Dennis' Mortgage Blog

March 6th, 2015 10:44 AM

Question of the week:  Why is my loan closing waiting for the IRS?

Answer: For the past several years lenders have required a completed IRS Form 4506 prior to final approval and closing. Form 4506 is sent for the lender to the IRS for the purpose of verifying that the federal tax returns provided by the borrower for the application matches the returns the borrower filed with the IRS. Or, if no tax returns are required the IRS will verify that there are no items on the filed tax returns that would require the lender to review tax returns, such as Schedules C (self-employment) or E (rental property) filed with the return.

When your signed loan application is turned into our processing system your Form 4506 is submitted to the IRS for processing. If your loan package originated in October, or December, or even January the IRS would return the completed report in approximately 2 weeks for the most recently filed tax return.

This time of year with the number of filings increasing exponentially each week as the April 15th tax deadline approaches, the processing time at the IRS slows considerably. The current estimate for the IRS is return of the 4506 results is six weeks or more from the date you file your return—if filed electronically. This means if you electronically file your federal tax return for 2014 today, March 6th, and we send in Form 4506 to the IRS we will receive the results April 17th or later. The reason for the delay is we must wait for the IRS to receive and have your return filed into their system and then have personnel process the 4506 request.

The good news however is that until April 15th we do not need 2014 tax returns, but can use your 2014 W2 and 2013 federal tax returns. While the processing of the 4506 request will still be longer than it will be later this year, because your 2013 taxes are already in the system the return of the 4506 results will be just a few weeks instead of five, six, seven or more.

For some however the 2014 tax returns are needed due to higher income than on prior year’s taxes or because losses on prior year(s) returns are lower or non-existent on the 2014 return. If this is the case then buyer, seller, agents and everyone involved will need to exercise patience waiting for the IRS to process and return the request to verify the submitted returns.

If you are purchasing a home at this time of year it is very important to discuss the status of your federal income tax filing, when it was or will be filed and whether your 2014 taxes are needed for you to qualify for your new home. If you have any questions regarding your taxes and how they may impact your qualifying, or timing, for the purchase of your new home please call me.

Have a question? Ask me!  

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

Not a good week for rates. Slipping all week, Mortgage Backed Securities dropped hard at opening this morning and have continued to fall through the morning (lower MBS prices means higher interest rates). Very little economic news early in the week that impacts interest rates, the most significant being personal income and spending figures released on Monday. Income barely rose in January, up 0.1% and spending declined for the second straight month (down 0.2% from December). This news should have been rate friendly but investors shrugged it off and appeared to be selling mortgages and other bonds to capture gains and use technical models to adjust their holdings.

Being the First Friday of the month we get the monthly jobs report from the Labor Department. The news was a major market mover as the report indicated 295,000 jobs were created in January, well above the estimate of 240,000 jobs and well above the downward adjusted figures of 235,000 new jobs in December. The headline data, total jobs created and the unemployment rate dropping from 5.7% to 5.5% over-shadow more details in the report such as the labor participation rate declining to 62.8% and hourly earnings increasing just 0.1%. The data caused a strong sell-off for MBS and equities as investors see the news as indication that the Federal Reserve will increase its discount rate in June.

In the near term we can anticipate investors beginning to price a Fed rate increase into the market, this will put upward pressure on mortgage rates until and unless economic data is presented that contradicts a strengthening labor market and economic growth. For those who have been floating rates to try to capture just a little bit better rate they may have missed their opportunity, at least in the short term. Always best to lock through your escrow period and chance missing a potentially lower rate than float and miss the rate you could have had.

Rates for Friday March 6, 2015: Rates are higher from last Friday and as you can see by the chart conforming and high-balance rates are at their highest levels since early December and up almost one-half a percent from their lows the last week of January. Whether we hit resistance at these levels and we see rates move sideways for a while is unknown for a week or more, in the meantime exercise caution and lock when you can.


