Dennis' Mortgage Blog

May 29th, 2015 10:23 AM


Question of the week:  You wrote earlier in the year about an IRS form needed for final approval on mortgage applications, is this in any way affected by the IRS being hacked and files taken?

 

Answer:  In March I did write about the IRS Form 4506 and it being necessary for final loan approval (link here). To recap on all loans lenders are requiring that the aforementioned IRS form be completed and results from the IRS returned before issuing final loan approval; Form 4506 authorizes the IRS to send a detailed transcript of the tax returns on file with the IRS that you submitted. The lender reviews the transcript to ensure the income we are using is the same that you are paying taxes on and to make sure there are no additional deductions or additions to income we did not disclose.

 

Recently we have had a few transactions where clients have been notified by the IRS that someone is trying to access their records via the 4506 and requesting the clients to call to confirm the IRS should send the transcripts. This is obviously fraud control by the IRS and while it has not been widespread with all the transcripts we are ordering for files it has happened.

 

The hack of the IRS is from a system called “Get Transcript,” which is similar to the system lenders used to request transcripts of applicants’ tax filings except that the “Get Transcript” system is for tax payers to directly access their own records. It is strongly suspected that the system was hacked by Russians who reportedly accessed 100,000 personal records.

 

Because of the situation the industry is once again experiencing delays in receiving the requested transcripts required for final loan approvals as the IRS is trying to ensure the requests are legitimate and done with the approval of the tax payer.

 

As with many issues that involve the IRS there is some incredulity to the story. In this case the Los Angeles Times has reported that in 2012 the IRS sent 655 tax refunds to the same address in Lithuania and 343 refunds to an address in Shanghai. One would think with the technology available that the IRS would be able to have a simple address match program to prevent hundreds of refunds being sent to the same address regardless of what country that address is located in…

 

If you suspect you have had your social security number and information compromised there are certain steps you can take—none of them fun—to try to safeguard your information and prevent identity theft, here is an informational pamphlet from the Social Security Administration.

 

For most people there information is still safe and hopefully the IRS, and other agencies, have been able to create better firewalls, that crooks will begin trying to get around. There is no guarantee that your personal information will always be safe however there are some steps you can take to try to minimize someone getting your personal information. Get a home shredder and shred all statements and financial information you do not need. If you have boxes of personal data go to a shredding event to have the information destroyed, as well the Goodwill has shredding capabilities, contact your local office for details.

 

From a mortgage standpoint the hacking issue has impacted few applicants directly but is impacting all applicants with a slow-down in processing of the IRS Form 4506. With what appears to be “only” 100,000 tax-payers compromised out of hundreds of millions the chances are very slim that your could be one of those impacted—but those equate the odds to winning the lottery and someone wins that once in a while.

 

Keep your information safe.

 

Have a question? Ask me!  

 

Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.

 

A few bits of important data this week on the economy, but what I found very informative was this article in Forbes with information from the U.S. General Accounting Office that 40% of American workers are “contingent workers,” meaning they do not receive a steady full time paycheck. “Contingent” work is defined as those receiving income from agency temporary jobs, on-call workers, contract company workers, independent contractors, part-time workers and self-employed. These are workers whose income week to week, month to month,  is not guaranteed, who do not receive any benefits and are generally at risk to lose their income compared to a “standard” worker. This data reflects on the soft labor market that the Fed has been concerned about and impacts consumer confidence and spending and ability for future economic growth.

 

Tuesday saw some positive news as both durable goods orders and new home sales in April bounced back from soft March data. Durable goods orders reflect manufacturing activity and stronger orders portends increased manufacturing output, which should also reflect strengthening labor markets. This news is positive for economic growth and can lead to higher interest rates.

 

Unemployment claims continue to remain below 300,000 per week, which is good as it shows employers are not laying off workers and this can lead to an increase in hiring provided economic expansion is occurring and companies can expand without increasing their labor force. Part of the challenge of our economic growth and the soft labor market is that many of the jobs lost during and after the recession are gone and companies have not re-opened the positions. The unemployment news is somewhat rate unfriendly but since it has become the norm its impact is diminished.

