The Mortgage Reports Blog

Closing In May, June, July, And August Deserves Advance Planning

Between Memorial Day and Labor Day, home buyers should take special care to schedule their purchase closings with three simple rules in mind:

1. Don't close on a Friday
2. Don't close in the afternoon
3. Don't close on the last day of the month

You stick with that, the rest is cream cheese.

Myth Busted: Relationship Between ARM and Fixed-Rate Mortgages

There are a lot of mortgage myths that Americans confuse for truth.  One of them is that adjustable-rate mortgages always carry lower rates than fixed-rate mortgages. 

As the chart shows us, that's false. 

But even when ARMs are lower than fixed-rate, that doesn't mean they're the better "low payment" option.

Two weeks ago, for example, choosing a fixed-rate mortgage over an adjustable-rate one made a lot of sense.  The interest rate spread was between the loan types was 1/8 percent.

For a few extra dollars each month, in other words, mortgage lenders guaranteed unchanging mortgage payments for the life of the loan.  This can be a relatively cheap insurance policy for homeowners.

Today, however, the market looks different. 

Since the Federal Reserve hinted its rate-cutting cycle may be over, the Fixed-ARM spread has widened to 0.500 percent, and the comparison is much different.  The "fixed-rate insurance policy" is much more expensive.

Mortgage markets change every single day so before locking your ARM or your fixed mortgage rate, check with your loan officer about how each is pricing out with Wall Street.

Don't have a loan officer?  Call this guy.  I have it on good authority that he knows what he's doing.

Bankrate.com Mortgage Trend Index (May 8, 2008)

I am a regular participant in the Bankrate.com Mortgage Rate Trend survey and this week's survey is now available.

As a reminder:

1. The survey is for conforming loans only.
2. Asking "Where are rates headed?" is not strategy -- it's a gamble.  Reach out to me directly for help with a personal mortgage plan.

Anyway, on to the group's predictions for the next 30 days:

Wait! Before You Ditch That ARM, Make Sure Your Mortgage Rate Won't Be Adjusting Lower

Homeowners with ARMs often assume that they have to remortgage when their home loan reaches the end of its fixed-rate period.  They automatically think their mortgage will adjust higher and that a new mortgage could provide payment relief.

Looking at the chart above, we can see how that type of thinking can be costly.

For Truth-in-Housing, You Have To Know Where To Look

Each quarter, the Federal Reserve surveys 84 U.S. banks about demand for loan products and general banking conditions.

It's like "street reporting"; a pulse of what's really happening behind retail bank walls.  Almost always, it paints a different picture of lending from what's being reported on the news.

For example, according to April's survey results, demand for mortgages is picking up and may rebound into positive territory by July of this year.

To hear the media tell it, you'd think that the mortgage and real estate business was DUI DOA.

When mortgage demand spikes like this, we have to at least consider that consumers may be submitting mortgage applications to multiple banks at the same time but the more likely answer is that we're moving into a favorable real estate market.

It's on-the-street surveys like this tell the other side of the housing market story; the one to which business television is oblivious and about which top real estate and mortgage professionals won't stop shouting:  Homes are selling, buyers are buying, and there is a growing demand for home loan products. 

Projected over the next handful of months, the housing market may be positioning for a strong national recovery.

Source:
The April 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices
The Federal Reserve
April 2008
http://www.federalreserve.gov/boarddocs/SnLoanSurvey/200805/

3 Reasons Why Mortgage Rates May Fall in May

Last week, the Federal Reserve lowered the Fed Funds Rate by a quarter-percent but it wasn't the Fed's actions that mattered most to markets.  It was what the Fed said that did.

In its press release, Ben Bernanke & Co. specifically mentioned that:

• The U.S. economy is stabilizing over the near-term
• Inflationary threats are diminishing over the medium-term

If you are shopping for a mortgage and don't live outside the circle, the after-shocks of the Fed's press release may be the best news you hear all day. 

Just kidding.  It won't.  Just kidding.  It will.  Just kidding.  Just kidding.  Just kidding.

Bankrate.com Mortgage Trend Index (May 1, 2008)

I am a regular participant in the Bankrate.com Mortgage Rate Trend survey and this week's survey is now available.

As a reminder:

1. The survey is for conforming loans only.
2. Asking "Where are rates headed?" is not strategy -- it's a gamble.  Reach out to me directly for help with a personal mortgage plan.

Anyway, on to the group's predictions for the next 30 days:

Parsing the Fed (April 30, 2008 Edition)

The Federal Open Market Committee cut the Fed Funds Rate by 0.250 percent today.  The Fed Funds Rate is now 2.000% after the FOMC's seventh cut in eight months.

