Advice, Community & Common Sense

These days, it is very tough to know where to begin when trying to bring quality and reliable information to my clients.  There are so many timely and important topics to cover.  This will be a longer post than usual, to review many current issues in mortgages, and their varying implications for all of my clients.  If you can't read it all now, I hope you'll at least skim through it and save the link to refer back to later.

As you have heard, there are “rescue plans” and “bailout plans” to save housing and the U.S. economy, approved by the Senate and House, and some even signed by the President. There are also rumors and speculation about new plans and future plans that the federal government, through the Treasury and/or the Federal Reserve, intend to do.  Rescue plans approved and signed, intended for one purpose, have already altered course, and are already not being used for “what we were told they were for”.

Recently more rumors circulated that mortgage rates would be driven down to 4.5% on the 30yr fixed in the next month or so.  This is our greatest desire -- to see much lower rates in the near term for homeowners.  Rumors last week and this week have driven rates down some, and we have locked many of you that were already in process, and those primarily with loans at $417,000 or less. 

Rates continue to remain unstable at this time.  Earlier this week LENDERS RAISED RATES AS MUCH AS 1/2% on fixed programs one morning without any economic reason.  Why?  Because of 2 reasons.  #1 - they took too many sudden locks.  Which led to #2 - they want to protect their portfolios of good loans which are still on their books and performing well.  They can't afford to lose those well-performing assets in this credit crisis! 

The Mortgage Backed Securities market (MBS) trading, not the 10-year Treasury bond as many reference, is what actually determines mortgage rates on conforming loan amounts up to $417,000 and "jumbo conforming" loan amounts up to $625,500 (in some counties).  Jumbo conforming loans, as they were called in 2008 following the first Mortgage Reform Act, HR 3915 passed in November 2007, provisioned for loan amounts up to $729,750 to be backed and bought by Fannie Mae and Freddie Mac in an attempt to get the frozen Jumbo loan secondary markets moving again.  This level will officially end on December 31, 2008.  Many lenders have pulled the plug on these already, some in late November and most of the rest in early December.  The 2009 'jumbo conforming' loans will be referred to as "2009 High Balance" conforming loans, and be capped up to $625,500, depending up each county as set by HUD, and aligns FHA, Fannie Mae and Freddie Mac's loan limits.

So, what does all this mean to you?  Do you wait or do you take the lower rates now?  Real Estate Values are becoming one of the major problems for refinancing at this time. Because values have not stabilized fully, and foreclosures have continued, today’s values are not guaranteed tomorrow. By waiting for even lower rates, many will lose the ability to refinance, solely because of the drop in values.  And much of it is not in their control.

I do NOT recommend chasing the market and waiting for lower rates in 6 months. If the rates really do come down further in a few months, and your home value holds at or above levels required, you will be able to refinance again, even if you take today’s rates.  That would be a win-win situation for you:  you get the low rates of today and are able to take advantage of even lower rates in 6 months.  So the bottom line is don’t let these opportunities slip by.  There are no guarantees that rates will fall for certain, especially with inflation pressures likely increasing next year and for years after from all the money being printed now.  You could completely miss out by waiting too long.

Many months ago a plan was put in place, already approved and signed by the President, to rescue housing and give a “blank check” to Fannie and Freddie for funding or purchasing home mortgages.  But it has not been implemented. You might remember the “blank check” talk circulating in the news at that time. Then more recently there was the “700 Billion Dollar Bailout Plan” that we were told would help buy troubled mortgages ("TARP") and do many other wonderful things for the credit crisis. Unfortunately, after it was passed, the plan, which really had no specific definition, has “CHANGED” and now the Treasury thinks it is not a viable option to buy troubled mortgages from banks. Therefore, we have a 700 Billion Plan, which now in actuality is “No Plan at all”.  Yet everybody now wants part of the 700 Billion: Automakers, cities, states and other businesses all would like the money that was designed for one thing but now may be used for something else as Mr. Paulson or the next administration see fit.

All of that basically leads to one thing: the only thing you can count on is that you cannot count on all of these programs fixing things right away.  And, you cannot count on all of the promises that you hear saying the “Plans and Programs” will work right away, because they have not been implemented as expected, or even as sold to congress (or to the public!).

Mortgage rates are very volatile and therefore unpredictable today because traditional economic factors are not working for forecasting rate direction as they have in the past. Lenders continue to “tighten” credit requirements, wanting higher credit scores and lower loan to values, or wanting borrowers to pay fees or higher rates for perceived 'increased risk'.  They're basically trying to make up for past mistakes in today's market.  Another reason not to wait is because should lenders continue tightening credit requirements, fewer people will qualify for the very best rates.  Eventually they will have to pay more to get the rates they want, or they can get blocked altogether by even tougher guidelines.

The 4.5% rate rumor from last week started with the National Association of Realtors' lobby, hoping to nudge government and homebuyers to get off the fence, and came from a meeting talking about saving housing. The Treasury has dampened the hopes that this is their immediate goal at this time. The reality is if rates were to fall 1% on mortgages overnight, many banks and lenders would be ruined due to the hedging vehicles in place, and the resulting damage from prudent short positions by large mortgage and bond investors.  However, if they rolled back the requirements for qualifying to 2007, save for the never-wise 'no equity and no income' loans, the housing slide would most likely stop and the stabilization process begin.  So it is in everyone’s best interest for mortgage rates to fall another 1% to 1.5%, but to do so safely and over a gradual timeframe.  The bottom line for today is that if we can get you a better program, such as 30 year fixed over an ARM or Interest-Only payment product, or lower your fixed rate, you should absolutely take it - NOW.  Waiting for lower rates could eliminate some borrowers' ability to refinance because of falling values and continually changing guidelines.

My purpose of posting this is to keep you aware of what is happening in the Mortgage Market at this time.  I have over 20 years experience in the lending industry and have watched many up and down cycles.  I was around during the run up in home values during the 70s, and 15%-18% mortgage rates of 1980-82.  I'll get you through these times safely.

If you have any interest in refinancing at this time, please email us, or start an application now on this site.  If you prefer, we can email you an application and assist you in pre-completing much of it by phone.  Please feel free to send a link to this post to any friends or family that may benefit from this information.  We're here to help!

Rick Geary