Dennis' Mortgage Blog

June 26th, 2015 5:06 PM


It’s that time of year, our 5th Annual Flag Collection and Retirement will take place on Friday July 3rd!

 

For those of you who have American flags that need to be replaced bring your old flag to our flag collection on July 3rd as part of First Friday’s in Bixby Knolls. Our location is still waiting to be confirmed, but the collection will start at 6:00 pm and the retirement ceremony will occur sometime after 7:30.

 

Question of the week:  On vacation, no question this week.

 

Have a question? Ask me!  

 

Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.

 

Rates for Friday June 26, 2015: Rates up on the week on some mixed economic news. First Quarter GDP was revised upward to -0.2% growth (i.e. shrinking) from original number of -0.7%. Personal income and spending both increased in May which is good news for the economy. Conforming rate hits 4.00% for first time since October.

 

While we have strong momentum to lower rates, the markets have shown us how fickle they can be and I still advise caution and securing your rate as soon as you are able.

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                                            4.00%            Up 0.188%

30 year high-balance conforming                        4.125%            Up 0.202%

30 year FHA                                                       3.50%             Up 0.125%

30 year FHA high-balance                                  3.75%             Up 0.125%

 

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. ***FHA rates have no points and credit towards closing costs

 

 

 

We have been in Scottsdale all week enjoying the triple-digit temperatures, but even more so enjoying each other’s company, playing games, laughing and just relaxing. Hope your week as been a good one. Back in the office on Monday.

 

Have a great week,

 

Dennis 



Posted in:General
Posted by Dennis C. Smith on June 26th, 2015 5:06 PMLeave a Comment

June 19th, 2015 10:45 AM

It’s that time of year, our 5th Annual Flag Collection and Retirement will take place on Friday July 3rd!

 

For those of you who have American flags that need to be replaced bring your old flag to our flag collection on July 3rd as part of First Friday’s in Bixby Knolls. Our location is still waiting to be confirmed, but the collection will start at 6:00 pm and the retirement ceremony will occur sometime after 7:30.

 

Question of the week:  How hard is it to buy out a family member from a property?

 

Answer:  This is a question that comes up often but from different directions, and it is a situation we deal with frequently. There are three primary types of family transactions we see: parent selling home to a child, one sibling purchasing home in parents estate from other siblings, one spouse buying out other spouse in a divorce. While slightly different, each of these transactions is similar.

 

A fairly common inter-family transaction is when parents are selling a property they own to one of their children. Depending on the situation often it is possible for the child to purchase the property with no money out of his pocket and retaining the parents tax base. 

 

Here is a typical scenario for a parent to child sale. The property is valued at $500,000 on the open market, the parents are willing to give a discount but do not want to give the property away. A rule of thumb for Southern California is it will cost you 8% to sell a residential property, inclusive of real estate commissions, transfer taxes, escrow and title fees. So selling a $500,000 property will cost $40,000—bringing your proceeds to $460,000.

 

Now we have the issue of down payment and qualifying. Some parents at this stage sell in a more traditional fashion and Junior brings in a down payment, from 3.5% for a FHA mortgage to perhaps 20% for a conventional mortgage without mortgage insurance. But this requires cash from the child and often these transactions are intended to have the child purchase with little to no cash.

 

In order to accomplish this we use a gift of equity from the parents and a new loan for the child. Here is how it works; say Mom and Dad sell the home to Junior for $450,000. They gift him $90,000, which is 20%, and Junior gets a loan for $360,000. At the end of the transaction Mom and Dad get $360,000 less some closing costs for escrow and title, and Junior owns the  home with a $360,000 loan.

 

Our second scenario is very similar, Mom and Dad have both passed away and the family home was wisely put in a trust thereby avoiding the costly probate process for their children.  Junior, who has a brother and sister, wants to purchase the home, valued at $500,000 on the open market. Using the same cost reduction as above and perhaps a trade of a few thousand dollars from other assets, the siblings agree that Junior can purchase the property for $450,000 from the estate. And we do this transaction with no cash down payment from Junior.

 

Since the sales price is $450,000 each sibling is entitled to $150,000. Junior’s $150,000 is a reduction in the price, essentially down payment, to $300,000. We fund a mortgage for $300,000 and Junior’s brother and sister each receive $150,000.

