Mortgages

TO "LOCK" OR TO "FLOAT"?

It is very important for home buyers or for those who want to re-finance to be aware that in these volatile financial markets we are living in, interest rates on mortgages can fluctuate substantially in a matter of hours! I have heard many stories from mortgage lenders about how they were able to lock a fantastic interest rate for a loan using a 2-3 hour "window of opportunity" that disappeared afterward, or others that missed out because they floated the loan (to "float" means to let the interest rate fluctuate with the market). Understanding how "locking-in" a rate works may help you evaluate your options and could result in thousands of dollars in savings!

So...

Keli McClarty from Atlantic Bank sent me a copy of this article, that I believe synthezises the new changes effected recently on the mortgage industry, and which are essential to keep in mind when buying or selling real estate:

The bottom line is that the new rules are all about giving the borrower time to decide if they want the loan they applied for at the time of application.

RULE:  Borrowers have 7 days from the "official" application (meaning they must have a property address) before they can close the loan.

TRANSLATION: Rush closings are a thing of the past - even if a file is transferred to you from another mortgage company.

RULE: A Good Faith Estimate must be sent within 3 day...

The Federal Government has been busy trying to regulate the mortgage industry to try to avoid the continuing debacle caused by the sub-prime mortgage debacle. In 2008, Congress passed the Home Ownership and Equity Protection Act (HOEPA) and the Housing and Economic Recovery Act (HERA). In addition, semi-public Fannie Mae and Freddie Mac adopted the Home Valuation Code of Conduct (HVCC). While better regulation is welcome (Canada, for example, had a better regulated banking/mortgage industry and as a result they are not experiencing the same problems the US is experiencing), but their implementation timing may affect (adversely) the swift recovery of the real estate industry. Here is a bri...

On May 1st, Wells Fargo, one of the nation's largest mortgage lenders, decided to tighten its underwriting standards for 200 markets they considered as distressed or soft, requiring higher down payments and making state-income loans off limits in most of these markets. I believe this will cause other banks to follow suit (the bandwagon effect).

This is one more action that shows that the stimulus money provided by the Federal Government and intended to loosen up credit and provide funding to stabilize the real estate market is not working as intended. The government should have required the banks to lend this money out, instead of playing conservative and padding their balance sheets wit...

Recent changes in the mortgage industry has made Fannie Mae (and most lenders) to review their pricing for conforming loand (under $417,000) to better reflect risk by adjusting their pricing (i.e. the interest rate charged on mortgage loans) according to the applicant's credit score, and loan-to-value ratio (LTV).

The lower the credit score, or the higher the LTV, the higher the interest rate a borrower will be charged. Many clients call me excited about low interest rates they see advertised by lenders. However, those are the interest rates that PREFERRED risk borrowers will get - those with a credit score above 720 and an LTV below 80%.

Kathy Durham from Raven Mortgage sent me an exam...

Yesterday mortgage bonds had their worst performance since last October, and as a consequence rates climbed about a half of one percent! It appears that the Treasury has been issuing bonds (i.e. like printing money) to fund all these massive rescue programs, and yesterday supply of bonds exceeded demand and prices for  whole bond market fell, causing interest rates to climb to try to attract buyers.

If the bond market does not bounce back through the several levels of resistance that it went down through, mortgage rates are going to stay higher for a while. It seems that those buyers and investors that were waiting for the 4% mortgage rates are going to have to make a tough decision.

It...