Fixed Mortgage Rates on Hold

RISMEDIA | Monday, April 07, 2014

Freddie Mac recently released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates relatively unchanged from last week.

The 30-year fixed-rate mortgage (FRM) averaged 4.41 percent with an average 0.7 point for the week ending April 3, 2014, up from the previous week when it averaged 4.40 percent. A year ago at this time, the 30-year FRM averaged 3.54 percent.

“Mortgage rates were little changed amid a week of light economic reports,” says Frank Nothaft, vice president and chief economist, Freddie Mac. “Of the few releases, real GDP was revised up slightly to 2.6 percent growth in the fourth quarter of 2013. The private sector added an estimated 191,000 jobs in March, which followed an upward revision of 39,000 jobs in February according to the ADP Research Institute. Also, the Institute for Supply Management reported the manufacturing industry rebounded from a soft February but was still below market consensus.”

Additionally, the 15-year FRM averaged 3.47 percent with an average 0.6 point, up from the previous week when it averaged 3.42 percent. A year ago at this time, the 15-year FRM averaged 2.74 percent.

Results show that the 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.12 percent this week with an average 0.5 point, up from the previous week when it averaged 3.10 percent. A year ago, the 5-year ARM averaged 2.65 percent.

The 1-year Treasury-indexed ARM averaged 2.45 percent with an average 0.4 point, up from last week when it averaged 2.44 percent. At this time last year, the 1-year ARM averaged 2.63 percent.

For more information, visit www.FreddieMac.com.

Understanding CFPB’s New Qualified Mortgage Rule

By Keith Loria | RISMEDIA, Sunday, February 23, 2014

In January, the Consumer Financial Protection Bureau’s new qualified mortgage rule went into effect with a goal of helping borrowers understand the true costs of the mortgage they apply for. Also referred to as the ability-to-repay rule, it functions as a way to stop lenders from lending money to borrowers who can’t afford to make those payments over time, thus saving the frustrations and problems that arise when they can’t.

According to the CFPB, its plan is expected to limit the number of foreclosures in the years ahead and eliminate many of the conditions that helped create one of the biggest real estate bubbles in U.S. history.

“The ability-to-repay rule is intended to prevent consumers from getting trapped in mortgages that they cannot afford, and to prevent lenders from making loans that consumers do not have the ability to repay,” reads a statement on the CFPB website. “Certain types of mortgages are more likely to become a debt trap for the borrower, so the new rule lays out basic guidelines that lenders can follow. They give lenders greater certainty that they are meeting the ability-to-repay requirement.”

With the new guidelines in place, there will no longer be no-doc loans, where a loan officer simply writes down figures based on the applicant’s word, without verifying the information. From now on, a lender must assess whether a borrower will be able to repay the loan, not just in the short run, but throughout the term of the mortgage.

To be eligible for a qualified mortgage, one must have a total monthly debt-to-income ratio of no more than 43 percent. That means that when you add up mortgage payments and other debt repayment like credit cards or car loans, the total has to be less than $43 for every $100 in income you earn on a monthly basis.

The loan must also fit into one of three categories: The monthly loan payment plus the borrower’s other debt payments cannot exceed 43 percent of the borrower’s gross monthly income; the loan must qualify to be purchased or guaranteed by a government-sponsored enterprise or be insured or guaranteed by a federal housing agency; or the loan must be made by a smaller lender that keeps the loan in its portfolio and does not resell it.

To be considered a qualified mortgage, a lender may not charge excessive upfront points and fees (capped at three percent of the loan) and the loan cannot be longer than 30 years in length. Additionally, interest-only loans and negative amortization loans may not be considered.

If one was to fall behind on their mortgage, the new rules provide some leverage as servicers will need to wait approximately four months before starting a foreclosure proceeding so there’s ample time to request a loan modification. If a homeowner applies for help, the servicer can’t simultaneously move forward with a foreclosure proceeding, and the homeowner will have the right to assistance from the mortgage servicer to help them with their options.

To learn more about the ability-to-repay rule, contact our office today.

Copyright© 2014 RISMedia, The Leader in Real Estate Information Systems and Real Estate News. All Rights Reserved. This material may not be republished without permission.

