Question of the week: I have unemployment insurance income in 2009 when I was between jobs, will I not qualify because I was unemployed for part of the year?
Answer: No, you will not not qualify because you filed for unemployment insurance last year, or the year before. We are getting fairly used to seeing income streams in which our clients may have been unemployed for part of the previous two years. While we cannot use the unemployment income (**asterisk alert** keep reading for when we can use this income) your receiving it does not disqualify you from qualifying. We will need to show a two year history of employment so if you were unemployed for three months we will need to show employment going back at least 27 months.
If you receive unemployment insurance on a regular basis as part of seasonal employment then we can count the income provided you can prove you have received it for the past two years, just as we would any type of income. Certain industries are closed or not operating during certain parts of the year and employees in those industries file for and collect unemployment insurance payments, in these cases we can, and have, use the income for qualifying.
Note that federal laws make it illegal to discriminate in lending because someone receives any type of public assistance. You may not qualify because you do not receive enough but you are not disqualified because you do receive it.
Have a question for me? Ask me!
You know those 0% credit card offers you get in the mail if you transfer your balance from another creditor? We were joking in the office today that could be the mortgage market if things keep going the way they are going. Currently the Fed discount rate is pretty much zero, which allows banks to borrow money at zero percent interest and use the funds to purchase short term securities or over-night rate swaps. With the economy suddenly flagging what will our rate floor be?
This week the main economic news was not any better than reports earlier in the month or in June. After a precipitous drop in June, the consumer confidence index dropped again in July to 50.4; for economic growth most agree this number needs to be at or above 90. Gross Domestic Product in the second quarter grew at only a 2.4% annual rate (or 0.8% for the quarter). The trend for GDP is not positive have grown at 5.0% in the last quarter of 2009 and 3.7% in the first quarter of this year.
Prior to the GDP release the Fed Beige Book was released. The Beige Book is a compendium of anecdotal economic activity in all the Fed Districts and is used to provide a general direction of the economy. The report was not favorable and combined with the consumer confidence numbers and a drop in durable goods had one economist asking at what point does this bump in economic recovery become labeled a cliff?
During the week our friend, in a euphemistic sense, Fed Head Ben Bernanke indicated the Fed was willing to take further action to spur the economy if it does not show renewed signs of economic growth. What more can the Fed do? Its rates are near or at zero, it has already gobbled up $1.25 in mortgages that it still holds and has not control over fiscal policy in Washington. Bernanke has gone on the record as saying letting the 2001 and 2003 tax cuts expire effective January 1, 2011 (just 155 days away) will harm economic growth, but he does not have a vote in either the Senate or House of Representatives.
In the meantime investors are buying bonds. Prices are climbing which is causing yields (interest rates) to continue to fall. Each week as I write this update I cannot see how rates can go down further and each week data is released on the economy that convinces me that they can. Freddie Mac posted its Weekly Mortgage Market Survey yesterday showing the average rate for a 30 year fixed rate loan in the country the past week was 4.54% at a cost of 0.70 points, the twelfth week in a row it has been below 5%.
Consumers aren’t buying, millions are out of work, and Washington spends time and energy debating bills that ultimately do nothing to increase private sector hiring, boost consumers’ confidence in their economic future, and creates approval ratings well below confidence levels. Expect more of the same and make plans for continued low interest rates until something fundamentally shifts or the debt pressure cracks the Treasury.
Rates for Friday July 30, 2010: Each morning the Mortgage Backed Security markets opened higher than the prior day’s closing this week as morning data releases put a premium on the security of bonds. Today MBS hit the highest price point of my career, possibly life. As discussed last week FHA rates are at absolute bottom so call for special pricing. From 52 weeks ago rates are down 1 to 1.5% in rate.
FIXED RATE MORTGAGES AT COST OF 1 POINT*
30 year conventional 4.00% Down 0.125%
30 year conforming-jumbo 4.375% Up 0.125%
30 year FHA 4.25% FLAT*
30 year FHA jumbo 4.25% FLAT*
* See comments above
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.
Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment with an impound account for taxes and insurance and a minimum FICO score of 740; APR is not quoted as it is dependent upon specific loan amounts, lenders and services selected. Numbers provided are for comparative purposes only.
