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Monday, June 29, 2009
From the desk of:
Rich Storey
Mortgage Advisor
615-260-8028
Best way to find a home loan
Mortgage shopping has never been more confusing. The secret is knowing whom to talk to, and when.
(Money Magazine) -- When the easy money was flowing, you could get a great deal on a mortgage from just about anyone. But in today's credit-challenged world, all the avenues for finding a mortgage come with their own set of problems.
Many banks have tightened lending standards and scaled back offerings. Some banks are no longer working with mortgage brokers, who are under fire for pushing bad loans during the boom.
And while online lending sites hold the promise of one-stop shopping, some have developed a reputation for playing bait-and-switch on rates and not fully disclosing fees.
All this adds up to a major shopping hassle. If you want to get the best rate, you'll need to tap at least two of the sources below.
Scour the Web
Shopping for a mortgage online has come a long way from the days of one-size-fits-all rate listings. At some sites, including Bankrate.com, MortgageMarvel.com, and Zillow.com, you can now shop anonymously and get accurate rates. Keep in mind that all these sites act as referral services, so eventually you'll have to close the deal with a bank or mortgage broker.
Best for: If you know what kind of loan you're looking for, the Web should be your starting point; getting a handle on the current rates and fees will help you know whether you're getting a good rate when you sit down with a broker or bank officer later on.
If you're not sure what kind of mortgage you need, however, you'll want to seek counsel from a real person right away.
What to watch out for: Sites that ask for your Social Security number and address upfront. They might pull your credit report, which could hurt your score if you don't end up getting a mortgage.
Also make sure that all the fees are clearly disclosed on a site's rate quote. Otherwise you may get a sorry surprise when you receive the paperwork from a lender.
How to get the best deal: When inputting data into the online mortgage tool, don't guesstimate your income, your credit score, or other key stats. If you submit incorrect information, you probably won't get the rate that you've been quoted.
Go directly to a bank
At the height of the credit crisis, there seemed to be little point in asking a bank for a mortgage. But banks are lending these days, albeit with some caution.
Best for: Borrowers who are looking for a conforming loan (less than $417,000 in most areas), since some lenders have stopped underwriting jumbos. Also, if you're refinancing, call your current lender first: To keep you as a customer, it may be willing to undercut the competition.
What to watch out for: Novice loan officers. "In the heyday, underwriting was a matter of pushing a button," says Steve Curnutte, a former mortgage broker. "Now you have to know what you're doing." To prevent your financing plan from fizzling out midway, ask to work with a loan officer who has been in the business for five-plus years, or since before the credit boom took off.
How to get the best deal: Shop locally. A loan officer who's familiar with the housing stock and the players in your area may have greater latitude to offer you a lower rate than one based elsewhere. Try the local branches of big-name banks as well as community banks and credit unions, which may be using the crisis as an opportunity to snag business from their larger brethren.
Call on a broker
Mortgage brokers doled out plenty of bad loans during the boom. But a good broker can give you more hand-holding than you'll get online and will scour the market more thoroughly than you're likely to do on your own.
Mortgage brokers have access to a wide array of products (conventional/unconventional) & will also typically have access to highly aggressive interest rates.
When it makes sense: If you're in the market for a jumbo mortgage or financing for investment property, or you just don't fit the conforming mold, a broker will identify lenders who underwrite unconventional loans. "The more exotic your needs, the harder it is to find a loan right now," says Keith Gumbinger, vice president of mortgage information site HSH. "Finding that little niche is what a broker does best."
What to watch out for: Fees. Most brokers make money on the difference between the rate you could get and the rate you actually pay, and they aren't required to disclose their cut. One way around it: Work with a fee-only broker (you can find one in your area at upfrontmortgagebrokers.org).
How to get the best deal: Obtain rate and fee info from banks and Web sites before you talk to a broker. After all, a good broker can more than make up for his cost if he finds you a better rate than you'd get on your own. But if he can't, there are plenty of others who would love to have your business.
Credited to: http://www.cnnmoney.com/
Sunday, June 28, 2009
Beware of free credit reports....
From the desk of:
Rich Storey
Mortgage Advisor
615-260-8028
Free credit report ads: Stop the music!
The new credit card reform law is full of good consumer protections, but here’s one you might not know about: It’s going to require companies like FreeCreditReport.com (owned by credit bureau Experian) to clearly state that their services aren’t actually free.
Who doesn’t love those FreeCreditReport.com commercials? You know, the ones featuring the lovable 20-something singing about his credit troubles in a variety of musical genres? In the first, he’s dressed in pirate gear and crooning about how he has to work in a seafood restaurant because his identity was stolen (it works best if you don’t think too hard about it). My favorite jingle is the one that has him singing about how he married his dream girl, only to find out that her credit was bad, too. You can see all the commercials here:
The only problem, of course, is that FreeCreditReport.com is not really free. In order to get your report through the site, you must sign up for a trial membership in the site’s “Triple Advantage Credit Monitoring” program. If you don’t cancel your membership within a 7-day trial period, you’re billed $14.95 a month. And plenty of people have fallen for the site’s promise without realizing they were going to be billed. The Better Business Bureau has received 9,865 complaints about the site in the last 36 months, with some complainants saying that they kept being billed even after canceling membership.
But now, thanks to the Credit Card Accountability, Responsibility and Disclosure Act, companies touting free credit report services must disclose in their ads that consumers are entitled by law to receive a free credit report from each of the three credit bureaus, and that the official web site to obtain them is AnnualCreditReport.com. And radio and TV ads must clearly state, in both the audio and the video, “This is not the free credit report provided for by federal law.”
That’s good news, since the web-only public service commercials the Federal Trade Commission created in response to FreeCreditReport.com’s ads need all the help they can get.
Credited to: www.CNNMoney.com
Saturday, June 13, 2009
Mortgage Rates Climb
From the desk of:
Rich Storey
Mortgage Advisor
615-260-8028
Mortgage rates climb
Treasury yields on a tear help pull rates higher; 30-year fixed mortgage jumps to 5.95%.
MORTGAGE ESTIMATOR
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| Price of home: | $ | |
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Lenders all say they want to help mortgage borrowers stay in their homes. But when homeowners contact lenders in search of mortgage modifications, they often find getting help very difficult. Here are some stories from readers who struggled to find solutions.
Current Mortgage Rates |
| Type | Overnight avgs |
|---|---|
 | |
| 30 yr fixed mtg | 5.67% |
| 15 yr fixed mtg | 5.21% |
| 30 yr fixed jumbo mtg | 6.66% |
| 5/1 ARM | 4.89% |
| 5/1 jumbo ARM | 5.45% |
| |
| Find personalized rates: | |
NEW YORK (CNNMoney.com) -- Home mortgage rates jumped in the most recent week, pulled higher by skyrocketing Treasury yields.
