Dennis' Mortgage Blog

Question of the week:  In lieu of a question of the week a quick recap of the year 2011 for the mortgage industry and rates:

Regulatory The mortgage industry was hit with several new regulations and policies in 2011, none having more of an impact than the implementation of the National Mortgage Licensing System that requires all mortgage originators who do not work for depository lenders, i.e. Wells Fargo, Bank of America, Chase.  The NMLS has reduced the number of licensed originators across the state and country as many “casual” or part-time originators have decided to forego the expense and testing required for the license.  This is a big step towards helping improve the quality of originators in the industry, but until all originators including those who work for depositories are included in the NMLS regulations the necessary oversight is not complete.

In April the mortgage originator compensation rules mandated by the Federal Reserve Board went into effect that prohibited mortgage brokers from receiving compensation from both the lender and the mortgage applicant.  The net effect of this rule has been higher costs and fees to borrowers as funds that have previously been used as credits for borrower closing costs are only available at higher interest rates.  Not atypically the best laid plans of federal regulators resulted in the real life consequences for consumers of increasing costs and fees.  The National Association of Mortgage Brokers has been working to have this regulation repealed having shown numerous examples from across the country of instances where homeowners and home buyers did not benefit from the new regulation.

Severely impacting the homebuyer market and opportunity for refinancing to 3.75% interest rates for homeowners with FHA mortgages was the increase in the Monthly Mortgage Insurance Premium (MIP) for FHA mortgages to 1.15%.  Climbing from 0.55% in 2010 to 1.15% in 2011 the MIP increase has been justified to increase the capital reserves for FHA to cover default mortgages.  Like all insurance current rate payers make up for the losses incurred on prior rate payers who went into default and led to claims for coverage.  The lack of a policy allowing current FHA mortgage payers to retain their current MIP premiums through a streamline refinance process has cost tens of thousands of homeowners the opportunity to save literally billions of dollars in future mortgage payments.

Underwriting In 2011 we have seen further tightening of underwriting guidelines and policies due to the continuing aggressive policies of Fannie Mae and Freddie Mac in requiring lenders to buy-back approved and funded mortgages that they, Fannie and Freddie, feel do not meet their underwriting criteria.  This has caused an overly defense position in underwriting that impacts mortgage applicants.  We have seen tighter policies regarding income calculations, asset eligibility and property conditions and values. 

Economy Despite several trillion dollars being pumped into the economy from Congress and the White House and the Federal Reserve the U.S. economy grew at a very slow pace in 2011.  Spikes in oil prices early in the year, drops in consumer confidence through the second quarter and increased food costs slowed consumer spending for much of the year.  Employers continued to shed jobs into the third quarter.  In the third quarter private sector employment began to slowly increase but is being off-set by the beginning of decline in public sector employment as local and state governments with unsustainable budget deficits lay off workers. 

Housing markets ended the year as they began the year, continuing to decline in some areas and increasing in others.  Local in Southern California we mirrored the national markets with some cities, and even neighborhoods, seeing increases in activity and prices while other areas saw slow sales and prices dropping. The overall effect is a still sideways housing market trying to get its footing to aid in the recovery of local, state and national economies.

The net result for 2011 is a stagnant economy that is not in a whole lot better shape than it was in December 2010.  The biggest difference being an additional $1.4 trillion added to our federal deficit which now exceeds $15 trillion.  Because of the sluggish growth and fundamentals the Federal Reserve announced at the end of the year it expects interest rates to remain at current low levels into, and perhaps through, 2014.

Rates  As you can see from the chart below, after rates jumped around into April we began to see a downward trend in rates, broken by a spike in July.  For the year conforming rates are down over 1% on conventional rates from last December and 0.75% on conforming FHA and over 1% on FHA jumbo rates. 

Overall it was a good year for the mortgage industry with tremendous volume for refinances with the steep drop in rates allowing for homeowners nationwide to lower their monthly payments or reduce the terms of their mortgages. As we look into 2012 the industry is prepared for a slow-down in applications as the margin for refinances continues to shrink and the home purchase market is yet to gain momentum of even 3-5% growth.

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For the week more positive news as Consumer Confidence spiked in December as consumers hit the malls and local stores for Christmas purchases.  Following several weeks of decline initial unemployment claims for the week increased over 15,000 to 381,000 for the week.  This will be an important number to watch going into 2012 to see if the declines in November and December were due to seasonal hires, decisions by employers to avoid lay-offs through the holidays or a real trend in slowing lay-offs.

Rates for Friday December 30, 2011: Big gains in the Mortgage Backed Securities Markets rates reversed their increase last week to get back to our all-time lows for conforming rates and credits for closing costs continue to increase for borrowers.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                               3.625%             Down 0.125%

30 year high-balance conforming           3.875%             Down 0.125%

30 year FHA*                                                   3.75%               Flat

30 year FHA high-balance*                   3.75%               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.

* Current rates include credit towards closing costs, call for quote on rate and credit.

A great big thank you to everyone for your support and business in 2011.  As we move into 2012 I am very grateful for the foundation of wonderful clients and professional partners who continue to support my business with referrals.

We are in Scottsdale having arrived yesterday and departing tomorrow as Santa dropped tickets into our stockings to watch the Oklahoma Sooners against Iowa in tonight’s Insight Bowl.  Thankfully my youngest has adopted the Sooners as her team continuing the familial allegiance to the team and was ecstatic over Santa’s gift—almost as much as her Dad!

Happy New Year!

Dennis