interest rates – Page 2 – Dennis C. Smith

8-10-18: It takes so much money to purchase a home, what are some ideas for saving money?

October 2, 2018/in Mortgages /by Dennis C Smith

Question of the week: It takes so much money to purchase a home, what are some ideas for saving money?

Answer: Two of the hardest things to do are lose weight and save money. Both objectives require the same habits, or routines, to be successful. You need to be committed to your goal, dedicated to your plan to be successful; commitment plus dedication equals success. How disciplined you are with your behavior will determine the time frame for achieving your goal, which should be a very realistic part of your goal—not only what you want to achieve but when you want to achieve it.

Saving money is pretty simple, just like losing weight. To lose weight you need to be more active than you are now with the same diet, or eat less with the same amount of activity and ideally you are both, more active and eat less. As you begin to achieve success and enjoy the feeling you change your activity to be more physically challenging, and you change your diet to intake fewer calories and also better calories, i.e. more healthy foods and beverages.

When it comes to saving money you either need to earn more and spend the same, or spend less while earning the same amount. It is generally easier to control your spending than your income but with some willingness to push yourself you can find ways to do both—the weight loss equivalent of waking up at 5:00 a.m. to work out and stop feeding your cookie cravings.

Let’s tackle the harder discipline first: increasing income. Absent getting a new job in your current profession that pays more, which is always the best option if available, how can you increase your income?

The most obvious way without changing jobs is to look within your company to see if there is available overtime or other duties you can take on for more income. I have found many clients over the years who have told their employers they want to purchase a home and are willing to take on more duties, even if it means more time at work, to earn the funds needed for a down payment. It is not unusual for many employers to have some additional work available, it is cheaper to pay you more and expand your duties than to hire someone else. As you get closer to your goal keep them apprised of your status so they are invested in your success.

Do you have a skill that can be monetized? Are you crafty? Using your free time, you can make things to sell on-line or at local shops. Can you write well? Search for companies looking for content for their websites or blogs, for a few years during the market meltdown I wrote for a company that provided content for mortgage blogs and I was writing content for 3-4 mortgage websites. Are you able to work on weekends or evenings? Perhaps pick up some part-time work? I had one client who worked for three years as a night watchman at a manufacturing facility on Friday and Saturday nights and added 25% to his income—which he put right into savings. What time do you have and what skills do you have that can turn into part-time work to add to your savings account.

Reducing expenses and putting money into savings is not that hard, it is just a matter of what you are willing to do without. Just like losing weight, am I willing to do without a cookie or two after dinner, or a glass of wine or a beer after work every night, or pasta three to four times a week? If not my chances of success in reaching my weight goal are greatly reduced.

Where are you spending money that could be put into savings? Starbucks is one of the biggest drains on savings accounts in our country. Sure, there are other coffeeshops where a lot of money is spent but the ubiquitous white with green logo cups are seemingly in every third or fourth person walking into office buildings every morning. The average cost for most Starbucks coffee only orders is about $4, five mornings a week that is $20, fifty weeks a year that is $1000. Using a coffee maker or French press (easier to make single or two cup servings) costs about $0.20 per cup. I like to start people saving by challenging their “I have to have it…” Starbucks or morning coffeeshop purchase because once that habit is broken a lot of others are easy. Why? Because it completely changes your morning routine, and for most the routine is for the better as they can start their coffee making process while getting dressed or doing something else and save standing in line and waiting for an order in a retail outlet. Saving $1000 towards what is needed to purchase a home does not seem like a lot and it’s easy to say, “I’ll save somewhere else…” but if you can start here then it makes it easy to stop other expenses and convert them to savings.

What are you driving? Do you have a car payment? Is it more than two to three percent of your income? If so then you can save a lot of money by changing your car. I drive a 2006 Honda Pilot and have saved a lot of money in car payments over the years, Leslie drives a 2010 Honda Odyssey van, our daughter has a 2001 Infiniti i30. Obviously, we do not need the newest cars with the newest features, because of this we do not have large car payments. When we shuffle cars later this year when our oldest goes to college the plan is for our 16 year old to get my car, my wife to drive the Infinity and me to drive the van; sometime in 2019 we will get a car for Leslie, but a used car to save money and if we decide to finance do so at a lower loan amount.

