U.S. 30-Year Mortgage Rates Increase for a Second Week – Bloomberg

Mortgage rates for 30-year U.S. loans climbed for a second week, cutting into affordability as the housing recovery shows signs of cooling.

The average rate for a 30-year fixed mortgage was 4.33 percent this week, up from 4.28 percent, Freddie Mac said today. The average 15-year rate rose to 3.35 percent from 3.33 percent, the McLean, Virginia-based mortgage-finance company said.

While the job market is improving, higher prices and borrowing costs are making it more expensive to own a home. Monthly payments on a median-priced three-bedroom home — including mortgage, insurance, taxes and maintenance — rose an average of 21 percent in the fourth quarter from a year earlier, according to an analysis of 325 U.S. counties by RealtyTrac released today. Mortgage rates jumped to a two-year high in August from near-record lows in May, Freddie Mac data show.

“The cost of financed homeownership is becoming dangerously disconnected with still-stagnant median incomes,” Daren Blomquist, vice president at Irvine, California-based RealtyTrac, said in the report.

Starts for single-family houses slumped in January, in part because of unusually harsh weather in much of the U.S. Builders began work on 573,000 homes at an annualized rate last month, down 15.9 percent from December and the fewest since August 2012, Commerce Department data issued yesterday show.

Confidence among homebuilders dropped in February by the most on record as snowstorms on the East Coast limited prospective buyer traffic, according to the National Association of Home Builders/Wells Fargo sentiment gauge released this week.

To contact the reporter on this story: Prashant Gopal in Boston at pgopal2@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

Refinances Seen Falling to 38 Percent Market Share in 2014

Feb 4 2014, 1:16PM

Homeowners who refinanced through Freddie Mac in 2013 continued to display fiscal restraint, choosing fixed rate mortgages, keeping essentially the same mortgage balance, and in many cases opting for shorter-term loans to build equity more rapidly.  In doing so homebuyers who refinanced during the year will save approximately $21 billion on net over the first 12 months of their new loans.

The results of Freddie Mac’s fourth quarter refinance analysis showed borrowers are continuing to take advantage of low rates, with the refinancing shaving an average of about 1.5 percentage points off of their old rate; or an average reduction of 25 percent.  On a $200,000 loan this translates into $3,000 in interest over 12 months.  Homeowners who refinanced through the Home Affordable Refinance Program (HARP) benefited from an average rate reduction of 1.7 percentage points and will save an average of $3,300 in interest during the first 12 months.

Thirty-nine percent of those who refinanced during the fourth quarter of 2013 shortened the term of their loan compared to 37 percent in the third quarter.  This was the highest percentage since 1992.  Homeowners who refinanced through HARP continued to take advantage of incentives offered by the program to shorten loan terms with 42 percent choosing to do so compared to 35 percent of those financing outside of HARP.  Only 5 percent of borrowers picked longer loan terms for their new loans.

Only $6.5 billion in net home equity was cashed out through refinancing in the fourth quarter compared to $7.1 billion in the third quarter.  . The peak in cash-out refinance volume was $84 billion during the second quarter of 2006. Another $6.1 billion was used to consolidate home equity loan balances into the first mortgage at the closing table.  About 83 percent of those who refinanced their first-lien home mortgage maintained about the same loan amount or lowered their principal balance by paying in additional money at the closing table. That’s just shy of the 88 percent peak during the second quarter of 2012.

During the entire year the total cash-out from refinancing was $32.1 billion compared to $320.5 billion during the 2006 peak.  Adjusted for inflation, annual cash-out volumes during 2010 through 2013 have been the smallest since 1997.

More than 95 percent of refinancing borrowers chose a fixed-rate loan. Fixed-rate loans were preferred regardless of what the original loan product had been. For example, 94 percent of borrowers who had a hybrid ARM refinanced into a fixed-rate loan during the fourth quarter. In contrast, only 3 percent of borrowers who had a fixed-rate loan chose an ARM.

The median age of a mortgage that was refinanced during the quarter increased to 7.0 years, the oldest median since Freddie Mac began its analysis.  The company said this reflected the duration of prevailing low interest rates; that is few homeowners who took out their mortgages within the last four year have much incentive to refinance.

Frank Nothaft, Freddie Mac vice president and chief economist said, “Our latest refinance report shows the refinance boom continued to wind down as the pool of potential borrowers declined and as mortgage rates increased during the second half of 2013. We are projecting the refinance share will be just 38 percent of all originations in 2014 as refinance falls off further and the emerging purchase market consumes a bigger piece of the pie.”