 

The final scenario is one spouse buying out another spouse in a divorce. Jill and John have owned their home for fifteen years, it is valued on the open market at $500,000 and they owe $150,000. Using our above formula, if they were to sell the property their gross net would be $460,000. Subtract what they owe from $460,000 and their cash net from a sale would be $310,000. Divide this by two and each would receive $155,000. This is what John requires from Jill is he going to let her retain their home.

 

We fund a $305,000 mortgage for Jill, $150,000 to pay off the mortgage and $155,000 to pay off John. After the transaction, John has quitclaimed his interest, Jill retains ownership of her home with a mortgage of $305,000.

 

Three different scenarios that are similar in how we handle the transactions, discounting value some to account for closing costs that are built into market prices, using existing equity for down payment or to provide enough equity for our transaction, and providing a new mortgage.

 

As long as you qualify for the mortgage we can help structure your transaction to purchase your home from a family member.

 

Have a question? Ask me!  

 

Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.

 

Markets were sluggish early in the week ahead of the release of the Federal Reserve’s Open Market Committee meeting announcement on Wednesday. Investors eagerly await the announcement which is how the Fed signals when it will increase the discount rate it charges member banks. The announcement on Wednesday did not indicate a rate hike is imminent and that the Fed is waiting for the labor market to show more improvement and inflation to begin to increase. As part of the announcement the Fed also reduced its forecast for economic growth, indicating expected growth is 1.8% to 2.0% this year as opposed to prior predictions of 2.3% to 2.7%, a pretty significant downgrade for growth.  The news was very rate friendly.

 

Rates for Friday June 19, 2015: The past several Weekly Rate & Market Updates have been heavy on commentary that rates had risen based on no substantiating economic news. This week the increase in rates halted and reversed with Mortgage Backed Securities (MBS) starting to climb back up (lower rates) after the sudden drop starting at the end of May. Despite the improvement in pricing lenders, as they are want to do when prices turn, are holding back on putting all the improvements on their rate sheets to see if the momentum holds.

 

While we have strong momentum to lower rates, the markets have shown us how fickle they can be and I still advise caution and securing your rate as soon as you are able.

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                                            3.812%           Down 0.063%

30 year high-balance conforming                        3.923%             Down 0.077%

30 year FHA                                                       3.375%           Flat

30 year FHA high-balance                                  3.50%             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. ***FHA rates have no points and credit towards closing costs

 

 

 

Summer vacation starts and so does the summer heat—perfect for hitting the pool and spending the days doing “summer stuff.” Time for cooking hot dogs and s’mores over a fire in the backyard and drinking lemonade and eating watermelon on the patio.

 

Happy Father’s Day to all the dads, of all the roles I get to play in this life none surpass that of Dad. We’ll be enjoying a ball game and them hopefully a chance to catch the end of the U.S. Open before heading to dinner at one of our favorite restaurants; three of my favorite things, baseball, golf and a nice relaxing well prepared meal.

 

Have a great week,

 

Dennis 



Posted in:General
Posted by Dennis C. Smith on June 19th, 2015 10:45 AMLeave a Comment

June 12th, 2015 10:54 AM


It’s that time of year, our 5th Annual Flag Collection and Retirement will take place on Friday July 3rd!

 

For those of you who have American flags that need to be replaced bring your old flag to our flag collection on July 3rd as part of First Friday’s in Bixby Knolls. Our location is still waiting to be confirmed, but the collection will start at 6:00 pm and the retirement ceremony will occur sometime after 7:30.

 

Question of the week:  How important is the lock expiration date?

 

Answer:  Very important if rates have stayed the same since you locked in your rate and terms, extremely important if rates have climbed since you locked, and somewhat important if rates have improved since you locked.

 

For us to lock in your rate and terms we need the following: a) to know you are approvable for the loan you wish to lock b) the loan amount c) the sales price d) the property address and e) estimated closing date. With this information we can get an accurate quote for based on your credit score, loan amount, loan to value and the length of time we need to lock in the rate.

 

When we lock in a loan we have the option of doing so for a specific period of time, 15, 30, 45 or 60 days; we can lock for longer periods but many lenders require a deposit for us to lock for say 90 or 120 days. With each longer period that we lock the price of the loan is incrementally higher, i.e. a 15 day lock may cost 1.25 points, the 30 day lock 1.375 points, etc.