Some day you will tell your children and grandchildrend, “I remember in the summer of 2010 when mortgage rates were at 4.00%” and they will look at you with disbelief, just as I am looking at them today with similar sentiment.
Seven months down in the first year of the second decade of the third millennium, are you ready for the next five? Enjoy your weekend.
Have a great week,
Dennis
Question of the week: How much paper is used in a typical mortgage transaction and why so much?
Answer: I’ll answer the second question first. Last week I gave a partial list of the agencies and departments which have oversight and regulatory powers over our industry. These organizations are the primary reason there is so much paper used in our industry. Throughout a real estate transaction various companies and industries are regulated by different government agencies. Each company along the way has to retain the specific disclosures and legal documents for each of the different agencies so if audited, or sued, they can show they were compliant. Real estate brokers, escrow companies, title companies, home inspectors, termite companies, home warranty companies, mortgage brokers, lenders, appraisers, all must retain evidence of the work performed and signatures from the parties involved to bear witness that disclosures were delivered.
So how much paper are we actually talking about? My conservative estimate would be over 1,000 pieces of paper for the typical real estate purchase transaction. Here is a partial list
Total: 1000 pieces of paper
Not all parties print all pieces of paper, but more do than do not and I have not included any totals for the listing agreement, termite reports, transactions with multiple borrowers who are self-employed and need two years tax returns. Oh, and the complete mortgage package is held by the originator, the lender and Fannie, Freddie or FHA.
This is not a paper friendly industry.
Um, Chairman Bernanke could you rephrase that? Terms like “somewhat weaker” and “unusual uncertainty” from the head of the Federal Reserve Board to members of Congress do not inspire confidence and a rush to spending by investors nor CEOs. Bernanke has yet to fully master the art of Fed-Speak to the level of his predecessor Alan Greenspan. Greenspan’s vocabulary was such that he would use definition number five in the Oxford Dictionary to describe the texture of grilled cheese. Whereas Bernanke can parse the description of a staggering economy into six or seven degrees, Greenspan was capable of fifteen to twenty degrees. “Somewhat weaker” means the economy is flat, stalled, ready to slip. Bernanke says this and investors reacted accordingly on Wednesday dropping several hundred points off the Dow and pushing bond yields towards the floor.
Speaking truth to markets, Bernanke only said publicly what investors and economists have known since Winter turned to Spring. After declining last week initial unemployment claims climbed again this week with 464,000 new filings for insurance. Politicians are spending plenty of time arguing about paying for continuing unemployment insurance for 99 weeks, and while they argue another 464,000 people join the rolls. What Bernanke means when he says there is “unusual uncertainty” is that markets, CEOs, investors and citizens have no idea when jobs will begin to be added to the marketplace. Unusual in that usually there is a plan to boost private sector investment and jobs. But hey we have reform of the health care and financial industries. Expect next week’s initial unemployment filings to top 450,000 once again.
As expected existing home sales dropped for the second week in a row. Tracking the purchase applications index from the Mortgage Bankers Association on a weekly basis, we’ve seen the index drop for ten of the last twelve weeks. As a result existing home sales fell in May and again in June, by 5.1% from May. Early indications are July could come in flat or slightly negative unless we see applications grow appreciably in the next two surveys.
Government applications are surging for both refinances and purchases. The low equity requirements are seeing many home owners use FHA for refinancing despite the mortgage insurance due to the low rates and costs compared to conventional. Home buyers like the 3.5% minimum down payment and the low rates.
FHA 30 year fixed rates are at the bottom of their coupon rates. Our 30 year fixed rate sheets for FHA do not go below 4.25% because Ginnie Mae, who sells FHA mortgages in the secondary market, has not created a 4.125% or 4.00% coupon for their market. If we see rates stay in their current range expect to see FHA rates available below 4.25% for 30 year fixed before the kids go back to school.
Refinances own the market. For the past several weeks almost 80% of the applications taken have been for refinances. Pipelines throughout the industry are stuffed so expect some delays similar to what we experienced in late 2008 when rates dove from 6.25% on Halloween to below 5% for our annual holiday party. Have patience.
