Question of the week:  We are thinking about putting in a pool, how can we finance and what will be the impact on our home’s value?

Answer: The answer to this question is somewhat similar to the answer I give when someone contacts me to discuss a major remodel or addition to their home: before you build explore the options of buy. In other words before you commit to tearing apart your home to add another bedroom, or your yard to add a pool, see what is on the market that would replicate what your end result will be and if it makes sense and you can qualify to purchase the end result instead of build it at your current home.

Like anything else, there are two ways to pay for a pool installation: pay cash or borrow the money. How you finance the installation depends on several factors, primarily how much equity you currently have in your home.

In order to pull equity out of your home to finance your new pool you have to have equity in your home to pull out. Depending on how much equity you have will determine the options for financing the operation.

There are two basic options, and they can be blended, when obtaining equity from your home, be it for building a pool, paying for kids’ college or leveraging a second home or investment property. First is a traditional refinance in which we refinance your current mortgage and increase the balance on the new mortgage to obtain the funds needed for your pool endeavor. The amount of equity you can access depends on the loan program, however in most instances we can go up to 80% of the current value of your home (i.e. without the pool installed); if your home is worth $750,000 we can do a cash-out refinance to $600,000.

The second option is with a second mortgage, or most commonly used a Home Equity Line of Credit (HELOC). The total loan to value available will vary depending on the lender and your ability to qualify, many will go to 85% loan to value and some to 90% loan to value.

Let’s use a $750,000 home that has a current balance of $550,000. You have met with a pool contractor and after the design has been agreed upon the total cost of the installation and all amenities will be $80,000. We have two options: use a HELOC for the entire $80,000 or refinance your existing mortgage to 80% loan to value, which will provide you $50,000, and then obtain a HELOC for the remaining $30,000. When the dust settles, or rather the loans have funded you, you will have $630,000 in loans against your $750,000 home for a total loan to value of 84% loan to value.

One advantage of the HELOC is you do not pay for all the money as soon as it funds but can use the equity line as you need cash, or you can use it as a “backstop” using cash you have saved and if you have an emergency or need cash in the future you can use the equity line.

The key to being able to finance a pool installation, or home construction, is the current value of your home and what you currently owe.

Regarding the second part of the question, what is the impact of a new pool on the value of your home, if you are going to install a pool at your home is that there is a very low return on investment—in fact it might be the lowest return for any feature you can add or improve on your property. Speaking from experience, and we did not install a new pool but extensively remodeled the pool in our home when we bought it that was at the end of its life, when you install a pool you are not just having someone dig a hole, line it and then fill it with water. You will also have plumbing, electrical, hardscape and landscape, and perhaps amenities such as entertainment area with grill, media, a spa, changing/shower room, etc. In the end your home will be transformed, as will your lifestyle at home, but not without considerable cost.

For the average home the market value of a pool is from about $15,000 to $25,000, against costs that can run from around $35,000 to $100,000 or more depending on your amenities, design etc. Regardless if you have the $35,000 pool installed or go full blown luxury hotel/spa backyard, the return is very low. If you are considering adding a pool to add value I strongly suggest you buy a home with a pool instead of trying to make money installing one in your yard.

If you wish to discuss options or go through what-ifs of putting a pool in your yard, or any other home remodel/improvement project that may need financing please give me a call, I’m happy to go through the various options.

Have a question? Ask me!

It is the first week of the month, which means jobs information. The week started with how much we make and what we do with it. Monday the Bureau of Economic Analysis released Personal Income and Consumer Spending data for the month of March, and the numbers were not celebrated. Personal income for the month rose an anemic 0.2% in April, following several months of good growth for incomes. While personal income was anemic consumer spending was flat-lined in April showing 0.0% growth (for those who didn’t pay attention when percentages were covered in math class, that is zero growth) from March’s spending—which was revised to also show no increase in spending. That would be two consecutive months with consumers earning more but not spending more. The result is a little positive as it means savings rate increased 0.2% to 5.9% savings from personal income. This new is positive for mortgage rates, meaning no upward pressure and perhaps a bit of downward pressure, on rates.

