Over the last 12 months we have seen rates rise about 1%. Last November the 30 year fixed was hovering in the high 3’s and now we see it flirting with 5%. So where do we see rates over the next 6 months? I see the 30 year fixed remaining fairly stable for the next 6 months. Why is that? Below I list the factors and conditions for my prediction:
- The economy is leveling off. While the economy over the last year has been hot it looks to now be cooling off a bit. With the Democrats now controlling the house look for less legislation to be passed. President Trump and the Republicans passed numerous bills that cut regulations and cut taxes that stimulated the economy. The odds of these type of bills now passing has decreased, therefore cooling off the economy.
- Inflation is in check. The 2 biggest factors in the Federal Reserve increasing rates are the economy and inflation. With the Consumer Price Index (CPI) and The Producer Price Index (PPI) looking to be in check, this will keep the Federal Reserve from raising the short term rates very much.
- Pressure on the Federal Reserve. While some believe the Federal Reserve works in a bubble with no outside pressure, I just don’t think that’s realistic. Yes they look at all the economic factors and inflation but they also hear the President telling them to relax and keep the rates down. President Trump is relying on low rates to keep the economy on track and he knows that the higher the rates go the harder it will be to keep the economy rolling. While I believe this pressure he puts on the Federal Reserve to keep rates low is the least important factor in their decision, it is still a factor.
- Federal Reserve Chairman Powell’s recent comments. Over the last month and a half the Chairman has made a 180. Yesterday, Powell said that rates are “just below” the neutral level that the Fed wants. In an interview Oct. 3, Powell said rates were a “long way from neutral.” As a result, yesterday’s comment provoked a major reaction in the financial markets. This to me is a strong indicator that the Fed is putting the brakes on a bit.
While their are certainly other factors that go into what happens with the rates, I believe these 4 factors are enough information to make an educated guess on where rates go in the next 6 months.
Mahone Mortgage has a new investor that will do 100% financing. We have been waiting for this program to become available and we are super excited! Also, next month Freddie Mac will be rolling out the HomeOne Mortgage Program. This is a 3% down mortgage for first time home buyers. The program is similar to the Home Possible mortgage but without the income limits or geographic restrictions. Below are some highlights of both programs:
No Money Down 100% Financing Program
- 80% first with 20% second.
- Fixed rates and arms available.
- 6 months PITI required.
- Ratios can not be greater than 30/38.
- Good to excellent credit required.
- Do not have to be a first time home buyer
- At least one borrower on the mortgage must be a first time home buyer.
- Owner-occupied primary residences only.
- One unit single family homes, townhouses, and condominiums are allowed. No manufactured homes allowed.
Give us a call at 434-293-5200 for more details or shoot me an email at firstname.lastname@example.org.
10 years ago my brother, Tom, and I had a vision to start our own mortgage company. We had both been in the mortgage business for over 20 years and felt the time was right to start our own business. Ten years later Mahone Mortgage has closed over 2000 mortgages. While mortgage companies have shut down left and right over the last 10 years, Mahone Mortgage has thrived.
Why start our own business? There are a lot of reasons but I’ll list the 3 main ones:
- A dream. The American dream is to own a home for sure. But the next dream is to own your own business. It’s a sense of accomplishment and satisfaction to own your own business. 10 years later I still feel that sense of pride. It’s truly a great feeling.
- Not having a boss or worrying about the company you work for shutting down. 10 years ago the mortgage meltdown was under way and companies were closing down and people were losing their jobs. Tom and I did not want to be a casualty of this scenario. We wanted to control our own destiny.
- We wanted to create our own mortgage experience for our clients and referral partners, not someone else’s experience. We wanted to hire the people we felt were the best people in the industry to offer the best customer service possible. 10 years later we have the same staff we started with. Jeff Sharff and Roseann Caddell are 2 of the best in the business anywhere.
I really feel like Tom and I have it exactly like we want it. We both do our own personal production from our past clients and referral sources. We have the perfect staff with Jeff and Roseann to take care of that production in top notch fashion. Kim Casteen is a loan officer that has also been with us since the beginning and she does her own personal production as well and is one of the most knowledgeable mortgage professionals you will find. We work with the top 3 wholesale lenders in the country as well as a few niche investors. We have established long relationships with these investors and made sure their underwriting and closing departments are the best in the industry. In a nutshell, we couldn’t be happier.
