Archive for the ‘the Market’ Category

Relaxing Criteria for Condo Mortgages

June 19, 2015

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Considering buying a condo now?  Your timing is good then.  In recent months, mortgage market makers Fannie Mae and Freddie Mac have loosened the lending requirements for condo purchases.  You can buy a condo with a credit score as low as 620 and a down payment of 5% or more.

Understand that the underwriting process is still different for a condo purchase, but the standards are being relaxed now.  As with single family home purchasers, underwriters will review the credit score, available assets, income, and debt of condo purchasers.

In addition, underwriters review the financial stability of the complex in which the condo is being purchased.  Condo complexes assess HOA (home owners association) dues to fund expenses such as maintenance for buildings and common areas, utilities, insurance, reserves for replacing large items like roofs and parking lots, etc.  When the economic crisis hit, owners at many condo complexes became delinquent on their dues payments, causing financial difficulties for the complexes themselves.  In reaction to this, lenders imposed tighter restrictions on condo underwriting.  Now lenders are relaxing these standards.

When underwriting the condo complex, the lender will require documentation from the complex management as follows:

  1. A completed condo questionnaire reporting details about the complex.
  2. Current year HOA budget.
  3. Master insurance policy.

Condo Photo

Below are some key condo criteria that the underwriters consider.  The underwriters will likely deny your condo loan if the complex fails to meet any one of these items:

  1. At least 10% of the annual HOA budget set aside for reserves.
  2. No more than 10% of the units owned by a single individual or corporation.
  3. No more than 20% of the units used for commercial space.
  4. No more than 15% of the homeowners more than 60 days past due on their monthly HOA dues.

Bottom line, if you want to buy a condo in a well-managed complex that meets the above criteria, it has a good possibility of being approved; but it will require some extra work as compared to buying a single family home.  I have financed multiple condos in the last few months and we have not experienced any issues with underwriting.  If you are looking to buy a condo in Georgia, I can help you get started!

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QE3 Tapering begins in 2014

December 19, 2013

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The Federal Reserve announced Wednesday afternoon that the “tapering” process will begin in January 2014. Apparently there will not be a QE4-ever after all!

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The Federal Reserve has purchased bonds for several years now, and as much as $85 billion worth of US Bonds each month since September 2012. The process was called Quantitative Easing or QE as it is commonly known. QE was a two step process the Feds used to help stimulate the economy.

  • Step 1 – by 2008, the Federal Reserve dropped the Federal Funding Rate to near zero. This was to encourage short term borrowing to stimulate the economy. The lowering of the Federal Funding Rate is a common tool used by the Federal Reserve during a recession.
  • Step 2 – due to the severity of the financial crisis, the Federal Reserve began purchasing US Treasury and Mortgage Backed Security Bonds to lower long term lending to help stimulate the housing market along with the auto industry. This strategy was the QE, which turned into QE2, and QE3. The QE’s were partly responsible for the historically low interest rates the country has grown accustomed to seeing. Without QE, interest rates would have never got as low as they did over the past few years.

Instead of having a hard end to the QE program, the Federal Reserve will taper-out of QE. In January, the bond purchasing will reduce from $85 billion per month to $75 billion. The amount purchased each month moving forward will be reviewed at each Federal Reserve meeting and QE will eventually come to an end in a year or two.

By slowing reducing the amount of bonds being purchased, the Federal Reserve hopes the interest rate market has a slow and steady climb on interest rates instead of a volatile and rapidly rising rate market. In theory, historically low interest rates should still be available in the coming year, but rates won’t be as low as they were in 2012 and early 2013.

If you are looking to refinance or purchase a home, how should you respond to this?

I’ve spoken with several clients this year who decided to wait for interest rates to get lower. With the rapid rise in rates starting in early May, some people felt interest rates would eventually fall. With the announcement of tapering, we won’t see interest rates get as low as they have been in the past few years.

