Alex Wish Mortgage Blog

Month: September, 2010

Home Defaults Dropped For The 7th Month In A Row In August

Foreclosures per capita, August 2010

According to foreclosure-tracking firm RealtyTrac, the number of foreclosure filings climbed 4 percent in August from the month prior. A foreclosure filing is defined as default notice, scheduled auction, or bank repossession.

Despite the number of filings surpassing 300,000 for the 18th straight month, RealtyTrac’s report shows some bright spots for housing.

  1. The number of default notices served per month fell for the 7th time this year
  2. Foreclosure activity in Nevada, the nation’s leading foreclosure state, is down 25% from last August
  3. Foreclosure activity has not materially increased since early-2009, pointing to a stabilization

In addition, each of the 10 leading metro areas for foreclosures posted year-over-year declines for the second month in a row.

But, perhaps, most important, is that mortgage lenders and servicers appear to be managing their REO more effectively, making properties available for sale at a measured pace as opposed to flooding markets with new homes.  As noted by RealtyTrac, the probable reason is “to prevent further erosion of home prices”.

For home sellers, it’s a welcome development.

Foreclosures have had a hand in falling home values across the country. And, although it’s self-serving for banks to meter the release of homes under ownership, everyday homeowners benefit, too.  Fewer homes on the market helps to provide a floor for housing values.

If you have an interest in buying foreclosed homes, be sure to talk with a real estate agent first. The process of buying a home from a bank is different from buying from “a person”. Having the help of a professional should work to your benefit.

No Comments by Alex Wish on September 16, 2010
filed in Foreclosures
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Home Affordability Gets A Boost From Weak Back-to-School Retail Receipts

Retail Sales (September 2008 - August 2010)The recent rise in mortgage rates was slowed this week after the government released its Retail Sales report for August.

Prior to Tuesday, mortgage rates had been spiking on the resurgent hope for U.S. economic recovery. The sentiment shift was rooted in reports including the Pending Home Sales Index and Initial Jobless Claims, both of which showed surprising strength last week.

August’s Retail Sales, though, after removing motor vehicles, auto parts and gasoline sales, failed to maintain the momentum. Its figures were actually in-line with expectations — it’s just that expectations weren’t all that high.

Wall Street now wonders whether the weak Back-to-School shopping season will trend forward into the holidays.

The doubt spells good news for mortgage rates and home affordability.

Because Retail Sales is tied to consumer spending and consumer spending accounts for two-thirds of the economy, a weak reading tends to drag down stock markets and pump up bonds, and when bonds are in demand, mortgage rates fall.

This is exactly what happened Tuesday. The soft Retail Sales data eased stock markets down, and generated new demand for mortgage bonds. This demand caused bond prices to rise, which, in turn, caused mortgage rates to fall.

Mortgage rates did not cut new lows this week, but they’re very, very close.

With mortgage rates at historical lows, it’s an excellent time to look at a refinance, or gauge what financing a new home would cost. Low rates like this can’t last forever.

No Comments by Alex Wish on September 15, 2010
filed in Retail Sales
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The Math Of Choosing A Great Closing Date

Closing dates and rate locksWant a lower mortgage rate on your upcoming home buy? Think about moving up the closing date.

The reason is rooted in “rate locks”, a bank’s guarantee to honor a specific mortgage rate for a specific, finite period of time. Rate locks allow home buyers to reserve mortgage rates today even though their respective closings may be scheduled as far as a year into the future.

A rate lock is a contract. No matter what the “current market rate” is at the time of closing, the bank will honor the terms of the original rate lock.

It would be like making an agreement to buy Microsoft stock at a specific price 60 days from now. No matter what the price, you already know what you’re paying for it.

In this sense, rate locks are predictions about the future and, meanwhile, as we all know, the future can be a challenge to forecast. Lenders know this, too, of course, so it’s easy to understand why longer rate locks tend to be more expensive than shorter ones.

The longer the rate lock, the more risk to the bank.

