Jacksonville's Home Loan and Mortgage Broker

If the unfreezing of credit is paramount to an economic rebound, the first signs of a thaw may be here.

Monday, the Federal Reserve released its quarterly survey of 84 member banks. In it, the Fed says that fewer than half of its responding banks tightened “prime” mortgage guidelines over the last 3 months.

This is good news for active home buyers and other Americans in want of a new mortgage.

“Prime” is a vague term with respect to home loans, but it usually refers to mortgage applicants who can document:

• Equity or downpayment in a home
• Credit scores over 740
• Excessive income versus debt

In looking at the Fed’s survey, we can infer that because less than 50% of banks made credit less available, more than 50% did not. Borrowing may not be easier for prime borrowers, in other words, but it’s not harder, either. Count this as a small victory for the housing market.

All of this said, however, guidelines remain restrictive.

In the 12-month period beginning late-2007, banks continuously clamped down on low credit scores, low downpayments, and high debt-to-income levels. In addition, Fannie Mae added new fees based specific loan traits and second mortgages practically vanished from the marketplace.

The cumulative outcome of these actions precludes many Americans from participating in the current Refi Boom. However, if the trend reported by the Fed continues, lending may open up a bit later this year, providing a boost to housing and to the economy.

Experts believe that the tightening of credit helped create this recession. The loosening of credit, therefore, may be the way out.

Consumer confidence reached an all-time low and 100,000 Americans were issued layoff notices last week, each playing a role in the mortgage market’s relative worsening.

For the third consecutive week, mortgage rates rose and average loan fees increased, too.

Amid all of the negative economic news, however, there were two bright spots worth identifying and discussing. They show that country may be closer to economic recovery than expected.

First, the supply of “used” homes for sale fell from 11 months to 9 months nationwide. This suggests that homebuyers are re-entering the housing market in force, a signal that home prices are nearing equilibrium.

And, second, the nation’s GDP — a measurement of the country’s complete economic footprint — didn’t fall by nearly as much as what the experts had predicted. A positive surprise like this makes us wonder about what else the Doomsday Economists may be wrong.

We won’t have to wonder long.

With this week comes copious amounts of data, legislation and rhetoric to influence mortgage rates. Some of the news-bites that mortgage markets will digest this week include:

• The Personal Consumption Expenditures Index report. PCE is a preferred inflation measurement and inflation is the enemy of mortgage rates. A high reading will pressure mortgage rates up.
• Retail stores report on same-store sales.
• The Pending Home Sales report. This notes the number of “homes under contract” and is a good gauge for buyer interest and the general health of housing.
• 20% of the S&P 500 firms will report earnings.
• Congress is expected to vote on the Stimulus package.

The biggest impact on rates, however, could come on Friday with the release of January’s jobs report. Employment data is always market-mover and with the press giving so much attention to layoffs lately, expect Wall Street to be extra jittery it.

Markets expect the economy to have lost a half-million jobs last month.

Super Bowl Weekend traditionally marks the start of the Spring Buying Season in real estate. Anecdotally, real estate agents will tell you that buyer activity tends to tick higher at this time of the year.

Meanwhile, with mortgage rates still trolling near all-time lows and Congress debating a first-time homebuyer tax credit, 2009 may bring out even more buyers than we’ve seen in the past.

Just having your home on the market may not be enough to attract an offer, though — the home has to have appeal. That brings us to home staging — the process by which a homeowner re-organizes and re-presents his home to appeal to as many potential buyers as possible.

Home staging is part-science, part-art, and part-psychology. Homebuyers tend to judge homes within the first 8 seconds of seeing them so making a quality first impression can mean the difference between getting multiple bids, and just getting a lot of foot traffic.

The 4-minute video gives some quick-and-easy tips, including:

• Create more light in the home
• Clean up the closets and thin them out
• Remove the clutter from every room in the house

Even though home inventories are falling, supplies are still higher than in previous years. Home sellers wanting to stand out in a crowd may want to consider staging their homes to help them sell more quickly.

Staged homes sell for as much as 17% more money and as much as 40% faster than non-staged ones.

The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged today. It remains within a target range of 0.000-0.250 percent.

