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Thursday, December 22, 2011

Mortgage rates for 30-year fixed loan hits record low: 3.91 pct.

By ASSOCIATED PRESS and ASSOCIATED PRESS | 12/22/11 2:53 PM EST

WASHINGTON (AP) — The average rate on the 30-year fixed mortgage fell to a record 3.91 percent this week, the third time this year that rates have hit new lows.

Freddie Mac said Thursday that the average on the 30-year home loan fell from 3.94 percent the previous week. The 3.91 percent rate is the lowest average for long-term fixed mortgages on records dating to the 1950s

The average on the 15-year fixed mortgage was unchanged this week at 3.21 percent. That's also a record.

Low rates offer a historic opportunity for those who can afford to buy a home or refinance. But many Americans either can't take advantage of the rates or have already done so.

Rates have been below 5 percent for all but two weeks in 2011. Even so, this year is shaping up to be one of the worst ever for home sales.

Rates could fall further still. Many economists think the yield on the 10-year Treasury note could creep lower in 2012. Long-term mortgage rates tend to track the 10-year Treasury yield.

Should the Federal Reserve launch a new program of bond purchases in the coming months to try to help the economy, it could further drive down mortgage rates.

Frank Nothaft, Freddie Mac's chief economist, has said that despite the super-low loan rates, foreclosures and falling home values have created obstacles for would-be buyers.

But builders could see more interest from buyers in the coming months if mortgage rates stay low. The low rates contributed to a modest 2-point increase in builder sentiment in the latest National Association of Home Builders survey released this month, said Yelena Shulyatyeva, an analyst at BNP Paribas. Those rates, coupled with falling prices, could draw more people into the market, she said.

Sales of previously occupied homes are just slightly ahead of last year's dismal sales figures. New-home sales appear headed for their worst year on records going back half a century.

Mortgage applications fell about 2.6 percent last week, according to the Mortgage Bankers Association. Refinancing fell 1.6 percent. And loan applications to buy homes fell nearly 5 percent. Over the past four weeks, the level of mortgage applications has been relatively unchanged.

Some lenders have reported an increase in applications through the Obama administration's refinancing program. That program was broadened in October to allow up to 1 million more homeowners lower their mortgage payments. But the MBA said such government-assisted loans account for just a small portion of refinancing.

High unemployment and scant wage gains have made it harder for many people to qualify for loans. Many Americans don't want to sink money into a home that they fear could lose value over the next few years.

To calculate the average rates, Freddie Mac surveys lenders across the country Monday through Wednesday of each week. The average rates don't include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

The average fee for the 30-year loan fell to 0.7 from 0.8; the average on the 15-year fixed mortgage was unchanged at 0.8.

For the five-year adjustable loan, the average rate fell to 2.85 percent from 2.86 percent. The average on the one-year adjustable loan declined to 2.77 percent from 2.81 percent.

The average fees on the five- and one-year adjustable-rate loans were unchanged at 0.6.

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10 Major Mortgage Mistakes to Avoid

Getting a mortgage is no simple task: It's a complex and time-consuming process, and perhaps one of the most significant events of our lives, at least in financial terms. Here are ten potential pitfalls to avoid:

1. Not checking your credit: Long before you begin searching for a mortgage, you should know where you stand in the credit score department. After all, a bad credit score can bump up your mortgage interest rate several percentage points or leave you with no approval at all. Be sure you check your credit early on (several months in advance) in case any changes need to be made to get it back up to snuff.
[Click here to get a mortgage approval]

2. Applying for new credit alongside the mortgage: In this same vein, be sure to avoid applying for any other type of credit before and during the mortgage application process. Whenever you apply for new credit, you're seen as a greater credit risk, at least initially. If you happen to apply for a credit card or auto loan around the same time you apply for a mortgage, your credit score might get dinged enough to kill your eligibility or bump up your interest rate.

