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by the seller for less than 90 days, but this rule is waived through December 31, 2012, unless otherwise extended or withdrawn by FHA.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.

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, Virginia: Last month, the world watched in horror as another tsunami brought immense devastation, this time to Japan. In light of the tragic earthquake and subsequent tsunami, I wanted to discuss a topic that’s important to all homeowners: homeowners insurance.

Let’s start with some important questions:

• Do you know what a typical homeowner’s insurance policy covers?
• If you’re currently a homeowner, do you know what your policy does, or more importantly, does not cover?
• Can you afford a higher deductible?

A study released by the National Association of Insurance Commissioners pointed out that typical  Fairfax Virginia property and liability policies do not cover home damage from floods, earthquakes, water line breaks, termites, mold, and several other perils, large and small.

Hurricane Katrina taught us hard lessons about home insurance. One unbelievable story was the loss of home equity experienced by Senator Trent Lott. The Senator’s long time insurance company did not cover his home after it was completely destroyed by Katrina.

The reason?

With hurricane insurance you typically have coverage from high winds, but not water damage. The water surge brought onshore by Katrina is what destroyed his home.

Homeowners need to be properly protected. Plan for the worst, hope for the best is prudent advice here. Mortgages and home equity are a big part of every homeowner’s financial plan and proactive planning is essential!

Going with a higher deductible on your Fairfax, Virginia home increases your out of pocket expense, but it can save you money in the long run through lower yearly permiums.  Insurance companies track claims against a home AND the home owner. Some companies might not renew a policy if too many claims are filed over a certain period of time. Check your budget and if possible increase your deductible and lower your yearly premium.

If you want to discuss your personal situation, please contact me. Don’t wait until after a tragedy happens to learn exactly what type of coverage you have. Then, it may be too late to protect yourself, your home, and your financial future.

FHA Refinance Changes

Fairfax, Virginia: With Mortgagee Letter 11-11, FHA announces changes to refinance transactions. This ML provides guidance on the changes as well as clarification on existing refinance guides and it will be worthwhile to read this ML in its entirety as a refresher.

Here are the 8 things you need to know about these clarifications and changes:

1. Borrower must be current on their mortgage for the month of closing AND the month prior to closing (The payment due the month of closing CAN be included in the payoff).

2. Second liens must be subordinated to the new FHA first in their entirety.

3. For all case numbers on investment property refinances assigned on or after April 15^th, 2011, the borrower must have occupied the subject property for the last 12 months to qualify for maximum streamline financing; if less than 12 months, a full credit-qualifying qualifying regular refinance is required with a maximum LTV of 85%.

4. Effective no later than April 15^th, 2011, the following net tangible benefit scenarios must exist on all streamline refinances in Fairfax, Virginia, Vienna, Virginia and the surrounding northern Virginia area.  A. The total of the new P&I and MI portion of the payment must decrease by at least 5% OR B. Refinancing from an ARM to a fixed product (See chart in ML).

5. Effective no later than April 15^th, 2011, lenders may now use the short Uniform Residential Loan Application (URLA) (standard loan application) for non-credit qualifying streamline refinances ONLY.

6. Effective no later than April 15^th, 2011, lenders no longer have to certify (verify) employment and income on streamline refinances.

7. TOTAL Scorecard (FHA underwriting system) must not be used for streamline refinances

8. Borrowers or Lenders CANNOT add closing costs, discount points, prepaids or other costs to the loan balance on non-credit-qualifying streamline refinances.  Lenders CAN add closing costs and prepaids (not discount points) ONLY through a full-credit-qualifying streamline WITH an appraisal. In other words, if you want to roll in closing costs, you must provide all income and credit documents to your loan officer.

Fairfax, Virginia: Mortgage Rates Return To April 2010 Levels Mortgage rates are surging.

Over the last week or two, interest rates on 30-year fixed mortgages have increased roughly a .25 percent. This is according to Freddie Mac’s weekly Primary Mortgage Market Survey.  It is the largest one week jump in recent history.  The national rate for a 30-year fixed rate mortgage now averages 5.05%.  Compare this to last November when the average rate was in the low 4 percent range.    Rates are headed upward, over the last tw weeks rates have steadily increased.

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

Interest Rate Update – January 28, 2011

Closing within 5-7 days: LOCK.
Closing within 7-15 days: FLOAT, BUT LOCK LOANS THAT ARE CRITICAL; STILL BEARISH OUTLOOK.
Closing within 15-30 days: FLOAT WITH CAUTION.
Closing within 30+ days: FLOAT WITH CAUTION.
(I realize the advice is redundant, but rates are static so advice doesn’t change)

Fairfax, Virginia: Two very key economic releases at 8:30 this morning. Q4 GDP Gross Domestic Product was expected to be up to 3.6% from +2.6% growth in Q3 2010, the advance report showed growth at 3.2%; the miss occasioned by the biggest drag from inventories in two decades.