 

The big news of the week is the revision to 1st Quarter GDP, which initially came in showing 0.2% growth, the revision showed the economy contracted 0.7% in the quarter, the second contraction in the past year (Q1 2014 contracted). This is not positive news for the economy and supports Fed rate doves who wish to push off rate increases until later in the year or to 2016. The news is mortgage rate friendly.

 

Rates for Friday May 29, 2015: I have been commenting that rates had been rising for reasons not based on economics and should be lower. This week we saw the first steady increase in Mortgage Backed Security (MBS) prices in several weeks and have crawled back to the price of May 15th, which was a peak that we slid off of. With this new peak and the GDP news today I expect MBS to break through a resistance level and continue to slowly climb and rates to soften. “Expect” being the critical word, we’ll see if my expectations are correct. Rates slip back down today from last week’s eleven week high.

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                                            3.625%           Down 0.125%

30 year high-balance conforming                        3.75%             Down 0.125%

30 year FHA                                                       3.25%             Flat

30 year FHA high-balance                                  3.25%             Down 0.125%

 

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have no points and credit towards closing costs

 

 

 

My native state of Oklahoma and its neighbor to the south Texas have been devastated by record rainfall which has resulted in tremendous flooding. For some time I have been telling anyone who listens that if the supporters of the Keystone Pipeline could get it built if they tied into the project building a series of pipelines from the Midwest and South to capture flood waters and transport the water to the West, running through filters along the way, then it would benefit both regions. Of course my cynical side then pops up imagining the delays from government regulators blocking the course of the pipeline and then the fact that California in particular has lacked the political leadership to build infrastructure to capture and store water from periods of deluge—much less be able to accept millions of gallons from flood and snow melt from other regions.

 

Imagine if our elected leadership had the long range thinking and execution to once again invest in infrastructure locally, statewide and nationally.

 

Thanks to everyone who clicked through and made a donation to the Wounded Warrior Project last week.

 

Have a great week,

 

Dennis 



Posted in:General
Posted by Dennis C. Smith on May 29th, 2015 10:23 AMLeave a Comment

May 22nd, 2015 3:10 PM


Question of the week:  Should I wait until I save 20% for down payment to avoid mortgage insurance?

 

Answer:  This is a question that is timeless, I can remember going through this situation when I first started in my career and it is a conversation any mortgage professional probably has more than a few times a year.

 

My quick answer for most home buyers it , no you should not wait until you have saved 20% down before buying a home just to avoid mortgage insurance. There can be exceptions, as there are with almost every question regarding real estate and financing, but most often the answer it to buy now.

 

Here is the response I gave earlier this week in response to a client who feels they need to wait until they have saved up a 20% down payment.

 

 

At this time the only way to avoid MI with less than 20% is to have a “piggy-back” transaction with a first of 80% loan to value and then a 2nd/Equity Line (HELOC) for the difference between the down payment and the 80% loan amount. I.e. $500,000 sales price, put $50,000 down, get $50,000 HELOC and $400,000 primary loan.  The drawback is later in life the rate on the HELOC will probably be higher than it is today and over time you will probably pay more than if you get MI as the HELOC doesn’t go away until you pay it off. The upside is if you get bonuses, etc you can pre-pay the HELOC and accelerate pay-off. Or instead of saving for more down payment you have locked in your home cost, the interest rate on your primary mortgage and where before you were shoving money into savings for a down payment now  you put the funds onto the HELOC to pay down the balance faster—but let’s do the math to make sure the amount you can pay down is sufficient to quickly payoff the HELOC.