The average 30-year fixed rate soared to 5.95% from 5.45% last week, according to a weekly national survey from Bankrate.com.
The 30-year rate is often influenced by the benchmark 10-year bond's yield, which has increased steadily to hover around 4% recently. The yield was 2% just six months ago. Investors worry that this has re-ignited inflation fears and threatens the potential for economic recovery.
In an effort to cap mortgage rates, the Federal Reserve in March revealed a campaign to buy back $300 billion in Treasurys in hopes that it will spark demand and keep yields -- and therefore, mortgage rates -- in check.
Mortgage rates fell as refinancings abounded. But those benefits seem to have worn off, as rates have been on a tear in recent weeks.
Although mortgage rates continue to rise, they remain much lower than last year, when the average 30-year fixed mortgage rate was 6.48%.
Adjustable-rate mortgages: Those rising rates have made it difficult for many homeowners to refinance, but ARMs are an option, the Bankrate report noted.
Adjustable-rate mortgages were higher last week, with the average 1-year ARM rising to 5.16% and the 5-year ARM jumping to 5.49%.
"Bankers say ARMs got a bad rap in the mortgage debacle," the report continued, adding that the riskiest loans in the housing bubble --"subprime, low down payment, interest-only, negative amortizing and stated income" -- tended to be adjustable-rate mortgages.
But the meltdown happened "because those loan features were layered on top of ARMs," the report said, meaning that it was not the adjustable rates that caused people to default. Rather, home buyers put no money down and "exaggerated their earnings when they applied for stated-income loans."
A few months ago, only about 1% of mortgage applications were for ARMs. Last week, it was 3.4%, the report added.
Other rates: The average 15-year fixed rate mortgage jumped to 5.37% from 5.06% the week prior.
The average jumbo 30-year fixed rate ticked up to 6.96% from 6.68%. Loans are considered "jumbo" when they are too large to be purchased or guaranteed by Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500). They carry higher rates than smaller "conforming" loans, which do have guarantees.
Credited to: www.CNNMoney.com
Thursday, June 11, 2009
Mortgage Rates and the 10 Year Treasury Bond
From the desk of:
Rich Storey
Mortgage Advisor
615-260.8028
10-year yield at 4% - snarls recovery
Treasury yields are soaring. Mortgage rates are following. And the spike in interest rates threatens to upset the recovery party.
NEW YORK (CNNMoney.com) -- The 10-year Treasury yield soared to 4% for the second day in a row Thursday, heightening inflation fears and threatening to upset the nascent signs of an economic recovery.
Just six months ago, the yield on the 10-year note hovered around the 2% level, as investors opted to park money in government-backed debt rather than higher risk equities.
The bond market typically takes a back seat to the stock market, which offers higher rewards but also higher risk. As the economy slogged through the recession, investors have remained cautious and plugged into bonds.
Prior to Wednesday, the benchmark yield had not reached 4% since mid-October. But Wall Street's tectonic plates have started to shift.
The Dow Jones industrial average has surged 30% since hitting its 12-year low on March 9. Investors have been shrugging off bad economic news and seeing 'less bad' news as good news. As investors grow more optimistic about the "green shoots" of the recovery, the bunker trade into the Treasury market has waned.
The sharp drop off in debt prices is also a result of the massive amount of supply hitting the market. The government has been spending at a breakneck pace and it has been selling an unprecedented amount of debt to finance its rescue efforts.
Housing. Rising interest rates have been pulling the rug out from a housing recovery.
The 30-year fixed mortgage rate moves in tandem with the benchmark 10-year Treasury yield, which has been on a tear. Mortgage rates hit 5.65% last week, according to a Bankrate.com's most recent national survey.
To try to keep a cap on mortgage rates, the Federal Reserve unveiled a program in mid-March to buy back $300 billion of its own debt. The so-called quantitative easing program was launched to jolt the Treasury market with demand, boost prices. The program worked for a while: Mortgage rates fell and refinancings surged.
But the benefits of the Fed's program were short-lived. And the debt buyback program is beginning to look a lot like the government using a soup ladle to keep a river from overflowing its banks.
Just this week, the government had three auctions lined up to sell $65 billion in debt: $35 billion of 3-year notes were sold Tuesday, $19 billion in a reopening of the 10-year note was sold Wednesday and $11 billion in the reopening of a 30-year bond was scheduled for Thursday.
Waning support. Other countries have started to doubt the creditworthiness of the U.S.
Russia and China have both indicated that they are concerned about the unsustainable pace of spending. Russia said Wednesday it would consider shifting assets to other safe havens, like International Monetary Fund bonds.
"Longer term, the concern over foreign interest is a wake up call to Congress and the President," said Nick Kalivas, vice president of financial research at MF Global, in a daily research note. "The idea that the IMF bond is getting attention is a sign of investor worry over the U.S. fiscal situation.
With inflation fears rising and an economy still breathing on the lifeline of the government, the future of the bond market is murky. Some investors are looking for the Fed to try to increase its commitment to the debt buyback program. The Federal Open Market Committee is slated to meet June 23 and 24.
Debt prices. The benchmark 10-year note fell 4/32 to 93-6/32, and its yield rose to 3.97%. Earlier in the session, the benchmark Treasury touched 4%. Bond prices and yields move in opposite directions.
The 30-year bond was down 16/32 to 91-12/32, and its yield rose to 4.80%. Earlier in the session, the longbond yield reached 4.83%.
The 2-year note dipped 1/32 to 99-2/32 and its yield edged up to 1.37%. The yield on the 3-month note held steady at 0.18%.
Lending rates. One key bank-to-bank rate continued to move lower. The 3-month Libor edged to 0.63% from 0.64% the day prior, according to Bloomberg.com.
The overnight Libor rate held steady at 0.26%.
Libor, the London Interbank Offered Rate, is a daily average of rates that 16 different banks charge each other to lend money. The closely-watched benchmark is used to calculate adjustable-rate mortgages. More than $350 trillion in assets are tied to Libor.
Credited to: www.CNNMoney.com
Rich Storey
Mortgage Advisor
615-260.8028
10-year yield at 4% - snarls recovery
Treasury yields are soaring. Mortgage rates are following. And the spike in interest rates threatens to upset the recovery party.
NEW YORK (CNNMoney.com) -- The 10-year Treasury yield soared to 4% for the second day in a row Thursday, heightening inflation fears and threatening to upset the nascent signs of an economic recovery.
Just six months ago, the yield on the 10-year note hovered around the 2% level, as investors opted to park money in government-backed debt rather than higher risk equities.
The bond market typically takes a back seat to the stock market, which offers higher rewards but also higher risk. As the economy slogged through the recession, investors have remained cautious and plugged into bonds.
Prior to Wednesday, the benchmark yield had not reached 4% since mid-October. But Wall Street's tectonic plates have started to shift.
