Weekly Rate & Market Update 12-30-16

Question: What were the highs and lows of mortgage rates in 2016?

Answer: As you can see by the chart below we are ending 2016 with interest rates just below the highest rates we saw all year.

The year started with conforming rates starting to fall from near 2015 highs, dropping from 3.875% to 3.75% (using criteria I have used for my chart quotes for over 15 years as described below) in six weeks. After a brief pop up into March rates remained very steady through June before hitting the lows of 2016 in July at 3.25%. From July until election week rates were either 3.25% or 3.375%. Post-election rates quickly climbed to their highs of the year, reached two weeks ago at 4.125%.

We end 2016 with the conforming fixed rate only 0.125% higher than it was on January 1st, but 0.75% higher than our lowest rates of the year. We end 2016 with the 30 year fixed rate at its highest since September 2014.

If I had to use one word to characterize mortgage rates in 2016 I would use “stable.” Absent eight weeks when we saw rates drop steadily (five weeks at start of year) or increase steadily (three weeks in November) rates held steady within a quarter-percent range from February to November.

If I have to use a word to characterize what I think rates will do in 2017 I will use “inconsistent.” With a transition of leadership in Washington that includes not just the President but the heads of every regulatory agency, one party control of the legislative and executive branches, international turmoil through the transition period with tensions increased in the Middle East and with Russia, an economy that appears to be strengthening amidst an international economy that is struggling, I see little that would create an environment for “stable” rates.

Instability in the economy, global relations and politics generally means lower interest rates as investors flee to the safety of fixed return investments like mortgages. However positive economic outlooks lead to higher rates. Rates will be effected by whether investors see more of a threat from external forces than positive economic impacts from policies and regulations.
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Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.

Rates for Friday December 30, 2016: We close 2016 with rates dropping for the first Friday September 23rd when rates had their last day on the low for the year. Flight to safety is the primary cause for the drop. There was scant economic news to impact rates this week, but plenty of political and international relations issues that did have an impact. With tensions ramped up between the United States and Israel and the United States and Russia investors have been moving from stocks to bonds to end the year. I see no lessening of the tensions for several weeks or more which could lead to lower rates—“could.”

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 4.00% Down 0.125%
30 year high-balance conforming 4.125% Down 0.125%
30 year FHA 3.50% Flat
30 year FHA high-balance 4.00% 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.

12-30-16

Thank you to everyone who helped make 2016 another great year at Stratis Financial. We are very grateful for the opportunity to help so many families with their mortgage needs. For those who put their own reputation on the line by referring us to family, friends, co-workers, clients, etc we are extremely thankful for your trust and confidence.

We are into our eighteenth year at Stratis Financial and we know we would not be without the support of our wonderful clients and business partners who continue to return for their mortgage needs and refer others we can assist with our expertise and service.

Cheers to a wonderful 2017 to you and your family,

Dennis

Weekly Rate & Market Update 12-23-16

Question: What should I do if I think someone stole my social security number?

Answer: This question came up this week when my father in-law had someone break into his home and steal financial documents, including tax returns and his passport. What to do?

Thankfully in the age of the internet it is pretty easy to get contact information for various notifications you need to make to ensure, or try to ensure, your protected from further theft using you social security number, bank or credit card information. Below I have a summary of contact information for various agencies you may want to notify.

The first thing you should do is notify your local police department or sheriff’s office and request an officer come out to take a report—you may need this report for insurance claim or some financial institutions.

Second call your bank and let them know what has happened, chances are they will want to close our account and open a new one. This means you will need to notify whomever you receive automatic deposits from, such as your employer or if retired the social security administration or financial institution that may be making transfers from your retirement account to your checking account. As well if you have any automatic payments for your mortgage, auto payment, utility bills, etc you will need to notify those companies if they pull your payments, or you will need to set up new transactions if you push the payments.

Then contact your credit card companies, they too will cancel existing accounts and issue new cards—same as above, if you have any automatic charges to your credit card(s) for services such as the gym, alarm company, insurance, Amazon, etc you will need to change the payment with those providers.

The bank and credit card notifications can be pretty simply, now comes a bit more work.

Contact one of the credit bureaus and they will place a fraud alert on your social security number and alert the other credit bureaus of the alert, here are the numbers for TransUnion and Experian, as well the link to file on-line:

Trans Union: 1-800-680-7289
Experian: 1-888-397-3742

You will want to notify the IRS so they are aware your social security has been taken and be on alert for someone using your number to file taxes and possibly get a refund sent to them at a different address or more likely a direct deposit of the refund into a bank account. You can file on-line with the IRS at this link: IRS Identity Protection or call them at 800- 908-4490.

The social security administration is a bit more challenging, waits on the phone can be very long, up to an hour, or you may visit the local office. The main concern retirees will have with the social security administration is the thief contacting SSA to change where the monthly social security check is sent, or setting up an on-line account. If an on-line account is set up, or changed, SSA will notify you via the mail as to the change. Contact the SSA to let them know about the theft and that you will not be setting up nor changing any on-line account.

If like my father in-law your passport is also stolen you need to file with the information with the State Department with a specific form, this form is available on line to print and send in, or you can complete the form on line and submit electronically at https://pptform.state.gov/ or you may call them at 877-487-2778.

Unfortunately there are those in our communities who have the desire to steal from others rather than earn it themselves, and we must protect ourselves as best we can. Try to keep your financial information in a safe and secure location, do not throw statements in the trash or recycle bins but shred them and keep an eye on your neighbors homes and hope they are doing the same for you.

[email protected]

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

Now that the Fed rate increase is old news, some traditional and relatively boring economic news was released this week. Existing home sales climbed in November along with interest rates, perhaps the rising rates knocked some who were waiting for lower rates off the fence when rates did climb. There is not a lot of supply so not only have rates going up but so are prices, those who have been waiting to purchase are paying higher monthly payments and prices for their new home. This news is semi-negative for mortgage rates.

Every revision is higher for 3rd Quarter GDP. With the third and final revision the GDP is estimated to have grown 3.5% in the quarter ending September 30th. It is the strongest quarterly growth since the 3rd quarter of 2014. Consumer spending pulled the GDP up also pulling up prices 1.4% over 2015. The news supports the Fed’s decision to increase rates last week and if future quarters retain the growth of over 3% then the chances of future rate hike from the Fed is very high. The news is unfriendly for interest rates.