30 year conforming                                            3.75%             Up 0.125%
30 year high-balance conforming                        3.825%           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 **Rates are flat week over week but credit is lower


If you don’t know to set your clocks ahead when you go to bed Saturday night then you need to get out more, either that or I’m flattered that your primary source of this reminder is the Weekly Rate & Market Update.

I am no fan of the Daylight Savings Time clock adjustments, I wasn’t when the Spring adjustment was in April and even less so now that it is early March. The argument for lengthening the period for DST is that it saves energy as it is light later, but what about those of us who get up early in the morning? Just as it was getting light in the mornings so the Early Risers were not getting up in complete darkness, able to walk our dogs in daylight and enjoy the sunrise in solitude the clocks move and we are back in the dark ages for another month or so.

This year we will have 8 months of DST, running from this weekend until November 1st. If Daylight Savings Time is running 8 months shouldn’t we call it “standard time” and re-label “standard time” Daylight Wasteful Time?

We’re King for a day I would abolish Daylight Savings Time and let our cycles of light and dark run as God wants them to run and let man-made time stay constant through the year.

Off my soapbox and through with the rant, thank you for listening.

Have a great week,


Posted in:General
Posted by Dennis C. Smith on March 6th, 2015 10:44 AMLeave a Comment

February 27th, 2015 9:26 AM

Question of the week:  Should we get an adjustable rate mortgage?


Answer: Probably not.


Some home buyers are tempted by the low initial payment an adjustable rate mortgage (ARM) thinking that by the time their payment is due to increase they will either be earning more or they can refinance to a fixed rate.


The two assumptions are the beginning of what could be a big problem in the future.


First let’s look at the assumption you will be earning more money in 3, 5 or 7 seven years. Not an unreasonable assumption for many people, though the question is not just if you are making more, but if your increase in earnings keeps pace with or outpaces the increase in interest rates.


Say you purchase a home and get a $400,000 mortgage with a 2.75% rate on a 5/1 ARM (rate and payment are fixed for five years then rate and payment can adjust every year). Your payment is $1630 per month; let’s assume this is 35% of your gross income making your salary $4650 per month.


Five years from now the most your interest rate can increase is 5% to a rate of 7.75%, which on your remaining balance of $356,000 would give you a payment of $2670 per month, an increase of 64%. So that the payment remains 35% of your income, your salary would need to increase to $7630 per month, an increase of 64% over five years. Consider the job and profession you are in and the likeliness that your income will increase 64% in the next five years, or about 12% per year?


As to the second assumption, that you can refinance in the future, any refinance you engage in will be at a higher rate than your ARM rate and lead to a higher payment, and given the current low rate environment the rate most likely will be higher than today’s fixed rate payment. Keep in mind that the current ARM rate is always lower than the current fixed rate. So in the future if your rate adjusts to 7.75% the fixed rate available at that time will be higher than the 7.75%.  But the loan balance is lower after five years of payments. True, but still not low enough to off-set the large increase in interest rate compared to the today’s rate.


Either scenario puts you in a potentially very challenging financial situation in the future.


If you were to take the $1630 per month payment you would have if you used an ARM for financing and instead got a 30 year fixed rate loan at 3.625% you loan balance would be $360,000 or 10% lower than the ARM. Or you could obtain a $400,000 loan with the fixed rate and have a payment of $1820 per month, or 39% of your gross income.


And you payment would remain the same for the 30 year life of your loan.


Financing your new home with an ARM to make it more affordable can likely result in a less affordable home in the future. If the only way you can feel comfortable paying for the home you really like is to use an ARM for financing then you should be looking at a way to really like a less expensive home; if you don’t believe me ask some of the millions of families who lost homes during the Great Recession because they could not afford the payments of the homes they really liked. Your best financing option for the short and long term is almost always a long term fixed rate, and fixed payment, mortgage.


Have a question? Ask me!  


