September, 2013
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Market Recap
September 24, 2013
Existing Home Sales Rise to 6 1/2 Year High:
U.S. home resales hit a 6-1/2 year high in August as buyers flocked back to the market to lock in cheap borrowing costs amid rising mortgage rates, a signal of continued strength in the housing market recovery.
The National Association of Realtors said on Thursday existing home sales increased 1.7 percent to an annual rate of 5.48 million units last month, the highest level since February 2007 when property values began to decline after the sector’s boom and bust.
Tale of the tape:
Existing Home Sales – 5.48 million unit rate – 6.5 year high
Inventory Supply – just 4.9 months, well below the six month supply level that would indicate a strong housing market. So, this indicates a very strong market.
Median Home Price – up 14.7% to $212,100 from a year ago.
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Distressed Home Sales
– only 12% of sales, this is the lowest level since 2008!How long will the short drop in mortgage rates last? It will certainly spark even more buyer interest that missed the last drop in rates.
What Happened to Rates Last Week?
Mortgage backed securities (MBS) gained +130 basis points from last Friday’s close which caused 30 year fixed rates to move to their lowest levels in the past 30 days.
Mortgage backed securities were trading in a very narrow range until Wednesday’s Federal Reserve Open Market Committee Meeting (FOMC).
And they shocked bond traders by electing not to taper at that meeting. While, our own internal survey showed that only 20% of over 4,000 originators polled expected a taper announcement, over 80% of bond traders and hedging operators did expect a taper announcement.
So, the fact that they made no taper announcement was unexpected by traders and a shock to the system. As a result – MBS shot up just over +80 BPS just after the FOMC statement was released and then another +25BPS after Bernanke’s press conference.
Keep in mind that the Fed does not have to wait until their next meeting in December to take action. The made it very clear that it is already part of their program – that they can change the size and nature of their asset purchase program ANY time that they want. This has traders focused in on any economic news that would give the Fed enough ammunition to adjust their monthly bond purchases this year. And this week we have some very big economic reports such as GDP, Durable Goods Orders and Consumer Confidence. All of which will be very closely watched by trader.
Bad Credit? Getting an FHA Loan Just Got Easier
Here is an informative article we thought we would share.
Bad Credit? Getting an FHA Loan Just Got Easier
By Christine DiGangi | Credit.com – Tue, Sep 17, 2013 3:03 PM EDT
Homebuyers who lost their homes because of recession-induced employment cuts may be able to return to the housing market sooner than they previously thought.
The Federal Housing Administration (FHA) recently added economic events to its list of extenuating circumstances and reduced the waiting period between foreclosure and loan qualification from 36 months to 12 months.
“This will help consumers who went through housing hell — a foreclosure or short sale — to become homeowners again and take advantage of low interest rates and decent home prices in many parts of the country,” said Gerri Detweiler, Credit.com’s director of consumer education.
How FHA Loans Work
The FHA, part of the U.S. Department of Housing and Urban Development (HUD), insures mortgages to allow lenders to give borrowers affordable loans, by way of easy credit qualifications, reduced down payments or lower closing costs.
To apply for an FHA loan under the shortened timeline, borrowers must meet certain criteria: The borrower must have experienced a period of six months or longer during which household income was reduced by at least a 20%, as a result of job loss or pay cuts beyond the borrower’s control; re-established his or her credit for at least a year; and completed housing counseling.
The letter outlines the requirements in greater detail. The adjustments to the loan program were effective immediately, through September 2016.
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[Thinking about applying for an FHA loan? Click to compare mortgage interest rates from different lenders now.]
How to Qualify for an FHA Loan
Eddie Hilliard, branch manager of Integrity Home Loan of Central Florida, said he is already starting to work with homebuyers who may qualify. For the past three months, Florida has had the highest foreclosure rate in the country.
“I can’t tell you right now how many people I had to turn away over the last year, year-and-a-half, two years,” Hilliard said. “‘Sorry, you had a foreclosure in the last 36 months, can’t do it.’ Now I’m going to be making all these calls saying, ‘Hey Mr. and Mrs. Jones, guess what — the guidelines have changed.'”
Meeting the borrower criteria requires many steps of documenting your income and credit history. Hilliard recommends potential homebuyers reach out to lenders with experience in FHA loans so the process goes as smoothly as possible. For instance, a borrower must complete the mandatory housing counseling at least 30 days and no more than six months in advance of applying for a loan. That’s something to consider before the house hunt commences — timing is important.
It’s also crucial for consumers to check their progress in repairing their damaged credit. Re-established credit, according to the FHA letter, means a history clear of late housing payments, debt payments or issues on revolving accounts, and any current mortgages must show a year of timely payments. Potential homebuyers can use the free Credit Report Card to see how they’re recovering and make plans to improve their credit. You can also pull your credit report once a year for free from each of the major credit reporting bureaus.
The timing of this program may be a huge opportunity for some who thought they couldn’t buy a home for a few more years.
“Now’s the time for those who really can afford to own a home to do so, before we see interest rates and housing prices climb,” Detweiler said. “These loans can help turn renters into homeowners, which in turn helps stabilize neighborhoods and communities.”
Why the refinance boom is far from over
Here is an interesting read we thought we would share.
