For the first time in its history, the FHA changed its funding fees and mortgage insurance structure this week.  FHA-insured home loans are now subject to a risk-based pricing adjustment, as shown by the table above.

Because of risk-based pricing, FHA home loans are now more expensive for borrowers with less-than-ideal credit profiles, and less expensive borrowers with perfect ones.

Prior to the changes, most FHA borrowers paid an up-front fee of 1.500 percent, plus on-going annual mortgage insurance payments equal to one-half-percent on the amount borrowed.

FHA-insured mortgages have grown in popularity this year because, while the guidelines of other mortgage products have tightened, FHA program guidelines have remained loose.  FHA allows 3 percent downpayments on purchases, for example, and allows “cash out” refinances to 95 percent.

Fannie Mae and Freddie Mac do not.

(Image courtesy: FHA.gov)

Share this Post

Hide Sites

Another day, another piece of inflationary data. June’s Consumer Price Index showed a 5 percent year-over-year increase in what is now the largest annual Cost of Living increase for Americans in 17 years.

This is bad news for both home buyers and homeowners in want of a new mortgage because rising costs are inflationary and inflation causes mortgage rates to move higher.

Predictably, mortgage rates jumped Wednesday morning after the CPI data was released and they edged higher throughout the rest of the day.

This morning, mortgage rates are higher again on unexpected strength in housing starts and building permits across the country.

On most mortgage products, rates are now higher by 0.250 or more since Tuesday.  This is equivalent to $192 in extra mortgage payments per year per $100,000 borrowed.

(Image courtesy: The New York Times)

Share this Post

Hide Sites

Last week, Forbes Magazine published a Top 10 list that should grab the attention of housing market bottom-feeders.

The Top 10 list of Increasingly Affordable U.S. Housing Markets shows that falling home prices and steady mortgage rates are providing a support floor in some of the country’s most beat-up regions.
The report’s methodology is simple:

• Take citywide income data as reported by HUD
• Match it against purchase prices from court records
• Run the math using “prevailing interest rates” from Wells Fargo

A city is considered “more affordable” if increasing numbers of “average families” can afford “average homes”.  It’s not surprising, therefore, that the Forbes list is dominated by cities in which home prices have plummeted over the last year, and in which he economy is relatively sound.

This may suggest that a housing rebound is already underway in several of the cities listed as Increasingly Affordable U.S. Housing Markets, including:

• San Diego, CA
• Orlando, FL
• Riverside, CA
• Phoenix, AZ
• Las Vegas, NV

Read the complete study and its results at Forbes.com.

(Image courtesy: Memorable San Diego Vacations)

Share this Post

Hide Sites

Mortgage markets have turned their attention back to the U.S. economy this morning, causing yesterday’s rate improvements to unwind a bit.

Rates had fallen Monday after the Federal Reserve and U.S. Treasury’s joint announcement in support of Fannie Mae and Freddie Mac.  Today, it’s the data that is taking center stage.
Most notably, the U.S. Dollar is trading at an all-time low versus the Euro and other currencies.

This is a negative for active home buyers because American homeowners repay their mortgage interest in U.S. dollars.  When the dollar loses value, so does the value of those interest payments so mortgage rates end up increasing in order to attract new investors.

Another reason why mortgage rates are higher this morning is that June’s Producer Price Index registered much higher than was expected, posting its largest one-month gain since November 2007.

PPI is a lot like the Cost of Living index, except that it measures operating costs for businesses instead.  When business costs are increasing, they are often passed onto consumers and this is why rising PPI is thought to be inflationary and inflation — like a weakening dollar — pressures mortgage rates to rise.

So, while Monday’s rate improvements haven’t completely erased, today’s action reminds us that mortgage markets wait for no one and yesterday’s mortgage rates rarely carry forward.

Especially when inflation is in the mix.

(Image courtesy: The Wall Street Journal)

Share this Post

Hide Sites

Mortgage rates fell slightly in a week that included a bank failure, more oil price spikes, and questions about the health of the nations’ mortgage market. Rates would have fallen more if not for a late-Friday sell-off that added 0.125 percent to most products.

As financial markets fell under stress, most people missed the strong points that emerged about the U.S. economy last week:

1. Fewer Americans filed for unemployment benefits
2. Wal-Mart reported stronger-than-expected sales
3. Consumer confidence rose for the first time in 7 months

And, also worth noting: homes under contract slipped but remained above the lowest levels of the year, suggesting a potential housing floor.

But, the biggest story of last week was the stock-price collapse and subsequent pressure on Fannie Mae and Freddie Mac.  It should be the biggest story of this week, too.

So far, Fannie and Freddie’s issues appear to be more psychological in nature than fundamental, but to an already roiled market, negative perception can quickly become reality.  This is one of the biggest reasons why both the Federal Reserve and the U.S. Treasury made public statements Sunday in support of Fannie and Freddie, and in advance of the Asian markets’ opening.

Other events that may move markets this week include Retail Sales data on Tuesday, consumer inflation data on Wednesday and Ben Bernanke’s two-day testimony to Congress which takes place over both Tuesday and Wednesday.

It’s unclear in which direction mortgage rates will go, but because the markets are on-edge, expect rate movements to be sharp and quick.  In other words, if you’re in the market for a mortgage this week and you see a rate and payment you like, don’t mess around with it — just get it locked.

(Image courtesy: Wall Street Journal Online)

Share this Post

Hide Sites

“Economic uncertainty” is turning into a 2008 buzzword and there’s good reasons why.

On the one hand, there are precursors to inflation in the economy:

1. Rising oil costs
2. Rising food prices
3. Higher Cost of Living

On the other hand, there are precursors to recession in the economy, too:

1. Mounting job losses
2. Less access to credit and/or loans
3. Falling consumer confidence data

The pie chart at right illustrates just how uncertain the “experts” are about the state of the U.S. economy.  They’re evenly split, right down the middle.

This isn’t good news or bad news for Americans, per se, but it does legitimize the idea that the economy’s future direction is in doubt.  This is one of the biggest reasons why there’s been no clear direction for mortgage rates or stock markets since the start of the year.

Until the picture gets more clear, we can expect the volatility to continue.

(Image courtesy: Wall Street Journal)

Share this Post

Hide Sites

According to RealtyTrac, the rate of foreclosures across the U.S. is slowing. Versus May, June foreclosures fell at a 3 percent clip.

25 states showed improvement month-over-month, led by many of the same areas that had fueled foreclosure activity in 2007.

A sampling of RealtyTrac’s data includes:

1. California : Foreclosures down 4.54 percent
2. Georgia : Foreclosures down 14.91 percent
3. Arizona : Foreclosures down 0.07 percent
4. Michigan : Foreclosures down 6.00 percent
5. Illinois : Foreclosures down 15.65 percent

However, the improving nature of the data is not what is making news this morning. Instead, the press is reporting that foreclosures are up by half since last year and that bank seizures have tripled.

And while the annual data may be accurate, that doesn’t mean that it’s necessarily relevant to home buyers and home sellers across the country.

This is because people buying and selling homes don’t usually boast an “annual” mentality; when someone’s an active participant in the real estate market, the mentality is “right now”.

In other words, annual data fits an economist, but month-to-month data fits you.

June’s foreclosure data may be the start of a trend, or it may be a blip. It’s really too soon to tell. But the RealtyTrac data reinforces what real estate professionals already know — that markets all over the country are showing signs of life.

Share this Post

Hide Sites