Dennis' Mortgage Blog

January 30th, 2015 11:08 AM


Question of the week:  One challenge we are having with buying our new home is all the advice we are getting from so many people, who should be listen to?

 

Answer: Everyone at work who has bought a house, both sets of parents, your brother in-law, your cousin, your dog walking partner and your trainer at the gym all have advice for you once they find out you are buying a home. As well you are getting opinions, advice and input from your real estate agent and mortgage professional. Who should you listen to?

 

The last two mentioned, your real estate and mortgage professionals, should be at the top of your list of advice givers. Your real estate agent should have strong knowledge of the area where you are purchasing your new home, and the range of values and properties available to be able to assist you in finding the right home for your family at the price you can afford. Your mortgage professional should have you well prepared, being able to provide you with a preapproval package to present to the seller with your offer and should provide details as to the mortgage options, down payment ranges, payments, rates, etc.

 

Ideally when you walk into the home you wish to purchase you should not be concerned with whether you can afford the home; that should already be settled in your conversations with your mortgage professional. Your concern should be if the home is right for you and what offer you should make to the seller to ensure they will sell you the home.

 

At this point the best advice you will probably get will be from yourself. Many, many years ago a seasoned real estate veteran asked me when I walked into his open house to introduce myself, “Do you want it? Would you like to buy this home?”  I explained who I was and why I was there and that even if I wanted to purchase the home I could not afford it. He knew this but me something that I have oft repeated over the years, and that has been proven by many clients who I have asked to keep this in mind. It’s the three-step rule. The veteran agent told me that in his many years of selling homes he observed that most buyers know within three steps of walking into a home if they want to buy it or not. I have mentioned this to many clients over the years and most have confirmed that within three steps they did know they wanted to purchase the home they bought.

 

Before we move onto this week’s economic news, here is one piece of advice I give every client. I let them know I will present them with different mortgage options, “what ifs” for different home prices, down payment amounts, and help them select the option that is best for them. That said, I will not sleep in their new home, I will not use any of my money for their down payment and I won’t be making any of their mortgage payments, so take my advice with that in mind. They will own the home, they will buy the home with their money and they will be making the monthly mortgage payments, so in the end what they need to be the decision makers, not me, not their real estate agent and not their personal trainer. Unless someone is filling all three of those roles, living in the house, paying for down payment and making the payment, take their advice accordingly.

 

In the end your instinct is often the best advice you will receive, as long as that instinct is honed with good advice and information from trusted professionals.

 

Have a question? Ask me!  

 

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

 

Plenty of significant economic news this week that led to choppy trading days for Mortgage Backed Securities (MBS) with very large inter- and intraday swings in prices. Tuesday had three big reports that impact rates. Durable goods orders dropped for the second month in a row as manufacturing has softened considerably, hurt by a stronger dollar lower manufacturing can be a drag on economic growth. Housing data for new home sales showed strong growth in December and the Case-Schiller showed growth in national home prices for November and year over year increase of 4.3% in the 20 housing markets in the index. Finally another consumer sentiment index showing confidence continues to rise with the index being the highest since before the recession. The durable goods news is positive for lower rates, the housing news is somewhat neutral and the strengthen consumer confidence reports give a push for higher interest rates.

 

The Federal Reserve meeting announcement released Wednesday gave a boost to MBS prices (lower rates) as the word “patience” was used regarding future rate increases from the Fed. Stating the economy has be expanding at a “solid pace” and improving labor conditions, the Fed is expecting inflation to slowly approach two percent. Reading into this it appears the Fed may be shifting focus from labor markets to prices as the impetus to push the button and increase short term interest rates it charges member banks from 0-0.25%. The announcement was treated with popping corks on Wall Street as both equities and bonds rose on the news.