To compensate for this “time risk”, therefore, lenders typically step-up pricing for rate lock guarantees as lock period lengthen.

  • 15-day rate lock : The best of all pricing
  • 30-day rate lock : 1/8 percent extra cost versus the 15-day rate lock
  • 45-day rate lock : 1/4 percent extra cost versus the 15-day rate lock
  • 60-day rate lock : 3/8 percent extra cost versus the 15-day rate lock

One percent of “extra cost” is defined as one percent of the borrowed amount.

Now, this incremental price chart is just a rough guideline; exact spreads vary from lender-to-lender. Overall, however, it’s fairly close.

That’s why it’s important to manage your closing date vis-a-vis your mortgage rate. Closing in 30 days versus 31 can save you an eighth-percent in closing costs. Assuming a loan size of $200,000, that’s $2,500 saved.

So, when negotiating a closing date on a contract, keep in mind the math of mortgage rate locks. The shorter its length, the more money you might save.

No Comments by Alex Wish on September 14, 2010
filed in Mortgage Rates
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What’s Ahead For Mortgage Rates This Week : September 13, 2010

Refi Boom endingA shift in Wall Street sentiment caused mortgage markets to worsen last week. There wasn’t much in the way of new data, but the numbers that did hit the street helped quell fears of a double-dip recession.

Conforming mortgage rates rose between Monday-Friday for the first time since June, and mortgage-backed securities have now lost ground on six of the last 7 trading days. 

During this period, conforming mortgage rates have risen by as much as 0.375 percent. 

Mortgage rates for FHA-insured home loans are higher, too.

Remember, concern for the future of the U.S. economy was a major catalyst for low rates this summer. The drop in rates, which began in April on weaker-than-expected data, accelerated through July and August on record-low home sales and a stalled jobs market.

Lately, though, these concerns are turning to hope.

The growing optimism is putting the Refi Boom at risk. To be sure, it’s been a rough two weeks to shop for a mortgage. 

This week may figure no better. In addition to the Retail Sales data, there’s key inflation data due both Thursday and Friday, plus, two consumer confidence reports are set for release.  If the overall numbers point to an “improving economy”, mortgage rates will likely rise again this week. 

Momentum is moving in that direction, certainly.

If your looking for the right time to lock a rate, now may be the time. Mortgage rates are off their best levels of all-time, but still quite low. There’s lot of savings out there for homeowners who qualify.

No Comments by Alex Wish on September 13, 2010
filed in Weekly Review
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Your ARM Is Adjusting Lower. Is There A Downside To Letting It?

Pending ARM adjustment based on LIBOR

When adjustable-rate mortgages are on the verge of adjusting, a common concern among homeowners is that their mortgage rates will adjust higher.

Well, this year, because of the math of how ARMs adjust, homeowners around the country are seeing that mortgage rates on ARMs can sometimes adjust lower, too.

Adjusting conforming mortgages are adjusting to as low as 3 percent.

As a quick review, here’s the timeline for most conforming adjustable-rate mortgages:

  1. There’s a “starter period” in which the interest rate remains fixed. This can range from 1-10 years.
  2. There’s a rate change after the starter period. It’s called the “first adjustment”.
  3. Subsequent, annual adjustments follow until the loan “ends”. This is usually after Year 30.

The adjustments each year are based on a math formula that’s included in the contract with your lender. It’s surprisingly basic.  Each year, your new, adjusted mortgage rate is equal to the sum of some constant — usually 2.25 percent — and some variable.  The variable is most commonly equal to the 12-month LIBOR.

As a formula, the math looks like this:

(Adjusted Mortgage Rates) = (12-Month LIBOR) + (2.250 Percent)

LIBOR is an acronym standing for London Interbank Offered Rate. It’s an interest rate at which banks borrow money from each other — very similar to our Fed Funds Rate here in the United States. And also like our Fed Funds Rate, LIBOR has been low lately.

As a result, adjusting mortgage rates have been low, too.

In 2009, 5-year ARMs adjusted to 6 percent or higher. Today, ARMs are adjusting to 3.000%.

