment, it doesn’t make sense to buy a house.

Then there are all those disillusioned renters who have probably been turned off to housing after watching the carnage over the past five or so years.

For those who already own a home, it’s a home equity issue – they can’t dump the current property and move on, as much as they want/need to.

For investors, it’s more of a buy-and-hold environment, which makes it less attractive. And they’re also buying in cash it seems.

Regardless, there doesn’t seem to be a recovery in sight for the foreseeable future.

If anything, it only appears as if there is more bad news on the horizon. That translates to a wait-and-see mentality, despite all the favorable data working in prospective homebuyers’ favor.

And explains why refinance applications accounted for more than 77 percent of total mortgage volume this past week.

Should You Buy a House Now?

Should You Buy a House Now or Wait?

last chance

With mortgage rates on long-term fixed-rate mortgages finally slipping into the 3% range, mind you just barely, more fence-sitters may be pondering this very question.

From a mortgage rate perspective, it’s a no-brainer. Now could be the best time to buy a house…EVER.

Heck, homeownership is starting to look pretty darn attractive with those ultra-low monthly mortgage payments, especially coupled with depressed home prices.

But from a broader economic standpoint, not so much.

Economy is Ugly

Things still look bleak, with unemployment expected to remain high for the foreseeable future, and fears of a complete economic collapse still swirling.

An economic outlook released this week by mortgage financier Freddie Mac perhaps said it best:

“With monetary policy expected to keep interest rates low for a while, affordability will remain high for potential homebuyers. In the meantime, many will choose to rent.”

Huh? Affordability will remain high, but many will choose to rent? How does that make sense?

And why are they choosing? If they have a choice, how could they not possibly buy a home right now?

Current Homeowners Banking on Prospective Buyers

If they’re choosing not to buy a home, what about those who currently own a home worth half the balance of their mortgage?

You know, those with deeply underwater mortgages that aren’t quite ready to walk away, who are banking on seeing positive home equity at some point in the next decade.

Pretty scary notion that prospective homeowners who could enter the market in positions much better than existing homeowners aren’t willing to.

But the way they see it, it’s scarier to take the plunge, given the economic uncertainty in the air.

After all, it doesn’t make a whole lot of sense to start a family and form a household when you’re not sure if you’ll keep earning what you’re earning, let alone keep your job.

And so that may explain why the low rates aren’t causing many to bite, at least not home buyers.

Refinance Share Nearing 80 Percent

Meanwhile, the refinance share of loan applications is rising, and is now near 80 percent, per the Mortgage Bankers Association.

Previous estimates saw the purchase-money mortgage share rising to 50 percent by now…not even close. Just wait until the traditionally slow fall and winter home buying seasons.

On top of those not willing to take the plunge, there are plenty out that there can’t even buy a home if they wanted to, thanks to that unemployment issue, along with more stringent mortgage underwriting guidelines.

And roughly 20 percent can’t buy because they fudged up their previous mortgage.

Imagine if the loose underwriting that was in place during the boom was still in place…everyone would own a home. But we know that’s bad news…

All that said, you’ve got to figure that buying a home right now can’t be all bad. As mentioned earlier, you’d be much better off than those who bought five years ago from a home price, equity and interest rate perspective.

The question is whether you need to hurry up and make the decision. Given the relatively high chance of more bad economic news, along with forecasts of lower home prices in the near future, it may pay to wait and buy next year if you’ve got time.

You may find a lower home price and a similar mortgage rate in six months.

And in the meantime, you can get your finances in order to ensure you qualify without worry when that time comes.

Read more: Tips for first-time homebuyers.

Why It's A Terrible Time To Buy An Expensive House

Why It's A Terrible Time To Buy An Expensive House


Because house prices will keep falling in the areas where prices are still dangerously high compared to incomes and rents... Read more

Chase Hiring Hundreds of Mortgage Workers

Chase Hiring Hundreds of Mortgage Workers

hiring

At first glance, it’s sounds like good news. Chase, one of the nation’s largest mortgage lenders, plans to hire hundreds of workers in Texas, per the Star-Telegram.

But wait, why are they hiring? “To keep people in their homes.” Not to get people into a new home or help them refinance their existing mortgage, but to help them avoid foreclosure.

Or perhaps to do some math and decide that foreclosing actually is the best alternative.

That’s what is disconcerting – the Chase spokesman who revealed the hiring noted that “many” of the positions are for mortgage loan servicing, not loan origination.

 Get Pre-Approved, Compare Loans & Calculate Payments - All Online with Quicken Loans!

Does that explain why Chase was pricing itself out of the market last week, with mortgage rates a point higher than their competitors? It could, and not only that, it may signal more bad news to come.

You have to wonder why after five or so years a large bank and mortgage lender like Chase is hiring hundreds of loss mitigation employees, as if they didn’t realize the scope of the problem earlier.

Even to an outsider, it would be obvious that more employees would be needed in loan servicing to deal with the scores of foreclosures and short sales occurring throughout the country.

Or maybe things are even worse than we can imagine, and even after ramping up their loss mit team over the past couple years, it’s simply not enough.

Mortgage Hiring Focused on Clean-Up

Either way, it’s a bad sign for the housing market, if hiring is focusing more on “clean-up” as opposed to straight-up lending.

Kind of explains why the average borrower in foreclosure hasn’t made a mortgage payment for a record 599 days, per LPS data released today.

And of the nearly two million loans that are 90+ days delinquent (but not yet in foreclosure), 42 percent haven’t made a payment in more than a year. Talk about a lot of free rent.

