By Kirk Haverkamp, Published: October 29, 2010

Along with tight credit and unstable home values, a new set of rules governing home appraisals have been blamed for making it hard to buy a home or refinance a mortgage over the past year. Now those rules are being replaced, which hopefully will lead to more accurate valuations and make home loans a bit easier to obtain as well.

But don’t hold your breath. The rules don’t take effect until April 1 and even then, it’s not clear how much effect they’ll have on current appraisal practices. The so-called “interim final rule” was issued by the Federal Reserve Oct. 18 for a 60-day period for public comment.

Allows feedback on appraisals

Among other things, the new rules allow lenders or builders to ask an appraiser to take into account additional information that may have been overlooked in the initial appraisal. They also require that appraisers be paid “customary and reasonable” fees to encourage the use of well-qualified appraisers who are familiar with the local housing market involved.

“The interim rule makes it clear that home builders and others can ask an appraiser to consider additional information about a property, including information about additional comparable properties,” said Joe Robson, immediate past chair of the National Association of Home Builders, one of the groups that has pushed for a change. “That’s critical to our members because in far too many cases we’re seeing appraisals based on inappropriate comparables.”

Replaces HVCC

The new rules effectively replace the much-criticized Home Valuation Code of Conduct, which was one of the measures adopted following the collapse of the housing bubble. The HVCC, as it’s known, was primarily designed to shield appraisers from undue pressure to over-value a home so it would qualify for a loan.

The HVCC has done that, by prohibiting lenders or their agents from hiring appraisers for loans they sought to issue. Instead, appraisers are now hired by third-party appraisal management companies.

However, lenders and realtors often complain that they hire inexperience appraisers who are unfamiliar with local markets, give overly conservative appraisals and treat foreclosures as comparable sales. As a result, they say, the pendulum has swung too far the other way, and appraisers are now undervaluing properties rather than overvaluing them as occurring during the housing bubble.

Continues main elements of HVCC

The new rules continue many of the major elements of HVCC, including a ban on the use of coercion to get an appraiser to base an appraisal on anything but their professional judgment. They also require that incidents of appraiser misconduct be reported to the authorities.

Many in the real estate and lending industry are welcoming the changes, but say the big question is one of enforcement. Although the new rules set out somewhat tougher penalties for violations than under the HVCC, it remains to be seen how strictly they’re interpreted and applied by federal regulators and how much wiggle room appraisal management companies can find. Depending on how that plays out, the new rules could either be a step in the right direction or just more of the same.

By Barbara Eisner Bayer, Published: August 19, 2010

Mortgage rates are low, and applications are up. If you’re shopping for a mortgage, you’re entering a world where there’s a lot of information you may know little about. Don’t feel embarrassed — information about mortgage rates and closing costs aren’t taught in school, so unless you’ve worked in the industry, it’s perfectly normal for you not to know what to look for. Remember that you’re the customer, and the mortgage lender is trying to get your business.

It is important, however, to have a list of questions when making your inquiries, so you can compare different loans. Here are the seven most important mortgage lender questions.

1. What’s the interest rate? Is it fixed or adjustable?
The first question is really two but, like love and marriage, you can’t have one without the other. The interest rate will govern the amount of your monthly payment, so you’ll want the lowest one available. Ask if the rate is fixed or adjustable. The safest bet is a fixed rate, because it will stay the same throughout the life of the loan. Adjustable-rate loans change, and are unpredictable. Find out the annual percentage rate (APR), which includes all the fees the lender will charge over the loan’s life. Finally, ask each mortgage lender if you can lower the interest rate by paying points. Each point is one percent of your loan amount.

2. Can I lock in the interest rate?
Most mortgage lenders will allow you to lock in the interest rate for a period of 30 to 60 days, which is especially important if you think rates are trending upwards. Some mortgage lenders will charge a fee for this privilege.

