Long, but very helpful…

Increases in FHA UFMIP, monthly MI factor, and reductions in seller paid closing costs
I’m sure you’ve heard through the grapevine all the recent changes that are going to be implemented with FHA loans. Basically now, regardless of consumers’ credit score and down payment, people will start seeing an increase in the amount that they are going to finance (UFMIP). About a year ago, the higher the score, the less UFMIP they would have to pay (risk-based adjustments), but not now.

Another thing that may sway less “qualified buyers” in the door is the reduction in seller contributions. More often times than not, 6% was WAY more than enough needed to help a buyer absorb and finance some of the costs, but just like everything in the mortgage industry, a few bad apples spoil it for all. Mortgage lenders were jacking up fees, telling Realtors, “Yo we need that full 6% if you wanna close this deal!” and look where we’re at now.

RESPA
With all these new RESPA laws that have started off the year with a BANG, what is happening is a huge staffing spike for mortgage companies. Mortgage lenders are creating compliance departments so they don’t get wacked by RESPA, and title companies are having a complete overhaul of their title software to stay in compliance as well. Who do you think is going to be picking up the tab for this? Consumers.

Feds Purchase Program
So now everything is going pretty damn good with rates, and I’d think you’d agree. Well a major reason rates are so low is because the economy is still in the dumps and the Fed is buying up MBS (Mortgage Backed Securities). MBS is what control mortgage rates in case you didn’t know. Well this is not going to go on forever, and what is going to happen is the Fed is going to stop buying pools of BILLIONS OF DOLLARS of these securities? This week, the Fed’s buying was $0.4BB less than previous weeks, so we are already starting to see the reduction of their commitment and investment towards the MBS market.

Equity Markets
The stock market has been on a downward spiral for a long enough time already. People have been watching their money go “bye-bye” for the last few years, but signs of a market recovery are already on the horizon.

Usually when equity market’s do bad, mortgage rates do good, and vice versa.

The reason behind this is that money managers either invest in stocks or bonds. When stocks are being sold off, the money is then parked into bonds, which improves bond prices and causes interest rates to decline.

The same applies for stocks. If stocks are in favor, money is pulled from bonds, causing bond prices to drop and interest rates to rise.

Bottom Line for 2010 - be prepared for higher mortgage costs.