Danny Salas

Archive for the 'Loan Qualification' Category

Chico, CA Interest Rates Market Report – Economic Influences – November 12, 2009

25-40-50-Day Moving Averages

As I write, Mortgage-Backed Securities (MBS) are sitting directly on the 25, 40, & 50-Day Moving Averages.  All three averages are sitting almost at exactly the same place.  We, actually, dipped below those lines, however, have rebounded and are awaiting the 30-Year Treasury Auction report. 

Auction Results Will Effect Rates

The 30-Year Treasury Auction should not fare too well.  At the cost of sounding pessimistic, it’s just difficult to have foreign investors like a longer term, when investing in these bonds.  However, to be fair, the 3-Year and 10-Year Treasury Auctions have fared well this week.  This is a somewhat encouraging sign. 

Jobless Claims Getting Better…BUT…

The other news pushing bonds and MBS down is the fact the government reported the number of workers filing new claims for jobless benefits dropped by 12,000 last week.  The four-week moving average of new claims, considered a better gauge of underlying trends, fell by 4,500 for the period.  During the latest week for which data is available (week ended October 24^th) enrollment in extended benefits programs decreased by 28,240 while the Emergency Unemployment Compensation program enrollment rose by 22,400 (somewhat offsetting the decrease).  So, while the media continues to paint a brighter picture of the labor market, I don’t see it.  Particularly coupled with the fact that the new legislation signed by Obama will extend unemployment benefits for the people not working full time.  This will definitely change the outlook of the continuing claims numbers.  We’ll keep an eye on this…

Locking

I think its prudent to lock.  Even with the level of support we have directly under us…I don’t see the 30-Year Treasury Auction surprising us, and the Labor Statistics are being received as joyous information by the media.  Stocks will benefit at the expense of bonds. 

 

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Why Buy Now…Why Rate Outweighs Price

Where’s The Bottom?

A lot of buyers seem to be, “waiting for the bottom” of real estate prices to hit before they purchase a home.  Waiting for the right deal is crucial, however, waiting too long, could hit your pocket book more than one might think.  An understanding of how interest rates effect payments, compared to how prices effect payments, could be that final “push” that a buyer needs to see, to get off the fence and buy that home, at the most opportune time.

Think Payment, Not Price

We have many borrowers who are approved and ready to buy.  They’re in the trenches, writing offers, but some get emotionally drained when they get outbid in their offers.  They have budgeted their maximum monthly payment and, perhaps, lowball every offer, when it’s easier to just consider a higher offer, with a lower interest rate.  Let’s look at an FHA purchase…

Do You REALLY Save?

A borrower desires their maximum monthly payment to be right around $1,500 per month.  This affords them a home at approximately $210,000 when rates are at 4.875% (with only 3.5% down).  So, they’ve sat on the fence, hoping that values would continue to come down.  If they wait a year, and speculate values to fall 10%, they could wait and hope to buy that home for $189,000.   A savings of $21,000.00.

Does It Make “Cents?”

What’s important to understand about the above mentioned strategy is that with the Government Mortgage-Backed Security Purchase Program’s funds drying up, and bond values starting to trade at higher yields, interest rates are inevitably moving up.  One year from today, it is expected that long term interest rates will be about 6.5%.    So, even if that home lost 10% in value, when you plug in the anticipated interest rate, your monthly payment increases.  So, where’s the “cents” in that?

Other Reasons To Buy Now

With the First Time Homebuyer Tax Credit drying up, as well, you have about five months left to get into escrow.  So, you could be throwing away an $8,000 gift from the Federal Government.   There’s 3.8% of that $210,000 home you could buy, today.  If you move now you have the tax benefits of interest and property taxes written off the income tax you’ll pay now, as opposed to a year from now.  And do not forget, long term rates are going up, even though short term rates may stay low.

Table Comparison:

	$210,000 Purchase	10% Drop In Price ($189,000 Purchase)
Interest Rate	4.875%	6.5%
Monthly Payment-P & I	$1,127.54	$1,215.54
Taxes	$218.75	$196.87
Insurance	$80.00	$75.00
Mortgage Insurance	$96.25	$86.63
Total Monthly Pmt	$1,522.54	$1,574.04

Over the life of a loan, the difference is $18,540.00.  Not to mention the $8,000 Tax Credit and the tax write-offs for a year.  Now is Definitely the time to Buy!