The third part of the report, the PCE price index (Personal Consumption Expenditures) was the opposite of positive. Whenever there is data for prices there are two components, the index and the “core” index. The index is everything consumers buy, food, clothing, energy, movie tickets, whiskey (a perfect gift for dedicated mortgage professionals in Long Beach), the “core” index takes out food and energy prices which tend to be volatile. In April the full index dropped 0.2% and the core index dropped 0.1% for the month. The drop in the core index presents the weakest prices in almost sixteen and a half years. Overall the news is not good and combined with other economic data presents a very weak first quarter for the economy—which is positive for lower mortgage rates.

On a much more positive note the Labor Department’s jobs report for April showed a strong gain of 211,000 jobs for the month, and a drop in the unemployment rate from 4.5% to 4.4% which is the lowest reading since May 2001. Adding to tightness in the labor market was the pool of eligible workers dropping 200,000 workers. More people are working, income is rising, albeit slowing in March, but the paychecks are not being converted to spending which is troublesome looking forward since consumer spending is 60-65% of our economic activity. Today’s Labor Department report supports higher rates, however it is more than dampened by the lack of consumer spending.

Rates for Friday May 5, 2017: Rates remain stable this Friday from last, and the week before and the week before, with not enough news to create momentum up or down for rates. The one thing our industry will never complain about is stable rates.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            3.875%           Flat

30 year high-balance conforming                        4.00%             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.

This section of the Weekly Rate & Market Update is generally where I put in some personal information, this week I am going to brag about the Long Beach Unified School District. Recognized for many years as one of, if not the, best “urban” school district in America, this week and next shows one way this recognition is valid. Monday morning and yesterday afternoon I helped proctor for AP exams (advance placement college-level exams that many colleges will give class credit if certain scores are met). One matrix for measuring the quality of education being provided students is college readiness of graduates, and the biggest factor in college readiness is the availability of AP exams. This week and next well over 13,000 students across the district will take AP exams in almost 30 different subjects. What’s more is these exams cost about $100 per exam, so a student taking four APs can face a pretty hefty bill. However Long Beach Unified covers almost all the cost of the exams, a student pays a fee of $15 when registering for the exam and after completing the exam is refunded $10 so the total cost is only $5. By removing this cost barrier for many students in the district LBUSD has seen a tremendous jump in the number of students taking these exams and also taking AP classes—meaning more students are exposed to rigorous academic environments similar to what they will face in college.

Families in Long Beach are fortunate to have an excellent school district that not only prepares kids for college but because of the College Promise guarantees spots through four years of college for graduates in partnership with Long Beach City College and Cal State Long Beach. While there are other excellent schools and districts in California, some may meet but none exceed the quality of education our daughters are receiving. I am proud of our district and their continued commitment to quality education.

Good luck to those students with exams still to go!

Have a great week,

Dennis

 

Question of the week: I am confused on the appraisal process and what an AMC is, can you please explain it?

Answer: One of the first changes in the mortgage industry following the market meltdown was federal policy that prevented lenders from directly ordering appraisals, and to take it a step further preventing us from have any direct contact with an appraisal.

As a result Appraisal Management Companies (AMC) that had been around prior to 2007-8 became the source and conduit for all appraisals and communication. And while we cannot select appraisers directly we can in some instances select the AMC with whom we want to work.

How does an AMC work?

The appraisal process is designed to eliminate undue influence in property valuations, hence the inability of me to directly contact an appraiser, to further this policy appraisers are selected by what is known as “adverse selection.”

You have wisely chosen Stratis Financial for your mortgage to purchase your new home. We complete the application package and are ready to order the appraisal. We go to the AMC website and complete the property information, who to contact for access to the property, payment information etc and an order is created.