Rates for Friday July 23, 2010: A couple of interesting aspects of rates. Despite a huge move in Mortgage Backed Securities on Wednesday, Fannie and Freddie changed their loan level price adjustments for high-balance mortgages, those over $417,000 resulting in rate increases across the board for those products. As mentioned above FHA does not have a coupon for 30 year rates below 4.25%, so while the standard quote I have used since starting my updates in 2005 have been at a cost of 1 point, the FHA mortgages are at less than a point in the current market depending on the transaction.
30 year conventional 4.125% Down 0.125%
30 year conforming-jumbo 4.25% Up 0.125%
If you live in the Long Beach region check out the food truck carnival tomorrow at Rainbow Lagoon down by the Hyatt and Shoreline Drive from 10:30 – 5:00. Some of LA’s top gourmet food trucks will be selling their delicious delights!
Question of the week: You mentioned you were taking tests this week for a license, what were the tests and why did you take them if you are already licensed?
Answer: Section V of the Housing and Economic Recovery Act of 2008 included the Secure And Fair Enforcment Act (SAFE) which required all state licensed mortgage originators to obtain a national license through the National Mortgage Licensing System Registry (NMLSR). To comply with the SAFE Act I am required to pass a state exam and a national exam to obtain the national mortgage originators license and continue to originate mortgage applications.
I have advocated for a national license for mortgage originators for almost twenty years. It is, and has been, my opinion that anyone in the industry that is negotiation rates, fees, mortgage products and amounts should have the same license whether their originations are in Long Beach, California, Tulsa Oklahoma or Springfield, Illinois. As well whether the originator works for Stratis Financial, Bank of America, Quicken.com or WestCom Credit Union. If you originate mortgages anywhere in the United States you should have the same license and regulations as anyone else.
Unfortunately the SAFE Act only partly achieves the goal of the “Fair Enforcement” part of its name as it does not require those originating mortgages for federally licensed/charted organizations to be licensed. Thus those originating for Wells Fargo, Bank of America, Chase, etc are not required to be part of the NMLSR and are not subject to the same testing and on-going annual license renewal classes.
As seen by the regulations in many sections of the financial reform bill passed yesterday the long term objective of Washington is the elimination of the independent mortgage brokers and originators and small banks in favor of corralling banking and lending activities under a reduced number of national banks that are easier to control by the federal government. The net effect on the consumer will be reduced mortgage products and competition resulting in higher costs and rates for home buyers and mortgage seekers.
Stratis Financial appears to benefit from the current regulations as smaller companies without the access to direct lending that we enjoy will have an increasingly difficult time participating in the market. As a result our competition may decrease in the marketplace and opportunities arise for us to increase the number of high quality and professional loan originators in the company. That said, it is a benefit I would rather not accrue to us because of the regulatory environment and reduction in consumer choice.
For those who feel more regulation is a positive for the consumers and the nation, I counter that we have had an extreme amount of regulation, what we have not had is enough enforcement of the regulations already in place. Creating almost 300 new regulations for the financial sector on top of those already in place will create more policies that those disinclined for policies to follow and more oversight and enforcement from those who have not been competent in recent years to oversee and enforce existing regulations.
For your review, here is a partial list of the Federal Laws covering the mortgage industry:
We are regulated, overseen, report to or otherwise beholden to:
These lists look to grow in the coming year(s) as Washington continues its proclivity to enact regulations rather than enforce them.
Federal Reserve Governors are not rosy about the economic outlook. In minutes released this week for their policy meetings June 21-22 the Governors expressed their belief that the economy will achieve constant and sustained growth for five to six years. Further it will be at least 2012 until employment numbers are near pre-recession numbers. The minutes showed the Fed is ready to react if the economy were to “worsen appreciably.” Since Fed rates are near zero their reaction can only be to pump more money into the economy by massive buying of Treasuries.
Another way the Fed can react would be to loosen up on banks and allow them to lend more freely to small and medium size businesses. This would require a reversal of the current audit practices of the Fed. While Fed head Bernanke laments the lack of credit extension to small businesses, in a meeting this week a senior level Fed employee who oversees audits admitted that community banks and small banks are discouraged from riskier small business lending as the Fed does not want to see the risk on their balance sheets. Commenting on the more than 700 banks on the “watch list” and her department’s policies of mitigating risk and increasing cash holdings the Fed auditor openly contradicted the desires of the Fed Chair with Fed policy.