Based on the math, you may want to let your ARM adjust with the market year. Or, if you plan to keep your home long-term and have concerns about adjustments in 2011 and beyond, it may be a good time to open a new ARM.  The same forces that are driving down LIBOR and helping to keep mortgage rates low overall, too.

Consider talking to your loan officer and making a plan. With mortgage rates as low as they’ve been in history, most homeowners have options.  Just don’t wait too long. LIBOR — and mortgage rates in general — are known to change quickly.

No Comments by Alex Wish on September 10, 2010
filed in Adjustable Rate Mortgages
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Which Model Is More Accurate : The Case-Shiller Index Or The Home Price Index?

Home Price Index from April 2007 peak

The private-sector Case-Shiller Index reported home values up 5 percent nationwide in June. The government’s own Home Price Index, however, reached a different conclusion.

According to the Federal Home Finance Agency, month-to-month home values fell 0.3 percent in June, and values are down by 1.7 percent from June 2009.

So, as a home buyer and/or homeowner , by which valuation model should you make your bets?  Perhaps neither. 

This is because both the Case-Shiller Index and the Home Price have inherent methodology flaws, the most glaring of which is their respective sample sets. 

The Case-Shiller sample set, for example, comes from just 20 cities across the country — and they’re not even the 20 most populated cities. Together, the Case-Shiller cities represent just 9 percent of the overall U.S. population. 

That’s hardly representative of the housing stock overall.

By comparison, the Home Price Index tracks home sales everywhere — every city in every state — but it specifically excludes certain properties.  The Home Price Index does not track sales of homes for which the financing comes from agencies other than Fannie Mae or Freddie Mac. This means that as FHA loans grow in popularity, the pool of Home Price Index-eligible homes is reducing. 

The HPI ignores homes backed by “jumbo” loans, too.

Therefore, the “right” model for home values cannot come from national data at all — it can only come locally. Neither Case-Shiller nor the government has the tools to get as granular as a neighborhood. A real estate agent in the area does, however.

The best way to get a pulse for what’s happening in markets right now is to talk to somebody with good data.

No Comments by Alex Wish on September 9, 2010
filed in Home Values
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Home Sales Are Back On The Rise After A 2-Month Pullback

Pending Home Sales January 2009-July 2010Just one week after reports of Existing Home Sales and New Home Sales plunging, the housing market is signaling that auturm may fare better than did summer.

The number of homes under contract to sell rose 5 percent in July.

The data comes from the July Pending Home Sales Index, as published by the National Association of Realtors®. By definition, a “pending home sales” is a home that is sold, but not yet closed.

Historically, 80% of such homes close within 60 days which makes the Pending Home Sales Index an excellent, forward-looking indicator for the real estate market.

Indeed, the nationwide drop in home sales this summer was foreshadowed by the Pending Home Sales report.  The index dropped 30 percent in May. Then, two months later in July, it was shown that Existing Home Sales volume dropped 29 percent.

That’s a strong correlation.

Now, to be fair, the July Pending Home Sales Index is still relatively low; the second-lowest on record and well below last year’s numbers. But, the tick higher last month shows how housing may be stronger than than what the headlines report.

It appears that buyers took advantage of rising inventory, cheap financing, and stagnant prices, and pushed the market forward. We should expect similarly promising numbers when September’s Existing Home Sales data is released.

No Comments by Alex Wish on September 8, 2010
filed in Pending Home Sales
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What’s Ahead For Mortgage Rates This Week : September 7, 2010

Mortgage rates changing quicklyLast week was a roller-coaster ride in the conforming mortgage market.  After opening the week by making new, all-time lows, markets reversed sharply on better-than-expected data in manufacturing and housing, and data from overseas.

Rates rose through Wednesday and Thursday, then Friday’s jobs report sent rates jumping.

Last week marked the first time that mortgage rates worsened 3 days in a row since late-April.