The goal now should be to look to get into your new home OR start that refinance process today while rates are still low. To get started, contact me. If the property is in the state of Georgia, I can help you through the loan process.

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Emotions Impacting Interest Rates

November 7, 2012

While the nation was focused on the Presidential election, many may have missed a story about interest rates. On Tuesday, November 6th, the bond markets had a horrible day of trading, and it pushed interest rates higher by 0.250% of a point in most cases.

Is this the end of low rates? Nope… 24 hours later, the exact opposite is occurring. Interest rates are back down to near historic lows having made up the ground lost on Tuesday. Stocks on the other hand are taking a beating down 250+ points as of this post.

Some people think interest rates are based on the time of year. Others may think if mortgage applications are down, then banks lower interest rates to get them back up again. The truth is that interest rates are based on mortgage backed security bonds and their values. As bond values go up, the interest rates go down. So what happened on Tuesday?

With Election Day upon us, bond investors began to worry about a possible status quo change. What happens if Romney wins? What happens if the Republicans take control of the Senate? Would current policies change and impact the markets? What does this positive jobs report mean? Out of potential fear, there was a big selloff on bonds. When bond values drop, interest rates rise.

As you know by now, nothing has changed in D.C. Obama won, the Democrats still control the Senate, and Republicans control the House. With this uncertainty behind us, all eyes are turning toward the “fiscal cliff” coming our way and bad news in Europe. Investors are now panicking for other reasons, stocks are getting hammered, and some of the money coming out of stocks is going into bonds. Bond prices are moving up, and mortgage rates back down to near historic lows.

What does all of this mean for you?

Interest rates can be fickle as the bond market can quickly change depending on recent news and investor emotion. If you are hoping and waiting for a particular rate, you can’t get much better than near historic lows. If you’ve been holding off on a refinance waiting for a rate, or hoping rates get better before buying a home, the timing is good to move forward now. Rates are unpredictable, and better to be cautious and grab what you know is true now than hope for something in the future and miss out. If the home is in the state of Georgia, I can help you get started.

Greek influence

November 8, 2011

We keep hearing and reading about Greece influencing the world economy. Any why not? Greece had a profound impact on the history of the world with its contributions to theater, math, science, architecture, art, democracy, literature, and war.

For example, who can forget Homer’s Odyssey? This story was the basis of the cult movie hit O Brother Where Art Thou?… What about superior weapons (bronze shields) and the military strategy (the phalanx) that allowed the Greeks to conquer most of the known world.

A rare photo documenting how average male Greeks looked in ancient times. 🙂

Yes, Greek influence can be seen in our modern day governments and culture. We are also experiencing some economic turmoil from Greece as well. The question I keep getting asked is how does Greece impact interest rates?

As strange as it may sound, the turmoil taking place in Greece is impacting not only our economy, but stocks and interest rates as well. Here is a quick summary of how this takes place.

  • While Greece may be staving off defaulting on their sovereign debt, the threat of a default is causing the world markets to panic. This is hurting stocks around the world, slowing trade, and hurting the Euro.
  • When stocks suffer, investors typically pull money out of stocks (better return but more risk) and put them into all types of bonds (lower return but safer investment). As certain bond prices rise, interest rates go down.
  • With the Euro in threat of collapse (extreme but possible), the US Dollar has become the safe-haven currency of the world. Even though the US economy is struggling, the Dollar is a safer bet right now than the Euro. As foreign investors and governments buy our bonds, their values rise, and interest rates go down.

As you can see, the turmoil in Greece is impacting much more than just one country and one currency. Their financial difficulties helped push rates down to new historic lows (set in early October), and interest rates are not that far off from those levels. That means interest rates are really, really low.

If you haven’t talked to anyone about refinancing a mortgage OR still sitting on the fence waiting for rates to get better before you buy a home, don’t sit around forever. Rates can change. Last November, rates were about where they are today. By mid December 2010, rates were in the low 5’s.

