Weekly Rate & Market Update 7-8-16

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Question of the week: Should we refinance?

Answer: A semi-follow up to the Question of the Week from last Friday (if now is a good time to pull cash out from home for use later), and our most popular question for the last several weeks. And those who are regular readers of the Weekly Rate & Market Update know the one word answer, read, all together now: Depends.

When this question is raised I naturally have several questions I need answered before I can provide an answer. What is your current balance? Rate? Payment? Then we try to determine an approximate value of the property to determine what our loan to value will be if we do refinance.

Then there is some math that is done so we can determine first if you can refinance then if you should.

What do you mean if you “can?”? If the rate is lower I should, shouldn’t I?

Earlier in this century it was not uncommon for some (many?) loan originators and lenders to “churn” clients with refinances with every tick down in rate without concern as to how much clients were saving nor total costs. Since then guidelines have been put in place to prevent such practices. The guidelines are pretty simple, if you are going from a like to a like loan, i.e. 30 year fixed to 30 year fixed, with a rate and term refinance (not pulling out any cash) then your payment must be reduced by at least 4% and the time frame to recoup the costs of the refinance with your savings must be 48 months or less (I try to use a stricter standard of 5% savings and 24 months or less).

Because of these guidelines and how low rates have been a lot of homeowners are discovering that guidelines will not allow them to lower their rate from 3.875% to 3.75%, or in some cases even 3.625%, because their rate and payment is already so low that shaving an eighth or a quarter off their rate will not save them very much on a monthly payment—in that case instead of being upset that you cannot take advantage of the lower rate be happy your rate has been so low as long as you have had it!

For others adding the additional term to their loan for the savings ends up costing them more in the long run and is also not worth the refinance. Take David, a past client who has a 15 year mortgage with 12 years left. We worked out the numbers and while he would save money over the next 12 years with a refinance the additional three years on the new mortgage would wipe out the savings and more. Since he wants the home paid off when he retires adding the additional cost made no sense.

Next week: does it make sense to pull money out of my home to pay off other debt?

Give me a call to assess your situation and needs and find the program that matches best for you.

[email protected]

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

Interesting juxtaposition of economic news this week. Working backwards, the U.S. economy had a surge in job growth from May’s anemic 11,000 hires (revised down from initial report of 38,000 gained) adding 287,000 jobs. That is well above estimates and gains were made across many industries—including manufacturing for a change. Some tempering in the news as hourly earnings gained only 0.1% and are up just 2.6% year over year, but many more people are earning that hourly wage which is good news. The question on everyone’s mind is was last month’s job report or this month’s job report an anomaly? I think perhaps neither. The employment data today should be bad for rates especially since…

…the minutes from the Fed’s meeting were released on Wednesday. The minutes showed that the May job report was the primary cause for the voters on the rate committee to not raise the Federal Reserve’s discount rate. So if the May report was the reason not to raise does the June employment data support an increase at their next meeting?

Rates for Friday July 8, 2016: The short holiday week has seen a slightly wave in mortgage rates and pricing through the week. The conforming rate is the same as last week while lenders have edged up the high-balance rate from last week’s low. Market is in what we call a “caution” zone, meaning floating is a bit risky as a slight move to lower prices for mortgage bonds (higher interest rates) could trigger a pop up in rates. If you are able to lock through your escrow period I advise you do so, the slight gain you may get from lower rate/price is less than loss you will experience if/when rates turn.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.25% Flat
30 year high-balance conforming 3.5% Up 0.125%
30 year FHA 3.00% *** 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.

7-8-16

Thank you to everyone who turned out for our Annual Flag Collection and Retirement Ceremony last week, it is always good to see old friends!

Have a great week,

Dennis

Weekly Rate & Market Update 7-1-16

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It’s that time of year, our 6TH Annual Flag Collection and Retirement will take place TONIGHT!!

Question of the week: With rates so low we should we take out some cash with a new mortgage now for use later?

Answer: This has been a popular question lately and as with many Questions of the Week there are multiple answers depending on your situation. As well the question is best answered using more follow up questions.

When will you need the money? Is there a definite timing for using the money? One client is considering accessing equity today for future college costs, which will start in 2-3 years. Another is planning on extensive remodel for their home beginning at the end of the summer. Yet another is looking for JIC money—Just In Case—and may never need the money to cover a potential emergency or major expense such as a new roof or plumbing work.

What is your current mortgage? Is the rate on your current mortgage as low or lower than the current rate you can obtain with a cash-out refinance? Will taking the cash-out push your mortgage balance over one of the tiers that increase rates/pricing (either $417,000 or $625,500)? Do you have a primary mortgage and a second or equity line?

What is your home’s value? After the refinance and increasing your loan balance what will your loan-to-value be? The primary factors in the rate/price of your refinance are what will the loan-to-value be, what is the loan balance, if the loan is just reducing the rate or cash-out, and your credit score.

If someone has a delayed need for the funds from a cash-out refinance my typical advice for them is to wait until they have more immediate use for the funds, see what long term mortgage rates are at that time and if it makes sense to do a cash-out refinance at that time otherwise an equity line of credit (HELOC) may be a better solution for them. Depending on your current rate, refinance now to lower your primary mortgage payment and save money until that time comes. If you pull funds out now that you will probably not use in two or more years, or ever, then consider the additional interest costs during that period for funds you have sitting in the bank. Funds you may be tempted to use for other purposes in the meantime.

