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Mortgage Loan Rates Inch Up, Applications for New Loans Continue to Slip

11/20/2013

The Mortgage Bankers Association (MBA) released its weekly report on mortgage applications Wednesday morning, noting a decrease of 2.3% in the group’s seasonally adjusted composite index, following a drop of 1.8% for the previous week. Mortgage loan rates increased slightly on two loan types while one was unchanged and the fourth fell slightly.

Changes in both applications and mortgage rates continue to be relatively small. In the past couple of years, refinancing often picked up the slack in mortgage lending, but with the lending market coming off record lows, homeowners who were going to refinance have already done so, and the rest are either waiting for rates to fall or for their homes to increase in value enough to make a refinance worth it.

The seasonally adjusted purchase index increased by 6% from last week’s report. On an unadjusted basis, the composite index decreased by 13% week-over-week. The unadjusted purchase index decreased by 8% for the week, and is 3% lower year-over-year. This marks the eighth week in a row that the year-over-year unadjusted purchase index is lower than or equal to its level of a year ago.

The MBA’s refinance index decreased by 7% after dropping by 2% in the previous week. The share of refinancings fell by two points, totaling 64% of all applications. Adjustable rate mortgage loans account for 7% of all applications, unchanged from the prior week.

The average mortgage loan rate for a conforming 30-year fixed-rate mortgage increased from 4.44% to 4.46%. The rate for a jumbo 30-year fixed-rate mortgage fell from 4.48% to 4.47%. The average interest rate for a 15-year fixed-rate mortgage remained unchanged at 3.52%.

The contract interest rate for a 5/1 adjustable rate mortgage loan rose from 3.11% to 3.12%.

Source: http://247wallst.com/housing/2013/11/20/mortgage-loan-rates-inch-up-applications-for-new-loans-continue-to-slip/

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Mortgage rates climb for second consecutive week

11/15/2013

Don’t take out a fixed-rate mortgage

11/13/2013

If you’re buying a home anytime soon, here’s some contrarian advice: Don’t take out a fixed-rate mortgage. If you do, you’re likely to pay more than you need to.

Instead, it often makes more sense to choose a floating-rate note, also known as an adjustable-rate mortgage. Even on a small mortgage, over time you’ll save thousands of dollars. If you use the extra cash to pay down the loan, you’ll save even more.

Such loans come in and out of fashion for a couple of reasons, says Frank Nothaft, chief economist at Freddie Mac. When rates on fixed loans are perceived to be low, borrowers tend to shun ARMs. When the difference between fixed and floating rates is small, again people tend to shun ARMs. Floating-rate notes are considered riskier than fixed-rate mortgages because the monthly payment can jump higher. A so-called one-year ARM typically will reset each year based on fluctuations in the interest rate on the one-year Treasury security or the interbank cost of borrowing known as Libor. Other common ARMs reset each year after an initial fixed period of three, five or seven years.

Fixed-rate mortgages do make sense for some people. For instance, if your budget is so tight that even a small increase in your monthly payment would break the bank, a fixed-rate mortgage makes sense. A fixed rate would also make sense if you will keep your new home for a long time, like 30 years.

More from WSJ: The Art of Protecting Fine Art

But for many people, ARMs come out ahead. Those people need to close their ears to the deafening sound of the ARM naysayers, like one financial planner I heard from: “You have got to be kidding. I guess a bad idea never dies. Don’t Americans ever learn?” I’ve withheld the name because I don’t want to embarrass him.

It’s true: Many people have been burned by ARMs. But as long as you are smart about it---more on that later---that financial adviser is wrong.

Costly Insurance

The main reason an adjustable rate will be cheaper is this: You almost certainly won’t be in your new house or apartment for the next 30 years, the typical life of a fixed-rate mortgage. Most people move every eight to 10 years, says Scott Buchta, head of fixed-income strategy at New York-based brokerage firm Brean Capital LLC. And even if you do stay longer than that, your mortgage won’t survive 30 years if you refinance at some point.

