Forecasting What May Be Ahead for Home Loan Rates

Fairfax, VA – The good news–despite what the Mayan calendar may say–is that the world probably won’t be coming to an end in 2012. But like 2011, this coming year may bring some significant challenges here in the US and around the world. Read on to learn more about what could be ahead for home loan rates.

First, let’s take a minute to recap 2011. While home loan rates finished the year at historically low levels, the housing market did not see a major improvement in the second half of the year as some experts expected. The labor market did make some modest improvements, but it is still persistently weak and this is one area of the economy in particular that we need to see consistent improvement in to help our long-term economic outlook.

Also weighing on consumer confidence and thus the economy in 2011 was the first downgrade of US Debt in history, thanks in part to our very divisive government body. Finally, the worsening and spreading debt crisis in Europe capped a year filled with financial and political uncertainty. The situation in Europe is the perfect place to begin a 2012 outlook.

Eurozone Debt Crisis
What may happen with the US economy and home loan rates in 2012–not to mention with inflation, the housing market, the job market, and even the Presidential election–may be dramatically influenced by how the Eurozone handles their debt crisis. In the simplest of terms, the issue is that like much of the developed economies around the world, Europe has way too much debt. And a lot of this debt sits on the books of the banking sector throughout the Eurozone.

In good economic times, banks could potentially “grow” their way out of their recapitalization problem by doing a lot of business and writing a bunch of loans. But that is not likely to happen with the Eurozone slipping into a recession in the first half of 2012.

Ultimately, Europe needs to provide a large financial backstop for their banks and sovereign debt in order to fix their problems longer-term. And this is something that Germany, who holds the cards in this negotiation, strongly opposes. Germany prefers to have each country shore up their own individual finances, act responsibly, and pay down their debt. Yet, Greece, Italy and other highly indebted countries have struggled to invoke tough austerity measures that would help them do so.

The situation in Europe is definitely a wild card headed into 2012. The bottom line is that as long as the uncertainty continues, the US Dollar and US Bonds should benefit, as investors will see our Bonds (including Mortgage Bonds, upon which home loan rates are based) as a safe haven for their money. This could help keep our home loan rates relatively low in 2012.

Inflation
One factor that we can’t ignore when it comes to home loan rates is inflation. Why? Inflation is the arch enemy of Bonds and home loan rates, because if inflation rises, investors in Bonds demand a higher yield to offset the lost buying power inflation imposes on a fixed payment. And as home loan rates are tied to Mortgage Bonds, this would mean home loan rates move higher. That’s why sometimes even hints or whispers that inflation is on the rise causes Bonds and home loan rates to worsen.

So what’s ahead for inflation in 2012? In the Fed’s Policy Statement from the December 13, 2011 meeting of the Federal Open Market Committee (FOMC), the Fed stated that inflation is moderating…which would be good news for home loan rates. However, it’s important to note that core consumer level inflation actually inched higher in 2011.

Last year, consumer inflation and the expectation of inflation rose as the Fed embarked on a second round of Quantitative Easing (QE2) in the fall of 2010, whereby they bought Mortgage Bonds to help boost the economy and the housing market. If inflation remains at current levels or pulls back a little, the Fed may just do another round of QE3 in the spring. Also paving the way for another round of QE is the change of guard at the Fed. Several hawkish (i.e., tough on inflation) voting members are being replaced by more dovish (i.e., softer on inflation) voting members in 2012.

The bottom line is that if the Fed does another round of QE, this could cause inflation to rise. And if inflation does rise in 2012, it could have a negative impact on home loan rates. However, if the uncertainty out of Europe continues to lead to a safe haven trade in our Bond markets–and remember, this helps Mortgage Bonds and therefore home loan rates–this could essentially balance out the negative impact inflation usually has on Bonds and home loan rates. Only time will tell whether inflation or the events in Europe have a bigger impact on the markets and home loan rates.

The Big Picture
In many ways, 2012 may feel a lot like 2011. Inflation and events in Europe will continue to play a big part in the direction home loan rates move in 2012. What’s more, history has shown that Bonds move higher (which means home loan rates move lower) in anticipation of QE, but then selloff once the official announcement is made…think “buy on the rumor and sell on the news.”

