Mortgage Rates & Trends: Mortgage Blog

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  1. Latest TARP Update

    By Michael Kraus on March 31, 2010

    bailout1

    A quick update on the status of government bailout programs.  Today, Hartford Financial Services Group became the latest company to repay the money that it got in the Troubled Asset Relief Program (TARP) bailout.  The Hartford repurchased $3.4 billion worth of preferred shares from the government.  The bailout was the second largest issued to U.S. insurance companies, second only to American International Group (AIG), which received $182 billion in aid.

    This news follows the news that the Treasury Department intends to sell 7.7 billion shares of CitiGroup at a profit of between $7-8 billion.

    Many companies have been quick to pay back funds from the much-criticized bailout.  Bank of America and Wells Fargo, among the largest TARP funds recipients, have both withdrawn from the bailout program.

    Other banks lenders yet to repurchase their assets from Treasury include GMAC, KeyCorp, Regions Financial of Alabama, SunTrust, and Fifth Third.

    Still other TARP fund recipients are in trouble, according to many reports. At least 17 banks failed to meet the Treasury’s capital-reserve thresholds.  Many have missed at least one dividend payment on the preferred stock sold to the government under TARP.

    What do you think about the success or failure of TARP?  Comment below.

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    Category: Mortgage Rates

  2. Slowing Foreclosure Pace Cause For Optimism

    By Michael Kraus on March 31, 2010

    foreclosure

    According to a Bloomberg report today, delinquent borrowers who caught up on their mortgage payments outnumbered newly delinquent borrowers. This is the first time in nearly four years that this has occurred.

    There were 68,675 borrowers with PMI (private mortgage insurance) who fell behind on payments in February. 80,758 borrowers who were behind on their payments became current.

    It appears that some of the government relief programs are having an effect on foreclosures. Bank of America, and JP Morgan Chase both reported significant increases in loan modifications in February. The number of borrowers in trial modifications also increased substantially. Some critics contend the modification programs are simply delaying foreclosures, but recent developments are a cause for some optimism.

    The decrease in defaults could be a boon for the battered housing market. Other than unemployment, there is no greater impediment to a housing market recovery than foreclosed and distressed houses. They depress property values because of their low cost, and stigmatize neighboring properties.

    We will likely need to see this trend continue for several months until we can feel real confidence that the foreclosure epidemic is subsiding, but it is a step in the right direction.

    Do you think we have turned the corner on the foreclosure crisis? Join the discussion below.

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    Category: Mortgage Rates

  3. Economic Recovery Gaining Momentum Says Fed President

    By Michael Kraus on March 31, 2010
    recovery-factory

    Manufacturing continues to lead the country out of recession.

    In comments at a University of Arizona conference this morning, Dallas Federal Reserve President Richard Fisher said that “absent some exogenous shock, the recovery that began last summer is unlikely to be reversed and will instead proceed, slowly gathering momentum as we progress through the year”.  Fisher further commented that the growth “may not result in as rapid a reduction in unemployment as we would like. But it is positive and noteworthy”. Fisher did not advocate an increase in interest rates yet, but said the Fed would act when appropriate.  Fisher believes the U.S. GDP will gain about 3% this year.  Mortgage rates have edged higher in recent week as a result of increasing treasury yield spreads.

    The next two opportunities for the Fed to raise rates are at meetings in the end of April and the end of June.  While the Fed has pledged to keep rates low “for an extended period”, inflationary pressures could force a rate hike earlier than anticipated.  As always, we will monitor these developments and keep you up to date as news breaks.

    The manufacturing sector continues to lead the United States out of the recession. Factory orders increased 0.6% in February, marking the 10th increase in the last 11 months.  The increase beat out the projected gain of 0.5%. The increase, however, is the smallest since August of 2009.  Durable goods orders, which comprise almost half of factory orders, were also up 0.9%.

    Inventories rose only 0.5%, disappointing many as growing inventories are an indicator that manufacturers are confident in future sales prospects.

    Aaron Smith, a senior economist for Moody’s said in a Bloomberg article this morning that “Manufacturing will keep driving the recovery as we get continued support from inventories and from rising demand”.

    Reports from ADP Employer Services showed that private employers unexpectedly cut 23,000 jobs in March.  The Labor Department’s jobs report on Friday is expected to show that all employers added 180,000 jobs in March.  This would be the largest gain in three years.