Rates for Friday December 23, 2016: With a low volume trading week rates have stayed flat from last Friday, a welcome break in the increases we have seen. Will this be our ceiling in the current market? We have two short weeks back to back which can lead to tight trading so we may not see if we have leveled off for another two or three weeks. In the meantime my advice holds to lock in your rate lock as soon as you can to protect against future rate hikes.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 4.125% Flat
30 year high-balance conforming 4.25% Flat
30 year FHA 3.50% Flat
30 year FHA high-balance 4.00% 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.

12-23-16

I hope Santa is kind to everyone and everyone is kind to each other through not only the holidays but also through 2017. Too much vitriol and empty rhetoric that has caused strains and breaks within families and friendships this past year. Let’s all stay focused on what we can do to be better husbands, wives, children, neighbors and friends.

Have a great week,

Dennis

Weekly Rate & Market Update 12-16-16

Question: Does the Fed raising interest rates Wednesday affect me?

Answer: The last time we answered this question was last December, the last time the Fed increased its Federal Funds Rate. The answer on how the rate hike by the Fed earlier this week is no different than the answer when the Fed raised the fed funds rate last December.

How much will the rate hike affect you? Depending on the type of debt you have either a little or not a lot in the short term, longer term based on the Fed comments with the rate increase you could be impacted more in 2017 and beyond.

The actual increase by the Fed was from between 0.25% to 0.50% to now being between 0.50% to 0.75%. So the Fed is still not charging member banks 1.00% to borrow money.

Virtually none of your consumer, or if you are a business owner your commercial, debt is directly impacted by the Fed rate since you do not borrow from the Fed. However the rate that is generally tied to the Fed rate may impact you: the Prime Rate.

Contrary to common belief, there is no official “prime rate”, each bank may set its own but generally the consensus moves all banks rates to the same number. The Prime Rate is the rate that banks charge their best and most credit worthy clients. It almost always moves in the same direction and in the same amount that the Fed funds rate moves. Once the Fed moves the funds rate banks immediately increase their Prime Rate, why charge 3.5% when everyone else is charging and getting 3.75%?

The increase on Wednesday of the funds rate led to an increase of 0.25% of the Prime Rate from 3.50% to 3.75%. This was only the second increase in the Prime Rate since 2006, with the last increase coming in December 2015 from 3.25% to 3.50% and the prior increase was June 2006 when the Prime Rate moved from 8.00% to 8.25%. In June 2006 not only did the Prime Rate hit a cyclical peak, being the highest since 2001, but peaking were also housing prices, stock markets and GDP before the Great Recession.

Those consumers who are most immediately impacted by the increase in the Prime Rate are those who have lines of credit, more specifically for homeowners, those who have Home Equity Lines of Credit. Almost every HELOC interest rate is tied to the Prime Rate, either Prime plus a margin, minus a margin or just plain Prime. So when the Prime Rate increased on Wednesday by 0.25% so too did the rate you are paying on your HELOC. This means your monthly payment is increasing accordingly.

Some consumer credit cards are also tied to the Prime Rate, in which case the rate you pay for your Visa or MasterCard will also increase, resulting in an increase in your minimum monthly payment.

The net monetary impact is not tremendous to most people. If you owe $100,000 on your HELOC and your rate is equal to prime your minimum payment has increased from $292 per month to $313, a $21 increase.

Longer term those who may be impacted are those who still have adjustable rate mortgages. Slowly the Fed hike can begin to move the benchmark rates that are used for ARMs, those being the LIBOR or U.S. short term Treasury notes. It is important to note that these rates move independently of the Fed and also banks’ prime rates, however as the rate environment increases these rates will follow. This also means that the cost to maintain government debt, federal, state and local bonds will be increasing, meaning it will take more tax dollars to pay the interest on borrowed money.

As for fixed rate mortgages the impact is negligible for the current increase. With all the talk, speculation and predictions of a rate increase by the Fed the increase was priced into mortgage rates some time ago by investors purchasing Mortgage Backed Securities (MBS). As anticipated the immediate reaction in the MBS markets following the increase was a jump in MBS prices (lower rates).

Looking forward, however, there is an impact on fixed mortgage rates as the Fed announced it anticipates three more rate hikes in 2017 with each increase being 0.25%. Because of this announcement investors will start pricing these anticipated increases which will put upward pressure on all interest rates, including mortgage rates. Baring an economic downturn (which I am on the record predicting for around the middle of 2017) mortgage rates probably have seen their floor this past year.

If you have a HELOC the then rate increases next year will raise the Prime Rate basis for your interest rate from 3.50% to 4.25%, increasing the repayment on $100,000 from $313 per month to $354 per month.

One other impact of the rate hike for consumers, you should see a slight bump in the rate your bank pays on your savings or money market account—perhaps paying up to a full one percent, one and a half?

Looking forward rates on consumer debt for credit cards and auto loans will see increases with the increase in the Prime Rate and rates in the Treasury and mortgage markets.

So to paraphrase that great writer, overall the Fed hike is much ado about nothing in the short term, a small increase in some people’s payments but for most no impact at all.

Have a question? [email protected]

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

The Fed news casts a long shadow over other economic news released this week, but even in the shadows the data released this week shone a bit given its significance. Both the Producer and Consumer Price Indexes for November were released. PPI increased 0.4% for the month and 1.3% for the year, exceeding expectations and stronger than we have seen in several months. CPI lagged increasing only 0.2% after 0.4% increase in October but year over year the increase is 1.7%, a big part of the increase being housing costs. The news for the price increases are mortgage rate unfriendly as they show inflation momentum which supports higher rates in the future to temper inflation.

Retail sales had interesting data for November. Overall growth was only 0.1%, not a good number. The total number was dragged down by auto sales which fell 0.5% for the month, but a lot of strength from restaurants which rose 0.8% for their biggest gain since February. Also strong were furniture and furnishings. The latter two data sectors are important as they are generally discretionary spending showing consumers feel confident by spending beyond essentials. Overall the big number is positive for mortgage rates, however the details of the report is not as positive forecasting possible strengthening consumer spending.