3. Failing to look at the total housing payment: A mortgage payment consists of principal, interest, taxes, and insurance (PITI). A common mistake made by prospective home buyers is not factoring in their property taxes and insurance premium into their overall mortgage budget. The debt-to-income ratio (DTI ratio), used to determine if a borrower will qualify for a certain mortgage payment, is calculated by dividing the proposed cost of PITI by gross monthly income. A $1,200 homeowner's insurance policy would add $100 per month to an escrowed mortgage payment.

4. Not seasoning your assets: The bank or lender will want to see that you can actually pay your mortgage each month. But without seasoned assets, those that have been in your own account for at least a couple months, you could be out of luck entirely. Some borrowers seem to think they can transfer funds from a relative's account days before applying, but this simply won't fly once the underwriter uncovers the paper trail.

5. Job hopping: Another key to mortgage approval is steady employment and income. An underwriter will want to know that the income you bring in every month is consistent and expected to continue into the foreseeable future. So don't jump from job to job too much before applying for a mortgage. If it's in the same field, it shouldn't be a deal killer, but a career change will lead to problems. If you're thinking about jumping ship, wait until you've closed your mortgage first.

6. Not getting pre-approved: Good preparation is the key to a good mortgage. Before shopping for a home, make sure you can actually qualify for financing by getting a pre-approval. A mortgage pre-approval is more robust than a simple pre-qualification because the bank pulls your credit and looks at your income, assets, and employment. Your DTI ratio will also come into play to ensure you know exactly how much you can afford. With this pre-approval, you will also get a written commitment from the lender that will show home sellers you're serious about the purchase.

7. Not shopping around: But just because you're pre-approved with one bank doesn't mean you need to obtain financing from them. Be sure to shop around with multiple banks and lenders and even consider a mortgage broker. A broker can shop your rate with a number of banks concurrently and find you the lowest rate with the best terms. Don't be one of the many consumers who obtains a single mortgage rate prior to applying. Comparison shop as you would for anything else you buy. And don't forget to factor in closing costs!

8. Chasing exotic loan programs: Shop around for the lowest rate and closing costs, but not at the expense of your mortgage. Anything that sounds too good to be true most likely is. If the payment seems too low, you might be paying interest-only or even negatively amortizing, meaning your mortgage balance is growing each month. It's best to keep it simple and go with a loan program you can get your head around, like a fixed-rate mortgage.

9. Forgetting to lock your rate: Keep in mind that a mortgage rate means very little if it's not locked-in. If you're happy with your rate, lock it. Mortgage rates change daily and sometimes several times daily. All those mortgage quotes you obtain are just quotes until you actually tell the bank, lender, or broker to "lock it in." Once locked, your rate is guaranteed for a certain period of time, be it 7 days, 15 days, or a month. But never assume your rate is locked until you get it in writing!

10. Not reading your loan documents: Finally, it's your responsibility to read and accept the terms of your new mortgage. Sure, it might be a pain to go through all the loan documents at signing, but it's a bigger pain to sign up for something you don't want or agree with. Take the time at closing to ensure you understand everything you're signing, and thereby agreeing to. And don't be afraid to ask questions! Otherwise, you could wind up with a mortgage with predatory terms and no place to turn.
Colin Robertson is the author of several finance websites aimed at helping consumers save money, including The Truth About Mortgage and The Truth About Credit Cards, which includes his popular credit score range.

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Wednesday, December 21, 2011

Report: Home Buyers are In, Sellers are Out

The Mortgage Bankers Association (MBA) has demonstrated again that the public's perception of the real estate market depends on which side of the closing table they plan to sit.

A study entitled "The Great Recession and Attitudes Toward Homebuying" sponsored by MBA's Research Institute for Housing America (RIHA) concluded that prospective homebuyers believe now is a good time to buy, given today's low home prices and low mortgage interest rates, but potential sellers are nearly unanimous in reporting that it is not a good time to sell a home, citing difficulty in finding buyers at desired sales prices.

