Yael Shanee's Blog
Mortgage Rates Ease A Little
July 19, 2013 -- As we expected, mortgage rates eased a little this week. After a period of shock and disbelief, it would appear that the market has become resigned to the fact that the Fed will eventually begin tapering purchases of Mortgage-Backed Securities and Treasury Bonds.
However, the more concrete deadlines offered by Fed Chairman Bernanke just a few short weeks ago -- all predicated on the Fed's forecasts for growth, employment and inflation being realized -- seem to have become a little fuzzier of late. Milestones for unemployment and inflation aside, Mr. Bernanke said as much in testimony before Congress this week.
"We will be waiting to see if the movement in mortgage rates has any material effect on housing," Bernanke said. "If we think the mortgage rate increases are thwarting the progress we will have to take additional action."
It will be interesting to see what the Fed considers "material effect on housing", but we will surely know in the weeks ahead.
Fixed-Rate Mortgage Indicator (FRMI) -- found that the overall average rate for 30-year fixed-rate mortgages slipped by ten basis points (0.10%) to 4.60%, taking back two-thirds of last week's rise. The FRMI's 15-year companion fell by nine basis points (0.09%), landing at 3.68% for the week. FHA-backed 30-year FRMs featured a sizable decline of 16 basis points, falling back to 4.22%, while the overall 5/1 Hybrid ARM completely reversed last week's rise of twelve one-hundredths of a percentage point (0.12%) to return to an average 3.35%.
The available inventory is so low that actually purchasing a home is nearly impossible. The banks have engineered much of this shortage by endless can-kicking through loan modifications and refusing to foreclose on delinquent mortgage squatters. Lenders benefit from rising prices because they recover more capital when they do foreclose, and loan owners benefit because rising prices also makes it possible for them to sell without the lingering debt issues of a short sale. It’s only future buyers that get screwed, and obviously, nobody cares about them.
In a normal market, there is not an overhang of distressed loans that need to be processed.
The flow of properties on and off the market is not constrained by lender policy. In a market where down payments are more substantial and prices are slowly rising, nobody is underwater and thereby reluctant to sell for a loss. The fact that inventory is so low right now is directly related to the choices of these two groups.
Although lenders deserve much of the blame for the lack of inventory, loanowners are the oft ignored group who isn’t listing their homes. And why should they? If they wait, and if prices keep going up, they can avoid a short sale. As long as prices are rising, they have a huge disincentive to sell.
The current supply of homes is low due in part to homeowners who are reluctant or unable to put their homes on the market because they’re waiting for the housing market to bounce back. The fact is the housing market is coming back.
The first type of homeowner hasn’t built enough equity in the home and may be thinking of selling but not sure if they should. For instance, their home may be worth $300,000 and they owe $280,000, so after the sale of the home they may just break even.
What Higher Rates Make You Want to Do
Even with a relatively small rise in interest rates, would-be homebuyers are already falling prey to the conflicting emotional currents that affect a home-purchase decision.
On one hand, some would-be buyers look at the higher rates and erroneously conclude that a home purchase is now out of reach. On the other hand, some experts believe that the rise in rates could well lead to more home-buying activity, as buyers rush to lock in rates before they increase further. With respect to the affordability question, the numbers show that the impact of rising rates on monthly payments isn't as great as you might think.
Using a standard mortgage calculator, you'll find that on a 30-year mortgage for $200,000, the recent rise in rates only increases your monthly payment by about 6 percent, from $887 to $943. And while that might keep a small fraction of would-be homebuyers on the margins from being able to buy, for many, coming up with an extra $56 per month to put toward a mortgage payment isn't impossible.
When it comes to accelerating home purchases, the latest data from the Mortgage Bankers Association support the fact that home buyers do indeed feel the pressure to move forward before rates rise further. Although applications for refinanced mortgages fell 15 percent as of the week ending May 24, new-purchase mortgage applications actually rose 3 percent and hit a three-year high, indicating more buying activity. Unfortunately, impatience takes away a key negotiating advantage that buyers have in choosing a home and getting the best bargain they can.
Let FHA Loans Help You
FHA loans have been helping people become homeowners since 1934. How do we do it? The Federal Housing Administration (FHA) - which is part of HUD - insures the loan, so your lender can offer you a better deal.
July 6, 2012 -- Given the increasingly bleak economic data, no one should be very surprised that mortgage and other interest rates are finding some additional space to fall, even if that fall is measured in only hundredths of a percentage point.
With each report, it becomes clearer that the US economy is close to stall speed, and that the slowdown in the economies of our trading partners is having a considerable effect. Several central banks took action this week to lower interest rates, which may ultimately help, but there is little immediate benefit to be seen.
HSH.com's broad-market mortgage tracker -- our weekly Fixed-Rate Mortgage Indicator (FRMI) -- found that the overall average rate for 30-year fixed-rate mortgages declined by two basis points (.02%), easing to a new record low of 3.96%. The FRMI's 15-year companion also managed a decline of two basis points, landing at 3.25%, just a lone basis point above a record low. Important to homebuyers and low-equity-stake refinancers, already-low FHA-backed 30-year mortgages shed eight basis points to slide to an incredible 3.58%, while the overall average rate for 5/1 Hybrid ARMs finished at 2.88%, a decline of a just 0.01% but enough to set a new low.HSH National Interest Rate BenchmarkFor Week Ending 07/06/2012 This Week Month Ago Year Ago Loan Types
(click for graph)Average
Points 30 Yr FRM 3.96% 0.29 3.99% 0.29 4.77% 0.30 15 Yr FRM 3.25% 0.25 3.27% 0.24 4.00% 0.29 1/1 Yr ARM 3.06% 0.14 3.17% 0.15 3.50% 0.27 3/1 Yr ARM 3.06% 0.11 3.07% 0.09 3.26% 0.18 5/1 Yr ARM 2.88% 0.28 2.90% 0.25 3.39% 0.26 7/1 Yr ARM 3.13% 0.30 3.16% 0.32 3.79% 0.30 10/1 Yr ARM 3.53% 0.30 3.54% 0.36 4.31% 0.31 For information on obtaining conforming and jumbo averages, click here
The days of waiting sixty or ninety days for loan approval just might be over. A new type of cooperative short sale program is gaining momentum in the financial industry. While the bank determines the property value and list price, homeowners will be evaluated for the short sale and approved prior to offering the home for sale.
Once placed on the market, the short sale programs take over. With a guaranteed response time of 10 days, the cooperative short sale option is an enticing program overall. Depending on the quality of the offer, buyers would forgo the typical two to three month approval process associated with home sales. Completing the underlying approval process prior to listing the property for sale maximizes these results.
With the US Treasury and FHA implementing varied short sale programs, more and more financial institutions are apt to follow suit.
LENDERS FOCUS ON SHORT SALES
The new proactive short sale approach encourages cooperation between the homeowner, realtor, and servicer. To avoid adding to the already flooded list of bank-owned properties, financial institutions are embracing the new short sale programs.
Borrowers are falling out of escrow at an alarming rate, due to lack of qualifying, and the short sale was designed to limit such occurrences. When the servicer sets a value for a short sale, the borrower and realtor then search for a qualified buyer, eliminating the wasted time and effort spent on the pre-approval process.
Short sale properties move quickly, lessening the chance of foreclosures. Lenders have taken notice and shifted their focus because of the benefits of short sales.