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: 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)

5-7 days: LOCK.
7-15 days: FLOAT, BUT BE CAUTIOUS; WE WILL HOLD TO OUR FLOAT UNTIL FRIDAY’S EMPLOYMENT
REPORT BUT IT ISN’T LOOKING GOOD; CRITICAL DEALS SHOULD BE LOCKED NOW.
15-30 days: FLOAT.
30+ days: FLOAT WITH CAUTION.

This morning’s ADP December jobs report really hit the bond market hard, 100,000 jobs expected but 297,000 jobs reported. It was a huge surprise but likely a little overstated with five weeks in the data instead of four and the holiday temp hiring. While it may be overstated, it does reflect that employment got better in Dec than what had been thought. Friday’s U.S. Bureau of Labor Statistics – BLS “official” report on jobs may not meet the ADP numbers but is now believed to be better than the 142K non-farm payearolls that had been the forecast.

Interest rates had one day of little volatility yesterday after weeks of wide swings, today it was back to big moves. The yield on the 10 year note jumped from 3.33% yesterday to 4.48% today, mortgage rates increased 10 basis points. While the headline was the ADP report, the Dec ISM services sector data this morning was also better than estimates and expectations, the overall index was expected at 55.7 from 55.0 in Nov, it jumped to 57.1 and new orders component also increased as did the prices paid index from 63.2 to 70.0, most was energy costs but other prices also increased adding to inflation fears.

The 10 year note and mortgages remain in their respective month long ranges but the news today increases the bearishness that has marked interest rates since early Nov. If the employment data on Friday offers another better than thought increase in jobs the 10 year and mortgage rates are likely to continue to increase. As we have noted recently, although rates have slowed their climb from the recent swift increase all of our technical systems have remained bearish.

Tomorrow weekly jobless claims will provide another look at the labor markets; unemployment claims declined 34,000 last week to move below the critical 400,000 to 388K, tomorrow claims are thought to have increased 17,000 back to 405,000. Continuing claims are expected to fall to 4.07 million from 4.128 million last week. Unemployment filings may still be distorted with the four day week again last week.

Not a huge reaction to the jobs report this morning in the equity markets; all three key indexes ended better extending the month long rally but were rather subdued compared to the bond market.

The outlook for interest rates continues to be for rates to increase, as long as economic data continues to beat market expectations and fears of inflation continue the path for rates is up.

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