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


It was not a quiet week on the data front. Plenty of action for the business and economic writers and pundits this week with some major data releases (home sales, CPI, consumer confidence, GDP) plus Fed head Janet Yellen testifying to the House and Senate. The result was a roller coaster week for the mortgage markets.


A quick look at the numbers. For home sales January was a poor month, declining nationally by 4.9%, with the lowest rate of sales since last April. With the drop in sales the national median price dropped below $200,000 for the first time since last spring. New home sales faired better with transactions on par with December, which had a huge jump in sales from November. Pushing the higher sales were price concessions as the median price dropped 2.6% for the month. Higher home sales are an indicator of economic growth and consumer confidence and can lead to higher rates.


After peaking in January consumer confidence has dropped in the twice monthly report due to fewer respondents optimistic with their expectations. The drop in confidence is a bit of a head scratcher with prices dropping, the Consumer Price Index for January dropped 0.7% from December and is down 0.2% from January 2013. Taking out food and energy and CPI is up 0.2% for the month and 1.6% for the year. These numbers are good for consumers who see their income buy more, however not so good news for the economy as price contraction can lead to deflation. This reading should be positive for lower rates.


On Friday we received the GDP revision for the 4th Quarter. The initial estimate was that the economy grew at a rate of 2.6%, the revision lowered that growth to 2.2%. The revision was mostly due to lower estimate for growth in inventories, so not that big of a deal as it would be if the lower estimate was due to consumer consumption of goods and services.


Amidst all the big data news was the needle mover for investors, Federal Reserve Chair Janet Yellen had testimony this week to both the Senate and House committees for banking and financial services. Anxious to hear a peep about when and/or how much the Fed will raise its discount rate (for recap of the Fed’s roll in rates see last week’s Update). Essentially Yellen said that the Fed was more than likely raising later in the year, apparently beyond the June up-rising many have expected. She indicates the Fed feels economy is close to full employment, not sure the new normal on GDP and that Fed rate increase will be dependent on improvement in inflation (i.e. higher than we saw this week) and labor market.


After her comments on both Tuesday and Wednesday one of my partners and I were discussing how we cannot remember a wider set of interpretations of Fed comments. Some pundits and analysts were claiming Yellen said higher rates are on the way, indicating rate increases will happen soon, and others were interpreting her remarks that the economy is still lagging and the Fed will retain low rates for longer than expected. Reading the remarks I am in the former category, especially as she mentioned prices and inflation has been well below the Fed’s target range for years.


Rates for Friday February 27, 2015: With all the news and commentary Mortgage Backed Securities experienced another roller-coaster week with some big swings daily. As the dust settles today MBS buyers are out pacing sellers and prices are slowly rising (lower rates) as investors seem to take the long view on rates that I have. It is a choppy market and it feels as if the next big spike in rates is waiting to happen, I urge caution and a conservative approach to lock your rate as soon as you are able to remove the risk of getting caught if they do spike. Week over week rates are pretty flat from last Friday.




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.


Looks like a stormy weekend for Southern California. I have always said the best time to look at property in the region is when it is raining so you can see if there are leaks in the roof, windows or doors and where water may collect and puddle causing potential problems down the road.


Of course stormy weekends are also good for staying inside with a cozy fire, a good book or stack of old movies….and perhaps a little amber liquid to sip slowly. Or for those who are fans, Netflix released Season 3 of House of Cards today, now there is something to watch with a bit of the whiskey.


Have a great week,



Posted in:General
Posted by Dennis C. Smith on February 27th, 2015 9:26 AMLeave a Comment

February 20th, 2015 11:55 AM

Question of the week:  Will the Federal Reserve raise mortgage rates?


Answer: No, the Federal Reserve will not raise mortgage rates because they cannot raise mortgage rates. What the Fed can do however is raise the “discount rate” and that can action can have impact on other interest rates in the economy, including mortgage rates.


