mortgage refinance – Page 2

7-13-18: How do inquiries impact my credit score?

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

Question of the week: How do inquiries impact my credit score?

Answer: A lot or not at all.

Quite frequently we have new clients tell us, “don’t run a credit report because I don’t want it to hurt my score.”

My response is, “First I cannot give you a solid pre-qualification and absolutely no pre-approval without running my own report, and second it will not impact your score unless you have had several inquiries recently—have you been speaking with other mortgage professionals and have any of them run reports and if so when?”

Conventional wisdom is that credit inquiries push down your credit score, so when you need credit just by applying your score drops, which may mean a higher rate or credit denial.

Conventional wisdom is not always right, especially when it comes to credit reports. Let’s take a look at when credit inquiries do harm your score and when they do not.

If you are applying for several credit cards, department store cards or signature lines of credit the chances are your credit score will be negatively impacted. If you are applying for one such item of credit your score will most likely not be impacted at all. The credit score programs have in their algorithms risk factors and if they are told that you are making several inquiries to obtain revolving, easy to access credit that activity is a high credit risk—it is evident you are searching for funds from many sources. What if you apply for two department store cards and two credit cards within two weeks. You could very quickly have access to several thousand, tens of thousands, of dollars in credit. If you already have several open credit accounts with high balances compared to credit limits these inquiries will push your score down considerably.

If you have some open credit accounts and the balances are not very high compared to available credit and you apply for a new credit card, say one that will give you airline points so you can leverage your purchases for plane tickets to visit your kid at college, if this is the only revolving credit inquiry on your credit report then your score will not, should not, be impacted.

What about purchasing a home? We routinely see credit inquiries on our clients’ credit reports from other mortgage lenders, usually over the past month or so, and these inquiries do not generally impact the credit score. I say generally because if there are more than five or six there could be an impact but not necessarily. As a rule three or four, or fewer, inquiries for home loans will not impact your credit.

The reason for this is that it is not unusual for someone looking to obtain a mortgage, either for home purchase or refinance, to call more than one lender (unless they call Stratis Financial which is usually the last call needed). This behavior is programmed into the credit score software, so if there are multiple inquiries from mortgage companies in a somewhat short time frame, about 4 weeks or so, your credit score is not impacted.

The same is true about auto loans. Many people speak to many car dealers, who run reports themselves or through different banks, looking for auto loans and these inquiries are treated similarly to mortgage inquiries.

If you have multiple inquiries for long term debt obligations, like home or auto loans, you credit score will likely not be impacted, if you have multiple inquiries for revolving credit your credit score will likely be impacted negatively.

Have a question? Ask me!

Pressure, no pressure, was the impact on interest rates with the price data released this week. On Wednesday the Producer Price Index for June was released and the data put pressure on rates to increase as wholesale prices increased 0.3% for the month and were up 3.4% from last June (2.8% when food and energy are stripped from the data, called the “core” rate). This strong data for prices caused great anticipation for the Consumer Price Index data release the following day. Would the stronger PPI figures show inflation for consumers beyond what the Federal Reserve would prefer? No, the CPI data did not show a significant increase in prices in June, putting Fed interest rate decision makers at ease. Month over month prices rose a scant 0.1% for you across the economy’s basket of goods and services and the generic American consumer paid 2.9% more than in June 2016 (2.3% using the core rate). This data was met with a bit of a sigh, and a shrug. Looking ahead, will the June wholesale price increase bleed into July for consumers resulting in higher rates? We will on August 10^th when that data is released.

Rates for Friday July 13, 2018: A tame week in the rate markets with not a lot of movement, so little that rates are the same as last Friday. We like a flat market!

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

30 year conforming 4.375% Flat

30 year high-balance conforming 4.500% 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.

While we have had some significant summer heat early in July, we are still a week away from the Dog Days of Summer, which officially begin on Sunday, July 22^nd and end on Thursday, August 23^rd. Wait, there are official Dog Days of Summer? Yup. Based on ancient Roman and Greek astronomy, the time when the star Sirius (the star that is the nose of the constellation Canis Major) rises in the morning before the sun. This year Sirius will rise before the sun starting next Sunday and ending on August 24^th (the sunrise after August 23^rd).

In those times the period of the dog days were not looked forward to as it was during this period when sickness, war and catastrophes would occur—perhaps coincidence, perhaps not!

