Why Mortgage Rates Continue to Slide Lower

March 18, 2011 by · 1 Comment 

Mortgage rates have moved lower again this week and here’s why:

1.  Geopolitical tensions in the Middle East.  The widespread fighting and violence throughout the Middle East has helped the bond market as investors seek out relatively safer assets.  This phenomenon is know as a “flight to quality” and has the effect of increasing bond prices and lowering bond yields, which leads to lower mortgage rates.

2.  Rising oil prices.  Unrest in oil-producing nations has the added impact of pushing oil prices higher.  When consumers and businesses must spend more for energy, they have less money to spend on other items.  This slows economic growth and can reduce expectations for future inflation, allowing investors to accept lower yields.  Although this one hurts in the pocketbook, it might just help rates long-term.

3.  Strong demand for Treasury auctions.  There was extremely strong demand last week for 10-year and 30-year Treasuries.  This reinforced the view that many investors are seeking to reduce the risk in their portfolios.  Despite budget deficit concerns, US government-guaranteed securities remain one of the primary “safe” assets for global investors.  Demand for the longer-term auctions was well above average from both foreign and domestic investors.  Increased demand drives bond prices higher and yields lower.

January Employment Report

March 18, 2011 by · Leave a Comment 

The results from January’s Employment report were strong, but they did not exceed expectations.  Against a consensus forecast for an increase of 200K jobs, the economy added 192K jobs in February.  The Unemployment Rate declined to 8.9% from 9.0% in January.  The gains were strong nearly across the board, with the exception of the government sector.  Over the longer-term, the private sector must produce new jobs to sustain a recovery, so strength in the private sector was a good sign for the future.  Average Hourly Earnings, a proxy for wage growth, fell short of expectations, remaining unchanged from January.  Some investors were prepared for a much higher jobs number, and the on target results last week prompted a reversal of the rise in mortgage rates from earlier in the week, which was attributable to the strong economic reports outlined above.

Gifts Can Now Be Used for All of Required Down Payment on Conventional Loans!

March 18, 2011 by · Leave a Comment 

At the beginning of this year, Fannie Mae and Freddie Mac announced that moving forward, all funds on a Conventional loan can come from a gift even if the borrower puts less than 20% down!  This was an amazing announcement considering in the past on a Conventional loan the borrower has always had to come up with at least 5% down from their own savings unless the borrower put 20% or more down.  Although Fannie and Freddie have been willing to implement this policy, it has not been something anyone could actually utilize because the PMI companies have not gone along with it, that is until now.

In early March (2011), one of the leading PMI companies, MGIC, announced that effective Feb 21, gifts and grants can be considered as the borrower’s own funds for purposes of meeting the 5% Minimum Borrower Contribution as long as the borrower’s credit score is 740 or higher, the debt ratio is 41% or lower, and the property is located in a Nonrestricted Market.  This is super news except for the fact that Atlanta is still defined as a Restricted Market right now by MGIC due to continued declining values.  With this said, it is only a matter of time until Atlanta moves off of MGIC’s Nonrestricted Market list and only a matter of time until other PMI companies begin matching this policy.  Thus, this should be something we can actually utilize in Georgia in the very near future!   

Please note that gifts or grants are acceptable from a relative defined as related by blood, marriage, adoption or legal guardianship, domestic partner or fiancé/fiancée, OR a public or non-profit organization, church, or municipality, OR an employer with an established employee assistance program.

Eliminating Mortgage Insurance

March 18, 2011 by · Leave a Comment 

For loans originated after July 1999, there are two methods to eliminate mortgage insurance (MI).  The first is that a lender is required by law to automatically eliminate MI when the loan balance drops to 78% of the original sales price of the home (this does not include up-front MI on an FHA loan which is never recoverable).  For FHA loans only, there is also a rule that the homeowner has to wait at least five years before cancelling the MI (this rule does not apply if original amortization term of loan is 15 years or less).

The second method allows the homeowner to utilize appreciation by having a current appraisal done.  This method only pertains to Conventional loans.  Once the appraisal has been done by a lender-approved appraiser, the MI will be eliminated if the loan balance is reduced to 80% or less of the value of the home.  There is a seasoning requirement with this method; however, as the homeowner has to wait two years before having the appraisal done.

Lenders are supposed to have mechanisms in place to automatically reduce the MI when the loan balance reaches 78% of the original price, otherwise it is the homeowner’s responsibility to contact the lender in writing to make a request to eliminate MI.  Also, the borrower can’t have been more than 30 days delinquent on a mortgage over the previous 12 months.