What's Up With Interest Rates These Days?

What Is The Rate Outlook?: The U.S. and global economies are in uncharted territory given mass post-crisis government stimulus spending, so even the best market oracles don't know how rates will play. But here's what we do know: rates drop when mortgage backed securities (MBS) rise, and MBS are at all-time highs because they're one of the best safe havens for global investors rattled by market uncertainty. This is why rates are at record lows. MBS are priced for a very weak economic outlook. Any signs of improvement will cause MBS to sell and rates to rise.


Getting Rate Quotes: Even the best rate websites like MortgageNewsDaily aren't a substitute for a rate quote. As noted in the 'Cost or No-Cost' section, there's a direct relationship between rates and fees, so a rate quote will depend on your objectives and it can only be provided to you by a lender. Always insist on a full written term sheet displaying the rate, term (e.g., 30yr fixed), every single line item closing cost, total monthly costs including insurance and taxes, and total cash-to-close or cash-in-hand at closing. Lenders are required by Federal law to give you a three-page Good Faith Estimate but this form is a joke because it doesn't show you all of your line items, nor your total monthly cost, nor your cash-to-close. So make sure your lender shows this to you in some written format before you lock a rate.

Is Your Rate Locked For Long Enough?: Banks are busy during these rate dips and quoted rates can only be locked for a certain number of days. Ask your loan agent when they expect to close your loan, and if their quoted rate lock is enough time to get the deal done. Also refer back to the 'Provide All Documentation Immediately' section above, so you can hold the loan agent's feet to the fire if the delays are on their end and not yours.

Your Rate vs. Headline Rates: Every Thursday Freddie Mac publishes a rate survey from the previous week. This is source material for virtually all media. In addition to the fact that those rates are expired by the time you're reading about them, there's lots of fine print the headlines don't catch including: those rates are only for loans to $417k, single family homes only, owner-occupied only, and most of those loans have .7% to .8% in points (aka extra fees). Rates on this website are more timely, but again, a rate quote is based on your profile and your property profile so it must come from a lender to be specific.

What If Rates Drop More During Loan Process: When you lock a rate, you're setting that rate then the market will go up or down. It's very much like buying a stock. The main difference is that lenders have what they call 'renegotiation' policies if rates drop after you've locked. All renegotiation policies are similar in that rates have to drop significantly for you to be able to capture some of that drop after you've already locked a rate. Bottom line: renegotiations don't let you capture the entire gain because you've already made a commitment. So as an example, if you locked a rate at 4.75% and the quoted rate for that same unlocked loan a week later dropped to 4.5%, most lender renegotiation policies will give you half of the gain which would put you at 4.625%.

Julian Hebron is San Francisco branch manager and a top producer for RPM Mortgage and also runs mortgage and housing blog The Basis Point.

Homeowners: Are you ready for tax time?

While there’s still time left to file your taxes, the clock is ticking if you haven’t. It’s pretty well understood that tax time is a season of dread for many Americans, homeowners or otherwise. Whether you consider tax time a breeze, a hassle or one big ball of confusion, every homeowner needs to be well informed as to how their home, and the expenses they pay on it, factor into their tax bill.

HSH.com staff writer Gina Pogol compiled the 10 frequently-asked questions regarding homeowners and their taxes.

Let’s take a look at a few:

1. How much of my mortgage payment is tax deductible?

On a Schedule A, you can deduct the following:

Interest on debt used to buy, build or improve your primary or second home (called acquisition debt), as long as mortgages totaled $1 million or less ($500,000 if single or married filing separately).

Mortgage insurance (or funding fees for government loans) for loans taken after 2006 as long as your adjusted gross income does not exceed $109,000 for a married couple (half that for singles and those married filing separately).

Property taxes on first and second homes. Starting in 2010, however, you must itemize your deductions to get this tax break.

2. I sold my home this year. Will I owe capital gains tax?

As long as the property was your principal residence for at least two of the last five years, you can exclude $250,000 of your profit ($500,000 for married couples) from your taxable income. If you profited less than the $250,000/$500,000 threshold, no extra form is required. You can do this as often as every two years.

For those with profits that cannot be excluded, you’ll report your gain on a Schedule D, Capital Gains and Losses. There are special rules for vacation homes. You may be able to exclude some or all of your gain.

