by Travis BeMent on April 10, 2012
When I thought about this topic over the weekend, my first thought was “The End of Low Rates.” Alas, the markets had another idea and fear in the stock market sent interest rates back down. Rates had been rising in the last three weeks or so and showed little chance of reversing course. Fears about the European crisis, however, seemed to be just the cure to keep them at bay. And even though this week may see rates go even lower, in the very near future, rates are going to start going up for good. Here are some reasons why:
- No QE3. Over the past few years, the Federal Reserve has gone beyond it’s normal policy of rate manipuilation and proceeded a step further. The process is called Qualitative Easing. In short, the Fed releases more money into the economy to bolster its rate cuts. The process has happen twice – and investors and pundits thought that another round was in store. The Fed Chairman put that to rest last week.
- Europe. Don’t be mistaken, the situation in the European economy may have more impact than our own situation. The fact is that a large number of European countries are in a serious recession. And countries like Greece and Ireland threaten to bring down even more countries. So far, that has been avoided and if that remains the case, the pressure on rates will intensify.
- Inflation. It’s a four letter word for economists. Thus far, we have largely avoided most inflationary worries but that won’t last forever. The Federal Reserve has cut rates to historic lows and pumped billions and billions into the economy. Sooner or later inflation is going to come. As inflation starts to spill out, rates will go up as a result.
Rates for the coming weeks should be relatively flat. They may fall further or they may stay steady. The stock market is in a slight correction and should keep rates in check. So go out and get your loans locked.
by Travis BeMent on April 3, 2012
The early results are in from HARP- and whether it is a success or not is based on your definition of success. From both personal and anecdotal evidence, it looks as though about 20% of eligible borrowers are going to see a benefit in the form of an actual loan approval. In Florida, upwards of 2 million homeowners were deemed eligible for the program. Those figures would seem to yield about 400,000 loans. Here are some big factors in who is and who is not approved:
- Poor credit need not apply – it would seem that borrowers with scores under 680 are not receiving approvals from the automated approval system. Also borrowers who have good scores but heavy credit use (lots of revolving debt) are finding it more difficult than expected to get approved.
- Condominiums are difficult- the biggest issue, it would seem, for approvals on condos is that the automated systems are unable to find a value for these units. A core component of the system is the ability to waive the requirement for a traditional appraisal. In truth, Fannie and Freddie are doing automated appraisals on these loans. If the system is unable to generate a value, it is more unlikely the loan gets approved.
- Shorter terms are best- many HARP applicants are finding their loan requests denied for 30 or even 25 years but getting an approval for 15 or 20 year terms.
- Income and asset documentation. The original announcements about the HARP led us all to believe that proof of income and assets would not be required. We have not seen any approvals where this is the case.
The HARP program will not, it seems, be nearly as successful as we all had hoped. And certainly 400,000 new loans in the state will help borrowers, lenders and others in the related industries. It is 400,000 loans we never would have seen otherwise. Time will tell, however, if Fannie Mae and Freddie Mac, along with investors will tweak the programs to allow for more approvals.
Rates remained steady last week but the signs are there- rates are going up. We saw rates shoot up .375% to .5% in the last month and then settle back down. The pressure remains and we need to watch them closely.
by Travis BeMent on March 27, 2012
It would probably not surprise anyone if I told them that the new HARP program is turning out to be quite a mess. It was almost expected that a huge (almost monumental) change to a government sponsored loan program would start out bumpy. Even people who doubted the program would work are probably shocked at how the program has rolled out. In short, HARP is an almost complete disaster at this point. The big problem is not, as it turns out, investors putting limits on the new loans (that is part of the problem). The biggest issue is that Fannie Mae and Freddie Mac have placed so many limitations within the loan underwriting programs. The problem has turned out to be long on promises and short actions. Here are some details:
- 15 Year Terms NOT allowed if LTV is over 105%. One of the biggest selling points was that borrowers who agreed to reduce their loan term would be incentivized with lower rates. That is true- rates for 15 year terms are great. But the software and guidelines do not allow anyone with a loan to value of over 105% to have a 15 year term. And for those who want to go from 30 years to 20 or 25, a “payment shock” cap will not allow borrowers to increase their payment over 25%, even if it improves their position AND they can afford it.
- Bad Credit Need Not Apply. Most investors are refusing to do loans for borrowers with credit scores less than 640. As it turns out, that is really not necessary. We are finding it nearly impossible to get an approval from Fannie/Freddie’s online system with credit scores under 680 and high loan to value. In short, the system simply does not intend on approving borrowers with anything other than perfect credit.
- Limited Documentation simply is not true. HARP announcements left many to believe that income and asset documentation, as well as appraisals, would not be required. We are finding that is far from the case. Every approved file is requiring the verification of both income and assets. And in some cases, the system is requiring a full approval for final approval.
It is very important to note, all the problems I have listed above are coming straight from Fannie and Freddie. Investors do have “overlays” but in many cases, it is Fannie or Freddie’s automated underwriting system that is making the determination not to approve a file. For those who are able to get approved, rates are very good. There will be a number of borrowers helped by this program but it will be far from the lofty goals. In the coming months more investors should come online, which will help get more loans done. At the end of the day, however, HARP is going to fall far short.
Rates are on the rise and are up almost .375% over their historic lows. Don’t expect that to change. The Federal Reserves easing policies could only keep rates low for so long. There will continue to be pressure on rates in the coming months.
by Travis BeMent on March 23, 2012
Orlando, Florida – Orlando mortgage lender FBC recently released The Florida Mortgage Report for February 2012. Below is a list of highlights:
- Sales prices for financed properties averaged $193,000. This is up 7% from February 2011.
- Loan amounts averaged $165,000 for the month of February which is up $5000 from January 2012.
- Refinance transactions accounted for approximately 20% of all mortgage closings. We anticipate this to increase dramatically with the release of HARP 2 and the waiving of appraisal requirements.
- Average mortgage payments continue to trend lower with rates and are averaging $1,100 per month.
“Overall market conditions are improving. Rates continue to decrease which is leading to lower monthly mortgage payments and spurring more refinance activity. Home prices continue to slowly increase as inventory decreases as more purchasers enter the market.” stated Rob Nunziata, Co-CEO & President, FBC Mortgage, LLC.
