Home loan borrowing costs are still hovering near six-month lows but forward progress continues to be challenging. We’ve described the recent behavior of mortgage rates as “sideways” after running into “The Wall”. This was the case once again today as there is no change to report in borrowing costs. Take a look at THIS CHART for a visual of how rates have hit  “The Wall.” 

CURRENT MARKET: The “Best Execution” conventional 30-year fixed mortgage rate remains a state of flux between 4.75% and 4.625%. Several lenders are currently quoting C30 loans at 4.625% with no origination points (see disclaimer below).  If you are looking to move down from there, you’ll be assessing the trade-offs between higher closing costs and lower monthly payments.  This could be worth it to applicants who plan to keep their new mortgage outstanding for long enough to breakeven on the extra upfront costs.  On FHA/VA 30 year fixed “Best Execution” is also a moving target roughly centered on 4.375% with adjacent rates (even 4.25%) being logical in some scenarios. 4.50% is a no-brainer for most FHA 30yr fixed scenarios. 15 year fixed conventional loans are best priced at 3.875%. Five year ARMs are best priced at 3.25% but the ARM market is more stratified and there is more variation in what will be “Best-Execution” depending on your individual scenario. 

PREVIOUS GUIDANCE:  The rally has gone sideways, that skews risk unfavorably in the short term. This will continue to be the case until “The Wall” comes tumbling down or proves unbreakable. Borrowers with a 10-15 day lock/float timeline should be defensive of recent cost improvements, especially if lenders are quoting rates in the lower-side of our “Current Market” Best-Ex listing. Floating is still an option for borrowers who have a longer lock/float timeline as well intermediate-term scenarios.  Stay tuned for further developments. 

CURRENT GUIDANCE: There is still justification for floating if you have an intermediate to long-term scenario or a more aggressive/flexible stance and don’t mind locking later, at a loss  if “The Wall” proves unbreakable.  But for short termers, the very existence of “The Wall” suggests locking is the smart decision, especially if you’re on a 10-15 day timeline or are less flexible with respect to changes in closing costs or note rate.  Additionally, if you’re being quoted the lower of the two Best Execution rates mentioned above in the “current market” section, floating is even more risky as those rates can vanish in one bad day, whereas it would take several days of uncommonly good performance in bond markets to get you down to the next rung on the mortgage rate ladder. 

 What MUST be considered BEFORE one thinks about capitalizing on a rates rally?

   1. WHAT DO YOU NEED? Rates might not rally as much as you want/need.
   2. WHEN DO YOU NEED IT BY? Rates might not rally as fast as you want/need.
   3. HOW DO YOU HANDLE STRESS? Are you ready to make tough decisions?

ECON EVENTS CALENDAR: THE WEEK AHEAD

The Home Affordable Refinance was set to expire June 30 but has been extended to June 30, 2012, said the Federal Housing Finance Agency. The program covers Freddie Mac and Fannie Mae loans, and since its inception two years ago, HARP has enabled 623,000 homeowners to refinance their mortgages. 

Press Release

CURRENT MARKET: The “Best Execution” conventional 30 year fixed mortgage rate has fallen BACK to 4.875%.

For those looking to buy down their rate to 4.75%, this quote carries higher closing costs. The upfront cost of permanently buying down your rate  to 4.75% is not worth it to many applicants. We would generally only advise the permanent floatdown if you plan to hold your new mortgage for longer than the next 10 years.  Ask your loan officer to run a breakeven analysis on any origination points they might require to cover permanent float down fees.

On FHA / VA 30 year fixed “Best Execution” is still 4.75%. 15 year fixed conventional loans are best priced between 4.125% and 4.25%, but 4.25% is more efficient in terms of the floatdown breakeven cost.

Five year ARMS are best priced at 3.625%.

The FHA is boosting the annual mortgage insurance premium charged on its home loans, a move that will increase the cost of an average FHA mortgage by about $30 a month.

Effective April 18, the FHA is increasing the annual mortgage insurance premium (MIP) on 30- and 15-year fixed-rate mortgages by 25 basis points, or one-quarter of one percent of the total loan value. The action is intended to help replenish the agency’s capital reserves, which have been depleted due to losses on bad loans in recent years.

They are also creating new case number ordering procedures and an automatic cancellation policy that is designed to stop case number hoarding. Credit Policy will be releasing Bulletin shortly.

Effective April 18, 2011, FHA Systems will require mortgagees to:

certify at the time of requesting a case number that they have an active loan application for the subject borrower and property.

provide the subject borrower’s name and social security number for all new construction (i.e. proposed construction and existing construction less than one year old)

Beginning April 18, 2011, FHA systems will automatically cancel any uninsured case number (including those issued prior to April 18) where there has been no activity for 6 months since the last action except for:

loans where an appraisal update has been entered, and/or loans where the Upfront Mortgage Insurance Premium (UFMIP) has been received

Last action includes:
case number assigned,
appraisal information entered,
firm commitment issued by FHA
insurance application received and subsequent updates, and
Notice of Return and resubmissions

Last action does not include updates to borrower names and/or property addresses. For example, making changes to the number of borrowers on the loan will not reset the 6 month time frame for automatic cancellation.