Have a great week,

Dennis

7-6-18: When should we have our credit report pulled when exploring the purchase of a new home?

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

Question of the week: When should we have our credit report pulled when exploring the purchase of a new home?

Answer: “We got a copy of our credit report on-line, can you just use that?” This is usually the question that precipitates our question of the week.

When should you have a credit report pulled? Our most common answer to the Question of the Week is, “that depends…” and it applies in this case as well.

Many people are fearful of having credit reports run because they are concerned the inquiry will hurt their credit score. As a result, when we ask them somewhat generically, how is your credit history, they often reply that they recently obtained a report on-line and would like us to use that for their pre-qualification and approval.

If we are in the very preliminary stages of the qualification process, using a generic report from one of the free on-line services can be helpful, but we will not issue a pre-approval or a strong prequalification recommendation unless we are able to obtain our own report.

Why?

Because. (I’m a dad so I get to answer “why” questions with “because.”

We need our own report for several reasons. First and foremost, our reports are what are known as “tri-merge” reports, meaning they include the data from the three main credit reporting bureaus, Equifax, TransUnion and Experian. This will provide us with a very complete credit history and with credit scores from the three bureaus so we know which score will be used for qualifying and rate pricing (we use the middle score, if two or more borrowers we use the lowest middle score).

Second, not all credit companies report to all bureaus. We have seen many “clean” reports over the years provided by one credit bureau and then when we pull our tri-merge items appear that were reported to one of the other bureaus. For instance, you obtain a report from Equifax and it shows your car and student loans, credit card balance and history with a late payment from Macys in 2013. That is pretty good. However, when we pull our report there is a collection from a medical bill in 2013 that showing unpaid that reported to both TransUnion and Experian. Suddenly we have an issue to deal with we did not know about. As well, the collection will give you a lower score on the bureaus reporting it than the one that did not, how much lower? Does it knock us out of the program we want to use? Does it change the rate significantly?

Back to our question of the week, when should we have the tri-merge report pulled?

It depends on where you are in the process. Are you just starting the process of purchasing your new home? You have really looked yet but have been talking about it and want to see where to begin, how to begin, what needs to be done to begin? If that is the case you are likely going to be some time away from actively engaging in the process, in which case we will probably speak in generalities, broad strokes, and begin prepping for the full on assault on the housing market.

If in our initial conversation you make some statements or provide some answers that leads me to believe we might have some issues creep onto the credit report I would suggest we pull a report to get a starting point and see if we have any work to do. What might come up that would lead us to want to pull a report? You are divorced—how did the credit separation go? Are you still linked to your ex-spouse on any open accounts? You mention you had a medical issue in the past that took some time to resolve—did any accounts go to collection? You are self-employed and had to change tax preparers as you were not satisfied with his/her performance—were there unpaid taxes that became a lien? There are several variables that thirty years’ experience can hear and suggest a credit report.

One thing we consider when strategizing the credit report is that after sixty days lenders will want a new report to make sure nothing has changed. If we pulled a report May 5th, and you are still looking for a home today, do we pull a new report them?

Probably not. Once we pull our initial report we tend to stick with that for as long as we can. In the current market it can, and does, take some buyers several months to find the home they want, and can, buy and have their offer accepted. If we did pull a report in May, or even April, and you write an offer this weekend, as part of my pre-approval package I would include the information form that May, or April, report and advise that we do not want to pull reports every sixty days to reduce inquiries with your credit bureaus and one of the conditions of the seller’s acceptance of your offer can be my providing updated information on your credit scores and ability to qualify within 24-48 hours using a fresh report.

On the one hand we do like to limit the number of reports we pull. On the other hand we have to have the tri-merge report to know exactly what we are going to be dealing with for qualifying and approval.

When is the best time to have your credit report pulled? Just before we are in “go mode” for a home purchase and will be writing offers, or if you think there may be some issue from the past that could have an impact or be an issue we need to deal with.

Next week we look at credit inquiries and their impact on your credit score.

Have a question? Ask me!

Words and numbers impact rates. Words released by the Federal Reserve Open Market Committee (FOMC) from their last meeting in June when it raised rates by 0.25% indicate Fed members see labor markets continuing to tighten and inflation should retain its 2% level in the near future. Concerns about the future were expressed as short-term rates are approaching long term rates, what is known as a flattening yield curve. This rate behavior often coincides with a recession—is the Fed predicting one? Not exactly but keeping an eye on data that often does. The minutes gave some relief to investors anticipating higher rates in the short term as the minutes were somewhat rate friendly.