The Dow Jones industrial average has surged 30% since hitting its 12-year low on March 9. Investors have been shrugging off bad economic news and seeing 'less bad' news as good news. As investors grow more optimistic about the "green shoots" of the recovery, the bunker trade into the Treasury market has waned.
The sharp drop off in debt prices is also a result of the massive amount of supply hitting the market. The government has been spending at a breakneck pace and it has been selling an unprecedented amount of debt to finance its rescue efforts.
Housing. Rising interest rates have been pulling the rug out from a housing recovery.
The 30-year fixed mortgage rate moves in tandem with the benchmark 10-year Treasury yield, which has been on a tear. Mortgage rates hit 5.65% last week, according to a Bankrate.com's most recent national survey.
To try to keep a cap on mortgage rates, the Federal Reserve unveiled a program in mid-March to buy back $300 billion of its own debt. The so-called quantitative easing program was launched to jolt the Treasury market with demand, boost prices. The program worked for a while: Mortgage rates fell and refinancings surged.
But the benefits of the Fed's program were short-lived. And the debt buyback program is beginning to look a lot like the government using a soup ladle to keep a river from overflowing its banks.
Just this week, the government had three auctions lined up to sell $65 billion in debt: $35 billion of 3-year notes were sold Tuesday, $19 billion in a reopening of the 10-year note was sold Wednesday and $11 billion in the reopening of a 30-year bond was scheduled for Thursday.
Waning support. Other countries have started to doubt the creditworthiness of the U.S.
Russia and China have both indicated that they are concerned about the unsustainable pace of spending. Russia said Wednesday it would consider shifting assets to other safe havens, like International Monetary Fund bonds.
"Longer term, the concern over foreign interest is a wake up call to Congress and the President," said Nick Kalivas, vice president of financial research at MF Global, in a daily research note. "The idea that the IMF bond is getting attention is a sign of investor worry over the U.S. fiscal situation.
With inflation fears rising and an economy still breathing on the lifeline of the government, the future of the bond market is murky. Some investors are looking for the Fed to try to increase its commitment to the debt buyback program. The Federal Open Market Committee is slated to meet June 23 and 24.
Debt prices. The benchmark 10-year note fell 4/32 to 93-6/32, and its yield rose to 3.97%. Earlier in the session, the benchmark Treasury touched 4%. Bond prices and yields move in opposite directions.
The 30-year bond was down 16/32 to 91-12/32, and its yield rose to 4.80%. Earlier in the session, the longbond yield reached 4.83%.
The 2-year note dipped 1/32 to 99-2/32 and its yield edged up to 1.37%. The yield on the 3-month note held steady at 0.18%.
Lending rates. One key bank-to-bank rate continued to move lower. The 3-month Libor edged to 0.63% from 0.64% the day prior, according to Bloomberg.com.
The overnight Libor rate held steady at 0.26%.
Libor, the London Interbank Offered Rate, is a daily average of rates that 16 different banks charge each other to lend money. The closely-watched benchmark is used to calculate adjustable-rate mortgages. More than $350 trillion in assets are tied to Libor.
Credited to: www.CNNMoney.com
Wednesday, June 10, 2009
Senate Pushes to Revive $15,000 Homebuyer Tax Credit
From the desk of:
Rich Storey
Mortgage Advisor
615-260-8028
Senate Renews Push to Expand Homebuyer Tax Credit to $15,000
By Dawn Kopecki
June 10 (Bloomberg) -- Lawmakers are pushing to revive legislation in the Senate that would almost double an $8,000 tax credit for first-time homebuyers and expand the program to all borrowers.
Senator Johnny Isakson, a Georgia Republican, plans to introduce a bill today that increases the tax credit to $15,000 and removes income and other restrictions on who can qualify for the credit, according to his spokesman, Sheridan Watson.
The legislation, which is co-sponsored by Senate Banking Committee Chairman Christopher Dodd of Connecticut and other Democrats, would extend the homebuyer credit to multi-family properties that are used as the borrower’s primary residence. It would also eliminate income caps of $75,000 and $150,000 on individuals and couples seeking to claim the credit.
“The housing market continues to be a drag on the economy, said John Castellani, president of the Washington-based Business Roundtable, which represents the interests of more than 100 CEOs including General Electric Co.’s Jeffrey Immelt and Exxon Mobil Corp.’s Rex Tillerson. “We believe that if we don’t stabilize this vital sector, we can’t turn the tide on the recession.”
The Business Roundtable and the National Association of Realtors are both pushing to expand the tax credit and to lower mortgage rates to revive the U.S. housing market.
Isakson’s bill would extend the credit, which expires at the end of 2009, to one year after it’s signed into law, according to Watson. It would also allow borrowers to divide the credit over two years. The bill is co-sponsored by Republican Senators Lamar Alexander of Tennessee, Saxby Chambliss of Georgia, David Vitter of Louisiana and James Risch of Idaho.
Senators Patty Murray, a Washington Democrat, and Joseph Lieberman, a Connecticut independent, have also signed on to the bill, according to Watson.
Mortgage Rates
The roundtable and Realtors groups also recommended the Federal Reserve continue its plans to purchase mortgage securities guaranteed by Fannie Mae, Freddie Mac and the Federal Home Loan Banks to drive down mortgage rates below 5 percent.
The Fed is about a third of the way through its $1.25 trillion commitment, holding $427.6 billion of mortgage debt backed by the government-sponsored enterprises as of June 3, according to the New York Federal Reserve.
The average rate on a 30-year fixed-rate U.S. mortgage jumped last week to the highest level since November, rising to 5.57 percent from 5.25 percent the prior week, according to data released today by the Mortgage Bankers Association.
Credited to: www.Bloomberg.com
Rich Storey
Mortgage Advisor
615-260-8028
Senate Renews Push to Expand Homebuyer Tax Credit to $15,000
By Dawn Kopecki
June 10 (Bloomberg) -- Lawmakers are pushing to revive legislation in the Senate that would almost double an $8,000 tax credit for first-time homebuyers and expand the program to all borrowers.
Senator Johnny Isakson, a Georgia Republican, plans to introduce a bill today that increases the tax credit to $15,000 and removes income and other restrictions on who can qualify for the credit, according to his spokesman, Sheridan Watson.
The legislation, which is co-sponsored by Senate Banking Committee Chairman Christopher Dodd of Connecticut and other Democrats, would extend the homebuyer credit to multi-family properties that are used as the borrower’s primary residence. It would also eliminate income caps of $75,000 and $150,000 on individuals and couples seeking to claim the credit.
“The housing market continues to be a drag on the economy, said John Castellani, president of the Washington-based Business Roundtable, which represents the interests of more than 100 CEOs including General Electric Co.’s Jeffrey Immelt and Exxon Mobil Corp.’s Rex Tillerson. “We believe that if we don’t stabilize this vital sector, we can’t turn the tide on the recession.”