    As has been the norm for the last few weeks, today’s economic reports are mixed, but somewhat encouraging. Positive news in the jobless claims report tomorrow and the employment report on Friday would go a long way toward further convincing the country we are indeed pulling out of the recession.  Stay tuned to this space for all the latest economic news and analysis.

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    Category: Mortgage Rates

  4. Mortgage Rates and the Federal Reserve’s Departure

    By Mike Battema on March 31, 2010

    Today, the Federal Reserve will cease its program of buying $1.25 trillion in mortgage bonds, once again ushering in the return of mortgage loans retained by private investors. Despite low current mortgage rates, interest rates have increased this past week and mortgage rates are expected to rise over the next few months. While there is no certainty as to how smoothly the transition will go and how mortgage rates will truly be affected over the next year, investors remain optimistic. According to Christopher Sebald, chief investment officer for Advantus Capital Management, “What we are seeing is an effective handoff occurring between the Fed and industry buyers such as banks and pension funds. I thought the Fed’s exit would leave a bigger void.”

    In January 2009, the Fed began buying loans guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae in an effort to reduce financing costs for borrowers and assist a stressed U.S. housing market. As a result of this activity, mortgage rates dropped significantly and have remained at or near historic lows. According to Fed Chairman Ben Bernanke, “A range of evidence suggests that these purchases and the associated creation of bank reserves have helped improve conditions in mortgage markets and other private credit markets and put downward pressure on longer-term private borrowing rates and spreads.”

    As the U.S. economy continues to show signs of sustained recovery and is expected to grow by 3% in 2010, institutions will have more capital to invest in mortgage-backed securities. Additionally, stricter lender standards have made the aforementioned mortgage-backed securities more attractive to private buyers interested in diversifying their portfolios because they ensure that there will be fewer loans on the market. According to a recent report from Morgan Stanley, approximately $1.5 trillion of agency mortgage-backed securities will be issued in 2010, down 12% from 2009.

    Nevertheless, there is a significant amount of uncertainty surrounding the Fed’s departure when the housing market and recovery remains fragile. While Fed policy makers have assured investors that they will restart the mortgage-bond buying process program if needed, they are confident that the demand for privately held mortgage-backed securities is high enough to ensure a smooth transition. The Fed’s exit does guarantee, however, an increase in mortgage rates, as Fannie Mae expects an interest rate of 5.13 for a 30-year fixed mortgage in the second quarter 2010.

    Total Mortgage Services offers some of the lowest current mortgage rates in the country. Take advantage of low mortgage rates and the soon-to-be-expiring homebuyer tax credit to refinance or purchase your home today by calling 877-868-2509.

    We at Total Mortgage are interested in hearing your thoughts on mortgage and economic news. Join the conversation below!

    Category: Mortgage Rates

  5. Housing Prices Rise in January

    By Michael Kraus on March 30, 2010

    Housing prices rose unexpectedly in January. The S&P/Case-Shiller Housing Index posted a slight seasonally-adjusted 0.3% increase in January. This is the eighth consecutive increase for the index which measures home prices in 20 major U.S. metropolitan areas. The increase demonstrates a increasing stability in housing prices.  The index is down almost 1% annually. Housing prices are off about 30% from their high in mid-2006.

    Half full or half empty?

    Half full or half empty?

    David Blitzer of Standard and Poor’s described the report as “mixed”, adding that “The rebound in housing prices seen last fall is fading”. Other housing indices have shown declines in December and January, and some economists are predicting the Case-Shiller index will also show losses soon. New and existing home sales have been trending downward for several months.

    Bargain-priced foreclosures are one of the primary factors suppressing housing prices.  Despite their mixed effectiveness to this point, I am somewhat hopeful that the Obama loan modification programs introduced last week will alleviate some of the downward pressure on prices.

    There is some promising economic news today, as consumer confidence is rebounding as Americans believe the labor market is beginning to improve. Although confidence is still low, it surpassed the forecasts of most economists.

    According to the report, increasing numbers of Americans believe incomes will rise and jobs will be more plentiful in the coming months. While the labor market and European debt problems will be a concern through the remainder of 2010, I am guardedly optimistic that the recovery will proceed slowly throughout the course of the year.

    What is your take on the latest economic figures? Do they presage a broader recovery, or are they a calm before the storm? Join the discussion below.

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    Category: Mortgage Rates

  6. Home Buyer Tax Credit: The Clock is Ticking

    By Robert Hyder on March 30, 2010

    Home Buyer Tax Credit: The Clock is Ticking

    There is exactly one month left before the $8,000 first-time home buyer tax credit and the $6,500 move up home buyer tax credit expire. As mortgage rates have been steadily rising since the middle of last week, all signs are indicating mortgage rates will continue to rise, at least for the near future. Even if mortgage rates did fall back once again after the expiration of the incredibly popular tax credits, the likelihood of home sales significantly increasing again in 2010 is extremely remote without government incentive.

    There are several indicators pointing toward a dramatic increase in mortgage rates, but two of the more noteworthy indicators will be put to the test over the next few days. Tomorrow, the Federal Reserve will complete its purchase of $1.25 trillion in mortgage-backed securities. It is no secret this program has kept mortgage rates artificially low for more than a year. Once the Federal Reserve exits the program, who will be left to purchase the holdings? And on Friday, the latest unemployment figures are due out. The preliminary unemployment figures imply the creation of nearly 200,000 jobs in March.  That’s great news on the work front, but bad news to the feeble housing industry. If homeowners are beginning to enjoy more stable job security, mortgage rates are certain to go up.

    Over the weekend, Alan Greenspan forewarned of imminent interest rate hikes by saying increased rates are a “canary in the mine.” Greenspan’s speculation is centered on the federal deficit that has ballooned.

    The tax credit has been extended once, and even expanded.  However, the likelihood of another extension is virtually nonexistent. As mortgage rates climb, if a signed purchase contract is not completed by April 30, the tax credits will be lost. Even if you succeed in agreeing on a home purchase with a seller, the next obstacle would be to close by June 30. As housing sales slumped over the winter and into early spring, the clock is ticking and time is clearly of the essence now.

    Robert Hyder

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    Category: Mortgage Rate Trends and Analysis

  7. Tax Credit Expiration Driving Home Sales

    By Michael Kraus on March 30, 2010
    The tax credit sunset is spurring home sales

    The tax credit sunset is spurring home sales

    In just 31 days, the government will cease the $8000 first time homebuyer and $6500 repeat home buyer tax credits. Nobody is sure how the market is going to react, but real estate agents and brokers are beginning to see sellers cut prices in order to sell their property prior to the expiration of the credit.  Buyers are scrambling to get a deal signed prior to April 30th (although they have until June 30th to close if a contract is in place by the end of April).

    Existing homes sales have been trending downward for the last three months. New home sales in January and February declined to the lowest levels since the government started keeping track. Home prices have been steadily depressed by an increasingly large volume of distressed homes. Despite these losses, there are reports from across the country that the market is heating up in response to the expiring tax credit.

    Already there is talk of extending the credit, although lawmakers thusfar have been adamant the credit will expire on April 30.  Senator Johnny Isakson, who was instrumental in driving the extension through the senate made clear he had no intention to extend the bill again.  Real Estate industry groups promised that the second extension would be the final extension.

    In a New York Times article this morning, Robert Shiller (co-creator of the S&P/Case-Shiller Housing Index). Shiller was quoted as saying: “The Credit interferes with the market in an arbitrary way, but ending it now would be psychologically powerful”. Shiller is in favor of gradually withdrawing support from the market. Other economists feel that extending the tax credit would produce diminishing returns as many buyers have already taken advantage of the credit.

    Some states have begun instituting their own housing support measures to replace the government program. Last month California extended a $10,000 state tax credit. South Carolina is offering down payment assistance for many civil servants, and the New Jersey legislature is debating a tax credit program.

    It is worth noting that this is a mid-term election year, and there is a lot of anti-incumbent sentiment amongst voters as a result of the poor economy. Very few members of congress are going to want to be seen as responsible for letting the housing market fall apart.  While I suspect the credit will ultimately expire, I do not think this is the last we have heard of talk of an extension. We should never underestimate the lengths our elected officials will go to in order to stay in office.

    What do you think will happen when the credit expires? Will Congress let it expire? We want to know your opinion. Join the discussion below.

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    Category: Mortgage Rates

  8. FHA Loan Modification Program Worth $14 Billion Announced To Help Struggling Home Owners

    By Dave Jefferlone on March 29, 2010

    Obama's HAMP Program Gets An Overhaul

    On Friday, FHA commissioner David Stevens announced a new FHA program which should be available in the next few months to help homeowners who are underwater on their home to refinance into a new FHA insured mortgage. FHA announced up to $14 billion in TARP funds will be available for this program although the consensus is they will not need anywhere close to this amount.

    FHA will allow a borrower who owes more than their home is worth to qualify for a new FHA insured mortgage up to 97.75 percent  LTV (loan to value ratio which is the loan amount divided by the home value) and up to a 115 percent CLTV (combined loan to value which is the sum of all mortgages associated with the property divided by the value of the home.

    FHA will allow borrowers to qualify for this program with out any increased mortgage insurance even if the risk may be greater for these loans. FHA will also allow borrowers to qualify based on  FHA mortgage rates.

    In order for a home owner to be eligible FHA will require:

    1. Borrower must currently reside in the house as their primary residence
    2. Full income documentation required
    3. Must qualify according to current FHA guidelines
    4. Current on their current loan AND
    5. Their current mortgage servicer of either their current first lien or 2nd lien MUST reduce the principle amount owed by a minimum of 10 perecent (no guidance yet on whether any additional liens will be included or allowed)
    6. Housing DTI (total housing payment for all liens of principle, interest taxes and insurance HOA dues etc divided by total gross monthly income) of  31 perecent
    7. Total DTI (all monthly debts divided by total monthly income) of 50 percent.  FHA did announce DTI greater than this may be allowed for borrowers with exceptionally strong credit histories.
    8. Current mortgage may not be a FHA mortgage

    In my opinion, the main concerns for this program are going to be that “every loan approved MUST have a minimum 10% reduction of principle balance of their current mortgage”.  I am not sure how many current mortgage servicers will participate in light of this criteria of reducing what the borrower currently owes them by 10 percent debt forgiveness.

    Another aspect of this program which the letter from the FHA commissioner doesn’t mention is since max LTV is 97.75, if a borrower now owes more than their house is worth, the current mortgage servicer must “reduce the current mortgage balance to 97.75 percent of the current appraised value or the current servicer MUST offer a 2nd mortgage for any balance above 97.75 percent up to a maximum of 115 percent.”  A lot of current servicer’s are NOT in the 2nd mortgage business so I am not too confident this may be an option or how this aspect may be structured.

    What do you think? Will the new $14 billion FHA program do it’s job and help struggling home owners, or will it be a flop like it’s HAMP predecessor?

    In the past, concerning the federal government’s HARP or HAMP programs, even though certain agencies (Fannie Mae, Freddie Mac or FHA) may allow specific expanded criteria’s for qualification purpose, to say it has been a challenge to find investors willing to also allow the specific program(s) guidelines would be a gross understatement. The same will hold true for this new program. It is going to be very challenging to find lenders who will also allow and follow FHA’s guidance.

    There will also be quite a bit of creative structuring required including: the current servicer modifying the current balance of the underwater first mortgage to 97.75 perecent and then subordinating the difference.

    If they entertain this option then they will also have to determine if the rate and term will be different than the current note. This is called a modification/subordination agreement which will also be very time consuming getting this executed. The current mortgage amount will have to be reduced to the amount needed to satisfy the difference between the 97.75 LTV and 115 percent cltv

    Example (expanding on the example in FHA commissioner’s letter)

    Current value of home: $180,000
    Current owed on mortgage $240,000
    Max combined allowed CLTV: 115%
    Max allowed LTV: 97.75%
    Max combined loan amounts for new 1st and 2nd: 207,000
    Max amount allowed of new 1st: $175,950
    Max amount allowed of new 2nd: $31,050

    This means the current servicer will have to forgive or write down the current mortgage from approximately $200,000 to $207,000 to also include closing costs unless the borrower pays out of pocket for the difference. Let say to $207,000 for argument sake.

    They will have to modify the current first mortgage to $31,050 (along with possibly modifying the interest rate, and term back to 30 yrs) after doing the modification part, then will have to subordinate the current modified first mortgage into a second lien position, in order for the new FHA insured first mortgage to be in first lien position.

    • A second or third possible option to the above example may be too (if allowed which has not been addressed yet as far as I am aware)
    • Reduce the current balance by the mandatory 10 percent or by $24,000 to $216,000 AND
    • offer the borrower a unsecured loan of $9,000 in order to get down to the 115 percent max allowed FHA CLTV for this program offer the borrower a unsecured loan of $40,050 therefore the required 97.75 percent maximum allowed 97.75 percent LTV can be obtained.

    Any combination of the above are possible options. Although, they may be possible options it is too early to determine how probably if any of the above options may be.

    The intent of this new program is very noble, it is the execution which I have serious doubts on the availability. Read FHA Commissioner David Stevens’ letter in its entirety.

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    Category: FHA

  9. Low Mortgage Rates, Property Values Present Opportunity

    By Michael Kraus on March 29, 2010

    mortgage-rates-3Today excellent real estate blogger Nick Timiraos of the Wall Street Journal echoed a sentiment that we have been espousing in this space for several months. Namely, for those that qualify, now is an excellent time to purchase a home, and there are many bargains to be had (especially if you are in the market for a high end home).

    Average mortgage rates on thirty year fixed rate mortgages climbed to a one month high of 4.99% last week. However, rates are still relatively close to historical lows. Property values are very low, to the point where homes are actually undervalued in many portions of the country.

    Issues with the housing supply still persist, and some economists fear the market could double dip if even more foreclosed and distressed properties make their way onto the market. To this end, the Obama Administration revamped the Home Affordable Modification Program and initiated a new effort through the Federal Housing Administration to help at-risk homeowners stay in their houses.

    It is difficult to accurately predict what effect the end of the first time home buyer tax credit at the end of April will have on home values. What we can predict fairly accurately is that mortgage rates will certainly rise, likely before the end of the year. In the past week interest rates rose as a result of increasing yields in the bond market. The Federal Reserve pledged to keep rates low for an “extended period”, but has acknowledged that inflationary pressures could force a tightening in monetary policy.

    If homes values do dip, the drop will likely be less severe than previous declines as values are already very close to the bottom. Those who wait to see if prices decline further could end up spending more for their loan in the long run due to rising mortgage rates.

    If you are looking to take advantage of low mortgage rates, call one of our mortgage experts today at 877-868-2509 to see what opportunities are available to you.

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    Category: Mortgage Rates

  10. Signs of Economic Recovery Cause For Optimism

    By Michael Kraus on March 29, 2010

    economic-recovery

    Each week we get some signs that the nascent economic recovery is gaining traction. The U.S. dollar rallied for the fifth straight month due to the improving economy and low inflation.  Previously bearish Goldman Sachs and Citigroup pulled back from positions that the dollar would weaken after taking losses last week.  Economists’ predictions for the strength of the dollar rose on average 1.4% last month.  The dollar gained against almost all major currencies last month with the exception of the peso.  Many feel the strength of the dollar is an indicator that the economic recovery is legitimate and picking up steam.

    Instability in Europe over Greek and Portuguese debt concerns has caused the dollar to improve versus the Euro.  Alan Ruskin, head of currency strategy for RBS Capital Markets commented in a Bloomberg article that “the economy picked itself up off the ground.  Compared to what it might have looked like from the view of March 2009, March 2010 looks very good”.  As recently as a year ago, Ruskin predicted the downfall of the dollar saying “we are witnessing the end of ‘Rome’ on the Potomac”.  It is likely that debt troubles in Spain and Italy will cause more pain in the Euro-zone.

    Another positive indicator is expected on Friday when The Labor Department makes its employment report.  Consensus expectation is that 190,000 jobs were created in March, which would represent the biggest gain in three years.  Popular opinion is that economic recovery will remain slow until the pace of job creation increases significantly.  Unemployment is the largest hurdle for recovery in the housing market in particular.  Unemployment in the United States continues to linger around 9.7%.

    Consumer spending was up for the fifth straight month in February, increasing .3%, a modest but promising increase coming despite the poor weather throughout February.  Income growth was stagnant, however, showing no gains in February.  2.5-3% growth in the economy is expected in the first quarter of 2010, compared to 5.6% growth rate in fourth quarter 2009.  Wage growth will probably not occur in earnest until the labor market improves substantially.

    What do you think?  Are the latest indicators signs of a recovery or not?  Join our discussion below.

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    Category: Mortgage Rates
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