Obviously, this type of data also uncovers the foreclosure backlog and shadow inventory we’re dealing with that doesn’t seem to be getting any better.

And it’s really hard to tell if things are actually improving or simply not being dealt with, given all the delays.

But I suppose the silver lining here might be that all the new hiring will finally get to the core of the problem. That is, the overhang of distressed properties (and borrowers) that have yet to be sorted out.

Until they are, we really won’t know where we stand, and certainly won’t be able to move forward.

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What Mortgage Has the Best Interest Rate?

What Mortgage Has the Best Interest Rate?

best rates

Here’s an interesting question: “What mortgage has the best interest rate?”

Before we dive in, “best” questions are always a bit difficult to answer because what’s best to one person could be the worst for another.

But we can still examine what makes one mortgage rate on a certain product better than another, in certain situations.

In a recent post, I touched on the different mortgage terms available, such as a 30-year, 15-year, and so on.

That too was a “best” article, where I tried to explain which mortgage term would be best in a given situation.

Related to that is the associated interest rate that comes with a certain term.

Longer Term = Higher Mortgage Rate

Put simply, a longer mortgage term translates to a higher mortgage rate. So a 10-year fixed-rate mortgage will be much cheaper than a 40-year loan.

And an adjustable-rate mortgage will price significantly lower than a fixed-rate loan, as you’re guaranteed a steady rate for the full term on the latter.

This has to do with risk – a mortgage lender is essentially giving you an upfront discount on an ARM in exchange for uncertainty down the road.

With the fixed-rate loan, nothing changes, so you’re paying full price, if not a premium for the peace of mind.

That’s all pretty straightforward, but knowing which to choose could be a bit more daunting, and may require dusting off a calculator.

Currently, the popular 30-year fixed is pricing at 4.22 percent, while the 15-year fixed is going for 3.44 percent, per Freddie Mac data.

The hybrid 5/1 ARM, which is fixed for the first five years and adjustable for the remaining 25, is averaging 3.07 percent, and the one-year ARM is just below 3.00 percent (2.93%).

(How to get the best mortgage rate.)

There are other mortgage types, such as the 20-year fixed, 10-year ARM, 7-year ARM, and so on. But we’ll focus on those first four, as they’re the most popular.

As you can see, the 30-year is the most expensive. In fact, it’s more than a percentage point higher than the 5/1 ARM.

On a $200,000 loan amount, that would be a difference of roughly $130 in monthly mortgage payment and nearly $8,000 over five years.

The one-year ARM would be even cheaper, though just slightly. And for a loan that adjusts annually, it’s a big risk in an environment where interest rates are likely at or near the bottom.

As mentioned, the low initial rate on the 5/1 ARM is only guaranteed for five years, and then it becomes adjustable for the remainder of the term. That’s a lot of years of uncertainty.

The 30-year fixed is, well, fixed. So it’s not going higher or lower. The ARM has the potential to fall, but that’s probably unlikely, given where rates are historically.

(30-year fixed vs. ARM)

So What’s Best?

Well, that depends on a number of factors unique to you. Do you plan to stay in the home long-term, or is it a starter home you plan to unload in a few years?

If you plan to sell in the near term, you could go with the ARM and use those monthly savings for a down payment on a subsequent property.

Just be sure you have enough money to make larger payments if and when your ARM adjusts higher if you don’t sell or refinance.

Five years not enough? Look into 7/1 and 10/1 ARMs, which don’t adjust until after year seven and 10, respectively. That’s a pretty long time, and the discount relative to a 30-year fixed could be well worth it.

If you’ve got plenty of money and actually want to pay off your mortgage, a 15-year fixed will be the best deal for your money, as you’ll get the lowest, fixed rate available. The downside is the higher monthly payment.

As a rule of thumb, when rates are low, it makes sense to lock in a fixed rate. Conversely, if rates are high, taking an initial discount with an ARM may make sense.

And assuming rates fall shortly after, you can refinance to an even lower rate, thereby extending your fixed period a bit longer.

In the end, it may all just come down to what you’re comfortable with. For many, the stress of an ARM simply isn’t worth any potential discount, so perhaps a fixed mortgage is “best.”

Read more: What mortgage rate can I expect?

More Than Half of Americans Believe They?re Underwater on Their Mortgage

More Than Half of Americans Believe They’re Underwater on Their Mortgage

boat

Americans are becoming increasingly pessimistic about their home values, according to a new poll from Rasmussen Reports.

Despite recent numbers that reveal only about a quarter of mortgages are underwater (worth less than the existing mortgage balance), the company said just 49 percent of respondents believe their home is worth more than the mortgage.

For the second month in a row, more than half of respondents think they’re upside down on their home.

The numbers aren’t as bad as June, when an all-time low of 45 percent indicated they were “right-side up,” but it’s still only the third time the number has dipped below 50 percent.

(What is an underwater mortgage?)

For comparison sake, 61 percent believed their home was worth more than their mortgage back in late 2008.

Government Workers More Upbeat

Interestingly, 71 percent of government workers believe their home is worth more than their mortgage, compared to just 50 percent of private sector employees and 42 percent of retirees.

With regard to mortgage payments, just seven percent said they’ve missed one or been late in the past six months.

And only eight percent of homeowners say it’s “at least somewhat likely” they’ll miss a payment in the next six months.

So that’s the good news – borrowers will continue to make on-time payments with the belief they’ll eventually gain home equity and get out of this mess.

The national telephone survey of 676 Homeowners was conducted between July 17-18.