The Business Roundtable and the National Association of Realtors are both pushing to expand the tax credit and to lower mortgage rates to revive the U.S. housing market.
Isakson’s bill would extend the credit, which expires at the end of 2009, to one year after it’s signed into law, according to Watson. It would also allow borrowers to divide the credit over two years. The bill is co-sponsored by Republican Senators Lamar Alexander of Tennessee, Saxby Chambliss of Georgia, David Vitter of Louisiana and James Risch of Idaho.
Senators Patty Murray, a Washington Democrat, and Joseph Lieberman, a Connecticut independent, have also signed on to the bill, according to Watson.
Mortgage Rates
The roundtable and Realtors groups also recommended the Federal Reserve continue its plans to purchase mortgage securities guaranteed by Fannie Mae, Freddie Mac and the Federal Home Loan Banks to drive down mortgage rates below 5 percent.
The Fed is about a third of the way through its $1.25 trillion commitment, holding $427.6 billion of mortgage debt backed by the government-sponsored enterprises as of June 3, according to the New York Federal Reserve.
The average rate on a 30-year fixed-rate U.S. mortgage jumped last week to the highest level since November, rising to 5.57 percent from 5.25 percent the prior week, according to data released today by the Mortgage Bankers Association.
Credited to: www.Bloomberg.com
Mortgage Applications Drop
From the desk of:
Rich Storey
Mortgage Advisor
615-260-8028
Mortgage Applications Fall as Interest Rates Jump
By Shobhana Chandra
June 10 (Bloomberg) -- U.S. mortgage applications fell last week to the lowest level since February as a jump in borrowing costs discouraged refinancing and signaled that Federal Reserve Chairman Ben S. Bernanke’s efforts to cap rates is stalling.
The Mortgage Bankers Association’s index of applications to purchase a home or refinance dropped 7.2 percent to 611 in the week ended June 5, from 658.7 the prior week. The refinancing gauge fell 12 percent. The purchase index gained 1.1 percent.
Fixed U.S. mortgage rates jumped to the highest level this year last week, threatening to deepen the housing slump and sideline prospective home buyers. An improving economic outlook spurred an increase in rates even as a rising jobless rate is contributing to record home foreclosures. Still, lower property values are helping the housing market stabilize.
“We still have a long way to go before conditions are good,” said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania. “We need to get this market back up and running more normally.”
Government bond yields, consumer rates and price swings are increasing as the Fed fails to say if it will extend the $1.75 trillion policy of buying Treasuries and mortgage bonds through so-called quantitative easing, traders say.
Rising Yields
The yield on the benchmark 10-year Treasury note rose to 3.90 percent last week as volatility in government bonds hit a six-month high, according to Merrill Lynch & Co.’s MOVE Index of options prices. Thirty-year fixed-rate mortgages jumped to 5.45 percent from as low as 4.85 percent in April, according to Bankrate.com in North Palm Beach, Florida. Costs for homebuyers are now higher than in December.
The mortgage bankers’ refinancing gauge issued today fell to 2,605.7, the lowest level since November, from 2,953.6 the previous week, today’s report showed. The purchase index rose to 270.7 last week from 267.7.
The share of applicants seeking to refinance loans fell to 59.4 percent of total applications last week from 62.4 percent.
The average rate on a 30-year fixed-rate loan surged to 5.57 percent, the highest since November, from 5.25 percent the prior week.
Borrowing Costs
At the current 30-year rate, monthly borrowing costs for each $100,000 of a loan would be $572, or about $44 less than the same week a year earlier, when the rate was 6.25 percent.
The average rate on a 15-year fixed mortgage rose to 5.10 percent from 4.80 percent the prior week. The rate on a one-year adjustable mortgage increased to 6.75 percent last week from 6.61 percent.
The Washington-based Mortgage Bankers Association’s loan survey, compiled every week, covers about half of all U.S. retail residential mortgage originations.
Construction companies continue to struggle. Toll Brothers Inc., the largest luxury homebuilder, and Hovnanian Enterprises Inc., New Jersey’s biggest builder, this month reported quarterly losses that exceeded analysts’ estimates. Revenue dropped at both businesses.
Among reports indicating an improvement in housing, figures from the National Association of Realtors showed the number of Americans signing contracts to buy previously owned homes climbed 6.7 percent in April, more than forecast and the fourth increase in five months, as lower prices attracted buyers.
The rise in borrowing costs in the face of record low interest rates, Fed purchases and a contracting economy is the opposite of the challenge Bernanke’s predecessor, Alan Greenspan, confronted when he led the Fed.
In February 2005, Greenspan said in the text of his testimony to the Senate Banking Committee that a decline in long-term bond yields after six rate increases was a “conundrum.” At the time, he was trying to keep the economy from overheating and sparking inflation. Now, Bernanke may be facing his own.
Credited to: http://www.bloomberg.com/
Rich Storey
Mortgage Advisor
615-260-8028
Mortgage Applications Fall as Interest Rates Jump
By Shobhana Chandra
June 10 (Bloomberg) -- U.S. mortgage applications fell last week to the lowest level since February as a jump in borrowing costs discouraged refinancing and signaled that Federal Reserve Chairman Ben S. Bernanke’s efforts to cap rates is stalling.
The Mortgage Bankers Association’s index of applications to purchase a home or refinance dropped 7.2 percent to 611 in the week ended June 5, from 658.7 the prior week. The refinancing gauge fell 12 percent. The purchase index gained 1.1 percent.
Fixed U.S. mortgage rates jumped to the highest level this year last week, threatening to deepen the housing slump and sideline prospective home buyers. An improving economic outlook spurred an increase in rates even as a rising jobless rate is contributing to record home foreclosures. Still, lower property values are helping the housing market stabilize.
“We still have a long way to go before conditions are good,” said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania. “We need to get this market back up and running more normally.”
Government bond yields, consumer rates and price swings are increasing as the Fed fails to say if it will extend the $1.75 trillion policy of buying Treasuries and mortgage bonds through so-called quantitative easing, traders say.
Rising Yields
The yield on the benchmark 10-year Treasury note rose to 3.90 percent last week as volatility in government bonds hit a six-month high, according to Merrill Lynch & Co.’s MOVE Index of options prices. Thirty-year fixed-rate mortgages jumped to 5.45 percent from as low as 4.85 percent in April, according to Bankrate.com in North Palm Beach, Florida. Costs for homebuyers are now higher than in December.
The mortgage bankers’ refinancing gauge issued today fell to 2,605.7, the lowest level since November, from 2,953.6 the previous week, today’s report showed. The purchase index rose to 270.7 last week from 267.7.