That’s important because the main reason the rate on a 30-year, fixed mortgage is higher than floating rates is that the lender assumes you will take the full 30 years to pay it back. That puts the lender at risk of losing money on the loan if borrowing costs go up during that term. So the lender charges you more.

For that higher interest rate, you get a form of insurance: the security of knowing what your payments will be for the life of the loan. You can sleep better at night, knowing that if interest rates shoot higher, it won’t hurt you. But if you close out the loan in, say, 10 years---by moving or refinancing---you’ve paid too much for that insurance, because you were paying as though you needed 30 years of it.

Here’s an example of how much that can cost you. If you took out a 30-year mortgage in January 2003 the average fixed rate was 5.92%, according to Freddie Mac. Ten years of interest and principal payments on a $200,000 mortgage would have cost you $142,660. But if you went with a one-year ARM, which kicked off at 3.99%, according to Freddie Mac, after resetting each year the total cost would have been $119,181. That’s a savings of $23,479.

Yes, the interest rate on the ARM jumped as high as 5.47% in that 10-year stretch---still lower than the rate you would have gotten if you had gone with a fixed mortgage---but it also fell as low as 2.76%. Rates for floating vs. fixed mortgages have followed a similar pattern since the widespread introduction of ARMs in the early 1980s.

The savings noted above could have been even higher. If you take the cash you save this way and put it toward paying down the principal, you’ll save two ways: You will shorten the life of the loan. And when the rate is reset each year, the new payment is based on the principal outstanding at that point, not on the amount you originally borrowed, so whatever rate you are charged will be applied to a smaller amount of debt.

But what if interest rates suddenly shoot higher? Should you be worried that the rate of, say, 2.75% you can get on a one-year ARM will suddenly jump into the double digits at some point because of an inflation-fueled spike in interest rates like the one the U.S. experienced in the years around 1980? No. Because ARMs come with rate caps. Typically, an ARM has a lifetime cap of five or six percentage points above the initial rate, and a two-point limit for each reset.

Being Smart About It

The biggest caveat: Don’t overreach. That’s how a lot of people have gotten into trouble.

“People shouldn’t use adjustables to stretch too far on a new purchase or refinancing,” says Larry Luxenberg, a financial adviser in New City, N.Y. The lower initial interest rate on an ARM might tempt you to borrow more than you could with a fixed-rate mortgage---to stretch, as Mr. Luxenberg puts it---but that can backfire if an upward adjustment in the interest rate busts your monthly budget. If you can’t handle an upward adjustment, you’ve borrowed too much.

There’s a simple way to guard against that kind of trouble. Work out how much your housing budget is (excluding taxes and insurance) and how much that allows you to borrow at current fixed rates. Then borrow no more than that amount.

Source: http://www.marketwatch.com/story/when-to-go-for-a-flexible-rate-mortgage-2013-11-13

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Mortgage Rates Start Lower, but End Higher After Fed Announcement

10/31/2013

Mortgage rates began the day lower, with several lenders releasing their best rate sheets in nearly 5 months. The day progressed well in the secondary mortgage market with MBS prices (the "mortgage backed securities" that most directly affect rates) rising steadily into the Federal Reserve's policy announcement. When MBS prices move higher, rates move lower.

The Fed wasn't seen as likely to change monetary policy in any way at this meeting, but market participants may have justifiably been expecting a more cautious tone than they got. The Fed even removed verbiage alluding to the risks associated with recently tight financial conditions. Bond markets, including MBS, weakened quickly following the announcement, and many lenders revised rate sheets to fall more in line with yesterday's.

This is interesting because yesterday, we'd looked forward to today's data and events as holding the most promise for breaking the ongoing trend of "unchanged" (or close to it) rate sheets. As it happened, we did get a break of that monotony this morning, but rates returned to the same levels in the afternoon. As such the most prevalent Conforming 30yr fixed rate (best-execution) remains at 4.125%.