The data supported the Fed’s assessment. Our monthly First Friday Labor Department release of employment data happened this morning and most of the data supports the Fed’s course of two more rate increases this year. The economy added 213,000 jobs in June, over 202,000 in the private sector. As well the labor force grew by 601,000 in June. This increase in the job force caused the headline unemployment rate to increase for the first time in a long time from 3.8% in May to 4.0% in June. The increase is result of the growing work force, i.e. more people seeking employment, and the labor participation rate (percentage of individuals eligible for work who are working, or participating in the workforce) increasing from 62.7% to 62.9%. This news is rate neutral to the extent most people who follow this sort of thing anticipated numbers close to what was released. The number that caused some pause was the earnings portion of the report as wages grew 0.2% for the month and are up 2.7% from last June. This relative slack increase in earnings as employment grows indicates more workers are seeking work enabling employers to hold wages steady. This removes some concerns about inflation being driven by wages, and is rate friendly.

Rates for Friday July 8, 2018: Our last recession ended in June 2009, it would certainly seem a course correction for the economy is long over-due as we start our tenth year of economic growth. That is just back drop for the political and economic issues that are impacting domestic and international economies that have more and more economists and investors starting to look at the horizon for signs of an economic downturn. When economies slow down or go into recession interest rates either lead in anticipation, or follow. The possibility now being brought up more and more of not whether but when the next recession will occur puts a bit of a parachute on rates trying to climb.

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

30 year conforming 4.375% Flat

30 year high-balance conforming 4.500% 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.

How messed up is your internal calendar? Mine was out of whack all through June for whatever reason, I’m blaming school being let out and my routine being thrown off. Now starting the month with a holiday smack in the middle of the week has me really thrown off. Did we get two Mondays and two Fridays this week? I need a Tuesday and/or Thursday thrown in once in a while—but that does not mean I advocate for our Independence Day celebration and holiday to become a mandated Monday holiday with different dates every year a la Labor and Memorial Days.

I hope you enjoyed your celebrations on the 4^th, our family did.

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

6-15-18: We have plenty of money in our accounts and a ton of equity, why is my income so important?

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

Question of the week: We have plenty of money in our accounts and a ton of equity, why is my income so important?

Answer: Because it is not 2007 anymore and in 2010 the Dodd-Frank Act was passed by Congress and signed into law.

Some history. After the mortgage and housing market melt downs Congress behaved as politicians usually behave, they felt the need to “do something” as a reaction. The “something” was the Dodd-Frank Act which ran 2300 pages with the intention of reforming the American financial system and preventing future market collapses.

One of the many facets of the Act was mortgage reform that required any lender that wanted to avoid risk retention rules to follow the guidelines set forth by six different government agencies for underwriting what are termed Qualified Residential Mortgages, or QRM’s. If a lender wants to have more leeway in its underwriting guidelines it can choose to not follow the QRM guidelines but must retain at least 5% of the mortgages it funds and then securitizes—i.e. they have some “skin in the game.”

All conventional, FHA and VA mortgages are underwritten to the QRM standards, as are most Jumbo loans and the vast majority funded by individual banks and lending institutions. Those loan that are not QRM qualified are typically have higher rates and often are some type of hybrid ARM (fixed for 3, 5, 7 years then rate is adjustable).

The primary principle of the Qualified Residential Mortgage guidelines is Ability to Repay. Lenders funding a QRM mortgage must document the borrower’s ability to repay the mortgage under the terms of the note on a consistent and regular basis. In layman’s terms, you have to show proof of income that will support the monthly mortgage payment of principal and interest on the loan.

Income is defined as money received on a constant and consistent basis as demonstrated almost always on tax returns (some exemptions may be regular distributions from a Roth IRA or annuity, or starting in 2019 for divorce agreements made prior to December 31, 2018 alimony received).

What is not income?

The equity in your home is an asset, not income. If you have a home worth $600,000 and owe $200,000 you have $400,000 in equity and a loan to value of only 33%. That is great, but it does not help qualify your mortgage as a QRM for the lender.