The share of applicants seeking to refinance loans fell to 59.4 percent of total applications last week from 62.4 percent.
The average rate on a 30-year fixed-rate loan surged to 5.57 percent, the highest since November, from 5.25 percent the prior week.
Borrowing Costs
At the current 30-year rate, monthly borrowing costs for each $100,000 of a loan would be $572, or about $44 less than the same week a year earlier, when the rate was 6.25 percent.
The average rate on a 15-year fixed mortgage rose to 5.10 percent from 4.80 percent the prior week. The rate on a one-year adjustable mortgage increased to 6.75 percent last week from 6.61 percent.
The Washington-based Mortgage Bankers Association’s loan survey, compiled every week, covers about half of all U.S. retail residential mortgage originations.
Construction companies continue to struggle. Toll Brothers Inc., the largest luxury homebuilder, and Hovnanian Enterprises Inc., New Jersey’s biggest builder, this month reported quarterly losses that exceeded analysts’ estimates. Revenue dropped at both businesses.
Among reports indicating an improvement in housing, figures from the National Association of Realtors showed the number of Americans signing contracts to buy previously owned homes climbed 6.7 percent in April, more than forecast and the fourth increase in five months, as lower prices attracted buyers.
The rise in borrowing costs in the face of record low interest rates, Fed purchases and a contracting economy is the opposite of the challenge Bernanke’s predecessor, Alan Greenspan, confronted when he led the Fed.
In February 2005, Greenspan said in the text of his testimony to the Senate Banking Committee that a decline in long-term bond yields after six rate increases was a “conundrum.” At the time, he was trying to keep the economy from overheating and sparking inflation. Now, Bernanke may be facing his own.
Credited to: http://www.bloomberg.com/
Wednesday, June 3, 2009
Fed May Step Up.....
From the desk of:
Rich Storey
Mortgage Advisor
615-260-8028
Fed May Step Up on Mortgages, Bank of America Says
By Jody Shenn
June 3 (Bloomberg) -- The Federal Reserve and Treasury Department may need to either step up their efforts to drive down mortgage-bonds yields or give up, according to Bank of America Corp.
Investors should buy 4.5 percent and 5 percent Fannie Mae- guaranteed securities because the government is likely to ramp up purchases as interest rates on 30-year loans have climbed to more than 5.5 percent, having an “adverse impact on the housing market,” Ohmsatya Ravi and Ankur Mehta, New York-based strategists at the bank, wrote in a report yesterday.
“Any decline in dollar prices of agency MBS from their current levels would possibly require the Fed and the Treasury to abandon their agency MBS purchase programs altogether, which we think is very unlikely,” they wrote.
Yields on “agency” mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae have jumped as prices tumbled since May 20, driving up borrowing costs and jeopardizing U.S. efforts to stabilize home prices. The market has been roiled by slumping benchmark Treasuries, which have been driven lower in part by mortgage-bond hedging, and widening yield premiums on home-loan bonds relative to 10-year government notes after the spread reached the tightest since 1992.
Today, yields on Washington-based Fannie Mae’s current- coupon 30-year fixed-rate mortgage bonds fell 0.01 percentage point to 4.53 percent as of 3:02 p.m. in New York, data compiled by Bloomberg show. That’s up from 3.94 percent on May 20, and down from the six-month high of 4.69 percent on May 27.
Federal Purchases
The Fed has bought a net $507.1 billion of mortgage bonds so far, including $25.5 billion in the week ended May 27, according to Bloomberg data. The Treasury, under a separate program started in September when the U.S. seized Fannie Mae and Freddie Mac, has disclosed about $64 billion of purchases this year through April, according to JPMorgan Chase & Co.
In March, the Fed expanded its program, initially announced in November, by $750 billion to as much as $1.25 trillion, and said it would buy as much as $300 billion of Treasuries. The Treasury Department hasn’t detailed its plans.
The risk to the Bank of America strategists’ recommended trade is that the potential pace of changes in the estimated durations of mortgage bonds is at its “maximum” at current yields, meaning “hedging related flows have the potential to cause major dislocations,” they wrote.
Lengthening Durations
As rates increase, the projected average lives of mortgage bonds and loan-servicing contracts extend as estimated refinancing drops, leaving holders with portfolios of longer- than-anticipated durations. Investors then may seek to pare durations by selling longer-dated Treasury securities, mortgage bonds and interest-rate swaps, sending yields even higher.
A further 0.25 percentage-point increase in loan rates will extend the durations of 30-year agency mortgage securities by the equivalent of $149 billion of 10-year Treasuries, the strategists wrote. Contracts in the entire loan-servicing market, where holders are even more apt to “actively hedge,” will extend by about $17 billion to $19 billion, they wrote.
Asked today whether the Fed would need to buy the entire $1.25 trillion it now describes as the limit for its mortgage- bond holdings, Chairman Ben S. Bernanke told lawmakers that the Federal Open Market Committee, which next meets June 24, would “evaluate the state of the economy, the state of the market and credit markets in general and we will make that decision.”
Deficit Concerns
In prepared remarks, he said “in recent weeks, yields on longer-term Treasury securities and fixed-rate mortgages have risen. These increases appear to reflect concerns about large federal deficits but also other causes, including greater optimism about the economic outlook, a reversal of flight-to- quality flows and technical factors related to the hedging of mortgage holdings.”
By not reacting to rising home-loan rates so far, “the Fed might be reasserting its independence regarding the setting of monetary policy, by prioritizing the exit strategy over the administration’s refi plan,” Mustafa Chowdhury and Marcus Huie, analysts in New York at Deutsche Bank AG, wrote in a report.
Under the plan that President Barack Obama announced in February, the U.S. loosened Fannie Mae and Freddie Mac rules to allow refinancing by an estimated 4 million to 5 million additional borrowers with little or no home equity. If the Fed chooses not to “forsake” the plan by allowing refi opportunities to vanish with low loan rates, the central bank is likely to boost its plan to buy Treasuries, the analysts wrote May 29.
A Fed ‘Dilemma’
The Fed, facing a “dilemma,” may be reluctant to boost Treasury purchases amid signs the deepest U.S. recession since World War II is easing, raising the risk that its balance-sheet expansion will fuel inflation, they said.
Fed efforts to drive down mortgage-bond yields by pushing spreads tighter with larger purchases might be hindered by private investors stepping back, as some did last month after the debt went “from being a tremendous bargain to nose-bleed expensive,” said Gary Cloud, a senior portfolio manager who helps oversee $500 million at the AFBA Funds.
While “higher mortgage rates are going to be a headwind” for the housing market, the central bank may also be reluctant to speed or expand Treasury purchases because the market is so large, he added in a telephone interview yesterday.
“If they did that and bonds sold off, it would be really scary because it would basically say the Fed and Treasury have lost control,” said Cloud, who is based in Kansas City, Missouri. “I think they’re smarter than that.”