 

 

There are loans without MI payments on a monthly basis, which makes it seem like you don’t have MI since you are not seeing it on  your statement every month, but because you have a loan with greater than 80% equity you still have MI:

  1. one way is what is called lender paid MI whereby the lender raises the rate and uses the higher rate to pay the MI premium. Upside is the interest is deductible, the total monthly payment is generally lower than your payment with a traditional MI monthly premium payment. Downside is if/when you have 20% equity in the home the rate doesn’t change, i.e. the MI does not go away.
  2. Another way is to use a single premium that can be paid by the seller, by the borrower, if enough room can be added to the loan, or again we can take a higher rate and pay for ourselves. Upside is it is a one-time payment, and it is a bigger upside if you get the seller to pay for it. Downside again is that the premium is paid and no later adjustments to price, rate, etc.

 

Chasing the market to save on MI leads to paying more for a home in the long run than if you bought a home today with less than 20% down and paid an MI premium. Consider a home that cost $500,000 a year ago and we have 5% appreciation, that home now costs $525,000. Your down payment has gone from $100,000 to $105,000 and your loan amount has increased $20,000 from $400,000 to $420,000 (in this case it also pushes your loan limit above conforming so it also means a higher rate even if rates stayed the same unless you put an extra $3000 down to get to $417,000). So now you are paying more down payment, paying on a higher loan amount and possibly have a higher interest rate—all to save $150-200 per month in  MI premiums.

 

The final upside to getting a loan today with a mortgage insurance premium is that the MI payments can go away after 24 consecutive on time payments and showing 20% equity by getting an appraisal from a lender approved appraiser.

 

My advice has always been it is probably better to purchase with 10%, or 15%, down when you can than to wait until you have 20%. You lock in the price, you lock in your interest rate, and the MI is removable later either with or without refinancing depending on what the market has done. Had you purchased a year ago with 10% down you would have had MI but the same home you are looking to buy today would cost you a lot less over the life of ownership, even with MI payments.

 

Mortgage insurance has a very bad reputation, but it is a very useful tool that benefits many homeowners by accelerating their home ownership and enjoyment.

 

Have a question? Ask me!  

 

Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.

 

Fed, Fed, Fed, that’s all I hear…with apologies to Jan Brady. Every bit of economic data is analyzed by whether it supports the Fed rate doves who wish to push out any rate hike or supports Fed rate hawks who want to raise rates and soon. Between the Guess the Fed game and technical issues like supply the bond markets have been quite volatile for a few weeks now and this week was no different.

 

About the data, not a lot of information this week. The minutes from the Fed meeting showed that the doves outnumber the hawks and there will be no rate increase in June but the subject will come up at every meeting. It appears there should be no rate hike in July either and at least one member on the committee has been on the road saying 2016 before he thinks rates should be bumped. In comments today Yellen did not really tip her hand, though she commented on the soft labor market and business spending and did say the slowly growing economy will likely necessitate a rate hike at “some point” this year; take June off the table and “some  point becomes up to six months.”

 

Consumer prices came in a bit mixed for April. Total prices increased only 0.1% after rising 0.2% in March and year over year prices are down 0.2%. The “core” CPI however showed a 0.3% increase and is up 1.8% from last April—“core” prices are the overall index striped of food and energy. Because of the higher core index prices some are saying the news is positive for a Fed rate hike sooner than later. However consumers do pay for food and energy and the drop in those prices have not led to increases in other spending, and that overall prices including energy and food are negative year over year is not positive for the economy. I don’t have a vote, but if I did I would be with the doves at the Fed, I don’t see economic data that supports a rate hike.

 

Rates for Friday May 22, 2015: With all the volatility rates have moved up to highs from early March, part of the 11 week high is also the three day weekend which usually sees higher rates on the Friday. As my commentary says, I feel rates should be lower and anticipate a drop in the coming week(s), but that is an opinion and it could always be wrong. Lock ‘em when you can.

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                                            3.75%             Up 0.125%

30 year high-balance conforming                        3.875%                       Up 0.125%

30 year FHA                                                       3.25%             Flat

30 year FHA high-balance                                  3.375%                        Up 0.125%

 

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have no points and credit towards closing costs

 

 

 

 

It is Memorial Day Weekend. When I was a kid it meant the pools would be open for the summer and corn on the cob and watermelon started hitting the dinner table. Summer was fully visible on the calendar and therefore days of camp, riding bikes, swimming at the pool and chasing fireflies or playing kick the can at night.