Related Must Reads

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4.875%  APR = 5.838% including 1.75% Mortgage Insurance Premium

6.5%  APR=7.508% including 1.75% Mortgage Insurance Premium

MDIA Changing The Seller Credit

Seller Credits Can Now Be Particular

No More Seller Credits?

Some banks’ legal departments are not allowing a bulk seller credit towards a buyer’s closing costs.  Instead, they want an itemization of each separate fee moved over from the buyer’s side of the HUD-1, to the seller’s side.  Remember, Mortgage Disclosure Improvement Act (MDIA) changes went into effect for loans that have application dates after July 30, 2009.  So, if the fee is never charged to the buyer and credited back from the seller, it’s never a buyer’s fee.  Therefore, it doesn’t effect the buyer’s Annual Percentage Rate (APR).

Beware Of Last Minute Delays

If a buyer is paying 1.0% Point for a 5.0% interest rate, it changes their APR, right?  However, if a seller pays 1.0% for a buyer’s 5.0%, it doesn’t effect the buyer’s APR, because the buyer is never charged the fee.  And, don’t forget, if you’re at escrow and have disclosed a credit from the seller, and then the bank makes you draw loan documents with no credits, only seller paid fees, it will change your buyer’s APR, and therefore, MDIA kicks in and you must re-disclose, and the buyer can’t sign documents for three days.

Writing The Offer

We haven’t seen it required, yet, however, this structure should change how you write a seller credit.  It would actually read, seller to pay 3-6% (of sales price) of the buyer’s recurring and non recurring closing costs.  Or something more particular, like that.  Not the forever used, “seller to credit 3-6% of the sales price towards buyer’s closing costs.

A Smooth Close

So, when working with seller credits, make sure your banker has disclosed the credit properly; according to their bank’s legal department, received the fees from their escrow officer, and disclosed all of these to the buyer, at least three days before the buyer is supposed to sign their loan documents.  It will create a smoother closing.

Chico, CA Interest Rates Market Report – Economic Influences – October 14, 2009

JP Morgan Chase Earnings Up

Today’s movement, in the markets, is the opposite of yesterday’s.  Stocks are enjoying the fact that Chase reported higher earnings than expected, as well as Intel.  So the Dow Jones Industrial Average is pushing 10,000.  A significant level, both psychologically and financially.  But even a push over 10,000 might cause the markets to reverse when investors cash in on their recent earnings. 

Hot Retail Sales…OR Not So Hot

Now that the “Cash for Clunkers” Program is over, Retail Sales for September fell by 1.5%.  However, the government expected a -2.1% adjustment.  Taking out auto sales, the report showed a 0.5% increase.  Better than the 0.2% increase expected.  So, why “Not So Hot?”  Even though these numbers are, “better than expected,” they’re still ugly figures.  Pre-holiday sales are showing that retailers are unable to promote any price increases, or have comfortable and sustainable growth.  These figures will show, later in the year, in the year-over-year Retail Sales numbers.  It’s one of those particulars that changes interest rates, somewhat unfairly.  Because the market interprets these numbers positively, and therefore interest rates suffer.  However, once the information has time to really seep into the market, an opportunity for rates to recover, could be lost. 

Cash For Clunkers Accounting

Looks like the government is going to use the “Cash for Clunkers” Program to take advantage how inflation is reported.  What I mean is that they are accounting for the $4,500 tax break as a discount in vehicle sales prices.  Who cares, you might ask…Seniors might!  Here’s why.  Accounting for a lower price, in vehicles, will translate into lower inflation.  If vehicles’ values are going down, that doesn’t translate to economic growth.  So, it’s kind of a brilliant way to look at things.  Lower inflation translates to lower interest rates!  However, lower inflation also saves our government money when paying social security benefits; as social security benefits are adjusted with inflation. 

Locking…

We do have some support, below us, with the 200-Day Moving Average, so, it’s risky.  But, if you have a strong stomach, you can float.  If you don’t…I’d lock.

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