Will Housing Take Gold?

RISMEDIA, Thursday, February 20, 2014

Freddie Mac recently released its U.S. Economic and Housing Market Outlook for February showing that despite the Federal Reserve’s taper activity, long term rates have eased over the past month, providing a chance for some borrowers who are holding older mortgages an opportunity to refinance.

“It appears mortgage rates may have given the market a reprieve for a month or so and provided some borrowers another chance at refinancing, especially those folks that may be holding older mortgages,” says Frank Nothaft, Freddie Mac vice president and chief economist. “However, if rates continue their upward trend, it will be difficult for many families to purchase a home without seeing some income growth. Rising home prices and interest rates along with little to no income growth has resulted in a substantial erosion of homebuyer affordability over the past year. Therefore, jobs and income growth are necessary for 2014 to turn in another gold-medal performance for the housing recovery.”

The lackluster labor market report for January resulted in a slow start for the residential sector. Only 113,000 jobs were created, less than the 194,000 per month the U.S. averaged for 2013.

Despite the Federal Reserve tapering activities, 10-year Treasury yields and fixed mortgage rates dipped about 0.3 percentage points between early January and early February, breathing a bit more life into refinance activity in the mortgage market.

Based on 30-year mortgage-backed securities outstanding for Fannie Mae, Freddie Mac, and Ginnie Mae in January 2014, we estimate more than $800 billion in securities with a coupon of at least 5.0 percent are in the money and would benefit by refinancing.

Approximately half of the borrowers who refinanced held their previous loan for seven years or longer, according to the Freddie Mac fourth quarter refinance report.

For more information, visit www.FreddieMac.com.

RISMedia welcomes your questions and comments. Send your e-mail to: realestatemagazinefeedback@rismedia.com.

Copyright© 2014 RISMedia, The Leader in Real Estate Information Systems and Real Estate News. All Rights Reserved. This material may not be republished without permission.

Getting a Mortgage May Get Tougher Under New Rules

By Marilyn Kalfus | RISMEDIA, Thursday, December 05, 2013— (MCT)

Some shoppers planning to buy a new home in 2014 will get more scrutiny — and likely less money.

Here’s why: A new set of rules for getting a mortgage kicks in. Interest rates are expected to rise. And loan amounts are expected to shrink.

The Consumer Financial Protection Bureau’s rules, which take effect on Jan. 10, establish a national standard for issuing mortgages and are meant to prevent the risky lending practices that led to the housing crash.

The bureau, created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, says the rules mostly codify practices that are already common in today’s more careful mortgage climate.

Many mortgage experts and consumer advocates alike applaud the bureau’s requirements. In addition to looking after consumers, the rules provide a safe harbor for lenders, shielding them from lawsuits.

“Lenders are going to be crossing their t’s and dotting their i’s like never before,” said Bob Walters, chief economist for Quicken Loans. But strict adherence to the rules could result in unintended consequences, he added. “There’s going to be circumstances where people who should get mortgages won’t get mortgages.”

Two other developments also could make getting a home loan more difficult. Some economists predict interest rates will gradually work their way up to the mid 5-percent range by the end of 2014. And there’s a good chance that limits on the size of some popular loans will be lowered next year.

Here’s what’s on the horizon and how it may affect you.

The Rules: The consumer bureau’s goal makes sense: restrict mortgages that borrowers can’t afford. The standards are listed in the bureau’s Ability-to-Repay and Qualified Mortgage Rule.

The Ability-to-Repay standard bans no-documentation loans and requires lenders to verify and document a borrower’s income, assets, savings and debt.

The Qualified Mortgage grants the creditor greater protection from potential liability. Under this rule, lenders cannot include toxic features such as negative-amortization “option ARMs” that increase borrowers’ debt with each monthly payment, or excessive upfront points and fees (these will be limited in most cases to 3 percent of the loan amount).

Qualified Mortgage loans will generally have to be made to borrowers who have debt-to-income ratios less than or equal to 43 percent, though a temporary exception allows Qualified Mortgage status for higher ratios if the loans are eligible for purchase by mortgage giants Fannie Mae, Freddie Mac, the Federal Housing Authority and some other government programs. Another exemption allows certain small lenders to issue Qualified Mortgages with ratios over 43 percent.