The average rate on a typical 30-year mortgage climbed to 5.25 percent last week, from 4.81 percent a week earlier, the largest jump since October, according to the Mortgage Bankers Association. The group’s survey found borrowers paying an average of 1.02 in upfront interest points; the Bank of America strategists’ estimated current rate assumed no points.
Credited to: www.Bloomberg.com
Rich Storey
Mortgage Advisor
615-260-8028
Fed May Step Up on Mortgages, Bank of America Says
By Jody Shenn
June 3 (Bloomberg) -- The Federal Reserve and Treasury Department may need to either step up their efforts to drive down mortgage-bonds yields or give up, according to Bank of America Corp.
Investors should buy 4.5 percent and 5 percent Fannie Mae- guaranteed securities because the government is likely to ramp up purchases as interest rates on 30-year loans have climbed to more than 5.5 percent, having an “adverse impact on the housing market,” Ohmsatya Ravi and Ankur Mehta, New York-based strategists at the bank, wrote in a report yesterday.
“Any decline in dollar prices of agency MBS from their current levels would possibly require the Fed and the Treasury to abandon their agency MBS purchase programs altogether, which we think is very unlikely,” they wrote.
Yields on “agency” mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae have jumped as prices tumbled since May 20, driving up borrowing costs and jeopardizing U.S. efforts to stabilize home prices. The market has been roiled by slumping benchmark Treasuries, which have been driven lower in part by mortgage-bond hedging, and widening yield premiums on home-loan bonds relative to 10-year government notes after the spread reached the tightest since 1992.
Today, yields on Washington-based Fannie Mae’s current- coupon 30-year fixed-rate mortgage bonds fell 0.01 percentage point to 4.53 percent as of 3:02 p.m. in New York, data compiled by Bloomberg show. That’s up from 3.94 percent on May 20, and down from the six-month high of 4.69 percent on May 27.
Federal Purchases
The Fed has bought a net $507.1 billion of mortgage bonds so far, including $25.5 billion in the week ended May 27, according to Bloomberg data. The Treasury, under a separate program started in September when the U.S. seized Fannie Mae and Freddie Mac, has disclosed about $64 billion of purchases this year through April, according to JPMorgan Chase & Co.
In March, the Fed expanded its program, initially announced in November, by $750 billion to as much as $1.25 trillion, and said it would buy as much as $300 billion of Treasuries. The Treasury Department hasn’t detailed its plans.
The risk to the Bank of America strategists’ recommended trade is that the potential pace of changes in the estimated durations of mortgage bonds is at its “maximum” at current yields, meaning “hedging related flows have the potential to cause major dislocations,” they wrote.
Lengthening Durations
As rates increase, the projected average lives of mortgage bonds and loan-servicing contracts extend as estimated refinancing drops, leaving holders with portfolios of longer- than-anticipated durations. Investors then may seek to pare durations by selling longer-dated Treasury securities, mortgage bonds and interest-rate swaps, sending yields even higher.
A further 0.25 percentage-point increase in loan rates will extend the durations of 30-year agency mortgage securities by the equivalent of $149 billion of 10-year Treasuries, the strategists wrote. Contracts in the entire loan-servicing market, where holders are even more apt to “actively hedge,” will extend by about $17 billion to $19 billion, they wrote.
Asked today whether the Fed would need to buy the entire $1.25 trillion it now describes as the limit for its mortgage- bond holdings, Chairman Ben S. Bernanke told lawmakers that the Federal Open Market Committee, which next meets June 24, would “evaluate the state of the economy, the state of the market and credit markets in general and we will make that decision.”
Deficit Concerns
In prepared remarks, he said “in recent weeks, yields on longer-term Treasury securities and fixed-rate mortgages have risen. These increases appear to reflect concerns about large federal deficits but also other causes, including greater optimism about the economic outlook, a reversal of flight-to- quality flows and technical factors related to the hedging of mortgage holdings.”
By not reacting to rising home-loan rates so far, “the Fed might be reasserting its independence regarding the setting of monetary policy, by prioritizing the exit strategy over the administration’s refi plan,” Mustafa Chowdhury and Marcus Huie, analysts in New York at Deutsche Bank AG, wrote in a report.
Under the plan that President Barack Obama announced in February, the U.S. loosened Fannie Mae and Freddie Mac rules to allow refinancing by an estimated 4 million to 5 million additional borrowers with little or no home equity. If the Fed chooses not to “forsake” the plan by allowing refi opportunities to vanish with low loan rates, the central bank is likely to boost its plan to buy Treasuries, the analysts wrote May 29.
A Fed ‘Dilemma’
The Fed, facing a “dilemma,” may be reluctant to boost Treasury purchases amid signs the deepest U.S. recession since World War II is easing, raising the risk that its balance-sheet expansion will fuel inflation, they said.
Fed efforts to drive down mortgage-bond yields by pushing spreads tighter with larger purchases might be hindered by private investors stepping back, as some did last month after the debt went “from being a tremendous bargain to nose-bleed expensive,” said Gary Cloud, a senior portfolio manager who helps oversee $500 million at the AFBA Funds.
While “higher mortgage rates are going to be a headwind” for the housing market, the central bank may also be reluctant to speed or expand Treasury purchases because the market is so large, he added in a telephone interview yesterday.
“If they did that and bonds sold off, it would be really scary because it would basically say the Fed and Treasury have lost control,” said Cloud, who is based in Kansas City, Missouri. “I think they’re smarter than that.”
The average rate on a typical 30-year mortgage climbed to 5.25 percent last week, from 4.81 percent a week earlier, the largest jump since October, according to the Mortgage Bankers Association. The group’s survey found borrowers paying an average of 1.02 in upfront interest points; the Bank of America strategists’ estimated current rate assumed no points.
Credited to: www.Bloomberg.com
Monday, June 1, 2009
Rates jump!! Lock in now, or wait??
From the desk of:
Rich Storey
Mortgage Advisor
615.260.8028
Mortgage rates jump: lock in now, or wait?
Grab one now, or hope for lower rates?
According to Bankrate’s latest weekly survey (conducted Wednesday morning) the 30-year fixed average was at 5.45%, up from 5.23% That’s the highest level since February, and more than a half point above the 4.9% borrowers in early April could snag.
So what’s a floater to do now? Well, if you’ve lost your betting mojo, lock in and be happy. Yes, happy. Let’s remember that 5.45% is still seriously good. It was only one year ago that the average 30-year fixed rate was 6.1%. And long term, it is all but assured that a 5.45% fixed rate is going to look darn nice. It may take some time before the Fed gives up the fight and has to let rates rise to attract buyers for all the debt we now have to pay off, but it will happen. So while today’s 5.45% is high relative to a month or two ago, it is likely to be one you will boast about in the coming years.