 

Thursday we received some head scratching data in the form of a dramatic drop in initial filings for unemployment insurance. Down 43,000 from the prior week, the usually volatile post-Martin Luther King Day week for unemployment claims was much more volatile than usual. The 265,000 claims were the lowest since April 2000. Because the data was so far outside the norm investors were not sure how to react; primarily because many major corporations have been announcing layoffs in the thousands in the coming months/year. At this point the data is an anomaly until supported by filings below 300,000 each of the coming weeks.

 

The first estimate for fourth quarter GDP activity was announced today and it missed the consensus estimate. Following robust 5.0% growth in the third quarter of 2014 the final quarter saw the economy grow at just 2.6%. Most of the growth was in personal consumption, reflective of higher consumer sentiment, but was offset by higher imports and lower exports. The news is a concern for future economic growth given the challenges of the economies in Europe and China as their growth slows as well. This news is decidedly positive for lower mortgage rates.

 

Rates for Friday January 30, 2015: The news today pushed rates lower from last Friday. The hi-balance and FHA rates are showing “flat” but due to price discrepancy at the low levels we are at these rates have lower prices and/or credits for closing costs. Mortgage Backed Securities have climbed to their highest rates in some time and caution is advised as a large correction may be on the horizon with any significant positive economic news domestically or internationally.

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                                            3.50%             Flat

30 year high-balance conforming                        3.625%***      Flat

30 year FHA                                                       3.25%***        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.

 


A non-proclaimed national holiday Sunday, the Super Bowl. It has become the biggest annual spectacle in the United States, it is viewed around the globe and will be the biggest television audience of the year—short of some major unexpected event. It is estimated that Americans will spend $14.31 billion for the Super Bowl, from buying new big screen televisions to 1.25 billion chicken wing (yes Billion). Easily outpacing Halloween’s $7 billion and St Patrick’s Day’s $4.8 billion in spending, the Super Bowl as an economic engine is approaching a real religious holiday (as opposed to the unofficial religion of football---but don’t say that in Texas and much of the South) of Easter that an estimated $16 billion spent of candy, food, clothing and decorations.

 

My interest in the game this year is purely pool oriented as Seattle was one of five teams I drafted in the beginning of the year, if they win I am happy, if the Patriots win I am less happy as my squads did fairly well.

 

I am glad the game is about to be played and hoping it is exciting and keeps us captivated until the end, enough about deflated balls and who will or won’t do an interview. Let the game be played and played well enough that we only talk about that on Monday.

 

Don’t spill wing sauce on your new jersey and enjoy the game.

 

Have a great week,

 

Dennis 



Posted in:General
Posted by Dennis C. Smith on January 30th, 2015 11:08 AMLeave a Comment

January 23rd, 2015 2:31 PM


Question of the week:  Why do you need so many documents from us?

 

Answer: While the rest of the world is going “green” and reducing paper our industry is going “white” and increasing the amount of paper needed to get a mortgage.

 

Prior to the mortgage and housing market meltdowns documentation requirements in our industry were greatly reduced. In that era would run a borrower’s information through the Automated Underwriting System (AUS) of either Fannie Mae or Freddie Mac and if everything was to guidelines we would get an approval for the borrower and list of documentation needed for the loan to be funded by the lender and then to be purchased from the lender by Fannie or Freddie. As the AUS systems and loan fallout statistics had more and more data our document requirements would become smaller and smaller. 

 

Eventually for many borrowers the list of required documents would be:       . That’s not entirely true we would still need to provide a credit report, preliminary title report and escrow instructions. However the AUS system would not require any income documentation, merely a phone call to verify the borrower was still working, no documentation of bank accounts or other assets, and if the value input for the property was within the range of values for Fannie or Freddie’s database no appraisal. So for more than a few years Fannie and Freddie, and therefore the lenders, were not requiring documentation of income, assets or the subject property.

 

That was the pendulum swinging to the far side of easy credit.