The study was conducted by Professor Gary V. Engelhardt of Syracuse University utilizing 30 years of data from the University of Michigan's Survey of consumer attitudes toward homeownership before, during, and after the recent recession. Key findings from the study include:

Despite the current situation with high unemployment and slow economic growth almost 80 percent of American households believe that now is a good time to buy a home.
The current recession is notable for the deeply negative sell-side of the market where positive sentiment is at an historic low. This is strongly related to difficulty in finding buyers at desired sales prices and to the shadow inventory of delinquent mortgages that may become foreclosed properties.
Over the last two decades, the value of mortgage purchase originations has tracked home-selling sentiment more strongly than home-buying sentiment.

The current positive home-buying attitudes and negative seller-sentiments are forecast to remain fairly constant over the next five quarters. This might suggest that selling sentiment and, hence, market activity, will remain sluggish in the near term.
Positive sentiment toward homebuying is particularly strong among young, education, white and Hispanic households.

Engelhardt said the pattern of home-buying sentiment during the current recession looks very similar to that of past recessions. Homebuyer sentiment falls as the unemployment rate increases, and improves as job growth returns and housing becomes more affordable. "What distinguishes the current recession, though, is the dramatic decline in home-selling sentiment.

From 1992 through 2005, positive home-selling sentiment fluctuated between 40 and 60 percent. Since 2005, sentiment has dropped precipitously, to around 7 percent currently, even while home-buying sentiment remains high."

He said that potential sellers have not adjusted their price expectations fast enough to bring buyer and seller expectations in line with each other as market values have fallen. "There are a number of likely reasons for this," he said. "First, seller-expected prices may be tied to key past market values, such as the purchase price of the property, or what a comparable property may have sold for in the recent past.

Second, underwater homeowners cannot adjust their minimum sales prices much below the outstanding mortgage balance, because they would need to bring cash to the table at sale. And finally, with large declines in market values, sellers now hold a highly leveraged option that pays off with any future increase in prices.

"I expect that over the near term, positive home-buying sentiment will remain at levels typical of the last 30 years. In contrast, positive home-selling sentiment is expected to remain at historic-low levels. The full report can be found here.

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Friday, December 16, 2011

Housing market predictions for 2012

As we end the year it's clear that the nation's real estate balance sheet is slowly turning around.

The official unemployment rate dropped to 8.6 percent, even as the labor participation rate dropped to about 62 percent. But the better news is that the U-6, which is the broadest measure of unemployment, fell below 16 percent for the first time since the Great Recession started.

If you want to turn around the housing market, you have to create jobs that pay enough for someone to buy a home and afford their mortgage, real estate tax and insurance premium payments.

"Most Americans expect no improvement in their personal financial situation in the next 12 months and will likely remain wary about undertaking the significant financial obligation associated with homeownership until their view of their income, expenses, and job security heads in a more positive direction," noted Doug Duncan, vice president and chief economist of Fannie Mae.

But in a surprising turnaround, Fannie Mae's November National Housing Survey found that homeowners believe that their home value will rise 0.2 percent over the next year. This is the first time in six months that home price expectations moved from negative to positive territory.

"Though their home price expectations have become slightly positive, consumers remain concerned about the direction of the economy and continue to view their household finances as being relatively flat," Duncan added.

Another boost to the housing market is that mortgage interest rates remain under 4 percent for a 30-year fixed-rate mortgage. If you're willing to look at a 15-year mortgage, you can find one for about 3 to 3.25 percent. Some lenders are now offering 10-year loans at 3 percent or less.

These interest rates are bouncing around at a historic low level, saving homeowners who can refinance hundreds or thousands of dollars per year.

And while existing home sales haven't budged much on a national level, and the new construction industry remains moribound, there are individual markets where homes are starting to sell. That's good news for real estate agents, appraisers, attorneys, mortgage lenders, escrow and title companies - all of which benefit when the real estate industry is functioning normally.

Looking forward, the biggest indication that the housing market might begin to normalize is that the number of homeowners who are seriously delinquent in their loan payments is shrinking.

At the height of the Great Recession, nearly 7 percent of homeowners were at least 60 days late on their mortgage payments, according to TransUnion, a Chicago-based credit reporting agency.

In its annual delinquency forecast, TransUnion said that mortgage delinquency rates will likely tick up to about 6 percent through the first three months of 2012, before falling to 5 percent by the end of the year.