Tom and I could not have done this without the loyalty from our past clients and referral sources. We have to give a big THANK YOU to all of you! It’s one thing to have a dream of owning your own business but if your clients and referral sources don’t come along then you won’t last. So to everyone that has done a mortgage with us or referred a client to us, you deserve the credit for making our dream possible.
Over the last 7-8 years the jumbo mortgage market has tightened it’s guidelines and increased the down payments to at least 20%. Mahone Mortgage is now offering 10% down conforming high balance mortgages to $679,650. I have listed the bullet points below:
- Minimum 680 credit scores
- Purchases to 90% and refinances to 80%
- Eligible for primary and second homes
- No monthly mortgage insurance
The 10% down loan will be about .25% higher in rate than the 80% but that’s a good deal considering there is no monthly mortgage insurance. Plus the 10% down options in general on these loan amounts are few and far between in our industry.
Another advantage of this program is the underwriting. Typically, jumbo underwriting is very tough and can be picky and irritating to the borrowers. This program allows DU conforming underwriting which is very straight forward.
If you have any questions feel free to give us a call at 434-293-5200 or shoot me an email at email@example.com.
Two new changes to the mortgage lending market are about to go into effect that will help make it a bit easier to obtain a mortgage. The first change is that Fannie Mae and Freddie Mac are raising their debt-to-income ratios to 50% from 45%. This change goes into effect July 29th. “In this case, we’re changing the underwriting criteria, and we think the additional increment of risk for making that change is very small,” said Doug Duncan, Fannie Mae’s chief economist. “Given how pristine credit has been post-crisis, we don’t feel that is an unreasonable risk to take.”
I agree with this change. 8 years ago anyone could obtain a mortgage and it lead to the real estate and mortgage crisis. But like anything the market over corrected and the criteria became too strict. A little loosening up is needed. Obviously we don’t want to go back to just needing a pulse to obtain a mortgage but going to 50% on the ratios for borrowers with good credit and reserves makes sense.
The 2nd change is that the nation’s three major credit rating agencies, Equifax, TransUnion, and Experian will drop tax liens and civil judgments from some consumers’ profiles if the information isn’t complete. Your first response might be, “What? That’s crazy!” But I can’t tell you how many incorrect credit reports I have had to deal with over the years with these issues. It seems like once a month we will have a customer with a judgement or lien that has been paid off but still remains on their credit report. This will no longer be the case. If the credit agency can not verify the lien then the lien cannot go on the report. That makes sense to me.
Both of these rules seem like common sense decisions. I applaud Fannie, Freddie, and the credit agencies for evaluating current lending criteria and making smart changes.
Over the last few weeks I’ve had a few sellers balk at receiving an FHA contract and a VA contract. In both instances I had to reassure the agents to communicate to the sellers that the borrowers were strong and that there is basically little difference in an FHA or VA loan compared to a conventional loan as far as speed and difficulty. Below I break down the 3 different types of loans in terms of processing times and the appraisals.
Processing and closing times: Basically, there is little to no difference in how long it takes to process and close a conventional loan compared to an FHA or VA loan. All 3 types of loans are underwritten and closed by the lender and do not have to go to FHA or VA to be processed or underwritten. When sellers complain that they do not want to accept an FHA or VA loan because it takes longer to close, let them know it is just not true. Also, all 3 loans use computerized underwriting modules. Once the loan is approved by the underwriting module then it is up to the lender to gather the conditions. The FHA and VA conditions are no harder to obtain than the conventional conditions. If the processing and closing time are taking forever then blame the lender, not the program.
Appraisals: As far as value, all 3 programs use basically the same criteria to obtain their values. It will be based on past sales that are similar to the actual home being sold. The same appraiser will get the same value under all 3 programs. Different appraisers might get different values on the same home but not because it was an FHA or VA compared to a conventional. It will be because one appraiser used a different comparable or used a different adjustment than the other appraiser used. The only real difference you will see in the appraisals under the 3 different programs will be that FHA is a bit more strict when it comes to detail. FHA has to check to see that all the mechanicals and kitchen appliances are working and has to inspect the attic and crawl spaces. Plus for homes built prior to 1978 they need to check for chipping and peeling paint. That doesn’t mean that a conventional appraiser will not point these items out but an FHA appraiser has to.
