Bill McCord's Blog

A large increase in Mortgage loan applications for Buyers is another strong sign that the market is getting back to normal in many parts of the Country. Overall the number of applications for mid February to mid March was  22% greater then for the same period last year.

When added to the recent large increase in the number of Pending sales contracts this bodes well for a much stronger market overall.

President Obama is urging Congress to pass a bank tax, funneling the money over to the Federal Housing Administration which will then refinance non-GSE borrowers who are under water on their loans.

Wednesday morning the White House released certain details of its latest refi plan, opening up the initiative to borrowers with a minimum credit score of 580 and loan-to-value ratio of up to 140%. But there is one catch: these mortgagors must be current on their existing loan.

For loans with LTVs above 140%, lenders would have to write down the principal before refinancing, according to a White House fact sheet released to the media.

This plan will “help millions of responsible homeowners who make their payments on time but find themselves trapped under falling values or wrapped in red tape,” President Obama said at a rally in Falls Church, Va., Wednesday morning.

The White House estimates FHA will need $5 billion to $10 billion to fund this new refi program for private mortgages and create a separate mortgage insurance fund.

“This will help the FHA better track and manage the risk involved and ensure that it has no effect on the operation of the existing [FHA] Mutual Mortgage Insurance Fund,” a White House fact sheet says.

To get the program off the ground, Congress will have to pass legislation that authorizes FHA to refinance higher LTV loans along with the proposed bank tax to fund the program.

The President calls the tax the “Financial Crisis Responsibility Fee,” noting that it will be imposed on the “largest institutions based on their size and the riskiness of their activities.”

Washington insiders consider the bank tax a “non-starter” in the Republican-controlled House of Representatives.

Mortgage servicers continue to modify 25,000 loans a month under the government’s HAMP program, but that pace could pick up later this summer as new changes to the effort kick in.

To date, servicers have completed roughly 930,000 modifications under the Home Affordable Modification Program with 760,000 homeowners still current on those loans.

Recently unveiled changes could open the door for 1.5 million struggling homeowners (and real estate investors) to be eligible for a HAMP modification, according to analysts at Keefe, Bruyette & Woods.

The Treasury is working on guidance to allow modifications of single-family loans on rental properties for the first time.

The new guidance will relax HAMP’s debt-to-income cutoff, reflecting borrower obligations to make payments on second liens and medical bills. HAMP currently excludes borrowers with mortgage payments that are less than 31% of their income.

Treasury also is increasing incentive payments to investors, including Fannie Mae and Freddie Mac — when they agree to reduce the principal amount on a delinquent loans.

KBW managing director Bose George is skeptical the GSE regulator will allow principal reductions on Fannie/Freddie loans. However, principal reductions would make more underwater borrowers eligible for a HAMP modification.

Treasury wants to issue the new HAMP guidelines this month, but stronger modification results might not be seen until August or September.

“Treasury expects that homeowners may be evaluated under the new program beginning in May for trials starting June 1,” the department said in releasing its December report on HAMP activities Monday.

The new HAMP report shows 79,300 borrowers are currently in payment trials. In December, 23,300 borrowers completed the three-month trials and were granted a permanent modification. In November, servicers completed 26,900 permanent HAMP modifications

Until recently the only hope of buying again after losing you house through default was with FHA, and for many that will still be the best voice.

 However, a new option is now possible.

The much maligned Fannie Mae is now allowing some people who avoided Foreclosure through either a Short Sale or a Deed in lieu of Foreclosure to get a regular Conventional Mortgage again.

The good news is that Fannie Mae will buy those loans from Banks that make them. It does not mean that all Banks will offer them.

Banks that do offer these loans will typically apply tougher standards than normal to offset what they might consider an increased risk.

To qualify you must have had good credit before and since the Short Sale / Deed in Lieu of Foreclosure.

If you can meet this requirement here are the times after which you will have a good chance to buy your own home again (at vastly lower prices and interest rates than you had before).

TWO (2) Years up to Maximum 80% Loan to Value | 20% Down Payment

FOUR (4) Years up to Maximum 90% Loan to Value | 10% Down Payment – Subject to Private Mortgage Insurance underwriting guidelines.

SEVEN (7) Years above 90% Loan to Value | with less than 10% Down Payment – Subject to Private Mortgage Insurance underwriting guidelines.

If you don’t want the lowest interest rate for as long as you own your home don’t bother reading this.

Everyone (except me) is telling you to just take a 30 year fixed mortgage.

 I’m saying that may be true for a lot of people, but is not true for the majority.

Q1. Are interest rates on 30 year fixed mortgages at all time lows? YES

Does this mean that everyone buying or refinancing should get a 30 year fixed mortgage? NO

Q2. Are interest rates on 5 and 7 year fixed rate ARM’s also at all time lows?  YES

Q3. Is the interest rate the same on all types’ of loans? NO

The rates on both 5 and 7 year ARM’s are substantially lower than the 30 year.

Q4. Is the difference worth bothering about? YES

Take a $300,000 30 year fixed mortgage at 4.0%. Payment is $1,432/m

Take a $300,000 7 year fixed ARM at 3.75%. Payment is $1,389/m. Savings after 7 years $3,162.

Take a $300,000 5 year fixed ARM at 3.5%. Payment is $1,347/m. Savings after 5 years $5,100.

Q5. If Bob and Alice are buying their first home and plan to start a family after 3 years is, it likely that the nice little 2 bed, 2 storey townhouse they get will suit them for the next 30 years? NO

Q6. Would it be smart for them to take a 5 or 7 year ARM and save thousands of dollars which will be useful when they inevitable move up to the detached house with a garden when the children come along. YES

The golden rule of mortgage selection is that one size does not fit all.

Your mortgage should be the one best suited for you at this time in your life and considering your future plans and expectations.

IF YOUR LOAN AGENT DOES NOT ASK YOU HOW LONG YOU EXPECT TO BE LIVING IN THE PROPERTY THEN THEY CANNOT ADVISE YOU WHAT WILL BE THE BEST LOAN FOR YOU.

TURNING 26 YEARS INTO 30 YEARS.

It’s not always a good idea to refinance a mortgage simply to lower the Monthly Payment.

Before you refinance a 30 year mortgage which has 26 years to go, and take a new 30 year loan, you must compare the total amount which will be paid over the life of each loan before deciding whether it makes economic sense.

The smartest way to take advantage of lower interest rates would be to calculate the amount you would have to pay each month in order to have the new loan paid off in 26 years, and then make an extra payment each month to achieve that highly desirable result.

If the new lower payment plus the extra to make it a 26 year loan is less than the amount you are currently paying then go for it. If not then you should reconsider other options before proceeding.

I cannot go into details regarding other options within a simple post such as this, but I can assure you they do exist. However the regular Loan Officer is not going to bring them to your attention. 

A recent nationwide survey asked a wide age range of Homeowners the following question:

“When is it smart to pay points to get your mortgage”?

Amazingly 83% of the respondents answered NEVER. This displays either an astounding ignorance of basic economics, or a desire to help Banks get richer.

The CORRECT ANSWER should be “When it saves me money with no extra risk“.

Put simply you pay points to get a lower Interest Rate. If you keep the loan for at least 5 years you will be showing a Profit. Every year from then on you add to that profit.

BUY IN HASTE, REPENT AT LEISURE.

John and Dave are as close to identical as is possible without actually being twins.

They both work at the same company, make the same money, had saved up the same 20% down payment for  a nice 2bed 2 bath condo in the same favourite complex for up to $250,000.

Problem was that only one unit was for sale back in April. Being good friends they agreed to spin a coin to see who got to buy 1st. John won and bought that one, and Dave waited for the next listing to come up.

That duly came up in late May and Daves offer of the same amount that John had paid was accepted.

They both got their 30 year mortgage for the same amount from the same Broker 6 weeks apart.

What’s interesting here is that for the next 30 years John will pay approximately $75/month more than Dave. This is due entirely to the drop in interst rates during the time between the 2 purchases.

Obviously John will hope to refinance to a lower rate as soon as possible but there is no guarantee that will be possible.

The most interesting part of this story is that due to the continued econonmic chaos it world wide Bond Markets mortgage interest rates are now even lower that Dave got, and are now at 40 year lows.

My message here is to pay more attention to how mortgages really work , and consider whether the 30 year fixed really is the best for you. For 90% of all buyers it is not.

If anyone would like to know how to make this decision just send me an e-mail and I’ll be happy to explain.

Not just a Mortgage Issue

 Most people know that your Credit Score (FICO) has a significant effect on whether you can get a Mortgage.

What is not generally known is that FICO is increasingly being used by Employers, Insurance Companies,

Utility Companies, Apartment Complexes and a growing list of other organization which provide services for regular payments.

These and many other groups consider it a good indicator of general reliability and whether bills will be paid on time.

Are you a potential 1st time buyer living in Californias Silicon Valley, and expect to live in your new home for at least 5 years/? YES YES YES.

0. Prices in our Valley have pretty much stabilized.

0 Interest rates are at all time lows.

0 There are multiple 1st Time Buyer programs from Cities, Countys, State, and Federal Governments. These can provide down payment assistance, and significantly reduce the cost of owning.

If your answer to my 1st question is negative then the answer is probably NO NO NO.

If you believe that prices are going to drop further and you plan to wait and buy at the bottom, please let me know how you will be able spot that bottom before it has already happened.