While still far above the pre-recession average of 1.8 percent, the numbers reflect the fact that lenders are starting to process more foreclosures. While that isn't good news for the families living in those properties, processing the huge backlog of foreclosures generated with the robo-signing debacle means there should be less negative pressure on home prices going forward.

Even with all of this better news, it could still take another few years for the housing market to shift into normal. But hope remains that 2012 will be a better year for real estate. - (MoneyWatch)

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Qualifying for a Low Down Payment Loan

To be considered for a low down payment loan, you generally need to have:
Sufficient income to support the monthly mortgage payment,
Enough cash to cover the down payment, Sufficient cash to cover normal closing costs and related expenses (explained below)

A good credit background that indicates your payment history or "willingness to pay"
Sufficient appraisal value, which shows the house is at least equal to the purchase price
In some instances, a cash reserve equivalent to two monthly mortgage payments Closing costs, or settlement costs, are paid when the home buyer and the seller meet to exchange the necessary papers for the house to be legally transferred.

On the average, closing costs run approximately 2% to 3% of the house price. This percentage may vary, depending on where you live.

Closing costs include the loan origination fee (if not already paid), points, prepaid homeowner's insurance, appraisal fee, lawyer's fee, recording fee, title search and insurance, tax adjustments, agent commissions, mortgage insurance (if you are putting less than 20% down) and other expenses. Your mortgage professional will give you a more exact estimate of your closing costs.

Points are finance charges that are calculated at closing. Each point equals 1% of the loan amount. For example, 2 points on a $100,000 loan equals $2,000. Companies may charge 1, 2 or 3 points in upfront costs in addition to the down payment. The more points you pay, the lower your interest rate will be. In some cases, you may be able to finance the points.

So How Much of a Mortgage Can You Afford?

There are two basic formulas commonly used to determine how much of a mortgage you can reasonably afford. These formulas are called qualifying ratios because they estimate the amount of money you should spend on mortgage payments in relation to your income and other expenses.

It is important to remember that the following ratios may vary and each application is handled on an individual basis, so the guidelines are just that -- guidelines. There are many affordability programs, both government and conventional, that have more lenient requirements for low and moderate income families.

Many of these programs involve financial counseling for low and moderate income people interested in buying a home and in return, offer more lenient requirements.

Generally speaking, to qualify for conventional loans, housing expenses should not exceed 26% to 28% of your gross monthly income. For FHA loans, the ratio is 29% of gross monthly income. Monthly housing costs include the mortgage principal, interest, taxes and insurance, often abbreviated PITI. For example, if your annual income is $30,000, your gross monthly income is $2,500, times 28% = $700. So you would probably qualify for a conventional home loan that requires monthly payments of $700.

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Thursday, December 15, 2011

Federal Reserve Keeps Rates Unchanged

(NewsCore) - Federal Reserve officials left their policy options open for 2012 but took no actions Tuesday and offered an assessment of the economy that was guardedly more upbeat, but still marked by "significant downside risks."

Nine out of 10 Fed officials voted to keep the central bank's easy-credit policies unchanged for the second meeting in a row in what was the last Federal Open Market Committee meeting of the year. It took place the day of Fed Chairman Ben Bernanke's 58th birthday.

Officials reiterated that short-term interest rates are likely to stay close to zero until mid-2013 at least. In their assessment of the economy, they said indicators pointed to some improvement in the US jobs market.

Data since they last met at the start of November suggests the "economy has been expanding moderately, notwithstanding some apparent slowing in global growth," Fed officials said in a statement.

The US unemployment rate fell to 8.6 percent in November, the lowest level since March 2009, and the number of people filing for unemployment benefits has fallen recently.

Still, the Fed is concerned the economy could be hit by higher taxes and continued government layoffs next year, as well as the repercussions from the debt crisis in Europe, which has close financial and trade ties with the US. With inflation expected to come down in 2012, some Fed officials have already started to argue in favor of additional steps to spur growth.

