Mortgage & Real Estate Tips and News "Better Informed & Educated Moving Forward"

This info was culled from reliable industry sources and reprinted here for those of you who are wondering "where the bottom is"? Of course nobody has that crystal-ball, but these numbers are a good indicator (based on recent existing home sales as reported by the National Assoc. of Realtors) that it is definitely becoming a good time to consider buying an owner occupied home again!  If you or someone you know would like a no-cost/no-obligation Pre-Qual letter to see how much home you should be looking for and what is required for down payment, please contact Tom Purcell at 714-921-0887 or check out our website at www.PinnacleMortgageBroker.com

New home sales in the U.S. rose slightly more than anticipated, moving up 2.7% in September to an annual pace of 464k, yet the previous month's tumble was revised downward to a 12.6% decrease, according to a report from the Commerce Department on Monday.

Economists were expecting September data to fall 2.2% to 450k, from the originally reported August figure of 460k, which got revised down to 452k.

The 12.6% fall in August pushed the pace of sales to the slowest rate since January 1991. This 2.7% move upwards is decent news, but the pace of sales is still down 33.1% from one year ago.

Inventories fell 7.3% to a pace of 10.4 months, down from an upwardly revised 11.4-month supply in August, which was originally reported at 10.9 months.

The median sale price of new houses fell slightly to $218,400, down from $220,400 in August. Annually, prices have fallen 9.1%.

The Census report follows the existing home sales report from the National Association of Realtors on Friday, which unexpectedly rose 5.5% to a pace of 5.18 million sales.

By now most home owners have heard something about this new buzzword; Loan Modifications.  Their are a few different types and some are not mod's at all so be careful who you might retain to consultant and represent you for this type of service.

There are basically 3 types of loan modifications for home owners who have a legitimate reason and cause for their current hardship with making timely payments. 

1) The first type is not the most beneficial but one the lender tries to arrange first (unless you know what to ask and request) as it keeps the lenders loss to a minimum if any.  What they basically arrange is; when a customer is in arrears on several months of payments, has had a notice of default filed on the property, incurred penalties and legal fees from the lender, etc.  The lender re-works those arrearages onto the Back-end of the loan and sometimes lowers the home owners interest rate for a short term; like 3 to 5 years.  No principal reduction is involved here.

2) The second type is called a Soft modification - which usually involves re-writing the rate on average 1 to 3% lower than currently, for a short period of 2 to 5 years and principal reduction or elimination of a 2nd mortgage may be involved.

3) The third and most advantageous type is the Full Loan Mod - which in a nutshell is like a new refinance without the costs and paperwork involved with appraisals and a new mortgage loan.  In essence the home owner gets a new fully amortized up to 30 year lower fixed or Interest Only rate, often at a lower principal balance than they have currently.

Special Forbearance agreements are also available and worth a mention here, but they are a totally different animal and will be covered in an upcoming blog.

I would strongly advise that a home owner should not go about trying to arrange their own Loan Modification, as the lender and their loss mitigation department are trained to protect their own interests as much as possible and they know they have the advantage when negotiating these loan mod's directly with the Trustor (home owner). 

You do not necessarily need to involve or retain the services of an attorney (although sometimes their assistance helps push things through to finalize) but I strongly advise you do let an experienced professional assist with this tricky endeavor.  It could mean the difference between just prolonging the foreclosure proceedings or truly being able to keep and stay in the home!

If you have any questions or would like a confidential free phone consultation about options to lower mortgage payments or saving your home, please call me to discuss further.

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!!