The O.C. Mortgage & Real Estate Blog

Why was my No Points Refi More Expensive in the Long Run

&  What Makes Mortgage Rates Change from day to day, A Crash Course in Mtg. Rate Movements 101  

Now, for those of us who really want to know & learn (or brush-up) how it all works, please refresh your coffee or soda and read on.  Here's Part deaux

Let’s take a look at what makes mortgage interest rates move:

Although there are myriad different factors that affect interest rates, the movement of the 10-year Treasury Bond is said to be the best indicator to determine whether Mortgage Interest Rates will rise or fall. But why?

Most mortgages are packaged as 30 year products, and the average mortgage is paid off or refinanced within 10 years, the 10-year bond is a great bellwether to measure interest rate change. Treasury obligations are also backed by the “full faith and credit” of the United States Treasury, making them the benchmark for many other bonds as well.

10 yr. Treasury bonds, also known as Intermediate Term Bonds, and long-term mortgages, known as Mortgage-Backed Securities (MBS) also compete for the same investors because they are very similar financial instruments.

However, treasuries are 100% guaranteed to be paid back, while mortgage-backed securities are not, for reasons such as Payment Defaults and early repayment, and thus carry more risk and must be priced higher to compensate against defaults and foreclosures.

So how will I know if mortgage rates are going up or down?

Typically, when bond rates (also known as the bond yield) go up, interest rates go up as well. And vice versa. Don’t confuse this with bond prices, which have an inverse relationship with interest rates.

To get an idea of where mortgage rates will be, bond investors typically use a spread of about 170 basis points, or 1.7% above the bond yield to estimate interest rates. So a bond yield of 4.00 plus the 170 basis points would put interest rates around 5.70%. Of course this spread can vary over time, and is really just a quick way to ballpark mortgage interest rates.

There have been, and will be periods of time where mortgage rates rise faster than the bond, and vice versa. So just because the 10 year bond rises 20 basis points doesn’t mean mortgage-backed securities will do the same. In fact, MBS could rise 25 basis points, or just 10 points, depending on other market factors.

What other factors move interest rates?

Factors such as supply come to mind. If loan originations skyrocket in a given period of time, the supply of mortgage-backed securities will rise beyond the demand, and prices will need to drop to become attractive to buyers.

Timing is also an issue. Though bond prices may plummet in the morning, and then rise by the afternoon, mortgage rates may remain unchanged. That’s because sometimes the bond movement doesn’t always make it down to the wholesale markets, or simply because it takes more time to do so.

Inflation also greatly impacts mortgage rates. If inflation fears are strong, interest rates will rise, but in times when there is little risk of inflation, mortgage interest rates will most likely fall.

Economic activity will impact mortgage interest rates.

Mortgage rates are more susceptible to economic activity than treasuries, mainly because the average consumer or homeowner may lose their job or be unable to make their Mortgage Payments while the US government typically doesn’t miss payments.

For this reason, jobs reports, Consumer Price Index, Gross Domestic Product, Home Sales, Consumer Confidence, and other data on the economic calendar can move interest rates significantly.

And don't forget the Fed. When they release “Fed Minutes” or change the Federal Funds Rate, interest rates can swing up or down depending on what their report indicates about the economy. Generally, a growing economy leads to higher interest rates and a slowing economy leads to Lower.

As a very general rule of thumb, bad news brings on lower rates, and good news makes rates climb.

The situation is a lot more complicated, so consider this is an introductory lesson on a very complex subject. And remember, these base rates don’t take into account any Rate buy-downs or fees that could drive your actual interest up or down.

If you're still with me at this points, Congratulations, you've just graduated from my crash course in What Moves Mortgage Rates 101!  

Foot note; The O.C. Mortgage & Real Estate blog's goal is to educate and inform, sometimes with humorous anecdotes and personal observations taken from past 24 years in the mortgage/real estate industry. Sometimes a more nuts and bolts approach in getting you the information I think you should know about or brush-up on.  My intentions are also to spark a thought or idea and get some dialogue and feedback from you, positive or negative. Suggestions for future topics are also encouraged!  The industry in general has been knocked down for an 8 count and is trying to get up off the mat and shake off the ill effects of the post sub-prime era.  Your comments about that alone are worth me writing this blog!  Please let me know How We can Better serve Mom & Pop property owner/buyer going forward into 2009 and beyond.  I'm in this thing til they put me in a box!! 

