Loan Apps Rise as Rates Dip Below 5 Percent
Average mortgage rates dipped below 5 percent last week, driving mortgage application volume up 11.3 percent to 723.4 from 649.7 the previous week on an adjusted basis, according to the Mortgage Bankers Association weekly survey.
On an unadjusted basis, the index increased 11.6 percent compared with the previous week and was up 5.7 percent compared with the same week a year ago.
The increase was reflected in the government purchase index (mostly FHA), which rose 10.4 percent. The overall purchase index was up 7.1 percent. The refinance share increased to 67.9 percent, up slightly from the previous week when it was at 66.9 percent.
Mortgage rates were down to the second-lowest rate in the history of the survey, with the record low being 4.89 percent for the week ending Jan. 9, 2009.
30-year fixed-rate mortgages decreased to 4.96 percent from 5.14 percent
15-year fixed-rate mortgages decreased to 4.54 percent from 4.73 percent
1-year ARMs increased to 6.21 percent
Source: Mortgage Bankers Association (03/11/2009)
Experts Weigh Rent-to-Buy Pros and Cons
The weak housing market has prompted some home sellers to offer rent-to-buy agreements to prospective buyers.
These buyers pay an up-front fee of approximately 1 percent of the sales price for the option to buy, and all the payments they make during the rental period go toward the principal.
Most rent-to-buy agreements last for two to five years; and if the occupants decide not to go through with the purchase, they lose the option fee plus the rental payments. Those that agree to purchase the home at the price specified when the agreement was signed also lose money if property prices have since fallen.
Moreover, buyers who make late rental payments often find that these do not count toward the home purchase. According to Arizona State University finance professor Anthony Sanders, “A good rule of thumb [is to] separate the rental decision from the purchase decision.”
What’s Next for Fannie, Freddie?
What’s to become of Fannie Mae and Freddie Mac, which are bleeding red ink as home owner defaults continue to increase?
The rising losses will force the government to decide whether to keep putting money into the firms to keep them operating or divide them into smaller businesses and remove government support.
Daniel Mudd, a former Marine, was Fannie Mae’s CEO before the government fired him and put James Lockhart, director of the Federal Housing Finance Agency, in charge. He likened the situation to the U.S. invasion of Iran. “The troops got to Falluja in a couple of weeks and seized the radio towers, but there was no plan to run the country once the shooting stopped,” he said.
Under the Obama plan, Fannie and Freddie are expected to refinance as many as 5 million underwater mortgages.
Fannie’s government-appointed CEO, Herbert Allison, said: “It’s not about maximizing returns on equity or profits. It’s really about being of use to the country during this very difficult period.”
Source: The Wall Street Journal, James R. Hagerty and Damian Paletta (02/27/2009)
30-Year Rates Inch Up This Week
Freddie Mac reports an increase in the 30-year fixed mortgage rate to 5.07 percent for the week ended Feb. 26.
Rates rose slightly, from 5.04 percent the prior week.
“Mortgage rates were little changed this week amid mixed data reports of a slowing economy,” said Frank Nothaft, Freddie Mac vice president and chief economist.
He said that lower house prices and affordable mortgage rates have yet to spur housing demand. For instance, house prices declined by 8.7 percent for the 12 months ending in December 2008 and were down 10.9 percent from their highs set ion April of 2007, according to the Federal Housing Finance Agency’s purchase-only monthly home price index.
Meanwile, existing home sales fell 4.7 percent in January to 4.05 million units, the slowest pace since July 1997, he said.
The five-year adjustable-mortgage rate rose to 5.06 from 5.04 percent over the same period, while the one-year ARM bumped up to 4.81 percent from 4.80 percent.
However, the 15-year fixed mortgage rate held steady at 4.68 percent.
FHA and Conforming Loan Limits Released
The U.S. Department of Housing and Urban Development has released new FHA and conforming loan limits based on changes enacted last week as part of the massive economic stimulus bill.
Under the legislation, loan limits in high-cost areas are increased to $729,750, the same as last year. They had dropped to $625,500 this year before passage of the legislation.
In a Mortgagee Letter released yesterday on the change, HUD says the new loan limit for an area will be based on market calculations from either this year or last year, whichever is the higher of the two calculations
Given current market conditions, many areas are staying at the 2008 mortgage limit.
The loan limits can be accessed in a searchable form on HUD’s Web site.
Source: REALTOR® Magazine Online
30-Year Rates Drop to Near 5%
Mortgage rates across the board fell this week, a welcoming sign to potential buyers and home owners looking to refinance.
The 30-year fixed-rate mortgage averaged 5.04 percent this week, a drop from last week’s 5.16 percent. Last year at this time, the 30-year rate averaged 6.04 percent, Freddie Mac reports.
Freddie Mac reported the following for other rates for the week:
- 15-year mortgage rates: averaged 4.68 percent, down from last week’s 4.81 percent. Last year at this time: 5.64 percent.
- 5-year hybrid adjustable-rate mortgages: averaged 5.04 percent this week, a drop from last week’s 5.23 percent. Last year at this time: 5.37 percent
- 1-year ARMs: averaged 4.8 percent, down from last week’s 4.94 percent. Last year at this time: 4.98 percent
“Mortgage rates followed bond yields lower this week as recent economic reports suggest the economy is still slowing, which reduces the future threat of inflation,” says Frank Nothaft, Freddie Mac’s chief economist.
Source: Freddie Mac (02/19/09)
5 Tips for Homebuyers Seeking a Mortgage
Here’s a warning for potential borrowers: Nervous lenders have tough new rules and are paperwork crazy.
“Borrowers are going to have to prove they are the borrower they say they are,” says Keith Gumbinger, vice president of HSH Associates, a mortgage-industry publisher in Pompton Plains, N.J.
Gumbinger says homebuyers should consider these things before they apply for a loan.
1. Down payments are critical. Borrowers should expect to put down at least 10 percent for a “conforming loan” – a mortgage that Fannie Mae and Freddie Mac will purchase.
2. Credit scores count. A 720 on the 850-point FICO rating scale will get a borrower access to the best rates. Rich Bira, branch manager of FCM Direct Lender in Chicago, says: “A score between 720 and 739 gets 0.125 percent added to the rate, a score between 700 and 719 gets 0.375 percent added to the rate, and a score between 680 and 699 gets 0.5 percent added to the rate.”
3. Consider VA and FHA. Borrowers without down payments or with less than stellar credit scores should consider these government-insured loans offered through the Federal Housing Administration of the Veterans Administration.
4. Unearth the records. Before applying, borrowers should organize tax, banking and other records that prove income, savings and debts. They should also expect to be patient about what may seem to be endless requests for information.
5. Get rid of debts. Limiting debts, including what borrowers expect to pay for the mortgage, to less than 43 percent of gross income is important.
Source: Chicago Tribune, Mary Umberger (02/15/09)
Is a Stimulus for Housing Next?
Sources say the Obama administration’s housing plan, to be unveiled Feb. 18, will allow bankruptcy judges to modify mortgages and will use Fannie Mae and Freddie Mac to refinance borrowers who owe more than their homes are worth but are current on their payments.
It also will reduce loan payments for struggling home owners through lower interest rates or longer loan terms, with the government possibly giving lenders a subsidy of $800 to $1,000 per loan to minimize losses.
Home owners could be forced to ultimately repay the difference between their original and reduced payments–a provision meant to keep borrowers from defaulting for the purpose of qualifying for assistance, and the administration also wants Fannie Mae and Freddie Mac to adopt national loan modification standards.
Source: The Wall Street Journal, Deborah Solomon (02/18/09)
Mortgage Applications Back on the Upswing
Mortgage applications swung back up after last week’s sharp decline, with the index reaching 875.3, up 45.7 percent on a seasonally adjusted basis from 600.6 a week earlier.
On an unadjusted basis, the index increased 47.7 percent compared with the previous week and was up 5.2 percent compared with the same week a year ago.
The refinance share of mortgage activity increased 74.2 percent of total applications from 66.7 percent the previous week.
Meanwhile, mortgage rates were down for the week:
- 30-year fixed-rate mortgages decreased to 4.99 percent from 5.19 percent;
- 15-year fixed-rate mortgages decreased to 4.66 percent from 5 percent;
- 1-year ARMs decreased to 6.10 percent from 6.22 percent
Source: Mortgage Bankers Association (02/18/2009)
Expect to Hear More on Housing Assistance Plan
The Obama administration is considering plans to subsidize mortgage payments for owners facing financial troubles and allow underwater homeowners to refinance. Plans are likely to be announced Wednesday.
The refinancing proposal is expected to include a test that troubled homeowners could use to prove eligibility before their mortgage becomes delinquent.
The administration also is expected to endorse a cram-down plan that will allow judges to modify mortgages during bankruptcy procedures. And it will push for legislation that will remove obstacles that prevent mortgage servers from modifying troubled loans.
Mortgage giants Bank of America Corp., J.P. Morgan Chase & Co. and Citigroup Inc. have halted foreclosures until Obama announces details on these plans.
Source: The Wall Street Journal, Deborah Solomon and Robin Sidel (02/14/2009)
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