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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Brian.Brady 3 feedbacks »

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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Brian.Brady 4 feedbacks »

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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