 

Now as an adult it still signifies the opening of the door to summer, but also a realization of all the joys we are fortunate to have in our lives secured and protected by men and women who took the soldier’s oath and gave their lives so that I, and you and our families, may experience those joys in this wonderful nation.

 

I hope you have a very enjoyable Memorial Day Weekend with family and friends, and also hope that you take a few minutes to tell your children the meaning of the holiday and take a few more minutes to click on the link below and assist Wounded Warrior Project with a donation. While Memorial Day is to honor our fallen military members we can also use the day of remembrance to assist those who came home from battle less than whole. If you can please click and donate: www.woundedwarriorproject.org .

 

Have a great week,

 

Dennis 



Posted in:General
Posted by Dennis C. Smith on May 22nd, 2015 3:10 PMLeave a Comment

May 15th, 2015 11:03 AM

Question of the week:  Can I use funds from my 401(k) for down payment or closing costs?

 

Answer:  Yes, if…

 

If your 401(k) plan allows you to withdrawal funds for the purpose of purchasing a home, and almost all 401(k) plans do have such an allowance these days.

 

Most likely you will be borrowing the money from your 401(k) instead of taking a direct withdrawal, which could very likely initiate a taxable event and possible penalties for early withdrawal if you are under the age of 59 ½. 

 

After you obtain the funds your 401(k) contributions from your salary will go to pay back the loan and then contributions will be made to build your account. In repaying your loan you will not affect your contribution limitations, i.e. the $18,000 maximum ($24,000 if over 49) for 2015. As well if you wish you can repay the 401(k) loan in one lump sum, again not impacting your contribution limit.

 

Some are of the opinion that it is not wise to borrow from your 401(k) retirement account to purchase a home, the theory being that money is for your retirement. The counter argument is that for many people their home becomes part of their retirement plan, either having their home paid off when they retire thereby eliminating a retirement expense or by having the home they are buying gain enough equity before they retire so when that time comes they can sell the home, “down-size,” and eliminate a large expense when retired. Borrowing $20,000 from your 401(k) account today to purchase a home that may enable hundreds of thousands of dollars in equity in twenty or thirty years seems to be a pretty good plan for retirement.

 

If you are dipping into retirement funds to purchase your home then make sure you retain that home even if the market dips and you find yourself upside down, you need to remember purchasing a home is a long term proposition and patience most often pays off as markets rebound and you don’t want to walk away from invested retirement money.

 

From personal experience I borrowed $7500 from my 401(k) in February 1994 to purchase my first home, in 1998 we sold that home and using only the equity from that sale purchased the home we own today. The 401(k) loan was paid off by the end of 1994 and the return on that investment in the first home has been well beyond the return on the $7500 in the 401(k) account. Of course past results do not guarantee future returns.

 

Before taking money out of your retirement account for the purchase of your home let’s discuss your situation and all options available for you for the purchase of your new home.

 

Have a question? Ask me!  

 

Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.

 

For the second straight week the mortgage market dropped for most of the week for no apparent reason (mortgage market, i.e. Mortgage Backed Securities, drop means rates go up). A rebound was expected when retail sales data for April came in flat, zero growth. Consumer confidence may be growing but consumer spending is not and that is not good news for the economy. Consumer spending is 65-70% of our economy so flat retail sales does not reflect a growing economy. This news should be good for lower rates.

 

Providing more reason for rates to drop was the Producer Price Index data for April, and push rates down it did. Wholesale prices dropped 0.4% for the month and are down 1.3% from last April. This is troubling news as it could be the beginning of deflation which is one of the most damaging economic cycles possible. On the news Thursday MBS rebounded and rates reversed their climb from earlier in the week.

 

Rates for Friday May 15, 2015: The retail sales and PPI data did not provide any support to any member of the Fed who wants to increase rates in the near, or even medium, future. Following up on the GDP figures for the first quarter the data supports lower mortgage rates. With the market improving yesterday and today losses from early in the week have been reversed and we are flat from last Friday. Looking ahead rates should soften, but that should have happened this week as well.