Rates for Friday December 16, 2016: I have a service that texts me the movement of Fannie Mae Mortgage Backed Securities (MBS) throughout the day. A normal day may have updates every hour as schedule, up 5 basis points (bps), down 4 bps, small normal movements of a calm market. Since the election we have had some days where the message is up 20 bps, down 16 bps, up 19 bps, etc. indicating rates moving up and down. Wednesday following the Fed rate hike announcement I was in my weekly Rotary lunch meeting and my phone was lighting up, as the MBS fell being down 21 bps for the day, down 43 bps, down 52 bps, 64 bps, 79 bps, 86 bps, finally closing down 89 basis points for the day. Wow, a run straight down meaning rates shooting up through the day based not on the Fed rate hike which was priced into the market but because of the announcement of more hikes in 2017. For those waiting for lower rates that ship has probably sailed. I have missed this market completely. I thought we would see a flight to safety with a Trump election due to uncertainty but the exact opposite has happened as investors flee the safety of bonds and mortgages and have been buying equities. Looking forward there no longer appears to be any large correction to lower mortgage rates short of a possible recession in the future. Rates are up 0.75% in the past six weeks.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 4.125% Up 0.125%
30 year high-balance conforming 4.25% Up 0.125%
30 year FHA 3.50% Up 0.25%
30 year FHA high-balance 4.00% 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.

12-16-16

A celebratory week for us. First, tomorrow is our annual company party. I am so proud to work with the great people at Stratis Financial. The opportunity to celebrate another great year of helping families with their mortgage needs while working with professionals who are the best in the business and do so in a relaxed fun atmosphere is something for which I will always be grateful.

Speaking of grateful another, and more personal and special, celebration will be held next Wednesday as Leslie has a somewhat significant birthday. Not less than a few years ago we had a big celebration for her 39th birthday and have been celebrating anniversaries since. This summer we through another big celebration for early celebration for this birthday since it is hard to have a party four days before Christmas. I am so grateful to have been able to say, Happy Birthday to my wonderful wife for what will be the 23rd time. Happy Birthday Leslie, so proud to be your husband!

Have a great week,

Dennis

Weekly Rate & Market Update 12-9-16

Question: How come my lender sent me a notice that my payment is going up, don’t I have a fixed rate mortgage?

Answer: This is a rather lengthy answer today, but very important information to anyone who has purchased a home in the last year, or have someone close to them that has purchased recently, as it involves the payment of taxes and how screwy it can and does get is your taxes are collected and paid by your lender.

Earlier this week I sent out a reminder that for those who own property in California tomorrow is the deadline to pay your property taxes for the 1st half of the tax year without a late fee. Semi-annually when I send out this reminder email I receive inquiries from some property owners who have an impound account for taxes with their lender ensuring their taxes will be paid, or from new homeowners wondering what is going on because of a notice from the lender regarding their taxes.

What is going on? Why might you have received a notice that the lender is raising your monthly payment?

A look at how property taxes and notifications work:

In California your property taxes are based on the purchase price of your home, this sets the base tax rate for the state. On top of this base tax are taxes for the county and city, and sometimes specific location in a city, in which your property is located. For instance in my neighborhood in Long Beach we have the base state tax, base tax for Los Angeles County, then additional taxes that were voted into place for city college district, K-12 school district, LA County parks, emergency services, City of Long Beach special assessments, etc, etc. All the taxes for the various government agencies and propositions passed by voters are put on the tax bill for the fiscal year running from July 1, 2016 to June 30, 2017.

In October the tax bill is mailed with a breakdown of the total amount due and it includes two coupons with half the amount due on each coupon. The first payment needs to be paid by December 10th or there is a late fee. The second payment needs to be paid by April 10th or there is a late fee. If your taxes are not paid by July 1st you are in default.

The amount that is due is based on the assessed value of the home prepared in July by the assessors of the various counties. The tax rolls are finalized in September and the bill is mailed out in October. So what happens when you purchase a home between the time of the value is assessed and the tax bill is mailed out? This is where your high school algebra comes in handy.

The house you are buying for $500,000 and the current owners purchased the home in 2006 and their current tax bill is based on an assessed value of $400,000. Let’s assume the industry standard of 1.25% of assessed value is the tax rate.

The current owner has an annual tax obligation of $5000 per year ($400,000 x 1.25%). Your tax bill will be $6250 per year.

You closed escrow on your home on September 30th 2015 and set up an impound account with the lender to pay your property taxes. The lender collects $520.83 per month for taxes ($6250 per year).

The tax bill is sent, a copy to you and the actual bill to the lender, the amount owed by December 10th is $2500—because the tax bill is showing the assessed value of the prior owner since the County Assessor has not had time to change the assessment and the corresponding tax obligation. Because the tax bill mailed in October covers the entire fiscal year your lender sends another $2500 to the county in April. So the lender has paid the taxes due, $5000, but has collected $6250 from you based on the estimated taxes that would be due based on your purchase price.

Seeing that they have $1250 excess funds in your tax impound account the lender issues you a check for the overage since they are not allowed to retain the excess collected.

Typically at this time the lender will send a notice reducing your monthly payment by $104.17 ($1250 over collected divided by twelve months). Also typically there is poor communication as to a) why you received the check and b) why your payment has been lowered.

In October 2016 the lender gets the tax bill for 2016-2017 for $6250 paid in two installments of $3125 each, one due by December 10th and the other by April 10th. The lender pays the $3125 due and notices that there is a deficit in your impound account. Why? Because the lender refunded you the excess collected for the prior year’s tax bill AND reduced your monthly payment to reflect the taxes due on that prior year’s tax bill.

So the lender sends you a notice that it will be increasing your monthly payment by $208 per month for the next 12 months and then it will reduce by $104 and remain at that payment until/if the tax obligation changes in the future. The reason for the increase is to a) collect for the actual amount that should be collected based on your tax obligation based on your purchase price of $6250 per year and b) to make up the deficit created when the lender lowered your payment earlier in the year since its program thinks your taxes should be $5000 per year based on the prior tax bill. Confused? Exactly.

Compounding the confusion is that you will receive a Supplemental Tax Bill from the County for $1250 for the difference in taxes collected versus taxes due from the purchase date to the end of the tax year. Coincidentally matching the funds sent to you by the lender earlier in the year.

So what can you do?

First, when you receive the refund check from the lender save it as you will need the funds in the future for your supplemental tax bill.

Second, when the lender lowers you payment to reduce the impound account collection for taxes contact them and inquire if they can keep the impound collection the same as when the loan funded, explaining that later in the year the tax bill will be higher and you want to make sure they have the necessary funds to pay the higher amount and not increase your payment in the future.