At this point the AMC needs to assign an appraisal. Most often this occurs by contacting the next appraiser on the list who is registered to work in the area where the property is located to see if they are available; if the appraiser is unavailable or non-responsive in a short period of time then the next appraiser on the list is contacted and so forth until the order is assigned.

When the appraisal report is completed it is sent to the AMC who completes an audit and quality control of the report—note this is for compliance and completion of report issues and not for valuation. Once the audit is completed and the report is found to be in compliance it is provided to us for your application package.

At this point we go through the appraisal to primarily check the value and then to see if there are any items that must be completed, for example that the property has smoke and carbon monoxide detectors per California state law, that there are no adverse physical conditions that the appraiser feels must be corrected for the value on the report to be valid.

After reviewing the report we provide you with a copy and let the real estate agents know if the value is sufficient for our transaction (meaning at or above sales price), if the value came in below sales price and if there are any corrective issues that need to be completed at the property before we will be able to get final loan approval.

Assuming all is correct with the appraisal we move on with our processing, approving and funding of your mortgage so you can move into your new home.

What if there is an issue with the property in regards to condition? If this is the case we let the agents know the issue, for instance missing smoke/CO detectors or no flooring in a kitchen that has not yet been remodeled* and work to find out when the work will be completed so we can take the next step. The next step is once the work is completed we have to contact the AMC to send the appraiser back out to the property to make sure the work has been completed and provide an updated report. This re-inspection comes with a fee (generally $150).

*Personal example: When Leslie and I sold our first home we had done some work in the kitchen and were getting ready to retile the floor. We left the tile off the floor and when our buyers came in we let them know they could select the tile we would put down, we had several samples that were in our budget. They selected the tile they wanted, we had the tile laid down and then signed off by the appraiser.

What if the appraisal is low? This is a question we have covered several times in the Weekly Rate & Market Update, most recently last month, today we will just cover the process with the AMC. If the appraisal report value is less than sales price, or what we feel value should be if our transaction is a refinance, we need to provide new and better comparable sales to the appraiser. In a purchase we notify the agents to see if they can provide us with better comps than what is in the report. We then write up a report with the comps providing our opinion as to why the comps we are providing are better to use than those used by the appraiser. We then submit the comps to the AMC who then provides them to the appraiser. If our appeal is not accepted by the appraiser we then work with the AMC to see if they agree with our argument in the appeal to see if they can convince the appraiser to take another look. If we feel very strongly that our case is strong we continue our dialogue with the AMC and if their management agrees we may have a new appraiser assigned to our property—this does not always happen but we have been successful many times in the past if we have what are evidently superior comparables to those in the report.

Ideally we would be able to go back to before the mortgage and housing market crisis and use appraisers with whom we had long standing professional relationships, but there is little chance that will be the case in the near or long term. As a result we must use the AMC process and make the best of it. Which we have at Stratis Financial.

At Stratis Financial because we fund approximately 90% of our applicants mortgages ourselves we have a relationship with one specific AMC that handles 90% of our appraisals. This allows us to have a strong relationship with the AMC for efficient appraisals and as or more importantly should there be any issues we need to have resolved.

Have a question? Ask me!

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

Numbers, words, action impacting rates this week. Working from least impactful to potentially most, today the employment report for March was released by the Labor Department and March saw an increase of only 98,000 jobs in March, a very low number. One explanation is the bad storms that hit the Northeast in March, another is that perhaps there is a slowing going on with employers. The bright spot on the report, that would have made headlines a year ago but not today, was the drop in the unemployment rate from 4.7% to 4.5%, the lowest level since the economic peak in 2007. The wage aspect of the report shows a lag in wage inflation, due to level of wages of many entering the job market. Overall the report is somewhat mortgage rate friendly.

