Improved Employment Numbers Reverse Mortgage Rate Trend
I usually like being right. In my last update, I addressed the fickleness of markets and advised that the lower rates of late could be a fleeting affair. Based on the events of the last week, the turned out to be more prophecy than prognostication as we saw the week end with a reversal of the recent downward trend.
Are you currently in the process of buying a home or refinancing in Chicago or vicinity? Trying to decide when to lock can be a stressful and difficult decision. In my job as a mortgage lender, I watch the markets daily to keep my clients abreast of changes to assist them in securing the best mortgage rate possible. Please see my recommendations below.
- Short-term – Cautiously FLOAT
- Long-term – LOCK
Economic data that can affect mortgage interest rates.
Tuesday
- January Construction Spending
- February ISM Manufacturing Index
- February Car and Truck Sales
Wednesday
- MBA Weekly Mortgage Applications
- February ADP Non-Farm Private Jobs
- February Beige Book
Thursday
- Weekly Jobless Claims
- Q4 Revised Productivity
- Q4 Revised Labor Costs
- February ISM Services Sector Index
Friday
- February Employment Report
- January Factory Orders
Mortgage Rates Dip in Wake of Increased Libyan Unrest
Finally, after weeks of pent up parody lyrics I am again able to unleash upon you, my loyal readers, a musical interlude and tribute the late, great Groucho Marx.
Libya (Sung to Lydia, The Tattooed Lady)
Ooooooooooooooooooh
Libya oh Libya, Oh have you seen Libya
Libya a country unraveling
She is 6th in Middle East oil reserves
The unrest in her people shakes world market nerves, so
Turmoil in Libya pushes oil up and mortgage rates down
Are you currently in the process of buying a home or refinancing in Chicago or vicinity? Trying to decide when to lock can be a stressful and difficult decision. In my job as a mortgage lender, I watch the markets daily to keep my clients abreast of changes to assist them in securing the best mortgage rate possible. Please see my recommendations below.
- Short-term – Cautiously FLOAT
- Long-term – LOCK
Please note that the turmoil in Libya has savaged equities markets. Oil has increased in price and bonds have once again been elevated to safe haven status. I am predicting the will be the single most influential driver this week for mortgages. The week ahead for economic data that can also affect mortgage interest rates.
Tuesday
- Case/Shiller Home Price Index
- Consumer Confidence
- $35 Billion 2-year Treasury Auction
Wednesday
- MBA Weekly Mortgage Applications
- Existing Home Sales
- $35 Billion 5-year Treasury Auction
Thursday
- Weekly Jobless Claims
- Durable Goods Orders
- FHFA Housing Price Index
- New Home Sales
- $29 Billion 7-year Treasury Auction
Friday
- Quarterly GDP
- University of Michigan Consumer Sentiment
Turmoil in Middle East and Unemployment Keep Mortgage Rates Low
This week, we finally saw a return to normalcy. For months, mortgage professionals have felt like we had stepped through the lending looking glass into some Carrollesque world driven by completely different laws of nature and physics. We have been scratching our heads, perplexed by the mortgage markets ability to repeatedly perform counter to conventional wisdom. Time after time, we saw negative or tepidly positive economic news result in rate increases. This finally came to an end this week as mortgage pricing responded as expected.
In this time of tightening guidelines, it is becoming more and more difficult to find the right mortgage loan. Often times idiosyncracies associated with the borrower or property can actually eliminate traditional mortgage loans as an option. As a result, programs such as asset-based lending have grown in prominence for many borrowers.
Asset-based lending, sometime called securities-based lending, allows a borrower to borrower money against a portfolio of securities. This alleviates the restrictive nature of mortgage lending and allows for a buyer to leverage themselves in a time of low rates. In most of the cases where an asset loan makes sense, the only other option is a cash offer, which unnecessarily ties up assets into a property costing a borrower significantly in lost appreciation and dividends resulting from liquidated assets.