Over the past few years we have funded many refinances for families consolidating and outstanding HELOC and their mortgage into a new loan that lowers their total payment and fixes the rate on their HELOC. Some people are uncomfortable not knowing what their borrowing costs may be in the future and since rates are so low would rather take advantage of historic low rates to obtain the funds they will need at a future date, pay the interest on the unused money to avoid future rate risk. The math may show they end up paying more for the funds in the long run even with higher interest rates in the future, but that is what they are comfortable doing.

Everyone’s situation is slightly different, and everyone has their own comfort level with current stability versus future risk. Depending on your situation, when and for what you need the additional funds and your comfort level for future rate risk a cash-out refinance today may be a good move, otherwise perhaps just lower your rate and payment today and tackle the cash-out issue in the future when the funds are needed.

Give me a call to assess your situation and needs and find the program that matches best for you.

[email protected]

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

It’s not all Brexit…Some important economic data for the United States was released this week. Early in the week the third and final revision to 1st Quarter Gross Domestic Product was released and the growth figure was revised slightly upward to 1.1% growth. The upward revision was mostly due to export data being updated, of concern was a downward revision to personal consumption. Also revised downward was the price index showing just 0.4% growth. Overall the news supports low interest rates.

Consumer confidence spiked in May to its highest level since last October. While confidence was running high in May plans to buy really big ticket items, cars and homes, declined in the report. Overall the report is slightly negative for interest rates.

Converse to the confidence shown by consumers in May was their income and spending. Personal income growth slowed in May, growing just 0.2% and spending grew 0.4%. Neither number supports robust economic growth. Nor does 0.9% increase in prices year over year. This data combined with the GDP data support rates remaining low for an extended period.

Rates for Friday July 1, 2016: As expected markets have settled down following the Brexit vote last week—the Dow and the S&P indexes are ticks below where they were at close last Thursday. Bond markets continued to see rising prices, but as with the sudden spike last week, while softening rates not a lot of movement down as lenders are reluctant to lower their rates much further. But a tick lower rates are this Friday to their lowest since May 2013.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.25% Down 0.125%
30 year high-balance conforming 3.125% Down 0.125%
30 year FHA 3.00% *** 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.

7-1-16

As I do the Friday before almost every Independence Day here is a link to the Declaration of Independence that I encourage everyone to read once a year. An amazing document as it put forth ideals never before written by and committed to by leaders of any nation.

May your pursuit of happiness this weekend be met with fulfillment many times over this weekend.

Have a great week,

Dennis

Weekly Rate & Market Update 1-29-16

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Question of the week: We had a short sale on a previous home, can we get a new loan?

Answer: Yes, but it is not “if” you can get a new mortgage but “when.”

Provided you otherwise qualify for the mortgage with income, credit and asset verification, a prior short sale does not preclude you from obtaining a new mortgage. However the time frame to obtain a new mortgage has changed.

For conforming loans (Fannie Mae and Freddie Mac) the time from the resolution of your short sale on a prior mortgage to obtaining a new one used to be tiered depending on your down payment or equity. The guidelines have been simplified so that it is a blanket four years since the final disposition of your prior mortgage.

The time frame can be shortened if the cause of the short-sale was “extenuating circumstances,” which is a small hole to thread. Essentially you have to prove job loss prior to the short sale, job transfer to a geographic distant location or other circumstance that was unavoidable and unforeseeable.

If you had a foreclosure the guideline is seven years must have passed before you can obtain a new conventional mortgage.

For jumbo loans (over conforming loan limits, $625,500 for most of Southern California) a prior short sale is a no-go with almost all programs.

For FHA loans the guidelines are a bit looser though tighter than they were in the past. Three years from disposition of the short-sale or a foreclosure is the requirement to obtain a new FHA mortgage. One year is the time frame if there were extenuating circumstances involved.

As with all guidelines have your particular circumstance checked out as regulators are constantly changing guidelines and different properties may have different time limits, for instance second home, investment property, units.

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

Not a lot of economic news this week, but what news we had was pretty important. Wednesday the Fed Open Market Committee meeting announcement was released and to the surprise of no one no change was made to the Fed Funds rate. There is concern of global economic activity and its impact on our economy, and the view of the economy seems to have pulled back a bit from December when it hiked the Fed Funds rate from zero to 0.25%. No impact was had on mortgage rates from the news.

Supporting my comments last week that our economy is being lifted, or supported, by housing markets, new home sales surged with an increase of 10.8% to an annualized rate of 544,000 sales, up almost 55,00 from the prior month. Ordinarily this would be a downer for mortgage rates, meaning higher rates, but the financial markets activity dampened any increase.

A major concern to economic growth has been orders for durable goods. The sector did not end well in 2015 with contraction in November of 0.5% and initial estimates for December showing a fall of 5.1% against an expectation of a gain of 0.2%. America’s manufacturing output has been on a continual decline for several decades, however contraction seems to be occurring at a faster pace in recent years and this sharp drop in orders does not bode well for economic output in 2016. The news is very friendly for mortgage rates.