Why the refinance boom is far from over
Rising interest rates might slow the refinance boom, but the trend is far from finished.
When interest rates hit record-setting lows in 2012, the mortgage industry experienced the peak of a refinance boom lasting for three years. But with rates on the rise in 2013, has the boom gone bust?
Not yet, according to mortgage industry experts.
“It’s been stalled, slowed down,” says Aaron Vantrojen, state president of the Arizona Association of Mortgage Professionals. “With that being said, there are a ton of people who have haven’t refinanced for whatever reason and still can.”
Freddie Mac, the government-backed home loan agency, noted in its “2013 First Quarter Refinance Report” that refinances made up approximately 70 to 75 percent of single-family home loan originations in 2012. By the end of 2014, Freddie Mac projects the percentage of refinances will drop to about 50 percent of all loan originations.
But Frank Percival, board president of the Washington Association of Mortgage Professionals, says lingering effects of the refinance boom are still in play for borrowers looking to take out a new home loan.
“It’s not over yet,” Percival says. “It’s more of a bang than a boom. When there’s an increasing rate market, it causes some folks debating about refinancing to put the brakes on, and others take a wait-and-see approach.”
Are you on the fence about refinancing your home? If so, keep reading to find out why the refinance boom isn’t over for everyone.
Reason #1: Interest Rates Are Still Relatively Low
Sure, there’s been a lot of news about rates sky-rocketing, but guess what? They’re still near historical lows.
In fact, in its “Weekly Primary Mortgage Market Survey,” Freddie Mac says the average rate for a 30-year fixed-rate mortgage (FRM) was 4.4 percent for the week of August 15, 2013. That’s nearly the identical interest rate for the same time in 2011, when the refinance boom was in high gear.
“In the last 30 years, it’s only been in the last four that we have seen rates below 5 percent,” Percival says. “It’s definitely something people should take advantage of again. If trends follow suit, it might not be another 25 or 30 years before we see rates this low.”
Percival suggests that if you are a homeowner with a 30-year fixed-rate mortgage over 5 percent, it might be worth it to investigate whether a refinance in the current market could save you money.
Homeowners may also want to check whether getting an adjustable-rate mortgage (ARM) could save them money, suggests Percival. That’s because initial ARM interest rates are significantly lower than the rates for a FRM. For example, the interest rate for a 5/1-year ARM – according to Freddie Mac’s weekly report – was 3.23 percent for the week of August 15 (more than 1 percent lower than the 30-year FRM rate we mentioned earlier).
A refinance to this type of ARM would mean a borrower would have a 3.23 percent interest rate for five years before it would change, either up or down, depending on the market.
“If you’re not planning on keeping your loan for 30 years, maybe getting a five-year note with an ARM makes sense,” Percival says. “The potential savings or lowering a mortgage payment are huge, tremendous.”
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Rising property values, according to experts, could have a positive effect on extending the refinance boom.
“More equity means you have better pricing for a refinance,” Percival says.
Equity, as defined by the U.S. Department of Housing and Urban Development’s glossary, is “an owner’s financial interest in a property, calculated by subtracting the amount still owed on the mortgage loan(s) from the fair market value of the property.” And because property values are on the rise, homeowners are starting to find themselves in better positions to refinance.
“A lot depends on the area where you live,” Percival says, “but property values are higher than before the bubble burst.”
How much have home prices improved? Clear Capital, a provider of data solutions for the real estate industry, released results of its “Home Data Index Market Report” on August 6, 2013, and reported that national home prices increased by 9.3 percent over the last year.
“If your home value is improving, it helps create a bidding war,” Percival says. “Your neighbors will get higher-than-asking-price for their homes, and anyone who wants to refinance will go from being below market value to above market value.”
Reason #3: Government Refinance Programs Are Still Available – For Now
President Obama gave a speech on August 6, 2013, in Phoenix, where he proposed for the first time to “wind down” Fannie Mae and Freddie Mac in an effort to overhaul the two mortgage-finance companies.
Does that mean the refinance boom is over for people who might consider using government programs to refinance? The answer, according to Percival, is that Fannie Mae and Freddie Mac are currently viable options for homeowners interested in refinancing. But, their future is uncertain, so homeowners should take advantage of these programs now – when they’re still available.
So, what programs should homeowners look into?
If your home loan is owned or guaranteed through either Fannie Mae or Freddie Mac, you might be eligible for a refinance from the Home Affordable Refinance Program (HARP). According to Freddie Mac’s website, the program is “designed for homeowners who have not been able to refinance due to a decline in the value of their home.”
“These programs are crucial,” Percival says. “They might be the only refinance opportunity for some people in places where the property values have not yet increased enough (to improve their equity).”
In April of 2013, the Federal Housing Finance Agency (FHFA) announced it had directed Fannie Mae and Freddie Mac to extend HARP by two years, to December 31, 2015.
The Bottom Line
Percival suggests homeowners take a proactive approach when they start thinking about refinancing. He says it makes sense to consult with your mortgage professional on regular basis – once every three to six months or so – to see whether refinancing could help save you money.
“I think people are starting to realize the rates are still pretty good, and we’re starting to see clients come back,” Percival says. “It’s not a boom anymore, but a bang – a good bang that could turn back into a boom.”