The Fed is looking at revamping its communication strategy, which could be a step toward easier monetary policy. Officials are considering whether to make their internal interest-rate forecasts public. If they do that, and those forecasts suggest short-term interest rates will stay low for even longer than investors now believe, that could drive long-term rates down and be a boost to growth.

The post-meeting statement gave no indication of the state of that debate. That suggests the Fed has left it to be resolved next year. Minutes of the meeting, due out in three weeks, might reveal more.

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Wednesday, December 14, 2011

Southern California Home Sales Rose in November

LA JOLLA, Calif. (DQNews) --The number of homes sold in Southern California rose modestly last month from both October and a year earlier as investors and first-time buyers targeted homes priced below $400,000. Sales above $500,000 fell nearly 16 %from a year earlier amid a troubled market for larger home loans, a real estate information service reported.

While November sales of existing (not new) houses and condos combined rose 5.8% from a year earlier, sales of newly built homes fell 15.2% to the lowest level on record for a November.

"'Tis still the season to go bargain hunting -- or at least that's what the November home sales data suggest. The portion of homes sold to investors continued to hover near an all-time high. Lower prices and amazingly low mortgage rates tempted those with the confidence to buy and the ability to qualify for a loan, or to pay cash," said John Walsh, DataQuick president.

"But these sales levels remain subpar, with new-home sales stuck at record lows. Part of it is the economy and would-be buyers' uncertainty -- about jobs, home prices and a potential surge in foreclosed properties hitting the market. Part of it is the folks who can't move up because they're upside down with their mortgages. And many who want to buy more expensive homes struggle with the financing."

When viewed by price segment, sales trends varied considerably. The number of homes that sold for less than $400,000 last month rose 6.1% from a year earlier, while transactions above $500,000 fell 15.7%. Above $800,000, sales fell 17.6% year-over-year. November sales fell 22.8% from a year earlier in the $600,000-$750,000 range, which in coastal counties was impacted by the recent lowering of conforming loan limits.

Last month the median price paid for all new and resale Southland houses and condos sold was $275,000, up 1.9 %from $270,000 in October but down 4.2% from $287,000 in November 2010.

Last month's Southland median was 11.3% higher than the median's low point in the current real estate cycle -- $247,000 in April 2009 -- but was 45.5% lower than the peak $505,000 median in mid 2007. The peak-to-trough drop was due to a decline in home values and a shift in sales toward lower-cost homes, especially inland foreclosures.

Distressed property sales accounted for 51.3% of the Southland resale market last month, down from 52.3 %in October and down from 53.4% a year earlier. Nearly one out of three homes resold last month was a foreclosure, while roughly one in five was a "short sale."

Credit conditions showed no signs of improvement last month, when the level of both adjustable-rate mortgages, or "ARMs," and larger "jumbo" home loans were at a low point for this year.

Last month ARMs accounted for 6.1% of all Southland home purchase loans, down from 6.9% in October but up from 5.6% a year ago. Last month's figure was the lowest since November 2010. Over the past 10 years, a monthly average of 37.0% of purchase loans were ARMs.

Jumbo loans, mortgages above the old conforming limit of $417,000, accounted for 14.6% of last month's purchase lending. That tied October for the lowest level since January 2010, and was down from 17.9% a year ago. In the current housing cycle, jumbos fell in early 2009 to a low of 9.3% of the purchase market. Before the credit crunch hit in August 2007, jumbos accounted for about 40% of purchase loans.

Beyond the overall credit crunch, lower conforming loan limits that took effect Oct. 1 continued to impact the housing market last month. Lawmakers recently restored the higher limits, which vary by county, for FHA loans but not for mortgages guaranteed by Fannie Mae and Freddie Mac.

In Los Angeles and Orange counties, where the conforming loan limit was lowered from $729,750 to $625,500, the number of homes sold with purchase loans in that range totaled 58 in November, down 44.2% from October and down 84.1% from a year earlier. In October, sales with purchase loans in that range fell 71% from September and 71.5 %from a year earlier.

Absentee buyers, mainly investors and vacation-home buyers, purchased a near-record 24.8% of the Southland homes sold in November, paying a median $200,000.

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