Freddie Mac’s refinance analysis is based on a sample of properties on which Freddie Mac has funded two successive conventional, first-mortgage loans with the latest being for refinance rather than for purchase. During the fourth quarter of 2014, the refinance share of applications averaged 56 percent in Freddie Mac’s monthly refinance survey, and the ARM share of applications was 10 percent in Freddie Mac’s monthly ARM survey, which includes purchase-money as well as refinance applications.

Higher Rates Should Lead to ARM Resurgence Freddie Mac Says

Jan 28 2014, 12:08PM

Adjustable rate mortgages remain at historic lows Freddie Mac said today as the company released results of its 30th Annual Adjustable-Rate Mortgage (ARM) Survey of prime loan offerings.  The 1-year ARM has remained essentially unchanged since last year’s survey while initial period rates on hybrid loan products rose. This, Freddie Mac said, largely reflects term structure movements in the rest of the capital markets and the Federal Reserve’s monetary policy, which has kept the federal funds rate and other short-term interest rates exceptionally low while allowing a rise in medium- and longer-term interest rates from last year.

Hybrid ARMs have a fixed rate for an initial period ranging from three to 10 years and then adjust annual thereafter.  Nearly all of the ARM lenders participating in the survey offered a hybrid with the 5/1 far and away the most common of the products both in terms of availability and use, followed by the 3/1, the 7/1 and the 10/1.  Less common are ARMs with longer repricing periods such as a 5/5 which features rate adjustments every five years for the life of the loan.

The survey, which was conducted January 6 to January 10, showed that the largest rate increases were for hybrids with longer initial fixed-rate periods.  The 7/1 ARM rose by 0.71 basis points  from last year and the 10/1 was up 0.76 basis points.

The savings in early January 2014 for a borrower taking a 30-year 5/1 hybrid ARM instead of a 30-year fixed rate mortgage (FRM) was about 1.36 percentage points.  This would result in a monthly principal and interest payment during the first five years that is about $194 less than for the fixed rate for a $250,000 loan.

Frank Nothaft, Freddie Mac vice president and chief economist said, “Homebuyers have preferred fixed-rate mortgages the past few years because of the low interest rates and the certainty of the monthly principal and interest payment. As longer-term rates rise, ARMs with their lower initial interest rates will become more appealing to loan applicants. Hybrid ARMs are particularly attractive because they have an initial extended fixed-rate period of 3 to 10 years.”

Freddie Mac surveyed 106 ARM lenders and found that 84 offered ARMS indexed to Treasury bills and 22 offered London Interbank Offered Rate (LIBOR)-indexed ARMs.  The company said that generally large national lenders offered LIBOR based loans while community and regional lenders were more likely to offer those based on Treasury indices.  Thus, even though offered by fewer lenders, the LIBOR-based product accounted for more than one-half of ARM originations. LIBOR-indexed ARMs generally had a lower margin (about 0.5 percentage points lower) than Treasury-indexed ARMs, a similar initial interest rate, but a higher index rate (about 0.5 percentage points higher).

Common Short Sale Myths Dispelled

Jan 13 2014, 12:59PM

Thanks to key changes in the program, completing a short sale through Freddie Mac is taking less time than ever before.  The company’s Senior Vice President Tracy Mooney, writing in Freddie Mac’s Executive Perspectives Blog, said that despite the improvements and that short sales are an important tool for helping distressed homeowners avoid foreclosure and eliminate their mortgage debt, they remain a mystery to many who might benefit from them.  In her occasional column “Dispelling the Myths” Mooney lays out eight misconceptions about short sales and the facts she says every distressed homeowner should know.

The first myth is that the homeowner will be responsible for the entire amount owed on the mortgage.  Under the company’s Standard Short Sale program, borrowers who complete a short sale in good faith and in compliance with all laws and Freddie Mac policies will not be pursued for the after-sale mortgage balance.  However, if a borrower has the financial ability he/she may be asked to make a one-time payment or sign a promissory note for a portion of that balance.

Many homeowners think a short sale is not possible for an investment property or second home.  Mooney said the important factor is whether the borrower meets the program’s eligibility requirements, not the status of the property itself.

The third myth is that a homeowner must be delinquent on the mortgage to be eligible for a short sale.  A homeowner who is current must meet the general eligibility requirements for the program and have a debt-to-income ratio greater than 55 percent.  In addition, in this case the property must be the homeowner’s primary residence.

Homeowners sometimes presume they won’t qualify because of their servicer’s strict guidelines about short sales.  But Mooney says that Freddie Mac has increased the authority of its servicers to approve short sales for qualifying financial hardships for homeowners who are past due or current on their mortgage.  Servicers also now have independent authority to approve short sales without a separate and potentially time-consuming review by the mortgage insurance company.