Third, if they will not keep your payment the same then budget the same amount for your total monthly payment that we estimated at closing and put the additional funds the lender is not collecting into a savings account—and do not touch the funds because….

Fourth, when the lender notifies you that there is a deficit and they are raising your payment to collect the deficit over the next twelve months you can let them know you have the amount of the deficit saved and wish to mail them a check for the deficit and your payment will adjust to the original estimated payment from when we closed and no more.

It can get complicated, confusing and very frustrating when you are getting these notices, changes, money back, money due. If you get any unusual notice, money or request from your lender call me and we can go through your situation and best practice to ensure minimal financial impact in the future. When we provide your payment estimate during the application process and especially with loan docs the payment we provide for your mortgage (principal and interest) your hazard insurance and property taxes is pretty accurate as to what you should be paying. If the lender over-collects (or in some market under-collects but that is another long explanation for when prices are declining) your taxes keep in mind that in the future more taxes will have to be paid. And they will be paid by you.

This type of scenario is why I prefer clients not have tax impounds unless they are required to by the lender due to the type of mortgage product we are using.

If you have not paid your property taxes yet do so today or tomorrow—every county has ability for you to make payment on-line, it is how I make my payments bi-annually and encourage you to do so as well to ensure your taxes are paid on time.

[email protected]

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

Slow new week for economic data. Perhaps the most important data was the release of Consumer Sentiment from the University of Michigan. The Sentiment Index climbed from 93.8 from last month to 98.0, one-tenth away from the post-recession high reached one year ago. Cited by those survey is expectations of new economic policies in the coming year with the changeover in Washington that they see as the biggest positive and increase in consumer sentiment. The news is interest rate unfriendly as higher consumer sentiment can/should lead to higher consumer spending, which leads to greater GDP growth and higher inflation.

Rates for Friday December 9, 2016: With not much economic news mortgage rates this week rates continue to move sideways, with no change from Friday to Friday for the second week in a row. Day to day, and interday, Mortgage Backed Securities (MBS) have been very volatile opening significantly higher (lower rates) or lower (higher rates) from the prior day and then through the day reversing direction to finish about where they started. As a result lenders are a bit skittish on their rate sheets and if/when the MBS prices increase in the future (lower rates) we can expect a long lag time between improved pricing and improved rates. I see little decline in rates in the short term and possibility of a bump should more positive economic news present itself.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 4.00% Flat
30 year high-balance conforming 4.125% Flat
30 year FHA 3.25% Flat
30 year FHA high-balance 3.75% 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.

12-9-16

Leslie and I have seen a lot of movies the past few months (we try to go out every Tuesday night for date night and often include a movie) and have seen some good ones, and one we both did not like (Allied). This past week we saw Arrival. Leslie was surprised when I suggested we see it as she thought she would need to see with girlfriends since I am not a fan of sci-fi genre, but I figure she sat through Magnificent Seven (very good) and I might like the movie.

It was a fantastic movie and as for sci-fi it is not a Star Wars, Star Trek, Independence Day type with fights in space and lots of special effects. Arrival is more along the lines of Close Encounters as it involves initial contact between aliens and humans. Amy Adams is great and the screenplay is one of the best. Whether you like, love, hate or are ambivalent about sci-fi/alien flics I strongly recommend Arrival as an intelligent, thought provoking and engaging movie.

Have a great week,

Dennis

Weekly Rate & Market Update 12-2-16

Question: What are the new loan limits?

Answer: For the first time since 2006 the Federal Housing Finance Authority (FHFA) which governs Fannie Mae and Freddie Mac has increased the maximum loan limits for conforming loans and FHA has followed the FHFA’s lead and matched the new loan limits.

For single family residences in high-cost counties (Los Angeles and Orange Counties are high-cost, other counties in California may have different limits) the new loan limits are $424,100 (up from $417,000) for conventional mortgages and $636,150 (up from $625,500) for high-balance mortgages. The new loan limits are effective for all loans that fund on or after January 2, 2017.

When the loan limits increased from $359,650 to $417,000 in 2006 there was no “high-balance” category, loans over the conforming loan limit were generically called “jumbo” or “non-conforming.” In 2008, after the housing and mortgage market melt downs, Congress authorized the establishment of the “high-balance” loan limit for high cost areas to support the housing market and assist homeowners who have non-conforming loans by making conforming loans available for possible refinancing.

With home prices having dropped considerably from the establishment of the high-balance loan category the limit was lowered from $729,750 to $625,500 in 2011 where it has remained until it changes in January.

With median home prices having climbed to pre-Recession prices FHFA has returned to historic loan limit models of adjusting the conforming loan limits to keep up with changes in real estate values, hence the first increase in the loan limit in a decade. The lag between loan limit increases is the longest since before 1980, the last time there was no change in loan limits was from 1993 to 1996 when the loan limit was at $203,150.

The increase in loan limits is another sign that the housing markets are healthy across the United States, and have been critical in supporting economic growth for the past several years.

[email protected]

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

A lot of significant data this week, including reports on the overall economy, wages, spending, employment and inflation—all of which impact interest rates. We’ll run through the pertinent reports in chronological order. Tuesday the second estimate of 3rd Quarter GDP was released with a 0.3% upward revision from the first estimate and showing 3.2% annualized growth in the economy from July 1st to September 30th. The increased revision was driven by stronger personal consumption. This news is positive for the economy and negative for lower mortgage rates.

Income up, spending down, prices up. That is the synopsis of the Bureau of Economic Analysis report on personal income and outlays for October. Personal income increased 0.6% for the month, up from 0.3% in September, while personal spending cooled down increasing 0.3% in October after 0.7% in September. Prices were almost unchanged for the month at 0.1% and are up 1.4% year over year, below the Fed’s inflation target. The news is mixed for mortgage rates.

Today the Labor Department released employment data for October. The economy created 178,000 jobs in the month, in line with expectations, however September payroll gains were revised downward from 161,000 to 142,000 jobs created. The headline for tomorrow’s newspapers is that the unemployment rate dropped from 4.9% to 4.6%, the lowest number since August 2007 right before the recession. The drop in the unemployment rate is not good news as it was not a result of more hiring but rather a dip in the participation rate and fewer people looking for work (remember the unemployment rate is not how many people are out of work but is how many people are actively looking for a job, if people give up looking for work the unemployment rate drops), the labor participation rate has dropped to 62.7% (percentage of eligible workforce that is working). Another bit of negative news is a drop of 0.1% in average hourly wages. Overall the report is negative for the economy and positive for mortgage rates.