The funds in your investment account are an asset, not income.* + If you have an account with a brokerage that has $500,000 invested in various mutual funds, stocks, bonds and some cash, for most mortgage products the account balance is not able to provide assistance for the income needed for mortgage qualifying. That said, one of the factors for qualifying income is constant and consistent. Presumably the account generates interest, dividend and some capital gains income that you report on your tax returns. If you can prove the constant and continuing nature of the income (i.e. two years tax returns showing you paid taxes on interest, dividend and capital gains income) that income can be used for qualifying.

*If you have investment accounts that are retirement accounts, 401k, IRA’s, etc and you are over 59 ½ and eligible to take withdrawals without penalty and a regular payment from the account(s) has been established that payment can be used for qualifying income.

+Some loans will allow “asset depletion” guidelines on very large accounts where by a formula is used to convert the asset account to income. Not every loan program allows the asset depletion and those that due make it a bit challenging for most to have it qualify for income.

Here is an example that seems contrary to common sense (not uncommon it seems in our industry).

Couple have a home worth $2,000,000 and owe $300,000 on their current mortgage. They wish to remodel the home and to do so want to obtain a new mortgage in the amount of $800,000. After the loan funds they will have a loan that is only 40% of the value of the property.

The couple have an investment account with $1.2 million invested in various funds. The funds were mostly inherited in 2017 so they only have one year with substantial income reported on their tax returns from interest, dividends and capital gains.

Both couples work and have annual income of about $130,000 per year with two car payments and small credit card balances.

Can they qualify for the $800,000 refinance mortgage? With many lenders the answer is no, they will not qualify based on the lack of history of receiving income from their investment account. Some lenders may qualify them using asset depletion, but since the money was inherited and it was recently most lenders’ guidelines would not allow the asset depletion guideline until there is more seasoning on the funds.

With 60% equity in the property and one and a half times the amount of the applied for mortgage available in somewhat liquid assets common sense indicates the couple will make payments on the mortgage. But as we have seen only a decade ago, if the economy turns very sour, their housing value drops as does the balance in their investment account and they struggle to make the payment on the home with their salaries will they continue to make payments? Will they take what may be left in their investment account and pay it off or dip further into it to make payments?

Lenders are not in business because they make loans based on if the borrower does not make payments they can foreclose, sell the home and get their money back. That is a losing business premise due to the very high costs to foreclose and unknown future market conditions. If this was the case most loans would be what they were before the creation of the Federal Housing Administration as part of Roosevelt’s Alphabet Agencies created during the New Deal—50% down, short term mortgages.

This couple can get a loan, but it could well be a non-QRM product that will have a higher interest rate and possibly not a 30 year fixed rate.

When a future market downturn occurs, and it will, there will be significantly fewer foreclosures, which will dampen the impact of the market downturn, in large part because of the Qualified Residential Mortgage guidelines requiring the overwhelming majority of mortgages on homes across the nation have borrowers who were able to prove they have the income to support their mortgage payments.

It is great to have money in the bank and investment plus a lot of equity, but when it comes to qualifying for a mortgage those factors are not as important as your qualifying income.

Have a question? Ask me!

A lot of data this week on the economy. Prices continue to increase with the Consumer Price Index in May up 0.2% for the month and 2.2% from last May. Wholesale prices also rose, up 0.3% for the month and 2.4% year over year. The steady price increases are positive for the economy and consumer prices are over the Fed target of 2.% inflation, overall the news is somewhat unfriendly for mortgage rates. Also unfriendly is the unemployment claims data which shows the four week moving average of continuing claims at their lowest since December 1973—that is an amazing statistic given the size and breadth of the labor markets today compared to 45 years ago. Throwing more pressure on rates was a very positive month for retails sales which were 0.8% higher in May than April, despite being held back by slower auto sales.

The Federal Reserve Open Market Committee had a surprise. On Tuesday the FOMC announced a 0.25% increase in its discount rate, that was no surprise as the stated intention from the Fed last year was for three rate increases this year, and this was long slated to be the second increase. What was a surprise was the report that accompanied the rate announcement. One surprise was an omission from prior reports, taken out of the statement was that rates will remain low for some time. The other surprise was the Fed indicating there will more than likely be two more rate increases this year instead of one. With the announcements the immediate impact is on homeowners with Home Equity Lines of Credit as your underlying rate, the prime rate, increased this week to 5%, the announcement of two more increases indicates the prime rate will likely be 5.5% by New Year’s Day 2019 and likely 6.25-6.5% by 2020.

