Dennis' Mortgage Blog

I love this industry!

I needed to get that off my chest.  Yesterday I was having lunch with my partners and we were discussing the current market.  During the discussion I mentioned that it seems most of our current clients are first time buyers and how excited I get helping families not only purchase a new home, but especially in helping them purchase their first home.  What a great job I have, helping families with the biggest purchase of their lives, helping families participate in the American Dream, helping families own their own Home (yes with a capital H!).  This is a bit over the top, but short of delivering their baby I cannot think of anything else that creates a true sense of family identity as home ownership and I am so thankful and fortunate to be part of the process for so many families--thank you for allowing me to be part of your home buying process, whether in the past or in the future!

Okay off the soapbox and into the markets. Another jumpy week in bonds with the worst part being late in the week.  Today we saw the bond market get hammered pretty hard and lenders repriced for the worse twice during the day--one reason for me getting this email out late this week to see where the market settled.

Looking forward the news on durable goods and consumer sentiment were both pretty strong, indicating an increase in short term rates by the Fed in the not too distant future.  I doubt it will happen at their next meeting but I would not be surprised if we see a rate hike before Halloween.

NOTE PRICING BELOW IS BASED ON 20% DOWN FOR JUMBO LOANS AND 10% DOWN FOR CONFORMING, 3% FOR FHA, FULL DOC, AND FICOS OF 720 AND ABOVE (change from last Friday):

30 year conventional at 1 point 6.375%            ó0.00%

30 year conforming-jumbo at 1 point 6.625%            é 0.125%

30 year FHA at 1 point 6. 5%                                     ó 0.25%

30 year jumbo at 1 point 8.00%                                  ê 0.25%

Let me know how I can be of assistance to you, your family, friends or co-workers.  It is a great time to buy a new home!

Have a great weekend!

Have a great week,

Dennis

As I write this I am in a conference room in Las Vegas (Planet Hollywood Hotel and Casino to be exact) learning how to operate a new contact software program I invested in back in January.  My intention with the software is to be able to better communicate with my clients and referral sources, have better tracking of my clients’ status through the home buying or refinance processes, and ultimately provide better service.  We shall see as this weekly update will be the first attempt in using the software! 

On a lighter note, it is strange for me to be in Las Vegas and working—while I am learning a lot I prefer the non-working Vegas getaways!  Back in town tomorrow.

Back just in time evidently as since our departure Wednesday morning the bond and mortgage markets have been in the absolute tank.  Following the panic late last Friday after I sent my update with Fannie Mae and Freddie Mac rates jumped mid-day.  Following the statements and maneuvers by the Treasury and Federal Reserve to back up Fannie and Freddie we saw rates improve on Monday and Tuesday.  Then the bottom fell out of the bond markets.  With economic news showing increasing inflation pressures Fed Chair Bernanke testified before Congress and it was evident the Fed is shifting from a position of stimulating the economy (lower rates) to combating inflation (higher rates).  With the news that the Fed would go after inflation investors have reacted by putting their money in the equity markets—not bond markets.  As a result rates have risen as stocks have climbed this week.

Today has been significant in that the mortgage backed securities have broken through the 200 day moving average.  What does this mean?  Remember that as bond prices go down the interest rates go up; if mortgage backed securities—the bonds that are used for mortgage investment—have their prices drop then the rates for borrowers (homeowners) go up.  In all investments, stocks, bonds, housing, there are levels of resistance that keep prices within a range for a period of time.  When a level of resistance is broken, up or down, then a new range of prices will come to the market.  This morning bond prices broke through the 200 day moving average floor that had been supporting mortgage rates; as a result we will probably see rates continue to climb until a new range is established.  Later today it may be that trading closes below the 200 day average—if so we may see the new range established where we currently sit on rates.

What does this mean for those in need of a mortgage?  First get solid and honest advice as to your situation and what your capabilities and options are in this market.  Second, once you have decided on a home, price, mortgage product LOCK IN!  Shopping for a “better rate” or “market improvement” can and will cost you when the market is volatile.  Ask those who did not lock in last Friday, or Monday, or Tuesday—today they are looking at rates that have climbed 0.25%. 

