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New Fed Tactic Triggers Dramatic Drop in Mortgage Rates

November 27th, 2008

This week’s mortgage news was dominated by a dramatic drop in mortgage rates triggered by a new Federal Reserve approach to the financial crisis.

Of all the actions taken to address this crisis, none has had such immediate and tangible effects. Neither lowering Fed rates nor providing direct financial support to lenders seemed to make so much as a ripple in the credit markets. However, on news of this latest Fed program, 30-year mortgage rates dropped the better part of a full percentage point, falling near their all-time lows.

The Fed has announced that it will buy $600 billion in existing, mortgage-backed debt. This move both frees up capital for new lending, and gives lenders renewed confidence to make loans. It is the latter especially that accounts for the immediate drop in interest rates.

It is worth a closer look at what this action will and won’t accomplish, but in the short term it is undeniable that it has created a rare opportunity for home buyers and people who want to refinance. 

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Bad News Has Hidden Benefits for Mortgage Rates

November 20th, 2008

There has been plenty of bad news for the economy over the past week:

Though these developments are certainly bad news in the near term, it is important to recognize how each contributes to the self-correcting nature of the economic cycle, which allows recoveries to occur. Already, consumers can see some positive side effects of economic weakness at the gas pump and in mortgage rates, and each of the above stories will ultimately contribute to the next recovery phase of the cycle.

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Thinking FHA? Think Fast–Loan Limits Drop for 2009

November 19th, 2008

FHA loan limits, temporarily raised this year as part of the stimulus package, will drop in 2009.  According to a HUD news release (and collaborated by an internal memo at a major bank), the maximum limit of $729,750 in high-cost areas will drop to a max of $625,500. And other areas will drop to 115% of the median sales price in the county but no lower than $271,050. Decreasing property values have  lowered the maximum you can borrow in many areas.

HUD has released this list of 2009 FHA loan limits but it is very hard to read. open the file, then use the ”find on this page” function (in Internet Explorer) to locate your area. The loan limit starts on the 11th character of the wide column of numbers and codes. For example, Reno NV (Washoe County) has a 2009 loan limit of $325,450 for 2009. In 2008 it was $403,750. That’s a drop of over $75,000!

So if your home is in the more expensive end of town or if you live in a high-priced area altogether you might want to get your refi done now. And while you have to the end of the year to close your loan, you’ll only have until the tenth of December to lock it if you want to get the higher loan amount.

Mixed Week for Mortgages Amid Grim Economic News

November 13th, 2008

Economic news was generally grim this week, highlighted — or lowlighted — by a sharp increase in unemployment. Unemployment figures are one of the most accurate signs that the slowdown is affecting the real economy. What’s worse is that unemployment can lead to further economic weakness, as consumer spending power is dampened.

Against this backdrop, mortgage news was mixed. Some prominent stories:

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It’s About Time: Mortgage Disclosures Get Easier

November 7th, 2008

HUD announced that after reviewing comments and recommendations from thousands of consumers and industry insiders it will be revising the Good Faith Estimate (GFE) disclosure and HUD-1 closing document–hopefully to make the fine print more understandable to consumers. The new GFE and HUD-1, which will be required beginning in 2010, come with an instructional page and should make it easier for borrowers to compare the terms of the loan they are getting with what was promised by the lender and disclosed on the GFE.

Until then, borrowers can still make these comparisons at closing. Here’s how you can make sure that you get at the closing table what you were promised in the lender’s office:

 1. Get your documents early. Tell your loan agent that you want your loan documents at least three days prior to closing. Be emphatic that you won’t close your loan unless this happens.

2. Keep copies of your original disclosures and your rate lock.  Make sure the fees are what were disclosed on the GFE and that the rate is what you agreed to lock in.

3. Remember that many times things change during the course of a loan application. Interest rates go up or down while a property is in escrow, borrowers change their minds about mortgages or things come up like credit issues which force the lender to change programs. It’s best to get new estimates in writing any time you change loans, and be sure to get a written agreement when you lock in your interest rate. Keep these  documents so you can compare them to your final HUD-1 form at closing.

4. If in doubt, ask your loan officer to attend your closing to resolve any questions.

5. DON’T SIGN ANYTHING until your questions are resolved to your satisfaction. Once you close your loan you are responsible for complying with its terms.

Until the government (hopefully!) makes it easier on us, borrowers have to take it on themselves to understand their loans before committing to them.

What Will an Obama Administration Mean to Mortgage Rates?

November 6th, 2008

By far, the dominant news story this week was the election of Barack Obama as the 44th President of the United States. While people have different ideological views on what this means to the nation, it is also natural to view any news of this magnitude through a lens of personal self-interest. For anyone contemplating buying a home, the question of self-interest that comes to mind is: what will an Obama Administration mean to mortgage rates?

Specifically:

  • What will be the impact of Obama on the current financial crisis?
  • What will be the impact of Obama’s long-range fiscal policies?

Looking at the recent news provides some perspectives on what the Obama Presidency will mean for mortgage rates, both short-term and long-term.

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First Time Home Ownership: More Than Just a Mortgage

November 3rd, 2008

With the mortgage industry being so prominently featured in the news, it’s easy to forget that a mortgage is only one facet of home ownership. And Fannie Mae in response is now requiring many first timers to get home ownership counseling before getting approved for a community homebuyer loan. Here are the things people are most likely to forget when purchasing a new home, according to Kiplinger.com.

1. It’s more than a mortgage. Home ownership involves significant costs–like taxes, insurance, and homeowners’ association dues. If you used to live in an apartment, your landlord probably picked up the cost of some utilities–like garbage pick up and water. Now, you’ll have to pay them. And your utilities may be higher as well–most people buy houses that are bigger than their old apartments, and these bigger spaces can cost more to heat and cool.

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