Read more: Can I refinance with negative equity?

Are Mortgage Rates Higher for Condo's?

condos

Mortgage Q&A: “Are mortgage rates higher for condos?”

If you’re in the market for a new condo (as opposed to a house), you’re probably looking to save some money on your mortgage payment each month.

But condos typically come with higher mortgage rates and HOA dues, which should be factored into your analysis.

For example, most mortgage lenders charge a mortgage rate pricing adjustment for a condo once the loan-to-value ratio exceeds 75 percent.

Put simply, if you can’t put down 25 percent of more on your condo, expect a higher mortgage rate.

This tends to be the case for conforming mortgages, jumbo loans and conventional mortgage loans.

Note that the pricing adjustment doesn’t mean your mortgage rate will/should be .75% higher, it just means the bank or mortgage broker will make less commission, and thus charge a higher rate accordingly.

So expect a mortgage rate maybe .125% or .25% higher it’s a condo, and perhaps more if it’s a high-rise condo.

Why are mortgage rates higher on condos?

Well, condos are part of a larger complex, unlike a single-family home.

And each unit affects the whole project, so if several owners are unable to make payments (or if they’re vacant because of things like foreclosure or failure to sell), the other units will lose value.

Additionally, the HOA won’t get all the dues it expects, which puts the entire building at risk when it comes to things like maintenance.

Another thing to consider is the share of investment properties within the complex – more investors means more risk.

Finally, not all types of mortgage lenders offers condo financing, so less competition means higher rates.

FHA Loans on Condos

As far as FHA loans go, there isn’t a pricing hit for condos, but fewer condos are approved for FHA financing, meaning it might not be an option at all.

The FHA recently enacted a tough set of standards for condos, including strict zoning rules and policies where a certain number of units must be owner-occupied, sold before endorsement, and current on HOA payments.

Keep in mind that when it comes time to sell your precious condo, it’ll be more difficult to find a buyer as well.

That doesn’t mean you need to go out and buy a house, because that opens a whole ‘nother can of worms, but it’s something to think about.

Fannie Mae HomePath Review

Fannie Mae HomePath Review

23May11

foreclosure

Government mortgage financier Fannie Mae offers special home loan financing via its “HomePath” program, so let’s take a closer look.

In short, a HomePath mortgage allows prospective homebuyers to get their hands on a Fannie Mae-owned property (foreclosure) for as little down as three percent down.

And that down payment can be in the form of a gift, a grant, or a loan from a nonprofit organization, state or local government, or an employer.

This compares to the minimum 3.5 percent down payment required with an FHA loan.

HomePath financing comes in the form of fixed mortgages, adjustable-rate mortgages, and even interest-only options!

Another big plus associated with HomePath financing is that there is no lender-required appraisal or mortgage insurance.

Typically, private mortgage insurance is required for mortgages with a loan-to-value ratio over 80 percent, so this is a pretty good deal.

HomePath® Buyer Incentive

Fannie Mae is also currently offering buyers up to 3.5 percent in closing cost assistance through June 30, 2011.

But only those who plan to use the property as their primary residence as eligible – second homes and investment properties are excluded.

Finally, many condominium projects don’t meet Fannie’s guidelines, but if the condo you’re interested in is owned by Fannie Mae, it may be available for financing via HomePath.

Note that most large mortgage lenders, such as Citi or Wells Fargo, are “HomePath Mortgage Lenders,” meaning they can offer you the loan program.

Additionally, some of these lenders work with mortgage brokers, so you can go that route as well.

Final Word

In summary, HomePath might be a good alternative to purchasing a foreclosure through the open market.

And with flexible down payment requirements and no mortgage insurance or lender-required appraisal, you could save some serious cash.

So HomePath properties and corresponding financing should certainly be considered alongside other options.

But similar to other foreclosures, these homes are sold as-is, meaning repairs may be needed, which you will be responsible for. So tread cautiously.

military

CitiMortgage announced this week that it will reduce mortgage rates for disabled veterans via the “Citi Disabled Veterans Mortgage Relief Program.”

The new program will offer an interest rate reduction of 2.5% on existing mortgages for a two-year period.

Surviving spouses of military personnel killed while on active duty may also be eligible.

The new offer is part of the Citi Homeowner Assistance Program, which aims to keep homeowners current on their mortgage payments and avoid foreclosure.

A little more about the Citi Disabled Veterans Mortgage Relief Program:

- Offered to veterans disabled, wounded or injured in the line of duty.
- Surviving spouses may also be eligible if they are co-borrowers on the mortgage.
- Applicants must provide discharge documents and a letter from the VA confirming they have a service-connected disability.
- Loan must be a first mortgage on a principal residence owned by CitiMortgage.
- Open to both current and delinquent borrowers
- No requirement to prove financial hardship
- FHA loans, VA loans, Rural Development loans, and and loans currently under the Servicemembers Civil Relief Act (SCRA) protection are not eligible.

Homeowners will be evaluated for a permanent loan modification before being considered for the Citi Disabled Veterans Mortgage Relief Program.

The bank and mortgage lender will bring qualifying customers’ loans current if they are delinquent by waiving late fees and forbearing any past due amounts and other uncollected fees.

A notice regarding the program will be included in May 2011 mortgage statements sent to customers.

Tip: Can I refinance with negative equity?

orange

It’s that time again, where we take a hard look at a mortgage program floating around the web.

Today, we’ll look at the so-called “Easy Orange” mortgage from ING Direct, a Dutch mortgage lender doing business on our shores (how dare they!).