The new rules also help speed up the process of getting a mortgage by giving lenders the authority to reject outright credit-report information if a borrower can prove that it’s wrong. “That’s a huge deal,” said Jeff Lazerson of Mortgage Grader in Laguna Niguel, Calif. “It’s monster-good.”

Richard Cordray, director of the bureau, recently told the Mortgage Bankers Association that most of the home loans granted now would be considered qualified mortgages.

Some in the mortgage industry, however, say that getting a loan could become harder for some borrowers, especially those in lower paying jobs, retirees or entrepreneurs whose income fluctuates.

“If you’re trying to stretch to get into a home, it is going to have an effect on you,” said Ryan Grant, sales manager at Imortgage in Newport Beach, Calif. From the lender’s perspective, he added, “You will have to have some really good compensating factors to go outside of that (Qualified Mortgage rule).”

The people most impacted won’t be the wealthy, Walters said. “It’s going to be the people who traditionally are the first-time homebuyers, the ones who have the most challenge getting a loan.”

Lenders don’t have to adhere to the Qualified Mortgage rule. But if they don’t, they don’t get legal protection if the buyer defaults for a reason that should have been foreseeable.

“If the loan is originated as a (Qualified Mortgage) loan and then is later found to not be … the lender can be exposed to a possible lawsuit or repurchase of the loan, both of which very costly,” said Joe Soto, vice president of mortgage lending for Guaranteed Rate in Los Alamitos, Calif. “What we have done and what most lenders will likely do is try to keep everything the same … to make sure there is no second-guessing.

“At the end of the day, if there is more risk for the lender, then there will be more pressure on the borrower to prove the ability to repay,” he said.

Lenders, however, also will have some good reasons to grant mortgages outside of the Qualified Mortgage rule.

Let’s say a client has plenty of money in the bank and a sterling credit score. But the buyer is at a 55 percent debt-to-income ratio because he is self-employed with an irregular paycheck, or she is a savvy investor with a shifting income.

If you’re that client, Walters said, “I’m happy to make that loan to you. You’re never going to come back and sue me.”

But, he said, “I will not likely make a loan that doesn’t adhere to the (Qualified Mortgage rule) for people who have a modest down payment, have not a lot of assets, have a higher debt-to-income or maybe a middling-to-poor credit score.”

At least in the beginning, Lazerson said, lenders are likely to be overly cautious. “They’re going to err on the side of denying loans,” he said.

The Rates: While mortgages may be harder to get for some, they’re expected to cost more for everyone.

The National Association of REALTORS® predicts the 30-year fixed mortgage rate — at an average of 4.22 percent last week — will reach about 5.3 percent by the end of 2014. The Mortgage Bankers Association has said rates likely will increase above 5 percent in 2014 and then rise to 5.5 percent by the end of 2015.

What happens with interest rates, and how soon, hinges on the Federal Reserve’s bond-buying program. The Fed, which buys $85 billion of mortgage-backed securities and Treasuries each month, is expected to increase rates after paring down the monetary stimulus.

But Janet Yellen, nominated to be the next chairman of the Federal Reserve, recently said that the employment picture and the economy must improve before the Fed cuts back on the program.

Earlier this month, a Bloomberg News survey of 32 economists indicated that the Fed may begin to slow its bond-buying purchases in March.

Lazerson, however, thinks interest rates will stay the same, or could even go down.

“The economy in general is tepid, at best,” he said. “Wages are stagnant, and that’s a key driver. Things have really slowed down. If there’s no demand for money, what’s the point of raising the rates?”

The Limits: The Federal Housing Finance Agency has signaled it likely will lower conforming loan limits in the summer of 2014, according to various reports. This, too, could shut off many homebuyers from getting conventional loans.

The housing industry is urging the agency not to pull the trigger.

Conforming loans are those purchased by Fannie Mae and Freddie Mac. The two federally chartered mortgage finance companies buy the mortgages from lenders and keep them or bundle them into securities that they offer to investors with a guarantee.

Currently, Fannie and Freddie cannot back loans of more than $417,000 in most markets, though the limit ranges as high as $625,500 in some pricier areas.