A lot of attention is focused on the Federal Reserve and their “raising interest rates;” but the only interest rate the Fed directly controls is the discount rate, the rate the Fed charges member banks to borrow money from its discount window, usually for an overnight loan to cover the reserve requirements for the bank. By raising and lowering this interest rate the Fed controls the amount of money banks can borrow and lend and therefore can impact the amount of money in circulation.


Other interest rates in our economy are set by lenders or investors. Credit card rates, auto rates, equity lines, the prime rate, are set by banks. As we learned last week mortgage rates are set by investors bidding on Mortgage Backed Securities. US Treasury rates are also set by investors bidding at auction on the debt offerings from our government.


When the Fed raises its discount rate there is a ripple through the economy with other rates. If it costs more to borrow money then banks will charge more to lend money. Most impacted by increases by the Fed are equity lines which are tied to the Prime Rate, which is set by individual banks but usually they set the same rate, and other consumer rates. Mortgage rates can tend to move with increases, or decreases, the Fed makes but sometimes act independently—such may be the case should the Fed increase its discount rate later this year.


Long time readers of the Weekly Rate & Market Update know that mortgage rates are very dependent on economic conditions. Economic conditions are not terrific, prices are stagnant, employment while improving still has tremendous wage lag and a low participation rate, manufacturing is slow and consumer consumption is not pushing a growth spurt in the economy. These are the factors that investors consider when buying stocks or bonds, strong economic conditions lead investors to buy stocks and sell bonds causing rates for long term debts—like mortgages—to go up; weak economic conditions lead to the opposite actions and mortgage rates go down.


The past several years have been a bit of an anomaly due to the Fed not only keeping its discount rate low but also flooding the economy with trillions of dollars it used to purchase mortgages and U.S. Treasury debt—this cheap money flowed into Wall Street as banks and corporations used the funds to buy each other’s stocks and not to invest in their companies to grow and expand as was the expectation from the Fed.


When the Fed does finally raise its discount rates the short term result will most likely be a drop in stock bond prices, resulting in an increase in rates. Longer term, unless economic conditions improve somewhat significantly we should see rates drift back down after the initial jolt and settle in, or near, the range mortgage rates, and other long term rates, have been in for the past year or more.


Can the Fed raise mortgage rates? No, but its actions will affect mortgage rates.


Have a question? Ask me!  


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

Pushing expectations for that rate drop further into the year was the release of the Producer Price Index (PPI) on Wednesday. A measure of the prices paid by producers, i.e. suppliers, of goods and services, PPI is a gauge of inflation and a key piece of data for Fed governors as they decide when to increase their discount rate. After declining 0.3% in December the PPI dropped 0.8% in January and is down 0.1% from last January. Savvy watchers of the economy will be thinking, sure it fell because of the drop in oil and gas prices, and this is true. However…taking out food and energy prices the PPI still dropped 0.1% for the month and has risen only 1.5% from last January. The three consecutive months of decline in this index is worrisome as it puts deflation into play as a top concern for the economy. A negative PPI reading is positive for lower mortgage rates as it provides investors with data that rates will, and should, stay low for a longer period of time.


Employment data is choppy as the number of initial unemployment claims fell last week to 283,000 filings, down from 304,000 the prior week. This gives us several weeks with large changes from week to week, up one and down the next, providing us with no real guidance as to labor market momentum. The lower unemployment claims fall generally the higher rates will rise.


Remember when…..the Weekly Rate & Market Update was filled with news of Italy, Greece, Spain, and their economic troubles pushing our mortgage rates around? Well we are being influenced again by the European troubles and squabbles as Greece’s new leadership negotiates with Germany and the European Union to extend repayment terms for the bailout they received. Greece thinks the repayment terms are too punitive—which is why the new government was elected because the Greek voters feel it is unfair for them to suffer because of the overly generous payments they have been receiving are being cut. Germany and other members of the EU that are on the hook for billions in bailout funds don’t want to be paid back less then they loaned and enable the Greeks to ignore or be immune from consequence of the prior poor fiscal policies. What could be at stake ultimately is the entire economic union in Europe and the unified currency, the Euro. If Greek leaves or is forced out of the Euro and the EU will other nations follow? Keep in mind as our markets gyrate on news of the negotiations that Greece’s economy is roughly that of Arizona’s.