In its press release, the FOMC reiterated most of the key points from its December 2008 statement, including:

• The U.S. employment outlook continues to deteriorate
• Consumers and businesses continue to cut spending
• The housing sector is still showing weakness

In addition, the FOMC addressed the “extremely tight” credit conditions for U.S. households and business, even as it said some financial markets are showing signs of improvement.

To the Fed, the latter is a precursor for the former. For Americans needing new mortgages or other forms of credit, it may mean that getting approved gets easier sometime late this year.

Most importantly, the Fed’s press release again mentioned the policy-setting group’s intention to “employ all available tools” to promote economic growth. This includes the open-market purchasing of mortgage-backed debt that has helped fuel the current Refi Boom. The Fed indicated a willingness to extend the program beyond the initial $500 billion, if necessary.

For each of the Fed’s interventions, though, there is a trade-off.

Buying securities costs money and the Fed — literally — comes up with the cash by printing it. The extra supplies devalue the U.S. dollar which, if left unchecked, can cause the Fed’s plan to backfire in the form of runaway money supply-led inflation. The Fed is aware of this risk and is pledged to monitoring it closely.

Overall, mortgage rates worsened today after the Fed’s statement.

Source
Parsing the Fed Statement
The Wall Street Journal Online
January 28, 2009
http://online.wsj.com/internal/mdc/info-fedparse0928.html

The Federal Open Market Committee adjourns from its 2-day meeting today.

The monetary policy-setting group is expected leave the Fed Funds Rate within its current target range of 0.00-0.250 percent.

This is the lowest range for the Fed Funds Rate in history and, frankly, there isn’t much room left to go lower. Therefore, markets aren’t really concerned about what happens to the benchmark lending rate today.

Instead, markets will focus on the Fed’s ideas to revive the U.S. economy.

In its post-FOMC press release last month, the Federal Reserve pledged to “employ all available tools” to get the economy moving in the right direction. At the time, some of those tools were already in play, including making direct loans to large companies and buying bad debts from commercial bank balance sheets.

And since that meeting, the Fed has put its money where its press release is.

Early this year, the Fed started a program to buy $500 billion in mortgage-backed debt and those ongoing purchases are part of what’s keeping mortgage rates relatively low. The Fed has since made it easier for member banks to borrow money, too.

Each of these steps is meant to pour gas into the U.S. economic engine and the Fed is pledged to keep trying new approached until something works. And this is what mortgage markets will be concerned with today.

If the Fed’s next stimulus plan is deemed ineffective or too costly for its own good, mortgage markets will likely sell off, causing mortgage rates to rise. The jump could be somewhat sudden because Fed announcements are often met with emotional, knee-jerk reactions.

By contrast, if the Fed’s next steps are deemed on target, expect mortgage rates to fall only slightly. To some extent, this outcome is already priced into rates as of this morning.

The FOMC’s official press release hits at 2:15 PM ET.

Don’t let the plunging median sales price fool you — December’s Existing Home Sales data has home sellers smiling.

Just one month after falling below the 5-million unit trend line, sales volume roared back by 300,000 homes in December, surprising housing analysts and making a case that this spring’s Buying Season could be a competitive one.

Falling home prices helped fuel home sales. Nationally, the median sales price — the point at which half of all homes sold for more and half sold for less — was $175,400, down $32,000 from last year.

However, the most important part of December’s Existing Home Sales report isn’t making headlines.

At December’s sales pace, it would now take 9.3 months to exhaust the existing home supply. Last month it was 11.2 months. This means that buyers are competing to purchase fewer homes which, in turn, puts upward pressure on home prices.

This is Supply and Demand at its most basic definition.

Economists have long said that the keystone of housing’s recovery will be rebalancing in home supply. Coupled with the all-time low in housing starts, December’s Existing Home Sales data signals future strength.

Mortgage markets deteriorated last week on the heels of weak economic data and uninspiring corporate earnings.

Mortgage rates rose for the second week in a row. They’re now measurably higher than the low point set 3 weeks ago.

For mortgage rate shoppers, though, last week’s most important stories weren’t necessarily last week’s most reported stories; the most obvious of which was soon-to-be Treasury Secretary Tim Geithner’s assertion that China may be manipulating its currency.

This assertion poses risks to mortgage rates because China is one of the largest buyers of U.S. mortgage-backed bonds. Its ongoing bond buys helps keep mortgage rates down. But an angry China is less likely to buy U.S.-backed debt and that would pressure mortgage rates hgiher. Said China of the Geithner remarks, we’re angry.