Consumer hoarding is hurting overall economic growth while improving consumer savings and reserves. Retail sales in June declined for the second month in a row. Producer and Consumer Price Indexes both were near flat due to the lack of economic activity. Companies are not spending nor borrowing and their cash holdings are growing rapidly. All this leads to lack of monetary circulation which creates a stagnate economy with reducing chances for growth.
Uncertainty is the bane of any market and if every market has uncertainty than the economy as a whole suffers. One benefit of the final passage of the financial reform bill may be to remove some of the uncertainty. Once the legal departments across the industry digest the regulations and policies contained in the 2,300 pages they can issue advice to their boards and CEOs as to how to proceed with their business activities. This could loosen the corporate wallets and see funds flowing into capital purchases, expansion and hirings. If as they read through the new regulations and see continued uncertainty and await lawsuits based on the new laws to work through the courts economic growth is pushed further down the road as companies continue to accumulate cash, reduce investment and wait to see the net impact of the new laws.
Mortgage rates love the uncertainty as anyone who is investing finds bonds attractive. Despite the massive amounts of debt sold by the Treasury, the international uncertainty has created positive results for mortgage rates in this cycle. The Fed minutes further supported the low mortgage rate environment as investors watch for indication of the Fed increasing rates as a sign they should sell bonds and Mortgage Backed Securities and buy equities and equipment.
Expect dismal news on sales. In its Weekly Applications Survey released on Wednesday covering last week the Mortgage Bankers Association said purchase applications for the week declined yet again, the eighth time in nine weeks and the Purchase Application Index is at its lowest rate since December 1996. As a point of reference the average Freddie Mac 30 year fixed rate mortgage in December 1996 was 7.60% at an average cost of 1.7 points. With these numbers the only surprise in next week’s June Existing Home Sales report would be if the number did not decline more than the decline seen in May.
Rates for Friday July 16, 2010: A depression in rates this week with FHA rates hitting the bottom as there are no coupons for rates below 4.25%. We are in a range of 4.25% to 4.5% that could last a few weeks depending on investor confidence and when they feel the stock markets are oversold. Based on earnings coming out today from many banks that could be quite a while.
30 year conventional 4.25% Down 0.125%
30 year conforming-jumbo 4.375% Down 0.125%
30 year FHA 4.25% FLAT
30 year FHA jumbo 4.25% Down 0.125%
Today is the last day of a crazy week that has seen me out of the office for SAFE testing and meetings. I am playing hooky later today as we are headed to Staples Center to see the Ringling Bros. & Barnum Bailey Circus. I’m around much of the weekend and next week able to resume my normal schedule and more accessible than I have been this past week---thank goodness!
Question of the week: What is APR and why is that rate higher than the rate on my loan application?
Answer: I will include link here and down below. On my website I have posted and explained the Truth In Lending, or TIL, disclosure where APR is disclosed. Truth In Lending here.
APR is the Annual Percentage Rate and is calculated so as to incorporate the costs of obtaining your loan. The purpose of the APR is two-fold, one to allow consumers to compare loan programs and offers; and two to allow regulators to determine if a lender is providing high cost loans which have different regulations and policies.
“Dennis you said our loan is locked at 5.00% but this form says the rate is 5.159%...” this call is normal as the APR calculation is confusing and no matter when or how we explain it, once the Truth In Lending is in hand inevitably the client is wondering what is happening with their interest rate.
The Truth In Lending document and APR is one of the more confusing forms we manage in the industry. Your application says 5%, we provided monthly payments at 5% and 5% is on the Good Faith Estimate, the application, the Mortgage Loan Disclosure Statement and the Initial Fee Worksheet, but on the Truth In Lending the Annual Percentage Rate is listed at 5.159, of course this leads to confusion. If the loan is FHA or has mortgage insurance the APR will be even higher, 5.7% perhaps.