Date: 10/26/2010

Atlanta, GA (October 26, 2010) — The Mortgage Bankers Association expects to see mortgage originations fall from an estimated $1.4 trillion in 2010 to slightly under $1 trillion in 2011. The drop will be driven by a decline in refinance originations, but the industry will see an increase in purchase originations. The economy will grow at a slow pace but with no significant job growth until 2011. The increase in purchase originations will be driven by modest increases in home sales and stabilizing home prices. In contrast, MBA refinance originations are expected to fall steadily as mortgage rates gradually increase throughout 2011 and 2012.

“Economic growth in 2010 has been subdued and this trend will likely continue for most of 2011. Households remain cautious given the weak job market. On top of that, uncertainty regarding tax rates for next year, and the potential for tax withholding to increase at the beginning of the year, lead us to forecast that consumer spending will remain weak, particularly in the first half of 2011,” said Jay Brinkmann, MBA’s Chief Economist and Senior Vice President for Research and Economics.

“Various factors are driving our rate forecast. The sluggish economy, weak private demand for debt financing, and low inflation are keeping downward pressure on rates. Offsetting that, however, is the large increase in government financing needs and the impact the weakening dollar has on foreign investors in US debt. In addition, there is much speculation surrounding what the Federal Reserve will do in terms of additional monetary policy actions to stimulate growth. FOMC participants, in their respective speeches over recent weeks, have communicated different perspectives on the issue. At this point, we think the most likely scenario is that the Fed will purchase additional Treasury securities, but that the market has already priced these anticipated actions into today’s rates. In other words, absent some blockbuster post-election announcement from the Fed on November 3rd, we do not expect to see a further decline in rates.”

Following are the key points of the latest MBA forecast:

• Real GDP growth will be 2.2 percent in 2010, although most of that was seen in the first quarter and growth is estimated to have slowed to around 1.5 percent in the third quarter and 1.9 percent in the fourth quarter. Growth is expected to be about 2.1 percent in 2011 and 3.0 percent in 2012.

• The unemployment rate will increase from the current level of 9.6 percent to 9.9 percent by the first quarter of 2011, end 2011 at 9.5 percent, then fall to 8.7 percent by the end of 2012. Mortgage delinquency and foreclosure rates should track this downward trend in the unemployment rate.

• Fixed mortgage rates are expected to average about 4.4 percent in the fourth quarter of 2010, increase to 5.1 percent by the end of 2011, and head towards 5.7 percent in 2012.

• Total existing home sales for 2010 will be around 8 percent lower than in 2009, despite a boost to sales in the first half from the homebuyer tax credit program. Existing home sales are projected to increase modestly in 2011, increasing by a little less than 2 percent, before increasing by about 16 percent in 2012.

• New home sales for 2010 will be down by about 13 percent relative to 2009. We estimate that new home sales bottomed in the third quarter of 2010 and will begin a slow recovery in 2011, increasing around 20 percent from a low base, and then increasing 40 percent in 2012 as markets recover.

• FHFA’s national repeat transactions home price measure will continue to decline before starting a reversal in early 2012, but will vary by state and home value. Median home prices should increase in 2011 relative to 2010, and the markets for higher-priced homes should continue to thaw. Purchase-only indexes like the Case-Shiller measure should show stabilization next year.

• Purchase originations for 2010 will be $480 billion, about 28 percent below the 2009 level of $665 billion. Purchase originations should rise about 30 percent in 2011, as existing home sales recover and home prices stabilize, and should rise again in 2012 to $877 billion.

• Refinance originations will end 2010 at $921 billion, a decrease of 31 percent from $1.3 trillion in 2009. Refinance activity will decrease by 60 percent in 2011 to about $370 billion as mortgage rates increase and the pool of eligible borrowers shrinks, and fall further to $310 billion in 2012 We expect that the refinance share of originations should fall from 66 percent in 2010 to 37 percent in 2011, and then 26 percent in 2012.

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The Mortgage Bankers Association (MBA) is the national association representing the real estate finance industry, an industry that employs more than 280,000 people in virtually every community in the country. Headquartered in Washington, D.C., the association works to ensure the continued strength of the nation’s residential and commercial real estate markets; to expand homeownership and extend access to affordable housing to all Americans. MBA promotes fair and ethical lending practices and fosters professional excellence among real estate finance employees through a wide range of educational programs and a variety of publications. Its membership of over 2,200 companies includes all elements of real estate finance: mortgage companies, mortgage brokers, commercial banks, thrifts, Wall Street conduits, life insurance companies and others in the mortgage lending field. For additional information, visit MBA’s Web site: www.mortgagebankers.org.

