Dennis' Mortgage Blog

Question of the week:  If my taxes are not due until December why must I pay them as part of my closing now?

Answer:  This is a common question this time of year, and also early in the year when the 2^nd property tax installments are due. 

In California property tax bills are mailed in October and the first half installment (covering July 1^st through December 31^st) is due by December 10^th and the second half installment (covering January 1^st through June 30^th) is due by April 10^th. 

Once the tax bills have been mailed lenders want to see that the 1^st half taxes have been paid.   They do not want to have a new loan on a property and see it become delinquent on property taxes a month or two later.  The rule of thumb is that once tax bills are available and are due within 60 days of closing lenders will want the taxes paid. 

This means that if you are refinancing and have an impound account with your current lender you will need to bring in the funds to pay the 1^st half installment unless you can prove your current lender has made the tax payment—which is doubtful until sometime after November 1^st.  Once your current mortgage payoffs your current lender will refund you the balance in your impound account, which would include the funds for the tax payment.

If you are purchasing a home the escrow officer calculates the tax liability for the seller from July 1^st to the date of closing and for the buyer from the date of closing until December 31^st and charges each accordingly. 

Taxes are the first priority on title, lenders do not want to have their mortgage behind a delinquent tax lien as it puts them in jeopardy.  As a result as soon as they can determine what the tax obligation is on a property and that they payment is due within 60 days they will want taxes paid as part of closing.

Have a question for me?  Ask me!

With the Labor Day break not much economic news this week to move the markets.  In fact about the only data released this week was an “estimate” that some used as an excuse to sell bonds and buy stocks—not good for mortgages.  The Labor Department had its weekly release of unemployment claims on Thursday and the report showed a marked decline from the prior week with 451,000 new claims being filed. 

Somewhat deceptive, the data used estimates for the number of claims filed in nine states, including the largest—California.  A primary piece of economic data, the number of people out of work, is an estimate.  Great.  This is akin to Major League Baseball releasing batting average statistics and announcing that the averages for the Yankees and Cardinals are estimates provided by the teams.  Lost in the “good” news of fewer claims is that on Thursday the Labor Department also revised up the total number of claims for the week prior. 

For the week ending September 3rd the Mortgage Bankers Association announced that total mortgage applications dropped 1.5% from the prior week.  The good news in this announcement is that purchase applications increased over 6% from the prior week to their highest level since the end of May—but still well below last year’s activity.  Refinance applications dropped, but still constitute almost 82% of total applications taken.

A slow week economically but busy politically.  With the polls showing his party in serious trouble in the upcoming mid-term elections President Obama began the week giving a policy speech to the AFL-CIO and spent the rest of the week following it up.  Saying his policies have the economy moving in the right direction and asking for tax increases on the “wealthiest” Americans, Obama is in full campaign mode.  Initial positive reaction to possible tax cuts for corporations for Research and Development and capital expenditures have been offset by plans to increase taxes on individuals and corporations with overseas units.  Voters and investors will let us know in the coming weeks how those messages are playing.

Rates for Friday September 3, 2010:  Overall a bad week for Mortgage Backed Securities with the Fannie Mae 4.00% security reaching its lowest price today since August 19^th.  Rates for conforming mortgages are up this Friday from last, the first such increase since the second week of July, a nine week run.  I think the run up this week in rates, or run down in prices, is a blip that will correct next week.  We’ll see. 

FIXED RATE MORTGAGES AT COST OF 1 POINT*

30 year conventional                             4.125%             Up .125%

30 year conforming-jumbo                    4.50%               Up .125%

30 year FHA                                         4.00%               Flat

30 year FHA jumbo                              4.25%               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. 

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.

Back to school this week for our kids, historical end of the summer buying season.  As we head into fall and football season we can expect continued sluggishness in housing activity and economic growth. 

Have a great week,

Dennis