That’s us, we are not car people. I get that there are car people out there who want the latest and greatest. My advice is to get the garage and then the car. Are you worried your friends or co-workers will make fun of you driving a six-year-old vehicle? Tell them you want to buy a house and aren’t willing to compromise saving to purchase something that sits for more than 90% of the day in a parking lot, garage or on the street. If you have a car with a high payment look at what options you have to trade it in and buy down. If you are near the end of the loan keep the car and do not get a new one. If you are leasing talk to the dealer about options to reduce your payments or purchasing a used car with a low loan amount. It is not uncommon for me to meet with clients who have two large car payments that are almost 10% of their gross income who are renting and are short of funds needed to purchase a home. Sell one or both of the cars and get into cheaper payments. Last year I went through the math with a couple and within two weeks sold their less than one year old cars and purchased used cars, they are saving almost $1000 a month in car payments and will be buying in the Spring. Like your morning coffee, your car may be a necessity but how you fill the need may be a luxury.

Another big expense item that many do not like to curb is entertainment. Concerts and sporting events are very costly, they can easily cost as much as ten to twenty weeks of Starbucks purchases. It can be tough to tell your friends, “hey we can’t afford to go we want to buy a home,” but good friends will understand, others will try to guilt you into breaking your commitment and dedication. Nights out at expensive restaurants, trips with large airfares and expensive hotels, also have the ability to take a lot out of or put a lot into your savings accounts. Part of your commitment is to forego many fun adventures for the bigger goal, owning your own home.

Success requires trade-offs, what are you willing to trade for success? Where are you spending money now that could be reduced or eliminated in order to put more money in your savings account? Most families have no idea where they are spending their money so do not know where they can cut back. Pull out your bank and credit card statements for the past several months—ideally for a year—and categorize all your spending into categories: necessities, which are only housing, food for home and utilities for now, transportation, dining, entertainment, travel, clothing (yes, it is a necessity but it depends on what you are buying and how often). Add up the totals you are spending and you may be surprised at not only how much but where you are spending your money. Then start making reductions and eliminations.

If you are married this process needs to be done with no judgment, one spouse may be a clothes horse and the other a car nut; or one buys a lot of very nice wine and the other plays a lot of really good golf courses.

Once you are in your home you can determine if you can, or want to, start adding back some of the spending you have cut during your saving period.

It bears repeating: Success requires trade-offs what are you willing to trade to purchase your home?

Have a question? Ask me!

Spend more, borrow less. That is what consumers have been doing, at least less spending on credit cards. Credit use for revolving credit has been dropping while consumer spending has been growing, interestingly the personal savings rate has been increasing. So consumers are spending their some of their earnings for purchases that have been put on credit cards in the past, and are borrowing on long term loans for large expenditures like autos and college. This is generally good news for the economy as it shows consumers have a positive outlook for their personal economic future. This is not a big mover for mortgage rates except as it feeds into the overall data on economic strength and outlook.

Prices won’t push rates, for now. Following June’s strong increase in the Producer Price Index (up 0.3%) wholesale prices cooled off to no increase, or decrease, in July. Following the increase in June for wholesalers it is little surprise that the Consumer Price Index increased from 0.1% growth in June the CPI increased 0.2% for July. The “core” price increase (no energy or food costs) was up 0.2% for the month and 2.4% year over year, the highest increase in the index since September 2008…the month before the real estate and mortgage market melt-downs. The news is not positive for interest rates, and pretty much cements the Fed increase rates in September—which means those with Home Equity Lines of Credit will see their rates increase by 0.25%, possible but not probably more.

Rates for Friday August 10, 2018: Rates improved from last week, primarily because the Treasury $78 billion in U.S. debt that was absorbed rather easily in the market, investors liked the market reaction and rates dipped strongly on Wednesday. The price data mentioned above was somewhat expected, therefore priced into the market, so did not negatively impact mortgage rates. Overall rates have reversed their increase from two weeks ago. The trade tension between the U.S. and trading partners may come to a head next week, causing rates to make a significant move one way or the other—keeping in mind rates generally go up like a rocket and down like a feather. Be cautious.

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

30 year conforming 4.375% Flat

30 year high-balance conforming 4.50% Flat

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.