Rates for Friday December 2, 2016: Good news for rates…they didn’t go up this week! For the first time in three weeks rates don’t go up, they didn’t drop from last Friday but we’ll take the no change after the run we went through. The combination of the election, Fed rate increase and several positive economic signs has resulted in the fastest increase in rates I can remember, going up 0.625% in three weeks. Will we see rates flatten out? Probably (?). Will we see rates settle back down? I feel we should, but then I wrote before the election that if Donald Trump won we should see rates fall.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 4.00% Flat
30 year high-balance conforming 4.125% Flat
30 year FHA 3.25% Flat
30 year FHA high-balance 3.75% 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.

12-2-16

The lights and decorations are coming out of the attics and garages, which always makes me think of the great movie, Christmas Vacation, when Chevy Chase decorates his home with “250 strands of lights, one hundred individual lights per strand for a grandddd total of 25,000 imported twinkle lights!” And of course they don’t work when he has the grand plugging in ceremony. One of the many joys of this time of year are all the great Christmas movies through the years. Be careful on those ladders.

Have a great week,

Dennis

Weekly Rate & Market Update 11-25-16

Question: The question of the week is taking the day to recover from tryptophan overdose yesterday.

[email protected]

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

Short week with limited economic data that was positive, supporting rates moving higher. Existing home sales in October were very strong with the most home sales since February 2007 after increasing 2% from August and up 5.9% from last October. The news is rate unfriendly as our economy has been pulled along with home sales this news gives a strong pull to economic growth. Other positive news came in the Durable Goods Orders grew 4.8% in October after declining in September. This news is also mortgage rate unfriendly as stronger orders for durable goods also signifies economic growth.

Rates for Friday November 25, 2016: With the certainty of a Federal Reserve rate increase in a few weeks, strong economic data and growing certainty as to the political future mortgage rates continued their climb this week. Early in the week it appeared the slide in Mortgage Backed Securities prices might have been at an end, but the pause was brief and the slide continues. Rates are up for their third straight week following the election and are now up 0.625% rising another 0.125% this week. Conforming rate hits 4% for the first time since last July.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 4.00% Up 0.25%
30 year high-balance conforming 4.125% Up 0.125%
30 year FHA 3.25% Flat
30 year FHA high-balance 3.75% 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.

11-25-16

I hope your Thanksgiving was enjoyable as ours.

Have a great week,

Dennis

Weekly Rate & Market Update 11-18-16

Question: With rates having gone higher what happens if I can’t close before my rate lock expiration date?

Answer: Every lender has their own policies when it comes to rate locks and the options when the lock is set to expire, however most have similar policies. Here is a look at how rate locks work and options when facing expiration before you are ready to close.

While everyone wants to close before a rate lock expires sometimes that is not possible due to many circumstances, from a sale escrow falling out, an issue with an appraisal or property condition, or inability to get required paperwork such as a payoff statement from a lender or an insurance policy. When this happens we need to see what is the best option available to extend the rate lock, and in an up-rate market protect you and your payment.

Let’s say that we locked you in on a $400,000 for a conventional purchase mortgage at 3.25% on October 4th for forty-five days and your rate expires today. The cost of the loan when we locked was 1.25 points ($5000). There was an issue with the closing of your current home which is delaying the closing of your new home for ten to twelve days. Rates are significantly higher, today the same lock would be 3.75%, an increase of 0.500% (one-half of one percent) in interest rate, or $112 per month.

There are two options at this point:

1) Let the rate lock be broken. Wait until we are ready to close and re-lock the loan. If this policy is followed then we get the worse of the original lock or the current rate sheet on the day we re-lock in the loan plus one-quarter point in fee. For example if your rate lock expired last week and you chose to float the rate until ready to close and we re-locked today your rate would be 3.75% but instead of 1.25 points the fee would be 1.5 points ($6000), so by float your rate lock extension you lost 0.500% in rate, or $112 per month, and one-quarter point in cost ($1000). That is the risk on floating a rate lock extension, that the market goes up or stays up during the period. On the other side, if you let the rate expire and rates drop over the next ten days to say 3.5% then you would get 3.5% at a cost of 1.5 points, your payment goes up $55 per month and it costs you $1000 more in fees.
2) On or before the day the rate lock expires pay for an extension of the same rate you currently have. A fifteen day extension costs 0.125 points and a thirty day extension costs 0.25 points. You do not have to pay for the extension at the time you make it, rather it will be added to your final closing costs. For example, we know we will be closing your loan in twelve days, we contact the lender and request a rate lock extension for 15 days. Your rate of 3.25% is extended until December 3rd, but since that is a Saturday the rate lock will be December 5th. The cost for the extension is 0.125 points ($500) which is added to your total loan costs, so the total points are $5500 for the rate of 3.25%.

As you can see Option 2 is significantly better than Option 1, even if the market floats back down to or below your original rate of 3.25%. If the market stays the same as it is today your payment increases $112 per month and your costs increase $1000, versus if you take the risk out of the market your payment stays the same and your cost increase only $500 to retain the rate. By paying for the extension instead of taking a chance on the market your costs of the extension are less than five months of payment increases should you float your extension and end up with the higher rate.

What happens in a stable or down-rate market if you rate is expiring? The policy for letting the rate lock expire and then floating is the same, you get the worst case scenario of the rate you were locked at or the current market plus one-quarter of a point. However if we extend prior to the rate expiring our options may be no cost for an extension of 15 days or possibly a rate reduction if the market has improved considerably.

We are not in a stable or down-rate market so my very strong advice is to know when your interest rate is expiring if you are in escrow and locked on your interest rate. As well know the policies for extending your locked rate should it need to be extended.

It has been some time since we have been in a market that has seen mortgage rates increase as high and as fast as we have seen in the past ten days. In the past we heard from several borrowers, and agents in escrow with borrowers, that they thought their rates were locked but in fact their loan originator had not locked in their rate and was floating the market to try to get better pricing for themselves. The rates went up and the borrowers were told their loans could not close before the expiration and then the lender locked them at the higher rate after the expiration.