The moral of the story? Take a few minutes to talk to someone in the mortgage industry that can offer advice and steps on how to proceed to either buying or refinancing a home. That way you’ll know if it is a good time or not to consider moving forward. If the property is in the state of Georgia, I’d be glad to help you sort through the options. All it takes is a call or email to get going.

Impact of the downgrade

August 23, 2011

While the true impact probably can’t be calculated or even recognized for years to come, we can at least review the events of the past two weeks. Have these events lived up to some of the potential results mentioned in a recent post?

Yes, some of them do. In fact, the events and news coming out of the financial markets over the past two weeks fall in one of two categories:

  • Renewed fears of a double dip: It started the first business day after the downgrade when investors decided to “sell first and ask questions later.” Since then, Asian, European, and US markets have seen their stock values plummet as the world markets fear the impact of a potential second global recession. The losses were stemmed by some upbeat job news (for a change) in the US, but entering this week, the markets are still volatile.
  • Interest rates are back down to historic lows: When stocks drop as they have, the typical response is for rates to also drop. Why? As money comes out of stocks, it moves into bonds and increases their value. As mortgage backed security bonds increase in value, interest rates decrease. That trend continued over the past couple of weeks, and interest rates for a 30 year fixed conventional mortgage are back to levels we saw in the fall of 2010-in the upper 3’s.

It has been quite a ride so far, and the ride isn’t over. Is this a taste of things to come OR just the initial knee jerk reaction? Honestly, who knows. The markets are so nervous and volatile, nothing would probably surprise me at this point.

With these events taking place in the US and global markets, how does it impact those looking to buy a home or refinance a mortgage. Easy answer… at least take time to explore the opportunity.

  • If you are thinking about refinancing mortgage, I need only 5 minutes of your time to run numbers based on the info you know off of the top of your head. In 5 minutes, you’ll know if a refinance is worth exploring.
  • Looking to buy a home? With interest rates at historic lows combined with home values at their lowest points in decades, there has not been a better time to buy a home. In as little as 10 minutes, we can go through the prequalification process so you can have an idea of how much home you can and should buy.

Either way, what are you waiting on? If the property is in Georgia, I will be glad to walk with you through the mortgage process. All you need to do is contact me to get started!

Sell first. Ask questions later.

August 8, 2011

First, I must give credit where credit is due. That title is in a CNN Money article from a quote by Paul Zemsky, who is the head of asset allocation with ING Investment Management. Zemsky’s full quote was “investors are having one reaction to the downgrade: sell first and ask questions later.”

Over the course of the day, I received several calls and emails from clients concerned about interest rates rising. In actuality, it has been a good day for interest rates as they have improved over the course of the day. Why would interest rates improve when stocks plunge?

That reaction is typical- as stocks surge, rates rise… as stocks plunge, rates get lower. Why? As money leave stocks, it usually heads for the safe haven of bonds. Then mortgage backed security bond prices improve, and interest rates improve.

Now I know what you may be thinking, “why would investors put money into US Bonds after the downgrade by the S&P?” It is a great question, and there are a couple of logical reasons for this:

  • During times of financial strife, money often leaves riskier (but higher rate of return) investments such as stocks. That money is moved into the safer (but lower of return) investments like bonds. Viewed at that angle, today’s events followed a logical pattern. If you don’t believe me, ask this guy for a second opinion.
  • The Euro is not a safe bet right now either. With the continued strife and more plans to rescue and/or bolster countries who are struggling, investors don’t have a great choice with the Euro right now. If investors don’t like the Dollar since the downgrade, are they in a hurry to invest in a currency that might become insolvent?
  • The Dollar is still being viewed as a safe haven currency. Even though the Dollar is not a part of the “AAA Club” anymore, it is still a safer bet (for now) than the Euro or any other currency in the world. With the size of the GDP, most investors feel at some point things will turn around.

Bringing this all back to the mortgage world, if you are out looking for a home or thinking about refinancing, what should you do?