 

Today the pendulum has swung almost as far away from that as possible. In response to the market crashes politicians being politicians had to do something and the result was the passage in 2010 of the Dodd-Frank Act, formally known as the “Dodd-Frank Wall Street Reform and Consumer Protection Act.” Part of the Act was to reign in the lack of underwriting criteria for residential mortgages and the formation of the Consumer Financial Protection Bureau.

 

The Act required the definition of “Qualified Residential Mortgage” (QRM) as part of lender risk retention. And after a few years of meetings and feedback from the public the risk rules were written jointly by the Office of the Comptroller of the Currency (Dept of the Treasury), Board of Governors of the Federal Reserve, Federal Deposit Insurance Corporation, Securities and Exchange Commission, Federal Housing Finance Agency and the Department of Housing and Urban Development. Six government agencies writing one piece of policy, as you can expect it is rather lengthy—689 pages if you wish to read it.

 

The purpose of the risk retention policy and definition of a QRM was to encourage lenders to take more stringent approaches to underwriting home mortgages to ensure not only that lenders would have less foreclosure risk but as importantly to ensure that borrowers who took out mortgages had the ability to repay them and reduce the risk they would lose their homes to foreclosure. By trying to ensure fewer foreclosures the national housing markets would be safer and stronger.

 

Loans that do not meet the QRM guidelines cannot be sold by the lender to a third party unless the lender retained a 5% ownership, or risk, in the loan. So if Bubba’s Bank makes a $500,000 loan to a local homeowner that does not meet the QRM standards and Bubba’s Bank sold the loan to a REIT the new rules require that Bubba’s Bank retain a 5% stake, or $25,000, in the mortgage. Fund and sell enough of non-QRM mortgages and your 5% stake can become pretty large. The 5% retention not only increases the exposure to loss by the lender but it reduces the amount of capital available to lend to other borrowers.

To recap, lenders must approve and fund mortgages within the guidelines of the risk-retention rules mandated by Dodd-Frank which define a Quality Residential Mortgage.

 

So why all the required paperwork that is more excessive than what was required prior to the Automated Underwriting Systems, say prior to 1999 or 2000? At the foundation of the QRM definition is the Ability to Repay clause.

 

For a mortgage to be considered a Qualified Residential Mortgage the borrower must provide proof that they have the ability to repay the mortgage. And cash in the bank is not generally considered proof you have the ability to repay the mortgage as the rule requires the borrower to show historical and current evidence of receiving income that will support the repayment monthly of the mortgage, plus other debt obligations, and not exceed 43% of their gross income.

 

If you are buying a $400,000 home, have $600,000 in the bank, are putting down $80,000 and applying for a $320,000 loan at 4% then you have to show you have income to make the $1527.73 monthly mortgage payment, plus the taxes and insurance as well as any auto or credit card payments and all these payments cannot exceed 43% of your income. Even though you can purchase the property with cash and still have $200,000 in the bank after closing all of your income must be verified.

 

Self-employed or part owner of a LLC? Two years tax returns for yourself and any company in which you have a significant stake (generally 25% or greater). Own rental property? Provide tax returns proving receipt of income and showing expenses plus proof property is currently rented. Income from IRA distributions? Several months statements showing the balances support future payments and must be able to continue for at least three years. Every source of income needs to be thoroughly documented.

 

As for assets, I have covered this point many times over the years but it boils down to almost every deposit that is not part of your regular income must be documented as to its source. At least two most recent month’s bank statements must be provided for all accounts where funds for closing will be coming from and any “odd” deposits, i.e. not from your employer, on those statements will be scrutinized.

 

It can be pretty frustrating to keep providing more and more and more documentation, but understand that we are asking for it because the lender is asking for it, and the lender is asking for it because six government agencies are requiring it. The old saying is you can’t fight City Hall, but it is even harder to fight the Departments of Treasury and Housing and Urban Development, the Fed, FDIC, FHFA and SEC—so if we ask for it know it is needed to get your mortgage approved.

 

Have a question? Ask me!  