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                                            3.625%           Flat

30 year high-balance conforming                        3.75%             Flat

30 year FHA                                                       3.25%             Flat**

30 year FHA high-balance                                  3.25%              Flat**

 

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have no points and credit towards closing costs

 

 

Enjoying the spring showers the past few days, hopefully everyone has turned off their sprinklers!

 

Have a great week,

 

Dennis 



Posted in:General
Posted by Dennis C. Smith on May 15th, 2015 11:03 AMLeave a Comment

May 8th, 2015 8:47 AM

Question of the week:  Can you give me a refresher on the mortgage market and why up is good?

 

Answer:  For those who have been loyal readers of the Weekly Rate and Market Update you may wish to skip to the weekly market update part below, or stay as we go through a quick refresher on how bond markets and interest rates work. While it gets more detailed and technical than this, here is a simplified version of Bonds/Mortgages 101:

 

Mortgages are backed by Mortgage Backed Securities (MBS), which are essentially bonds and trade as bonds and compete with other bonds for investment dollars. 

 

Investors like to make money.  When making an investment they want to buy low and sell high, but being human they do not know exactly when the bottom of a market hits to buy or the top hits to sell.  They decide to buy or sell based upon their best judgment as to what is going to happen next in a market.  If stock in the DCS Corp is selling at $10 and you think the company will have a great 2010 and see the stock rise 20% to $12 you will buy; if you hold DCS Corp and it is selling at $10 and you think the CEO’s decisions will harm the company and the stock will drop 20% to $8 you will sell. 

 

Decisions to buy or sell investments are most generally made based on information that leads investors to believe the value of the investment will go up or down in the future.  If a lot of investors feel the price of an investment will go up then they will all bid for the investment and create high demand.  High demand raises prices.  If a lot of investors feel an investment will decline in value then they will all put their investment up for sale and create high supply.  High supply lowers prices.

 

So supply and demand based upon investors predictions of what will happen in a market determine whether prices today on an investment go up or down. 

 

Mortgage Backed Securities have a yield, a return on the investment, that is an interest rate.  If you have a 30 year mortgage at 4%, when you pay the 4% interest payment that becomes a 4% rate of return for someone’s investment. 

 

Now comes a bit of math that has given some people problems, including me in “Bonds and Finance” week one with Professor Botwin.  Bonds and MBS have a price, a face value and a stated yield.  A U.S. Treasury bond has a face value of $100.00 and pays 5% per year; if you hold the bond the U.S. Treasury will send you $5 every year.  What if you can get 6% at your local bank?  Why pay $100 to get $5 back when you can get $6, 20% more, from your bank?  You would not, so instead of paying $100 for that bond you would offer someone $83 so the $5 annual interest payment is a 6% return.  You pay a lower price to get a higher return: price is down, interest rate is up.

 

Suppose it went the other way?  Suppose the local bank is paying 4% interest?  No one will sell you a $100 bond paying a 5% return, they would be losing money.  So to be competitive with the 4% return the bond will sell for $125, now the $5 annual interest payment is only 4% of the price of the bond.  You pay a higher price to get a lower return:  price is up, interest rate is down.

 

Simplified:  A playground teeter-totter.  On one side Jack Price on the other Joy Rate, as Price goes up Rate goes down.  As Price goes down, Rate goes up.

 

Predicting the future of the investment is the tricky part, and why some guys on Wall Street have collected hundreds of millions in bonuses, if you are dealing with a $100 million portfolio one-tenth of one percent (0.001) is $100,000; now juggle several such portfolios at one time.  That decimal point on $1 billion is $1 million (ask Congress about the decimal point on one trillion).  Predict correctly and move that decimal point higher and you profit handsomely, incorrectly and the decimal point drops and you lost money on your investment.

 

In predicting bonds and MBS there are few lone rangers.  The simple version is if there is good economic news today, or probably tomorrow, then bond and MBS price will go down—and rates up.  If there is bad economic news today, or probably tomorrow, then prices will go up—and rates down. 