 

If we are at our lock deadline and are not able to fund the loan then we have to extend the rate lock to retain it. At that point it depends on the market if there will be an additional fee to extend the rate or not.

 

If the market has improved we can often get a short term extension at no cost (if it has improved dramatically we may be able to “float down” the rate, specific terms and conditions apply to do this however).

 

If the market is the pretty much the same as it was when we locked we may be able to negotiate a very short time extension with the lender at no fee, this have many variables however depending on loan amount, type of loan, if loan docs are out and signed and how many days are required. Sometimes however even if the market is the same the circumstances will require a fee to extend the rate lock period.

 

If the market has worsened and rates are higher and we need to extend the rate then there most certainly will be a fee associated with the extension of the rate lock---and generally the cost is more expensive to extend a loan after it is locked than it would have been to pay for the longer lock period up front.  For example if you have a $400,000 loan that is at 80% loan to value and you could have locked on May 15th for 1.375 points for 45 days but instead locked it for 30 days at 1.25 points and here we are on Friday June 12th and we are not ready to close yet because the buyers of your home do not yet have loan approval, and we need the equity from your current home to close, then we cannot fund on Monday June 15th when your lock expires.  Today the rate for the same loan is considerably higher than it was on May 15th by 0.25%. It looks like we need 10 more days to get the buyers’ loan approval, their loan docs, and then fund both loans. This lock extension in the current market will probably cost you 0.25 points, or $1000 on your $400,000 loan. Has you locked the loan for 45 days at the beginning of the transaction your cost up front would have been only 0.125 points, $500, more than the lock  you decided you needed. So because of circumstances beyond your control and not being conservative on the time estimate to close your new loan your total loan costs have increased $500 over what they would have been if you locked your rate and terms for 45 days.

 

The natural follow up question is “what if I let my rate expire and rates improve?” You will not get the rate improvement unless a significant time has elapsed, usually 90 days or more. If a rate lock expires and the borrower want to re-lock the loan lenders will charge the higher of current market or the prior lock with a re-lock fee, usually 0.25 points. This is because when you lock a loan the lender places the loan in the secondary market and essentially sells the loan at the cost for that delivery date. If you do not fund your loan and the lender is unable to deliver it they are penalized for the failure to deliver—and the penalty comes back to the originating company in the form of either a financial cost or reduced pricing on future loans.

 

It is not wise to gamble with rate lock expirations, just as it is not wise to gamble with the rate market hoping to get a better rate if you wait—especially in our current market. When you are ready to lock, even though you may have a 30 day escrow for your transaction with all the variables that can happen to delay closing it is wise to lock for the extra 15 days at the lower cost than what a short extension could cost you later if needed. Think of it as insurance. 

 

One more point, in a volatile market such as we have now where rates have been spiking up, the longer rate period has another benefit: the rate lock is attached to you and not the property. So if there is an issue with the home you are purchasing and you cancel the sale and need to find another home, with a longer rate lock period it reduces the pressure you may have to find and close to avoid a higher rate.

 

A perfect example of this is a transaction I have right now for a client who entered escrow after a somewhat contentious negotiation. Their home still had to be put on the market and we need the proceeds of the sale to close the new home purchase, and there were some variables at play with the seller that we did not completely trust the disclosures. My advice was to lock for 60 days since we had to have the current home marketed and sold and we were not 100% sure the seller of the property we are buying would perform. Sure enough as the escrow went on several factors led the buyer to be uncomfortable moving forward and within the contingencies of the contract are cancelling the transaction and buying another home. Our rate we locked two weeks ago, even for 60 days, is better than the rates today and we are moving forward without concern to retaining the rate we currently have.

 

Most escrow periods are based on “everything working perfectly,” which is asking a lot for many moving pieces and depending on many people you will never know or meet performing “perfectly.” My advice is to be safe, protect yourself against perfection not exactly occurring.

 

Have a question? Ask me!  

 

Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.

 

As rates climbed through Wednesday they did so based on virtually no important economic data. Traditional non-market movers like wholesale trade, small business optimism and petroleum reports were the releases early in the week. Once we did get some important data on Thursday, jobless claims and retail sales for May, the mortgage and bond markets reacted opposite of what one would suspect. Jobless claims have staked a territory below 280,000 new applications per week for the past several weeks and remain there. The weekly data will not have a significant impact on rates until it posts a significant move one way or the other (more claims may push rates down, fewer claims push rates up).