  • If thinking about refinancing and have been waiting, now is the time to jump. Interest rates have improved into the low 4’s after being in the mid 4’s most of the year.
  • If you are looking to buy a home, you could consider using the Lock n’ Shop feature we offer. Lock in a rate now for 60 days. That gives you 30 days to make an offer, and then 30 days to close.
  • Buying a short sale property? This one is trickier because you never know how long it will take to get an approval letter from the bank that owns the propety you wish to buy. The Lock n’ Shop wouldn’t exactly fit that scenario. Even so, I wouldn’t panic. Even if interests rates rise, it will probably be only an increase back to the pre-downgrade levels, which were in the mid 4’s.

Remember, investors may be selling now, but they will ask questions at some point in time. When they do begin to think about and question their actions, the markets will more than likely correct themselves and move back to where they were prior to the recent panic attack. That is a typical and logical response. So… logically, you should take advantage of the lower rates while they are available!

Downgraded. Now what?

August 6, 2011

It is official. Standard & Poor’s officially downgraded the United States credit rating from AAA to AA+. So… what’s next?

There are plenty of opinions out there. Some that feel the downgrade will cause investors to reconsider long-standing fundamental market assumptions. Others imply the S&P is possibly overstepping their bounds and made an illogical decision. A great article by The Economist insinuates investors have an interesting dilemma on their hands-purchase a currency that may default (downgrade), or the one that could disintegrate.

While there will surely be a wide range of impacts due to the downgrade, The Mortgage Blog attempts to keep its focus in the mortgage industry. What might we expect? Honestly no one knows.

  • Could their be another slow down in the housing industry? That depends on the economy. For now, some believe the threat of a double dip has been pushed off thanks to an encouraging jobs report for the month of July. However, should that outlook change and businesses get conservative in hiring/spending, who knows what would happen. A wild card like the downgrade could be the catalyst that continues the downward trend of stocks and sour the country’s economic outlook. When that happened in 2008, the resulting impact on the housing market was quite severe.
  • Could interest rates rise? Mortgage rates significantly rose on Friday after rallying for the first part of the week. With the downgrade taking place, one might assume bond prices would decrease as the Dollar’s credit rating has been reduced. When bond prices decrease, interest rates increase.
  • Could interest rates improve? One could argue that point of view too. If the downgrade has a negative impact on stocks, money typically flows from stocks into bonds. That helps increase bond prices, and causes interest rates to improve. Of course, this could also be a situation where both bonds and stocks suffer from the events of Friday afternoon.
For now, the markets are down… shut down for the weekend. We won’t know anything for sure until they come back online this Monday morning. Guess we will have to wait and see what happens. It could be a bumpy ride. In the immortal words of Samuel L Jackson in Jurassic Park…

Impact of the potential ratings downgrade

April 26, 2011

A week ago, Standard & Poor’s (known as S&P) downgraded the U.S. credit rating to a negative. The U.S. did not loses its AAA rating, but the downgrade makes it increasingly likely it could occur if government doesn’t get deficit spending under control.

Does the downgrade mean good news for interest rates? Bad economic news is typically good news for mortgage rates. The initial market reaction to the S&P decision would back this up as stocks took a dive, and bonds barely moved on the announcement.

What does this mean in the long term if the U.S. loses its AAA rating? Easy answer – losing the AAA rating would negatively impact everyone.

The damage to stocks is obvious… losing the AAA rating is bad for business. Bad for business = bad for the economy. When the economy drags, stocks tend to follow (as evidenced over the last couple of years).

Combating a downgraded rating would also hurt interest rates. If you read the previously linked Wall Street Journal article, possible scenarios could include:

  • the U.S. not defaulting, but becomes more difficult to borrow money
  • an option to pay off debt could include printing more money/lowering the value of the U.S. Dollar

Both of those options for dealing with deficit spending and a rating downgrade hurt interest rates. The U.S. would still find funding sources, but not at the favorable rates we see today. An increase in the rates for the U.S. to borrow money would cause all rates to increase.