NOTE PRICING BELOW IS BASED ON 20% DOWN FOR JUMBO LOANS AND 10% DOWN FOR CONFORMING, 3% FOR FHA, FULL DOC, AND FICOS OF 720 AND ABOVE (change from last Friday):

30 year conventional at 1 point 6.375%         é 0.25%

30 year conforming-jumbo at 1 point 6.5%    é 0.25%

30 year FHA at 1 point 6. 5%                         é 0.25%

30 year jumbo at 1 point 8.125%                    é 0.25%

One of the reasons I have been able to succeed in the mortgage industry for over twenty years is because I have been forthright and honest with clients.  This means providing information on personal finances and qualifications that best suits their abilities and needs; it also means delivering accurate and honest information about the market.  If honest and trusted advice is important to you, and your family and friends, let me assist you with your mortgage needs.   

Please feel free to forward this email to your co-workers and clients--or send them to my Mortgage Blog where it is posted weekly.

Have a great weekend!

Have a great week,

Dennis

Important developments for mortgages and guidelines:

1)     Mortgage insurance companies pulling out of insuring loans greater than 90% LTV in California—FHA is best (in some cases only) low down option for buyers

2)     Fannie and Freddie change guidelines for qualifying buyers keeping existing residence and purchasing new primary residence—rent to off-set existing mortgage may not be used to qualify in some circumstances.  Call me to see if you or your clients are affected.  (for more info see my Mortgage Blog post earlier this week)

We continue to experience guideline and program changes—with Congress passing more legislation.  Please contact me to ensure you and/or your clients are properly qualified and educated before and during the home buying process.

With oil prices spiking today and spooking the markets we saw a dramatic turn in rates today from continuing a positive down trend to a mid-morning reversal.  Overall the impact has been greatest on Jumbo rates which are up for the week while other rates are down.  But the move today, and every day, in rates that was so sudden reinforces my philosophy of ensuring borrowers’ rates and terms are locked in as soon as possible in an escrow to remove the sudden shifts and jumps in the markets.

Looking ahead we have broken through some critical price points on mortgage backed securities that could continue a downward trend in rates, however the market is so skittish that we can easily reverse the trend on short or no notice.  LOCK!

NOTE PRICING BELOW IS BASED ON 20% DOWN FOR JUMBO LOANS AND 10% DOWN FOR CONFORMING, 3% FOR FHA, FULL DOC, AND FICOS OF 720 AND ABOVE (change from last Friday):

30 year conventional at 1 point 6.125%          ê 0.125%

30 year conforming-jumbo at 1 point 6.25%   ê 0.125%

30 year FHA at 1 point 6.25%                                     ê 0.125%

30 year jumbo at 1 point 7.875%                    é 0.125%

Please feel free to forward this email to your co-workers and clients--or send them to my Mortgage Blog where it is posted weekly.

Have a great weekend!

Have a great week,

Dennis

P.S. Happy Birthday JCS

Dennis C. Smith
Stratis Financial
Direct (562) 472-1118

Mobile (562) 243-6912

Fax (562) 684-4316
 

www.DennisCSmith.com : apply on-line, check rates, check loan status and much more

Our current real estate market is mostly on the lower end of the price spectrum--first time buyers and those moving up from their first home to their second. With the decline in values in most markets we are also starting to see activity with the move up buyers--but many are trying to move up without selling their homes. 

By holding on to their homes until the market turns around, and with Southern California coastal property (almost any area in LA and Orange Counties that are fully developed) it is not if the market will turn but when, homeowners are looking to take advantage of depressed prices on their move up market and buy a new home before they sell their existing home.  In doing this they convert their existing home to a rental and also can reap some tax benefits if they are able to sell within the 2-in-5 time limits:  if you have used a property as you primary residence for two of the last five years you can sell it and not pay investment capital gains (check with your CPA or tax preparer before planning on this strategy to ensure you qualify--I am not a CPA and not qualified to give tax advice). 

This activity is positive for the real estate markets, any activity that involves families buying homes at any price level is positive for the markets.  The problem is that Fannie Mae and Freddie Mac have posted new guidelines effective July 1, 2008 that prevents most homeowners from converting existing homes to rentals and purchasing new homes.

Under the new guidelines rental income for primary residences converted to rental will not be eligible for qualifying for a new mortgage unless: a) the existing property being converted has at least 30% equity b) the borrower provides a copy of an executed lease, and a copy of deposit check from renter and a copy of the deposit of that check into borrower's bank account and c) borrower has reserves of at least two months PITI for both properties.