Other fantastic benefits of these loans are that they often require minimal documentation. Our program at Chicago Bancorp, for example, allows for a client to apply without the encumbrance of a credit check or income verification. Additionally, the loan is non-recourse, which protects the borrower from entering into a financial sink hole if the market suffers unexpected loses. Finally, a securities-based loan can even save mone over a traditional mortgage.
Example:
Purchase Price: $2,000,000
Traditional Mortgage
- Mortage amount of $1,600,000
- LTV of 80%
- Interest Rate of 8%
- Mortgage payment of $11,740
- Monthly Income of $25,000
- Debt Service Ratio: 47%
Tough loan these days as far as originating and selling at a good price.
If a collateralized security loan is done for $600,000 and used as a down payment the transaction changes dramatically:
- Purchase Price: $2,000,000
- Security loan: $600,000
- Rate: 3.5%
- Monthly payment of $1,750 (simple interest and paid quarterly)
- Regular Mortgage: $1,000,000
- LTV: 50%
- Interest Rate of 7.75% (rate is reduced due to lower LTV and lower loan amount)
- Mortgage payment of $7,164
- Total Monthly Payment: $8,914
Benefits
- Monthly savings: $2,826 (24% savings)
- Debt Service ratio: 35%
In the end, there is no perfect loan structure. Less flexibility in the lending marketplace has made it even harder to find a single solution that meets the complete needs of many borrowers. This should, however, never stand in the way of a qualified borrower getting the home that they want. Asset-based lending, represents a good option for overcoming lending obstacles when a traditional mortgage fails to fit the property or the client.
FHA loans to get a bit more expensive
HUD recently announced that they will once again be adding to the cost of FHA loans. Specifically, borrowers can expect to see a 0.25% increase in monthly mortgage insurance premiums. This move is primarily intended to aid HUD in meeting the mandated capital reserve requirements.
In real world terms, the impact on borrower’s payment will be less than $50 per month. While this will not break the bank for the average homebuyer, this definitely supports the trend the slow steady trend of increased cost of borrowing.
Mortgage rates once again begin the week flat
Are you currently in the process of buying a home or refinancing in Chicago or vicinity? Trying to decide when to lock can be a stressful and difficult decision. In my job as a mortgage lender, I watch the markets daily to keep my clients abreast of changes to assist them in securing the best mortgage rate possible. Please see my recommendations below.
- Short-term – LOCK
- Long-term – LOCK
The week ahead for economic data that can affect mortgage interest rates.
Tuesday
- Janurary Retail Sales
- February New York Empire State Manufacturing Index
- January Import and Export Prices
- December Business Inventories
- NAHB February Housing Market Index
Wednesday
- MBA Weekly Mortgage Applications
- January Housing Starts and Permits
- January PPI
- January Industrial Production
- January Capacity Utilization
- FOMC Meeting Minutes
Thursday
- Weekly Jobless Claims
- January CPI
- January Leading Economic Indicators
- Fed Philadelphia Fed Business Index
Mortgage Rates Continue to Rise in the Face of Economic Optimism
I have begun to use a good news/bad news analogy when speaking with my clients about locking, which I feel provides a good characterization of the week that was in mortgage rates. A good number of these clients had loans in process and chose to follow my advice to lock over the last ten days. The good news for most of them this week is that they secured a mortgage rate at historical lows, the bad news is that the rate is at a 10-month high.
Doug Katz
Loan-o-rama 
Rates still low on oil concerns, but bearish mortgage markets could develop quickly
Are you currently in the process of buying a home or refinancing in Chicago or vicinity? Trying to decide when to lock can be a stressful and difficult decision. In my job as a mortgage lender, I watch the markets daily to keep my clients abreast of changes to assist them in securing the best mortgage rate possible. Please see my recommendations below.
It is important now to realize that although rates are down, markets can turn bearish very quickly. Fence-sitters should decide soon on their course of action or risk higher rates . Economic data that can affect mortgage interest rates.
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