They call “Easy Orange” the “mortgage for savers,” apparently because the associated mortgage rate is priced below comparable loan products.

Easy Orange mortgages come in the form of either a 5-year or 10-year fixed rate loan.

They’re still based on a 30-year amortization, meaning they’re balloon mortgages, with a final payment due after the five or 10 years are up.

Short Term Mortgages

That’s right, they’re due after just five or 10 years.

The big distinction is that ING offers a “rate renewal feature,” which allows borrowers to relock their rate for another term, for the cost of one mortgage payment (2 biweekly payments).

There’s a catch though – they may not always offer rate renewals, and interest rates and costs can change (go up). They probably won’t get any lower…

In other words, you may have to pony up the money for the “final payment,” which will likely be huge, or refinance elsewhere, assuming you don’t sell before the relatively short term is up.

Oh, and the Easy Orange forces you to make biweekly mortgage payments, though they’re free of charge.

So you’ll be making a mortgage payment every two weeks, which is the standard monthly payment cut in half. This makes for 13 full payments a year instead of 12.

Easy Orange Requirements:

- 20% down payment (or home equity if refinancing)
- Must be owner occupied property (primary residence)
- No vacation homes or investment properties
- No manufactured homes, condotels, properties greater than 10 acres
- Minimum credit score of 700
- Max loan amount of $750,000

Easy Orange Benefits:

- No application fees
- No mortgage points
- Biweekly payments
- Free 60-day rate guarantee on purchases, 45 days for refinances
- Apply online
- Guaranteed closing costs (they won’t change from time of application)
- Close online or over the phone at no extra charge
- Pay electronically

Final Word

While the Easy Orange could save you some money in the short term via the lower mortgage rate associated with the loan program, it carries some serious risk if ING doesn’t offer a rate renewal, or if you’re unable to sell or refinance once the term is up.

Even if they do offer a rate renewal, it may be significantly higher than your previous rate.

They currently offer an interest rate of 2.990% (3.050% APR) on the 5-year product, which may be slightly lower (half point or so) than other adjustable-rate mortgages out there that adjust after five years.

But you’re faced with a decision after five years with Easy Orange, while other ARMs allow you to stay with the loan program, just at the fully indexed rate, which could be higher or lower.

Easy Orange also requires you to make biweekly mortgage payments, which is great if you want to actually pay off your mortgage early, but somewhat counterintuitive if your loan will be reset every five years.

In the end, it may not be worth the risk for the slight reward afforded via the Easy Orange mortgage, but it’s certainly a unique way of going about getting a mortgage.

(photo: audreyjm529)

foreign

Foreign buyers could be buoying the sagging United States real estate market, according to the National Association of Realtors2011 Profile of International Home Buying Activity.

For the past year ending March 2011, total residential international sales in the U.S. totaled $82 billion, up from $66 billion in 2010.

Sales were split evenly between non-resident foreigners and recent immigrants, and came from 70 different countries, up from 53 countries in 2010.

For the fourth year running, Canada was the top foreign investor, with 23 percent of sales, followed by China with nine percent of international sales.

Tied for third were Mexico, the United Kingdom, and India.

(How Much Does a Real Estate Agent Make?)

Argentina and Brazil took the fourth and fifth spot with combined foreign sales of five percent, up from two percent in 2010.

These top five countries accounted for 53 percent of international residential home sales transactions in 2011.

Florida accounted for 31 percent of total international transactions, followed by California at 12 percent, Texas at nine percent, and Arizona with six percent.

Average Price Paid $315,000

The average price paid for a home by a foreign buyer was $315,000, compared to the $218,000 price tag seen on all U.S. homes.

However, 45 percent of international purchases were under the $200,000 mark.

Additionally, 62 percent of international purchases were reported as being all cash transactions, sans mortgage.

Sixty-one percent of foreign buyers purchased a single-family home, while 36 percent went with a condo/apartment or townhouse.

Tip: How to get a mortgage.

cut

Mortgage lending volume was downgraded lower in a set of new forecasts released by iEmergent this week.

The company now believes 2011 purchase money mortgage volume will be just $476.6 billion, while refinance volume is expected to range from $384.8 billion (low estimate) to $465.8 billion (high estimate).

Overall, 4.66 million loans for $903.8 billion are expected at the low end, though the total could be as much as 5.095 million loans for $942.4 billion on the high end.

The latest projections represent a 38 percent decrease in loan origination dollars from estimated 2010 end-of-year volumes.

The company attributed the drop to lower expected loan sizes and a 34 percent decline in projected refinance applications (maybe they wrote this report before mortgage rates plummeted?)

Purchases are estimated to be just 3.4 percent lower than previous estimates.

What will change things?

“Jobs – better jobs – not austerity, are what’s needed to change the situation,” said Dennis Hedlund, President of iEmergent, in a press release.

“Without jobs, the next six months of home financing don’t look very encouraging. For all lenders, this zero-sum competitive environment will get tougher before it gets better,” he added.

The 2011 purchase/refinance split is expected to be approximately 53%/47%, though refinances continue to account for roughly two-thirds of new applications. So go figure.

Tip: How does refinancing work?

Twice As Many Underwater Homeowners Think Its Okay to Walk Away from Mortgage

walk away

More underwater borrowers think its okay to ditch the mortgage, according to Fannie Mae’s First Quarter 2011 National Housing Survey released today.

In fact, 27 percent think its okay to walk away from a mortgage if they are underwater or “face financial distress,” nearly double the number seen in January 2010.