Myth #5 is that a short sale will affect a homeowner’s future eligibility for a mortgage.  If the financial difficulties arose from circumstances outside the borrower’s control such as job loss or a health emergency he/she may be eligible for a new Freddie Mac mortgage with a minimum of 24 months acceptable credit after the short sale.  If the short sale was necessitated by personal financial mismanagement the buyer might need 48 months of acceptable credit to obtain a new Freddie Mac loan.  Mooney advises all homeowners to begin discussions with a lender two years after the short sale closes to find out about specific requirements in their individual case.

Many people think that short sales can take a long time but Mooney reiterates that under the new guidelines timelines are shorter than ever.  Servicers now have 30 days to make and communicate a decision once they receive a completed application and, once approved, the sale should take less than 60 days to close.  She says that working with an experienced real estate agent might further speed the process

It is also a mistaken belief that having a second mortgage will make a short sale impossible.  If other eligibility requirements are met a second mortgage is not necessarily a barrier because Freddie’s short sale program can offer second lien holders up to $6,000 to release their lien and extinguish the underlying debt

The final myth is that a short sale will ruin a homeowner’s credit. While only the credit reporting agencies can determine how a credit score will be computed it is possible that a short sale could be less damaging than a foreclosure.  Even if this isn’t the case a short sale can give a homeowner time to arrange other housing and exit homeownership gracefully.

Mooney says a homeowner should consider a short sale if

  • He/she does not qualify for any options to keep the home;
  • Needs to move in order to keep or obtain employment.
  • Doesn’t think the home will sell at a price that will cover the outstanding mortgage amount.

The first step in the process is to determine if Freddie Mac owns the mortgage by using its  Loan Look-up Tool.   If it does the next step is to contact the mortgage servicers.  Contact information, Mooney says, should be listed on the monthly mortgage statement or in the coupon book.

Gift-funded Down Payments for Mortgage

by Ted Rood

New FHA Alternative Boosts Low Down-Payment Options

Jan 3 2014, 3:54PM

As Fannie Mae and Freddie Mac eliminated their 100% and 97% purchase loans following the housing meltdown, FHA financing once again became a preferred low down payment option. FHA loans offer a minimum 3.5% down payment, which can be gifted from a close family member. Thus, buyers whose sales contracts specify seller paid closing costs and who use the gift down payment, can often purchase a home with minimal out of pocket expenses.

FHA allows borrowers with credit scores as low as 580 to put just 3.5% down (those with lower scores face increased down payment requirements), and routinely approves higher debt loads than Fannie Mae or Freddie Mac. The combination of marginal credit scores and low (or no) buyer financial investment contributed to FHA’s default rates as the housing market crashed. As a result, FHA has raised MI significantly and has long since eliminated seller-paid down payment assistance programs.

Fannie Mae also allows down payment funds to be gifts from close family members for single family principal residences, with down payments as low as 5% for qualified borrowers. Until recently, however, private mortgage insurance (required for loans exceeding 80% of sales price) vendors required buyers to contribute at least 2% of their own funds in a transaction in addition to any gift funds. PMI provider United Guaranty recently altered their guidelines and now allow down payments to be exclusively gifts, a move likely soon adopted by competitors. The announcement gives eligible buyers a distinct advantage over FHA’s considerable MIP costs.

FHA’s upfront MIP fees are now 1.75% of the loan size added to the loan balance ($1750 on a $100,000 loan, 3.5% down), with an additional monthly charge of $108.33, which applies for the life of the loan. Conventional PMI costs vary slightly, but have NO upfront fee. United Guaranty’s pricing engine returned a price quote of $64.17/mn for a 720 score, 5% down borrower, a substantial savings of $4,399 over just the loan’s first 5 years compared with FHA’s fees.

The more conservative underwriting guidelines for Fannie Mae gift-funded down payments aim to ensure only qualified applicants receive these loans. Credit scores of 720 or higher (versus minimum scores of 620 for loans without gifts) are required. Debt ratios are limited to a 41% of applicants’ gross income, an even stricter restriction than non-gifted loans. The home must be a primary residence for all those on the loan, and no second mortgages, balloon notes, or temporary interest rate buy downs are allowed. The credit score, debt ratio, and other limitations set Fannie’s 5% down program apart from FHA’s less stringent standards and should result in far fewer defaults.

It is important to note, however, that many lenders have restrictions on gift funds, despite Fannie Mae’s acceptance. Shopping for this program may be challenging. Here’s a few steps to start the process: if you have a preferred lender, call and ask whether they offer this program; if you need a lender, contact a loan officer in your area. You might have to shop around to find a lender offering the program with no overlays.

About the Author

Ted Rood

Senior Mortgage Planner NMLS 543290, Wintrust Mortgage