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All signs are pointing towards affordable housing with low interest rates over the next few years regardless of who gets elected to be the next President of the United States.  Just last month the Federal Reserve committed to QE3 and further backing on mortgages which will enhance secondary markets. Money has been cheap for the last few years in the residential financing arena and with the economy sputtering along with an anemic 1.3% GDP, we anticipate low rates for home loans and refinancing at least for the foreseeable future.

Can Rates on Home Loans Stay Low Forever? The short-answer is “No”, but with a double dip recession looming and an eager Federal Reserve not afraid to increase cash flow by printing more money, the record-low rates could stretch out for a few more years.

Can Interest Rates Drop Even Further? “Yes”, it is hard to believe but we could actually see the fixed 30-year mortgage fall below 3% for the first time in history this year. The fixed 15-year mortgage could fall below 2.5% and home improvement loan rates may fall to 3% as well.

If the bond market responds positively to the poor results in the economy, lower rates are possible in 2013 and beyond. If Romney is elected, we may see the Dodd-Frank laws vanish and that would certainly ease the requirements on mortgage lenders. This would like bring down the lending costs significantly and we may see no cost mortgage refinancing with even lower interest rates. Many pundits in the media have speculated that Romney may eliminate the “mortgage interest deduction”, but I find it hard to imagine anyone stripping away such a popular deduction that would affect so many “middle class” Americans. Romney has made it clear that he want to   the housing sector to rebound quicker than it has been so the mortgage interest deduction certainly appears to be safe for now.

The HARP program has certainly helped thousands of underwater homeowners get into a mortgage with a lower interest rate. If HARP 3.0 is expanded to borrowers that do not have loans owned by Fannie Mae (FNMA) or Freddie Mac (FMCC), we will likely see the biggest surge in home refinancing of our lifetime, because millions of consumers that were previously not eligible for the first two HARP programs will have a new opportunity to refinance their upside down mortgages regardless of how much negative equity they may have incurred.

Some of the looming questions that could adversely affect the mortgage industry; Will the Federal Housing Administration continue to extend financing to borrowers with low credit scores?, Will FHA raise down-payment requirements from 3.5% to 10%? Will Fannie and Freddie return to the form 5-years ago when they were buying risky mortgages with little or no income documentation?

Only time will tell, but the executives at Nationwide are hopeful that 2013 will be a strong year for origination and the housing sector in general. My God bless America with Affordable Housing in the year to come.

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After years of hearing negative mortgage news, I have become numb to refinance guideline tightening, lenders going out of business and mortgage giants shedding jobs.  For some reason though when Wells Fargo Home Mortgage announced they were eliminating almost 4,000 jobs in their home finance division, I started to wonder —- How could this happen to them? Wells Fargo is a conservative mortgage lender that never sold risky mortgage products like Option ARM’s, No Income No Asset home loans, 125% home loans, etc.

Wells Fargo announced today that they were closing their mortgage lending division that was originating subprime mortgages.  I started thinking again—–Wells Fargo did not originate has not been originating subprime loans, but they did buy Wachovia who bought World Savings and they certainly originated risky loans.  World Savings was the first wholesale lender that extended option ARM loans to mortgage brokers nationwide.  Option ARMs are the high risk loans that featured a negative amortization loan payment option.  That means that borrowers had the ability to pay less than an “interest only” and the deficit would be applied at the end of the year to the borrower mortgage balance.  These loans were the first of their kind, because borrowers could have their outstanding mortgage balance compounding negatively like a credit card.  For years World Savings succeeded with the negative amortization loans because they had strict underwriting criteria that required the borrower to demonstrate they had they ability to pay the loan back.

To get approved for the Option ARM, borrowers needed to supply income documentation and have home equity that was assessed by a licensed local appraiser.  Self-employed borrowers loved the World Savings Option ARMS because it gave them the ability to pay less in month’s in which their cash flow was low.  World Savings offered mortgages for people with bad credit loans to borrowers who had a significant amount of home equity and income that could be documented. After a while however, World Saving got sucked into the competitive mortgage broker market as Countrywide and WAMU were pushing competitive Option ARM products that paid high yield spread premiums that made loan officers wealthy.  All the while, Wells Fargo never jumped into the option ARM market.  The company maintained it did not want to put their prime loan portfolio in jeopardy because they did not believe the Option ARM product was a good risk.  Wachovia Corporation, another prime lender could not resist the option ARMs and the lure of these exotic home loans so they bought World Savings.