Words have a big impact depending on who is saying them, and who is listening. This week the minutes of the Federal Open Market Committee were released and the most interesting part was the Fed announcing it would be unwinding its holding of U.S. Treasuries and Mortgage Backed Securities (MBS). To prop up the bond markets (inclusive of mortgages) the Fed purchased trillions of dollars of Treasury and mortgage debt after the financial crisis. Once markets stabilized and rates remained low the Fed continued to purchase bonds as holdings they had matured (i.e $10 million mortgage package paid off at maturity the Fed would reinvest the $10 million and purchase more mortgages). Currently the Fed has $4.5 trillion in bonds and mortgage debt on its balance sheet and the governors have decided the time has come to start to rid itself of the debt obligations. What this means is the primary buyer of bonds and mortgages is leaving the market. The impact on this should be higher interest rates as there will be a drop in demand, which will cause prices to drop (and rates increase) to attract investors. This will be a long term impact on rates, how big an impact depends on the private sector and other governments stepping in to pick up the Fed’s absence in the market.

As for actions, we turn to the Middle East. The Syrian governments use of chemical weapons and response from the United States, corresponding response, if any, from Russia and other nations can have a strong impact on interest rates. In times of unrest and international tensions investors undergo what is known as “flight to quality.” This means investors leave equity markets (stocks) which are uncertain and can fluctuate quickly, for stable and dependable markets and returns, which means bonds and mortgages. The safest investments for returns are U.S. Treasury debt followed closely by Mortgage Backed Securities from Fannie Mae and Freddie Mac which are backed by the U.S. government. While the returns are lower than potential returns in equities the returns are safe and better than sitting in cash. So world unrest, bad actions by international actors lead to lower interest rates in the United States.

Rates for Friday April 7, 2017: We start the 2^nd Quarter with rates dipping to their lowest since November. There is plenty of news to suggest rates could/should go higher between economic news the past several weeks and the Fed pulling out of the markets. That said there is enough uncertainty that rates could be chased down depending on global events. Rates have dropped three-eighths of a percent since peaking the second week of March—perhaps it is time to take advantage.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            3.875%           Down 0.125%

30 year high-balance conforming                        4.00%             Down 0.125%

30 year FHA                                                      3.25%            Down 0.25%

30 year FHA high-balance                                  4.75%            Down 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.

An interesting day today, it is my 20,000^th day. Yes, 20,000 days ago I entered this life in Tulsa, Oklahoma. We are using the event as an excuse for some friends to come over for some of my favorite things, mainly barbecue, beer and whiskey. It is interesting we celebrate an annual trip around the sun and some milestones along the way (teenager, 18, 21, 30….50…75) but the days are ignored. We should celebrate the five thousand day milestones! My next milestone will be Saturday December 15, 2030 when I wake up to my 25,000^th day—no doubt I’ll have some barbecue and a sip or two of something!

I hope you have a great weekend,

Dennis

 

Question of the week: What exactly is mortgage insurance? Is it something that is mandatory for purchasing property or just the property I am buying?

Answer: With the increase in the purchase market and more first time buyers coming to market it is time to revisit mortgage insurance. Though making a comeback, piggy-back mortgages transactions which can avoid mortgage insurance are being evaluated differently in the current market than in years past—especially with the recent and future increases in the Prime Rate.

Mortgage insurance defrays some, perhaps all, of the cost to a lender if a loan goes into default and foreclosure. Depending on the loan type and initial loan-to-value (LTV) of the mortgage, the lender will require certain amount of coverage from mortgage insurance.

For FHA mortgages the full amount of the mortgage is covered and all FHA mortgages require two forms of insurance premium be paid, an upfront premium that is added to the loan amount and a monthly mortgage premium.  Recently FHA changed it guidelines so all new FHA mortgages require the monthly premium be paid for the life of the loan. Keep in mind the minimum down payment for FHA is 3.5% for the maximum loan amount of $625,500. With that much leverage risk it is not surprising that FHA has mortgage insurance to off-set some of the costs should the loan go into foreclosure.