Speaking of negotiations.  The stand-off between the ILWU representing the longshoremen in ports on the West Coast and the Pacific Maritime Association is having reverberations through the economy, and not in a positive way. Goods are sitting off shore and are not being delivered to manufacturers or retailers, goods are sitting in ports and not being loaded to ship to the other side of the Pacific causing delays in payments to domestic exporters. As the stand-off continues and goods sit companies dependent on those full trailers moving will be starting to cut back on expenses—which usually means workers. This stand-off could be an impetus for a decline in national economic growth and higher unemployment, and lower mortgage rates as a result.


Rates for Friday February 20, 2015: Our short week started off with Mortgage Back Securities dropping significantly (lower MBS prices = higher rates). It started as reaction to news from the holiday on Monday that a Fed governor was seeing higher rates possibly in June, continued on news from Greece and then became a technical selling spree. Once the Fed minutes came out that had no real news that should move markets, and the economic data in the form of PPI confirmed the Fed’s comments of a slow economy MBS and bonds started to scrap back and as I write this half of the sell-off has been recaptured. The net result is that rates are higher from last Friday and at their highest point on a Friday since the first Friday of 2015.




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                                  3.25%             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.


My sister says she gauges how old she feels by how old I am, since she is the oldest and I am the youngest. I get what she means as our youngest turned 13 this year—I’m the dad to two teenagers. So while I think (and sometimes act like) I’m 25 and think when I look in the mirror I’ll see that 25 year old, looking at my kids and my real self in the mirror I’m needing to adjust that inner voice a little.


Oscar’s weekend, I’ve not seen a lot of the films nominated but two that I have seen that are “American Sniper” and “Imitation Game.” Both excellent films with great performances. I think this is the first year in sometime that I want to see all the films nominated for best picture—thankfully Netflix is in our lives to enable that desire coming to fruition.


Have a great week,



Posted in:General
Posted by Dennis C. Smith on February 20th, 2015 11:55 AMLeave a Comment

February 13th, 2015 10:54 AM

Question of the week:  How come the rates go up and down every day?


Answer: This is a question that is frequently asked and one I try to answer about once a year, so if you’ve read it before you may want to skip this section. (Though I have some new information impacting rates recently included…teaser alert).


Mortgages are paid by borrowers and collected by lenders, but for the past several decades your mortgage payment does not end up with your lender but most likely with investors. This is because even though Stratis Financial funded your loan, your loan will not be owned by Stratis Financial, nor any other lender, but more than likely with Fannie Mae, Freddie Mac, Ginnie Mae or an investment company. And investors bid daily on Mortgage Backed Securities (MBS) which are pools of mortgages sold by Fannie, Freddie, etc.


Using Fannie Mae as an example, every day Fannie Mae is auctioning MBS pools to investors with an underlying interest rate for the pool, say 3.5%. Investors bid on the 3.5% pool and depending on the sales the 3.5% securities, which effectively act like bonds, are either sold at a premium or discount. If sold at a discount then the 3.5% pool will repay at a rate higher than 3.5%, say 3.625%; conversely if the bidding is hot and heavy and the is sold at a premium then the rate of return is lower than 3.5%, say 3.375%.


When pools are selling at a discount then mortgage rate sheets that day will be higher, when pools are selling at premiums the rates will be lower.


Why would someone pay a premium for an investment and get a lower return? Because even at a lower return that investment is considered to be better for the investor than one that may have a higher return. For instance with all the problems in Greece and their possibly defaulting on their debt would you rather own mortgages in the United States with a 3.375% return or Greek bonds with a 7% return? 6%? 5%? 