3. How much are the closing costs?
Your mortgage comes with a hefty price tag – closing costs. They can include fees for application, appraisals, home inspection, survey, credit report, title insurance, underwriting and processing, and attorneys. The mortgage lender must provide a Good Faith Estimate, which details all these fees, within three days of your application. During your initial call, ask if they can waive some of these fees. It never hurts to ask.

4. What will my monthly payment be?
How much will you have to pay each month? Will that amount include escrow for property taxes and homeowner’s insurance? Some lenders will let you waive escrow for a small cost. But you need to know your monthly obligation in advance to make sure it fits comfortably into your budget.

5. Is there a pre-payment penalty?
If you want to refinance or pay off your loan early, you don’t want to get charged a fee. Make sure your loan has no early pay-off penalties.

6. What’s the minimum down payment?
Most lenders require a 20 percent down payment to close; but there may be programs available that allow you to put down less.

7. How long will it take to process my loan?
When rates are low, there may be an increase in applications. There may be other delays, like waiting for an appraiser, or extra due diligence that the bank must perform in the aftermath of the mortgage crisis. Each loan officer should have a good idea how long your loan will take to close, information that’s especially crucial when deciding whether to lock in a rate.

These seven questions will serve as a guide when speaking to mortgage lenders. Remember that you’re the customer – and although the customer isn’t always right, she’s always vital for the lender to stay in business.

Here is a quick update about the bond market.

It’s now earning season. The earnings are not bad and the banking industry is getting a lift earlier today in the stock market. But the economy needs to create jobs.

Bernanke testifies today and tomorrow at Capitol Hill. The stock market tanked after his statement that the economic outlook is “unusually uncertain”. As a result, the bond market went up sharply. Check out the intraday chart of the Fannie Mae 30-year bond (4.5 coupon). The red circle is the sharp rise after Bernanke’s statement was released.

Technically, the bond market is in an up trend. Here is a chart of Fannie Mae 30-year bond (4.5 coupon):

The two red lines represent the range that the bond is trading in. Thanks to Bernanke, the bond closed above the upper line, which is good news for those looking for lower interest rates. The bond is inversely proportional to mortgage rate (when one rises, the other falls).

Here is an explanation of this bond from Trulia.com :

Fannie Mae Rates are determined by pricing and yields on Fannie Mae Mortgage Backed Securities.  Simply put these are bond issues backed by Fannie Mae Mortgages.

There are various Fannie Mae Mortgage Backed Security coupons being traded daily and they are 4.0 coupon, 4.5 coupon, 5.0 coupon, 5.5 coupon, and the 6.0 coupon.  These investments are traded just like regular stocks and bonds on Wall Street.  The buying and selling of these Mortgage Backed Securities will determine how secondary pricing deparments will determine current daily pricing which will determine available fannie mae mortgage interest rates.

When traders start buying up Fannie Mae Mortgage Backed Securities the price increases and the yeild decreases.  This will typically spur the secondary pricing departments at various lenders accross the county to increase the pricing at a particular rate, or improve rates.  The actions they take depends on the net price increases on the underlying Fannie Mae Mortgage Backed Securities at a particular coupon rate.

The opposite is also true when traders start selling off Fannie Mae Mortgage Backed Securites forcing secondary to decrease pricing on delivery of a particular Fannie Mae Mortgage Rate, or increase Fannie Mae Mortgage Rates.  Again, their actions depend on the net price decreases on the underlying Fannie Mae Mortage Backed Securites at a particular coupon rate.

By Kirk Haverkamp, Published: June 30, 2010

What are your chances of refinancing your mortgage? Is it going to be a struggle if you’ve got a starter home at the lower end of the market? Are banks more willing to work with someone who has a pricey, custom-built home?

Not necessarily. On both counts.

The price of your home or size of your mortgage really doesn’t have much effect on your ability to qualify for a refinance, even in the current market. Unless you’re getting up into the jumbo loan range, which has its own rules, mortgage professionals say lenders still treat all price points pretty much the same, as long as the borrower meets other qualifications in terms of equity, credit scores and the like.
 
Home values a major obstacle
 
That being said, there are some particular challenges facing homeowners at the lower end of the market these days. And even well-off homeowners can have problems if they can’t convince a lender their upscale home is worth what they think it is.
 
“People at the lower end of the market are the ones right now that are having big problems with value,” said Richard Shapiro, co-owner of Asset Mortgage Group near Boston, Mass.  “If we’re losing deals, it’s really because of value.”
 
Shapiro and others said the decline in home values over the past few years has hurt homeowners at the lower end of the market the worst when it comes to refinancing a mortgage. Many of them tend to be first-time homebuyers who put up only minimal down payments and have not owned the homes long enough to put a significant dent in the mortgage, so when home prices collapsed, their equity was wiped out.
 
Homeowners in the mid- to upper levels of the conforming loan market, on the other hand, are more apt to be repeat homebuyers who’ve had time to build up equity as they moved up to nicer homes. They also tend to have better credit and more financial resources than first-time homeowners, which makes it easier for them to qualify as well.
 
Risky loans hurt first-time buyers
 
Many of the lower-end borrowers also tended to be the people who took out the riskiest loans, as lenders reached far down the underwriting curve to qualify marginal borrowers for mortgages during the housing boom, according to Brian Brady, a mortgage adviser at World Wide Credit Corporation in San Diego, Calif.
 
“A lot of people who got in at the lower end of the market were the victims,” Brady said, noting that anyone who got in at the lower end of the southern California market five years ago “got wiped out.”
 
The easy credit also had an effect on prices and eventual price declines, Brady said, so that homes toward the lower end of the market tended to depreciate more than those in the middle ranges, which held their value better.
 
Brady said most of the refinances he sees these days tend to be in a “sweet spot” from $400,000-$700,000 – high enough to avoid the severe depreciations of the lower end of the market, but below the cutoff for jumbo mortgages, which present their own set of challenges.
 
Unique homes harder to refinance
 
One of the biggest challenges main challenges in refinancing a mortgage at any price point these days is being able to find comparable sales on which to base a valid assessment.
 
“That can be difficult for a big or small house,” said Joe Ramis, of Inlanta Mortgage, a multistate lender based in Waukesha, Wis.
 
Having a unique home can make it difficult to obtain comparable sales on which to base an assessment. Ramis gave as an example a home valued at over $300,000 in a rural Wisconsin town, where finding comparable sales could be a real challenge.
 
 “Most rural Wisconsin towns don’t have homes that big that would attract that kind of buyer,” he said.
 
“Common” homes easier to assess
 
On the other hands, homes in towns or neighborhoods with lots of other homes of comparable size and amenities nearby are relatively easy to refinance because there tend to be plenty of comparable sales for determining an accurate value.
 
“It’s not necessarily high-end or low-end, it’s what’s selling around you and how common is your house?” he said.
 
Regardless of circumstances, Ramis said each refinance these days has to be thoroughly and fully documented, with information on credit, income, appraised value and all the other factors used to underwrite the loan. It doesn’t matter if the refinance is at the low- or high end of the market.
 
“What’s interesting is, each deal has a life of its own,” he said. “You have to look at each person’s status and their entire situation. There’s not the slam-dunk deal and it’s good anymore.”

Home Loan Rates and Consumer Confidence

February consumer confidence index was released this morning and it was not good for the economy but good for mortgage rates. The index dropped 11 points since last month. This comes at the heel of gains for three straight months. What made matters worse was that the expectation before the release was a drop of less than a point, so the outcome of this news caused the stock market to drop around 1%.

Let’s take a look at a chart of mortgage bond (FNMA 30-yr, 4.50%):

Remember that bond is inversely proportional to mortgage rate, which means that one goes up and the other goes down.

Notice how today’s bond price rose  (the last green bar on the right-hand-side) after the consumer confidence index was announced.

As for the technical analysis of this bond action, the bond is hitting the resistance set by the 10-day and 30-day moving average. Also, a triangle formation is in place (two red lines) so the short-term trend is going to be determined by the direction of the break of this triangle formation.

Only 30% of a mortgage community says that they are advising their clients to lock-in the rate.

Reasons why you should get a mortgage NOW – part II

Mortgage interest rate of 6%?

In this part of the series, I would like to simply quote from an article written by Kirk Haverkamp that was written on February 4, 2010. I mentioned this article in part I of this series. The title of this article is “Window of Opportunity Closing for Home Buyers?”. You can find this article here on this website.

The reason that I am quoting from this article is not because I am lazy (although I can’t totally deny it either ), but it is because I can’t add anything more to it. This section that you will see below expands on the Fed actions in April 2010 and the implications for mortgages (you can read what these actions are here).

It is in this quote that you will read why some suspect the mortgage interest rate can hit as high as 6% by the middle of 2010.

Here is the quote:

The $8,000 first-time homebuyer and $6,500 repeat homebuyer tax credits can only be taken on homes for which sales contracts are signed by April 30, though buyers have until June 30 to actually close the sale. Congress already extended and expanded the credit after it was originally due to expire last November; there doesn’t seem to be much support for extending it again, so if you miss the April 30 deadline, you’re probably out a luck on this one.

A potentially bigger impact will occur on when the Fed buys the last of $1.25 trillion in mortgage securities it has been purchasing over the past year. Also scheduled to conclude on April 30, the program has been credited for driving mortgage interest rates to record lows in the spring and again in the fall of 2009, and keeping them at or below 5 percent for most of the year.

Though 30-year fixed rates held steady around 5 percent through Jan. 2010, most observers expect them to rise sharply once the Fed purchase program concludes. Many observers expect rates to almost immediately shoot up to 6 percent and hold there, an increase of a full percent. On a $250,000 30-year loan, that 1 percent translates to an additional $150 a month, or $1,800 a year.

Finally, in early April the FHA is increasing the mortgage insurance premium it charges on all loans by half a percent, from 1.75 percent to 2.25 percent. A onetime fee charged upfront at the time of closing, it means that the premium on a $150,000 FHA loan would increase by $750, to $3,375. However, this only applies only to borrowers seeking an FHA-backed loan, although those are making up a larger share of the market.

End of quote.

Reasons Why You Should Get a Mortgage NOW

First, Federal Reserve Chairperson Bernanke made a statement this morning that outlines the Fed’s exit strategy from the historic low interests that we’ve been seeing recently. Of course, no actual timing was given; the possibility of raising rates depends on “economic and financial developments”.

Although an exit strategy is necessary, but the timing of its release has made people guessing as to the actual timing of raising rates. There are some that take Mr. Bernanke’s words literally: at the rate of economic recovery, the rate will remain low until 2012. There are those who are less optimistic about having low interest rates for too much longer and believe that the Fed will push the rates higher later this year.

I do not know how much longer we will enjoy this historic low mortgage rates, but the fact that the Fed has begun to mention the exit plan is a signal that you should not unnecessarily put getting a mortgage on hold. If you are considering a mortgage for home purchase or refinance, you must get the process started.

Read more about Mr. Bernanke’s statement.

Second, there is an article published on Feb 4, 2010, which can be found in “Latest Mortgage News” under “Free Toolbox” on this site, that gives more reasons for not letting low-interest-rate mortgages slip away. In April of this year, the income tax credits for eligible homebuyers will expire. The Fed will no longer purchase mortgage-back securities, which has helped in keeping the rates low for mortgages. Also, FHA will increase the insurance premium on the mortgages that it insures.

Obviously, we do not know when the Fed will actually raise the rates, but again, if you are considering a home purchase or refinance, unless there are valid reasons why you’re putting it on hold, you really should start taking steps to get a mortgage.

Stay tuned for part II…

Here is a brief analysis of the mortgage market. I will focus on both fundamental and technical analysis.

There are many ways to analyze the fundamental aspects of the mortgage market and today I will look at one aspect: the ISM services index. This index gauges expansion/contraction of the non-manufacturing or the service sector. This is important because over 80% of the US non-farm employment is consisted of service jobs. If this sector is expanding, then we can expect higher mortgage interest rate including home loans.

Here is the history of this index:

The trend of the index since November 2009 has been going up, which signals potential expansion. The index sits at 50.5. The benchmark is 50 (expansion above 50 and contraction below 50). We are now slightly above 50. The other thing that we need to look at is the consensus, which has expected 51, so whatever little expansion there is, it falls short of consensus.

In short, as far as the mortgage market is concerned, it is still sitting on the fence.

Let’s take a look at the technical picture:

This is a one-month chart of the FNMA 30-yr bond, which is inversely proportional to mortgage rate (when one rises, the other falls). You can see how this bond has pretty much formed a straight line in the last ten bars and it has been held by the 100-day moving average (yellow line). Let’s wait and see whether it can break above the 100-day MA, which will signal a drop in the mortgage interest rate. We belong to a community of mortgage brokers and many of them give their opinions whether they will advise their clients to lock-in the rate or let it flow. You can see today’s poll result in the bottom-right-hand corner: 100% say lock-in the rate.

What do you think which direction will the mortgage rate move?

The Challenge of Home Value for Buyers and Mortgage

One of the biggest challenges in shopping for homes is estimating home values. Needless to say, overpaying for homes can be very costly not only in terms of mortgage amount, but interests over the lifetime of the home loan. As internet technology continues to expand, there are many web tools that offer online home data and home value estimates.

Clearly, these web tools provide an advantage to the buyers by providing them with essential data and keeping them from overpyaing for homes. There are disadvantages as well. The only estimates are not always accurate, especially during volatile real estate market as the one that we are in right now. The psychological effects can be quite complex. If a buyer sees the listing price as higher than the online estimate, naturally the buyer is less inclined to make offers that are higher than the online estimate even if the home is worthy that much. On the other hand, if the listing price is lower than the online estimate, the buyer can become suspicious of the home conditions and wonders if there is any wrong with that house.

So what should you do? Overpaying for homes with larger than necessary mortgage is costly, but one has to remember that estimating home value is not pure science with compex algorithms; it is an (subjective) art as well. If the home appeals to you and you can see your family living there for years and have your children grow up there, that is worth quite a bit though it’s hard to dollarize it.

In summary, use online tools as references.

Here are some popular websites for home buyes:

zillow.com
trulia.com
redfin.com (a broker site)
ziprealty.com (registration is required)
cyberhomes.com
eappraisal.com

Sorry for not blogging since early December. As the holiday approaches, I have been trying to push through mortgage applications before people start taking days off from work. Meanwhile, many things have happened that will affect mortgage interest rates. I personally find everything to be quite confusing because we are getting different economic signals.

On 12/4 the November unemployment data came in very bullish: it has fallen back to 10% and job losses have shrunk to the lowest level in nearly two years. Not surprisingly, the FNMA 30-year bond, which is inversely proportional to mortgage interest rate (one drops and the other rises), dropped on the news (see blue circle below). It dropped even further before the fed meeting this past week. This is not good for mortgage interest rates.

After the fed meeting on 12/16, although the interest rate was left unchanged, the fed statement pointed to a more optimistic view of economy recovery. Many are looking past fed’s decision of leaving the interest rate unchanged and looking toward possible higher interest rate in the future.

Do all these developments mean that the mortgage interest rate may rise soon? Probably!

The confusion comes in this morning (12/17) when “the initial claims for jobless benefits rose 7,000 to a seasonally adjusted 480,000 in the week ended Dec. 12. Economists had expected claims would fall by 9,000.” This has caused the FNMA 30-year bond to rise this morning (see red circle below). Of course, the weekly data is not as important as the monthly, but it does cause confusion as to the future fate of mortgage interest rate.

The screen shot that I have inserted below is taken from a proprietary program that we use to track the changes in mortgage rates. This allows us to inform our clients when their target interest rate is reached so that they can lock in the rate.

If you would like for us to analyze whether refinance is right for you at this point, give us a call at 1-888-484-3783 and we will send you analytic reports that will help you make informed decisions.