Rates for Friday June 15, 2018: There is a lot of conflicting factors impacting interest rates. Positive economic news at home putting upward pressure on rates, economic and financial challenges in Europe putting downward pressure, international trade conflicts over tariffs putting downward pressure on rates and investors trying to figure this all out have reacted by moving money back and forth between stocks and bonds. The result for the mortgage applicant is a steady week for conforming rates and a bit of a bump for high-balance rates from last week. The mortgage market remains somewhat unstable and the advice is not to try to guess when rates will drop but to lock in your rate when you are able.

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

30 year conforming 4.375% Flat

30 year high-balance conforming 4.75% Up 0.125%

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

What a week being the parent of high school kids. Those who read last week’s very brief WR&MU know I was in Boston with the oldest going through orientation—it was a very good but tiring trip (starting off on a red-eye has that impact on me). Getting a chance to take a tour of Fenway Park and then to see a game there with a buddy of mine from high school was one of the highlights. Then we came home to family in town for the Baccalaureate at Poly High School on Sunday followed by graduation on Wednesday. Phew, time for a little down time—perhaps a weekend watching the U.S. Open will restore my energy….

Happy Father’s Day to all the dads out there!

Have a great week,

Dennis

6-1-18: Our loan is going to start adjusting in 2019, should we refinance and fix the rate now or wait?

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

Question of the week: Our loan is going to start adjusting in 2019, should we refinance and fix the rate now or wait?

Answer: Many families purchased or refinanced their homes several years ago with intermediate adjustable rate mortgages, or intermediate ARMs. The type of ARMs have a period where the rate is fixed and at the end of that period enter a period where the rate adjusts, usually annually. If you have a 5/1 ARM the rate is fixed for five years and then adjusts annually for the remaining 25 years; if your loan is a 7/1 it is fixed for seven years and then adjusts for the remaining 23 years.

Why would anyone get an adjustable rate mortgage after all the issues with ARMs leading into the housing crisis and meltdown of the mortgage industry? Everyone has different motivations and objectives with their homes and therefore different mortgages are attractive and beneficial to different property owners. The primary reason for most who choose an ARM for their mortgage is they often have lower interest rates than a 30-year fixed rate mortgage. The lower rate for a period of time is attractive to those who need the lower rate to qualify, or have reasonable certainty that they will be out of the loan before it adjusts.

Not an insignificant number of borrowers who get intermediate ARMs are still in those mortgages when the fixed rate period is ending, either the plans to pay-off the balance did not come to fruition, or their plan was to stay in the property and deal with the issue of an adjustable mortgage later. And later is today or in the near future.

Back to our question, if you have an intermediate ARM on your property and are approaching the end of the fixed rate period should you retain the ARM or refinance to a fixed rate mortgage?

As with almost all questions regarding mortgages and finances there is not one answer that fits everyone. The answer to the question differs depending on individual circumstances and comfort levels of risk. Factors to consider when deciding if you should refinance from your current ARM mortgage or stick with it:

What is your loan balance?

What is the current fixed interest rate on the loan?

What is the index and margin on the mortgage that will take effect when it becomes adjustable?

Realistically, how long do you think you will remain in the property?

With the answers to these questions we can help you determine if it makes sense for you to refinance or retain your current mortgage.

With recent dip in rates we are seeing many homeowners able to refinance to lower rates than the rate it appears their intermediate ARM will be after the initial adjustment. If you have a loan that is going to adjust in the future call me to run through the numbers with you to see if it makes sense to refinance and fix your rate and avoid future rate increases.

Have a question? Ask me!

Mille grazie! That was the message from borrowers this week who were able to lock in rates that dipped this week thanks to another political fiasco in Italy. This past week the Italian President rejected the Prime Minister and Finance Minister submitted by a coalition of far-right and far-left parties that together represent a majority of seats in Parliament after elections in March. This veto by the President spooked markets and investors. As unlikely as it seems for a far-right and a far-left part to come together to form a ruling coalition, it seems less likely when the primary issue for both parties was throwing out the parties that have ruled Italy for decades, desire to leave the European Union and enact reforms to grow employment and the economy. Essentially, both the left and right appealed to the populist majority using the same issues.