Loan Originator Perspectives

"Fed Statement released today confirmed markets' conviction that tapering is on hold pending improved data. Rates did lose some ground (after AM gains) following the Fed release, but stayed within recent ranges. Nice opportunity for buyers and refinance borrowers to obtain the lowest best execution rates since June, loan volume picking up as borrowers moved to obtain these desirable rates." -Ted Rood, Senior Originator, Wintrust Mortgage

"Following the FOMC statement, the rates markets took a turn for the worse, but not sure why. I think the losses today will be recouped over the next day or so. If you were unable to lock prior to the FOMC statement and the reprices for worse that followed, I would float over night as I suspect we will get most of these loses back." -Victor Burek, Open Mortgage

"I've been on a stream of recommending locks and exercising them for clients over the past several days. My bias is lock at this point, and today's FOMC announcement rattled the market, so my clients are happy. Outside of 45 day lock, I'd still recommend the client watch and try to get inside of 30 days. For those happy with the rate, lock now, don't look back." -Matt Hodges, Charlottesville Sales Manager, Presidential Mortgage Group

Ongoing Lock/Float Considerations

Uncertainty over the Fed's bond-buying plans and more recently over Fiscal Policy has been making for a tough interest rate environment.
A lack of data due to the government shutdown caused rates to experience moments of paralysis while headlines suggesting the shutdown might/might-not end, as well as a seizing-up of short term funding markets caused unexpectedly high volatility--enough to be felt in longer term rates like mortgages.
After a deal was reached to avoid going over the debt ceiling, funding markets thawed and rates returned to the same 'wait and see' range that existed before the Fiscal drama.
Markets continue to be most interested in economic data and its suggestions about the longer term trajectory of the economy. This will shape expectations for Fed policy in the coming months, and thus inform the direction of interest rates.
The stronger the data the more likely the Fed is seen as reducing asset purchases. Rates would rise under this scenario, but the most recent FOMC Meeting (and more importantly, the Fed's decision to hold off on tapering) suggests that they'll attempt to keep the pace of rising rates moderate as long as inflation isn't adversely affected. The delayed release of the September jobs numbers on October 22nd helps confirm that.
(As always, please keep in mind that our Best-Execution rate always pertains to a completely ideal scenario. There are many reasons a quoted rate may differ from our average rates, and in those cases, assuming you're following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).

source: http://www.mortgagenewsdaily.com/consumer_rates/329853.aspx

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Purchase loans expected to buck rising mortgage rates next year

10/30/2013

Rising mortgage interest rates could curtail refinancings by 57 percent next year, but purchase originations are expected to rise 9 percent, as home sales and prices continue to post gains, the Mortgage Bankers Association (MBA) said in a forecast released today.

Overall mortgage originations are projected to fall 32 percent in 2014, to $1.2 trillion, from an upwardly revised $1.7 trillion this year. Purchase loans would make up about 60 percent of that $1.2 trillion, compared to about 38 percent of originations in 2013.

“We are projecting home purchase originations will increase in 2014 due largely to gains in home sales and home prices. We expect to see a decline in the share of sales paid for with cash, and higher average LTVs on purchase mortgages, due to the rise in home prices,” said Jay Brinkmann, MBA’s chief economist, in a statement.

The trade group anticipates mortgage rates to rise above 5 percent in 2014 and to 5.3 percent by the end of 2015.

“As a result, mortgage refinancing will continue to drop, and borrowers seeking to tap the equity in their homes will be more likely to rely on home equity seconds rather than cash-out refinances,” Brinkmann said.

The MBA forecasts 2015 originations will total also $1.2 trillion, but that purchase loans will make up an even bigger proportion of the total. Purchase loan originations are expected to grow by 10 percent from 2014 to 2015, to $796 billion, while refinancings fall 6 percent, to $433 billion.

Source: http://www.inman.com/wire/purchase-loans-to-buck-declining-mortgage-originations-trend-in-2014/

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Are Inflation and Mortgage Interest Rates Killing the Party?

10/29/2013

It's all over right? The most recent glory days of real estate investments, when we could buy foreclosed homes for pennies on the dollar are disappearing fast with shrinking foreclosure inventories. We can't hire construction trades people on-the-cheap as easily either, as they are finding jobs in improving real estate markets. This increases our fix-and-flip costs.

With an improving economy we're seeing interest rate increases as well. It looks like the party's over right? Well, not my party!