Okay, enough of the long-term perspective. What if you’re still in betting mode and wondering about the next few weeks and months? Well, that’s one big crap shoot. The recent spike has been caused by action in the 10-year Treasury market (the 30-year fixed rate tends to follow movements in the 10-year note.)
Late last week the bond market started worrying about inflation and servicing the federal deficit, and one thing led to another and the 10-year Treasury yield shot from 3.4% last Thursday to above 3.7% during trading yesterday (Thursday) before closing lower at 3.67%.
Plenty of market watchers are expecting the trend line on the 10-year Treasury to keep moving up. But here’s where it gets interesting: there’s not as clear a picture if a continued rise in the Treasury will automatically cause the 30-year fixed to also rise.
The big wildcard is Ben Bernanke and his merry band at the Federal Reserve. The Fed has been actively buying up long-term Treasuries and mortgage backed securities in an effort to help keep yields low. When rates started rising the past few weeks the Fed signaled it wasn’t too concerned; in fact it seemed to be cheered by the notion that those slightly rising rates were a sign the economy was gaining a bit of strength. But now there’s a sense that the continued rise-capped by the big spike this past Wednesday-could refocus the Fed’s effort to push yields down; it has yet to use up even half the money it has allotted for the buyback programs, so it’s got plenty of gunpowder ready.
That could be good news for rate floaters; assuming the Fed is still worried that rates rising too quickly and too far will put the kibosh on the already anemic credit market recovery, it’s a decent argument to assume the Fed will soon ramp up its repurchases in an effort to push yields back down after their recent spike.
As David Rosenberg, the former Merrill Lynch economist now at Gluskin Sheff noted on Thursday morning:
“It’s one thing to have a Treasury yield backup when mortgage rates are still declining, but that is no longer the case. The yield on the 30-year fixed-rate is already up 20 basis points from the lows; 1-year ARMs have jumped 17bps. This is not what the Fed wants to see.”
Indeed, the recent rate uptick has sent a chill through the still frigid housing markets. According to the Mortgage Bankers Association, mortgage applications dropped 14.2% this week compared to a week prior.
The bet’s yours, floaters: lock in now at what still qualifies as a terrific interest rate, or put your money on the Federal Reserve pushing yields down in the coming weeks. Which way are you leaning?
Credited to: www.CNNMoney.com
Rich Storey
Mortgage Advisor
615.260.8028
Mortgage rates jump: lock in now, or wait?
Grab one now, or hope for lower rates?
According to Bankrate’s latest weekly survey (conducted Wednesday morning) the 30-year fixed average was at 5.45%, up from 5.23% That’s the highest level since February, and more than a half point above the 4.9% borrowers in early April could snag.
So what’s a floater to do now? Well, if you’ve lost your betting mojo, lock in and be happy. Yes, happy. Let’s remember that 5.45% is still seriously good. It was only one year ago that the average 30-year fixed rate was 6.1%. And long term, it is all but assured that a 5.45% fixed rate is going to look darn nice. It may take some time before the Fed gives up the fight and has to let rates rise to attract buyers for all the debt we now have to pay off, but it will happen. So while today’s 5.45% is high relative to a month or two ago, it is likely to be one you will boast about in the coming years.
Okay, enough of the long-term perspective. What if you’re still in betting mode and wondering about the next few weeks and months? Well, that’s one big crap shoot. The recent spike has been caused by action in the 10-year Treasury market (the 30-year fixed rate tends to follow movements in the 10-year note.)
Late last week the bond market started worrying about inflation and servicing the federal deficit, and one thing led to another and the 10-year Treasury yield shot from 3.4% last Thursday to above 3.7% during trading yesterday (Thursday) before closing lower at 3.67%.
Plenty of market watchers are expecting the trend line on the 10-year Treasury to keep moving up. But here’s where it gets interesting: there’s not as clear a picture if a continued rise in the Treasury will automatically cause the 30-year fixed to also rise.
The big wildcard is Ben Bernanke and his merry band at the Federal Reserve. The Fed has been actively buying up long-term Treasuries and mortgage backed securities in an effort to help keep yields low. When rates started rising the past few weeks the Fed signaled it wasn’t too concerned; in fact it seemed to be cheered by the notion that those slightly rising rates were a sign the economy was gaining a bit of strength. But now there’s a sense that the continued rise-capped by the big spike this past Wednesday-could refocus the Fed’s effort to push yields down; it has yet to use up even half the money it has allotted for the buyback programs, so it’s got plenty of gunpowder ready.
That could be good news for rate floaters; assuming the Fed is still worried that rates rising too quickly and too far will put the kibosh on the already anemic credit market recovery, it’s a decent argument to assume the Fed will soon ramp up its repurchases in an effort to push yields back down after their recent spike.
As David Rosenberg, the former Merrill Lynch economist now at Gluskin Sheff noted on Thursday morning:
“It’s one thing to have a Treasury yield backup when mortgage rates are still declining, but that is no longer the case. The yield on the 30-year fixed-rate is already up 20 basis points from the lows; 1-year ARMs have jumped 17bps. This is not what the Fed wants to see.”
Indeed, the recent rate uptick has sent a chill through the still frigid housing markets. According to the Mortgage Bankers Association, mortgage applications dropped 14.2% this week compared to a week prior.
The bet’s yours, floaters: lock in now at what still qualifies as a terrific interest rate, or put your money on the Federal Reserve pushing yields down in the coming weeks. Which way are you leaning?
Credited to: www.CNNMoney.com
This is an ubelieveable time to be a considered a first time homebuyer!!!
From the desk of:
Rich Storey
Mortgage Advisor
615.260.8028
Get your $8,000 HUD tax credit now
HUD tweaked stimulus tax incentive so first-time home buyers get instant assistance with down payment and closing costs.
NEW YORK (CNNMoney.com) -- First-time homebuyers will now have access to quick cash to help them with their down payments.
On Friday, the U.S. Department of Housing and Urban Development (HUD) announced that first-time homebuyers using FHA-approved lenders can now get an advance on the $8,000 tax credit created by the stimulus package and apply it toward their down payments or closing costs.
"We believe this is a real win for everyone," said HUD secretary Shaun Donovan in a speech before the National Association of Homebuilders (NAHB). "Families will now be able to apply their anticipated tax credit toward their home purchase right away. What we're doing today will not only help these families to purchase their first home but will present an enormous benefit for communities struggling to deal with an oversupply of housing."
As part of the stimulus package, Congress created a refundable first-time homebuyers tax credit in hopes of helping on-the-fence buyers to take the home-purchase plunge. But buyers couldn't collect the $8,000 credit until tax time, rather than at closing time -- when it's needed.