How does this affect mortgage rates? A basic principle in investing is “flight to safety.” Italy has created a flight to safety environment with its political instability. With the President vetoing new leadership for Parliament and the nation he has also vetoed the will of the majority of voters in Italy. This has, not surprisingly, upset the populist politicians and leaves the country in limbo. Italy has had financial issues for more than a decade—long-time WR&MU readers will recall the series of posts over the years on Italy, Greece and Spain and the financial challenges they have put on the European Union and other nations as they faced defaulting on their loan payments. The turmoil has created a very uncertain economic environment, for Italy, the European Union (think Brexit) and possibly spilling over into other economies in Asia and North America. When there is uncertainty investors sell riskier investments, i.e. stocks, and purchase safe investments with fixed rates of return, which are bonds and mortgages. When there is uncertainty and risk the flight to safety causes the prices of fixed rate investments to rise and therefore rates to drop.

While foreign politics impacted rates this week, domestically there was some important data on the economy released this weekend. Midweek the second estimate of Gross Domestic Product growth for the first quarter was released and total growth was revised slightly downward to 2.2% growth from initial 2.3% estimate. Also, slightly downgraded were the price index, from 2.0% inflation to 1.9%, and consumer spending for the quarter from 1.1% to 1.0% increase for the quarter. Overall the news was expected and had no impact on mortgage rates.

Coming it at expectations, personal income and spending data for April released on Thursday showed not a lot of strength or weakness in either category. Income was up 0.3% for the month and consumer spending rose 0.6%, mostly due to rising gas prices. With spending outpacing in come for the second month in a row the signs are there for second quarter GDP growth to be stronger than the first quarter. The data alone is mortgage rate neutral, the long-term look regarding prices and economic growth is somewhat rate unfriendly.

Historic data this morning from the Labor Department as the headline unemployment number for May came in at 3.8%, tying the lowest unemployment rate for the past 46 years (2000). The economy added 223,000 jobs in the month, with 218,000 being in the private sector. The gains in jobs lowered the participation rate to 62.7%, matching a low hit several times since 2015. With increased employment and hours worked stagnant it is not surprising that average hourly earnings increased a respectable 0.3% for the month and 2.7% from May 2017—outpacing inflation annualized at 1.9%. The news is mortgage rate unfriendly.

Rates for Friday June 1, 2018: Thanks to the Italian, and possible European, political and economic turmoil this week rates dropped for the second Friday in a row—the last time we had back to back rate drops reflected in the Weekly Rate & Market Update was March 31s to April 14^th 2017. The dip is a surprise to many, including myself. My suggestion is to take advantage of the dip.

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

30 year conforming 4.375% Down 0.125%

30 year high-balance conforming 4.625% 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.

According to the meteorologists in the house, and what teenagers with iPhones are not constantly in touch with local weather, it appears as if our spring weather is slowly leaving and much warmer summer weather is approaching. They are excited, I have told them don’t get in too much of a hurry for the hot weather, once it comes we will have it until October.

Me, I’m very content with high 60’s, low 70’s, slight breezes and some clouds.

Have a great week,

Dennis

5-18-18: Should I change my insurance company when buying a home?

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

Question of the week: Should I change my insurance company for my cars when I get my homeowners insurance?

Answer: It depends, are you using a different insurance company for your home than for your cars?

When buying a new home with a mortgage, or refinancing your existing mortgage, you will need to

provide proof of insurance to the lender showing sufficient coverage to protect the lender’s interest

in the collateral, i.e. your home. This is a good opportunity to do an insurance check-up, is the

insurance you currently have the combination of best protection and value?

When getting an insurance quote for homeowner’s coverage I strongly encourage you to have

whoever is providing the quote to also provide a quote including auto coverage and any other

policies you may have. Typically, the more policies you have with a company the better pricing you

will get as they bundle products and offer discounts. Asking for just a homeowner’s quote may be

leaving a discount on the table.

As for splitting your coverage between different carriers, I do not recommend it for several

reasons. First, when there are split policies I find the auto coverage is generally with a “discount”

carrier that sells low premiums but do not go into details on the coverage as it is usually the most

basic coverage needed. If you are in an accident will your discount policy cover medical costs, is

so how much? What about replacement parts, new or used/refurbished? Liability protection just

the minimum leaving you exposed to higher costs if they exceed your coverage? Second, if you

bundle your coverages you may find the cost difference for your total insurance costs are not that

different, and if you are with a major carrier will often have more robust coverage and protection.

A third reason came up recently in a conversation with friend Marilyn, who is a real estate agent.

She came across a property that had a significant fire, making the home uninhabitable until

repaired, that had been vacant for some time. She made some inquiries and learned that the fire

had started in the garage and there was some dispute as to the cause and that the car may have

been the cause. The property owner had one insurer for the car and another for the home. The

two insurance companies were in dispute as to which policy should cover the damage and as a

result the property owner was without reimbursement for damages or funds for reconstruction. He

had to move out of the property, still needs to make payments for his mortgage, taxes and

homeowners premium. The dispute can go on for several more months, causing significant

financial harm to the insured homeowner. Had he used the same company for both home and auto

the claim would have been processed not long after the fire and he would be able to move forward

with reconstruction to make the property habitable.

We find a lot of our clients are very loyal to their insurance companies. We certainly appreciate

loyalty; however, it is not a bad idea to check occasionally to see if your loyalty is being rewarded

compared to the marketplace. There are some insurers in the market that when we see our clients

using them we strongly encourage them to make a few calls to compare rates and coverage as we

know these companies are generally amongst the highest in the area for home, and generally

auto/bundled, coverage. However, we are also often told by the client they will stick with their

current carrier because they have been with them for so long.

Insurance quotes are free, so if you are having to change your homeowner’s policy because of a

refinance, or because you are purchasing a new home, that is a great reason to get a few

coverage quotes and see if a change in insurer is a good move for you and your family.

If you currently have different insurers for your home and autos I encourage you to spend some

time to explore having all your coverage with the same company.

Have a question? Ask me!

Perhaps reflecting the increase in mortgage rates, local housing markets showed a bit of

slowing in April. According to data released by the California Association of realtors Los Angeles

County the median home price declined 0.1% from March ($528,550 from $528,980) with 2.9%

more units sold in April from the prior month. Year over year the number of sales are flat, up

0.1%; however, the median price is up 10.1% from a year ago.* In neighboring Orange County

the April median price dropped 0.8% below March’s (from $824,450 to April’s median of

$818,000). The OC also had an increase in units sold from March, up 1.9%. Year to year the

median price is up 5.5% and the number of units is up 1.1%. A slow-down in housing, or slower

growth in the market, is generally interest rate friendly as it reflects a balance coming to the

market between supply, number of houses on the market, and demand, number of buyers writing

offers.

To address the asterisk. Last April the median price in Los Angeles County was $480,500 and

the 30 year fixed rate mortgage with 20% down to purchase the median home was 3.875%; today

the median price is $528,550 and the rate is 4.625%. The difference by waiting one year to

purchase the median home is $9,610 in down payment and $366 per month in your mortgage

payment. As well, there is the loss of $48,000 in gross equity from the price change.

Begs the question, are we at the top of the market? In a discussion this morning with real estate

agent Julaine, we both feel that with the lack of inventory on the market prices still have upward

pressure as demand still exceeds demand. What may slow down price increases is the sharp

increase in mortgage rates thus far in 2018. Not “slow down” not “cause decline.”

Rates for Friday May 18, 2018: Today was the best day this week for mortgage rates with

bonds rallying causing a drop from yesterday. Had we not seen the rally today rates would be

even higher as rates spiked earlier in the week. The primary cause for the rate increases has been

the over supply of bonds in the long-term rate markets as the Federal Reserve sells off its

inventory of U.S. Treasury debt and mortgage holdings. This sell-off was announced last year and

at the time we indicated it would cause rates to increase so the increase in this period is not a

surprise. The Fed will continue its unwinding through the year so there is more expectations for

higher rates than lower rates. Lock your rate as soon as you can.

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

30 year conforming 4.625% Up 0.125%

30 year high-balance conforming 4.875% Up 0.25%

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan

to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase

mortgages.

Anyone staying up/waking up for the Royal Wedding? My sister, who generally goes to bed earlier

than I do-and I am not a night person-said she is staying up to watch. I asked why since everyone

has a DVR today and you can watch in the morning with your coffee and toast. She said, “you

don’t get it.” Nope, I don’t. The last, and perhaps only, British Royal event I watched live was

Princess Diane’s funeral, and that was because I was laid up with a bad back.

For those who like the Royal events I hope you enjoy the wedding, and may Prince Harry and

Princess Meghan have many happy years together and are able to manage the British tabloid

press.

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