Second, printing more money leads to inflation. There is no way around it. Bonds HATE inflation. The higher the rate of inflation goes, the faster bonds lose their value. As we all know from reading this blog, as the value of bonds go down, interest rates go up!

Losing the AAA rating would be bad for everyone… the government, investors, stock prices, bond prices, retirees, home buyers… you name it, and it will probably be impacted. This is one thing that both sides in Washington agree on – we don’t want to lose the AAA rating. Now, let’s see if they can agree on a way to prevent a potential ratings downgrade!

Rates still on the rise

December 2, 2010

A few posts ago, I mentioned interest rates were on the rise but they may not break out of their current trading range in the low 4’s. Well, they have now and moved into the mid 4’s. The question everyone asks is (of course) why?!?

There are a lot of different factors in play:

  • Stocks have rallied in a major way over the past couple of weeks. With better news of the job front and better than expected retail sales, Wall Street is jumping for joy and taking advantage of the good news. As typically occurs, while stock values increase, bonds values decrease and interest rates suffer.
  • Wall Street is also appreciative of another round of bailouts in Europe to stabilize the Euro zone. While this problem (liquidity issues in Greece, Italy, Spain, Portugal & Ireland) isn’t going away any time soon, Round 2 of the bailouts encouraged investors to turn more to stocks (higher gains but riskier investments) than bonds (lower gains but safer).
  • Bond prices have been ridiculously high this year, which caused our historically low rates. As investors bought bonds at lower prices, they are now looking to sell those bonds at higher prices for year end “profit taking.” A larger than normal sell off hurts bond values, which also hurts interest rates.

Where do we go from here? That is a great question, and the answer is the same as always… no one knows for sure. As I’ve said a few times in The Mortgage Blog, until the job market recovers (unemployment rates moving closer to 5% than its present levels of 10%) and the economy gets back on its feet, interest rates will more than likely remain low.

Combine that with the Federal Reserve’s plan to continue buying bonds (typically increasing their value and helping interest rates improve), and you will notice the mixed signals. Some signals indicate rates could improve while others point to rates getting worse.

How does one respond?

  • If you are looking to purchase a home, get out there and shop while rates are still in the 4’s! While you are looking, be sure to work with a mortgage professional who can offer a float down option on a locked interest rate. With the float down option, you can lock in knowing you can float down to a lower rate should interest rates improve during the loan process.
  • If you are looking to refinance your current home, find a target rate (one that makes sense for you to refinance) and be ready to move when it becomes available.

How do you get started with the mortgage process to buy a home OR find out your target interest rate? Consult with your mortgage professional. They will know what to do. If the property is in the state of Georgia for your purchase or refinance, I might just know someone who can help you get started!

How Horrible. Rates on the rise!

November 16, 2010

Interest rates are on the rise. Over the past two weeks, rates for a 30 year fixed mortgage have risen half a point to their highest levels since the start of the summer. Don’t get me wrong, interest rates are still in the low 4’s. It’s not like we are talking about rates in the 6’s or 7’s, but why the sudden increase?

The main reason – good economic news, or at least news that is somewhat good, is finally available for stock traders and they are taking advantage of it! For example:

  • last week the job market added just over 150K jobs when the expectation was only 75K would be added.
  • retail sales data came out higher than expected from a recent report
  • traders are taking advantage of the perceived good news and stocks are enjoying the gains (which means money is flowing out of bonds and into stocks causing interest rates to rise)

In all honesty though, who are we fooling? Unemployment is still at 10%, and the economy isn’t back on its feet just yet. Until those are straightened out, don’t expect interest rates to permanently leave their historically low levels.

Interest rates have indeed been on the rise. While the trend isn’t likely to continue for too much longer, it does leave me with some mixed emotions. It feels wrong… almost evil if you will. It is hard to put it into words, so I’ll let Dr. Horrible (played by Neil Patrick Harris) explain it.

Anytime you can work Neil Patrick Harris into a post, you must do it!