For Fannie Mae and Freddie Mac mortgages, also known as conventional or conforming mortgages, mortgage insurance is required on all mortgages that have a loan to value greater than 80% of the property value; i.e. if the value of the home is $400,000 and your mortgage is greater than $320,000 you will be required to have mortgage insurance. This is for all conforming mortgages, regardless of refinance or purchase, condo or single family detached home.

For conforming loans the vernacular is PMI, or Private Mortgage Insurance, as the insurance is made by a privately held company. For FHA the vernacular is MMI and/or UMIP for Mutual Mortgage Insurance or Upfront Mortgage Insurance Premium; FHA mortgage premiums are collected by the federal Department of Housing and Urban Development—it is a government insured mortgage.

For PMI the premium varies on the loan to value of the mortgage, type of mortgage and borrowers’ credit scores. The higher the LTV, i.e. the lower your equity or down payment on a purchase, the higher the coverage required by the lender and therefore your mortgage insurance premium. The coverage goes from 30% for loans with LTV between 90.01% to 95% to 25% for 85.01to 90% and 12% for 80.01% to 85%. The greater coverage required for your mortgage the higher your PMI premium will be.

As well the higher your credit score the lower your premium will be.

What does 25% coverage mean? If a mortgage is covered by PMI with 25% coverage then if the mortgage goes into default the PMI company will pay the lender up to 25% of the mortgage amount to cover costs and losses due to the foreclosure. Note that after missed interest payments, legal fees, filing fees, plus the potential loss in loan principal because of a foreclosure is often much greater than 25%, depending on current market conditions.

Other loans also may have mortgage insurance depending on the product and lender. Some banks are offering our clients on “jumbo” mortgages, greater than $625,500 conforming loan limit, with no mortgage insurance for loans with LTV greater than 80% up to 90%. They “self-insure” the loan by charging a much higher interest rate than a mortgage with 80% loan to value, but there is no separate underwriting or payment.

Veterans obtaining a VA mortgage also have a version of mortgage insurance, called a “funding fee” that is added to the mortgage amount.

For PMI borrowers there are a few options as to what type of premium to use to pay for the mortgage insurance requirement.

Have a question? Ask me!

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

A bit of a slow news week for market moving data, especially after last week with plenty of market moving data plus the Fed rate increase. Of importance this week is housing sale activity for February. Nationally sales dropped 3.7% in February, but were still up 5.4% from February 2016 and the median price nationally has 7.7% in the past year to $228,400. More locally the California Association of Realtors reports that statewide home sales dropped 4.7% in the month and are up 4.9% from last year with the median price dipping a bit in February from January to $478,790—though that is still up 7.6% from 2016. Even more locally, LA County saw sales drop 8.8% from January and prices decline 7.7% for the month as the median price dipped from January to $470,000 in February, which is 5.7% higher than last February’s median price. Orange County bucked the trend a bit with sales down only 0.9% from January (up 0.3% for the year) and a slight increase in the median price to $745,000, matching the 5.7% annual price increase seen in LA County. Overall the news is mortgage rate neutral.

Rates for Friday March 24, 2017: After all the excitement last week Mortgage Backed Securities (MBS) rebounded this week, moving inversely to the equity markets. When MBS prices rise mortgage rates drop—think of a see-saw with rates on one side and price on the other. As a result rates have slipped down a little more this week to where they were at the end of February.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

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.

I really enjoy live theater and older musicals, give me a Rogers & Hammerstein show or soundtrack and I’m pretty happy (or almost anything with Doris Day, Fred Astaire, Gene Kelly…). This weekend we are going to see “An American In Paris” and I am looking forward to the music of the Gershwin’s wrapped around the story.

Our theater trip is a good diversion as well since with tonight’s games still to be played I have lost two Final Four teams (Duke, Arizona) and my winner (Duke) from the NCAA tournament—I have a feeling many other brackets are also a bit broken with four #1 and #2 seeds bounced and three more in action tonight, I know a lot of UCLA Bruin fans are hoping another two seed goes town tonight with they play Kentucky.