 

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

 

Not a lot of news this week, two releases important to mortgages and housing were of significance. The weekly unemployment filings were released yesterday and while lower than the prior week of 317,000 initial claims, the 307,000 filings were above the consensus and puts the four week moving average above 300,000 claims filed per week. This indicates trouble for the January employment report released in two weeks and supports the position that our job markets are still weak. This news is positive for lower mortgage rates.

 

Of greater significance to most readers of the Weekly Rate & Market Update was the National Association of Realtors monthly existing housing report. After a 6.3% drop in sales in November, December saw an increase of existing homes sales of 2.4% over November. The increase in sales dropped the housing supply on the market from 5.1 months to 4.4 months, this lower supply could cause January’s sales to decline some with less inventory for buyers to choose from. For existing homeowners the report also had the good news that year over year the national median price for existing home sales climbed is up 6% from December 2013. For a bit of a reality check for those of us in Southern California, the median single family home price nationwide is $209,500, in the six county Southern California region the median price is $415,000.

 

I was more annoying than normal to be around this week because of another wild week for Mortgage Backed Securities (MBS). Like many mortgage professionals I subscribe to a service that provides up to the minute news on the MBS market. I also receive updates hourly and when big swings up or down occur with a text to my phone. All week my phone was whistling and/or buzzing throughout the day alerting me to sudden drop or pop in the MBS prices and possible rate changes from lenders. The cause of all the movement was international events, most particularly the announcement by the European Central Bank announcing its version of the Fed’s Quantitative Easing program. The ECB will be purchasing €60 billion (almost $70 billion) per month of sovereign debt (i.e. bonds issued by European Union member nations) until October 2016. The reason for the move is Europe’s stagnant economy, poor labor markets and huge debt. We’ll see if the move is effective in preventing European countries falling into recession and/or bankruptcy.

 

Rates for Friday January 23, 2015: The ECB’s announcement caused money to flow into the United States with investors buying equities one minute and bonds the next, shifting their optimism back and forth between markets in anticipation of bond and stock prices moving up as the ECB’s Euros finds their way across the pond to higher returns, and possibly (probably?) safer returns on Wall Street and Main Street in the New World. With all the market gyrations rates stay flat week over week.

 

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                                            3.50%             Flat

30 year high-balance conforming                        3.625%           Flat

30 year FHA                                                       3.25%***        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.

 

Are you celebrating the big holiday today? Well it’s not really a holiday but I feel it should be one. You don’t know what day it is? It is National Pie Day! Conveniently positioned about the time most people have fallen off their New Year’s resolutions to not eat desserts, National Pie Day is a wonderful opportunity to grab a piece of your favorite pie! What is your preference? I am a big lover of pie, dutch apple always on top but I won’t let a coconut cream get passed me either!

 

Have a great week, and enjoy your celebratory piece of pie!

 

Dennis 



Posted in:General
Posted by Dennis C. Smith on January 23rd, 2015 2:31 PMLeave a Comment

January 16th, 2015 2:32 PM


Question of the week:  When should I refinance?

 

Answer: Rates are dropping and this is a common question these days, feels like 2013 again.

 

There are certain policies and guidelines we follow to determine if you are eligible for a refinance and if you meet the criteria then you should strongly consider giving me a call to lower our monthly payment.

 

For a “rate and term” refinance, essentially just lowering your monthly payment, the basic guideline is that your payment must decrease by 5% or more and the costs of the refinance must be paid off by savings within 48 months or less (personally my guideline is that costs should be paid off in about 30 months or less).

 

What does this look like? If you funded a $400,000 mortgage at 4.125% your monthly payment is $1939 per month, to save 5% your payment needs to be $1842 per month. Using a mortgage calculator put in your current loan amount, in this instance assume you have had your loan for just over one year and balance is $390,000, put in the payment needed, $1842, amortize for 360 months and you find that you need a rate of 3.91% or lower with costs of $3000 or less to meet the criteria.

 

If you have mortgage insurance then the savings can occur quicker if your home has gone up in value, either lowering the mortgage insurance because your loan is below the prior level of coverage (i.e. move from a 95% loan to a loan between 86-90% of the home value, or from 90% loan to value to below 85%) or even better eliminate the MI all together, in which case your monthly savings on the mortgage principal and interest need not be as great.

 

If you are looking to reduce your term from 30 years to 20 or 15 years then the 5% savings rule does not apply as unless you have had your loan for a considerable period of time your payment will be going up.

 

Also exempt from the 5% payment savings rule is if you are applying for a cash-out refinance, used to pay off an existing home equity line or other debt or for funds for home remodel or any other purpose. With lower rates one strategy some use to determine how much cash out to obtain is, depending on the home value, retaining their same payment and leverage the lower interest rate into a new loan amount with cash to them at closing. In the above example if the borrower refinanced at 3.75% you could have the maximum Fannie/Freddie conforming loan of $417,000 and lower your payment $8 per month; same payment but approximately $27,000 in cash to fix up that guest bath or re-roof the house and put up a patio cover.

 

As for costs in most cases I price refinances so that you are not paying a new set of closing costs for loan, escrow and title fees, but rather include that in the rate we are using. You can, of course, pay fees if you like however in most instances it makes more sense to let the market pay the fees for you.

 

One more rule of thumb, which is very general, to gauge when you should consider refinancing. The chart below that I quote rates every week is based upon an 80% loan to value purchase mortgage for borrower with 740 credit score and paying 1.25 points plus all closing costs. If you add 0.375% to the rate below you will have a close idea of what a refinance rate would be with no points or costs* (*there is an upfront appraisal cost as well if you have an impound account that would be taken care of either with funds at closing or via the loan).

 

A very rough rule of thumb but a quick look at a ballpark where you could refinance today.

 

A better rule of thumb that is much more full proof would be to call or email me to run your numbers against the market that day to calculate your payments and potential savings.

 

In answer to the question, “when should I refinance?” for many people it could very well be today.

 

Have a question? Ask me!  

 

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

 

The best word to describe the week from a mortgage perspective is “crazy.” There was a fair amount of economic data this week that was favorable to rates and piling on was international factors that encouraged lower rates. Putting solid brakes on the positive run was profit taking today and perhaps the beginning of a correction for bonds which perhaps rose too fast. Let’s look at data.

 

Prices for both producers and consumers in December provided no fuel for higher rates as our costs for fuel dropped precipitously in the month. The Producer Price Index dropped 0.3% for the month and prices for producers rose 1.1% from last December; to show the impact falling petroleum prices have had, stripping out energy and food the monthly PPI increased 0.3% and year over year the increase was 2.1%--near the top of the Fed’s target inflation range. Consumers Prices reflected similar results with prices declining 0.4% in December and up 0.7% from last December, stripping out energy and food prices for consumers were flat for the month and up 1.6% for the year. This data is positive for lower rates as low prices reduce the chances for the Fed raises rates sooner rather than later.

 

Some consumer driven data this week provided opposite reads. First was the retail sales data for December which surprised to the downside with sales dropping 0.9% from November, expectations were for sales to drop 0.1% due lower fuel prices. While the drop in retail sales showed a consumers held back on purchases, today’s release of Consumer Sentiment  shows a surge in positive feelings from consumers for their situation, which is somewhat expected given the extra money in our pockets from lower gas prices and prices for goods overall. The lower retail sales data is positive for rates and the consumer sentiment data is negative for rates.

 

Rates for Friday January 16, 2015: As mentioned it has been a crazy week for Mortgage Backed Securities (MBS), keep in mind when MBS, and bond, prices rise rates drop, when prices drop rates rise (think of a teeter-totter with price on one side and rate on the other). Yesterday we saw the biggest one day rise in MBS prices in over a year. Today we are seeing the largest one day drop in a year. With price going so high a correction in the MBS and bond markets is to be expected as well as some profit taking so the drop today is not a major surprise. So if you timed it perfectly and the lenders priced right at the top of the market your rate would be somewhat significantly better than if you were to lock at this moment. With all the movement up and down through the week and especially yesterday and today the net result is no change from last Friday.

 

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                                            3.50%             Flat

30 year high-balance conforming                        3.625%           Flat

30 year FHA                                                       3.25%***        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.

 

Monday is Martin Luther King Day and a national holiday, like most businesses we will be closed. All of our national holidays have meaning and an opportunity for reflection on our nation’s history and culture. As part of what has become a January tradition here is a link to one of the great speeches in human history, King’s “I Have A Dream” oratory from the steps of the Lincoln Memorial in August 1963. Dr. King was a little slow to get started, but after a few minutes he founds his stride and the rhythm and words make history.

 

Basketball fans will remember George Raveling. He played basketball at Villanova in the early 1960’s and later became head coach at Washington State, Iowa and USC. He was on the steps of the Lincoln Memorial that day in 1963 as a bodyguard for King. When King finished his speech he handed his copy to Raveling, who still has the speech today and has turned down millions of dollars for it so he can leave it to his children.

 

Here is the full speech, since you may/probably have the day off on Monday, spending seventeen minutes to watch and listen to history might be able to be fit into your schedule.

 

Have a great week,

 

Dennis 



Posted in:General
Posted by Dennis C. Smith on January 16th, 2015 2:32 PMLeave a Comment

January 9th, 2015 12:07 PM


Question of the week:  What is in your crystal ball for 2015?

 

Answer: I have been asked a variation of this question several times recently and as I told one questioner, my crystal ball is murky and could be cracked.

 

Our economy is now five and a half years beyond the end of the Great Recession and only recently have we seen data that shows economic growth that could be described as more than moderate. As well with the December employment data released this morning three million jobs were added to the economy in 2014, the most in one year since 1999. Based on these two factors we should be prepared to see a robust 2015. 

 

“Should” being the operative word in that last sentence.

 

In conversations and communications I have had with several different analysts and economic geeks such as myself one point I consistently bring up is that the economic fundamentals that I studied when I received my degree in 1984, and that many also learned who were degreed in the 1990’s are not valid, or not as valid, any more. We are beyond the “new economy” the sprung from the technological revolution that took hold for the average consumer in the 1990’s and exploded in the 2000’s and are now in the “new-new economy” and as such many factors that used to be predictors of economic activity no longer apply.

 

Through my lenses of interpreting the new-new economic factors here is what I see for 2015.

 

Jobs Because its importance I will focus much of my crystal-balling on employment.

Primary to any economy are the wages and earnings of the populace who use the fruit of their labor, money, to buy goods and services, invest for the future and very importantly pay taxes. Employment markets are always evolving and this has been seen very starkly with the Great Recession.

 

Employment in the United States peaked in January 2008 with 138 million on non-farm payrolls and reached their post-recession low in February 2010 with 129 million workers. The December labor report shows 140 million workers on non-farm payrolls. At first glance one would consider this very positive, our labor force is 2 million greater than it was at its prior peak. Parsing the numbers we can see that the increase is far below where our total jobs would be had our economic recovery since June 2009 been “normal” under the economic fundamentals of the pre-new-new economy.

 

Over the past six calendar years job addition to the economy has averaged 27,000 per month while an estimated 150-175,000 workers per month have entered the job force. This means that during this time more new workers have entered the labor market than jobs have been created. As a result of this supply and demand gap we have seen two large factors that impair economic recovery, first very stagnant wage growth during the recovery period and second a sharp reduction in the labor participation rate. 

 

Since January 2011 the Consumer Price Index (CPI) which measures inflation for consumers has grown just under 9.68%, during this time the average hourly wage has increased from $19.31 per hour to $20.68, an increase of 7.1%. Since 2011 the average worker has seen his income increase 1.5% slower than inflation. In other words to pay for an item that cost $100 in 2008 the worker would have to work 5.18 hours, today to purchase the same item it would cost $109.68 and he would need to work 5.3 hours to purchase it. Which would be fine if the worker were averaging 2.3% more hours per week in work but that is not the case as the average work week has increased only 1.2%.

 

The labor participation rate is defined as the percentage of civilian population over the age of 16 who are working or looking for work and the prime working age is considered to be ages 25 to 64. In January 2011 the labor participation rate was 66.2% of the eligible population, in December 2014 the participation rate dropped down to 62.7%.

 

One of the biggest reasons for the decline in the participation rate is the elimination of jobs during the recession period, and by elimination of jobs I mean the elimination of job categories. Take Stratis Financial as an example. Before the recession we had on payroll a receptionist who handled many tasks. She left us to move to Texas and instead of hiring a new position we left it vacant and instead invested in a phone system that eliminates the need for a receptionist. How many companies across the country, the globe, have done the same thing? Now most people you call at work you are dialing direct numbers and not going through a receptionist.

 

Technological advancements that have expanded the scope of what technology can accomplish in the place of a person as well as lowering the price of that technology has resulted in permanent job loss of thousands of positions, with thousands more on the horizon. Think of the permanent job loss at places like Kodak and Polaroid due to digital cameras, in the future a large part of the food service industry will eliminate counter personnel and you will punch in your own order and pay—self-check out as you are seeing a many grocery stores and places like Home Depot.

 

Looking into 2015 I see our job market remaining somewhat stagnant as new jobs created do not meet the total overall demand and wage stagnation continue and technology replaces more jobs domestically with machines and devices manufactured overseas.

 

Economy With no large boost in job creation and wages consumer demand will not have any strong increase either. Our economy will continue to grow in 2015 at a decent and steady pace, most estimates I have seen call for the Gross Domestic Product (GDP) to grow around 3%, some say a little higher and some say a little lower. Impacting the GDP for the coming year will be oil prices. While consumers have received what some are comparing to a tax break with significantly lower prices at the pump, workers in the petroleum industries and municipalities dependent on petroleum tax revenues, are seeing what would then amount to a tax increase. Oil production in the United States has grown exponentially since the opening of large private fields for exploration and production. The resulting booms in the economies of these areas, North Dakota for example, has created thousands of jobs and poured billions into our economy. Many cities and states had become accustomed to the price of oil being over $80 per barrel for the past five years are now seeing huge cutbacks in revenue with oil below $50 per barrel. Companies dependent on oil production and supply are seeing their revenues slashed and with it hours worked and jobs will follow.

 

Inflation remains below the target of the Federal Reserve of near 2%, GDP growth a modest 3% and wage growth staying subdued points to an overall economy in 2015 that will be dependable but not bad or fantastic. To use a sports analogy our economy will be more like Kurt Rambis than Magic Johnson.

 

Housing With the steady-Eddy economy predictions most analysts are predicting similar moderation in home sales and prices—and of course this will be very regionally variant as homes in areas with high dependence on oil production and supply may see a drop in home sales and prices while those in areas less dependent will see a more steady and even increase. Most of the analysis I have read for local Southern California markets range from an increase of 2-4% in sales and prices for existing home sales. Pockets could see higher growth or lower growth but overall 2015 should experience moderate paced increases in the housing markets.

 

Mortgage Rates Most of the news for interest rates focuses on the Federal Reserve and when it will increase the rate it charges banks to cover their reserves. Keep in mind through all this news that the Fed does not directly control long term rates, which are what impact mortgage rates. Investors who react to all economic and financial data determine what your interest rate will be on your mortgage. Looking at the domestic and global economic data and the continuing near zero rates of the Fed investors continue to pour money into equity markets and purchase bonds in the United States (mortgages are similar to bonds and rates act in tandem).