Other mortgage rate-altering stories included:

• Corporate weakness at GE, Microsoft, and nearly every U.S. bank
• Concerns that political in-fighting could derail a stimulus plan
• Mounting job losses in nearly every economic sector

In addition, just to show how backwards markets are right now, in “ordinary” times, economic weakness often leads mortgage rates lower. In this market, however, it’s having the opposite effect. Whenever the economy looks sour, mortgage rates seem to rise.

Americans in want of a mortgage have been at the mercy of Wall Street’s fickle sentiment lately. It’s a nerve-racking place to be.

This week, markets hope to be calmed. There’s a handful of news releases including Existing Home Sales, New Home Sales and consumer confidence surveys that will help paint a clearer picture of the economy, but the Federal Reserve’s 2-day meeting should steal the spotlight. The Federal Reserve is expected to hold the Fed Funds Rate at its current range of 0.000-0.250 percent.

However, the Fed Funds Rate is somewhat of an afterthought this week. Markets are more concerned with what the Fed will be doing to loosen bank lending nationwide.

Markets will evaluate the Fed’s response and if they deem the stimulus to be too large (or too small), mortgage rates should rise. If the Fed’s moves are “just right”, look for rates to fall.

The Federal Open Market Committee adjourns at 2:15 P.M. Wednesday.

When a homeowner sells his home and decides to buy a new one, there are 3 basic options for the residence — sell it, keep it, or rent it.

Unfortunately, no matter which path they choose, move-up homebuyers in need of a new conforming mortgage will find qualifying for a home loan to be more difficult this season than in the past.

Mortgage guidelines are dramatically tighter for people “carrying two mortgages”.

Among the changes this spring’s buyers face:

Selling the primary residence
If you plan to close on your new home prior to the closing of your existing home — even if it’s only by a day — both payments must be listed as monthly debts on your mortgage application. This will disqualify the majority of homebuyers.

Converting your residence to a second home
If your current home has less than 30 percent equity in it, your mortgage application for the new home will not be approved unless you can show 6 months worth of mortgage payments + taxes + insurance in reserves for the current home and new home combined.

Converting your residence to an investment property
If your current home has less than 30 percent equity in it, any rental income derived from a tenant is disallowed on your mortgage application for the new home. You must still count the mortgage payment + taxes + insurance as a monthly debt.

In other words, being a move-up buyer isn’t as simple as it used to be. New lending rules make buying a new home an exercise in timing and financial planning. And the rules are expected to get tougher, too.

Therefore, if you expect to be a move-up buyer in the next 12 months, consider moving up your timeframe or — at least — planning ahead for it.

Understanding the new mortgage landscape and how they can influence your upcoming purchase may be the difference between getting approved for a home loan, and getting turned down.

weekly mortgage rate survey. The Freddie Mac survey showed that mandatory mortgage fees rose last week, too.

Unfortunately, the bad news for rate shoppers doesn’t stop there.

Because Freddie Mac’s rate survey is conducted on Tuesday but its reports aren’t released until Thursday, the published data doesn’t even account for the previous 48 hours of activity in which rates and fees have risen further.

Versus last week, 30-year fixed, conforming mortgage rates are up 0.16% on average nationwide. On a $200,000 home loan, this equates to a roughly $20 extra per month, or $7,055 over the life of a 30-year loan.

The Era of Low Rates may not be over, but it may be time to get off the fence.

(Image courtesy: Freddie Mac)

The S&P/Case-Shiller Home Price Index is a popular measure of domestic home prices, released monthly.

The index reports on the largest 20 U.S. markets, painting a broad picture of real estate values nationwide.

Despite the Case-Shiller Index’s two obvious flaws — (1) it only counts repeat sales on single-family residences, and (2) it only includes 20 major housing markets — the model is helpful in identifying broader real estate trends in our nation’s largest cities.

But data is just data. Sometimes, it takes a good picture to bring it all home. Enter The New York Times.

On its website, The Gray Lady posted an interactive Case-Shiller graphic. For each of the 20 cities studied, users can compare how home values rose versus the national composite throughout the early part of the decade, and how values have fallen since.

Not surprisingly, of the 20 cities that showed stable growth pre-2006, nearly all are outperforming in the current real estate climate.