The big data release for the week was the Gross Domestic Product for the final quarter of 2015. Following a 2% gain in the third quarter GDP rose a scant 0.7% in the 4th quarter. Our economy is very much consumer driven, consisting of 65-70% of economic activity, and consumer spending it slowed as 2015 closed out. Holding back economic growth was business activity, particular domestic companies engaged in foreign trade and markets. Prices were lax, showing the smallest increase for the year. The news is somewhat rate neutral, however taken in context of the international markets and foreign economic issues it becomes a positive for lower rates.

Rates for Friday January 29, 2016: Conforming rates drop to end the week on the GDP news, compounded by slim chance the Fed will raise rates again in March. The 30 year fixed conforming has dropped 0.375% from the beginning of the year and at its lowest since the final Friday in April 2015.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.5% Down 0.125%
30 year high-balance conforming 3.75% Flat
30 year FHA 3.25% *** Flat
30 year FHA high-balance 3.25% *** Flat

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have no points and credit towards closing costs, recent rate change reduces credits

1-29-16

We are going whale watching tomorrow with the Rotary Club of Long Beach. I have lived in Long Beach for over 30 years and have never been on a whale watching cruise and looking forward to our adventure.

I asked the question today of what experience/attraction have people not done in their immediate area? Now that whale watching is off my list my next nearby attraction that I have never seen where I would like to take the family is the Grammy Museum. If I cut a demo while I am there I will be sure to share!

Have a great week,

Dennis

Weekly Rate & Market Update 6-24-16

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It’s that time of year, our 5th Annual Flag Collection and Retirement will take place on Friday July1st!

Question of the week: What impact does the Brexit vote have on mortgages?

Answer: Kicking myself a bit as I should have had this question ready to go with a reply and save some time this Friday morning, however I was lazy and didn’t want to pre-write an answer assuming the outcome would be what it was on the Brexit vote.

First, for those not following the international news that closely, what is “Brexit?” Following the modern tradition of mash-ups of couples names, think Brangelina, Bennifer, etc (thought to self, will Leslie go along with Denslie or Lesnis….), Brexit is a mash-up of British Exit.

Exit what? The European Union, which consists of 28 countries, soon to be 27, who operate as a single market allowing free movement of goods, services and people between member nations. Britain joined the pre-cursor to the EU, the European Community, in 1967. In 1991 a new treaty was signed creating the European Union which created the Euro currency—the Prime Minister of Great Britain was able to get an opt out clause for Britain. The new European Union went on-line so to speak in 1993 and the Euro introduced in January 2002.

Yesterday a referendum was held in Great Britain (England, Wales, Scotland and North Ireland) for the people to vote to remain in or exit from the European Union. The final tally was 52% in favor of leaving and 48% for remaining (for numbers folks, differential was 1.3 million for roughly 33.5 million votes cast). Prior to the vote polls were going back and forth as to which side was leading, creating a surprise in the final tally and the substantial win for those punching “Leave” on their ballot.

Britain leaving the EU will obviously impact their economy and that of nations remaining in the association, but will it impact the United States economically and to the question above our mortgage rates—and therefore housing markets?

Yes there will be an impact and it is already occurring. On news of the Leave victory investors began reacting quickly and in large ways selling off European investments, currencies, bonds, stocks. Spilling other markets around the globe we saw equity (stock) markets down around the world, with American stock exchanges currently down from 2-3% (as of 1:00 pm Eastern), having opened down and holding steady on initial losses.

Where does the money go? As I have discussed before in the Weekly Rate & Market Update, when there is turmoil, danger or disaster investors engage in what is known as “flight to quality.” This means they sell volatile investments, like stocks, and purchase safe investments, such as bonds and mortgages for their fixed, and if U.S. Treasury bills and bonds and mortgages practically guaranteed, returns.

This morning our Mortgage Backed Securities (MBS) markets opened with the biggest gap up from the prior day close that I can remember. (Sidebar for those not familiar with MBS. When prices go up, rates go down; prices go down, rates go up. When we open with a large gap up or down then rates will be lower or higher correspondingly.) Why? Money flowing in overnight from the sale of other assets into the safety of the U.S. fixed income markets.

Interestingly is the reaction of lenders to the sudden drop in rates is a hold back on much of the drop for two reasons: first, caution that there is not a reversal when the initial panic of “what now” subsides and calm and rational analysis of the timing of the British exit and impact on markets is better understood. Second, lenders need to control their volume of applications they can realistically process and close within the periods of the rate locks they are accepting. Let’s say you make bicycles and your company can fill an order in 30 days, guaranteed, and your capacity for filling bicycles on the 30 day guarantee is to take in 10 orders per day. You want to have a sale and lower your prices to increase business. How low can you lower your prices to guarantee the 30 day delivery even if everyone works 2-3 hours overtime every day and weekends? Can you handle 15 orders per day, an increase of 50%, 12 orders, 17?

That is the reality of our market the next few days while everything sorts out, a balance between rates and ability to handle the volume of rate locks that will come in as homeowners who were on the cusp of refinancing last week are now seeing it makes more sense.