Taking that First Step to Stopping Foreclosure - with the Hardship Letter to your Lender

One of the items your lender or servicer will ask for during the loan workout or loan modification process is a hardship letter. A hardship letter is a written explanation as to what “event” has caused you to fall behind on your mortgage and it vital in helping you Stop or Avoid Foreclosure

This letter acts much like an outline or biography of your current “life” issues that are affecting your ability to meet your financial obligations.

Please keep in mind that your are composing the hardship letter for your lender or servicer and because of the foreclosure crisis, they are extremely busy and back logged. So, with that in mind, do not write a book because most likely it will not get the attention of an over worked, $12 an hour loss mitigation employee. Keep it short and to the point. Usually 1 or at maximum 2 pages is more than enough to get your point across.

Here is an example list of hardships that lenders consider during the loan workout process:

• Adjustable Rate Mortgage Reset- Payment Scock (uncommon, but we will see more lenders accept this in the future) 
• Illness
• Loss of Job
• Reduced Income
• Failed Business
• Job Relocation
• Death of Spouse or C0-Borrower
• Death
• Incarceration
• Divorce
• Marital Separation
• Military Duty
• Reduced Income
• Medical Bills
• Damage to Property (natural disaster or unnatural)
• Other (Please Specify)

Now that you understand what your lender or servicer is looking for, it’s time to sit down and write a hardship letter. I made it easy for you by giving you a couple templates below that you can use as a boiler plate for your own letter. Make sure you make it unique to your situation.

Remember that your hardship letter is only one piece of the loan workout process, but key in helping you avoid foreclosure. You will still need to jump a few hurdles with your lender before they will approve you any kind of work out plan.

Example Harship Letter:

Name: (Your Name)

Address: (Your Address)

Lender Name: (Your Lender)

Loan #: (your Loan #)

To Whom It May Concern:

I am writing this letter to explain my unfortunate set of circumstances that have caused us to become delinquent on our mortgage. We have done everything in our power to make ends meet but unfortunately we have fallen short and would like you to consider working with us to modify our loan. Our number one goal is to keep our home and we would really appreciate the opportunity to do that.

The main reason that caused us to be late is (insert reason here and don’t be too lengthy and long winded) Soon after being late and our income not being nearly enough, we had fallen further and further behind. Now, it’s to the point where we cannot afford to pay what is owed to (lender). It is our full intention to pay what we owe. But at this time we have exhausted all of our income and resources so we are turning to you for help.

(The approximate date of hardship and we believe that our situation is Temporary or will be Permanent.)

Our situation has got better because (reason here) and we feel that a loan modification would benefit us both. We would appreciate if you can work with us to lower or delinquent amount owed and or payment so we can keep our home and also afford to make amends with your firm.

We truly hope that you will consider working with us and we are anxious to get this settled so we all can move on.

Sincerely and Respectfully,

Borrower’s Signature

Date

Co-Borrower’s Signature

Date

Hardship Letter Contributed by LoanSafe.org Forum Member
September 7, 2007
To: Countrywide Mortgage account # 058989482

Re: Mortgage modification program

Due to the recent adjustment to the mortgage I currently have with your company, I am finding it very difficult to afford the new payment. I have a 3 year fixed rate which is now adjustable and is schedule to adjust again in Feb. 2008.

Considering my current income, there will be no way I can afford the increased payments come February. Hopefully there is way to renegotiate the terms of my current mortgage to avoid default and help stop foreclosure on my home.

Is it possible to have my current adjustable rate mortgage converted to a fixed rate? If this is not possible can the next rate change be postponed to a future date to allow me to hopefully refinance. Any other solutions you could provide would be greatly appreciated.

I have had no problem making my payments for over three years now and do not want that to change. My mortgage was originally written by another company and bought by Countrywide. The original mortgage terms are terrible but it was the only loan I was qualified for at the time. I was assured that refinancing would be no problem but that turned out not to be true due to the downturn of the housing industry.

The main problem is that my property is now worth about 5-10% less than what I paid for it which is preventing me from being able to refinance. I was researching on the internet and came across the Fannie Mae Announcement #06-18 (Oct. 4th 2006) regarding the servicing of Conventional Mortgage Modifications.

I believe this addresses the situation I currently find myself in along with many other homeowners. Attached are recent pay stubs showing my current income.

Thanks you for your time and consideration.

The materials available at this web site are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. The opinions expressed at or through this site are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney.

Curb appeal tips that pay off

Painting, landscaping top list of must-dos

Imagine going on a job interview looking shabby, or trying to sell your car for a good price when it's filthy and loaded with stuff. In a competitive market, you wouldn't do well.

The same can be said about selling your home. If it looks neglected and in need of work, some buyers won't even take a look. This is particularly the case in today's market where, in many parts of the country, there are far more homeowners anxious to sell than there are buyers interested in buying.