3. I lost money on the sale of my home. Do I get to deduct the loss?

Loss on the sale of a personal residence is treated like a loss on the sale of any personal property. It is not deductible. Losses on investment properties are deductible.

4. I bought or refinanced a home this year. Are my closing costs tax deductible?

You can claim a deduction for real estate taxes you paid as part of your mortgage closing costs. The same goes for prepaid interest. It will be included on the 1098 form your lender sends you. What about points? The IRS has a flowchart that you can use to see when points are and are not deductible. In general, you must have paid points to build, buy or improve your primary residence in order to deduct the entire amount in the year they were paid. Otherwise they may still be deducted but on a prorated basis.

5. What happens with points on a refinance?

This deduction is often overlooked, and it could be worth a lot. When you pay points on a refinance, they have to be prorated. For example, if you pay $3,000 in points on a 30-year mortgage, you can deduct $100 a year for 30 years. But if you refinanced again this year and have prorated points that have not yet been deducted–for example, you are 10 years into a 30-year loan and have only deducted $1,000 of $3,000 in points paid–you can deduct the remaining $2,000 in the year you refinance.

To learn more about how loan modifications, foreclosures, prepayment penalties, and more affect your taxes, be sure to continue reading “10 critical questions for homeowners at tax time.”

The Pest Inspection, from a lender's perspective

As a general rule, I always recommend that a home buyer in South Carolina have a licensed pest inspector perform an inspection when purchasing a home. The pest inspector will issue the "Official South Carolina Wood Infestation Report" to document his/her findings. We commonly refer to this document as the Termite Report or the CL-100. There are more than just termites that we look for in this report. Here are the 3 main areas that I focus on as a lender. 1. Live bugs. Termites are just one of a few "wood destroying" bugs that can damage your home's structure. If there are live bugs they need to be treated. 2. Location of found bugs or previous infestation of bugs. The fine print of the CL-100 states, "if there is evidence of active or past infestation of termites and/or other wood-destroying insects or funghi, it must be assumed that there is some damage to the building caused by this infestation. If this is the case, the structural integrity of this property should be evaluated by a qualified building expert." In other words, if the bugs are eating or have eaten some wood, the wood should be repaired. We will ask that a licensed general contractor or structural engineer inspect the integrity of the damaged areas and repair any damage. 3. Moisture. Bugs love wet wood. If the moisture readings are 20% or higher we will require that the conditions causing the excessive moisture be corrected. This may be as simple as re-routing gutter drains or installing a vapor barrier. Every situation is different but it is important to correct the situation and monitor moisture in the future. Although a pest inspection should be important to any home buyer, it is only required to be given to your lender if it is a requirement of your loan (FHA & VA), an appraiser recommends a pest inspection, or if the cost of the inspection is included in your settlement charges at closing. Please contact me if I can be of any assistance with your home buying and financing needs. Thank you.

Another great reason to be a homeowner

Real estate expert Pat Zaby blogs about one of the many reasons home ownership trumps renting. Hope you enjoy his article.

http://blog.patzaby.com/post/2010/11/22/Youll-Be-Worth-More.aspx

And the appraised value is...?

The first question I receive from agents and borrowers alike when learning that our company has received the appraisal report is….........wait for it…....… “What’s it worth?”

You may be surprised to learn that there is more to the appraisal report than just the appraiser’s opinion of value. When my processor receives the report she sends it to the customer and me with a note stating that the report will be sent to the underwriter for review. The underwriter has the job of determining the risk of the loan application which includes analyzing the collateral securing the loan. Value is only one component of overall report. One of the largest private mortgage insurance companies in the U.S., PMI Mortgage Insurance Co. lists these other factors to review during the approval process.

Subject Property:
1. Does the appraiser appropriately and completely describe the subject property’s features, amenities, quality of interior and exterior finishes, fixtures and materials?
2. Does the appraiser accurately report the subject property’s neighborhood value trends (increasing, stable or declining)? If the subject property is in a distressed market, the appraiser should use comparables that are not older than 3 months and provide a current listing.
3. Is there support for the subject property’s effective age?
4. Does the appraiser report and analyze the subject property’s current and prior listings and sales activity?
5. Does the appraiser disclose and analyze negative features and/or characteristics of the subject property?

Comparables:
6. Does the appraiser consistently support the adjustments assigned to the comparables?
7. Are the subject and comparables consistent with the neighborhood boundaries as shown on the location map?
8. Are the comparables similar to the subject property in relation to style, sales price and square footage, and explained if not?
9. Does the appraiser use non-MLS or non-verifiable comparables, and if so, do they explain why?
10. Does the appraiser report, analyze and appropriately adjust for seller concessions?