The initial reaction is usually an over-reaction to any significant event, remember when Golden State blew out Cleveland in the first two games of the NBA and the consensus was the Warriors would coast to another championship? Over-reaction to immediate events.

Moving forward what impact will Brexit have on our industry? It will provide more support for lower rates further into the future. There may be economic ramifications on an already ailing European economy that could exacerbate a recession. Our economy has not exactly been running at high speed growing 1-2% since the end of the recession in June 2009, so any further drop in Europe could pull us down further.

Lower rates should support the housing recovery that has been on-going for many years (median prices in Southern California near the all-time 2007 highs), which has been a major factor in our positive economic growth. With housing inventory currently very low and prices rising lower rates make those higher prices more affordable to more people.

As we watch the unfolding of the aftermath of Brexit the same fundamentals will apply in regards to mortgage rates: when rates are at or near all-time lows do not try to beat the current market and see if you can gain a little bit more. The savings will be incrementally smaller and the risk of a bounce up will show a larger rise in rates than any potential drop. In other words: Lock when you can.

If you want your current mortgage situation analyzed please give me a call and we can run your numbers. When you do so please have ready your current mortgage balance, interest rate and payment (if you have mortgage insurance, taxes and/or insurance included in your payment have that broken down). Or just email me your mortgage statement and I will punch the calculator.

I have many opinions on why the referendum in Great Britain to leave the European Union passed, will not bore those who do not care in this communication, but if you would like to discuss feel free to contact me—I always enjoy engaging with others and their opinions on economic and political issues!

[email protected]

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

Rates for Friday June 24, 2016: There was not a lot of other economic news this week impacting mortgage rates—and if there were it would not have the impact of Brexit. Today’s move in MBS markets mitigated drop yesterday as investors hedged against a “Remain” vote, however momentum is for lower rates. For now we are flat from last Friday, and for the third week in a row.

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 no points and credit towards closing costs, recent rate change reduces credits

6-24-16

I have the annual reminder banner across the top of this communication but know many people read this section of the Weekly Rate & Market Update so want to repeat. Next Friday will be our 7th Annual Flag Collection and Retirement Ceremony. We will be located in the parking lot of Georgie’s Place on the southeast corner of Atlantic and Roosevelt in the Bixby Knolls section of Long Beach. We will be set up and ready to accept you old flag that needs to be retired around 5:30 (if you have a cloth flag that has meaning to you and needs retiring let me know and we may use it in our ceremony). Around 7:30 the scouts from Boy Scout Troop 29 will conduct a flag retirement ceremony, if you have never observed one it is pretty neat to observe—if you have kids this is a great show for them to see how the flag is respected and treated. The ceremony lasts about 15-20 minutes.

Have a great week,

Dennis

Weekly Rate & Market Update 6-17-16

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It’s that time of year, our 5th Annual Flag Collection and Retirement will take place on Friday July1st!

Question of the week: We are thinking about putting in solar panels and a contractor is pressuring us to use the HERO program, what do you think?

Answer: I think putting in solar panels could be a really good idea. If you do I suggest purchasing the solar system instead of leasing, as I have discussed here.

One way of financing the solar system is to use the HERO program (Home Energy Renovation Opportunity) offered to home owners who wish to make energy efficient renovations to their home. The HERO program is a financing program but instead of paying a lender for the loan you make payments through your property taxes. The amount financed is placed as a lien on your property and when you receive your annual tax bill there is a line item for HERO to include principal and interest payments.

If you and your contractor meet the criteria you could be eligible for financing through the HERO program and funding is provided through local municipal entity by private sources who manage the program.

Sounds easy, and it appears that it is pretty easy. Get your renovation approved, get your money, make your payment twice a year when you pay your property taxes.

But is it a good way to finance your energy efficient renovations? Perhaps.

Some major factors to consider before using HERO are cost and the lien.

There is a 4.99% fee added to your assessment for administrative costs (so if your financing $20,000 for solar system your assessment becomes $20,998. Currently the rate on the program has an APR of 7.99%. You may choose an amortization period of 5, 10, 15 or 20 years.

Because the financing lien is part of your property taxes and not a trust deed against the property, like your mortgage, it presents different options—or problems—when it comes time to sell or refinance the property. You and your buyer may agree for the buyer to assume the balance of the HERO assessment, or you may need to pay it off as part of the sale. If refinancing the lender will include the payment as part of qualifying and also ensure the lien will not be called due sooner than in the agreement.

Before signing up for the HERO program to finance home improvements or renovation check with other financing sources, such as an equity line from your bank or credit union, or if depending on your current mortgage rate perhaps we can help with a new mortgage.

The HERO program has some positives but it is expensive and could be cumbersome to obtain depending on the application and approval process with your local HERO provider.

Here is website with more information on HERO

[email protected]

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

We are borrowing more. That is the news from the Federal Reserve which released data on first quarter household debt in the U.S. Total household debt on April 1st was 1.1% higher than it was at the end of the fourth quarter and totaled $12.25 trillion (point of reference, U.S. Treasury debt is currently $19.29 trillion, California’s debt is $430 billion). Mortgages and home equity lines of credit about 72% of the debt total. The balance is primarily student loans (11%), auto loans (9%) and credit cards (6%). The news is somewhat negative for mortgage rates as it shows a growing demand for household debt, which spurs real estate sales, which boosts the economy and strong economic growth leads to higher rates.