There is a silver lining tough – just 23 percent of the mortgage borrowers polled said they were underwater, down from 30 percent a year ago.

So that must mean more people are going to stay put and ride out the housing storm.

But only 31 percent of underwater homeowners feel they have sufficient savings, compared to 42 percent a year ago.

And nearly half (46%) of underwater borrowers say they are stressed about their ability to make mortgage payments and satisfy other debts, versus 35 percent in June 2010.

Unsurprisingly, just 67 percent of underwater homeowners now feel buying a home is a safe investment, down from 75 percent from a year earlier.

Overall, 87 percent of Americans continue to disapprove of defaulting on the mortgage if underwater or facing some kind of financial stress.

And while the number of Americans who perceive homeownership as a safe investment has declined steadily, from 83 percent in 2003 to 66 percent in the first quarter of 2011, 57 percent still believe it has the most potential of any investment.

Tip: Can I refinance with negative equity?

sold

Miami-area home sales hit their highest point for a March in five years, according to real estate analytics company DataQuick.

March sales jumped 39.1 percent from February and increased 18.2 percent from a year earlier.

The company said condo resales were particularly “robust,” accounting for a record 53.1 percent of all homes sold during the month.

The 5,434 condos resold was the highest total in the month of March since 2005, when 6,015 condos resold.

Over the past decade, condo resales have made up a monthly average of 32.9 percent of overall sales.

In total, 10,238 new and resale homes and condos closed escrow in the Miami metropolitan area, which encompasses the Miami-Dade, Palm Beach and Broward counties.

It was the highest March total since 2006, when 16,199 homes sold, but still 11.4 percent below the average March sales volume of 11,554 that goes back to 1997.

Miami Median Price Lowest Since 2000

The median price paid for all new and resale houses and condos sold in the Miami region was $120,000, unchanged from February and down 15.5 percent from $142,000 a year ago.

The median hasn’t been lower since April 2000, when it was $118,500.

DataQuick attributed the drop to a high concentration of condo resales and a low concentration of new-home sales.

FHA loans accounted for 39.6 percent of all purchase money mortgages in March, while cash buyers grabbed a hefty 68.6 percent share of sales. Sorry mortgage lenders

boost

Mortgage demand increased 8.2 percent on a seasonally adjusted basis last week, according to the latest survey from the Mortgage Bankers Association.

On an unadjusted basis, the market composite index increased 8.3 percent during the week ending May 6, helped on by both refinance and purchase money activity.

The refinance index climbed 9.0 percent from one week earlier to its highest level since mid-March, while the seasonally adjusted purchase money mortgage index increased 6.7 percent.

That pushed the refinance share of apps to 63.1 percent from 62.7 percent of total mortgage activity, its highest share since late March.

Meanwhile, mortgage rates moved even lower, with the popular 30-year fixed mortgage slipping to 4.67 percent from 4.76 percent and the 15-year fixed plummeting to 3.81 percent from 3.96 percent.

“Rates dropped again last week as the Federal Reserve continued its QE2 asset purchase program,” said Michael Fratantoni, MBA’s Vice President of Research, in a statement.

“The 30-year fixed mortgage rate is now 46 basis points below its 2011 peak, and has decreased for four straight weeks by a total of 31 basis points,”

He added that the refinance index has increased about 18 percent over the past four weeks, though refinance application volume remains more than 50 percent below levels seen last fall.

The mortgage rates above are good for mortgages at 80 percent loan-to-value – but pricing adjustments can lower or raise your actual interest rate.

Keep in mind the MBA’s weekly survey covers more than half of all retail, residential loan applications, but does not factor out duplicate or rejected apps, which have surely risen since the mortgage crisis got underway a few years back.

gloves

Mongoose vs Cobra. Coyote vs Roadrunner. Pirate vs Ninja?

And finally, 30 Year Fixed vs ARM.

Yes, we’re talking about the greatest rivalries of all time.

So what’s better, the almighty 30-year fixed-rate mortgage or an adjustable-rate mortgage (ARM)?

Obviously this isn’t the easiest question to answer, despite fixed mortgages accounting for more than 90 percent of the purchase money mortgages and refinance loans being originated nowadays.

Both Last 30 Years

First things first, both loan programs are based on a 30-year amortization, meaning both will take 30 years to pay off, assuming you hold them until maturity.

The major difference is that the 30-year fixed is, ahem, fixed, while the ARM is, you guessed it, adjustable.

The big question is what type of ARM are we talking about?

These days, it’s quite common to take out an ARM with a fixed-rate period, such as a 5/1 ARM or a 7/1 ARM.

The above examples would be fixed for the first five and seven years, respectively, before becoming annually adjustable. They’re known as hybrid ARMs.

This means you’ve got some breathing room before the rate adjusts up or down. That’s right, your mortgage rate can move up or down.

ARMs Go Up and Down

While this is true, mortgage rates are still near record lows, and will more than likely rise in the future.

So an ARM you obtain today will likely adjust higher at its first reset, meaning your monthly mortgage payment will go up.

But will you stay in the home for 5-7 years, or will you move. And will you refinance before that time? If there’s a good chance you will, an ARM could make more sense than a 30-year fixed mortgage.

Does the Discount Justify the Risk?

Just make sure you’re getting a good discount for taking on that risk.

Currently, 30-year fixed mortgage rates are hovering around 4.75 percent, while the 5/1 ARM is pricing around 3.50 percent.