Q4 employment cost index was at +0.4% as expected. Those were the headlines but the details revealed better comparisons. Final sales in the fourth quarter increased 7.1%, the best showing in sales since 1984. The employment cost index for all of 2010 at +2.0%, was the second lowest on record at 2.0%, in 2009 the employment cost annual index was up 1.4%. GDP growth in 2010 at +2.9% was the strongest in five years. Household purchases, about 70% of the economy, rose at a 4.4% pace, the most since the first quarter of 2006.

Retailers’ holiday sales in Fairfax and Vienna Virginia jumped 5.5% for the best performance in five years. The report this morning is the first of three that will be released over the next two months before the final GDP hits in March, nevertheless there is little doubt that the economy is recovering at a pace better than what we were expecting, still however, we want to see retail sales data for Jan and Feb for confirmation. That may be a problem though in that Jan will be negatively impacted by many snow storms through the month.

Treasuries and mortgage markets in Fairfax, Virginia were soft into the 8:30 releases, initially weakened more before settling down by 9:00; at 9:00 the 10 yr note -11/32 at 3.43% +4 basis points, mortgage prices down 7/32 (.22 basis points). (see below for 10:00 levels). The economic improvement is increasing the possibility that the six week trading range for the 10 yr and mortgages is going break to higher rates soon. There are two factors that are still holding rates stable; inflation is low and there is nothing out there that suggests it is about to increase, and there is a potential for the equity markets are due for a correction after the huge improvement over the past six months.

The stock indexes opened better at 9:30; DJIA +4 points. The indexes are struggling recently; although improving the equity markets are showing some signs of exhaustion after the very strong rally over the past six months. Most of the optimism that drove stocks higher have now been about completely discounted; the economic rebound has essentially met market expectations. To take the market higher now it will need an infusion of new news and data. Many analysts that remain bullish in the long run are talking about a market correction; a few are looking for as much as 10%. If (when) a correction begins it will support the rate markets on safety moves.

The 10 yr treasury note is still holding in its 25 basis point yield range; mortgages are following along. This week so far the 10 yr note and mortgages are unchanged from last Friday’s closes. So far there isn’t enough momentum to drive the 10 yr note above 3.50%, however recent action is less optimistic. Rallies have been weaker than days when prices fall and yields increase. The rest of the session for the bond and mortgage markets will depend on how stock indexes trade.

 The final economic data point this week; at 9:55 the University of Michigan consumer sentiment index, expected at 73.0 from 72.7. Sentiment came at 74.2; the current conditions index at 81.8 from 79.8 and the 12 month out expectations unchanged at 87.0. No noticeable initial reaction to the report as it was in line with investors thoughts and views on what would be reported.

What’s Ahead For Mortgage Rates This Week : January 24, 2011

As the body of U.S. economic data continues to show slow, steady improvement, Wall Street is becoming a net-seller of mortgage-backed bonds. As a result, conforming mortgages rates in Virginia are rising. This is why conforming and FHA mortgage rates rose last week in Fairfax and Vienna, Virginia.

Existing home supplies plunged to a 2-year low in December, and unemployment claims dropped more than expected, giving hope for the U.S. economy in 2011. This week, that trend may continue. There’s a lot of news set for release.

The biggest story of the week is Federal Open Market Committee’s 2-day meeting. Scheduled for Tuesday and Wednesday, the FOMC’s meeting is the first of its 8 scheduled meetings this year. In it, the FOMC is expected to vote the Fed Funds Rate unchanged in its target range near 0.000 percent, but it won’t be what the Fed does that’s so important to mortgage markets — it will be what the Fed says.

Wall Street will be watching the FOMC’s post-meeting press release for clues about the economy, and the central banker’s next steps. From what it reads, Wall Street will react. This week is also heavy on housing data in Fairfax and Vienn.

Following up on last week’s Existing Home Sales and Housing Starts figures, this week features 4 additional releases:

1. Case-Shiller Index (Tuesday)
2. Home Price Index (Tuesday)
3. New Home Sales (Wednesday)
4. Pending Home Sales (Thursday)

ECONOMIC OUTLOOK.

 5-7 days: LOCK.
7-15 days: FLOAT, BUT BE CAUTIOUS; NOT LIKELY RATES WILL DECLINE MUCH WITH BULLISH
15-30 days: FLOAT.
30+ days: FLOAT WITH CAUTION.

Treasuries opened flat this morning, mortgages bonds are up 4/32 (.12 BP – basis points) at 9:00. Mortgage bonds are still trading in a 25 basis point yield range. The Dow Jones Industrial Average DJIA opening firmer again as most are now believing the economy will continue to improve this year. Technically, the 10 yr note still is unable to close below its 20 day average on the yield chart, but mortgages are performing better, now above its 20 day and possibly going to test the 200 day average.