Annual Percentage Rate, or APR, is determined by the amount of certain fees and the size of the loan. For calculating APR fees that are paid for the loan, or fees generally paid because you are getting a loan that you would not pay if you were purchasing the home with cash, are deducted from the loan amount. Points, origination fees, processing, escrow charges, some title charges, are deducted from the loan amount and then the rate of interest is re-computed using the same monthly payment with the smaller loan balance. Because the payment is the same and the loan amount is lower the interest rate is higher, thus an APR of 5.159% when the loan is at 5.00%.
If your loan is a true no point no cost loan then your APR and interest rate should be identical. As mentioned, if you have mortgage insurance your APR will be higher, if you have an ARM you APR will be higher. Your APR will never be lower than your interest rate.
Generally speaking the higher the spread between your interest rate and APR the higher your loan costs, the lower the spread the lower your loan costs. Keep in mind that the same fixed costs for a lower loan amount would result in a higher APR than the same fixed costs on a higher loan amount.
APR is confusing, but it serves a purpose of disclosing to you the cost of your mortgage in a way that allows you to compare programs. It is important however if you are comparing programs that you compare not only the Truth In Lending disclosure but also the Initial Fee Worksheet to ensure the same fees are being included in the APR calculation. Some fees are counted by some lenders and not by others depending on how their legal department interprets the policy.
Once again, click here for my detailed explanation of the Truth In Lending disclosure.
Other than flipping another year on the calendar and celebrating our nation’s Independence, it was a pretty quiet week. Economic data was pretty much limited to initial unemployment claims reporting at 454,000 claims. While down several thousand from the prior week, having constant initial claims well over 400,000 weekly continues to weigh on economic recovery expectations.
A few weeks ago there was “surprise” by economists quoted in major media, including financial media such as the Wall Street Journal, at the large drop in existing home sales in the month of May. Tracking weekly national application data provided by the Mortgage Bankers Association, I predicted the week before the May sales release that home sales were down—pat, pat, pat. Perhaps the go-to economists for the media have learned their lesson and are also watching weekly applications ahead of June home sales reports due out in two weeks.
While total applications have increased the past several weeks, the increase is solely due to refinance applications, according to MBA data. For eight of the past nine weeks the volume of purchase applications has declined nationwide. The total purchase applications for June were 15% below those for May and 30% below April’s totals. Purchase applications for the last week of June 2010 were almost 35% below the same week in 2009.
The April deadline for the home buyer tax credit was thought to have pulled a lot of buyers into deciding to buy a home in April instead of May, or June. As I watch the purchase application numbers continue to shrink however I feel there is something other than no tax credit at work, perhaps no confidence? As we move into the summer buying season we should see an increase in purchase mortgage applications nationwide, if we do not then the cause can no longer be the tax credit expiration but something deeper.
Speaking of the tax credit…I was amazed that Congress was able to pass a bill through both Chambers without having a billion here and a billion there in spending added to it. After the June 30th deadline, but before the Independence Day recess, Congress passed an extension of the deadline for eligible buyers to close their transactions in order to receive the IRS home buyer tax credit. The deadline has moved from June 30th to September 30, 2010.
Financial Reform is stalled in the Senate with the death of West Virginia Senator Robert Byrd. Not confident that enough votes are in hand to prevent a filibuster of the bill it has been withheld from a floor vote until he is replaced. West Virginia is currently undergoing a Constitutional review to see if it will have a special election to fill the seat or if the Governor will appoint someone to fill the remainder of Byrd’s term. As they determine their future representation in the Senate the bill will most likely wait unless some changes can be made to entice a few Republicans to cross the aisle.
I’m in no great rush to see the bill passed. It has several provisions that are bad for consumers of mortgages and reduces options available to you for both purchase and refinance mortgages. Most prevalent is the probable elimination of no point and no cost loans---the APR discussion above where your interest rate and APR are the same. As written now it would no longer be possible for applicants to decide they wish to pay a slightly higher interest rate to avoid points or other costs.
Rates for Friday July 9, 2010: With the short week trading was fairly light in Mortgage Backed Securities, and the light trading led to some big swings in prices. A big jump in prices on Tuesday and a subsequent big drop on Wednesday has defined a range within MBS appear to be ready to trade. Overall from Friday to Friday our rates are flat, the conforming has inched up slightly and the FHA high balance down.