Mortgage Bankers Association of America
1331 L Street, NW Washington, DC 20005

Washington, D.C. — The U.S. Department of Housing and Urban Development (HUD) now requires all HUD-approved reverse mortgage counselors to provide their clients with the National Council on Aging’s (NCOA) 28-page consumer booklet on reverse mortgages.

In addition, counselors must complete an extra level of financial assessment to help prospective borrowers gain a greater understanding of financial risk and other factors that they need to consider to make a wise decision.

“We are pleased to work with HUD to provide additional education and support to older adults seeking to tap their home equity through a reverse mortgage,” said Barbara R. Stucki, Ph.D., vice president of Home Equity Initiatives for NCOA. “We created these new tools to help older homeowners better understand their options and risks in using what is most often their most valuable financial asset — their home.”

HUD released its Housing Counseling Handbook, which includes its new HECM reverse mortgage counseling protocol, in mid-July. Counselors are required to implement the protocol by Sept. 11, 2010. The new protocol is designed to strengthen consumer education for homeowners aged 62+ who seek a HUD-approved reverse mortgage. It includes NCOA’s booklet, counseling tool, and online benefits screening service.

Free copies of the NCOA booklet, Use Your Home to Stay at Home, can be downloaded at www.ncoa.org/reversemortgagecounseling, in English or Spanish. Printed copies of the booklet can also be purchased on this website.

Use Your Home to Stay at Home educates consumers on the benefits and challenges of using home equity to deal with financial challenges in later life. The booklet helps consumers determine if staying in their homes is the right decision for them, understand the trade-offs of using a reverse mortgage versus other home loans, and provides information on government programs that can help them stay at home.

Reverse mortgage counselors will also be required to complete a budget review with their clients, using NCOA’s Financial Interview Tool (FIT). This counseling tool, which was developed and tested by NCOA, helps prospective borrowers consider both immediate financial needs and long-term challenges that can make it hard to stay at home and benefit from a reverse mortgage.

Seniors with incomes below 200% of the federal poverty level will also be required to complete a BenefitsCheckUp analysis as part of the counseling session. NCOA’s BenefitsCheckUp is the nation’s most comprehensive Web-based service to screen for benefits programs for seniors with limited income and resources. It includes details on more than 2,000 public and private benefits programs.

“Through this holistic approach, we hope to facilitate discussions and decisions that are based on life of the borrower, and not the just the cost of the loan,” said Stucki. “FIT helps older homeowners consider all of their financial obligations and how they will meet them on an ongoing basis. Through BenefitsCheckUp, they can learn of services and benefits that can be an alternative or supplement to a reverse mortgage.”

For more information on the HUD HECM Program, visit www.hud.gov.

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About NCOA The National Council on Aging is a non-profit service and advocacy organization headquartered in Washington, DC. NCOA is a national voice for older Americans – especially those who are vulnerable and disadvantaged – and the community organizations that serve them. It brings together non-profit organizations, businesses and government to develop creative solutions that improve the lives of all older adults. NCOA works with thousands of organizations across the country to help seniors find jobs and benefits, improve their health, live independently and remain active in their communities. For more information, visit www.NCOA.org.

FHA premiums face new restructuring Congress OKs annual premium increase
By Matt Carter, Thursday, August 5, 2010.

Upfront premiums for FHA-guaranteed loans could soon be reduced by more than half, but annual premiums on the government-sponsored mortgage insurance are expected to nearly double now that Congress has given FHAauthority to revamp the way premiums are structured.

Faced with rising losses on FHA-guaranteed loans, the Department of Housing and Urban Development (HUD) hiked upfront premiums in April, raising them from 1.75 percent of the loan being insured to 2.25 percent.

Applications for FHA-guaranteed loans fell nearly 20 percent after the increase went into effect, according to a weekly survey conducted by the Mortgage Bankers Association.

But in detailing its plans in February, HUD promised it would roll back upfront premiums to 1 percent if Congress gave it the authority to raise annual premiums instead.

Legislation raising the statutory cap on annual premiums from 0.55 percent to 1.55 percent, HR 5981, passed the House on July 30 and was approved by the Senate by unanimous consent Wednesday.

If HUD follows through on the plan it laid out in February, upfront premiums will be lower than before, and annual premiums won’t be increased all the way to the statutory limit just yet.

HUD said in February that if the cap was raised, it planned to increase annual premiums for FHA mortgage insurance to 0.85 percent for borrowers with loan-to-value ratios of up to 95 percent and to 0.9 percent for borrowers with higher LTVs.

The way premiums are currently structured, a borrower taking out a $200,000 loan with the 3.5 percent minimum downpayment pays an upfront premium of about $4,500, plus $1,100 a year in annual premiums.