 

Good economic news generally means higher rates; bad economic news generally means lower rates.  If you wake up and the paper says unemployment went down and consumer spending went up, expect rates to be up.  If you wake up and unemployment is higher and consumer spending is down, expect rates to be down.

 

Have a question? Ask me!  

 

Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.

 

The only economic data that matters this week is the employment data for April that was released this morning. Leading up to the release Mortgage Backed Securities (MBS) had been dropping all week, pretty much dropping since April 24th (dropping MBS prices mean rising rates) until a reversal on Thursday that picked up most of the losses from Monday to Wednesday. 

 

The much awaited news was akin to the fight last Saturday, a lot of anticipation but not much excitement when the event occurred.  Already some news outlets are putting up front a down tick in the unemployment rate in April to 5.4%, which is certainly positive. Not as prominently presented is that 233,000 jobs were added to the economy in April, which is between mediocre and okay, so let’s label it moderate. Of great importance is that the March data was revised significantly downward from a poor 126,000 jobs added to only 85,000 additions—which is very poor. Average hourly earnings increased only 0.1%, but year over year are up 2.2%.

 

Though the data right around the consensus, investors appeared to be wanting more as the news was met with a very strong rally at opening on MBS (higher price means lower rate), prices having moved back as I write this to near last Friday’s for conventional mortgages on the secondary markets. The news did not, in the words of the Wall Street Journal, “pull forward expectations for a Fed rate hike.” After a disappointing first quarter for job growth the start of the second quarter is off to a less than good start.

 

Rates for Friday May 8, 2015: After rising through the week on no real news rates retreated on Thursday and Friday to where they were last Friday, patience paid off for those who had the courage to wait until today to lock instead of pulling the lock trigger earlier in the week.

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                                            3.625%           Flat

30 year high-balance conforming                        3.75%             Flat

30 year FHA                                                       3.25%             Flat**

30 year FHA high-balance                                  3.25%              Flat**

 

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have no points and credit towards closing costs

 

 

Happy Mother’s Day to all the moms, especially to the wonderful mom I am fortunate to have in my life showing our daughters how to be strong, honest and loving women.

 

Have a great week,

 

Dennis 



Posted in:General
Posted by Dennis C. Smith on May 8th, 2015 8:47 AMLeave a Comment

May 1st, 2015 2:03 PM


Question of the week: Does it make sense for us to add another bathroom?

 

Answer: The question is for a home that has only one bathroom. The answer involves other questions.

 

By “make sense” do you mean as a return on investment?

 

From a pure investment stand point adding a bathroom probably doesn’t make sense. The average cost of adding a bathroom is approximately $40,000, depending on your neighborhood the average value of an additional bath is approximately $20-25,000. So the math does not make sense if you are trying to add value.

 

Do you have three kids, two of which are teenagers, and only one bath? Do you plan on staying in the home for quite some time? Then it may make sense for household peace.

 

When adding a bathroom, family room, or other addition the consideration should not just be whether you will get return on the cost of the addition dollar for dollar in value of the home, because most likely you will not. What you should consider is the added enjoyment it will bring to your home for you and your family. If you are planning on being in the home for quite some time then the enjoyment should outweigh the return on investment.

 

If you decide to make an addition some important things to consider are: budget, budget and budget. Especially if the addition is a bathroom. There are many ways to bust a budget when creating a new bathroom. From type of tile or counter top to fixtures it is easy to go from a modest and functional bathroom to a luxury in home spa.

 

Before starting set a maximum limit you are willing to spend, and how you will pay for the addition. Once your budget is set subtract ten to fifteen percent and start interviewing contractors and let them know your budget is the lower amount, i.e. $35,000 not $40,000.

 

Whenever someone talks about remodeling or making an addition I am reminded of one of my favorite books we used to read to the girls, “If You Give A Pig A Pancake.” Essentially the story is that one thing leads to another and the unintentional consequences that result. Sort of like if you buy new drapes then the carpet looks out of date and needs to be replace and the new carpet makes the furniture look bad and then……

 

Does adding a bathroom make sense? Before you jump to “yes” take time to explore the issue without emotion and being objective—you may find it does. Or maybe n ot.