The delay created an obstacle to reigniting the housing market because most first-time buyers -- the ones who would buy much of the available inventory -- have only saved enough to cover 4% of the purchase price, according to the National Association of Realtors.
The mechanics of the new program, according to NAHB economist Robert Dietz, allow lenders to purchase tax credits from the buyers and then collect the rebate from the IRS. Homebuyers must still come up with FHA's mandatory downpayment of 3.5% on their own, but they can use the tax credit to lower their principal balance and save on monthly payments.
The initiative also authorized downpayment help programs already offered in Colorado, Missouri, New Jersey, Pennsylvania, Tennessee, Washington and other states. To quickly infuse cash into their housing markets, the housing finance authorities in these states created bridge loans to allow buyers to borrow against the $8,000 credit and then repay it with their tax refunds.
There are also non-profit groups, such as ones affiliated with the National Home Ownership Programs for the community organizer NeighborWorks America, that offer bridge loans for downpayment assistance that will be repaid with the tax credits.
Under the state and non-profit programs, the tax credit can provide the entire downpayment; there's no requirement that homebuers put 3.5% down.
The first state to launch such a plan was Missouri, which rolled out its Missouri Housing Development Commission Tax Credit Advance Loan program on January 14 -- a month before Congress approved the stimulus package. Since then, Missouri has approved applications by more than 360 borrowers and closed on 166 of them.
Lamar Cherry and his wife, Chrishanna, used the program to augment their down payment when they bought their home in Kansas City.
The couple purchased a four-bedroom, three-bath split-level home for $150,000, putting about 6% down. Much of that $9,000 came from the loan program, which they tapped so they wouldn't have to drain their reserves.
"We had money saved up that we were going to use for the down payment," said Cherry. "Now we can use some of that to buy some things we need for the house."
At closing, the Cherrys, like all buyers in the program, signed for their first mortgage, plus a second mortgage issued by the state. The second note is good for 6% of the price of the home, up to $6,750; there is a $350 set-up fee, but no interest is charged if the debt is repaid by June 2010.
In Missouri, borrowers can only access $6,750 of the $8,000 credit for down payments. "We wanted them to have a cushion below that $8,000 in case other tax liabilities show up," said Greg Spurgeon, the single-family homeownership administrator for the Missouri Housing Development Commission.
If borrowers don't pay off the note, it becomes a 10-year fixed-rate mortgage with an interest rate one-half percentage point above that of their first mortgages. For example, borrowers paying 6% on their first mortgages would be charged 6.5% on the second.
So far, Spurgeon said, a significant proportion of participating homebuyers have repaid their loans. He expects most of the others to do the same before the deadline.
Cherry has claimed the federal tax credit on his 2008 taxes, but he hasn't gotten his refund yet. He definitely intends to repay the loan before the 2010 deadline because, he said, not doing so would add about $75 a month to his house payments.
Credited to: www.CNNMoney.com
Rich Storey
Mortgage Advisor
615.260.8028
Get your $8,000 HUD tax credit now
HUD tweaked stimulus tax incentive so first-time home buyers get instant assistance with down payment and closing costs.
NEW YORK (CNNMoney.com) -- First-time homebuyers will now have access to quick cash to help them with their down payments.
On Friday, the U.S. Department of Housing and Urban Development (HUD) announced that first-time homebuyers using FHA-approved lenders can now get an advance on the $8,000 tax credit created by the stimulus package and apply it toward their down payments or closing costs.
"We believe this is a real win for everyone," said HUD secretary Shaun Donovan in a speech before the National Association of Homebuilders (NAHB). "Families will now be able to apply their anticipated tax credit toward their home purchase right away. What we're doing today will not only help these families to purchase their first home but will present an enormous benefit for communities struggling to deal with an oversupply of housing."
As part of the stimulus package, Congress created a refundable first-time homebuyers tax credit in hopes of helping on-the-fence buyers to take the home-purchase plunge. But buyers couldn't collect the $8,000 credit until tax time, rather than at closing time -- when it's needed.
The delay created an obstacle to reigniting the housing market because most first-time buyers -- the ones who would buy much of the available inventory -- have only saved enough to cover 4% of the purchase price, according to the National Association of Realtors.
The mechanics of the new program, according to NAHB economist Robert Dietz, allow lenders to purchase tax credits from the buyers and then collect the rebate from the IRS. Homebuyers must still come up with FHA's mandatory downpayment of 3.5% on their own, but they can use the tax credit to lower their principal balance and save on monthly payments.
The initiative also authorized downpayment help programs already offered in Colorado, Missouri, New Jersey, Pennsylvania, Tennessee, Washington and other states. To quickly infuse cash into their housing markets, the housing finance authorities in these states created bridge loans to allow buyers to borrow against the $8,000 credit and then repay it with their tax refunds.
There are also non-profit groups, such as ones affiliated with the National Home Ownership Programs for the community organizer NeighborWorks America, that offer bridge loans for downpayment assistance that will be repaid with the tax credits.
Under the state and non-profit programs, the tax credit can provide the entire downpayment; there's no requirement that homebuers put 3.5% down.
The first state to launch such a plan was Missouri, which rolled out its Missouri Housing Development Commission Tax Credit Advance Loan program on January 14 -- a month before Congress approved the stimulus package. Since then, Missouri has approved applications by more than 360 borrowers and closed on 166 of them.
Lamar Cherry and his wife, Chrishanna, used the program to augment their down payment when they bought their home in Kansas City.
The couple purchased a four-bedroom, three-bath split-level home for $150,000, putting about 6% down. Much of that $9,000 came from the loan program, which they tapped so they wouldn't have to drain their reserves.
"We had money saved up that we were going to use for the down payment," said Cherry. "Now we can use some of that to buy some things we need for the house."
At closing, the Cherrys, like all buyers in the program, signed for their first mortgage, plus a second mortgage issued by the state. The second note is good for 6% of the price of the home, up to $6,750; there is a $350 set-up fee, but no interest is charged if the debt is repaid by June 2010.
In Missouri, borrowers can only access $6,750 of the $8,000 credit for down payments. "We wanted them to have a cushion below that $8,000 in case other tax liabilities show up," said Greg Spurgeon, the single-family homeownership administrator for the Missouri Housing Development Commission.
If borrowers don't pay off the note, it becomes a 10-year fixed-rate mortgage with an interest rate one-half percentage point above that of their first mortgages. For example, borrowers paying 6% on their first mortgages would be charged 6.5% on the second.
So far, Spurgeon said, a significant proportion of participating homebuyers have repaid their loans. He expects most of the others to do the same before the deadline.
Cherry has claimed the federal tax credit on his 2008 taxes, but he hasn't gotten his refund yet. He definitely intends to repay the loan before the 2010 deadline because, he said, not doing so would add about $75 a month to his house payments.
Credited to: www.CNNMoney.com
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