Normally, a cut in the Fed Funds Rate pushes mortgage rates higher.  So far, though, mortgage rates appear to be improving.  This is because the Fed's language hinted that the rate cuts may be over -- at least temporarily.

A "pause" puts focus on the Fool in the Shower theory.  It's something we've talked about before but if you don't feel like revisiting the concept in all of its glory, here's a summary:

Misleading Charts In The Media : Foreclosures Versus Home Prices

This is a chart from RealtyTrac's Q1 2008 Foreclosure Report.  It is misleading.

A common conclusion that people make from charts like this is that foreclosures are the cause of falling home prices.  That's false.  There may be a relationship between the two, but one doesn't necessarily cause the other.

Home prices fall when the supply of homes outweighs the demand for homes.

How The "Declining Markets" Designation Is The 2008 Equivalent Of 125% Home Loans

Using mash-up software, the graphic depicts Countrywide Home Loan's "declining markets" against a map of the country.  The brighter the "spot", the more that housing values are expected to fall in that locale.

It's no wonder that home appraisals are under tremendous scrutiny lately -- many parts of the country are considered "at-risk".

The graphic is also another representation of the same theme we've been hashing out lately: Getting approved for a home loan is more difficult for even the most qualified mortgage applicant.

It's not just the person that has to be approved by a lender now.  It's the home, too.

The Graph That Shows Why New Home Sales Are At 17-Year Lows

In the last 24 hours, every business television program and newspaper has carried some variation of the "Home sales sink to 17-year low" headline. 

It's a negative-sounding headline and it ignores basic math and statistical analysis.

First, the New Home Sales report included a margin of error that was so large the Census Bureau had to add verbiage to its footnotes that read, paraphrased: "We don't know if New Home Sales increased or decreased last month.  This is our best guess."

Second, look at the graph above.  Of course New Home Sales fell last month -- just look at how sharply Housing Starts have fallen, too.  If fewer homes are being built, it makes sense that fewer homes are being sold. 

So, instead of citing 17-year lows, the better statistic for the press to report would have been the 11.0 month supply of new homes on the market.  Because it's up from 9.8 in February, buyers may now have additional negotiating leverage with developers that want (or need) to get their unsold, newly-built homes off the books pronto.

Just because the headlines read like bad news doesn't mean that the story is bad news, too.  Dig a little deeper for the real story, or if you don't feel like doing your own analysis, let me do it for you every business day and deliver it to you by email.

Bankrate.com Mortgage Trend Index (April 24, 2008)

I am a regular participant in the Bankrate.com Mortgage Rate Trend survey and this week's survey is now available.

As a reminder:

1. The survey is for conforming loans only.
2. Asking "Where are rates headed?" is not strategy -- it's a gamble.  Reach out to me directly if you'd like expert help on your mortgage plans.

Anyway, on to the group's predictions for the next 30 days:

What International Buyers Need To Know About Today's Foreign National Mortgage Market

As the dollar slides against the world's currencies, foreign national buyers are flocking to U.S. housing market for second homes and investment properties. 

Looking at the graph, it's not hard to see why.  Since September 2007, a European's cost to buy a $300,000 property in the United States has fallen by 13 percent.

But just because prices are falling doesn't mean that buying homes is getting easier.  Mortgage guidelines have tightened for foreign national buyers just like they have for domestic ones.

Here's what foreign national buyers need to know about today's market:

What Aristotle Can Teach Us About Locking Mortgage Rates Instead Of Floating Them

Aristotle bestowed the gift of syllogism upon the world and thousands of years later, it is still believed to be the core of Western logical thought.

A simple syllogism goes like this: 

1. Mortgage bond markets are unpredictable
2. Morgage bond markets dictate mortgage interest rates
3. Therefore, mortgage interest rates are unpredictable

For as much as guys like me can have a vague idea of what can push mortgage rates in one direction or the other, there's always something that comes out of left field to surprise us. 

The syllogism says that predicting the future of mortgage rates is a waste of energy.

HELOC Repossession : Why You Should Protect Your "Insurance Policy"

As home values stagnate around the country, mortgage lenders are actively trimming their exposure to home equity.  Until recently, they've done it one of two ways:

1. They eliminated no downpayment loans (except in rare circumstances)
2. They capped second mortgages (i.e. home equity loans) at 95% of the home's value

But now, there's a third way. 

To reduce exposure to the national housing market, banks are now shutting down idle home equity lines of credit on their books.  The letter above arrived in my mailbox, for example, a few weeks back. 

A HELOC is the ultimate emergency fund for a homeowner and a receiving a letter like this makes it look like the bank is doing you a favor.  It's not.