Plenty of data this week for fellow econ geeks like myself. Retail sales for May had some good growth, up 0.5% from April, following April’s very strong 1.3% increase. Since consumer spending is 65-70% of our economy strong retail sales can push rates higher.

How much is being paid for goods and services? Data released this week indicates prices are rising for wholesalers, with the Producer Price Index up 0.4% in May, and consumers, with Consumer Prices up 0.2%. The news is somewhat good, but the year over year CPI increase of only 1% is positive for low rates as it signifies relatively stagnant prices, and is well below the Federal Reserve target inflation rate of 2%.

Speaking of the Fed….Wednesday was Fed day as it open market committee meeting finished up with the result being no change by the Fed for its key interest rate. The Fed may have held steady to its discount rate but did not hold steady to its economic outlook. Indicating that it anticipated two more rate hikes this year, the announcement indicated rate increases would be slower in the future as economic and price increases are expected to be less than 2% looking forward. This is positive news for mortgage rates.

Rates for Friday June 17, 2016: Rates held firm this week from last, we are now three weeks into matching our lowest rates of the past several years. Take advantage of these rates! If your rate is 4% or higher contact me to see if we can lower your rate, payments or term of your mortgage.

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 no points and credit towards closing costs, recent rate change reduces credits

6-17-16

We are officially a Long Beach Poly only house as our 8th grader completed middle school yesterday and is looking forward to joining her sister next year at the home of the Jackrabbits. Summer stretches endlessly before them this morning, to celebrate we will be hosting a dozen or more new freshman this afternoon and evening for pool and barbecue party…presume it may be a bit quieter at your home!

Have a great week,

Dennis

Weekly Rate & Market Update 6-10-16

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It’s that time of year, our 5th Annual Flag Collection and Retirement will take place on Friday July1st!

Question of the week: Can rates get any lower?

Answer: Maybe.

Rates are currently near their all-time lows seen in 2012. Can the conforming rate hit the 3.125% we experienced for eight straight weeks and thirteen of the final fourteen weeks of 2012?

Here are reasons why rates may go lower and reasons why they may not:

Rates may go lower because the economy is still not growing with any strength.

Rates may go lower because the latest employment reports show a slowing in job growth which could be predecessor to a contraction in employment.

Rates may go lower because of the global economy and markets, for instance the German Bund, their ten year bond, has reached zero percent interest, and Japan’s central bank has had negative interests rates for several months.

Rates may go lower because corporate profits, while up slightly in the first quarter after declining in 2015 for the first time since the Great Depression, are not growing.

Rates may not go lower because some segments of the economy, like housing, are doing well and may pull the rest of the economy’s growth upward.

Rates may go up because if the economy does begin the more robust growth many anticipate then employment will grow.

Rates may go up because perhaps the zero to negative rates in Japan and Europe may result in economic growth.

Rates may go up if the U.S. economy grows increasing corporate profits.

You will notice there are no comments about the Federal Reserve and what decisions they may make with the discount rate. The expectation is that we will see another 0.25% rate increase from the Fed this summer. Remember though that mortgage rates move independently of the Fed. Rates are lower now than when the Fed raised its rate in December for the first time in nine years.

As you can see for every reason for a rate to go up there is a contrary reason for it to go down. So will rates go up or down? I see few reasons for rates to go up significantly in the near, or even medium, term. But will they go down? I see that as a challenge for the markets but more likely than an increase. Note if there do drop it will not be by very much, we are about as low as rates can go for mortgages.

[email protected]

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

Rates for Friday June 10, 2016: With not a lot of domestic economic news, mortgage rates this week traded on technical factors. After Mortgage Back Securities (MBS, which determine mortgage rates) climbed early in the week they bounced off of the highs of the current trading range. As a result rates are flat from last week. Looking forward we are in a tight trading range right now and rates should remain in the range they have been in for the past three months.

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 no points and credit towards closing costs, recent rate change reduces credits

6-10-16

The Weekly Rate & Market Update is coming to you from Palm Desert this week as I am having a boys golf outing. Thankfully the temperatures are much lower than anticipated (staying below 100 degrees). Speaking of ranges, I’m hoping today’s score was the high of the range I will shoot for our remaining two rounds!

Have a great week,

Dennis

Weekly Rate & Market Update 6-3-16

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Question of the week: How much down payment do we need, can we borrow it?

Answer: Depends and depends.

The amount of down payment you need to purchase your new home depends on many factors, what type of loan you are using, what is the price of the home you are buying, what is the amount of loan you qualify for versus the price of the property you wish to purchase.

If you are a veteran and eligible for VA financing then you probably will not need any down payment. There is a formula used to determine the amount of down payment required for VA loans, but often we see no down payment required for very high (think over $700,000) loan amounts for qualified veterans.

Fannie Mae will finance loans up to 97% of the purchase price (i.e. 3% down payment) for loan amounts to $417,000 or up to 95% for high balance loans to the maximum loan limit in your county (for LA and Orange Counties up to $625,500.

FHA will accept down payments as low as 3.5% for mortgages up to $625,500.