In 2006 the subprime mortgage crisis exploded when home loan lenders started going out of business as loan defaults started mounting.  Home values started plummeting nationally and in 2007 the economy took a turn for the worst.  In 2008 employment skyrocketed and mortgage giants like WAMU and Wachovia were on the verge of bankruptcy.  The government stepped in and brokered Chase to take-over WAMU and Wells Fargo to take-over Wachovia.  Many industry insiders were nervous about the government getting involved with bail lout and take-over. In the wake of the biggest adjustable mortgage refinance boom, banks began failing.

Don’t you find it interesting that after years of refusing to originate the risky option ARM product that Well Fargo went out and bought, Wachovia who just failed because they bought the biggest option ARM lender, World Savings?  I find it strange that after nearly escaping the mortgage industry debacle because of their wavering from their conservative lending philosophy that Wells Fargo would make this kind of catastrophic investment.  Did they ever think to do a back-ground check on this billion dollar bank they were buying?  This is sad because 4,000 people would still have their job today at Wells if it were not for this impulsive and uncharacteristic transaction.  Maybe they should take a page from Obama and blame their mistake on Bush.  Regardless of this giant financial blunder, Wells Fargo is still a great company that will survive the series of crisis’s and continue to be America’s most trusted mortgage lender.

Moving forward, I would anticipate Wells Fargo will originate more government finance programs like FHA and VA.  Since 1934, home loans with FHA have performed better than conventional mortgage products and the government continues to insure refinance from FHA and home purchase loans.  VA mortgage loans are another good bet, because Wells know that the borrowers have the income in the military and again the government guarantees these loans as well.

I would not hold my breath for Wells to reopen and of their subprime lending divisions anytime soon, nor would expect them to roll out competitive jumbo mortgage loan programs until the housing sector begins to actually rebound.

I’m sure Wells will continue to originate conventional mortgages because that is what they have always done well.  The bottom line is that Wells Fargo maintains that good credit borrowers that can document their income deserve low rate home mortgages with minimal lending fees.  The company offers stellar customer service and typically their loan officers have extensive financing experience.  And who can argue with Wells Fargo on the prime lending criteria as it has performed well through 6 wars and they have been lending for more than half of the time that the United States of America has existed.  Some critics may consider the Wells Fargo layoffs to be a setback for the mortgage industry but it is my contention that Wells Fargo is taking a few steps back in an effort to regroup and survive.  Like the Los Angeles Lakers did after the 3rd quarter in game 7 against the Celtics, sometime you need a time-out to shake off your mistakes so you get get back and focus on what you are good at.  Like the Lakers with basketball, people will associate Wells Fargo with mortgage lending for many years to come.

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Interest rates on fixed rate 30-year home loans for refinance or purchase officially hit record lows today! On Thursday, Freddie Mac released their report that also indicated the 5-year adjustable-rate mortgage dropped to record lows this week according to the survey of conforming mortgage rates.   The 30-year fixed rate mortgage reported averages of 4.69% for the week ending June 24th.  This was lower than the low rates of 4.75% from the previous week and 5.42% a year ago. Fifteen-year fixed rate mortgage loans averaged 4.13%, down from 4.20% last week and 4.87% a year ago. The 10-year fixed rate mortgage has fallen to 3.75% and 3.875% on the “no cost mortgage refinance” option.

VA home loans are still available at record low rates as well.  If you already have a VA mortgage and want a lower rate talk to one of our VA lenders about qualifying for the VA streamline.

Freddie Mac Says Lowest Fixed 30 Year Mortgage Loans Since They Began Recording Rates in 1971

Conventional and FHA mortgage lenders reported averages of the 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.84% this week, down from 3.89% last week and 4.99% a year ago.

One-year Treasury-indexed ARMs averaged 3.77%, down from 3.82% last week and 4.93% a year ago. While not a record, this is the lowest the ARM has been since the week ending May 6, 2004, when it averaged 3.76%.

To lock into these home mortgage rates, the 30-year fixed-rate mortgage and both ARMs required payment of an average 0.7 point and the 15-year fixed rate mortgage required an average 0.6 point. A point is 1% of the home loan amount, charged as prepaid interest.  According to Frank Nothaft of Freddie Mac “Mortgage rates for all but traditional 1-year ARMs hit all-time record lows this week in our survey while activity in the housing market slowed in May following the expiration of the home-buyer tax credit”. “Freddie Mac began collecting rates for 30-year fixed loans in April 1971, 15-year fixed home loans in September 1991 and 5-year ARMs in January 2005.”