So to recap. If you are an agent then let your sellers know that there is little to no difference in an FHA or VA loan compared to a conventional loan. And if you are selling a home don’t be concerned about the type of loan in the contract, be concerned about what mortgage lender the borrowers are using. The lender is much more important to the speed of the transaction and getting to the closing table than the program being used.
Every 6 months or so I give my rate predictions for the coming 6 months. As I’ve stated in previous blogs, the FED has been eager to raise rates for the past couple of years. But the economic numbers have just not supported the increases they would like to make. Since Trump was inaugurated the FED has raised the Fed Funds rates twice, each time increasing .25%. In general, the FED believes Trump’s policies of less taxes and less regulations will create greater growth in the economy. This increase of .5% in the Fed Funds rates has driven 30 year fixed mortgage rates up about .75%. Currently the Freddie Mac weekly rate average is 4.1% with .5 points up from 3.42% on October 6th.
So where will we be by years end? I see this upward trend continuing. The FED is just itching to keep raising the Fed Funds rate and it will not take much for them to pull the trigger. If Trump gets his wish of lower taxes I believe the Fed will raise right away. One of Trumps biggest campaign promises is to get the economy robust again. If he succeeds with his agenda and lowers taxes (personal and corporate) the economy will accelerate and the FED will raise rates 2 to 4 more times this year. My prediction is that 30 year fixed rates will be hovering around 5% by years end.
Before you start yelling at me about ‘oh no, here we go again’, hear me out on this. The biggest obstacle I see with first time home buyers and move up buyers is the money it takes for a down payment. First time home buyers are obviously cash tight and move up buyers are having the same issues because their current home has not fully recovered from the real estate recession of 2008. They are not necessarily upside down with the equity in their home but they are strapped. After paying the realtor fees and closing fees a lot of these borrowers need the option of a no down payment loan. If Fannie and Freddie would come up with a good no down payment mortgage I believe this would jump start housing and really bolster the economy and help everyone.
So many of the customers I prequalify have good jobs, good credit, but no money. After hearing that they will need at least 3% to 3.5% to buy a home they give up the process. My suggestion is that Fannie and Freddie develop a program for these borrowers. I would like to see at least a 700 credit score with no more than a 45% back ratio (monthly mortgage payments and debts divided by monthly income). I also would not have an income limit or have it restricted to just first time home buyers.
Here are the reasons this program would be different than the zero down payment loans that were available in the mid 2000’s that helped create the real estate crisis. First of all, we now have QM (Qualified Mortgage) and ATR (Ability-To-Repay). Both of these rules were put into place to make sure borrowers can afford their mortgages and both rules eliminated certain features that lead to risky loans and higher default ratios (interest-only, negative amortization, balloon features, stated income, etc). I can remember back in 2005 there were mortgages available that were zero down, stated income, interest only, with 680 credit scores. And if you could prove your income then you could get a no down payment loan with as little as a 580 credit score! Talk about a train wreck. The only thing this new loan would have in common with the loans of 2005 is the zero down. The income would be verified, ratios limits would be followed, and credit scores would have to be high.
I understand peoples trepidation and hesitancy with the zero down payment mortgages. But, if handled in the correct way, these loans would be a big boost to the housing market and overall economy without increasing the risk of another real estate crisis.
It has been reported that Donald Trump may issue an executive order freezing a number of actions by the Obama administration including reducing the monthly FHA mortgage insurance premium. The premium cut was supposed to take place January 27th reducing the monthly mortgage insurance to .6% from .85%. Assuming Trump signs the executive order, this will give the new HUD secretary, Ben Carson, time to review the mortgage insurance reduction and make a decision on whether it should take effect. We will keep everyone updated on what transpires.
Starting January 27th, FHA will lower their monthly mortgage insurance to .6% from .85%. On a $200,000 mortgage that would be a reduction of approximately $41 a month. It looks like we are starting to see the housing and mortgage market remove the roadblocks of first time home buyers. Although FHA is not solely a first time home buyer program, it does help first time home buyers get into the housing market by offering a 3.5% down payment option.
This is the 2nd sign we’ve seen this year that the powers that be look like they are all in for kick starting the housing market and getting the economy moving. Yesterday I posted a blog about Freddie Mac offering a new 1% down program and now FHA reduces their monthly mortgage insurance. These both look like positives signs. I will continue to keep you abreast of any new changes that occur in the mortgage and housing markets.