In a business where emotions and pride of ownership play a big role, first impressions can have a lasting effect. Most buyers lack the ability to imagine what a house might look like with a different exterior paint color or a landscaped yard. When there is a lot of inventory on the market, you may have only one chance to catch a buyer's attention. Make sure it's not lost before he or she walks through the front door.

One of the first items on a home seller's agenda should be a critical evaluation of how the home and yard look from the street -  "The Curb Appeal"! It's a good idea to ask your real estate agent to help with this. Sellers often have strong emotional attachments to their homes and have difficulty seeing it objectively.

Your goal is to identify cost-effective changes you can make to your house and yard that will make it more appealing to buyers. This could be as simple as cleaning up the yard, adding colorful plants, mulching, power washing the entry walk, and washing dirt off the exterior of the house.

However, if the paint is peeling, shutters are deteriorating, the fence is leaning and the yard is a mess, you have a bigger project on your hands. You can sell a house in this condition. But, it will appeal to a limited number of buyers who are willing to tackle a fixer-upper in order to get a bargain price.

HOUSE HUNTING TIP: Your home will appeal to a larger audience and will sell more quickly and for a better price if you put the time and money into improving its curb appeal. Curb appeal refers to how your house appears from the street. Even if you're selling a fixer-upper, it's a good idea to do some cleanup so that buyers can perceive the potential.

You don't need to spend a fortune to get the work done. Your goal is to have good, not superb, work done at a reasonable price. It's wise to get bids from several contractors. For instance, exterior paint estimates can vary widely. Your real estate agent or neighbors ought to be able to provide references.

By the way, if you are going to paint the exterior of your house before selling, this could be a prime opportunity to improve curb appeal. Consult with a color expert to pick colors that are currently in fashion for the house, trim and front door.

One seller had the exterior of his house repainted before consulting with his agent or a color expert. It was painted the same drab color it had been for decades. Most of the buyers who seriously considered the house mentioned that they thought the house needed an exterior paint job because the color was so unappealing.

It usually doesn't make financial sense to completely re-landscape a front yard that is shot. Salvage what you can, bring in new plants to replace dead ones and roll out new sod, if necessary.

And FYI -  Mulch does wonders to freshen up a garden, particularly one that is sparsely planted.

WASHINGTON - The Government is Expected To Take Over Fannie Mae and Freddie Mac As Soon As This Weekend!

WASHINGTON - The government is expected to take over Fannie Mae and Freddie Mac as soon as this weekend in a monumental move designed to protect the mortgage market from the failure of the two companies, which together hold or guarantee half of the nation's mortgage debt, a person briefed on the matter said Friday night. Some of the details of the intervention, which could cost taxpayers billions, were not yet available, but are expected to include the departure of Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron, according to the source, who asked not to be named because the plan was yet to be announced. Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and James Lockhart, the companies' chief regulator, met Friday afternoon with the top executives from the mortgage companies and informed them of the government's plan to put the troubled companies into a conservatorship. The news, first reported on The Wall Street Journal's Web site, came after stock markets closed. In after-hours trading Fannie Mae's shares plunged $1.54, or 22 percent, to $5.50. Freddie Mac's shares fell $1.06, or almost 21 percent, to $4.04. Common stock in the companies will be worth little to nothing after the government's actions. The news also followed a report Friday by the Mortgage Bankers Association that more than 4 million American homeowners with a mortgage, a record 9 percent, were either behind on their payments or in foreclosure at the end of June. That confirmed what investors saw in Fannie and Freddie's recent financial results: trouble in the mortgage market has shifted to homeowners who had solid credit but took out exotic loans with little or no proof of their income and assets. Fannie Mae and Freddie Mac lost a combined $3.1 billion between April and June. Half of their credit losses came from these types of risky loans with ballooning monthly payments. While both companies said they had enough resources to withstand the losses, many investors believe their financial cushions could wither away as defaults and foreclosures mount. Many in Washington and on Wall Street hadn't expected Paulson to intervene unless the companies had trouble issuing debt to fund their operations. This summer, Congress passed a plan to provide unlimited government loans to Fannie and Freddie and to purchase stock in the two companies if needed. Critics say the open-ended nature of the rescue package could expose taxpayers to billions of dollars of potential losses. Supporters, however, argue the Bush administration had little choice but to support Fannie and Freddie, which together hold or guarantee $5 trillion in mortgages - almost half the nation's total. Representatives of Fannie and Freddie declined to comment on the government assistance plan. Treasury spokeswoman Brookly McLaughlin said officials "have been in regular communications" with Fannie and Freddie, but refused to comment saying, "We are not going to comment on rumors." Concern has been growing that a government rescue of Fannie and Freddie could not only wipe out common stockholders, but also be costly for scores of investment, banking and insurance companies that hold billions of dollars in their preferred shares. Paulson has been in contact in recent weeks with foreign governments that hold billions of dollars of Fannie and Freddie debt to reassure them that the United States recognizes the importance of the two companies. The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission. Mudd, the son of TV anchor Roger Mudd, was elevated to Fannie Mae's top post in December 2004 when chief executive Franklin Raines and chief financial officer Timothy Howard were swept out of office in an accounting scandal. Syron was named Freddie Mac's CEO in 2003, replacing former chief Gregory Parseghian, who was ousted in after being implicated in accounting irregularities. He formerly was executive chairman of Thermo Electron Corp., a Waltham, Mass.-based maker of scientific equipment, served head of the American Stock Exchange and was president of the Federal Reserve Bank of Boston in the early 1990s. Fannie Mae was created by the government in 1938, and was turned into a shareholder-owned company 30 years later. Freddie Mac was established in 1970 to provide competition for Fannie. A government takeover could cost taxpayers up to $25 billion, according to the Congressional Budget Office. But the epic decision highlights the size of the threats facing the housing market and the economy. On Friday, Nevada regulators shut down Silver State Bank, the 11th failure this year of a federally insured bank. And earlier this year, the government orchestrated the takeover of investment bank Bear Stearns by JP Morgan Chase. ___