Have a great week, I hope your brackets are going stronger than mine,

Dennis

 

Question of the week: What price should we offer?

Answer: Ask any real estate agent what is the hardest question they are asked and this will be the answer. You have looked at several homes and found the one you want to buy, how much do you offer the seller?

My quick answer, what it will take to get the home within your ability to qualify.

We are conditioned to want to find a bargain, to get something for less than its value or what a seller is asking for their product or service. Our first big purchase is usually a car—who has every paid sticker price for a new car? We expect to get “a deal” and negotiate for a lower price. Buying an appliance? How often has the salesperson said, “if you buy today we can knock down the price….”

We go to CostCo, Target, Walmart, Marshall’s to save a few bucks. We purchase three packs of chicken thighs because they are on sale for 30% less than they were the week before.

Planning a vacation we go on-line to websites that offer lower airfares, hotels and rental cars. We purchase books, clothes, laptops, shoes, on-line for the convenience and to save a few more bucks. We want to see our favorite sports team and go to a site that sells tickets in the secondary market looking for a discount.

We shop, we look for what we feel are bargains. We love to tell people how much we paid for something—less than market value or what they paid for the same thing.

When we look at purchasing the most expensive product we have ever purchased, our home, we have ingrained in us to get the best deal.

Back to our question, how much should you offer for the home you want to buy?

On the one hand you would like to get a bargain, why pay the seller what they are asking?

On the other hand you want to get the home, it is what you have been looking for, but how much is “too much.”

This question is easier for an agent to answer in a buyers’ market—the seller does not have many offers and is probably willing to negotiate. It is a little harder to answer when the market is balanced with a decent amount of inventory and active buyers in the market. The question becomes harder in a sellers’ market when many (most?) listings have multiple offers. Which is the market in Southern California for the past year or so.

It seems if you offer list price you may be over-bid by another buyer and you are back looking again. If you over-bid and the seller takes your offer you feel as if you could have purchased it for less—or you worry that the home will not appraise for the sales price you and the seller have agreed upon. More to the point, it is psychologically very difficult for us to pay more for something than the asking sales price.

Back to my answer: pay what will get you the home you desire within your ability to qualify.

I have seen clients lose homes that they felt was perfect for them because they wanted to try to save three, four, five thousand dollars on a sales price. That home today is probably worth 30-40% of what it sold for several years ago. I have clients still in the market after having starting to look last year because they want “a deal.” With prices climbing over 5-6% over much of Southern California their “deal” was buying a home last year.

There rarely a correct answer as to what your initial offer can be. If you do not offer enough and do not get the home you want then you are upset because you missed the opportunity. If you make an offer and it is accepted you may feel like you left “dollars on the table.”

Don’t. Don’t think you left anything on the table. Be glad that you were able to reach an agreement with the seller so you can purchase a home for you and your family to enjoy for years and years to come. Ask any happy homeowner if they feel they overpaid for their home, and most will tell you they did not—even if they felt like they did at the time.

You are buying a home. Not a plane ticket, not headphones, not five pounds of onions, not a car. A home. So buy it.

[email protected]

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

Plenty of positive economic news this week, which means negative news for lower interest rates. The week started with the Gallup US Spending measure in which consumers self-report their daily spending. February’s daily spending, $101 per day, was the highest for February since 2008. A sign of positive consumer sentiment, since consumer spending is 65-70% of our Gross Domestic Product, the news was interest rate negative.

Even more negative and causing a big drop in Mortgage Backed Securities prices (lower MBS prices means higher rates) Wednesday morning as the ADP payroll report showed an increase of 298,000 private jobs in February. This was the largest single month increase since October 2015 and one of the largest gains for this report since the recession ended in June 2009. The news solidified the Fed raising rates next week and started some speculation that perhaps instead of the standard 0.25% increase the Fed Discount rate may be increased 0.50%. The bond markets (which includes mortgages) opened significantly lower on Wednesday following the report.

