Dennis' Mortgage Blog

Question of the week:  What are the acronyms and abbreviations I read and hear about in the mortgage industry? Answer: Every industry and group develops their own “language” that includes acronyms, abbreviations and lingo—for proof ask a teenager 2nite about TXT ABBS get the 411 from if you 404 some will make you OMG and other will have you ROTFLYAO.  Our industry is no different, the basics:

PITI= Principal, Interest, Taxes, Insurance; refers to the complete housing payment and can include mortgage insurance, homeowners dues or other payments made monthly

LTV= Loan To Value is the percentage of the value of the home that is encumbered with a mortgage (or CLTV-combined loan to value includes all mortgages on property); for instance 80% LTV on $500,000 property equals $400,000

DTI= Debt to Income, this is also called “ratios” and is the percentage of borrower(s) gross income that is for the housing payment (top ratio) and/or housing payment and monthly debts (bottom or back end ratio).  Someone with a 35% back end ratio is applying for a mortgage where 35% of their gross pay is being used for their PITI plus monthly debts like credit cards and car payments.  We like this number to be 40% or under, most lenders will not allow this number to exceed 45% of the borrowers gross income.

FICO= The acronym is derived from Fair Isaac Company which is the group that developed credit scoring; some of us remember when there were no credit scores and each individual report was graded against the borrowers overall credit package.  Today credit scores, or FICOs, are a primary determinant of loan rates and decisions.  FICO scores are like bowling—the higher your score the better.

Fannie/Freddie=Fannnie Mae (FNMA or Federal National Mortgage Association) and Freddie Mac (FHLMC or Federal Home Loan Mortgage Corporation), these are our conventional or conforming rules makers and conduits through which almost every non-government loan these days is bought and sold (as MBSes, mortgage backed securities). 

So if you have a FICO >760 with 80% LTV and DTI below 35% you are an excellent prospect for a Fannie/Freddie mortgage!

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

Welcome to the White House President Obama, then back to business as usual.  The credit and mortgage markets reaction to the start of the Obama Presidency has been one of mixed reaction as investors have sold off their positions, but the Federal Reserve has continued to buy Fannie and Freddie which has propped up the conventional mortgage market. 

Today one of the many Federal Reserve Board Members gave a talk and used the “I” word, inflation.  Markets did not like hearing the word and we are seeing a not unusual Friday sell of creating more downward pressure on rates.  The mention of inflation was a commentary on the amount of money the Federal Government has already dumped into the economy and the amount that appears to be dumped in again in the form of the proposed $825 Billion “stimulus” package.  The more money in an economy the more fuel for inflation to take hold, this is the concern many investors have as they decide whether to purchase MBS and other bond investments. 

Remember Inflation is BAD for mortgage rates.  As we move further into 2009 we keep an eye on when the bad economic news begins to dwindle, and when that happens we prepare for market reaction to the decrease in bad economic news—higher rates.

The big news for mortgages this week is a Fannie/Freddie imposed rate hike.  Lenders were informed this week that if over 10% of their mortgage portfolios were in “high-balance” or “conforming-jumbo” mortgages (greater than $417,000) then Fannie/Freddie were adding a premium of up to 2 points—which in the current market translates to 1% or more in rate.  This has taken several lenders out of the market on mortgages over the national conventional loan limit of $417,000 as their rates are non-competitive until their portfolios shift and 90% or more of their mortgages are below $417,000.  Thankfully as a broker with multiple sources we have sources available not affected by the price movement.

This move by Fannie/Freddie shows the disconnect once again between what we hear politicians say in front of the cameras for CNBC or CNN and the actions that are occurring that affect our economy and housing markets.

For the week in rates conforming rates have dropped gaining back last week’s increase, conforming-jumbo sees a slight dip and FHA was stagnant.

FIXED RATE MORTGAGES AT COST OF 1 POINT*

30 year conventional at 1 point 4.875%          down  0.375%

30 year conforming-jumbo at 1 point 5.25%    down    0.125%

30 year FHA at 1 point 5.25%                           FLAT

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.

Congratulations to America for once again demonstrating the peaceful transfer of power and the continuation of our democratic principles and values.

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.