 

Please share you comments and opinions on the Real Estate & Mortgage Markets!   Thanks for checking out my Blog!!  Tom Purcell   tpurcell@lowratesonline.net

Anyone considering an FHA Loan, should read this recent article from the Wall St. Journal about the realities of FHA Loans. 

FHA Loans Grow Costly As Banks Add Fees

Politicians are prodding the Federal Housing Administration to help revive the nation's housing market by enabling more Americans to obtain or refinance home mortgages. But banks that make loans insured by the federal agency are adding fees and restrictions that make those loans more costly and less widely available.

Congress recently approved legislation that raises the ceiling on loans the FHA can insure to as much as $729,750 in the highest-cost areas, up from a previous $362,790. The higher limits are due to expire at year end, but pending legislation is likely to authorize a permanent increase in the eligibility ceiling.

Demand for FHA loans has jumped as other types of mortgages have become more expensive and harder to obtain.

• The Goal: Congress wants the FHA to help more borrowers get home loans and prop up the housing market. • The Hitch: Lenders are adding fees and restrictions on FHA loans that will shut some borrowers out of the market. • The Background: Mounting defaults have made lenders wary.

J.P. M

Morgan Chase & Co.'s home-mortgage unit this week informed lenders that sell loans to the big bank that it will require "price adjustments" on the new, larger variety of FHA loans. The adjustments will add about half a percentage point to the interest rate on those loans, mortgage executives said. A spokeswoman for J.P. Morgan Chase declined to comment.

Lou Barnes, a mortgage banker at Boulder West Financial Services, Boulder, Colo., said other big lenders appear to be making price adjustments roughly in line with those announced by Chase. Mr. Barnes said he could offer a rate of about 6.375%, with no fees or "points" paid to reduce the interest, on the new "jumbo" FHA loans, compared with about 5.875% on smaller FHA loans.

Kevin W. Lynch, a mortgage broker at A. Anderson Scott Mortgage Group in Rockville, Md., said he has been quoted rates of nearly 7% on jumbo FHA loans. The loans are so expensive they "aren't going to sell," Mr. Lynch said. "It's a waste of everybody's time."

The higher rates largely reflect muted demand from investors for securities backed by jumbo FHA loans, traders say. Those securities are expected to be less actively traded than ones backed by smaller FHA loans, and the larger loans may be apt to refinance faster, reducing the value to investors.

Meanwhile, many banks also are requiring minimum credit scores for borrowers seeking FHA loans. The FHA doesn't set a minimum, but many lenders recently have begun requiring scores of at least 580 on the standard scale of 300 to 850.

That is shutting out some people who otherwise would qualify for an FHA loan, said Daniel H. Jacobs, chief executive of 1st Metropolitan Mortgage, a nationwide broker based in Charlotte, N.C.

At a time when Congress wants the FHA to provide more help to the mortgage market - this is taking a major step backwards,

Please contact Tom Purcell  via phone or email; tpurcell@lowratesonline.net  if you'd like to know more about FHA or Conventional options for Purchase or Refinance.