On a $250,000 mortgage, you’re looking at a savings of $182 per month with the ARM, or nearly $11,000 over the first five years of the loan.

Is it worth the risk? Well, that depends on a number of factors. As mentioned, if you don’t plan to stick around long or hold the mortgage for the full term, it could be.

But interest rates are likely heading higher, so you may pay the price later once the ARM adjusts higher. And it may be more difficult to refinance in the future…

Risk appetite, age (retirement plans), job status, investment strategy, and downright stress will also come into play, so be sure to do plenty of math and compare different scenarios before deciding on anything!

Read more: Adjustable-rate mortgage advantages.

(photo: eckes/bernd)

foreclosure

The newest Orange County housewife, Peggy Tanous, is reportedly facing foreclosure on her and husband Micah’s Irvine, California home, according to the gossip website RadarOnline.

But she’s not giving up without a fight.

Tanous has launched a lawsuit against three mortgage lenders and loan servicing companies, including BAC Home Loans Servicing, U.S. Bank National and PNC Mortgage, for failure to honor a loan modification agreement.

The home in question was purchased for $1,379,000 back in February 2006 (height of the market), and refinanced about six months later into a negative amortization loan…along with a $312,540 second mortgage (home equity line of credit).

Timely mortgage payments were made for roughly two years, but after experiencing financial trouble, the family was unable to keep up with property taxes, leading the OC tax collector to file a Notice of Default.

She then struck a deal with the OC tax collector, only for BAC to pay the entire tax bill (and a future one) before requesting that she reimburse the company for all outstanding taxes.

Around the same time, BAC approved a loan modification that allowed for interest-only payments for 10 years, but it was supposedly never honored.

A foreclosure auction was initially set for March 17, and has now been postponed until May 17.

Of course, now that it’s in the spotlight, something will likely be worked out, at least for the time being.

Tanous is determined to keep her family’s home, and apparently does not want to lose the property to a foreclosure sale.

So it looks like when she’s not defending her husband’s knowledge of Lamborghinis, she’s fighting to keep her house.

Bravo

SoCal New Homes Sales Hit Record Low

new homes

Bad news for Southern California home builders…

Last month, sales of newly built homes hit the lowest point for a March since at least 1988, with just 1,144 sales, according to real estate data firm DataQuick.

To put the dismal numbers into perspective, average new home sales volume for a March is 3,661.

Meanwhile, overall home sales totaled 19,412 in six Southland counties during the month, up 35.1 percent from February, but down 5.2 percent from March 2010.

And last month’s sales were 21.4 percent below the March average of 24,706.

The good news is that sales so far this year have been only 20 percent below the norm, compared to 25-30 percent during the first half of 2010.

SOCAL0311

That could have something to do with distressed sales, including both foreclosures and short sales, which accounted for nearly 55 percent of home sales last month.

Home Prices Flat

The median price paid for a Southland home increased 2.0 percent to $280,500 last month, though it’s down 1.6 percent from a year ago.

The low point for the current real estate cycle was $247,000 back in April 2009, nowhere close to the high of $505,000 seen in mid-2007.

Adjustable-rate mortgages (ARMs) accounted for 7.8 percent of last month’s sales, jumbo loans grabbed 15.9 percent of all purchase money mortgages, and FHA loans were used in 32 percent of all transactions.

Cash was used in 30.5 percent of sales, down from 32.3 percent in February, the all-time high, but up from 27.9 percent a year ago.

inch

Mortgage rates inched up again this week, but remain below the five-percent threshold, according to the latest survey from mortgage financier Freddie Mac.

The ever-popular 30-year fixed mortgage climbed to 4.91 percent during the week ending April 14, rising from 4.87 percent last week, but below the 5.07 percent average seen a year ago.

Rates tied to the loan program have risen for four straight weeks, but have remained below five percent for eight straight weeks, making it easier for borrowers to qualify for mortgages (debt-to-income ratio).

Meanwhile, the 15-year fixed rose three basis points to 4.13 percent, and remains slightly below the 4.40 percent seen this time last year.

Adjustable-rate mortgages also moved higher, with the 5/1 ARM rising to 3.78 percent from 3.72 percent and the one-year ARM hitting 3.25 percent, up from 3.22 percent.

A year ago, the 5/1 ARM averaged 4.08 percent and the one-year stood at 4.13 percent.

In other words, mortgage rates are still low, assuming you have the necessary home equity and a current rate high enough to justify a refinance.

The interest rates above are good for conforming loan amounts at 80 percent loan-to-value; pricing adjustments may increase or lower the rate you ultimately receive, and mortgage points must also be paid.

Jumbo loans continue to price a half percentage point or more higher than conforming mortgages.

foreclosure

Formal enforcement action was taken against eight large bank mortgage servicers and two third-party service providers today by the Office of the Comptroller of the Currency.

The banks, which include Bank of America, Citibank, HSBC, JPMorgan Chase, MetLife Bank, PNC, U.S. Bank, and Wells Fargo, along with Lender Processing Services and MERS, were found to be involved in “unsafe and unsound practices” related to loan servicing and foreclosure processing.

However, the OCC noted most of the homeowners who were foreclosed on were in seriously delinquent status, and that the banks/mortgage lenders held the notes and documents required to foreclose.

Still, these loan servicers will be required to clean up their act as a result of the investigation, which took place in the fourth quarter of 2010 after allegations of robosigning surfaced.