If your loan is locked there is most likely, almost assuredly, an extension policy for your rate as a nominal cost—typically 0.125 points for 15 days and 0.25 points for 30 days. If you are told there is no extension policy, or that there is a substantial cost for extension, then demand to see confirmation of your rate lock.

With the new disclosure laws the non-lock rate scenario should be non-existent as when the rate is locked you must receive the Loan Estimate indicating when your rate is locked and for how long. If the lender is unable to close your loan by the rate lock expiration and then indicates the cost for extending is high, send them a copy of the Loan Estimate and demand to see a copy of the rate lock confirmation for the same day. If they are unable to provide then you have some recourse via the Consumer Financial Protection Bureaus—believe me any lender would rather make sure your rate extension and lock are handled properly than have to explain to the CFPB why they generated a Loan Estimate indicating your rate was locked when it was not.

Rate lock extensions are very important, as you can see it can be costly if your loan is not able to be closed within the rate lock period. Because of this it is critical you provide your lender with all documents they require as soon as possible after they are requested.

[email protected]

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

This week saw some positive economic data released this week—all helping to push rates higher. Retail sales in October were up 0.8% from September, led by auto sales. Higher auto sales signify stronger consumer confidence which signifies economic growth which leads to higher rates. While the Producer Price Index was flat for October, and up 1.6% year over year, consumer prices went up 0.4%, 1.6% for the year led by higher energy costs. Higher prices means inflation which also leads to higher rates.

Rates for Friday November 18, 2016: Rates continue their march higher. As you can see from the chart below we have increased one-half of one percent in two weeks for conforming fixed rates. Going through my past charts the last time we saw rates increase this high in a short period was from May 15, 2009 when the conforming rate was 4.625% to 5.25% three weeks later on June 5, 2009. There are many factors to the spike, including herd mentality from investors and technical trading as well. What will be interesting is the Fed decision in a few weeks. The overwhelming consensus is a rate hike, but some began speculating on a half percent increase in rates instead of just a quarter. With the private and public long term rates increasing by as much as a half percent the Fed may see no reason to go with a large increase since the markets seem to be doing their work for them. One result of the increases will be a slow-down in purchase activity, which means if you are a buyer now might be a great time to go out and make a deal on your new home. In the meantime rates match their highs for 2016—right where we starting on January 1st.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.875% Up 0.25%
30 year high-balance conforming 4.00% Up 0.125%
30 year FHA 3.25% 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.

11-18-16

Yeah! Fall appears to have arrived—I can tell because it was about 50 degrees when the dog got his walk this morning and I contemplated some light gloves. I love this time of year with the cooler temperatures, as well the fact that Thanksgiving is upon us.

I hope you enjoy your Thanksgiving wherever it might be.

Have a great week,

Dennis

Weekly Rate & Market Update 11-11-16

Question: Now what?

Answer: A question a lot of people have been asking this week in many sectors, and one I have had asked several times on Wednesday and Thursday. Now that the election is over and Donald Trump is President-elect, what are the expectations for the mortgage industry?

Three weeks ago I answered the question, “what impact will the election have on interest rates?” The short term of two days of open markets has shown the first part of my answer to be wrong, “no matter who is elected the impact on interest rates will be about the same, that is to say negligible.” On Wednesday the markets opened, ran through the day and closed, then opened on Thursday, ran and closed, exactly opposite of the expectations of myself and many others. The common wisdom that was a Trump victory would insert uncertainty in the markets. Markets do not like uncertainty and what normally happens is money flows from equities (stocks) to “safe harbor” investments—bonds and mortgages.

As the result of the election became apparent on Tuesday evening the futures market was follow the historical pattern of forecasted uncertainty as stock prices plummeted in overnight trading. This garnered well for mortgage rates as the expectation was that money would flow into Mortgage Backed Securities (MBS) raising prices—which lower rates.

When the equity markets opened on Wednesday they were almost flat from Tuesday’s close—surprising many after the overnight trading. And then pow—they started climbing rapidly approaching all-time highs. The ride up continued on Thursday and have been flat.

While the equity markets were jumping up the bond markets were falling down, rapidly and steeply. Looking at the charts the drop in MBS prices on Wednesday were the largest in one day in over several years, the increase in rates from last Friday to this are the largest since last June when rates jumped on expectations for the Fed to raise interest rates—which they did six months later.

Back to our question, now what? While short term my assessment was 100% backwards, long term I still feel confident in my expectations for rates to not move very much. It will take drift back down—many of you have heard me say for years rates go up on a rocket and come down on a balloon—but economic data supports low mortgage rates.

As for economic policy we will need to wait and see what is hammered out between the Trump Administration and the new Congress beginning in January. Expectations are for lower tax rates and unwinding some/many of the regulations put on various industries during the Obama Administration. Whether those will come to pass and their long term effect on the economy will certainly impact mortgage rates, however there is tremendous lag time between initiating policy, getting anything through the legislative process, implementing the policy and then the impact that any policy changes may have on the economy.

While waiting for the slow wheels of government the economy has its own momentum, or lack of momentum as is the case as I see it. As I mentioned in my Weekly Rate & Market Update three weeks ago, I feel we will enter a period of recession late 2nd Quarter or early 3rd Quarter in 2017—well before any impact of policies put into place by the new slew of officials in Washington.

Now what? Even with the bump in rates this week they are still extremely low and a bright spot for home buyers could be a lull in the market presenting some soft targets for sellers who are in a need to sell for whatever reason and suddenly seeing a reduction of buyers in the market. You may pay a bit more in rate than a week ago but possibly could pay a bit less in home price.

[email protected]

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

Any economic data was overshadowed, actually ignored, by the election. One bit of data is new unemployment filings are flat at around 250-270,000 range which indicates pretty steady employment for those who have it. This data supports the increase in rates from the Fed in early December.

Rates for Friday November 11, 2016: We covered rates above. Cautiously optimistic for rates to drift back down in the future, however when and for how long are uncertain.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.625% Up 0.25%
30 year high-balance conforming 3.875% Up 0.375%
30 year FHA 3.125% Up 0.375%
30 year FHA high-balance 3.625% Up 0.375%

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.

11-11-16

For those reading this who are Veteran’s thank you for your service and commitment to our nation and defending our liberties. It is my hope that one of the first acts of our new President and Congress will be legislation to improve veteran’s benefits, particularly for healthcare—both physical and mental.

Have a great week,

Dennis

Weekly Rate & Market Update 11-4-16

Question: I am going to purchase a condominium unit, what should I be looking at besides the actual unit?