So if your home is worth $500,000 your existing mortgage must be $350,000 or less, and we need a copy of the lease and the deposit check from your renter to be deposited into your bank account and after the close of escrow on the new home you will need several thousand dollars--enough to cover two months payments on your old and new homes--in your bank account.

I understand the reasoning from Fannie and Freddie; they are trying to prevent buyers from moving up in the market to a bigger home or nicer neighborhood and then just letting their existing home go to foreclosure due to lack of equity.  We saw this happen in Southern California in the late '80s and early '90s.  Yes, I understand the reasoning behind the new guideline, however I feel they have made it too restrictive and it will cause a lot of buyers to pull out of the market due to their inability to qualify and meet the guideline.

Or instead of pulling out maybe they will decide it is best to go ahead and move up now and sell their existing homes for whatever the current market will bear. 

This guideline caught us by surprise when it was announced, and it reinforces the importance of being in constant communication with your mortgage professional and also making sure all the qualification guidelines are met as the first step in the process to purchase a new home.

Does this guideline affect you?  Call me and let's discuss your situation!

HAPPY INDENPENCE DAY!

While today and this weekend is red, white and blue, kids’ bicycle parades, picnics, parks and pools and fireworks, it is also about our freedoms, one of which is homeownership.  As we celebrate the 234^th birthday of the Declaration of Independence I hope you take time to give thanks to those who laid down those freedoms for us so that we might enjoy the bounty and abundance we have today.  For more of my thoughts on Independence Day visit the Long Beach Post and the Post “The Original Freedom Writers.”

Speaking of freedom, the free markets of the stock exchanges had a big drop off this week which helped bonds and mortgage rates until a late rally on Thursday reversed the gains—the opposite of what we have been seeing the past several weeks.

Little reported but of great importance was the European Central Bank (comprised of fifteen nations and is Europe’s version of the Fed) raised its key lending rate by 0.25%.  Europe is currently experiencing an inflation rate that is twice that of the United States’ inflation rate; to stem this the ECB raised its rate—just as the Fed will do in the future to stem inflation in the U.S.  This is important because as Europe’s rates rise our rates will follow because of supply and demand.  Investors will go to the higher return and to compete our markets, bonds, will need to offer higher returns.  Here is why this matters to us, the rates that are rising will be short term rates, as short term rates rise the chance for rising inflation diminishes, as the chances for inflation diminish long term rates—like 30 year mortgages—decline. 

On the home front the job markets continue to shrink and unemployment is rising.  In past economies shrinking job markets portend the start of recessions, and the Fed reacted by lowering rates.  With the high energy costs working their way through our economy and pushing the inflation rate the Fed reaction to quell inflation would be to raise rates.  If the Fed lowers rates to stimulate investment and growth that could reverse the current job loss trend it will fuel inflation.  If the Fed raises rates to quell inflation it chokes off investment and growth and leads to more job losses.  What to do? 

Since oil costs are the root of the problem my personal belief is a political solution to the economic issues of increasing production of domestic oil production. I will expand on this issue in the near future at the Long Beach Post, but in a nutshell I am of the opinion that announcing the opportunity to explore and extract domestic oil fields will have an almost instant impact of lowering global oil prices.  This will relieve the cost pressures on businesses and consumers and therefore the inflation in the economy.  Just my opinion.

Week over week we see a slight up-tick in Jumbo rates and no change in those 30 year products under the $719,000 level.

NOTE PRICING BELOW IS BASED ON 20% DOWN FOR JUMBO LOANS AND 10% DOWN FOR CONFORMING, 3% FOR FHA, FULL DOC, AND FICOS OF 720 AND ABOVE (change from last Friday):

30 year conventional at 1 point 6.25%                        Flat

30 year conforming-jumbo at 1 point 6.375% Flat

30 year FHA at 1 point 6.375%                       Flat

30 year jumbo at 1 point 7.75%                                  é 0.125%

Please feel free to forward this email to your co-workers and clients--or send them to my Mortgage Blog where it is posted weekly.

Have a happy and safe Independence Day Weekend!

Have a great week,

Dennis

Dennis C. Smith
Stratis Financial
Direct (562) 472-1118

Mobile (562) 243-6912

Fax (562) 684-4316
 

www.DennisCSmith.com : apply on-line, check rates, check loan status and much more