It is not uncommon for the Department of Labor monthly report to be at odds with the ADP report, it does not happen all the time but often enough so that when it does it is not a surprise. The DOL report this morning however reinforced the ADP report showing an increase of 235,000 jobs throughout the economy and a drop in the unemployment rate to 4.7%. Within the good news of the report for job seekers was more good news. The decrease in unemployment was not directly related to a decrease in those seeking work, the participation rate increased and hourly wages showed an increase as well. All the news double-solidified the Fed rate increase next week.

Rates for Friday March 10, 2017: After several weeks of stable rates we see them increase for the second week in a row. Is this trend that will continue or is the market finished pricing in next week’s Fed rate increase and starting to price in the next one? There is upward pressure on rates and unless they hit some resistance at the current level we can see a bit more upward drift. Those who have been floating waiting for lower rates are getting further behind. I maintain my advice: lock your rate when you are able through your escrow period.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:
30 year conforming 4.25% Up 0.125%
30 year high-balance conforming 4.375% Up 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.

Regular readers of the Weekly Rate & Market Update know that I always include a personal note to conclude the report. This morning I was intending to comment on our split family weekend as Leslie takes off to the desert with her friends from high school—a very well deserved few days away from me and the girls to relax and have fun with her friends getting some much needed Leslie-time. I guess I just commented on that.

I thought about leaving it at that but we had a sudden event last night that has made our day rather rough. Around midnight we were awoken by our dog having some issues and we heard him fall in the bathroom. Leslie and I got up and found him lying on the floor in distress. As we patted and loved on him he quickly passed away. We suspect a heart attack or stroke that may have been a result of his lupus that we thought was in remission.

Harrison was a wonderful dog. All who had met him always commented on his handsome looks, which we know he heard and relished, his calm demeanor and how sweet he was. Our home our hearts are emptier without our big dog. It was a perfect relationship between dog and family—we were so lucky to have him and he was lucky to have us.

Back to our question of the week, this is our home, I don’t care that several people told us we probably overpaid for it almost twenty years ago, our children, pets, family, friends, visitors do not care what price we paid they, and us, are just grateful we have this home to fill with love and wonderful memories.

If you have a dog take an extra walk with him or her this weekend for me and Harrison.

This one is for Harry,

Dennis

Question of the week: I’m doing my taxes, what is deductible from my mortgage transaction last year?

Answer: This has become an annual question for the Weekly Rate & Market Update.

NOTE! I am not a Certified Public Accountant, nor a professional tax preparer. Depending on your situation the following items may be deductible when you file your taxes:

• Mortgage Interest
• Origination/Discount Points
• Mortgage Insurance Premiums
• Property Taxes

Each of these is subject to not being eligible for deductions depending on the nature of your transaction (purchase, cash-out refinance, home improvements, etc) and your income.

My standard answer to this question was answered in the first sentence; I am not a tax professional. I have a hard enough time trying to keep up with the changes Congress, the Fed, HUD, DRE, Fannie Mae or other government agencies have regulated, I certainly have not been able to keep up with all the changes in the state and federal tax codes these past few years.

Note that the mortgage insurance premium deduction has been on a year-to-year extension by Congress and is subject to limitations based on income. Congress extended deduction in 2016 for 2016 but as of this point in 2017 the deduction is not part of the tax code—yet. This may change however, and the deduction could become a permanent part of the tax code not requiring annual renewal is H.R. 109 – Mortgage Insurance Tax Deduction Act of 2017 is passed by Congress and signed into law by the President. The bill sponsored by Rep. Brownley (D-CA-26) simply states, “This bill amends the Internal Revenue Code to make permanent the tax deduction for mortgage insurance premiums.” (Sidebar I have long advocated that every bill presented in Congress must be hand-written by the sponsoring member of Congress, not put together by staff or cut and paste from lobbyists, but pen to paper written by the member. This would lead to less complicated laws that are easier for everyone to understand. End Sidebar)

Whether this bill, currently in the House Ways & Means Committee, makes it through, and makes it through with the simple declarative sentence, remains to be seen, but if passed those paying mortgage insurance will have deductibility annually—possibly subject to income limitaions.