Competing with the Mortgage Backed Securities that determine our mortgage rates are government bonds, issued by not only the United States but other entities, states, municipalities, foreign nations. Recently both Apple and Microsoft have announced bond sales, which increases supply in the market and higher supply leads to lower prices which leads to higher rates. Back to our Greece comparison, Apple issued it multi-billion dollar bond in Europe (bids were in Euros) with rates of 1.082% for an 8 year note and 1.671% for a 12 year note—close the rate of return had you purchased corresponding US Treasury notes. By buying up the issue investors were indicating they felt Apple was as safe an investment as the United States Government.


Also competing with the mortgage markets for money are the stock markets, is the rate of return on Mortgage Backed Securities too low so investors are willing to put their money in the more volatile equity markets? If so then rates will rise when this happens. Are events in the country and world such that the equity markets are too risky and investors want a safe haven and (practically) guaranteed return on their investment? Then rates will drop as they by the MBS offered by Fannie and Freddie.


Every week I recap economic news released during the week and its impact on mortgage rates. Rates have been historically low since the recession due to many factors, primarily an anemic economy that has little to no inflation and monetary and fiscal policies encouraging low rates to try to stimulate economic growth, inflation and higher employment. Any economic news that shows signs of growth and inflation will cause rates to rise. Investors do not want to be buying investments that are fixing their returns at 3.5% for the next decade or more when they anticipate rates rising in the near term and they can possibly get 4.00% returns. Conversely if they see rates may be dropping they do not want to be buying 4.00% investments that will be refinanced and paid off early as rates drop to 3.5%.


Essentially your mortgage rate is determined by investors and their best guesses as to where the markets may be headed and what risk, or gamble, they are willing to take. Add in some supply issues, either too much or too little, and the result is a rate sheet that says what today’s interest rate and cost will be for the mortgage you are seeking. And by the way, that rate sheet can, and often does, change during the day.


Confused about why rates change every day? It can be confusing but I am always here to explain what needs explaining and working to ensure you understand all you want and need to know about your mortgage and the mortgage process.


Have a question? Ask me!  


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



Uh-oh. Careful readers of the Weekly Rate & Market Update may recall that last week’s economic news lent support to the Fed raising its short term borrowing rate sooner rather than later due. Not a lot of news this week but the two pieces of data released yesterday puts a little dampen on the little enthusiasm from last week.


After spending a few weeks below the 300,000 mark initial unemployment claims for the week rose 26,000 from the prior week to 304,000 filings. The four week average of claims dropped for the third week in a row, to be expected after the drops two and three weeks ago. The four week average of those collecting unemployment insurance payments is at 2.4 million. The news this week is favorable to lower rates as it reflects more layoffs than anticipated. Coupled with announcements from several major employers the past few weeks of layoffs they will be making in 2015 the recent filings below 300,000 per week may have been lows for the year. Let’s hope not.


The second data release that caused some pull back from last week’s positive expectations was retail sales data for January. Following a disappointing drop of 0.9% in sales in December, retailers saw January sales decline another 0.8%. Much of the drag on the sales numbers was the lower price of gas at the pump, however it appears Americans are not taking their savings from Shell and spending it at The Gap. The data is inconsistent with recent reports of increased discretionary income and consumer confidence. If we are making more and feeling more confident why are we not spending more? This is a critical question as consumer spending makes up 65-70% of our economy. While it is great that incomes and confidence are rising, but absent transferring the incomes to spending our economic growth will continue to be stagnant and not robust, or even strengthening. This news is positive for lower rates.


And here is the other shoe…after the Thursday releases of unemployment filings and retail sales, today we received the corresponding data for consumer confidence as reported by the University of Michigan. After climbing to highs not seen since before the recession in January the index dropped in the mid-February reading. So while retail sales did not reflect the same month positive growth in confidence, the sales numbers for January seem to have been a pre-cursor to lower confidence in the coming month. With the lower confidence number our consumer spending data for February should show another downturn. This data is positive for lower rates as it reflects slower economic activity ahead and reduced incentive for rates to rise with a growing economy.