30 year conventional 4.375% Up 0.125%
30 year conforming-jumbo 4.50% FLAT
30 year FHA jumbo 4.375% Down 0.125%
If you are in the vicinity of Bixby Knolls in Long Beach this Saturday come enjoy the Annual Dragster Expo & Car Show, a gearhead’s delight with 20 foot dragsters firing up their engines and classic cars from times gone by. Saturday on Atlantic Avenue between Roosevelt and San Antonio from 3-9:00 pm.
Question of the week: Question Free This Week!
Answer: In honor of Independence Day I am foregoing a question of the week.
While we celebrate our Declaration of Independence from England on July 4th, it was actually on this day, July 2, 1776, that the Continental Congress passed a resolution that “these United Colonies are, and of right, ought to be, Free and Independent States."
John Adams at the time felt that future generations of Americans would celebrate “this day,” meaning July 2nd, as the time the nation became free from English rule. Being Americans we celebrate Declarations not resolutions!
The ability for American families to own their own homes and land is a freedom that has endured throughout our history. Home ownership is not a right enumerated in our Constitution, but it is a freedom that endures in our hearts and our character. I am proud to be in an industry that enables home ownership and the realization of the American Dream.
As our nation celebrates its 234th year of Independence with parades, picnics, barbecues and fireworks, I am hopeful that everyone takes a moment to appreciate the boldness, the courage and the vision our ancestors had in declaring an independent nation. Our rights, freedoms and liberties are precious, at least as precious as our homes and families.
Happy Independence Day!
Not a good week for economic data and prognostication. Continuing the trend of data that showed an economy whose recovery slowed way down in May, news on consumer confidence and employment have made it difficult for even the most optimistic of economists or pundits to take pause.
Our economy is dependent upon the consumer, who is responsible for approximately 70% of our Gross Domestic Product. Consumer sentiment is a subjective index, but consistent in its sampling and questions and as such is an important index for economists, and important to us and mortgage rates to investors. Consumer confidence fell from 62.7% in May to 52.9% for June, barely half of those polled have a positive outlook, i.e. confidence, in the economy.
The shrinking confidence is supported by and reflected in declining consumer spending and increased savings. Not only are individuals but so are companies and corporations as I stated a few weeks ago. Consumers increasing savings and decreasing spending hurts retailers. Companies, i.e. employers, increasing savings and decreasing spending hurts employment.
Jobs numbers this week provide some opportunity for false optimism but at their core reflect a very troublesome job market. After adding barely 30,000 jobs in the private sector in May, the Labor Department reported today that 88,000 jobs were added in the private sector in June. Meanwhile because of the temporary census hires now being laid off as their jobs come to an end over 200,000 former government employees will not be seeking work again. With over 14 million Americans unemployed, adding 120,000 jobs over two months to the private sectors gives no cause for optimism.
Searching for the silver lining in the cloud of economic news, the data continues to support the Federal Reserve retaining near zero interest rates for a very extended period of time. This is good news for those with equity lines, adjustable rate mortgages and those seeking mortgages in general.
Rates for Friday July 2, 2010: Rates are near points of resistance and with some inter day movement have been fairly flat week to week, fairly flat at very low rates. We are in a new rate range that coming out of the long weekend we will know if the range will extend or bounce.
30 year FHA jumbo 4.50% FLAT
July 4th weekend, signifies not only our national celebration but also that the year is half over. Has it gone by quickly for you or slowly?
Have a wonderful weekend, Happy Independence Day!
Dennis C. Smith, California Dept. of Real Estate Broker #00966315 Stratis Financial Corporation, California Dept. of Real Estate Broker #01269597
Dennis C. Smith, California Dept. of Real Estate Broker #00966315
Stratis Financial Corporation, California Dept. of Real Estate Broker #01269597
Contact Us | Testimonials | Dennis' Bio | Truth-In-Lending Disclosure Explained | New Good Faith Estimate | Purchase After Short-Sale | Tell a Friend | Home | Loan App Checklist | Site Map | Loan Application | Mortgage Calculators | Customer Login | Are You Pre-Approved? | Daily Rate Lock Advisory | My Blog
Copyright © 2010 Stratis Financial CorporationPortions Copyright © 2010 a la mode, inc.Another XSite by a la mode, inc. | Admin Login| Terms of Use| Site Map