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According to the Mortgage Bankers Association, the demand for mortgage loans increased to a seven-month high last week as consumers rushed to get federal homebuyer tax credits that ended April 30th.  Home loan applications jumped 13% in the week ended April 30th to the highest level since early October, overshadowing a 2.1% drop in home refinancing demand.  Total mortgage loan applications rose by a seasonally adjusted 4%, the trade group reported.  It was the third straight weekly increase in purchase applications, rising almost 24% in the month. MBA said the share of mortgage refinancing fell to 51.9% of all applications, the lowest since early July 2009.

The thirty-year mortgage rates dropped 0.06 percentage point to 5.02 %, the lowest rate since mid-March.  Eligible borrowers seeking to take advantage of federal tax credits of $8,000 for first-time buyers and $6,500 for existing homeowners were required to sign contracts by last Friday and to close on their mortgage loans by June 30th.  The big question now is whether the U.S. housing market has enough traction to continue recovering without government help.

In addition to the tax credit, the Federal Reserve bought more than $1.4 trillion mortgage-backed securities intended to keep home loan rates down to revive the housing market. That program ended on March 31. “All the data that we’ve seen recently point to the fact that consumers are in a better place today than they were six months ago, and because of that they will likely be more active in the housing market,” Schenk said. The difficult labor market, however, will keep the housing recovery slow, he added.

Housing demand will likely falter after the recent influx of home sales ahead of the tax credit expiration, but then mount a slow upturn, many industry experts expect.  New home sales rose almost 27% in March, and sales of existing home increased by 6.8%.  According to UBS economists, “The pending home sales index, based on initial contracts, will likely be boosted again in April, with some payback thereafter. “However, we believe the combination of low prices, still relatively low mortgage refinance rates and the nascent recovery in employment will support home sales later in the year.”

The latest unemployment figures will be reported on Friday. April’s rate is seen holding at 9.7% for a fourth straight month, based on a Reuters poll, after touching a more than 26-year peak over 10% last year.  Homeowners have increasingly turned to the government for home financing with programs like FHA home loans.  These FHA loan programs including low down-payment home loan  products from FHA.  The MBA said that more than one-half of all purchase applications last week were for government mortgage loans, the highest share in two decades.

Prime credit borrowers are really taking advantage of their leverage in this market as no cost mortgage refinancing has become very popular with people who have ficos that exceed the 720 range.  It is important that you do the math on these no cost loans, because the interest rate is typically higher so you need to make sure it makes sense financially to pay a higher rate in an effort to eliminate closing costs.

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FHA loan programs will likely see changes in the years to come.  As FHA defaults increase, you can bet that rates for mortgage insurance premiums will also rise. The HUD is seeking White House approval to increase the upfront mortgage insurance premium charged by the Federal Housing Administration to borrowers.

FHA officials announced more changes, including tighter underwriting standards for refinance and new home loan transactions. If approved by the White House, FHA refinances will see an increase to 1.75% upfront mortgage premium paid by borrowers who do not have enough equity to mitigate the risk of a loan default.

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Dec
29

Mortgage Rates Creeping Up

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The 30-year mortgage rates rose above 5% for the first time in a while.  Conventional,  jumbo and FHA mortgage rates rose slightly across the board.  The Treasury department has announced that they will stop buying mortgage backed securities as 2009 winds down.  The Feds will continue to purchase mortgage backed securities until March 31, 2010, as pledged earlier this year.  But what happens after March 31st?

There really is no security in this investment anymore.  Few, if any investors actually service the loans, and with the housing industry still very weak, and loan servicers holding almost all the power over the loans, investors are no longer flocking to purchase the loans from the original lenders.  The lenders control modifications, payment forebearance rights, collections pricesses, foreclosure proceedings decisions, etc. 

It is predicted that in order to entice investors, mortgage rates will have to rise dramatically in the near future.  We are hearing rates numbers in the mid 5% range up to “the sky’s the limit” types of rates.

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According to California mortgage lender,  Bryan Dornan, “Record low rates have made a significant impact on the housing recovery statewide.”  30-year fixed California mortgage rates have been reported as low as 4.5% for conforming and FHA loans.  Unfortunately for many local residents, California home loans are more difficult to qualify for because stated income and no document mortgages have all but disappeared.  The higher California FHA loan limits have been able to broaden the scope for many new borrowers to qualify for refinancing.

Yesterday, the Federal Reserve announced they were keeping mortgage rates unchanged and extending the government mortgage buying program which is good news for Americans but great news for borrowers living in California.  2010 may be the year that California home values rebound and many distressed homeowners have found comfort with the Home Affordable Refinance Program because it enables borrowers with no equity to refinance their Fannie Mae or Freddie Mac loans up to 125%.

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