Each servicer must:

- Hire an independent firm to conduct a multi-faceted review of foreclosure actions between January 1, 2009 and December 31, 2010.
- Ensure foreclosures are not pursued once a borrower has been approved for a loan modification.
- Establish a single point of contact for borrowers throughout the loan modification/foreclosure process.
- Establish “robust oversight and controls” of their third-party vendors, including outside legal counsel that provide default management or foreclosure services.
- Establish a process for borrowers who believe they have been financially harmed by such deficiencies to make submissions to be considered for remediation.
- Submit a plan to remediate all financial injury to borrowers caused by any errors, misrepresentations, or other deficiencies identified in the independent consultant’s findings.

Hopefully this will make a meaningful difference, though as the OCC noted, most affected borrowers seemed to be past the point of no return anyways…

The companies involved also face possible civil money penalties.

refi

It was another rough week in terms of mortgage demand, according to the latest release from the Mortgage Bankers Association.

Mortgage application volume was off 6.7 percent on a seasonally adjusted basis during the week ending April 8 as both refinance and purchase money mortgage volume slipped lower.

The refinance index fell 7.7 percent to its lowest level since the week ending February 11 and the purchase index decreased 4.7 percent from one week earlier.

The unadjusted purchase index fell 4.1 percent compared with the previous week and was 11.4 percent lower than the same week a year ago.

That pushed the refinance share of mortgage activity to 60.3 percent of total applications from 61.2 percent a week earlier, the lowest level since the week ending May 7, 2010.

This is partially because the pool of eligible refinancing borrowers continues to shrink, thanks to issues like negative equity and higher mortgage rates.

Mortgage rates increased for the fourth consecutive week, with the 30-year fixed mortgage climbing to 4.98 percent from 4.93 percent, its highest point since the week ending February 18.

The 15-year fixed also increased, rising to 4.17 percent from 4.14 percent.

The rates above are good for mortgages at 80 percent loan-to-value – but pricing adjustments can lower or raise your actual interest rate.

Keep in mind the MBA’s weekly survey covers more than half of all retail, residential loan applications, but does not factor out duplicate or rejected apps, which have surely risen since the mortgage crisis got underway a few years back.

adzookie

If you’re having trouble keeping up with mortgage payments, which we know many of you are, there’s a new solution.

It might be a little less conventional than a loan modification or a short sale, but it’s still a solution, at least, according to a new company called Adzookie.

The “free mobile advertising network” is looking to create some buzz, and probably some capital, by offering the extreme home makeover.

So “if you’re prepared for bright colors and stares from neighbors,” head over to their website and fill out the short form to detail why your home should be picked.

If your home meets Adzookie’s criteria, a team member will contact you.

Just understand that you must own your home; it cannot be rented or leased.  If you’re already in the process of foreclosure, that too may be a no-no.

Adzookie will paint the entire outside of your home, minus the roof, the windows and any awnings.

Painting will take roughly 3 to 5 days, and your home must remain painted for at least three months (though it could last up to one year).

If you suddenly freak out and decide to cancel after three months, or if the company cancels the agreement, they’ll repaint your home back to its original colors.

It’s unclear how many mortgage payments they’ll make (or how big), but it looks like it’s a short-term offer, and one that will likely piss off your neighbors.

(photo: Adzookie.com)

Why Use a Mortgage Broker?

question mark

Friday mortgage Q&A: “Why use a mortgage broker?”

If you’re in the market for a new mortgage, whether it be a purchase money mortgage or a refinance, you may be wondering how to go about it all.

Assuming you’ve heard the phrase “mortgage broker” thrown around, you may also be curious why anyone would use a mortgage broker.

Lower Rates

Mortgage brokers have access to wholesale mortgage rates, which are priced below those offered by retail banks.

They’re able to offer lower mortgage rates because they don’t need to pay a sales team to sell those rates, as mortgage brokers run their own businesses and earn money off commission (yield spread premium).

That said, you may be able to get a better deal if you work with a mortgage broker as opposed to walking into your local bank branch.

Rate Shopping

Not only that, but mortgage brokers have the ability to “shop your rate” with multiple mortgage lenders simultaneously, meaning more options for you and less legwork.

And a report recently revealed that about 60 percent of mortgage borrowers receive just a single mortgage quote, which surely doesn’t make a lot of sense if you’re looking to get the best deal.

Customer Service

Finally, a mortgage broker may be able to provide better customer service than a giant, faceless corporation.

Many mortgage brokers are mom-and-pop shops, so it’s easy to get someone on the phone or speak in person.

They also tend to hustle a bit more with their commission on the line.

20% Down Payment Mortgages Coming Soon

20

It looks as though borrowers will need to come up with a 20 percent down payment if they want to snag the best deal on their mortgage going forward.

Per government sources, the Office of the Comptroller of the Currency and the FDIC have agreed on a 20 percent down payment for a so-called “Qualified Residential Mortgage” (QRM).

A QRM is a mortgage that will be exempt from the risk retention standards required under the Dodd-Frank Act.

In short, mortgage lenders who originate mortgages that are not considered QRMs will have to hold onto at least five percent of the mortgage before selling it on the secondary market.

That means mortgage rates on such loans will be higher than QRMs, because the latter will be less risky and more marketable.

The good news is that borrowers who are required to put 20 percent down will be able to get 10 percent of it as a “gift,” so it’s really only a 10 percent down payment requirement.

Additionally, FHA loans are exempt from the risk retention rules, so you can always go that route for a low-down payment mortgage.

However, mortgage insurance premiums on FHA loans were recently increased by another quarter-percent.

Looks like zero down mortgages were singled out as a major negative component of the ongoing housing crisis.