 

Retail sales for May jumped from April, rising 1.2% following a flat April. Some pundits are suggesting the May sales figures portend, to quote one, that “the long awaited rebound from the soft first quarter is finally here.” If a baseball player has gone three games without a hit and then gets a hit in one at bat you don’t say his slump is over, rather you say, “he needed that, if he can build on that perhaps he can get out of this slump.” The same is true with the one off on retail sales for May, until there is more data to back up the increase it is hard to say the economy has rebounded. The news of increased sales is generally bad news for rates, however investors perhaps acknowledging a stronger number is needed to show growth shrugged off the news and rates slipped down a bit.

 

May saw an improvement in wholesale prices as the Producer Price Index (PPI) grew 0.5% in May following a drop of 0.4% for April. The primary cause of the increase were higher food and energy costs for the month (food up 0.8% and energy up a whopping 5.9%). Even with the overall price increase year over year the index is down 1.1% from May—meaning lower prices from last May for producers purchasing wholesale goods and services. This news is very rate friendly as it show little to know growth in prices—something the Fed considers when determining a rate increase as low to no inflation can be forerunner to low to no economic growth or contraction.

 

Rates for Friday June 5, 2015: At breakfast yesterday with an agent who has quite a few decades in the industry the discussion naturally came to rates and why the spike the past few weeks. My thoughts on the matter are the same as they have been in the Weekly Rate & Market Update the past few weeks, essentially that there is no empirical explanation for rates going up, just speculation by investors who do not want to get caught short should the Fed announce a rate increase for some time in the future next week and everyone else sells out of mortgages and bonds. The trend continued for most of this week as Mortgage Backed Securities (MBS) dropped early in the week to nine month lows (low prices equal higher rates) based on no economic news. Rallying yesterday and this morning MBS reversed the losses for the week so we end up flat from last Friday—but hanging on. I continue to encourage locking in your rate as soon as you can for your escrow period, or a bit longer per my commentary above.

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                                            3.875%           Flat

30 year high-balance conforming                        4.00%              Up 0.375%

30 year FHA                                                       3.375%           Up 0.125%

30 year FHA high-balance                                  3.50%             Up 0.25%

 

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. ***FHA rates have no points and credit towards closing costs

 

 

 

Summeritis is a virus that is growing rapidly in the Smith household. With only three days of school left after today, and a few final exams, the mood is one of revolt on one side and trying to rally and retain focus on the other. In the middle is the ennui and disdain central to teenage characters. So far we are winning as they are getting up and going to school and word has it doing well on the exams. Can we hold it together through Monday when tests are completed? Can we win the battles on Tuesday and Wednesday mornings on what-difference-does-it-make-we-aren’t-doing-anything?

 

All I know is I only have to make two or three more lunches and then my greatly honed skills of making peanut butter and jelly and slicing apples will be on sabbatical until September.

 

Have a great week,

 

Dennis 



Posted in:General
Posted by Dennis C. Smith on June 12th, 2015 10:54 AMLeave a Comment

June 5th, 2015 12:55 PM


It’s that time of year, our 5th Annual Flag Collection and Retirement will take place on Friday July 3rd!

 

For those of you who have American flags that need to be replaced bring your old flag to our flag collection on July 3rd as part of First Friday’s in Bixby Knolls. Our location is still waiting to be confirmed, but the collection will start at 6:00 pm and the retirement ceremony will occur sometime after 7:00.

 

Question of the week:  We are looking at purchasing a property with solar panels, are there any concerns we should have?

 

Answer:  Yes, there are concerns you should have, unless you are paying cash for the property.

 

The residential solar power industry has been prolific in marketing, seemingly every commercial break on the radio, every other piece of junk, I mean bulk, mail you receive, door to door salesmen, phone solicitors are pushing their product: solar panels that will eliminate your electric bill and pay for themselves.

 

What is not part of their sales pitches is that depending on how you acquire your panels, are you buying them or leasing them?

 

If you buy the panels then there is no issue with your mortgage. Just make sure the seller of the property can provide you proof that they own the panels and there is no separate lien on them—or if they did take out a loan to buy the panels the loan is either paid through the sale if attached to the property, or is a personal loan and the panels are in no way encumbered.