Channeling Gene Rayburn and the original Match Game, I keep thinking this week, “It has been so hot lately. (Audience, “How hot is it?”) That Mildred’s BLANK melted off.” I have weird thoughts.

I have had some inquiries and I will admit to procrastination of a task I need to do but not looking forward to doing. When I had my website rebuilt earlier this year I had not yet learned how to effectively put my Weekly Rate & Market Updates on the site. As well there was a gap in the WR&MU from when they were migrated off my old site to when it went live. My objective this month is to reformat the updates, put a title on them referencing the Question of the Week, and loading up 2018 to date on the site with the new format. Your patience is appreciated and I think this will make the site and updates more useful for research on particular topics of interest for you, your friends, clients and family members.

Stay cool and have a great week,

Dennis

6-29-18: Why have I received a lot of solicitations for mortgages recently?

October 2, 2018/in News /by Dennis C Smith

Question of the week: Why have I received a lot of solicitations for mortgages recently?

Answer: Because the credit companies sell your information to credit companies.

Data mining and selling has been in the news a lot in the past year, mostly centered on Facebook and other social media companies. But selling data is not new. It is a huge, and often sole, revenue source for many companies that do business on the internet. The major credit agencies are no different and have contracts with credit providers for many types of credit, mortgages, auto loans, credit cards, student loans, to provide the credit information for consumers who have credit reports run by companies within their industry. If you apply for a credit card from a department store you can expect to get credit card offers in the mail. If you apply for an auto loan you can expect to get offers for auto loans.

If you apply for a mortgage…here is what happens in our case.

When we run credit reports we use a company, Funding Suite, that provides us a detailed report with data from the three major agencies, Equifax, Experian and TransUnion. When these companies see that there was an inquiry on your account from a mortgage company processing an application for a residential mortgage that triggers their algorithms. Sifting through the data on location, balances, payments and most importantly your credit score, the agency sends you information to mortgage companies that have paid them for data that meets certain parameters.

The mortgage company purchasing the data processes the information and sends contact information to their marketing department and contact is initiated.

We have learned a loophole that works some, not all but some, of the time by masking your application on the initial inquiry as for a non-residential mortgage, but that dodge is being figured out by the programmers and data is still being sold.

There is good news. You can stop the solicitations by opting out of receiving offers from credit providers. Click on this link. At this site, OptOutPrescreen.com, you can choose to opt out of receiving offers for five years, or permanently, or if you want to receive offers for credit cards, auto loans, etc you can choose to opt-in to receive offers. As the site shows, there are some advantages to receiving offers that you may want to consider before opting out of all offers.

When you receive any type of unsolicited credit offer please keep in mind the primary purpose of the solicitation is to get you to reply, then it is a numbers game for the credit company to convert a certain percentage of responses into applications and then a percentage of those into new accounts. Because of this the initial marketing message is *certain conditions apply; meaning the rate/terms on the offer are usually not what will be offered.

Next week we will discuss when you should have a credit report pulled when exploring the purchase of a new home.

Have a question? Ask me!

There is no shortage of news that impacts mortgage rates. Consumer spending is approximately 60-70% of our economy, so data on consumer confidence impacts interest rates. In May the Consumer Confidence Index dipped slightly, mostly on the expectations component of the index (how consumers expect their future economic well-being to be), likely due to concern over how the tariff impositions around the globe in reaction to President Trump’s initiate new tariffs for products imported to the United States, most notably steel. The dip was very small so no impact on mortgage rates, but a warning that future confidence could slip further which would be positive for rates.

The third and final revision to 1st Quarter GDP revised economic growth from January through March was down from 2.2% to 2.0%. This news on its own would be positive for rates, however with the revision to economic growth was a revision to price data, i.e. inflation. The core price index (prices less food and energy) showed an increase from 1.9% to 2.2%. With prices increasing more than 2% the expectation is for rates to increase as well.

This morning we had what I consider the most important economic data release for the week: Personal Income and Spending. As mentioned above consumer behavior is by far the most important factor in our national economy, ergo what consumers earn and spend is vital information for investors and planners. In May wages increased 0.4%, a strong increase that was in line with expectations. With the increase in earnings it is no surprise that spending increased as well, which it did with consumers spending 0.2% more in May than in April. The increase in spending was modest, especially in light of the earning increase. With earnings growth outpacing spending growth it is follows that personal spending should increase and it did rise 0.2% to a rate of 3.2%. Are consumers spending for future large purchases or for future rainy day?