Rates for Friday February 13, 2015: With a light data week and not a lot going on internationally as Greece and the EU continuing to talk about whether there will be forgiveness of Greek debt, default by Greece, more bailouts or mandatory Ouzo toasts every Friday throughout the European Union to stimulate the Greek economy rates were pretty dull this week. With Monday being a holiday we can anticipate some crazy trading later today as money managers seek safe haven for their funds over the long weekend, nothing that should cause rates to spike however.



30 year conforming                                            3.50%             Flat

30 year high-balance conforming                        3.75%             Down 0.125%

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.


A lot going on this weekend. We have the first of back-to-back Friday the 13ths, Valentine’s Day and President’s Day holiday. Throw in a sleepover tonight for daughter’s 13th birthday party, family adventure to the Hollyhock House tomorrow, golf tournament for Dad on Sunday and we are looking at a fun filled weekend to celebrate all that is going on.


Also an opportunity to count blessings as I look at all that is going on with my best friend and Valentine by my side every day making me laugh and love.


Happy Valentine’s Day to all, keep your heads about you for those who suffer triskaidekaphobia (yes I needed spell check) and a toast to the Presidents who have brought our nation to where it is today—the greatest in history.


Have a great week,



Posted in:General
Posted by Dennis C. Smith on February 13th, 2015 10:54 AMLeave a Comment

February 6th, 2015 11:56 AM

Question of the week:  What impact does the reduction in the FHA mortgage insurance premium have on my situation?


Answer: As announced earlier this year FHA mortgages that originated on or after last Monday January 26th have lower monthly mortgage insurance premium than those originated one business day before. The monthly rate declined from 1.35% for most FHA mortgages to 0.85%, the half percent reduction is pretty significant on its impact on monthly payments.


So who benefits? Obviously those using FHA mortgages to purchase new homes, but also those with current FHA loans who are paying the 1.35% premium and may be eligible for a Streamline Refinance rate reduction.


On a $400,000 mortgage the reduction in the monthly mortgage insurance premium (MIP) equates to a savings of $167 per month.


For borrowers who purchased a $415,000 home with FHA financing and closed in late December 2013 or early January 2014 with the current rate of 3.5% and the 1.35% MIP their payment could drop up to $250 per month between current lower rates and the decrease in the MIP.


For potential homeowners the lower MIP either makes the same home more affordable or allows you to purchase a slightly more expensive home with the same payment.


As for the comparison between using FHA versus conventional financing, the numbers for the same sales price still skew towards conventional for most transactions because in most cases the monthly mortgage insurance is still a bit cheaper and also FHA still has an upfront mortgage insurance premium of 1.75% added to the loan balance. 


Taking a $400,000 sales price with 5% down and buyers with 720 FICO scores using today’s rates. The total housing payment (PITI) for the FHA buyer would be $2461 per month, for the conventional buyer the monthly payment is $2425 per month—and the monthly mortgage insurance payment ($207) may be lifted after 24 months if payments are made on time.


The spread between the FHA and conventional mortgages has closed.  However, if borrowers have FICO scores lower than 720, only have 3.5% available for down payment, require a co-signer who will not be living in the property (such as parent purchasing home or condo for college age children), or purchasing a condominium unit in an FHA approved complex then FHA might be the best—or only—option for low down and low rate financing.


In my opinion the total mortgage insurance charged for FHA mortgages is still low and seems to be against the mission of the program to provide affordable, low down mortgages to homeowners. The increase in the mortgage insurance premiums over the past few years has been an attempt by the government run program to increase its capital reserves, but as we have seen the increase in the mortgage rates have decreased the number of FHA mortgages funded, thereby not have the desired effect of raising those reserves significantly—certainly not as much as the reserves would have increased had the mortgage insurance premiums been left alone or lowered slightly to encourage more borrowers with higher credit capabilities to utilize the program.