 

Most solar companies however are not pushing selling the panels but rather leasing them. Should there be leased panels on the home your are buying this triggers a strict set of guidelines that must be followed before your mortgage application will be approved. Here are the guidelines as paraphrased from the guidelines issued by Fannie Mae regarding leased solar panels.

 

The solar panels cannot be included in the value of the home for the appraisal. Some sellers have their properties with leased panels on the home priced as if the panels were part of the property, since they are leased they are not considered as part of the property and therefore no value is given—similar to an unpermitted room.

 

The lease must be underwritten by the lender and any part of the payment that is not part of a power purchasing agreement must be including in debt-to-income (DTI) calculations. The lease must indicate that the solar panels are removable without causing damage to the property, any damage that does occur as a result of the panels being removed is the responsibility of the equipment’s owner and the owner is obligated to repair any damages and return the property to its original condition.

 

Your insurance company also becomes involved as the owner of the solar panels cannot be named as a loss payee on your homeowner’s policy. If the solar company requires the panels to be insured the policy must be separate from your homeowner’s policy. As well your policy cannot exclude from coverage tort liability you may have due to the solar contract nor coverage for any losses to the property because of the panels. As well the solar company that owns the panels must have a general liability policy covering damage to the property as a result of faulty installation, malfunction or other defects—even if not covered by the warranty.

 

If the lender forecloses then the lease must be able to be terminated by the lender and the solar company remove the panels, or if the lender does not want the panels removed then the lease transfers to the lender at no cost or the lender is able to enter a new lease under the same or better terms. Any lease must also be assignable to whoever purchases the property from the lender post-foreclosure.

 

If you own a home with leased solar panels then I strongly advise that you read all the conditions of the lease sooner rather than later. Too often consumers build a trust with salesmen and then skip through the fine print on contracts as the salesman give his summary of the clauses—which  may not be entirely accurate or entirely disclose the clauses. Even if you have no intent on selling your home in the near future, if you have leased solar panels the lease my impact your ability to sell your home when the time comes and the sooner you know all the impacts of your solar lease on any potential sale the better prepared you will be.

 

Solar power is a tremendous resource, especially here in Southern California, and something Leslie and I have considered for some time. We have not made the commitment however due to the cost to purchase the panels for our home, and we will not lease the panels in part because of the issues listed above. If you are considering putting on panels thoroughly review the lease to make sure you are going to be able the sell the home with the buyer using a mortgage in the future, otherwise you will incur expenses to either get out of the lease early, or have to take a reduced price.

 

Have a question? Ask me!  

 

Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.

 

A very bad week for mortgages, very bad. Mortgage Backed Securities (MBS) opened four of five days this week with a large gap down from the prior days close (lower prices means higher rates). Wednesday was particularly brutal with MBS having a very large sell off mostly due to technical trading once certain prices were hit (programmed trades kicking in as prices drop causing more selling which causes the prices to drop which kicks in more programmed sell orders).

 

The spike in rates early in the week were not due to economic data. The primary data release on the economy was Monday’s personal income and spending for April which showed incomes increasing 0.4% for the month, which is positive news. However the positive news was mitigated by the zero growth in consumer spending in April—consumers may have earned more in April but the additional earnings went to savings not into goods and services. This combined with a lack of inflation, prices are up only 0.1% from last April, are consistent with the previous data showing a relatively stagnant economy. This ordinarily would be good news for mortgage rates and should have sent rates lower—or at least retaining their positions.

 

Rates spiked not so much on domestic data, though some credit for the spike was given to the European Union Consumer Price Index hitting an all-time high in April. So while our inflation is stagnant Europe is showing a trend for higher prices. Somehow this is to lead the Fed to feel U.S. inflation will soon follow and therefore raise its Fed Funds rate sooner than later. The MBS drop was also fueled by rumors and commentary around Greek debt talks that an agreement could be reached, again feeding speculation this will cause the Fed to raise rates.

 

Adding to the voices in the winds this week was the International Monetary Fund released its annual assessment of the American economy, and it wasn’t rosy. In fact the IMF downgraded its prediction of our economic growth from 3.15% for 2015 to 2.5% and for 2016 from 3.1% to 3.0%. As part of the report it also called on the Fed to hold off on any rate increases until next year. Some commentary I have read suggests the call to the Fed was done with tacit consent, or a request (conspiracy theory type stuff), from Fed Chair Janet Yellen to give the Fed cover to not raise rates until 2016.