The number in the income and spending data that is very rate related was the price index in the report, showing core prices are up 2.0% in May, right at the Federal Reserve’s price target. It is a major moment for the Fed as it has been chasing 2% inflation for a decade and now it appears it has been reached. If this inflation rate holds it means the Fed does not need to worry about stimulating the economy but instead turns to focus on inflation and keeping it in check. This means higher interest rates.

Rates for Friday June 29, 2018: While economics and political science are two different fields they are intimately connected. Does government policy shape economic activity or does economic activity shape policy? The answer is yes. Each influences the other in the short, medium and long term. We are seeing this in our current markets as the economic data should lead to higher interest rates for consumers, but public policy has led to rates experiencing a slight dip in the past month and prevented rates from increasing. So despite positive economic news that should put upward pressure on rates, despite billions of dollars of U.S. Treasury debt on the market plus billions more being sold by the Fed from its Treasury and mortgage holdings we have seen rates behaving contrary to what fundamental economic principles dictate. Investors concerned with global economic slowing have been selling stocks and purchasing long term fixed rate investments, i.e. bonds and mortgages, which has countered current economic data. In this environment there is little stability for the future of rates and the advise remains to lock when you can. If public policy on tariffs changes rates will increase suddenly, and as we have seen in the past year and a half policy can change quickly and unexpectedly.

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

30 year conforming 4.375% Flat

30 year high-balance conforming 4.625% Flat

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.

Throughout our nation’s history there have been deep disagreements on policy, which means solutions to problems. The arguments between factions when the Declaration of Independence was being written and voted upon by the Second Continental Congress were very personal and filled with rhetoric—these men were debating if they should vote to be considered traitors. After the Revolution there were intense debates, very nasty attacks via anonymous writings in pamphlets and papers centered on the Constitution and how, or whether, the states would come together with a federal government. Throughout our history there have been issues that have created deep philosophical and ideological differences, that these disagreements continue today should not be a surprise to anyone, and in fact are somewhat healthy for our Republic.

Next week is Independence Day and as I do every year I encourage everyone to read the Declaration of Independence. Most Americans know, or should know, the beginning of the document, “When in the course of human events…” and the most famous line, “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among those are Life, Liberty and the pursuit of Happiness.” The latter is, in my opinion, perhaps the most important sentences every put forward for a vote by a governing body for it is the foundation of a nation and its laws.

Much less known, but very important is the final sentence in the Declaration, for it cemented the commitment of those in the Congress to not only the Declaration, but also each other. It is, again in my opinion, the same sentiments under which millions of Americans have volunteered to serve in our armed services to enable our nation to exist and continue to evolve with ever growing liberty and freedom.

Celebrate our nation’s founding next week, as well celebrate the differences that have and will continue to have that make our nation the greatest in human history.

Have a great week,

Dennis

4-13-18: What is the IRS Form I have to sign with my mortgage application?

October 2, 2018/in Mortgages /by Dennis C Smith

Question of the week: Why do some of the creditors on my credit report say, “Affected by Natural or Declared Disaster” when I live nowhere near a natural disaster that has occurred?

Answer: Because creditors were not all A+ students in geography class.

Last year saw many natural disasters across the country, from hurricanes in Texas and Florida to wildfires up and down the state of California. Many people were severely impacted by the disasters, some of the more fortunate only lost some days at work and had the financial burden of cleaning up after the disaster, however many lost their homes, cars, places of work and neighborhoods. While trying to recover from the disasters, dealing with the emotion of such tremendous loss they also had the reality of bills still due, negotiating with insurance companies to cover losses and added costs of where to stay and how to get there.

Understanding that financial disasters create tremendous financial burden on those in the impacted areas more and more credit companies are automatically putting into their reports to the three major credit bureaus that the debtor resides in a natural disaster area. The purpose of this statement is to let those reviewing the credit report for the possibility of extending credit will understand if there are any late payments on the account that the natural disaster could be responsible for the late payments. Essentially letting future creditors know there is likely a very good reason for the late payments that should be taken into account when extending credit.