If that does happen, the first half of 2012 could be an especially great time to purchase or refinance a home. But even if the Fed does not move forward with QE3, we begin 2012 with home loan rates near historic lows, which already makes this year a great time to purchase or refinance a home. If you have any questions about how you can benefit from this situation, give me a call at
703-830-9808 or email me at jeff@lendingsolutions.net

Fairfax, VA – FHA lenders had reason for cheer and mirth at the end of last week. “In an effort to continue stabilizing home values and improve conditions in communities experiencing high foreclosure activity, Acting FHA Commissioner Carol Galante will extend FHA’s temporary waiver of the anti-flipping regulations.” With certain exceptions, FHA regulations prohibit insuring a mortgage on a home owned by the seller for less than 90 days, but this rule is waived through December 31, 2012, unless otherwise extended or withdrawn by FHA.  “All other terms of the existing Waiver will remain the same.  The Waiver contains strict conditions and guidelines to prevent the predatory practice of property flipping, in which properties are quickly resold at inflated prices to unsuspecting borrowers.  The Waiver continues to be limited to sales meeting the following conditions: All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction. In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the Waiver will only apply if the lender meets specific conditions and documents the justification for the increase in value. The Waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

Effective Friday, November 18, FHA has raised loan limits to $729,750.

Fairfax, VA – You can check individual counties for limits using this link:

 FHA Loan Limits

Fannie & Freddie’s loan limits remain at $625,500!

FHA requires 3.5% down with a higher loan limit.

Conventional loans, 5% down with a lower loan limit.

Does this make sense to you?  I guess nothing makes sense these days but we think that Fannie and Freddie may very likely follow FHA.  Waiting for the President to sign.

 The new FHA limits are effective through 2013.

Fairfax, VA

CPI, PPI, PCE…sounds like a nice bowl of alphabet soup. But did you know that what lies behind these letters impacts not only YOU every single day…it also bears a very heavy influence on the direction of home loan rates? So pull up a chair, grab a spoon, and let’s dig in to learn more.

First, let’s break down what these letters mean. CPI stands for the “Consumer Price Index,” and just like it sounds, it is a measure of prices that consumers are paying for goods and services here in the United States. PPI stands for the “Producer Price Index,” which is a measure of the prices that manufacturers and producers are paying to create these goods and services. PCE stands for “Personal Consumption Expenditures,” which is another measure of how much we as consumers are paying for all the items we purchase.

Each of these readings is very different–but they all serve to measure inflation, which is the relative increase in the prices for goods and services…or a decline in the purchasing price of a dollar.

Consumer Price Index
CPI was first initiated during World War I. This was a time when prices were increasing very rapidly, so employers needed to develop a system to adjust wages along with the increasing cost of living associated with higher costs of goods and services. The Bureau of Labor Statistics determined a basic “basket of goods” that an average person might buy on a regular basis, and then began monitoring the prices of items in this basket on a monthly basis, for cities across the US. As spending habits changed over the years, the basket of goods and areas surveyed changed–but the basic philosophy has remained the same.

What does an average CPI “basket” look like? Here’s a sample. How does it compare with your monthly shopping cart?

Food and Beverages (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks)
Housing (rent of primary residence, owners’ equivalent rent, fuel oil, bedroom furniture)
Apparel (men’s shirts and sweaters, women’s dresses, jewelry)
Transportation (new vehicles, airline fares, gasoline, motor vehicle insurance)
Medical Care (prescription drugs and medical supplies, physicians’ services, eyeglasses and eye care, hospital services)
Recreation (televisions, toys, pets and pet products, sports equipment, admissions)
Education and Communication (college tuition, postage, telephone services, computer software and accessories)
Other Goods and Services (tobacco and smoking products, haircuts and other personal services, funeral expenses)
So how is this data collected? Every month, researchers from the Bureau of Labor Statistics visit or call thousands of stores and offices to obtain pricing information, ultimately tracking and pricing about 80,000 items per month. The numbers are reported on a monthly basis, using the time period for the years 1982-1984 as a baseline, assigning the basket a level of 100. So if the new pricing levels come in at 189, you could make the connection that something that cost $100 in 1982-1984 might now cost $189. On a monthly basis, however, what is reported is the percentage increase (or decrease) from the prior month, and then also the percentage change from last year.

For an interesting – and somewhat sobering – look at how the buying power of your dollar has changed over the years, try out this inflation calculator from the Bureau of Labor Statistics:

Producer Price Index
The Producer Price Index (PPI) is somewhat different than the Consumer Price Index (CPI), as it measures the costs that a producer or wholesaler pays for the items they need to create goods and services. This can often give a foreshadowing of potential increases to consumer prices…but not always. In some cases, the producer is unable to pass along their increased costs, and simply has to take a lower profit margin on the item in question. Similarly to CPI, the data for PPI is released in a percentage format, indicating the increase or decrease in prices paid by the producer relative to last month and also last year.