Back in January, Wells Fargo called for a 30 percent minimum down payment on QRMs, which critics felt would squeeze smaller lenders out of the game.

low rate

Mortgage rates moved lower again this week, beating averages seen a year ago, according to mortgage financier Freddie Mac.

The always in fashion 30-year fixed mortgage slipped to 4.87 percent during the week ending March 3, down from 4.95 percent last week and 4.97 percent a year ago.

The 15-year fixed settled in at 4.15 percent, down from 4.22 percent a week ago and 4.33 percent last year.

Mortgage rates saw an overall improvement this week. Interest rates for 30-year fixed mortgages were almost 0.2 percentage points below this year’s high set just three weeks ago,” said Freddie Mac chief economist Frank Nothaft.”

“This means that homebuyers could now expect to pay $263 less per year on a $200,000 loan.”

Meanwhile, the five-year hybrid adjustable-rate mortgage, which is fixed for the first five years and adjustable for the remaining 25, dipped to 3.72 percent from 3.80 percent.

A year ago, it averaged 4.11 percent.

The one-year ARM saw the most improvement during the week, plummeting to 3.23 percent from 3.40 percent, leaving it more than a percentage point below the 4.27 percent average seen last year.

The interest rates above are good for conforming loan amounts at 80 percent loan-to-value; pricing adjustments may increase or lower the rate you ultimately receive, and mortgage points must also be paid.

Jumbo loans continue to price a half percentage point or more higher than conforming mortgages.

loan modification

The number of permanent loan modifications started under the Home Affordable Modification Program (HAMP) finally exceeded 600,000 in January, but only 539,493 remain active, according to the latest report released today from the Treasury.

During the month, 27,957 permanent modifications were started, a decline from the 30,030 started in December as the program continues to loss steam.

Overall, 68,114 permanent loan modifications and 740,240 trial modifications have been canceled since HAMP got underway in late 2009.

But the conversion rate has improved significantly since June 1, when loan servicers were required to gather documentation from borrowers upfront.

“Servicers average a 61% conversion rate for all eligible trials started with verified documentation on or after June 1, 2010,” the report said.

“For trial modifications begun before June 1, the conversion rate averages 41%.”

Kinda similar to how stated income loans had a much higher delinquency rate than full documentation loans.

Performance of Loan Mods Unknown

No performance data was in this month’s release, so it’s impossible to know many mods are re-defaulting, but it’s probably can’t be great if it’s not included.

However, with 100 percent of mods receiving a mortgage rate reduction and 30.4 percent getting some kind of principal forbearance, they may be outperforming proprietary modifications.

A recent report noted that just one in four borrowers survive HAMP, and the Congressional Oversight Panel believes only 700,000 foreclosures will be prevented under the program.

On the good news front, FHA-HAMP modifications are picking up, with both trial and permanent mods up significantly from one month earlier.

permanent modifications

down

Home loan application volume slipped 6.5 percent during the week ending February 25, according to the latest weekly survey from the Mortgage Bankers Association.

The refinance index fell 6.5 percent and and the seasonally adjusted purchase money mortgage index decreased 6.1 percent, though the results didn’t include an adjustment for the President’s Day holiday,

The unadjusted purchase index was off 3.5 percent compared to one week earlier and 19.6 percent lower than a year ago.

That pushed the refinance share even lower, from 65.7 percent of total applications to just 64.9 percent, despite an improvement in mortgage rates.

Purchases are slated to eventually overtake refinances later this year, as rates climb and home-buying demand heats up.

Mortgage Rates See More Relief

The popular 30-year fixed mortgage averaged 4.84 percent during the week, down from 5.00 percent, while the 15-year fixed drifted to 4.17 percent from 4.28 percent.

Mortgage points on the loan programs increased to 1.30 from 0.96, and to 1.07 from 0.80, including the loan origination fee, respectively.

The MBA no longer covers the one-year adjustable-rate mortgage, which fell out of favor with homeowners long ago.

Note that the rates above are good for conforming mortgages with a loan-to-value ratio of 80 percent.

Jumbo mortgage rates will always price higher.

cash

A record portion of California home sales were paid for with cold, hard cash last month, according to a report from DataQuick.

The company said 30.9 percent of all new and resale houses and condos sold statewide in January were purchased sans mortgage.

That’s the highest level in at least 23 years (their stats go back to 1988) and well above the 28.9 percent cash-share seen in December and the 27.8 percent share a year ago.

Cash buying also hit an annual high last year in the Golden State, with 27.8 percent of all homes sold paid for in cash, up from 26 percent in 2009, which was the previous annual record.

But California wasn’t the only state where buyers paid in cash – homes purchased with cash climbed to peak levels in DataQuick’s statistics across the majority of the Western U.S., including the Phoenix, Las Vegas, Reno, Denver, Portland and Seattle regions.

Over the past decade, cash buyers purchased a monthly average of 13.9 percent of homes sold in California, though that number has been above 20 percent since November 2008.

This could have to do with all those foreclosure sales, as about 52 percent of the homes purchased with cash in January had been foreclosed on in the prior 18 months.

The median price paid for a home purchased with cash last month was $160,000, down from $175,000 in December and $164,000 a year ago.

That compares to the $239,000 median for all homes sold statewide during the month.

Data also indicated that more than half of cash purchases were tied to investment properties.

Note that the all-cash deals were transactions where there was no indication of a purchase money mortgage recorded at the time of sale, but some buyers may have used alternative financing, such as taking out mortgages after the initial purchase.

cash buyers

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