So why are these notices popping up on credit reports for people who have not been affected by a natural disaster? Because the notices are put on credit reports using computer models and the computer models, from what we have seen, are using counties or regions when determining which accounts to label.

For instance, a couple in Long Beach, which has not been impacted by any natural disaster in decades, has a couple of accounts labelled with the natural disaster language. While Long Beach has not had a natural disaster declared, within the last twelve months there have been severe fires in both Los Angeles and Orange Counties; Long Beach is in LA County and borders Orange. It appears the creditor plugged in LA County as having a natural disaster and tagged all its accounts in the county, not realizing the size of the county and how geographically distant Long Beach is from any of the fires that occurred.

In Texas and Florida people are facing similar reporting, while they were not severely impacted by any of the storms they live near enough, or are in counties, declared natural disaster areas that they have had accounts tagged with the natural disaster warning.

Does this impact your credit? No, it does not. Does it impact your mortgage underwriting? As this reporting is relatively new on credit reports we have had some underwriters request appraisers note on the report if the property was impacted by a natural disaster.

At this point we have not seen any impact on credit scores, positively or negatively. Meaning if you have an account that has a 30-day late payment on the credit report and that same account is labelled “Affected by Natural or Declared Disaster,” we have not seen your credit score not impacted by the late payment—meaning your score is still depressed due to the late payment.

If this label is on some of your accounts do not be concerned that it is in any way impacting your credit or ability to obtain a mortgage or other applied for credit such as an auto loan. It is merely a head’s up to other creditors that if you do have any late payments in the recent past there may be a very good reason why—if you in fact did live in a natural disaster area and were negatively impacted.

If you have any questions about your credit report please do not hesitate to contact me.

Have a question? Ask me!

A few reports this week that can impact rates. On Wednesday, the final revision to Gross Domestic Product for the 4^th quarter of 2017 was released, and the revision was up 0.4% from the prior revisions. Strength in the increase was mainly attributed to consumer spending, which increased 4.0% from the 3^rd quarter. The news was somewhat mortgage rate unfriendly as stronger economic data portends higher interest rates in the future.

While consumer spending led the way in 2017, so far in 2018 that has not been the case, causing expectations for GDP growth in the first quarter to be lower than it was in 2017. On Thursday data was released on Personal Income and Consumer Spending. The good news is that wages continue to increase, up 0.4% in February, matching January’s increase. And like January, consumer spending in February was up a lackluster 0.2%. Workers are earning more but spending less, so it is no surprise that the personal savings rate has increased to 3.4%. With the flat growth in consumer spending prices were up 1.8% from February 2017, still below the Fed’s 2% inflation rate target. The increase in earnings is negative for mortgage rates as it creates expectations for wage inflation, however workers putting more of their earnings into savings instead of spending is positive for mortgage rates. Since consumer spending is approximately 65-70% of GDP, a slow-down in spending could slow down GDP growth, keeping upward pressure on rates at bay.

Rates for Friday March 30, 2018: A short week for markets as stock and commodity exchanges are closed today for Good Friday. Conforming rates continue to hold steady from Friday to Friday, seven weeks in a row now with the same rate. Lenders continue to bounce up and down on the high-balance conforming rates (loans from $463,451 to $679,650) and we are down 0.125% from last Friday. Markets continue to be volatile, and there is more turbulence ahead as indicated by the stock markets down in the first quarter of 2018 after nine consecutive positive quarters. My advice remains to lock through your escrow closing when you can.

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

30 year conforming 4.25% Flat

30 year high-balance conforming 4.375% Down 0.125%

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.

For parents on young ones I will give you this Easter tip learned from my mom, count the number of eggs you hide so you make sure they are all found. My mom learned this lesson when her young sons found an egg or two in the middle of August, in Tulsa, that had been rotting in the sun and heat since March. There was a special kind of scent and cleaning her boys after they found the putrid little bombs and did what boys do (throw at each other) taught to always make sure all the eggs were found on Easter…

Spring Break begins for our kids and many others, after this next week the next stop is summer. Seems like forever for the kids and tomorrow for the parents.

Have a great week,

Dennis

3-30-18: Credit report states impacted by natural disaster