 

Have a question? Ask me!  

 

Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.

 

A couple of major economic releases this week. Consumer confidence has slumped, mostly based on falling assessment of the jobs market. Consumer spending increased in March growing 0.4% after a slow February. While spending increased personal income did not, staying flat for March. The combined news of dropping confidence, flat personal income should push rates lower, higher consumer spending should push rates higher so the combination of news should lead to lower or flat rates.

 

Wednesday was double dose of news that moves markets. In the morning a 1st Quarter Gross Domestic Product was released showing only 0.2% growth in the quarter. Citing poor weather and a strong dollar as reasons for this some analysts seem to be trying to shrug off the report, but whatever the reasons the economy was moribund in the quarter following a less than good 4th Quarter of 2014.  Off-setting the weather/dollar reasoning is the tepid news received thus far for the 2nd Quarter, the results of which will be announced about when the Fed is meeting to determine if it will finally pull the trigger on raising rates. This news should push rates lower as it supports continued low rates for some time.

 

In the afternoon the Fed minutes were released. Someone posted a copy of the March minutes combined with the April minutes and the slight change in language was almost comical given the reaction to the minutes on Wednesday compared to the reaction in March. As an example in April the Fed said economic growth has “slowed” since it met in March; in March the minutes said that growth had “moderated” from January. Po-tay-to, pah-tah-to. Taking the cue from the weather watchers the Fed felt the slow 1st Quarter was “transitory” due to weather and the strong dollar. Pushing markets was taking out language regarding a rate hike. In March the minutes ruled out a hike in April, the minutes released Wednesday there was no such language putting a possible rate hike in June as a possibility. While increasing the chances of a rate hike in June by taking out the language of no imminent hike, the Fed then downgraded virtually every segment of the economy: labor conditions from improving to moderating, household spending from rising moderately to declining, business investment from advancing to softening, exports from weakening to declining. With the negative analysis of the economy and inflation still below target there is plenty to support the Fed doves who wish to have rates remain where they are for a longer period. The details of the minutes should push rates lower, the removal of the statement about rate hikes pushes them up.

 

On the labor front unemployment claims give a little ammunition to the Fed rate hawks as claims for the week dropped over 30,000 from the prior week to 262,000 initial filers—the lowest level since April 2000. This news is unfriendly for lower rates.

 

Rates for Friday May 1, 2015: Most of the news should have pushed rates lower showing an anemic, at best, economy but the data was trumped by the Fed removing the language regarding no imminent rate hike. My economic’s degree reading the tea leaves suggest rate at worse should have maintained last week’s level. What gives me some jitters is the May surprise we had in 2013 when rates suddenly spiked in the month on rumors the Fed would stop its massive buying of bonds and mortgages—which when they did quite some time ago and rates today are where they were in 2013. Go figure. With rates rising this week against the tide of economic data my advice is extreme caution against floating any rates, lock in when you are able.

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                                            3.625%           Up 0.125%

30 year high-balance conforming                        3.75%             Up 0.125%

30 year FHA                                                       3.25%             Flat**

30 year FHA high-balance                                  3.375%           Flat**

 

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have no points and credit towards closing costs

 

 

A lot going on this weekend, especially for sports fans as all four major sports are in action, plus the sports that used to be considered primary sports. Basketball and hockey playoffs continue, baseball is in full swing and football has the final rounds of the draft. Since tomorrow is the first Saturday of May that means the Kentucky Derby is being run and tomorrow night the “sweet science” is on center stage for the first time in a long time with the long awaited, by those who follow boxing, bout between Mayweather and Pacquiao. A good weekend to own a sports bar!

 

Have a great week,

 

Dennis 



Posted in:General
Posted by Dennis C. Smith on May 1st, 2015 2:03 PMLeave a Comment

Archives:

Categories:

My Favorite Blogs:

Sites That Link to This Blog: