Dennis' Mortgage Blog

March 27th, 2015 12:49 PM


Question of the week: I am not on the mortgage to my home, does this mean I lose the mortgage interest deduction?

 

Answer: Disclosure, I am not a Certified Public Account, please consult with your tax advisor before claiming or not claiming any deductions for real estate or other items.

 

That said…regarding claiming deductions for interest and property taxes paid, whoever pays them may claim the deductions, if eligible, on their tax returns as long as they can show proof of making the payments. Even if your name is not on the IRS Form 1098 showing mortgage interest paid.

 

If you move into your parents’ home and make the payments on the mortgage they had in place. At the end of the year they are issued a Form 1098 showing $15,500 paid in interest—but they never paid any of it you did. Get a copy of the IRS 1098 to keep for your records, create a payment record showing the payments on the mortgage came from your bank account (preferably copies of canceled checks or bank statements showing payments to the lender) and claim the full deduction on your tax returns. If you pay the property taxes the same process would apply.

 

This scenario also applies if you have a vacation home in the mountains or desert you co-own with siblings or own some income property with a partner(s),  where one party may be on the loan but everyone chips in to make the payments. Keep good records of your contributions to the property and towards the mortgage and taxes so you can properly claim any eligible deductions.

 

As long as the total amount of interest paid that is claimed does not exceed the amount listed on Form 1098 anyone who has made payment can claim the deduction—just be prepared to show proof of your making the payments should the IRS contact you for verification; i.e. an audit.

 

Again, check with your tax preparer before making any deduction claims and make sure you have the evidence to support your claims.

 

If you have any questions please do not hesitate to contact me.

 

 

Have a question? Ask me!  

 

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

 

Plenty of economic data to chew on this week. Early in the week the National Association of Realtors released existing home sales for the month of February which showed a 1.2% increase from January, good news though marginally good as January and February sales were the two weakest months since last April. Year over year sales were up 4.7% and the national median home price of $202,600 was 7.5% higher than February 2014. Overall the news is neutral to slightly negative for lower rates.

 

Inflation numbers for February were a bit like the weather—chilly. With increases in energy prices in the month the Consumer Price Index managed a 0.2% increase for the month after dropping 0.7% in January. Year over year CPI is down 0.1%, which means on a $1000 bundle of goods and services purchased last February you should have paid $1 less this February for the same items. This is positive for lower rates as it shows a sluggish economy and pushes out possible increases in rates from the Federal Reserve who has a target range of inflation where they would like the economy to operate in the 1.7% - 2.0% range for inflation; obviously our economy is well below that range.

 

Jobs are a major part of economic health and jobs in the manufacturing sectors are considered to be a bellwether for economic health and growth. This week data on durable goods orders, which gauge manufacturing activity, showed a 1.4% decline in February after increasing 2% in January. Year over year durable goods orders are only 0.6% ahead of last February. This data is positive for lower rates as it shows a slow manufacturing sectors, which would result in lack of overtime, soft wages and hiring.

 

Our final data for the week is the final revision to Fourth Quarter Gross Domestic Product for 2014. The final number was an unrevised 2.2% growth in the quarter, indicating soft growth. This is positive for lower rates as it also lends support to those who feel Fed needs to wait longer to raise interest rates.

 

Rates for Friday March 27, 2015: With the economic data, armed conflict increasing in the MidEast and corporate profits showing declines there is no reason for rates to increase. But, you knew it was coming, after Mortgage Backed Securities reached a peak on  Tuesday (lower rates) the sold off strongly on Wednesday and Thursday (higher rates) on concerns about oil supplies, profit taking and jumping off the sinking ride down. We have seen a rally today as it appears more fundamentalist views are prevailing and looking at an economy and markets that support lower rates for a prolonged period of time. Net result of the movement is we lost what little we gained last week.

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                                            3.625%           Up 0.006%

30 year high-balance conforming                        3.75%             Up 0.097%

30 year FHA                                                       3.25%             Flat**

30 year FHA high-balance                                  3.375%           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

 

 

Between the sneezes and the watery eyes it is very apparent that Spring has sprung in our neighborhood with the beautiful flowers in bloom. While the temperature is telling us it may be September, the calendar says Spring and our plants are doing what they do best—making our lives just a bit prettier.

 

I am hopeful you have time between checking your basketball brackets, prepping for your meeting with your tax preparer and getting ready for the kids’ spring break to slow down and enjoy your surroundings—flora, fauna and persona.

 

Have a great week,

 

Dennis 



Posted in:General
Posted by Dennis C. Smith on March 27th, 2015 12:49 PMLeave a Comment

March 20th, 2015 12:28 PM


Question of the week: Following up from the last question of the week, why did we take our property out of our trust to refinance and then put it back in?

 

Answer: For those who missed it, last week we answered the question “How should we take title” and one of the suggestions was to put your property in a trust. Today’s question is from friend Leslie W. who we have worked with on refinances. Being conscientious about financial planning and succession she and her husband have their home in their family trust. When we refinanced them we had escrow draw up two deeds for them to sign as part of the transaction, the first one deeded the property from their trust to them as husband and wife as community property with right of survivorship, the other deeded the property from themselves as husband and wife as community property with right of survivorship to their family trust—how the title read before the transaction.

 

The transaction with title went in this order for recording at the county recorder’s office: deed recorded taking title out of the trust, trust deed for mortgage recorded with them listed as husband and wife, community property, deed recorded putting title back in the trust, all within a matter seconds the property title is changed, mortgage recorded and title changed back.

 

Back to our question, why does this happen, why is the title taken out of the trust and put back in?

 

Primarily for convenience and secondarily for expediency—which is probably the same thing.

 

If your property is in a trust, or if you wish to purchase a property in your trust, the lender will want to review the trust. This will entail providing a copy of your trust to the lender’s legal department who will review the documents to ensure that should you not make payments the lender will have the ability to foreclose on your home. If there are any items that do not make the legal department comfortable they will ask for changes to be made to the trust, or may refuse to allow the trust as the owner of the property as part of the loan process. The latter very seldom happens as most family trusts are pretty similar, the former happens not infrequently depending on the language your attorney used in setting up the trust.

 

This process can take from a few days to a few weeks depending on how busy the legal department is, and most lenders will not send any trust documents to their legal folks until the loan has otherwise been approved. As a result for those who insist on having their property remain in their trust through the transaction the closing date will be delayed beyond when it would be if they executed two deeds in escrow to be recorded at the end of the transaction, one to take the property out of the trust and one to put it back in.

 

Lender, title and escrow are all on board with this process and it occurs with almost every transaction where a trust is involved. A bit unwieldy but very effective for quickly and efficiently closing your transaction and also ensuring your property remains in your trust.

 

If you have refinanced with a lender not named Stratis Financial and went through the deed out-deed in process with your trust you may want to check to be sure the escrow/closing agent the lender chose put the property back into your trust—we have seen cases where this has not happened which would lead to very big problems should something catastrophic happen to you and/or any co-owner also in the trust.

 

If you have any questions please do not hesitate to contact me.

 

 

Have a question? Ask me!  

 

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

 

Please don’t get upset with me for possibly putting an earworm in your head to hum all day, but this week the economic news was “All about the Fed, ‘ bout the Fed, no data.” Actually it was all about one word: patient. On Wednesday the Federal Reserve Open Market Committee (FOMC) released an announcement following their meetings on Tuesday and Wednesday on their policy moving forward. In the announcement regarding rates the FOMC removed the word “patient” from their statement as to when the Fed would raise the discount rate. The policy statement made no change in rates, no change in what indicators would trigger a rate increase but with the word “patient” no longer part of the policy it appears the Fed could raise rates sooner rather than later—reinforcing those who have felt from January’s policy announcement that the Fed would raise in June. On its own this one word change would cause a jump in rates.

 

But the policy statement is not released alone, the FOMC also released its economic forecast and that piece of the announcement caused a major move in rates. In January the Fed said the economy was “solid,” in March the Fed says that “economic growth has moderated somewhat.” This pretty much reflects what I have been writing every Friday for the past few months as the data on the economy comes out. The Fed has lowered its labor forecast, its GDP growth forecast and its inflation forecast. Because of its forecast for slow (sluggish?) growth through 2015 it is assumed that short of some very strong economic growth in the next three months that the Fed will not increase rates in June and in fact any increase may be pushed out to late 2015 or early 2016. This was very good news for lower rates and the market responded immediately.

 

Rates for Friday March 20, 2015: A slight drop in rates from last Friday, lenders are holding on to some of the gains from the drop in Mortgage Backed Securities (MBS) but if we retain the trading range of the past few days we should see them dip down a bit more.

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                                            3.619%           Down 0.006%

30 year high-balance conforming                        3.653%           Down 0.097%

30 year FHA                                                       3.25%             Flat**

30 year FHA high-balance                                  3.375%           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

 

 

Happy Spring, which officially arrives sometime before 4:00 this afternoon. Two of my favorite things about Spring are the start of the baseball season and the NCAA Men’s Basketball Tournament, aka March Madness. No sporting event in the country is as exciting year in and year out as the tournament as small schools most people have never heard of knock out perennial powers and last second shots extend one team’s season and ends another’s.

 

Like many I have my sheet filled out, as I have done with the same group since the mid-1980’s, and since there is some donuts on the line did not try to hit a grand slam with my pick of the winner—nor did anyone else as we all took Kentucky.  My Final Four is Kentucky, Wisconsin, Michigan State and Duke with the Wildcats beating Duke in the final. If I were to pick a team to beat Kentucky it would be Wisconsin. Having said that I now anticipate Arizona to knock off Wisconsin…..

 

I hope your brackets are doing well!

 

Have a great week,

 

Dennis 



Posted in:General
Posted by Dennis C. Smith on March 20th, 2015 12:28 PMLeave a Comment

March 13th, 2015 1:41 PM


Question of the week: How should we take title to our new home?

 

Answer: In California there are several options as to how you should take title to the property, i.e. how you should own it.

 

The manner in which you have title is very important as it determines each individuals rights of ownership and what happens to your ownership should you die while owning the property. As such it is very important to understand your options.

 

If you own a home, or real property, in California as a single or unmarried person (single is never having been married, unmarried is having been married and then either divorced or widowed) the solution is simple, you take title as an unmarried man or woman.

 

It gets a bit more complicated if you are married and are taking title without your spouse. Reading this some are saying, “why would anyone do that?” Several reasons, perhaps you and your siblings inherit property from a parent and only the children are permitted by the will to take title. Perhaps you are separated and purchasing a new home. In these circumstances your spouse will need to execute a Quit Claim Deed renouncing ownership and then you take title as a married wo/man as sole and separate property.

 

What if you purchase a home when single and then get married? If this is your situation it is advisable to make a legal change to the title of the property. California is a community property state, when you get married unless explicitly declared by your spouse that they have no interest in any property you own they have a claim to title. To prevent a messy situation should you have some unfortunate incident occur, such as getting hit by a bus while vacationing in London (look right!) it is highly suggested that you transfer title as soon as possible after getting married to you and your spouse, or have your spouse execute a Quit Claim Deed renouncing any claim to title if that is your preference (it happens).

 

For married couples there are several options as to how to take title, each with their own rights of survivorship and it is advisable that you understand the differences before letting whomever is completing the Grant Deed conveying title to you.

 

Below is a hyperlink to the California Land Title Association website describing each of the ways you may take title. A quick recap for married title holders:

 

Community Property each person on title, but each person can dispose of his portion at will, meaning without the others approval—this includes transferring title upon death. So if Jack and Jill own a home as community property each with 50% ownership and Jill dies having giving her portion to her sister through her will then Jack is now co-owner of the property with Jane.

 

Community Property with Right of Survivorship similar to regular community property but in this instance when Jill passes away her portion of title goes to Jack.

 

Joint Tenancy all parties have equal interest in the property with rights of survivorship to surviving joint tenants. Neither party can dispose of his/her portion separately.

 

Tenants in Common is usually for more than two parties, i.e. if you are purchasing a lake house with your brother, sister and their spouses. With joint tenancy you can create disproportionate ownership interests, for instance Jack as 25% interest and Jill as 75% interest in the property, each can sell or will their portions separately. Side note, I had a transaction once where wife was 95% owner and husband was 5% even though they both brought the same amount to the table to purchase.

 

Here is a list of the different legal means of holding title to property in  California. 

 

Of the different methods of holding title the one I suggest the strongest is in a living trust. Many people feel unless they have kids, or unless they are married, they do not need a living trust. Unless you want the state involved in the transfer of your home to your relatives if/when you die then you will want a living trust regardless of whether you are married or have children. If you are single do you want your home to go to your brother or sister? Or sold and the proceeds donated to a married over fifty mortgage professional who lives in Long Beach and has two kids to put through college in the future? On a serious note, if you own property you need to have a living trust detailing what happens to the property if something happens to you.

 

 

If you had a living trust already established prior to your marriage then you either need to amend the trust or create a new one with you and your spouse.

 

Many unmarried individuals, especially younger ones with their first homes, have their parents on title to their property. To transfer the property title to just you and your spouse your parents will also need to sign the Quit Claim Deed and have their signatures notarized.

 

If you have gone through a divorce make sure the title to the property has been properly transferred, I have seen cases where the title was not conveyed to one party or the other and it created some major challenges years later. If this is the case make sure you establish a new living trust and place the property in the trust if you are the one who gets the home in the divorce settlement.

 

Finally, if your spouse has passed away you will need to make sure the title is properly changed so you can easily make transactions involving the property later. Again my advice is the use of  a living trust to hold the title to the home. If you already have a living trust you will want it reviewed after your spouse passes away and your home will probably need to be appraised to establish a new cost basis for the estate.

 

Before making any changes to title please consult with an attorney to ensure you are taking title through the change in the manner that is most beneficial to you and your family.

 

Have a question? Ask me!  

 

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

 

Scant economic news this week. What news we did get was not too positive for those looking for economic growth. Yesterday retail sales for February were released and for the third month in a row sales declined. While part of December and January declines could be attributed somewhat to declining energy prices, this is not the case last month as gasoline prices increased 1.5%. The leading drag on the index was a decline in auto sales. With 65-70% of our economy being consumer spending declining retail sales does not bode well for economic growth. The news is very friendly for lower rates as it puts future rate increases in doubt and portends a slower economy.

 

More consumer data supported the retail sales declines as the final consumer sentiment index for February showed confidence starting to slowly wane. After peaking to an eight year high in mid-January consumer confidence has continued to drop and now is at its lowest level since November. This is positive for lower interest rates as lower consumer confidence leads to lower consumer spending.

 

Wholesalers are not showing signs of growth either. Today the Producer Price Index for February declined 0.5% and is down 0.7% from last February. This is the third month in a row that PPI has declined, and like the retail sales data February is not negatively impacted by lower energy costs to wholesalers. A negative PPI number is very positive for lower rates as it indicates a lack of demand from wholesalers who produce the goods and services consumers purchase, the lack of wholesale demand is reflective of lower consumer demand.

 

Rates for Friday March 13, 2015: After dropping all last week Mortgage Backed Securities (MBS) rebounded this week and has been trending positive (higher MBS prices mean lower mortgage rates). We continue to seek stability in the rate market but for the time being appear to be in a tight range for conforming rates. Next week the Federal Reserve meets to plan their next six weeks, the language they release in their minutes could spike rates on Wednesday.

 

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                                  3.375%           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

 

 

Everyone recovered from the time change? How about Spring? Did you enjoy our Spring? Even though Spring does not officially start until March 20th it appears we had it two weeks ago and now are firmly running the summer season here in Southern California.

 

Break out the SPF 45 and enjoy your weekend!

 

Have a great week,

 

Dennis 



Posted in:General
Posted by Dennis C. Smith on March 13th, 2015 1:41 PMLeave a Comment

March 6th, 2015 10:44 AM


Question of the week:  Why is my loan closing waiting for the IRS?

Answer: For the past several years lenders have required a completed IRS Form 4506 prior to final approval and closing. Form 4506 is sent for the lender to the IRS for the purpose of verifying that the federal tax returns provided by the borrower for the application matches the returns the borrower filed with the IRS. Or, if no tax returns are required the IRS will verify that there are no items on the filed tax returns that would require the lender to review tax returns, such as Schedules C (self-employment) or E (rental property) filed with the return.

When your signed loan application is turned into our processing system your Form 4506 is submitted to the IRS for processing. If your loan package originated in October, or December, or even January the IRS would return the completed report in approximately 2 weeks for the most recently filed tax return.

This time of year with the number of filings increasing exponentially each week as the April 15th tax deadline approaches, the processing time at the IRS slows considerably. The current estimate for the IRS is return of the 4506 results is six weeks or more from the date you file your return—if filed electronically. This means if you electronically file your federal tax return for 2014 today, March 6th, and we send in Form 4506 to the IRS we will receive the results April 17th or later. The reason for the delay is we must wait for the IRS to receive and have your return filed into their system and then have personnel process the 4506 request.

The good news however is that until April 15th we do not need 2014 tax returns, but can use your 2014 W2 and 2013 federal tax returns. While the processing of the 4506 request will still be longer than it will be later this year, because your 2013 taxes are already in the system the return of the 4506 results will be just a few weeks instead of five, six, seven or more.

For some however the 2014 tax returns are needed due to higher income than on prior year’s taxes or because losses on prior year(s) returns are lower or non-existent on the 2014 return. If this is the case then buyer, seller, agents and everyone involved will need to exercise patience waiting for the IRS to process and return the request to verify the submitted returns.

If you are purchasing a home at this time of year it is very important to discuss the status of your federal income tax filing, when it was or will be filed and whether your 2014 taxes are needed for you to qualify for your new home. If you have any questions regarding your taxes and how they may impact your qualifying, or timing, for the purchase of your new home please call me.

Have a question? Ask me!  

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

Not a good week for rates. Slipping all week, Mortgage Backed Securities dropped hard at opening this morning and have continued to fall through the morning (lower MBS prices means higher interest rates). Very little economic news early in the week that impacts interest rates, the most significant being personal income and spending figures released on Monday. Income barely rose in January, up 0.1% and spending declined for the second straight month (down 0.2% from December). This news should have been rate friendly but investors shrugged it off and appeared to be selling mortgages and other bonds to capture gains and use technical models to adjust their holdings.

Being the First Friday of the month we get the monthly jobs report from the Labor Department. The news was a major market mover as the report indicated 295,000 jobs were created in January, well above the estimate of 240,000 jobs and well above the downward adjusted figures of 235,000 new jobs in December. The headline data, total jobs created and the unemployment rate dropping from 5.7% to 5.5% over-shadow more details in the report such as the labor participation rate declining to 62.8% and hourly earnings increasing just 0.1%. The data caused a strong sell-off for MBS and equities as investors see the news as indication that the Federal Reserve will increase its discount rate in June.

In the near term we can anticipate investors beginning to price a Fed rate increase into the market, this will put upward pressure on mortgage rates until and unless economic data is presented that contradicts a strengthening labor market and economic growth. For those who have been floating rates to try to capture just a little bit better rate they may have missed their opportunity, at least in the short term. Always best to lock through your escrow period and chance missing a potentially lower rate than float and miss the rate you could have had.

Rates for Friday March 6, 2015: Rates are higher from last Friday and as you can see by the chart conforming and high-balance rates are at their highest levels since early December and up almost one-half a percent from their lows the last week of January. Whether we hit resistance at these levels and we see rates move sideways for a while is unknown for a week or more, in the meantime exercise caution and lock when you can.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                                            3.75%             Up 0.125%
30 year high-balance conforming                        3.825%           Up 0.125%
30 year FHA                                                       3.25%***        Flat**
30 year FHA high-balance                                  3.375%           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 **Rates are flat week over week but credit is lower

 

If you don’t know to set your clocks ahead when you go to bed Saturday night then you need to get out more, either that or I’m flattered that your primary source of this reminder is the Weekly Rate & Market Update.

I am no fan of the Daylight Savings Time clock adjustments, I wasn’t when the Spring adjustment was in April and even less so now that it is early March. The argument for lengthening the period for DST is that it saves energy as it is light later, but what about those of us who get up early in the morning? Just as it was getting light in the mornings so the Early Risers were not getting up in complete darkness, able to walk our dogs in daylight and enjoy the sunrise in solitude the clocks move and we are back in the dark ages for another month or so.

This year we will have 8 months of DST, running from this weekend until November 1st. If Daylight Savings Time is running 8 months shouldn’t we call it “standard time” and re-label “standard time” Daylight Wasteful Time?

We’re King for a day I would abolish Daylight Savings Time and let our cycles of light and dark run as God wants them to run and let man-made time stay constant through the year.

Off my soapbox and through with the rant, thank you for listening.

Have a great week,

Dennis 




Posted in:General
Posted by Dennis C. Smith on March 6th, 2015 10:44 AMLeave a Comment

February 27th, 2015 9:26 AM


Question of the week:  Should we get an adjustable rate mortgage?

 

Answer: Probably not.

 

Some home buyers are tempted by the low initial payment an adjustable rate mortgage (ARM) thinking that by the time their payment is due to increase they will either be earning more or they can refinance to a fixed rate.

 

The two assumptions are the beginning of what could be a big problem in the future.

 

First let’s look at the assumption you will be earning more money in 3, 5 or 7 seven years. Not an unreasonable assumption for many people, though the question is not just if you are making more, but if your increase in earnings keeps pace with or outpaces the increase in interest rates.

 

Say you purchase a home and get a $400,000 mortgage with a 2.75% rate on a 5/1 ARM (rate and payment are fixed for five years then rate and payment can adjust every year). Your payment is $1630 per month; let’s assume this is 35% of your gross income making your salary $4650 per month.

 

Five years from now the most your interest rate can increase is 5% to a rate of 7.75%, which on your remaining balance of $356,000 would give you a payment of $2670 per month, an increase of 64%. So that the payment remains 35% of your income, your salary would need to increase to $7630 per month, an increase of 64% over five years. Consider the job and profession you are in and the likeliness that your income will increase 64% in the next five years, or about 12% per year?

 

As to the second assumption, that you can refinance in the future, any refinance you engage in will be at a higher rate than your ARM rate and lead to a higher payment, and given the current low rate environment the rate most likely will be higher than today’s fixed rate payment. Keep in mind that the current ARM rate is always lower than the current fixed rate. So in the future if your rate adjusts to 7.75% the fixed rate available at that time will be higher than the 7.75%.  But the loan balance is lower after five years of payments. True, but still not low enough to off-set the large increase in interest rate compared to the today’s rate.

 

Either scenario puts you in a potentially very challenging financial situation in the future.

 

If you were to take the $1630 per month payment you would have if you used an ARM for financing and instead got a 30 year fixed rate loan at 3.625% you loan balance would be $360,000 or 10% lower than the ARM. Or you could obtain a $400,000 loan with the fixed rate and have a payment of $1820 per month, or 39% of your gross income.

 

And you payment would remain the same for the 30 year life of your loan.

 

Financing your new home with an ARM to make it more affordable can likely result in a less affordable home in the future. If the only way you can feel comfortable paying for the home you really like is to use an ARM for financing then you should be looking at a way to really like a less expensive home; if you don’t believe me ask some of the millions of families who lost homes during the Great Recession because they could not afford the payments of the homes they really liked. Your best financing option for the short and long term is almost always a long term fixed rate, and fixed payment, mortgage.

 

Have a question? Ask me!  

 

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

 

It was not a quiet week on the data front. Plenty of action for the business and economic writers and pundits this week with some major data releases (home sales, CPI, consumer confidence, GDP) plus Fed head Janet Yellen testifying to the House and Senate. The result was a roller coaster week for the mortgage markets.

 

A quick look at the numbers. For home sales January was a poor month, declining nationally by 4.9%, with the lowest rate of sales since last April. With the drop in sales the national median price dropped below $200,000 for the first time since last spring. New home sales faired better with transactions on par with December, which had a huge jump in sales from November. Pushing the higher sales were price concessions as the median price dropped 2.6% for the month. Higher home sales are an indicator of economic growth and consumer confidence and can lead to higher rates.

 

After peaking in January consumer confidence has dropped in the twice monthly report due to fewer respondents optimistic with their expectations. The drop in confidence is a bit of a head scratcher with prices dropping, the Consumer Price Index for January dropped 0.7% from December and is down 0.2% from January 2013. Taking out food and energy and CPI is up 0.2% for the month and 1.6% for the year. These numbers are good for consumers who see their income buy more, however not so good news for the economy as price contraction can lead to deflation. This reading should be positive for lower rates.

 

On Friday we received the GDP revision for the 4th Quarter. The initial estimate was that the economy grew at a rate of 2.6%, the revision lowered that growth to 2.2%. The revision was mostly due to lower estimate for growth in inventories, so not that big of a deal as it would be if the lower estimate was due to consumer consumption of goods and services.

 

Amidst all the big data news was the needle mover for investors, Federal Reserve Chair Janet Yellen had testimony this week to both the Senate and House committees for banking and financial services. Anxious to hear a peep about when and/or how much the Fed will raise its discount rate (for recap of the Fed’s roll in rates see last week’s Update). Essentially Yellen said that the Fed was more than likely raising later in the year, apparently beyond the June up-rising many have expected. She indicates the Fed feels economy is close to full employment, not sure the new normal on GDP and that Fed rate increase will be dependent on improvement in inflation (i.e. higher than we saw this week) and labor market.

 

After her comments on both Tuesday and Wednesday one of my partners and I were discussing how we cannot remember a wider set of interpretations of Fed comments. Some pundits and analysts were claiming Yellen said higher rates are on the way, indicating rate increases will happen soon, and others were interpreting her remarks that the economy is still lagging and the Fed will retain low rates for longer than expected. Reading the remarks I am in the former category, especially as she mentioned prices and inflation has been well below the Fed’s target range for years.

 

Rates for Friday February 27, 2015: With all the news and commentary Mortgage Backed Securities experienced another roller-coaster week with some big swings daily. As the dust settles today MBS buyers are out pacing sellers and prices are slowly rising (lower rates) as investors seem to take the long view on rates that I have. It is a choppy market and it feels as if the next big spike in rates is waiting to happen, I urge caution and a conservative approach to lock your rate as soon as you are able to remove the risk of getting caught if they do spike. Week over week rates are pretty flat from last Friday.

 

 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                                            3.625%           Flat

30 year high-balance conforming                        3.75%             Flat

30 year FHA                                                       3.25%***        Flat

30 year FHA high-balance                                  3.25%             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. 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.

 


Looks like a stormy weekend for Southern California. I have always said the best time to look at property in the region is when it is raining so you can see if there are leaks in the roof, windows or doors and where water may collect and puddle causing potential problems down the road.

 

Of course stormy weekends are also good for staying inside with a cozy fire, a good book or stack of old movies….and perhaps a little amber liquid to sip slowly. Or for those who are fans, Netflix released Season 3 of House of Cards today, now there is something to watch with a bit of the whiskey.

 

Have a great week,

 

Dennis 



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Posted by Dennis C. Smith on February 27th, 2015 9:26 AMLeave a Comment

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