 

We closed 2014 and are starting 2015 with long term rates dropping. As we move further into 2015 rates should continue to remain at the current low levels or slip further in the first quarter and through the year I do not see conforming rates rising above 2014 highs of 4.375%, or if they do not by much and we should spend most of the year with very near the 4.00% range for 30 year fixed rate conforming mortgages.

 

There are a lot of variables that always come into play that impact mortgage rates and home sales and values, jobs, wages, prices, consumer spending, political policies and global economics. Looking through my crystal ball at these factors I am not seeing tremendous changes in 2015 from 2014. Steady is the operative word and I think we will see it in employment, prices and rates for the coming year.

 

Have a question? Ask me!  

 

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

 

The big economic news for the week was the employment report for December. The news was very mixed with positive being an increase of 252,000 jobs for the month, the negative was a 0.2% decline in hourly wages. Headlines will show a large drop in the unemployment rate from 5.8% to 5.6% however as discussed above this was due to decline in the labor participation rate as many people quit looking for work and therefore are no longer considered unemployed. The overall news seems to be positive for mortgage rates as Mortgage Backed Securities have risen sharply today (lower rates).

 

Rates for Friday January 9, 2015: After reaching their highest levels since May 2013 Mortgage Backed Securities retreated on Wednesday and Thursday and are climbing again today. The net result is a drop in rates to those May 2013 levels. We may have bounced off the top of the range and next week could see some pull back, or we may be in a new range and hold these numbers for a while. Either way with rates this low waiting may cost you the new bottom.

 

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                               3.50%               Down 0.125%

30 year high-balance conforming           3.625%             Down 0.125%

30 year FHA                                         3.25%***         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.

 


My apologies for the longer than usual commentary today but I wanted to get into some detail on the state of the economy and especially the job markets.

 

How are those resolutions working out? I tend not to make them but do try to instill and reinforce positive routines in my daily life. My thought is that healthy positive habits are routines and negative or unhealthy routines are ruts. Keep to your routines and when you are in a rut sometimes just a slight adjust to a routine is all you need to get back on track.

 

Have a great week,

 

Dennis 



Posted in:General
Posted by Dennis C. Smith on January 9th, 2015 12:07 PMLeave a Comment

January 2nd, 2015 10:13 AM


Question of the week:  No question this week, next week my crystal ball for 2015

 

Have a question? Ask me!  

 

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

 

Light economic data this week that has had minimal impact on rates. In lieu of economic data here is a bonus chart: the conforming rate I quote every Friday for the past 10 years, from January 2005 through last Friday. As you can see our high was 6.625% in late June 2006 and our low was 3.125% from late September to the last Friday in 2012.

 


Rates for Friday January 2, 2015: Mortgage Backed Securities ended 2014 and are starting 2015 on the upswing (lower rates) as investors move their portfolios into fixed income securities (i.e. bonds and mortgages). As a result rates are down slightly from last Friday. If MBS hold these levels next week we should see lower rates as lenders push through the higher MBS prices onto rate sheets—they are holding back some of the gains due to choppy trading and some hedging through the holidays.


FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                               3.625%             Down 0.061%

30 year high-balance conforming           3.75%               Down 0.125%

30 year FHA                                         3.25%***         Flat

30 year FHA high-balance                     3.625%***       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.

 


I managed to make it to midnight on Wednesday, midnight local time as opposed to just Central (or even Eastern…) time as we had a quiet New Year’s Eve at home. We had quite a 2014 in our family and I cannot say I was sad to see the calendar page turn to a new year.

 

Every new year holds the promise of something special and 2015 is no different. My resolution is to continue to provide competitive rates, quality information and excellent service to you throughout 2015.

 

Have a great week and Happy New Year,

 

Dennis 



Posted in:General
Posted by Dennis C. Smith on January 2nd, 2015 10:13 AMLeave a Comment

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