Dennis' Mortgage Blog

Question of the week:  Why does it matter where my down payment and closing cost funds are coming from? Answer:  The quick answer is that a lender wants to make sure you are not borrowing funds for closing, and if you are that they know about it so the repayment of that obligation can be accounted for on a monthly basis.  To ensure the funds are not borrowed lenders require a paper trail showing: a) where the funds for closing originated, borrower(s) bank account(s), or if gift funds the account(s) of the donor(s); b) transfer of the funds, copy of check, cashier’s check or wire and c) deposit of the funds into borrower’s account—either bank or escrow.  If you are purchasing a home and part of your funds for closing are coming from somewhere other than your current bank accounts make sure you are clear on the documentation needed to verify the funds for the lender.  These rules apply for all mortgages, whether FHA or conventional.

If you have a question you would like me to answer send it to me!

After last week’s nice drop in conforming rates the market retreated big time this week wiping out last week’s gain and then some.  There appears to be no major cause in the jump in rates but a combination of factors.  First, when the Fed met this week they did not change rates but their commentary led many investors to believe that with rates where they are the only way to go is up—and they reacted accordingly.  Second, the Fed then purchased several hundred million dollars of mortgage backed securities from Fannie Mae and Freddie Mac; ordinarily this demand would increase bond prices, thereby lowering rates, however it appears the Fed only bought mortgages with yields over 6%--causing demand for yields below that figure to drop, thereby raising the rates.  Third, with the House of Representatives passing the $825 billion “stimulus” package (for my thoughts on this bill go here) which is incredibly inflationary in the medium and long run.  Bond markets do not react well to inflation, as a result pressure on rates to rise.

Unfortunately for some and fortunately for others there is plenty of negative economic news still on the horizon, most notably continuing deterioration of employment and wages.  Despite being countered by a stabilizing of commodity prices, even a slight rebound in some sectors, which indicates a nearing of the end of the recession, continued increases in unemployment and lower household income will drag on the economy, putting downward pressure on interest rates.

For now we see a very ragged and jumpy market.  Rates are whipsawing daily and weekly as investors try to gauge what is the best investment; one day it is equities and the stock markets, the next it is a flight to the safety of the bond markets, many days it is parking funds in cash and waiting.  Looking at the rates for the past year, even with the big jump this week we are still below where rates were for all of 2008—in other words relative to a few weeks ago rates are high, relative to history they are very low!  

For the week in rates we have seen a big jump across the board with most of the action coming yesterday (Thursday).

FIXED RATE MORTGAGES AT COST OF 1 POINT*

30 year conventional at 1 point 4.875%          up    0.375%

30 year conforming-jumbo at 1 point 5.25%     up    0.5%

30 year FHA at 1 point 5.25%                           up     0.25% 

Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment 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.

Our unofficial national holiday this weekend with the Super Bowl, don’t tell my buddies from college and my bachelor days but I’m not that excited about it this year---I will probably watch while baking something tasty in the kitchen!

Have a great weekend,

Dennis

Remember this update is posted weekly on My Blog at www.DennisCSmith.com ; feel free to forward the link to family and friends who may be interested in past commentaries.