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713 S Lee Street Old - Town Alexandria

Kristie Zimmerman

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, Virginia: Although USDA loans are not a big deal in the northern Virginia area, but they are HUGH deal in the outlying counties of Fauquier, Prince William and Loudoun. It was recently been announced that the USDA 100% (zero down) loan program will be out of money by the end of April 2010.  Typically the USDA program has sufficient funds to cover the needs of potential borrowers. But as with many home financing programs, money is in short supply.  As lending guidelines have tightened over the past two years, the ability of a borrower finding a zero down home loan out side of the Veteran Department VA loan has disappeared almost completely.  This is has caused homebuyers that wouldn’t typically consider a USDA loan for financing to not only consider it, but actually apply for and be approved for the USDA zero down home loan. The program has no mortgage insurance, great rates and flexible credit guidelines. So over the last few years, USDA has stepped up to fill the void and provide affordable zero down loans for qualified first time homebuyers across the nation.

Although Fairfax, Virginia doesn’t have many areas that work for the USDA program, the increased demand across the country for USDA loans has led to a shortfall of funds. Last year the stimulus money was used to bridge the funding gap and business went along as usual. The stimulus money helped fill the void the past couple of years, but without additional it is projected that funds for the program will dry up sometime in late April.  When this happens the USDA will stop issuing loan commitments until their normal refunding takes place sometime next fall.  Most economist suspect any slow down in the housing market could have drastic affects on the economy pulling out of the recession.  Many first-time homebuyers could miss the $8,000 tax credit.  The best idea would be to fund the USDA program now so as to try and prevent the economy from slipping back in to a recession.

Below is a list of the members of the committees that can help steer passage of the appropriation request:
United States Senate Committee on Appropriations
Subcommittee on Agriculture
Rural Development
Food and Drug Administration

Democratic Members

• Senator Herb Kohl (Chairman) (WI)
• Senator Mark Pryor (AR)
• Senator Dianne Feinstein (CA)
• Senator Tom Harkin (IA)
• Senator Richard Durbin (IL)
• Senator Byron Dorgan (ND)
• Senator Ben Nelson (NE)
• Senator Jack Reed (RI)
• Senator Arlen Specter (PA)
• Senator Tim Johnson (SD)

Republican Members

• Senator Sam Brownback (Ranking Member) (KS)
• Senator Mitch McConnell (KY)
• Senator Susan Collins (ME)
• Senator Christopher Bond (MO)
• Senator Thad Cochran (MS)
• Senator Robert Bennett (UT)

Fairfax, Virginia: The Treasury Department released guidelines and updated forms on November 30, 2009 for its new Home Affordable Foreclosure Alternatives Program (HAFA) for homeowners in Fairfax, Virginia and Alexandria, Virginia area. The HAFA program is supposed to compliment the HAMP program and applies to loans not owned or guaranteed by Fannie Mae or Freddie Mac. The intent of the HAFA program is to assist additional homeowners that are in distress while setting out clear guidelines for mortgage servicers and mortgage holders. The HAFA program also provides incentives to servicers.  The HAFA program is for homeowners in connection with the following situations:

1. A short sale
2. A deed-in-lieu of foreclosure (DIL) used to avoid foreclosure on a loan eligible for modification under the HAMP program.
3. Servicers participating in HAMP are also required to comply with HAFA when working with homeowners in the Fairfax, Virginia and Alexandria, Virginia areas.

The Governments home affordability plan has some new changes for loans not currently serviced by Fannie Mae or Freddie Mac.

Link to HAMP participating servicers: MakingHomeAffordable.gov.

Link to the website: www.hmpadmin.com

Link to the 43 page guidelines that could help homeowners the Fairfax, Virginia and Alexandria, Virginia areas: https://www.hmpadmin.com/portal/docs/hamp_servicer/sd0909.pdf

The supplemental directive 09-09, is effective April 5, 2010, but participating servicers may elect to implement HAFA prior to April 5, 2010, in accordance with the supplemental directive guidelines.

• Program offers eligible homeowners viable alternatives to avoid foreclosure;
• Preventing servicers from attempting to reduce real estate commissions established in the listing agreement as a condition for short sale approval;
• Releasing borrowers from future liability for the debt; and
• Providing financial incentives to borrowers, servicers and investors.
• Provides a viable alternative for homeowners who are HAMP eligible but cannot keep their home.
• Allows the use of financial information and forms already in the system in connection with a loan modification.
• Enables the homeowner to seek pre-approved short sales terms before listing the property.
• Requires borrowers in the Fairfax, Virginia and Alexandria, Virginia areas to be fully released from future liability for the first mortgage debt. At this time I am not sure how this applies release of second mortgages or HELOCs liability. (No cash contribution, promissory note, or deficiency judgment is allowed).
• Provides a standardized time frame and process for handling alternatives;
• Financial incentives:
  • $1,500 for borrower relocation assistance
  • $1,000 for servicers to cover administrative and processing costs
  • Up to $1,000 for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders (on a one-for-three matching basis).

Rebound in Existing-Home Sales Shows First-Time Buyer Momentum October 23, 2009 – Existing-home sales bounced back strongly in September with first-time buyers driving much of the activity, marking five gains in the past six months. House values seem to be turning around for our area. Check out the link below. http://www.realtor.org/research/research/ehsdata