Mortgage Rates Report

Mortgage rates dropped, then rose to their original level, last week.  I’ve been advising  mortgage borrowers to lock all rates at application, regardless of closing date.  Did I miss an opportunity to improve clients’ rates?  I don’t think so.  My approach is more one of limiting losses than improving gains and last week, I thought there was a threat of higher mortgage rates; I still do.

Inflation data is released Wednesday and Unemployment data is due out Thursday.  These two figures could be the tempest in the teapot and really affect mortgage rates.  We just think there is too much risk to be floating (holding out for a better rate).  If markets overreact (and they usually do) we’ll change that recommendation but for now, we think it’s prudent to lock your mortgage rates.

Currently, the 5/1 ARM offers the best value at 4.875% wholesale rate.  The 30 year fixed rate loan is 5.875% wholesale rate.  While there is risk in losing the rate after 5 years, most borrowers don’t hold a mortgage that long.  If you are thinking of moving in the next few years, it would be well to examine the benefits of refinancing your home loan to a low 5/1 ARM rate.

Contact me at (858)-777-9751 with more questions.

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Ive been writing about the merits of H.R. 5830, The FHA ‘short refi’ program that will allow home owners to refinance their mortgage to 90% of the outstanding loan balance.  While my tenuous support is being criticized by liberatians, Jamie Geiger, a real estate agent from Tempe, AZ asks me this, on Twitter:

Are you seeing any lenders doing ‘short’ refis?

Great question, Jamie.  The answer is¦not really.  Lets look at the lenders options:

1- Foreclose on a 2-year old, poorly collateralized loan, lose 20% to principal, and reinvest at 6%, on a well-collateralized loan.  Over five years, they will recover their loss and eke out a net 2.5% annual return for the 7-year period. Foreclosing and reinvesting in a low LTV loan protects the principal.

eg- $100,000 loan made in 2006 at 7% interest.  Foreclose, collect $80,000 and reinvest at 6%, for five years.  Total interest collected is $14,000 (first two years) plus $24,000 (reinvested loan) for a total of $38,000.  $80,000 principal balance paid back in five years.  The lender invested $100,000 in 2006 and will receive a sum of $118,000, over 7 years; about 2.5% return.

2- ‘Short refi’ the original loan and take a 10% nick to principal.  Collect 6% interest, on a still poorly collateralized loan, and net out a 4% return for the same 7-year period.

eg- $100,000 loan made in 2006 at 7% interest.  ‘Short refi’ to a $90,000 loan and collect 6%, for five years.  Total interest collected  is $14,000 (first two years) plus $27,000 (short refi loan) for a total of $41,000.  $90,000 principal paid back at the end of five years.  The lender invested $100,000 in 2006 and will receive a sum of $131,000, over 7 years; about a 4.4% return.

Its a no brainer, right?  A short refi is the answer!  UNLESS¦

¦they think the new loan is still risky.  Lenders can reinvest the money, from the first example, against a $100,000 home.  In the second example, they will have a $90,000 lien against an $80,000 home.   That tells me that the lenders dont believe the real estate market can recover at a 4% appreciation rate, over the next five years.  It also tells me that lenders dont think were out of the woods, yet.

Wanna try and guess the bottom?  Watch the lenders.  When short refis are offered, en masse, they think a turnaround is near.

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FHA Loans are back in San Diego County!  Our expensive real estate has dropped in value and the FHA loan limits were increased by The Economic Stimulation Act of 2008.  Single-family homes and condominiums are now eleigible for FHA loans to a limit of $697,500.  Duplexes have a FHA loan limit of $892,950,  Triplexes have an FHA loan limit of $1,079,350 and four-unit properties can get an FHA loan up to $1,341,350.

FHA loans are useful because they allow for a downpayment as low as 3%.  There are no “declining market limits” imposed on FHA loans.  This means that a family looking to buy a duplex, for $800,000, can buy that home for less than $25,000 cash-to-close.

Sellers can contribute up to 6% towards a buyer’s closing costs and the down payment can be a gift from an interested party.

Credit guidelines are relaxed with scores allowed down to 580 FICO score.  Alternative credit sources, like utility bills, rent, phone bills, and private loans can be used to build a “thin” credt file.

Contact Brian Brady for more information at (858)-777-9751

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Markets are discounting mechanisms which means they take future events into consideration and figure them into the pricing immediately.  Let me give you an example.

Lets say that you want to buy a new laptop.  You know that Best Buy puts them on sale, every Saturday.  you know that because you see the ads in the Saturday Union Tribune.  Twice, you saw that bitchin Delll you wanted and ran down to Best Buy to find out that it was sold.  You got mad and bad-mouthed Best Buy but vowed to keep checking the Saturday paper for another sale.

Youre blowing it just like mortgage borrowers blew it today. 

What you should do is buy the Saturday morning U-T from the Best Buy parking lot¦at 5:00AM.  Im GIVING you the Saturday morning U-T with my Mortgage Rates Report.  The problem is that youre not ready when I sound the alarm; youre still at home reading about the computer sale while the smart cookies are drinking coffee in the parking lot, waiting for Best Buy to open.

Mike Mueller tells you how to ‘camp out in the parking lot:

For the rate shoppers out there. If you didnt have your Ducks in a Row - you lost.

What exactly are those Ducks? Good question.

1. a Complete Mortgage Loan Application including all requested documentation.
2. an Underwriters Conditional Loan Approval
3. The ability to meet those Conditions in a timely manner

Thats it. Seems pretty simple right?

But thats also why you cannot pick up the phone and shop for rates.

Get your loan application in so I know that youre committed.  Fax your W-2 forms for 2007 and 2008, your last two paystubs, and a bank account statement to (858)-605-4230- that way Ill know you want to be first in line when I sound the alarm.

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Brian.Brady 3 feedbacks »

Please remember John C. Spahr, Lt Col., USMC, in your prayers this weekend.  Colonel Spahr, call sign ˜Dukes, died 3 years ago today, over the skies of Iraq.  He was a special guy to a lot of people.  God must of had some important work to be done to call John home early.

Dukes died providing air cover for infantry Marines, over Baghdad:

At 7 p.m. 18 hours after Guardsman Anthony Wakefield was pronounced dead John C. Spahr climbed the ladder onto the flight deck of USS Carl Vinson and walked to his F/A-18 Hornet. Lance Corporal Lindsay, who did final checks on Spahrs jet that evening, said he came out onto the flight deck smiling and joking with his fellow marines. The ship is more than a thousand feet long and can carry 5500 personnel; its motto Vis Per Mare, ˜Strength from the Sea. A major carrier is more like a floating town, often surrounded with smaller ships serving as warehouses. Major Spahr and his colleague Marine Captain Kelly Hinz had their orders: they would fly into south-central Baghdad and support the marines on the ground, many of whom were fighting insurgents and taking sniper fire. Major Spahr was more than familiar with the journey. He had been the first pilot to fly into Baghdad on the night of 21 March 2003 the first of 1700 sorties flown by the US Air Force at the beginning of the campaign called Shock and Awe. Launching from the aircraft carrier, ˜you go from about zero to 150 miles an hour in less than two seconds, says Captain Daron Youngberg, a colleague of Spahr and Hinz. The pilots left behind a series of signalmen scurrying on deck as each rose and tilted their $55 million plane over the empty horizon. Other pilots watched the pair ascend from the Carl Vinson: ˜There goes Dukes, said one of them whom I later spoke to. ˜He was the best Top Gun pilot of his generation, and what I would call a complete man, he said.

I knew him as ˜Johnny and I met him when I was in high school. He was one of the few FOUR sport lettermen at St. Josephs Preparatory School, in Philadelphia.  He started as quarterback, ahead of NFL great Rich Gannon, played varsity basketball, and in the spring he played baseball and rowed the single for the Prep Crew team (and won the National Schoolboy Rowing Championship).  John was an older guy (by two years) so I looked up to him.  As a sophomore sculler, I was tenuous on the water.  John always took the time to slow down and ˜mentor me. Johnny was in his sleek racing single, I in my beginners practice boat.  During my senior year, John made the trek from the Univeristy of Delaware to cheer us on in the Catholic League Championships.  I can still see him beaming as I put on the first place medal.  John Spahr had more athletic abilty then the whole crew team yet he was delighted for our personal success.

Like I said, they dont make men like Johnny too often.

John played quarterback for the University of Delaware football team.  He was awarded a Masters degree in Physical Education from Delaware and started working with mentally challenged children.  After a short while, John was accepted to Marine Corps Officer Candidate School.  He was commissioned a Marine officer and assigned to Pensacola for Naval aviator training.  He won the coveted ˜gold wings and was assigned to El Toro MCAS.  I visited with him on his cross-country trip as he passed through Arizona, back in 1994.  He hadnt changed.  They called him ˜Dukes but he was the same old Johnny Spahr- pushing himself to be the best he could be.

That attitude served him well as a Marine.  John completed and later instructed ˜Top Gun Naval Fighter Weapons School, at NAS Fallon, in Nevada.  In 2004, I noticed his name in the San Diego Union-Tribune. I ran into a few Marine aviators in the Kearny Mesa post office, and queried if they knew John.  I passed along my phone number to them.  John called and we chatted about how we had to get together since we lived close to one another.  He was headed over to Iraq for ˜a quick tour of duty so we made plans to get together when he returned.

I never saw Johnny again.  I saw his mother, sisters Kelly, Sabrina,  Tracy, and my friend, Steve (his brother), at Johns memorial service at MCAS Miramar, in May of 2005.   The chapel was packed with Marines who served with John in Iraq.  I pray for those men and women, daily.

My office is a few miles south of Miramar.  I gaze out the window and watch those Hornets go to afterburner.  The Marine aviators push the speed of sound, with their hair on fire.  They remind me of Johnny Spahr¦

¦and I smile when I see them.  In them, he lives with me forever.

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