Smaller U.S. companies are rallying the most since 2003 relative to the Standard & Poor’s 500 Index. That small companies are outpacing larger firms is a bet that the economy will strengthen and spur a third year of gains for investors. The Russell 2000 Index, comprised of stocks with a median market value of $528.5 million, rose 25% in 2010, beating the S&P 500 by 13%. Some analysts believe small companies are doing better because most of their sales are coming from US consumers rather than globally.

The Johnson Redbook retail sales for the week ending 1/1/11 showed yr/yr same-store sales rose 3.5% in the week, below the prior week but right in line with trend and pointing to a very positive 0.4% gain vs November. This latter reading points to a solid gain for the government’s December ex-auto ex-gas category in what would be substantial evidence of consumer strength. The sales report is supporting a better open in the equity markets.

The DJIA opened +20 at 9:30, the 10 yr note -3/32 and mortgage prices +4/32 (.12 basis points). Support in the interest rate markets may be coming from the view that stocks are currently over-valued even though the indexes continue to increase. We still hold a slight bearish outlook for the rate markets, although the market isn’t as negative as it was in early December. Nevertheless, as long as the outlook remains positive for the economy it is unlikely that interest rates will decline much if at all.  

The only data point today; November factory orders, were expected down 0.2%; as reported orders increased 0.7% from -0.7% in October (revised from -0.9%), ex transportation orders up 2.4%. The inventory to dales ratio at 1.28 months. Yet another data point stronger than expected. There was little immediate reaction to the report although rates have edged higher since 9:30.

At 2:00 this afternoon the Federal Open Market Committee – FOMC minutes from the December meeting will be released. how the members debated the impact of QE 2 and what the Federal Reserve expects to do will get attention but not likely to have much impact on the markets.  

Later this afternoon December auto and truck sales. 9.2 million total is expected.

The minutes from the Dec FOMC meeting were not particularly revealing except the Federal Reserve appears to be chasing its own tail. One of the comments in the minutes that got attention was the Federal Reserve’s explanation for why interest rates increased when QE 2 began, instead of declining as the Federal Reserve wanted. The Federal Reserve’s response is that the markets had already discounted the easing move prior to it actually being ratified. True enough, rates were falling prior to the Nov 4th $600B announcement—-buy the rumor, sell the fact. The Federal Reserve also blamed hedging of MBS risk for some of the spike in rates and investors revising down the amount of QE, the agreement to extend the tax cuts and cut SS contributions were also given as reasons for the rate hike. I may have missed it, but I didn’t see any comment from the Federal Reserve that its drive to increase inflation was a factor which in our opinion was one big reason for the quick spike higher in rates. One other reason for increasing rates; the budget deficit isn’t shrinking but expanding with the tax cut extensions and the cut in SS contribution. The minutes said that rates didn’t increase more than they did was due to QE 2; some Federal Reserve spinning? One major takeaway from the minutes to consider; the Federal Reserve said the economic recovery is moving slowly but better than what the Federal Reserve had expected. 

The minutes were generally positive on economic growth; better consumer confidence, household wealth better because equity prices were stronger than the decline in home values, investments in equipment and software better, consumer prices trending lower. No labor cost pressures, consumer credit still weak but flattening (the FOMC failed to point out that consumer credit is declining primarily because the Federal Reserve put student loans in the category of credit cards, otherwise consumer credit has crumbled), consumer spending getting better, revised data on personal income improved, increasing labor demand, exports better.

On balance, the FOMC minutes took some wind out of the bond and mortgage markets this afternoon; prices slipped a little on the view that the Federal Reserve would not add to the QE 2 with a QE 3. The pullback in prices for treasuries and mortgages was minor but enough to keep the bearish technical’s from being tested. The rate markets have moved from heavily bearish near term to neutral now; the 10 yr and mortgages stuck in a narrow ranges after the spike in Nov and Dec. Not a bad thing, markets need to settle after the recent high levels of volatility.

Tomorrow at 7:00 the weekly MBA mortgage applications report. At 8:15 the Dec ADP private jobs estimate (+100K). At 10:00 Dec ISM services sector index (55.7 from 55.0); the ISM manufacturing index on Monday was fractionally lower than what had been expected.

How does gold and crude oil fall into the interest rate mix? Gold and crude oil fell hard today with the dollar firmer and very overbought markets. Gold down over $41.00 crude down over $2.00. (see below)

 PRICES @ 4:00 PM

10 yr note: 94.04 +2/32 3.33% -0.5%

5 yr note: 100.18 unchanged 2.01% unchanged

2 Yr note: 100.10 -1/32 0.62% +2 basis points

30 yr bond: 97.11 -6/32 4.41% +1 basis points

Libor Rates: 1 mo 0.260%; 3 mo 0.302%; 6 mo 0.455%; 1 yr 0.780%

30 yr FNMA 4.0 Jan: 99.17 +1/32 (.03 basis points) (-3/32 (.09 basis points) from 9:30)