When an appraiser believes that a property's sales price is supported by the value, you are only half way home. The underwriter has to believe it too.

Foreclosure Prevention

I just learned of a web site with a lot of good information for all. Here is a copy of a post about foreclosure prevention and a link to the site below. I hope you find it useful.

We have all read the facts related to foreclosures and how they are rapidly increasing. In 2009, 2,824,674 properties nationwide were in default and that number appears to be increasing. This is alarming and can be devastating for families that find themselves in this situation. Avoiding foreclosure is not easy and there is nothing that will make it feel any better to those that are going through it. It’s a difficult and challenging time of life that can only be described as something that you have to force yourself to get through. Knowing that there are millions of others going through the same thing is not overly helpful as in the end, you and your family are directly impacted and need help. We put together this list of 10 tips to avoid foreclosure in an effort to try and offer some advice that you may not have thought of if you find your home in jeopardy.

1. Don’t just ignore your problems hoping that they will go away. Unfortunately problems with credit (credit cards, loan, etc.) and especially a mortgage don’t go away they simply get worse if you attempt to ignore them. So first you have to be committed to tackling this problem head on.
2. Contact your mortgage company as early as possible when you realize you have a potential problem making your payments. This is the quickest way to get relief even if you have to really work hard to convince them to work with you. You want to ask them about any deferred payment programs or anything else they might have in place that could help you at least temporarily.
3. Refinance your loan if possible. If you have equity in your home, then refinancing your loan over a longer period can dramatically reduce your payments. You may also want to consider a home equity loan or a debt consolidation loan to try to reduce your total monthly payments (credit cards and other loans can be rolled together).
4. Be responsive to your lender by opening and responding to all correspondence and taking their phone calls as difficult as that may be. Don’t be tempted to throw away those letters, screen calls, or delete those phone messages as it won’t make them any more likely to work with you.
5. Leverage other assets as best you can (jewelry, a second car, etc.). As difficult as these can be to part with, what is more important than your home and providing shelter for yourself and your family?
6. Look to friends and family for any monetary assistance they can provide especially if this is a temporary problem. They are the most likely to understand and be willing to help you through this difficult time.
7. Get a roommate if that is an option or see if other friends and family are facing a similar situation and are willing to live together at least for a while to help reduce expenses for all involved.
8. Avoid foreclosure prevention companies. Most of these are simply going to try to get money from you to act on your behalf with your lender(s), which you can already do for yourself.
9. You need to learn your rights under federal and/or State law. Know whether or not your State protects your home in a bankruptcy, etc. Just be clear as to what your options are to get out from under your debts in the event you exhaust all other possibilities.
10. Look into a short sale and see if your lender will work with you to satisfy the home debt that way (of course you still end up looking for a new home). However, it can be a way to avoid bankruptcy and still salvage your credit.

http://www.changeofaddress.org/blog/2010/10-tips-to-avoid-foreclosure/

FHA Changes coming

I just crunched some numbers for a customer who has been in the market to buy a home for a few months. Her current favorite house is priced about $220k and she would be applying for an FHA loan with 3.5% down payment. At the current rate (which is hitting lows not seen since the 1960's) her total monthly payment would be about $1400 (principal, interest, taxes, insurance, and pmi). So the question is, "For what is she waiting?"

I believe there are 3 market influences that should help her jump off the fence and land in her new backyard.

1. FHA is going to change both the "up front mortgage insurance premium" and the "annual mortgage insurance" on October 4th. The upfront premium calculation is to be lowered but the annual mortgage insurance is increasing by about 60% for most borrowers. The net effect will increase my customer's payment about $50 per month; even if the interest rate stays the same.

2. Perhaps she is waiting for home prices to fall further. Well let's do some math! If her current favorite house price drops 5% to $209,000 but interest rate jumps 1%, her payment will actually increase by about $69 per month, or almost $25k over the life of her loan. In a nutshell she pays $25k more for a less expensive home.

3. What if the rates go up and the price stays the same? An increase in the rate by 1% increases her payment about $130, or a little more than $47k over the life of the loan.

I'm by no means predicting rates will rise soon; but come on! The time is NOW. Make an offer and call me to lock the rate.