Answer: Condos are a great option for many people. There is not as much upkeep as a home, if you like to travel you can generally shut the door and go, you are in a small community which allows for closer relationship with your condo neighborhood, and if you want to move to a detached single family residence later in life often your condo can become a nice investment option if you convert it to a rental.

There are many issues that can crop up with a condo purchase that you should be aware of before you commit to purchasing. Here some important issues you need to know about:

Is it really a condo? This comes up more often with “townhome” style units where buyers think they are purchasing a home, but the unit is really a condominium, however it happens the other way as well. What’s the difference and why does it matter?

The primary reason it matters is that rates are higher for condominiums than for single family residences if you have less than 25% down payment. The difference between a condo and a “townhome” is not the style of the complex but rather what you own. The simple way to tell the difference is that if you own the land under your unit the property is considered to be a PUD (Planned Urban Development) and priced as a single family residence for your mortgage. If you have an undivided interest in the entire complex, inclusive of land and buildings, then you own a condominium. In a condo you own the cabinets and counters in your kitchen, the Association owns the studs in the wall, the roof and the foundation.

Is there a lawsuit? This should be the first item checked off any list when looking at a condo complex. Not all lawsuits can prevent a new mortgage, but plenty of them can. If the Homeowner’s Association (HOA) is suing an owner for breaking the rules that is not generally an issue. If the HOA is suing the builder for major defects that is an issue and can put the complex on the Do Not Lend list with Fannie Mae, Freddie Mac, FHA and most lenders. With all the new condos put on the market through development and building conversions throughout Southern California in the past decade or so there has been a corresponding increase in lawsuits for building defects. This past week we had a client looking to purchase in one of the newer buildings in downtown Long Beach that has a major lawsuit against the developer for issues with the roofs, balconies, plumbing, electrical and other structural issues. The project is on the “Denied” list with Fannie and Freddie, meaning no loans will be made regardless of down payment using conventional financing.

Why does this matter to you as a buyer? Besides not being able to get a loan the price of the units will begin to drop precipitously since buyers can only buy with all cash or with subprime loans—if even those. The lack of availability of mortgages for the complex severely limits the market for buyers, lack of demand leads to lower prices.

Is the HOA solvent? Part of your purchase contract allows you to review the financial status of the Homeowner’s Association. This is important and many buyers do not undergo this review. Often we are required to review the financial statements of HOAs if prompted to do so by Fannie, Freddie or the lender, but not always.

What do you look for when reviewing the financials? Several items:

What is the delinquency rate of HOA dues? If there is a sizeable amount of unpaid dues that can lead to higher dues in the future for all owners.

Are there sufficient reserves? Does the HOA budget for future capital improvement/replacement projects? How old is the roof and will there be funds available for when will it need to be replaced? Are the funds for future upkeep and maintenance for painting, re-stuccoing, landscape and hardscape? A condo complex is like a giant house, and like a house it needs constant repairs and maintenance. Does the HOA set aside sufficient funds for necessary capital improvement projects?

Is there plan for future increases in HOA dues? Which leads to when was the last increase in dues? If dues are increased on a regular, annual, basis what is the reason? Poor budgeting? Increase in service fees for management, insurances, vendors? This can be the sign of a disengaged board that rubber stamps every suggestion from the company that manages the HOA (it is rare that condo associations manage their association themselves, generally they contract with a professional management company).

What is the owner occupancy rate? Does the complex have a significant number of units that are rentals? This may impact the ability to obtain financing, as well may affect the overall quality of life in the complex and future market values. Higher owner occupied neighborhoods (and a condominium complex is its own neighborhood) are shown to have lower public safety issues, cleaner environments, easier dispute resolution, and longer term residence which leads to stability. If there is a large number of rental units in a complex there is greater risk to units being abandoned if market declines, or landlords selling below market to rid themselves of the investment—thereby setting comparable sale prices for appraisals.

Does one entity own a significant number of units? This goes along with the prior question of owner occupancy. Single entity ownership is relevant in a few ways. First, many lenders will not loan in a complex if one person or company (other than developer when selling units for first time) owns 10% or more of a complex. Second, that one entity can control the market for the complex. If one person owns six of fourteen units and puts them all on the market at the same time it will depress values. As well if the entity is having financial issues and does not pay HOA dues or all its holdings go to foreclosure will have negative impact on the complex.

How many units are for sale? If a significant number of units are for sale at the same time, other than initial offering, this can be a signal that something is not right in the complex. It could be issues with the governing board, the management company, an owner that is constantly causing issues for everyone else, or an environmental issue such as noise. Also if there has been a large turnover in ownership in the recent past that may be a warning sign; have your agent provide you with sales in the complex over the past twelve to eighteen months.

How do the HOA dues compare? For a complex of its size and amenities provided are the HOA dues significantly higher or lower than comparable complexes in the immediate area? Too low can signify either incredible management or perhaps mismanagement not collecting enough which could lead to future assessment increases. Too high can signify lack of reserves and planning in the past that has led to increase in dues to bring the financial health of the Association back to normal.

How onerous are the CC&R’s? Covenants, Conditions and Restrictions are the governing rules of the Homeowner’s Association. Are there some items in the CC&R’s that bother you? If so don’t buy thinking you can change them as it is very difficult to get an Association to vote to change its rules. Are pets allowed but the rule says something like “dogs are permitted but total weight cannot exceed 45 pounds?” A Yorkshire Terrier averages seven pounds, can someone have six Yorkies because combined they do not exceed 45 pounds? Sounds ridiculous but such is the basis of potential lawsuits. Are visitors only allowed to park in guest spaces for two hours, or is there no limit? The former may be good if you have a relative visiting that you can only take for two hours, the latter allows for the guy down the hall to have his partner to become a permanent resident without paying for a parking sticker.

There are many more factors to consider when purchasing a condo than a single family detached residence. Primarily because once you purchase a unit you become a business partner with every other owner in the complex. You are tied to them financially on both a short and long term basis. Before making a condo your home do your due diligence to check out the entire project and your business partners to ensure you enjoy all aspects of your new home not just the spiffy kitchen and great location.