If the limits are lowered, “Fewer will qualify for the home they would be able to qualify for today,” said John Stehle, vice president of mortgage lending for Guaranteed Rate’s Costa Mesa, Calif., branch.

“Borrowers that no longer qualify for conforming will have to move to high-balance (loans), and borrowers that no longer qualify for high-balance will now have to go jumbo,” he said. “The rates will be higher, and the qualifying tougher, with each higher-limit tier.”

Many politicians and real estate industry leaders have objected to lowering the limits, a move many worry could impede the housing market, though lowering the limits would fit with the Obama administration’s goal to wind down Fannie Mae and Freddie Mac. During the economic meltdown, the two enterprises ran into big trouble and were placed under government conservatorship. They have since become profitable.

©2013 The Orange County Register (Santa Ana, Calif.)
Distributed by MCT Information Services

Two-in-Five Borrowers Shorten Term When Refinancing

RISMEDIA, Tuesday, November 19, 2013

Freddie Mac recently released the results of its third quarter 2013 quarterly refinance analysis, showing that borrowers are continuing to take advantage of near record low mortgage rates to lower their monthly payments, shorten their loan terms and overwhelmingly choosing the safety of long-term fixed-rate mortgages. Borrowers who refinanced in the third quarter of 2013 will save on net approximately $6 billion in interest over the next 12 months.

“With mortgage rates still near their historic lows, 37 percent of refinancing borrowers chose to shorten their loan term,” says Frank Nothaft, Freddie Mac vice president and chief economist. “Mortgage rates on 15-year fixed-rate loans averaged nearly a full percentage point below 30-year loans during the third quarter, providing a financial incentive for homeowners to term shorten. HARP refinancers have an additional incentive to shorten as some origination fees are waived.”

• Of borrowers who refinanced during the third quarter of 2013, 37 percent shortened their loan term, up 5 percent from the previous quarter and the highest since 1992. Further, 40 percent of those who refinanced outside of HARP took out a shorter-term loan, while 32 percent of HARP borrowers shortened their term. Borrowers who kept the same term as the loan that they had paid off represented 59 percent and only 4 percent chose to lengthen their loan term.
• The net dollars of home equity converted to cash as part of a refinance remained low compared to historical volumes. In the third quarter, an estimated $6.4 billion in net home equity was cashed out during a refinance of conventional prime-credit home mortgages. The peak in cash-out refinance volume was $84 billion during the second quarter of 2006. Adjusted for inflation, annual cash-out volumes during 2010 through 2013 have been the smallest since 1997.
• The average interest rate reduction was about 1.8 percentage points — a savings of about 30 percent. On a $200,000 loan, that translates into saving about $3,500 in interest during the next 12 months. For all borrowers that refinanced during the third quarter, the estimated interest savings over the next 12 months will be about $6 billion. Homeowners who refinanced through HARP during the third quarter of 2013 benefited from an average rate reduction of 1.9 percentage points and will save an average of $3,850 in interest during the first 12 months, or about $320 every month.
• About 85 percent of those who refinanced their first-lien home mortgage maintained about the same loan amount or lowered their principal balance by paying in additional money at the closing table. That’s just shy of the 88 percent peak during the second quarter of 2012.
• More than 95 percent of refinancing borrowers chose a fixed-rate loan. Fixed-rate loans were preferred regardless of what the original loan product had been. For example, 86 percent of borrowers who had a hybrid ARM refinanced into a fixed-rate loan during the second quarter. In contrast, only 3 percent of borrowers who had a fixed-rate loan chose an ARM.
• With mortgage rates remaining below 5 percent for most of the past four years, relatively few homeowners with loans taken in this period would have much incentive to refinance. Consequently, the median age the original loan was outstanding before refinance increased to 6.7 years during the third quarter, the most since the analysis began in 1985.

“By obtaining lower interest rates, borrowers will save approximately $6 billion in interest over the next 12 months, which they can put towards savings, paying down debt or supporting additional expenditures,” says Nothaft. “Further, the estimated $6.4 billion in ‘cash-out’ activity will further augment borrowers’ investment and consumption spending.”

For more information please visit www.FreddieMac.com