If you leave this party too soon, you'll regret missing some great fun. We humans tend to make decisions based on the information right in front of us, and we sometimes have a tough time looking at "today" from a historical point of view. We also discount what's come before as no longer applying in today's world. These are big mistakes, particularly when we're looking at real estate investment in the post-crash recovery, currently underway.

Inflation will Ruin the Real Estate Investment Party

Inflation is defined as increases in costs of goods and services. Goods and services are what home building is all about. The cost of a home is the result of material and labor costs, and new home prices generally rise in tandem with inflation. When new homes become more expensive, more buyers move to existing home purchases, and those prices start to rise. If you're a rental property investor, your rental homes are increasing in value right along with inflation.

That's nice, but the party must be over for buying rental properties if prices have risen, right? Not at my party, as I'm buying a rental property with multiple profit streams in mind, and equity appreciation is only one of them. In fact, the monthly cash flow from rents is your major objective. When home prices rise, rents normally rise as well. Rising prices move more people to renting, and this increase in demand raises rents. We take our rent checks to the bank without complaints. Just because you have to pay more for that 2 BR, 2 BA rental home this year than last doesn't mean that your profit stream has been damaged in any way.

Rising Mortgage Interest Rates Send Partiers Home

Let's take a breather from crying over rates rising a point or so and think about historical mortgage rates. Rental property investors were making money when rates were higher, even when they were double what they are today. Sure, it makes it more of a challenge to buy right and to get that positive cash flow we want. Calculating what you lost from yesterday's rates to today's is like crying over getting to the fair two hours after the gates open. There's still a lot of fun to be had in the remaining hours.

Like inflation, rising mortgage interest rates change home buying habits. Rising rates push buyers out of the market, and those buyers become renters. More renters put upward pressure on rents and the rental property investor profits. If our monthly debt service cost rises but our rents rise with it, it's still a party.

Real estate investing enjoys another great advantage over other asset classes. If we experience an increase in mortgage interest rates and our cash flow will be damaged, we have control over structuring our next investment. We can take a more aggressive approach to our purchase and buy at a steeper discount. Reduction of our cost can bring the investment back in line with our cash flow goals if we're paying a higher mortgage rate.

The recovery following the real estate and mortgage crash is expected to be prolonged and not the "boom" experience that preceded the crash in 2006. Sure, interest rates and inflation will fluctuate over the next five to ten years, but you have the ability as real estate investors to adjust your techniques to adapt, and this party can go on for a long time. I've been throwing a real estate investment party for years now and no matter what the markets do or how they fluctuate, I'm always having fun and making money. I just modify the theme and refreshments to fit the guests.

source: http://www.huffingtonpost.com/dean-graziosi/are-inflation-and-mortgag_b_4171031.html

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Mortgages Swoon to Lowest Level Since June

10/28/2013

Only 40% of Americans Can Get the Good Mortgages

10/18/2013

NEW YORK (TheStreet) -- To get the lowest mortgage rate available, just how good does your credit score have to be?

Try 740 and above out of a possible 850. Unfortunately, that figure, from a study by mortgage-info firm Zillow.com (Z_), relegates a lot of would-be borrowers to the sidelines. Zillow says just 40.3% of Americans have such enviable scores. The industry has tightened up -- in 2010, bottom-rate loans required a score of 720, a threshold met by 47% of potential applicants.

Even worse, Zillow figures three in 10 Americans, those with credit scores of 620 or below, are unlikely to qualify for any mortgage at all. Zillow drew these conclusions by looking at 13 million loan quotes and more than 225,000 requests for home-purchase loans on its Mortgage Marketplace in September. The results were compared with a similar study three years earlier.

Despite improvements in the housing market, falling delinquency and foreclosure rates, slightly lower unemployment and other signs of economic improvement, that 30% rejection rate is unchanged since September 2010. Even a high down payment of 15% to 25% won't get these folks a loan.

Getting a less-than-rock-bottom rate can cost you serious money in the long run. In September, applicants with scores of 740 and above got rates averaging 4.42% for conventional 30-year fixed-rate loans. Scores from 620 to 639 qualified applicants for rates averaging 5.09%. There were so few loans approved for applicants below 620 that a meaningful average could not be calculated.