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

Lots and lots of economic data this week. Leading the way was Personal Income, Consumer Spending and Price Index numbers for September were released Monday. Income was up slightly, but not significantly—neutral for rates. Spending was up pretty strong at 0.5% from August, mostly from auto sales—pushes rates higher. The Price Index continues to be stagnant at 1.7% year over year growth—positive for lower rates. Overall the news was shrugged off by investors as it did nothing to increase or decrease future rate predictions.

Fed does nothing. The minutes from the most recent Open Market Committee meeting for the Federal Reserve were released and to the surprise of no one the decision was to not increase the Fed Funds Rate. The language in the release gave no indication of a rate move in December, but the overwhelming consensus (80%) is that there will be a rate hike in December by the Fed. Unknown is how much will the hike be? News was market neutral.

New jobs not inspiring. This morning the Labor Department released employment data for October and the numbers did not inspire confidence of a strong labor market. Only 161,000 total jobs were added in the economy, of which only 142,000 were in the private sector. Considering between deaths and people coming of working age is around 193,000 per month there was a deficit of 32,000 jobs created versus needed. A bright spot was an increase in hourly earnings of 0.4% from September, though the average workweek has been stuck at 34.4 hours for months—keep in mind the definition of full time under the Affordable Care Act that mandates health benefits is 30 hours per week. The headline number is always the unemployment rate which declined from 5.0% to 4.9%, however this is mostly due to contraction of those looking for employment. Also dropping was the labor participation rate to 62.8%. Overall the news is positive for lower mortgage rates.

Rates for Friday November 4, 2016: Rates drift sideways for another week. There is quite a bit of nervousness in the markets this week as investors look to next week. The week is short (Veteran’s Day on Friday) which always leads to choppy trading, add to the short week the elections on Tuesday and there is a lot of unknown. Pouring through different analysis of “what if X wins..or Y wins…” the consensus seems to be the initial market reactions will be more muted if Clinton wins than if Trump wins under the “better the devil you know…” theory on Wall Street. If this is the case then the don’t-hold-me-to-it prediction for Wednesday is that rates will either remain stable or drop since if the “devil you don’t know wins” and spooks investors a lot then money in these situations typically flows out of stocks and into bonds, which leads to lower rates. However this is such a unique election cycle we could see everyone sell everything and go to cash and just sit on it. Volatility means one thing: lock when you can.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.375% Flat
30 year high-balance conforming 3.50% 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 may have no points and credit towards closing costs, changes daily.

11-4-16

Wednesday night’s Game 7 of the World Series had 40 million viewers, the most for a baseball game since Game 7 of the 1991 Series (perhaps the greatest Series ever with five one run games including the 1-0 extra inning final game). This puts Super Bowl viewing in perspective as Game 7 was the most watched TV show this year since the Super Bowl—which had 112 million viewers.

While Game 7 wasn’t great from a pure baseball standpoint it was outstanding for drama and excitement. Congrats to the Cubs who were able to give their fans a long, long, long awaited Championship. Unfortunately for the Indians they now replace the Cubs as longest suffering team in the four major sports without a championship…

Have a great week,

Dennis

Weekly Rate & Update 10-28-16

Question: Is it worth it for us to try to increase our credit score?

Answer: Probably.

After the mortgage and housing market meltdowns one of the first adjustments made by Fannie Mae and Freddie Mac was to increase the number of tiers in pricing adjustments for credit scores.

What do I mean by “tiers in pricing adjustments?”

As part of our series on how mortgages work in August/September we covered the teeter-totter relationship between rates and costs and also tiered pricing. Different factors in a loan have different prices for the same rate. Credit score pricing has more tiers than other factors, and the higher your score the lower the price for the same rate.

There are seven tiers for pricing based on the borrower’s credit score from low score of 620 to scores that are 740 or higher. The tiers have a change in price every 20 points and if you can increase your score enough you could move two or more tiers—which depending on other factors could lower your rate up to 0.25%.

So it can definitely benefit you to increase your credit score if it can lower your interest rate. The next question is, how can I increase my score?

There are several factors that go into your credit score and depending on what is impacting your score it may be possible to increase your credit score in a short period of time. For many borrowers paying down and/or closing some credit accounts is the fastest way to increase your score, for others getting creditors reporting delinquent payments to remove those delinquencies from their credit reporting.

Another question you may ask is if the time it may take you to increase your score is worth the risk of losing the home you want to purchase that is on the market now or perhaps interest rates going resulting in the same, or possibly worse, rate you could get today? The answer depends on the potential score increase, the benefit in terms of price and or rate to you and the time it would take to have the changes made to your credit report needed to obtain the score you are shooting for.

Every situation is different and just paying off some cards or closing others may not impact your score or impact it enough to better your cost or rate. When I run a credit report for clients I analyze the report and the scores and provide some guidance on if it is possible to easily increase scores and what it may take for the scores to increase.

When buying or refinancing your home your credit score is a very important element to the rate and cost of your loan, if it makes sense to increase your score we’ll help you.

[email protected]

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

This morning the very important 3rd quarter Gross Domestic Product data was released. The report announced 2.9% annualized growth in the 3rd quarter GDP, more than double the 2nd quarter’s 1.4% growth. It was the biggest 3rd quarter growth in two years. Strength was in personal consumption and exports. The report should be a negative for mortgage rates but so far investors have shrugged off the positive news and Mortgage Backed Securities (MBS, which determine interest rates) are flat following the new.

Rates for Friday October 28, 2016: Some upward pressure on rates this week that flexed rates a bit but at the end of the week all of our rates are the same as last Friday. The speculation amongst the investor set is that when the Fed raises rates in December (notice: when not if) it will be a 0.5% bump instead of the previously anticipated 0.25% increase in the Fed Funds rate. I remind you that increases in the Fed rate do not directly correlate to increases in mortgage rates as those are solely dependent on the activity in the Mortgage Back Securities markets which track closely to the government bond markets. Lock ‘em when you got ‘em.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.375% Flat
30 year high-balance conforming 3.50% 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 may have no points and credit towards closing costs, changes daily.

10-28-16

Historic times in the upper Midwest with the Cubs and Indians going at it for the World Series. I have no dog in the fight and hope mainly for seven really close games—so far oh for two in that regard. As well that games are decided by fantastic plays by the players and not the result of an error or blown call from the umps. Whoever wins it will be fun to see the winning city release decades, or for Cubbies fans century plus, of pent up excitement about winning the oldest championship in American sports.

Have fun on Monday night passing out your candy to the little super heroes, princesses and pop stars!

Dennis