If HUD rolls back upfront premiums to 1 percent and increases annual premiums as previously announced, that borrower would pay an upfront premium of about $2,000, plus $1,800 a year in annual premiums. The $700 increase in annual premiums would translate into an additional $58 a month on their mortgage payment.

The Mortgage Bankers Association welcomed that prospect.

“We are encouraged that FHA Commissioner Stevens has indicated he may not need to raise premiums to the maximum, and we believe that that a small increase in the annual premium, coupled with a decrease in FHA’s upfront premium, will help stabilize FHA while lowering closing costs for many borrowers,” MBA Chairman Robert Story said in a statement.

The MBA also welcomed Senate passage of HR 5872, which increases FHA’s authority to insure multifamily loans by $5 billion for the remainder of the fiscal year.

The changes in FHA premium structure are one of several steps taken to stem losses.

An actuarial report revealed in November that FHA’s capital reserve ratio had fallen below the 2 percent minimum set by Congress, raising fears that the program would require a taxpayer bailout. HUD maintained that premiums collected on new loans should cover losses and that the program is unlikely to end up in the red except under the most dire circumstances.

But in December, HUD announced it would tighten underwriting standards on FHA-backed loans by increasing the amount of upfront cash homebuyers must bring to the table, raising minimum FICO scores for new borrowers, and reducing maximum seller concessions from 6 percent to 3 percent.

HUD published a notice in the Federal Register on July 15 outlining further details of those proposed changes, and is accepting public comments until Aug. 16. After reviewing the comments it receives, HUD will publish a final notice that will include the implementation date for the changes.

HUD and Congress had previously put in place a ban on seller-financed downpayment assistance on FHA loans, tightened underwriting guidelines for streamline and cash-out refinancings, updated FHA appraisal standards, and increased oversight of lenders.

In their latest quarterly report to Congress on the performance of FHA-guaranteed single-family home loans, HUD said this week that the credit quality of recent loans has improved, and claims have been lower than predicted by the actuarial report.

New 90-day delinquencies during the quarter ending June 30 were down 32 percent from the quarter ending Dec. 31, to 104,000, the report said, and FHA has received 19,310 fewer claims and paid $3.7 billion less than projected.

Average FICO scores, which were in the 630s during much of 2007 and early 2008, are now approaching 700, and less than 1 percent of loans rely on downpayment assistance, compared with about one in four loans in 2007 and 2008 (downpayment assistance from charities is still permitted).

The report said FHA is on a pace to insure 1.7 million loans in the year ending Sept. 30, and may insure more than 1 million purchase loans for the first time since 1987.

The Homebuyer Assistance and Improvement Act of 2010, enacted on July 2, 2010, extended the closing deadline from June 30 to Sept. 30 for eligible homebuyers who entered into a binding purchase contract on or before April 30 to close on the purchase of the home on or before June 30, 2010.

Here are five facts from the IRS about the First-Time Homebuyer Credit and how to claim it.

1. If you entered into a binding contract on or before April 30, 2010  to buy a principal residence located in the United States you must close on the home on or before September 30, 2010.
2. To be considered a first-time homebuyer, you and your spouse – if you are married – must not have jointly or separately owned another principal residence during the three years prior to the date of purchase.
3. To be considered a long-time resident homebuyer, your settlement date must be after November 6, 2009 and you and your spouse – if you are married – must have lived in the same principal residence for any consecutive five-year period during the eight-year period that ended on the date the new home is purchased.
4. The maximum credit for a first-time homebuyer is $8,000. The maximum credit for a long-time resident homebuyer is $6,500.
5. To claim the credit you must file a paper return and attach Form 5405, First Time Homebuyer Credit, along with all required documentation, including a copy of the binding contract. New homebuyers must attach a copy of the properly executed settlement statement used to complete the purchase. Long-time residents are encouraged to attach documentation covering the five-consecutive-year period such as Form 1098, Mortgage Interest Statements, property tax records or homeowner’s insurance records.

For more information about the First-Time Homebuyer Tax Credit and the documentation requirements, visit IRS.gov/recovery.

The Senate had needs to approve in the next 24 hours to meet the June 30th deadline .

Buyers must have signed a contact by April 30 to qualify.  The issue is the date the sale must be closed by. June 30th versus Sept 30. Many lenders and title companies are having trouble closing the sales on time. If they close one minute passed the deadline there are about 200,0o0 buyers that will loose their $8000 credit.

The House voted 409 to 5 to delay the closing deadline to September 30 in a stand-alone measure.  The move comes after the Senate failed to approve the jobs bill which contained the tax credit provision.

The House bill would raise the deficit by $9 million.

It is now up to the Senate.  Let’s hope it passes there are a lot of people stressing out. The good news, all my clients that needed to close before the cutoff closed last week.