At 4.42%, a $200,000 30-year fixed-rate loan would cost $1,004 a month, with interesting totaling $161,397 over 30 years. At 5.09%, the payment would be $1,085, with total interest at $190,482.

"Your credit score is the single most important factor in determining your mortgage interest rate and monthly payment," said Erin Lantz, director of mortgages at Zillow. "To avoid any surprises when buying a home, check your credit score and report at least six months before you intend to buy to see if there are any costly inaccuracies, pay down high-balance lines of credit and make sure your bills are always paid on time."

After doing, all that, try to save more every month to make a bigger down payment. The smaller your loan compared with the home's value, the better your chances of approval. Of course, you can look for a less expensive home as well.

But what if you can get approval, but for now would be stuck with a higher rate? Would it make sense to postpone your purchase or refinance until you can nudge your credit score higher?

That could be risky. It would be annoying to pay 5% instead of 4.5%, but if you wait six months or a year you might find that those bottom-level rates have gone up. You might end up paying 5% or more even with a score over 740.

No one knows for sure, but most experts agree rates will drift up. They're already up quite substantially since spring, when you could get a 30-year fixed loan for 3.5%.

Also, home prices will probably continue to rise, though perhaps not as fast as during the past year or so. So even if waiting did get you a lower rate than you'd pay today, that saving might be wiped out by a higher purchase price.

Source: http://www.thestreet.com/story/12067136/1/only-40-of-americans-can-get-the-good-mortgages.html
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Refinance applications rise following taper-driven drop in rates

10/11/2013

The Refinance Index rose 2.4% (to 1,995 from 1,947) after the Fed decided to maintain its current pace of asset purchases. The bond market has been re-adjusting to the idea that we may see the end of quantitative easing soon, and then the Fed surprised everyone. This has given people one last chance to refinance.

The MBA reported that the share of refinance applications rose to 63%. Going forward, home price appreciation will drive refinance activity as previously underwater homeowners eventually get back to positive equity and take advantage of lower rates. Slowing refinance activity could be a negative for originators like PennyMac (PMT) and Redwood Trust (RWT).

Policy could have an impact, though. President Obama gave a speech regarding housing in which he said he wants everyone to be able to refinance. That means HARP 3.0 (another wave of the Home Affordable Refinance Program), which would presumably extend to non-government mortgages and would have a later cutoff date than early 2009. If this happens, expect another refinance wave.

Implications for mortgage REITs

Refinancing activity affects prepayment speeds, which are a critical driver of mortgage REIT returns. Prepayment speeds occur because homeowners are allowed to pay off their mortgage early, without penalty, and when interest rates fall, those who can refinance at a lower rate do. This is good for homeowners. However, it isn’t necessarily good for mortgage lenders—especially REITs. When homeowners prepay, the investor loses a high-yielding asset and is forced to reinvest the proceeds in a lower-rate investment. This means lower returns going forward. A rise in prepayment speeds could negatively affect REITs, like American Agency Capital Corp. (AGNC), Annaly Capital Management, Inc. (NLY), Hatteras Financial Corp. (HTS), CYS Investments, Inc. (CYS), and Capstead Mortgage Corporation (CMO). That said, the increase in rates has basically put prepayment worries on the back burner for the REITs.

However, as rates increase, prepayments become less of a problem for REITs. But increasing rates bring their own set of problems, and REITs face mark-to-market hits on their portfolio and must adjust their hedges to a more volatile interest rate environment. Mortgage-backed securities outperform in stable interest rate environments, but they’re highly vulnerable to interest rate shocks. As we’ve seen from the mortgage REIT earnings so far, virtually everyone is reporting a substantial decline in book value as higher rates have taken their toll. It would be ironic to see the only silver lining of increased rates (lower prepayment speeds) taken away from the REITs as well.

Source: http://marketrealist.com/2013/10/refinance-applications-rise-following-taper-driven-drop-rates/
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A Case Against Janet Yellen For Fed Chairman

10/10/2013