If you are putting the minimum down payment into the purchase for these programs there is some form of mortgage insurance that you will need to pay. This can be avoided on conventional programs (Fannie Mae and Freddie Mac) by having your primary mortgage have a loan to value of 80% or less, it cannot be avoided on FHA or VA mortgages.

The second part of the question: can the down payment, or part of it be borrowed?

If the funds provided are secured by an asset then yes you can borrow funds for closing, if the funds are borrowed and are unsecured then the funds will not be accepted by underwriting as part of the total needed for closing.

Unsecured funds are signatory loan, promise to pay, funds from a credit card or unsecured line of credit.

Secured funds may be from real estate, securities, retirement accounts, autos—anything of value that will support a loan. Depending on the source of the borrowed funds then the payments on the loan may be counted as a liability for loan qualifying.

The most common borrowed funds that we see are loans against 401(k) accounts. Most 401(k) programs allow you to borrow up to half the amount in the account and offer very generous repayment terms since you are repaying yourself.

Before borrowing funds for down payment contact me to ensure we have the proper paper trail and meet the requirements for borrowed funds. Not infrequently we get borrowers who have put money in their accounts before checking with us to ensure proper documentation and the result is a delay in the transaction, or being able to write their offer, until the funds become seasoned and acceptable.

Before looking for your new home please contact me so we can pre-approve you for a mortgage by ensuring your income and funds for closing are acceptable and approvable.

[email protected]

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

Interesting week of data with great and bad economic news released. The week started with a fantastic report on consumer spending in April, jumping 1% from March. Led by auto says the one month increase in spending was the largest in almost seven years. Also in the report was data showing an increase of 0.4% in personal income for the month of April. Though consumers hit savings accounts to push their buying binge in April the personal savings rate remains strong at 5.4%. The only not positive news in the report was the price index which was stagnant at 1.6% year over year, below the Fed’s target rate of 2.0% inflation. The huge jump in personal consumption puts upward pressure on mortgage rates.

The euphoria around the spending report vanished this morning when the Labor Department released the jobs report for May. Only 38,000 jobs were added to the economy last month, the lowest amount since 2010. The new job total well, well below the consensus estimate of 158,000 new jobs. Not only were new jobs scarce in May, but the prior two months estimates for new jobs were revised down by 59,000 jobs. Construction, manufacturing and mining all saw steep drops in payrolls, while government and retail both saw gains of 13,000 and 11,000 respectively. The participation rate dropped to 62.6% of eligible workers in the workforce. If you see anyone touting a drop in the unemployment rate dropping to 4.7% do not be fooled, the rate dropped not because of job gains but because of a reduction in people actively looking for employment. This report is very positive for lower rates and pretty much shuts the door on a Fed rate increase later this month.

Rates for Friday June 3, 2016: Consumers may of spent in April but the lack of hiring in May was what moved investors as they poured into the Mortgage Back Securities market today pushing down rates. This may be a short term drop as the technicals are well outside the trading ranges which may result in sell offs early next week reversing today’s rate dip.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.375% Down 0.125%
30 year high-balance conforming 3.50% Down 0.125%
30 year FHA 3.25% *** Flat
30 year FHA high-balance 3.25% *** Flat
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have no points and credit towards closing costs, recent rate change reduces credits

6-3-16

How is the summer fever in your house? It is at the stage in our place where kids are glad that they pretty much have no work left at school and are a bit miffed they have to go to school to perform so little work. I have to side with them, as the last few weeks of school play out every year with so little instruction going on I wonder how much savings we’d have if they just shut down early. Or they could continue to teach and have finals on the last day….back when we were kids…

Have a great week,

Weekly Rate & Market Update 5-27-16

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

Answer: This is a question I answered early last summer and friend and local real estate agent Julaine suggested I cover it again. Good idea Julaine, for those who missed last summer’s review of buying a home with solar panels, or newer readers of the Weekly Rate & Market Update here is some useful information. With more and more families putting solar panels on their homes this issue is arising more frequently in home sales. Back to our answer….

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

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

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

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

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

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

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

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

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

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

If you are considering purchasing a home with solar panels and there is a lease put in your offer an opportunity to review and approve the lease as one of your contingencies, similar to an appraisal or property inspection contingency. If you do not approve the lease then you can cancel the contract and have your earnest money deposit returned.

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

[email protected]

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

Boom! That was the sound of the new home sales in May as the market exploded with the most sales in one month since January 2008 with an annualized rate of 619,000 homes sold. For perspective the next highest month of sales was February 2015 with 545,000 sales. Quite a difference. The news is mortgage rate unfriendly as higher home sales can demonstrate a strengthening economy. However many feel that economic growth we have experienced is primarily being supported by new and existing home sales which would dampen the impact on rates.

Durable Goods Orders were mixed in April. Total orders were very strong, which is good news for the economy, however “core capital goods” which are gauge to business investment dropped for the third straight month and fifth of the last sixth—not a good omen for economic expansion or future employment growth. The news had not as much impact on rates as it should have if the growth in the headline number was supported by growth in all sectors.