Have a question? Ask me!  


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


Lots of news this week on employment. Personal income and outlays for December led the week off with news which showed a slight increase in personal income and a decrease in purchases. Year over year the growth in personal income outpaced spending and inflation which indicates an overall net savings. This is mixed news for rates, higher personal income should lead to higher spending which should lead to higher rates; however we have seen a slow but steady increase in income the past several months without a corresponding increase in spending.


Income increases may not be coming to those in manufacturing as yet another index measuring manufacturing has shown another month of slower production. Manufacturing is an important component for a healthy economy as it provides higher paid wages, impacts our trade surplus or deficit and there is tremendous velocity due to the number of vendors for materials and services required to support each manufacturing job. Slower manufacturing production is positive for mortgage rates as it can be a precursor to economic slowdown.


Last week we commented on the unusually large drop in unemployment insurance filings. This week the number of filings increased by 11,000 from the prior week, which was less than expected and lends credence that the 42,000 drop in initial filings the prior week may not have been an anomaly but reflective of strengthening employment. Any positive news for employment is negative for lower rates as it signifies economic growth in the future.


Being the first Friday of the month we get the Department of Labor report for employment for the prior month. An interesting report this morning that showed an increase of 257,000 jobs nationwide in January, as well the number of jobs created in December was adjusted from plus 252,000 to plus 329,000—a very large adjustment. The headline grabber usually is a decline in the unemployment rate but the report showed an increase in the base rate to 5.7% due to an increase in the number of people looking for work. Due to January seeing many states mandatory increase in minimum wage take effect the average hourly earnings increased 0.5% while the average number of hours worked held steady.


The news today has Fed watchers thinking it gives a green light to the Fed to increase rates sooner rather than later as the positive labor reports indicate a tightening labor market. As the labor market tightens higher output, income and consumer spending should follow which should result in an increase in inflation. Wanting to get ahead of inflation increasing to fast the Fed can pre-emptively slow it down with rate increases ahead of higher prices.


Rates for Friday February 6, 2015: After last Friday’s GDP news pushed rates down at the end of the week, today’s labor news has pushed rates back up. An erratic Mortgage Backed Securities (MBS) market most of the week as investors looked at Greece and oil production/prices showed MBS prices slowly drifting down but mostly sideways. The labor news today say MBS markets open down sharply (higher rates) and continue to drop as investors bail out of their positions and take profits accumulated over the past several weeks. How much of today’s move is technical trading and how much is a trend we will not know for another several days or more. FHA high-balance shows a drop because the lowest rate available to us has gone from 3.375% to 3.25%, the lower rate removes the credit previously showing.



30 year conforming                                            3.50%             Up 0.125%

30 year high-balance conforming                        3.75%             Up 0.125%

30 year FHA                                                       3.25%***        Flat

30 year FHA high-balance                                  3.25%             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.


It seems like a lot longer than five days ago that we saw the almost indescribable finish in the Super Bowl. The final quarter of that game and especially the final minutes exhibited why I, and millions of others, love sports as we do. Swings in momentum, outstanding athletic feats, decisions that will be good for arguments over a beer for years to come all played out on the biggest stage in front of the largest television audience in U.S. history.


We had the pleasure of going from the emotional ups and downs of watching athletic brutes crash into one another to the auditorium of Wilson High School later that evening to watch our daughter and other Long Beach Ballet company dancers perform in a series of dances that show cased the grace, athleticism and poise of the young women and men in the program. Quite a juxtaposition of the use of the human body, from high speed collisions to graceful leaps, pirouettes and arabesques.


Have a great week,



Posted in:General
Posted by Dennis C. Smith on February 6th, 2015 11:56 AMLeave a Comment



My Favorite Blogs:

Sites That Link to This Blog: