Archive for June, 2008

Comments Off on Looking Back And Looking Ahead : June 16, 2008

Looking Back And Looking Ahead : June 16, 2008


Mortgage rates moved higher last week on lingering concerns about inflation, the fourth straight week in which rates rose.

Mortgage rates are now as high as they’ve been since October 2007.

Because inflation devalues mortgage bonds, market players are quick to unload them when signs of inflation are present.

Last week, there were several such signs:

  1. The American Consumer is spending undettered despite economic uncertainty
  2. The Cost of Living is rising faster than expected
  3. The Federal Reserve reports that some business are passing higher costs on to consumers

Hence, the higher mortgage rates.

This week, only Tuesday registers as a “big data day” with reports on housing, productivity, and Producer Price Index — the “Business Cost of Living” report.

There will be four members of the Federal Reserve speaking, though, and that will add some volatility to the market. Fed Chairman Bernanke is among the speakers, addressing Congress this morning at 10:00 A.M. ET.

So, expect mortgage rates to continue to jump and dip this week, taking their cues from inflation. More inflation means higher rates and a slowing economy should cause rates to retreat.

Comments Off on Guess Which 4 States Accounted For More Than 50 Percent Of May 2008 Foreclosures

Guess Which 4 States Accounted For More Than 50 Percent Of May 2008 Foreclosures


California, Florida, Arizona and Michigan account for more than half of the foreclosures in the U.S. in May 2008RealtyTrac released its most recent foreclosure statistics and if you only read the headlines, you think the entire country was on the verge of losing its homes.

The underlying data tells a different story, however.

More than half of the country’s foreclosure activity in May 2008 was tied to just 4 states in the union:

  1. California (28 percent)
  2. Florida (14 percent)
  3. Arizona (5 percent)
  4. Michigan (5 percent)

In other words, the majority of mortgage defaults are coming from a small minority of states.

See, between 2002 and 2006, California, Florida and Arizona were very popular with real estate speculators, many of whom over-extended themselves on real estate; and Michigan’s economy has been decimated by job losses in the auto and manufacturing industries.

In addition, these 4 states are among the nation’s most populous. It makes sense that they are distorting the national statistics.

On a local level, the news is not so grim. Not only did 20 states show a reduction in monthly foreclosure activity, but many more fell below the national foreclosure average. That type of story, though, doesn’t make for good headlines, is all.

Search the full May 2008 foreclosure report for yourself on RealtyTrac’s Web site.

Comments Off on Cancel Your PMI Before It’s Too Late To Cancel It

Cancel Your PMI Before It’s Too Late To Cancel It


Forgetting to cancel PMI when your home loan falls below 80 percent LTV is a waste of moneyWhen homeowners borrow more than 80 percent of a home’s value, mortgage lenders often require a corresponding insurance policy called Private Mortgage Insurance.

PMI provides a cash payment to lenders in the event of a homeowner defaults.

But because PMI policies are designed for high LTV loans only, they usually contain cancellation options for when home equity percentages reach 20 percent or more.

In other words, PMI can be temporary.

There is a caveat, however: Lenders will not automatically remove mortgage insurance when LTV falls below 80 percent — the onus is on the homeowner to initiate a formal request.

Earlier this decade — when home values were soaring — many PMI-paying homeowners recognized their equity growth and successfully petitioned out from PMI.

Many other homeowners, however, forgot.

So today, as home values stagnate or depress in different U.S. markets, homeowners eligible for cancellation may find that both their home equity and their right to cancel have vanished.

PMI helps makes high LTV loans possible, but there’s no reason to pay it longer than necessary. If your current mortgage requires PMI payments and your loan-to-value lurks below 80 percent, contact your mortgage lender to start the PMI cancellation process.

Or, if you’re unsure about your home’s value and the 80 percent threshold, call or email me anytime and I can help you connect with somebody to give you the answers you need.

Comments Off on Is The Federal Reserve Telegraphing Its Next Rate Hike?

Is The Federal Reserve Telegraphing Its Next Rate Hike?


The Federal Reserve is stumping hard on inflation this week, creating speculation that Fed Funds Rate hikes may be in store for later this month.

This is a counter-intuitive development because increases to the Fed Funds Rate are typically associated with periods of rapid economic expansion.

Lately, we’ve seen anything but.


Despite the downbeat news, though, multiple Fed members are taking a hard line on inflation, adding that a strong dollar support the economy and help to offset high oil prices.

A rate hike could help accomplish that goal.

If the Federal Reserve votes to raise the Fed Funds Rate, Prime Rate will rise in tandem. Prime Rate is the basis of interest rates for credit cards and home equity credit lines. Holders of each debt type, therefore, would face higher monthly payments.

Mortgage rates, by contrast, would be expected to fall, but how the market would actually react to a rate hike is anyone’s guess.

The Federal Reserve meets 8 times annually. Its next meeting is a two-day affair beginning June 24.

Comments Off on Why Your “Dear Seller” Letter May Be Met With A “Dear John”

Why Your “Dear Seller” Letter May Be Met With A “Dear John”


Several years ago, when homes sometimes sold within hours, prospective buyers often drafted “Dear Seller” letters, an accompanying personal note to help purchase offers stand out in a multiple-bid situation.

Today, some buyers are writing a different kind of letter to win a seller’s favor — a letter explaining why the buyer’s offer is so far below the seller’s asking price.

You can’t blame buyers for trying to explain themselves, but after reading this tongue-in-cheek piece from The New York Times, it’s clear that real estate negotiations between a buyer and a seller are simply a matter of perspective.

Whereas a buyer may use Fear to get his price, a seller may counter with Hope.

The article drafts a buyer letter and a suggested seller response. Both letters are powerful and persuasive, and hint at the real truth in real estate — that reaching a purchase price agreement is only as difficult as finding a buyer and a seller committed to working together.

And that match happens every day in every city in America — even the ones in which the housing market is reeling the most.

It’s been said that a listing price is just a starting point for conversation, but if that conversation starts with “Dear Seller” and the seller is feeling hopeful, don’t be surprised if you get a Dear John in response.

Comments Off on Looking Back And Looking Ahead : June 9, 2008

Looking Back And Looking Ahead : June 9, 2008


There was no rest for the mortgage-rate weary last week.

As mortgage bonds sold off early in the week, sharp rate hikes followed. A steady stream of better-than-expected economic reports had re-ignited inflation fears, drawing money from the bond market.

On Friday, however, the money flow reversed on a triple threat to the U.S. economy:

  1. The Unemployment Rate took its biggest one-month jump in 22 years
  2. Oil made its biggest one-day gain
  3. The U.S. dollar lost a lot of value

By themselves, each of these events normally would be bad for mortgage rates but the Friday combination of all three led to a huge stock sell-off and renewed demand for bonds — including the mortgage-backed kind.

Despite Friday’s reversal, mortgage rates were higher on the week, overall.

This week, there won’t be much economic data this week but there will be six Federal Reserve members making speeches to the public.

The most anticipated of the set is Fed Chairman Ben Bernanke’s address Monday evening on the topic of “inflation”. Markets will be closed when Bernanke speaks so expect a delayed market reaction Tuesday morning.

Throughout the week, markets should continue their long-standing battle between the fears of inflation and the fear of recession. It’s the same back-and-forth that we’ve seen since late-2007.

It’s also the primary reason why mortgage rates rarely stay still anymore.

Comments Off on Why It’s Good News For Home Buyers When Unemployment Rates Surge

Why It’s Good News For Home Buyers When Unemployment Rates Surge


On the first Friday of every month, the Bureau of Labor Statistics releases its Non-Farm Payrolls report.

More commonly called the “jobs report”, today’s 2-page analysis of May 2008 shows that the economy shed jobs and that unemployment surged.

This is terrific news for home affordability.

That may sound counter-intuitive, so let’s dig deeper into the jobs report and what it really tells us about the U.S. economy.

Over the last year, rising food and energy costs have chipped away at household budgets, leaving Americans with two basic choices:

  1. Spend less on discretionary items like vacations and dining out
  2. Demand more pay at work so they can vacation and dine out

If Americans choose to spend less, the economy eventually slows down because two-thirds of it is tied to Consumer Spending. This is anti-inflationary.

But, if Americans demand pay raises instead, businesses eventually pass those higher wage costs back to consumers in the form of higher prices.

This is called a “wage-price spiral” and it’s very inflationary.

So, because today’s jobs report showed unemployment surging by a half-percent to 5.5%, Americans really have no choice but to follow the “Spend Less” path — they’re not in a position to demand more pay at work.

Today’s jobs data is good for home affordability because it relieves inflationary pressures in the economy and when inflation is falling, mortgage rates tend to do the same.

Better mortgage rates mean less expensive housing payments.

Employment Situation Summary, June 6, 2008

Comments Off on What Happens When Bernanke Says “Inflation” 55 Times In 5 Pages Of Text

What Happens When Bernanke Says “Inflation” 55 Times In 5 Pages Of Text


Mortgage rates are a big deal when you’re buying a home.

With even the slighest uptick in rates, 30 years of mortgage payments can get substantially more expensive and one of the most substantial threats to mortgage rates is an economic event called inflation.

Inflation’s influence on mortgage rates is so large that markets can get jarred on just the mention of it and that’s exactly what happened Wednesday when Fed Chairman Ben Bernanke uttered “inflation” 55 times in a 5-page speech at Harvard.

The speech started at 2:45 P.M. ET and by 2:53 P.M., the damage was done.

Market players interpreted Bernanke’s remarks to mean that inflation may be worse that previously expected and mortgage rates moved up by 0.125 percent, or $8 per $100,000 borrowed.

This equates to $2,880 in extra payments over 30 years.

If you’re actively shopping for a home loan and rapid rate movements make you nervous, consider locking in your mortgage rate today; rates have been especially jumpy all year and don’t look to smooth out anytime soon.

Comments Off on The Proper Way To Give And Receive Gifts For Downpayments

The Proper Way To Give And Receive Gifts For Downpayments


When a home buyer is gifted cash for a downpayment, there is a right way and a wrong way to receive the funds.When a home buyer is gifted cash for a downpayment, there is a right way and a wrong way to receive the funds.

The right way includes:

  • Completing an acceptable gift letter
  • Documenting the withdrawal of funds with receipts
  • Documenting the deposit of funds with receipts

The wrong way is to ignore the rules that mortgage lenders clearly spell out for you.

Mortgage lenders watch gifts closely because they want to make sure that the “gift” is not really a loan-in-disguise. If it’s a loan, the total dollar amount must be counted against the home’s total loan-to-value and higher loan-to-values typically increase lender risk.

If it’s a gift, a signed and dated gift letter should accompany the home loan application. An example:

I am the [relationship to recipient] of [name of recipient] and this letter serves as evidence that I am gifting [name of recipient] [amount of gift] to be used for the purchase of the home at [complete address of property].

This is a gift — not a loan — and there is no expectation of repayment.

[Signature of donor]

For additional evidence that the gift is legitimate, the recipient should make sure that deposited funds are not commingled at the bank. If the gift is for $12,000, for example, then the recipient’s bank deposit receipt should indicate that a $12,000 deposit was made.

There may be legal and tax liabilities when gifting funds between family members so if you’re unsure about how donating or receiving a gift may impact you, call or email me. If I can’t answer your question, I can certainly refer you to somebody that can.

Comments Off on Did You Know : The Lifespan Of A Mortgage Approval

Did You Know : The Lifespan Of A Mortgage Approval


Mortgage approvals don't last foreverMortgage approvals don’t last forever.

A conforming mortgage approval from Fannie Mae or Freddie Mac has a shelf-life of 120 days.

After 120 days, the approval expires and a mortgage applicant must re-submit his application for consideration.

In addition, a mortgage approval can “expire” within the 120-day period for other reasons:

  • Change of job status or income
  • Newly-acquired monthly debt (i.e. car payment, student loan)
  • Change in asset levels

If your current mortgage approval (or pre-approval) is dated prior to February 3, 2008, it is now expired and your new approval may be subject to Fannie Mae’s new, more strict, underwriting guidelines.