It’s fascinating to watch these particular economic reports get released each month, as the Producer Price Index is always released just a few days before the Consumer Price Index, and it’s always a subject of much speculation to see if the increases in producer costs have been passed on to consumers…or not.

Personal Consumption Expenditures
PCE is somewhat similar to CPI, as it measures price changes in consumer goods and services. But there is one primary difference. Remember the “basket of goods” described in the CPI? PCE takes a slightly different look at this basket, as it presumes that consumers are smart enough not to keep buying a particular item that has gone up in price compared to something else similar.

For example, if oranges become expensive due to a crop freeze, a savvy consumer might decide to buy a different kind of fruit or juice in the meantime. Where CPI leaves that expensive item in their fixed basket of goods, PCE takes smart shopping into consideration. This is why many people speculate that the Federal Reserve actually places more weight on PCE, as it may more accurately depict a consumer’s true behavior and spending habits.

The Impact on Home Loan Rates
Imagine for a moment that you are going to lend your very own money to someone to buy a house. So you go through all the paces to determine this person is a good credit risk, you do the loan, and you start receiving $1,500 per month as your regular payment. You then of course take that $1,500 and start loading up your shopping cart with the goods and services you need on a monthly basis…food, clothing, medicine, gas, etc.

But over time, you notice something happening. Every month, you are getting slightly less in your cart than you did the month before, for that same $1,500 you are spending. Why? Because costs are on the rise–that’s inflation.

Now imagine that you are once again going to lend your very own money to another person to buy a house. You go through all the paces once again, and determine that the person is a good credit risk. You want the same shopping cart full of “stuff” that you got last time in return for doing the loan, but this time you realize that you can no longer get that same cart full with $1,500. Due to inflation, you now need $1,700 to buy those same goods and services.

So what does this mean for the interest rate you will charge this second person? It means you will need to charge a higher interest rate to compensate you for the ongoing impact of inflation. And that is why home loan rates change when there is a fear of inflation in the air, as lenders need to offset the impact of inflation over the years, which will erode the value of the dollars they are receiving over time. And that’s also why it makes sense to work with a smart home loan professional who can be watching these types of indicators and keeping you informed and advised.

Please call me if you have any questions, or if you are look to refinance or if you are purchasing a new home.

Fairfax, VA – When was the last government shutdown? 1995 was the year. What happened? It was very painful to get through, but no one panicked. And we shouldn’t panic this time. I can assure you 1st Commonwealth Bank of Virginia has prepared all of the loans in our pipeline and we preparing for a worst case scenario, so the disruption will be minimal. If a shutdown would occur, these would be the top six areas that can affect us during a government shutdown:  

FHA Case Numbers: For each FHA loan, we are required to order a FHA case number.
This number is generated before an appraisal can even be ordered. With a shutdown, we may not be able to order case numbers. Because of this, it is critical to let us know if there is a contract executed on any loan, so that our office can go ahead and order a case number without risking the loan being on hold during a shutdown. Note: with the new FHA guidelines, a contract must be executed before a case number can be ordered.

(The ability to close FHA loans is questionable, depending if HUD keeps its website running to obtain FHA case numbers and CAIVRS (During the November 1995 shutdown, case numbers could not be obtained, but this was prior to the internet and was a manual process). The shutdown in 1995 mainly caused a delay rather than a drop in FHA loan origination, but if lenders decide to stop accepting FHA applications, it could be a problem. I think we will see delays but not a complete shutdown of the FHA.)
 
4506 IRS Transcripts: Each loan requires the verification of at least one Federal tax return by the IRS to verify the financial numbers that each customer presents us on their tax returns. During a shutdown, this process would be delayed as the IRS wouldn’t be at work to verify the transcripts. (This might be a minimal delay, since the internet / phone fax is used to order tax transcripts.)

Verifying Employment (VOE) of a Government Employee: We are required to verify the employment of each customer. If the customer is a federal government employee, we might not be unable to verify his or her employment during a shutdown. (Again some VOE’s are ordered via the internet, we are not sure if there would be a delay in receiving VOE’s)

FEMA: Homes in a Flood Zone: Homes that are determined to be in a flood zone would not be able to close as flood insurance could not be obtained.

USDA: During a shutdown, the USDA office would be closed because they have government underwriters that insure behind the lender.  With a shutdown, we would see delays with all USDA loans.

VA: Like the FHA, the disruption is possible — but not absolute — during a shutdown. This would all depend on if they continued to allow their website to function. A disruption would cause delays in VA appraisals and the issuing of certificates of eligibility.  If the website was closed during a shutdown, we would see delays in all VA loans.