 

As always the First Friday brings us the monthly jobs report. The report was very positive for April hires showing an increase of 280,000 jobs in the month, most importantly 262,000 being in the private sector. The consensus was for 220,000 jobs so the data far outpaced that number. As well hourly earnings increased 0.3% in the month. This news pushed MBS down even further as bond investors do not want to get caught should the report provide the information needed for the hawks on the Fed Open Market Committee, responsible for the Fed Funds rate, to convince the doves to raise the rate at its June meeting.

 

Rates for Friday June 5, 2015: Markets do not like turmoil and uncertainty, when it occurs investors sell out of positions and wait for the market to settle down. This week was fraught with speculation and pronouncements from pundits, but mostly speculation. As the mortgage markets began to drop investors jumped to sell and down we went. The result is rates climb to their highest levels since October. As I have been saying for some time, lock in your rate as soon as you can in this volatile market.

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                                            3.875%           Up 0.25%

30 year high-balance conforming                        4.125%           Up 0.375%

30 year FHA                                                       3.375%           Up 0.125%

30 year FHA high-balance                                  3.50%             Up 0.25%

 

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. ***FHA rates have no points and credit towards closing costs

 

Tomorrow is the 71st anniversary of the Allied forces landing on the beaches of Normandy and paratroopers dropping behind German lines, also known as D-Day. I have always been fascinated by this military operation. Having read Cornelius Ryan’s “The Longest Day” in the summer after 8th grade (and of course having seen the movie with a true all-star cast at least ten times) I have continued to read many books on D-Day. For those looking for summer reading and are interested in history I strongly suggest “The Bedford Boys” by Alex Kershaw about the men from one county in Virginia who trained just for the Normandy landings. A heroic and tragic tale well told by Kershaw.

 

On a completely opposite tone, this weekend we will enjoy seeing our daughter and other members of the Long Beach Ballet perform “Swan Lake” at the Carpenter Center at Cal State Long Beach. I believe there may be tickets still available, if you are interested in seeing a beautiful performance to wonderful music go to www.longbeachballet.com .

 

Have a great week,

 

Dennis 



Posted in:General
Posted by Dennis C. Smith on June 5th, 2015 12:55 PMLeave a Comment

May 29th, 2015 10:23 AM


Question of the week:  You wrote earlier in the year about an IRS form needed for final approval on mortgage applications, is this in any way affected by the IRS being hacked and files taken?

 

Answer:  In March I did write about the IRS Form 4506 and it being necessary for final loan approval (link here). To recap on all loans lenders are requiring that the aforementioned IRS form be completed and results from the IRS returned before issuing final loan approval; Form 4506 authorizes the IRS to send a detailed transcript of the tax returns on file with the IRS that you submitted. The lender reviews the transcript to ensure the income we are using is the same that you are paying taxes on and to make sure there are no additional deductions or additions to income we did not disclose.

 

Recently we have had a few transactions where clients have been notified by the IRS that someone is trying to access their records via the 4506 and requesting the clients to call to confirm the IRS should send the transcripts. This is obviously fraud control by the IRS and while it has not been widespread with all the transcripts we are ordering for files it has happened.

 

The hack of the IRS is from a system called “Get Transcript,” which is similar to the system lenders used to request transcripts of applicants’ tax filings except that the “Get Transcript” system is for tax payers to directly access their own records. It is strongly suspected that the system was hacked by Russians who reportedly accessed 100,000 personal records.

 

Because of the situation the industry is once again experiencing delays in receiving the requested transcripts required for final loan approvals as the IRS is trying to ensure the requests are legitimate and done with the approval of the tax payer.

 

As with many issues that involve the IRS there is some incredulity to the story. In this case the Los Angeles Times has reported that in 2012 the IRS sent 655 tax refunds to the same address in Lithuania and 343 refunds to an address in Shanghai. One would think with the technology available that the IRS would be able to have a simple address match program to prevent hundreds of refunds being sent to the same address regardless of what country that address is located in…

 

If you suspect you have had your social security number and information compromised there are certain steps you can take—none of them fun—to try to safeguard your information and prevent identity theft, here is an informational pamphlet from the Social Security Administration.