The first revision to the first quarter GDP did not improve the soft growth initially reported. Real GDP was revised up from 0.5% growth to 0.8%, good that the revision was up and not down but 0.8% is no reason to celebrate. The price index was revised down 0.1% to only 0.6% growth year over year. This data does not give much support to a Fed rate increase next month.

Rates for Friday May 27, 2016: Mortgage Backed Securities (MBS), which determine our rates, had a see-saw week with big moves intraday but ending each daily mostly flat. Investors are trading to secure profits as well as following the herd ahead of the next Fed announcement. When daily trading gets volatile and day to day trading is somewhat flat it signifies a possible/probable break out one way or the other—which means if you are floating you could get caught in an uprate environment very quickly. Take the risk out of your mortgage payment and lock when you can.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.50% Flat
30 year high-balance conforming 3.625% Flat
30 year FHA 3.25% *** Flat
30 year FHA high-balance 3.25% *** Flat

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have no points and credit towards closing costs, recent rate change reduces credits

5-27-16

Finally, Memorial Day and I can wear my white apparel again….

Enjoy the long weekend, I will be engaged in defoliating the vast Smith Estate of by removing or trimming trees, bushes and plants. However you spend your weekend take time to give thanks for those in our history who put on the uniform to protect our liberties and freedoms.

Have a great week,

Dennis

Weekly Rate & Market Update 5-20-16

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Question of the week: Can my mom payoff my car so I qualify for a mortgage?

Answer: Yes. But…..

It is not uncommon for us to have a client pay down or off a debt in order to qualify for the loan to purchase their new home. For installment loans, like auto loans, the entire debt does not always need to be paid off in full. For most loan programs if the debt is paid down to less than ten remaining payments the payment is not counted for qualifying. I.e. if you owe $10,000 on your car and the payment is $500 per month if you pay the loan down to $5000 then we will not count the $500 per month when qualifying.

Can you mom pay down this obligation for you?

Yes she can. If she does there are several steps that will have to be followed in order to ensure we get loan approval and the transaction does not go sideways.

When mom either pays your auto lender or gives you the funds to pay down/off the loan we will consider that a gift and the underwriting policies for gift funds will have to be followed.

Steps for gift funds are as follows:

• Prove mom has the money to make the gift with a copy of her statement from the account she will use to make the gift.

• Prove the money has left mom’s account, either with copy of cancelled check or transaction statement from bank.

• Prove the money was deposited in your account, or if she makes check directly to auto lender that the balance has decreased the same amount as verified leaving her account.

That takes care of the gift, now we need to verify the balance on the auto loan is below the ten month payment threshold. To do this we will have our credit company contact the lender to verify the balance and the credit company will issue us a supplemental report showing the reduced balance.

If this is possible scenario for you my suggestion is the old-fashioned KISS process (Keep It Simple Simon):

• You get gift from your mother while we are processing the loan and we use steps above to have gift verified before we submit the loan.

• You do not send the funds to the auto lender to pay down/off the account.

• We submit the loan without the auto loan being paid down/off and indicate we will do so in escrow.

• Your closing costs for your new home purchase will include the funds needed to pay down/off the loan, so you send those funds to escrow along with the balance of funds needed to close for down payment and closing costs.
Once we run your credit report and have it in the file then we cannot omit a payment due to an account being paid down/off unless we verify the source of the funds for the balance reduction. So if mom wants to be helpful make sure she knows not only how grateful you are but also that there are guidelines we have to follow so the loan approval process does not get fouled up due to her generosity.

If this is a possibility please have mom call me and I will happily go through the process and the reasons for the process to ensure her gift goes as intended: to help you buy your new home.

[email protected]

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

Consumer prices climbed in April with CPI posting a 0.4% gain from March, but strip out a 10% bump in gasoline prices and food costs and consumers spent only 0.2% more in the month. The “core” inflation number is up only 2.1% from April 2015, pretty much at the Fed’s target line of 2% price increases. The news is somewhat mortgage rate friendly and should cool off the Fed rate hawks a little bit.

Yakety-yak. I couldn’t help but think of the old Coasters song when I read the Fed minutes from their April meeting. While sounding mostly biased towards hiking rates in June at their April meeting, the voting members of the Federal Open Market Committee don’t seem to have a lot of economic data domestically or globally to support a rate hike next month. Despite the data the refrain of yakety-yak from the board members gave a sharp bump to rates when the minutes were released on Wednesday.

Rates for Friday May 20, 2016: With the big move on the Fed news we saw rates bounce off the lows of last week. There is some upward pressure on rates as investors maneuver ahead of a possible hike next month from the Fed. We may see rates climb another 0.125% over the next few weeks. Or not if the Fed and investors look at the economic data. It is always a good idea to lock through your escrow period, those who took that advice last Friday are a bit better off than those who take it this Friday.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.50% Up 0.125%
30 year high-balance conforming 3.625% Up 0.125%
30 year FHA 3.25% *** Flat
30 year FHA high-balance 3.25% *** Flat

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have no points and credit towards closing costs, recent rate change reduces credits

5-20-16

It used to be a technological problem was when your fax machine was out of that thermal paper that turned yellow after a month in a file, now we get issues like I have been battling where you computer turns on but won’t do anything….arghhh! That was how yesterday started and thankfully I use a desktop and laptop so have been able to continue to work, but how frustrating to learn from the IT Brainiac that whatever is messing the computer up can only be cured by wiping the disk drive and reloading everything. Another arghhh! Thankfully I have a great back up system for my files and most of our programs are cloud based so little interruption to my work flow. But still, arghhh!