Fairfax, VA – When the property in question is an FHA flip. Seller has been on title for less than 90 days.

If the sales price is 20% or more above seller’s acquisition cost and the increase in value is due to improvements/renovation to the property: 

1. The appraiser is required to verify the repairs or work to the property in order to substantiate the increase in value.
 
2. The seller must supply a list of improvements made to the property and the appraiser adds the list to the appraisal along with comments to justify the increase.

3. Before and after pictures are welcome.

4. Although not required on FHA flips, most lenders will automatically order a second appraisal to help justify the value.

If the appraiser cannot warrant that legitimate work was done to the property to substantiate the increase in value:

1. Then a second appraisal will be required.
  
2. This part could cause issues: The lower of the two appraisals will be used for the appraised value.

3.  A second appraisal will be required.

If the increase in value is not due to any significant improvements:

1. The appraiser will be required to provide explanations for the increase in
property value.

2. The appraiser must provide sales comparables to support that value increase since the prior title transfer.

3. OR, if the appraiser cannot justify the increase in value, a second appraisal will be required.

4. The lower of the two appraisal values will be used for the appraised value.

Fairfax, VA – The start of summer is nearly here, which means things like baseball, hotdogs, and apple pie are on our minds. But that’s not all the arrival of summer means: 2011 is almost halfway over. That makes now the perfect time of year to make sure your home loan is working for you.

Here are four questions you should ask yourself about your mortgage…before the temperatures start turning colder again.

Question 1: How does my interest rate compare to what’s available today?

The economic realities of the past few years have taught people some valuable lessons. One of which is: It’s not what you make, it’s what you keep, that counts.

Think of it this way: If you discovered that someone was stealing from you, how quickly would you act to stop them from doing it again? Would you act today, in a week, a month, or not at all? The odds are you would act sooner rather than later.

So here’s a question for you to consider. Is your current loan stealing money from you? Could you benefit from refinancing and lowering your interest rate and/or monthly payments on your home loan? Let’s look at some numbers: On a $300,000 mortgage, decreasing your interest one percentage point saves you $3,000 in interest a year, or $250 a month. That’s right, $250 a month!

Today, many major corporations with millions, and in some cases billions, of dollars are taking advantage of these low rates. Shouldn’t you be, too? Perhaps this is one of those times when following the herd isn’t such a bad idea.

Question 2: Do I have the right loan for my personal situation?

Are you one of those people who is planning to stay in your home for the rest of your life? Have you packed and unpacked dozens of boxes, hoping to never hear the whisk of packing tape again? Or, are you excited about downsizing in a few years, once your kids head off to college? Or maybe you’re considering relocating for a career opportunity?

Whatever your situation, the key point to remember is that the length of time you are planning to stay in your home is a big factor in determining whether you have the right loan. For example, if you know you are planning to move in five years, a seven-year adjustable rate mortgage may be a great option for you since it typically offers lower rates than a 30 year fixed loan and since you plan to move before the rate adjusts at the seven-year mark.

Pay attention and be aware as situations arise in your life. They may just help you save money in both the short and long-term.

Question 3: Is my mortgage well integrated into my financial plan?

Before you get excited that you have a low mortgage rate or owe very little to the bank on your mortgage, ask yourself the following questions:
Do I maximize contributions to my retirement plan at work?
Do I carry balances on high interest non-tax-deductible consumer debt?
Do I have a sufficient liquid rainy day fund established?
Remember: Your mortgage is just one element of your financial plan. And while securing a low rate or owing little on your mortgage are great achievements, neither will make you financially secure if you don’t also have a plan in place for retirement or have liquid cash on hand to cover an emergency. And, if you’re making large credit card payments every month–paying more in the long-term in interest on these payments than if you were able to use some of your equity to pay off your debt–than your mortgage is standing on its own, instead of helping you increase your overall worth.

Question 4: Should I pre-pay my mortgage?

Would you rather be house rich and cash poor? Or house poor and cash rich in this current economic environment? Here’s some information to consider.

Home equity accumulates in four ways: the money committed in the original down-payment; any appreciation in the local housing market over time; physical improvements or renovations; and, of course, principal payments on the mortgage itself. While seemingly desirable on its face, this accumulation of wealth in the home has three consequences that you should keep in mind.