If you purchased, sold or refinanced property last year I strongly advise you to take copy of the HUD-1 closing statement from your escrow documents to a professional tax preparer or CPA. S/He will be able to assist you in maximizing your deductions while staying out of trouble with the IRS and State Franchise Tax Board.

Provide your tax professional with your IRS Form 1098 showing mortgage interest paid, and if applicable mortgage insurance paid and amount paid in property taxes for the year. (Note, if you paid under $600 in interest to a lender you will not receive this form—which is why your HUD-1 statement will be needed if you refinanced or purchased in 2016.)

If you need a recommendation for a tax preparer do not hesitate to contact me.

[email protected]

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

Housing data headlined economic reports this week. In a tale of two markets, existing homes sales and new home sales, the existing home sales in January were very strong while new home sales softened. Existing home sales across the country were up 3.3% from December and 3.8% from January 2016. Nationally the median home price is up 7.1% from last January, the West showed an 8.4% year on year increase. Housing has been driving economic growth and stronger housing will lead to more growth—which means higher rates. These conflicting reports result in neutral overall effect on mortgage rates.

Locally the price data shows a dip and a jump. The dip is in prices from December to January statewide and in all Southern California Counties, the jump is in prices from January 2016 to 2017. In LA County the median price for a single family home was $509,320 in January, up 5.9% from 2016, Orange County is up 5.7% for the year to $740,000. Both counties saw sales drop over 26% from December but up 6.7% in LA County from 2016 and down 1.1% in Orange County from last year. The best return on investment in California in 2016 on the median single family home? Del Norte County (most northeastern county, from Oregon border to below Klamath, Pacific to western part of Klamath National Forest), where if you bought the median priced home last January and sold in January you would have seen a 48% return, your buy price having been $157,000 and your sale price was $232,250.

Rates for Friday February 24, 2017: Our range is shifting up a bit for Mortgage Backed Security (MBS) prices (higher prices mean lower rates), not a lot but there is some momentum and if it holds we could see rates dip a bit next week. “If.” For now rates are flat from last week with downward momentum.

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 3.50% 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.

Somehow I am not getting any older but our youngest daughter turned 15 this past weekend—I keep telling myself that. When I started the Weekly Rate & Market Update as a monthly email to real estate agents her older sister was still an only child. We have seen a lot of changes in our industry during her lifetime, I wonder what changes will occur in her next decade and a half.

The Oscar’s are this weekend and we’ve seen four of the Best Picture nominees (I wish they would go back to just five films nominated—but I’m a grumpy old guy who’s not getting older). Of the four we saw my ranking for the Oscar would be: winner: “Lion” A great story that is wonderfully told, great acting, very moving and everything that makes going to the movies a great experience. Just behind, “Arrival” I am not a sci-fi guy, Star Wars, Star Trek, etc are not a genre I like very much. “Arrival” is not of that type sci-fi, but an encounter movie that is fantastic. A mind bender with great acting and writing. I need to see it again as I understand it better after Leslie explained it to me and patiently answered my “but what about….” questions. In third place is another great movie with a wonderful story that is well told, and like “Lion” a true story, “Hidden Figures.” Perfect movie: story, acting, production, casting, every box for what makes a movie great is checked, I just liked the other two better. Finally, a very good movie that was very enjoyable and I can see how some would consider it a winner but I found fell short of the other three is “La La Land.” I have always loved musicals, from the big production Rogers & Hammerstein shows to Fred Astaire, Bing Crosby, Doris Day smaller scale but movies with great stories, humor and songs—I watch them all. La La is great in that maybe Hollywood will get back to making good family musicals again, but not quite there.

I realize by putting this list together I probably cursed “Lion” but hope not, it is very deserving.

Have a great week,

Dennis