 

For most people there information is still safe and hopefully the IRS, and other agencies, have been able to create better firewalls, that crooks will begin trying to get around. There is no guarantee that your personal information will always be safe however there are some steps you can take to try to minimize someone getting your personal information. Get a home shredder and shred all statements and financial information you do not need. If you have boxes of personal data go to a shredding event to have the information destroyed, as well the Goodwill has shredding capabilities, contact your local office for details.

 

From a mortgage standpoint the hacking issue has impacted few applicants directly but is impacting all applicants with a slow-down in processing of the IRS Form 4506. With what appears to be “only” 100,000 tax-payers compromised out of hundreds of millions the chances are very slim that your could be one of those impacted—but those equate the odds to winning the lottery and someone wins that once in a while.

 

Keep your information safe.

 

Have a question? Ask me!  

 

Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.

 

A few bits of important data this week on the economy, but what I found very informative was this article in Forbes with information from the U.S. General Accounting Office that 40% of American workers are “contingent workers,” meaning they do not receive a steady full time paycheck. “Contingent” work is defined as those receiving income from agency temporary jobs, on-call workers, contract company workers, independent contractors, part-time workers and self-employed. These are workers whose income week to week, month to month,  is not guaranteed, who do not receive any benefits and are generally at risk to lose their income compared to a “standard” worker. This data reflects on the soft labor market that the Fed has been concerned about and impacts consumer confidence and spending and ability for future economic growth.

 

Tuesday saw some positive news as both durable goods orders and new home sales in April bounced back from soft March data. Durable goods orders reflect manufacturing activity and stronger orders portends increased manufacturing output, which should also reflect strengthening labor markets. This news is positive for economic growth and can lead to higher interest rates.

 

Unemployment claims continue to remain below 300,000 per week, which is good as it shows employers are not laying off workers and this can lead to an increase in hiring provided economic expansion is occurring and companies can expand without increasing their labor force. Part of the challenge of our economic growth and the soft labor market is that many of the jobs lost during and after the recession are gone and companies have not re-opened the positions. The unemployment news is somewhat rate unfriendly but since it has become the norm its impact is diminished.

 

The big news of the week is the revision to 1st Quarter GDP, which initially came in showing 0.2% growth, the revision showed the economy contracted 0.7% in the quarter, the second contraction in the past year (Q1 2014 contracted). This is not positive news for the economy and supports Fed rate doves who wish to push off rate increases until later in the year or to 2016. The news is mortgage rate friendly.

 

Rates for Friday May 29, 2015: I have been commenting that rates had been rising for reasons not based on economics and should be lower. This week we saw the first steady increase in Mortgage Backed Security (MBS) prices in several weeks and have crawled back to the price of May 15th, which was a peak that we slid off of. With this new peak and the GDP news today I expect MBS to break through a resistance level and continue to slowly climb and rates to soften. “Expect” being the critical word, we’ll see if my expectations are correct. Rates slip back down today from last week’s eleven week high.

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                                            3.625%           Down 0.125%

30 year high-balance conforming                        3.75%             Down 0.125%

30 year FHA                                                       3.25%             Flat

30 year FHA high-balance                                  3.25%             Down 0.125%

 

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. ***FHA rates have no points and credit towards closing costs

 

 

 

My native state of Oklahoma and its neighbor to the south Texas have been devastated by record rainfall which has resulted in tremendous flooding. For some time I have been telling anyone who listens that if the supporters of the Keystone Pipeline could get it built if they tied into the project building a series of pipelines from the Midwest and South to capture flood waters and transport the water to the West, running through filters along the way, then it would benefit both regions. Of course my cynical side then pops up imagining the delays from government regulators blocking the course of the pipeline and then the fact that California in particular has lacked the political leadership to build infrastructure to capture and store water from periods of deluge—much less be able to accept millions of gallons from flood and snow melt from other regions.

 

Imagine if our elected leadership had the long range thinking and execution to once again invest in infrastructure locally, statewide and nationally.

 

Thanks to everyone who clicked through and made a donation to the Wounded Warrior Project last week.

 

Have a great week,

 

Dennis 



Posted in:General
Posted by Dennis C. Smith on May 29th, 2015 10:23 AMLeave a Comment

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