First, the cash in your home is “buried.” Not only is it unavailable in the event of a family emergency, it is vulnerable to loss due to periodic downturns in housing values, fire, or natural disasters such as hurricanes (insurance, where available, may not cover the full market value of your home). Perhaps more critical, cash trapped in property is earning zero interest, year after year. No prudent consumer would put money into a savings account or investment plan that yields no rate of return, but many homeowners do exactly that without a second thought when it comes to their mortgage.

The Bottom Line

Everyone’s situation is different and the only right answer is the one that is right for your situation. If you’d like to see how you can make your mortgage work better for you, contact me at 703-830-9808

Google doesn’t give up on much. But it did with this product.

http://www.inman.com/news/2011/01/26/google-drops-real-estate-listings

Now May Be the Perfect Time to Buy

Fairfax, Virginia: There’s no place like home for creating memories. And no place like home for the holidays. While it may sound a bit crazy to add this to your shopping list…this holiday season could be the very best time in history to give yourself the gift of a new home.

While there are a number of advantages to purchasing a home Fairfax or Vienna Virginia there is a confluence of factors that make this year’s season a bit more special than past years.

Rates at Historic Lows
Interest rates have been dancing around the all-time-low mark for some time. But did you know that rates hit the lowest ever in October?  This season, FHA, VA and conventional interest rates in Fairfax and Vienna, Virginia are about 0.5 percent lower over this time last year – which translates to a payment savings of approximately $60 per month on a $200,000 mortgage for qualified borrowers.

Today’s lower rates give you an increase in buying power. Rates have already begun to move higher since November 4th, following the announcement of Quantitative Easing 2 by Fed Chairman, Ben Bernanke. As rates increase, your buying power will diminish.

Home Prices at All-Time-Lows In Fairfax and Vienna Virginia
Once school begins, the real estate market tends to slow down and by the holidays, it is at a snail’s pace. The lack of buyer demand is reflected in home prices as sellers become anxious. Homes are more affordable now than at any other point in time since 1970 according to the National Association of Realtors’ housing affordability index. And as the holidays approach sellers may reduce prices further or offer additional incentives.

Lawrence Yun, chief economist for the National Association of Realtors, said home sales still remain subpar. He explained, “The housing market is trying to recover on its own power without the home buyer tax credit. Despite very attractive affordability conditions, a housing market recovery will likely be slow and gradual because of lingering economic uncertainty.”

Sellers In Fairfax and Vienna Virginia Are Motivated
With the current economic slowdown many sellers are willing to negotiate – not just on price, but also may be more open to entertain requests for other concessions such as appliances, or paying closing costs. In addition, they may be eager to get the home sold prior to the holidays to avoid scheduling their holiday plans around viewings by prospective buyers. This may give you extra bargaining power.

Once home prices stabilize and begin to improve, these same sellers will be less willing to bargain. As Warren Buffet has said, “Be fearful when others are greedy and greedy when others are fearful.” Once the market begins to improve, sellers may become greedy as buyers panic to secure home purchases as prices start to climb.

Plenty to Choose From In Fairfax and Vienna Virginia
While real estate is local, most markets remain saturated with inventory. Being in the buyers’ shoes right now is akin to being a kid at Christmas – all the choices make it a bit overwhelming.

If you’re serious about buying a home, the first step is to define what you are looking for in a home and at what price…and then get qualified! Once you find a house you love, be willing to negotiate a fair deal and grab it. Waiting around for things to improve from here could cause you to lose the opportunity on that “perfect home.” It’s important to remember you are not looking solely for the best deal…but the best home.

Tax Advantages Of Buying A Home In Fairfax and Vienna Virginia
Buying a home can give you a tax break. Here’s how: Mortgage interest (including points) and real estate taxes are tax deductible. That doesn’t sound very sexy, but it adds up. Since most of what you pay for your mortgage in the first year is interest, on a $200,000 mortgage at 4.25%, you get to deduct about $700 a monthin interest. That reduces your taxable income by about $8,400 a year. If you’re in the 25% tax bracket, that deduction is worthabout $175 a month.

To see the benefit, you can either wait for a big payout after you file your income-tax return, or adjust your withholdingsand keep your hard earned money. Your employer’s benefits department can help you with this.

Closing on a home purchase in Fairfax and Vienna Virginia before the end of the year may provide you some additional tax deductions for the current year. You may be able to deduct any money you pay for points to reduce the interest rate on your loan. Consult your tax advisor to see how the mortgage interest deduction applies in your situation.

Getting Started
Buying a home during the holidays could benefit your wallet for years to come, and there may not be a better time than now. If you are thinking of purchasing a home during this holiday season, get started now and call me to discuss your options.