Here’s hoping you have a technologically glitch free weekend, week, month, year, decade…

Have a great week,

Dennis

Weekly Rate & Market Update 5-13-16

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Question of the week: What is escrow?

Answer: Last week we answered why you need title insurance which helped a lot of families looking to purchase their first home. This week’s question is the follow up from a first time buyer who is uncertain as to the purpose of the escrow company.

Dictionary.com defines escrow as “a contract, deed, bond, or other written agreement deposited with a third person, by whom it is to be delivered to the grantee or promisee on the fulfillment of some condition.”

By this definition escrow is a third person with whom a contract is deposited. For a contract to be valid it needs two parties, so part of the contract is that both parties agree who will be the escrow, the holder of their contract.

In real estate, escrow is a third party that buyer and seller, or in the case of a refinance the borrower and the lender, use to transact funds from one party to the next; escrow is also referred to as the settlement agent. Given instructions agreed to by both parties, the escrow holder agrees to accept funds from the buyer, and the buyer’s lender if necessary, and then after paying costs for other services involved in the transaction, deliver the funds to the seller once all promises are fulfilled in exchange for a grant deed from the seller that is delivered to the buyer.

Escrow is neutral and has no agency contract with the buyer or seller, its agency is with the transaction. A simpler way to look at this is that the Smiths are selling their home to the Joneses. The Smiths are represented by Mary as their real estate agent and the Joneses are represented by Joe as their real estate agent. Once an agreement to price and terms is made an escrow account is opened with Sally at the escrow company, at that point Sally is the agent of the transaction representing the agreement the Smiths and the Joneses made.

If the Joneses wish to make a change to the agreement, say have $3000 credited to them to off-set some repair costs discovered during their home inspection, they notify Sally at the escrow company. Sally cannot just change the terms of the transaction, she first must get consent from the Smiths for the credit. Once both parties agree to any changes then Sally can amend the transaction.

Escrow plays a vital role in real estate transactions. Large sums of money flow through escrow companies on a daily basis for purchase and refinance transactions. Escrow is not only charged with making sure the initial instructions are followed but also that neither party is able to change the transaction without the consent of the other. At closing, escrow is responsible for disbursing funds to all the parties and services involved in the transaction, refunding overages to buyers or borrowers, pay fees to termite, title, home warranty, lender and themselves, payoff any liens currently on the property such as the seller’s mortgage or tax obligation and transmit the net proceeds to the seller. After the closing escrow provides a very detailed accounting of all funds received and disbursed to all parties.

Escrow companies and officers in California can be independent of any other affiliation or may be part of a title company or owned and operated by a real estate brokerage. If the escrow company for a purchase transaction is owned by the real estate broker representing the buyer or seller this must be disclosed to all parties.

Agents and lenders cannot require that a particular escrow company be used on any transaction; buyers and sellers have the opportunity to request a specific company if they choose, though customary in our marketplace the seller, or the seller’s agent, is given the choice of this service.
A good escrow officer and company is like a good umpire in a baseball game, you don’t always know how good they are until you get a bad one; thankfully the latter are very few and far between these days.

[email protected]

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

Slow week for economic data until today when retail sales and producer prices for April were released. Consumers were in a buying mood in April across all sectors as sales jumped 1.3% from March. The news is not positive for lower rates, but any pressure for higher rates on the monthly number is tempered somewhat by year over year sales are only up 3% from last April. The data gives a little support to a June rate hike from the Fed, but just a little.

Producer Prices remain slack, after going negative in prior month prices for wholesalers gained only 0.2% in April and are flat year over year. This is slightly positive for mortgage rates and tempers possibility for a Fed rate hike in June.

Rates for Friday May 13, 2016: Last week I mentioned that rates were soft and lenders were hanging on to some of the gains, this week they have let a little of the gains onto the rate sheet and conforming rate dips to its lowest level in four weeks, matching our twelve month low. High-balance conforming rates dip to lowest level in three years—yes three years to Friday May 3, 2013. Lock ‘em!

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.375% Down 0.125%
30 year high-balance conforming 3.50% Down 0.125%
30 year FHA 3.25% *** Flat
30 year FHA high-balance 3.25% *** Flat

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have no points and credit towards closing costs, recent rate change reduces credits

5-13-16

I spent my morning assisting Poly High School by proctoring one of the twenty something AP exams that Poly students have taken this year. Seeing the kids pouring through their testing packets gave me the shivers remembering my years of testing in high school and college. Very proud of our daughter’s school and all of the Long Beach Unified School District which has a very high percentage of students across all the high schools taking and passing the Advance Placement exams in a myriad of subjects. The cumulative savings in college costs for all the students with AP scores is very significant. As well, this year LBUSD has paid for the costs for every student who wishes to take the SAT so there is no financial barrier to taking this needed exam for college admittance.

When looking for a home remember the school district and the opportunities available for your children!

Have a great week,

Dennis