The combination of the jobs report not posting as poorly as predicted, and light volume because of Labor Day, pushed rates higher by as much as a quarter-percent in some markets.

On the week, conforming mortgage rates were unchanged but, depending on when you locked, there was great disparity.  Tuesday’s rates were much better than Friday’s.

Meanwhile, this week, with little data due for release, mortgage rates should remain unpredictable, moving as a result of momentum and outside influence. It makes for dangerous times for rate shoppers.  Mortgage rates may fall, but, then again, they might rise, too.

Keep in mind that markets are in the midst of a 19-week rally and rates can’t fall forever. Mortgage bonds are likely overbought so when the selling begins, pricing should worsen quickly.  This will cause mortgage rates to spike.

Therefore, if you’ve been shopping for a mortgage or are just wondering if the time is right to refinance, call your loan officer and work the numbers together. Refinancing won’t make sense for everyone, but it may make sense for you.

Mortgage rates are still exceptionally low.

 

No Comments by Alex Wish on September 7, 2010
filed in Weekly Review
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August 2010 Jobs Report Pushes Mortgage Rates Higher

Net Job Gains Sept 2008-August 2010On the first Friday of each month, the Bureau of Labor Statistics releases Non-Farm Payrolls data for the month prior. 

The data is more commonly called “the jobs report” and it’s a major factor in setting mortgage rates for homeowners everywhere. Especially today, considering the economy.

This is because, although it’s believed that the recession of 2009 is over, there’s emerging talk of new recession starting.

Support for the argument is mixed:

  1. Job growth has been slow, but planned layoffs touch a 10-year low
  2. Consumer confidence is down, but beating expectations
  3. Consumer spending is weak, but not declining

In other words, the economy could go in either direction in the latter half of 2010 and the jobs market may be the key. More working Americans means more paychecks earned, more taxes paid, and more money spent; plus, the confidence to purchase a “big ticket” items such as a home.

Jobs growth can provide tremendous support for housing, too.

Today, though, jobs growth was “fair”. According to the government, 54,000 jobs were lost in August, but that reflects the departure of 114,000 Census workers.  The private sector (i.e. non-government jobs), by contrast, added 67,000. 

In addition, net new jobs was revised higher for June and July by a total of 123,000.  That’s a good-sized number, too.

Right now, Wall Street is reacting with enthusiasm, bidding up stocks at the expense of bonds — including mortgage-backed bonds.  This is causing mortgage rates to rise.  Rates should be higher by about 1/8 percent this morning.

No Comments by Alex Wish on September 3, 2010
filed in Jobs
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August’s Fed Minutes Lead Mortgage Rates Higher

FOMC August 2010 MinutesHome affordability took a slight hit this week after the Federal Reserve’s release of its August 10 meeting minutes.

The “Fed Minutes” is a lengthy, detailed recap of a Federal Open Market Committee meeting, not unlike the minutes published after a corporate conference, or condo association gathering. The Federal Reserve publishes its meeting minutes 3 weeks after a FOMC get-together.

The minutes are lengthy, too.

At 6,181 words, August’s Fed Minutes is thick with data about the economy, its current threats, and its deeper strengths. The minutes also recount the conversations that, ultimately, shape our nation’s monetary policy.

It’s for this reason that mortgage rates are rising. Wall Street didn’t see much from the Fed that warranted otherwise.

Among the Fed’s observations from its minutes:

  • On the economy : The recession was deeper than previously believed
  • On jobs : Private employment is expanding slowly
  • On housing : The market was “quite soft” in June

Now, none of this was considered “news”, per se. If anything, investors were expecting for harsher words from the Fed; a bleaker outlook for the economy. And, because they didn’t get it, monies moved to stocks and mortgage bonds lost.

That caused mortgage rates to rise.

The Fed meets 8 times annually. Its next meeting is scheduled for September 21, 2010.  Until then, mortgage rates should remain low and home affordability should remain high. There will be ups-and-downs from day-to-day, but overall, the market is favorable.

No Comments by Alex Wish on September 2, 2010
filed in FOMC
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