Refinancing Mortgage: The Secret To Saving Thousands On Your Mortgage |



Have you conducted a home loan health check lately? You might be surprised if you find out that despite getting a pretty good loan back then, there is still some room for you to save. The solution does not lie on your current home loan. What you might want to do is try to look at what’s out there for you if you wish to find ways to reduce your monthly mortgage costs.




A lot of people today are actually dealing with higher interest rates, which mean they have to pay bigger interest payments. The situation is the perfect time to find a better deal in the market. And once the opportunity to refinance to a better mortgage product reveals itself, you don’t let it pass. However, you do need to consult with your lender or a separate mortgage expert regarding your situation. Refinancing mortgage, just like other home loan solutions, has advantages and disadvantages. Before you can refinance, you will have to deal with the refinancing costs which will be comprised most likely of exit fees and several other charges your lender might impose.


Benefits of Refinancing to a New Loan


Refinancing to a new loan has other advantages aside from the obvious fact that of allowing people to lower their mortgage costs. Refinancing loans allows you to use the equity stored in your home as guarantee for a new loan. You can use the loan to fund the renovation and of your property. You can also purchase an investment property if you want using the funds you get from the refinancing home loan. Last but not the least, refinancing allows you to easily consolidate your loans as well as unsecured debts (e.g. credit card and personal loan) into one so you won’t have to pay high interest rates. The best thing about debt consolidation is that it makes debt management easy because you only have to manage a single account.


You can take advantage of refinancing when the interest rates are down. Once you have secured a loan, you can lock it in fixed rate for 15 to 30 years in order to preserve the low interest rate. When the rates go up, you’ll be saving a lot compared to those with variable rate loans. However, refinancing to a variable rate loan is the better option if you are not permanently settling in your home.


Refinancing mortgage takes you back to step one when you first applied for a mortgage. And if you remember, you need to have a cautious approach because you do not want to defeat the purpose of your refinancing. Simply put it, it’s buying your first all over again, which means you might encounter the same obstacles and procedures.

By  Robert  Charlson

Fallout From Refinancing –



Credit The New York Times



Homeowners who refinanced when fixed mortgage rates dropped below 4 percent will be less inclined to put their homes on the market as interest rates climb. And as a result, the limited property supply already impeding sales in many markets may not ease anytime soon.

A recent survey by Redfin, a national real estate brokerage based in Seattle, suggests that even those beneficiaries of low-refinance rates who do decide to move may want to make money renting out their homes while waiting for prices to rise, rather than sell right away.

Redfin questioned 1,900 people nationwide who said they planned to buy a home within a year; 42 percent said they already owned one, and of those, 39 percent said they planned to rent it out after they moved. The survey also asked buyers about their frustrations with the process, and “low inventory” topped the list.



Market dynamics are encouraging owners to keep their homes off the market for now, said Anthony Hsieh, the chief executive of loanDepot, a mortgage lender. “The rental market is very, very healthy today because a lot of Americans are locked out of the mortgage market,” he said. “And there is the promise that real estate is going to appreciate, because we’re just coming out of a deep recession.”

Of course, most borrowers can’t afford to buy another home without using equity from their first for a down payment. But Mr. Hsieh says that those who were able to take advantage of low refinance rates tend to be “premium consumers,” with very good credit and stable, above-average incomes.

“These are the folks that will think twice before they pay off that mortgage that is such cheap money,” he said. “They’re going to explore all types of options before they do that.”

They may want to consider a few other factors before taking on tenants, said Jed Kolko, the chief economist of Trulia, an online marketplace for residential real estate. First is the effort involved in managing a rental property. Second is the greater financial risk of owning two homes in the same market should home prices take a dive. And third is the changing nature of what’s driving rents.

“Over the past several years,” Mr. Kolko said, “the strong demand for renting single-family homes has been driven by people who lost homes to foreclosure but still wanted to stay in the same area. But now it is more driven by young people, and they are more urban focused.”

Patric H. Hendershott, a senior research fellow at the Institute for Housing Studies at DePaul University in Chicago, says he has witnessed the current allure of being a landlord firsthand. He lives in a housing community for older people, and he has recently noticed that residents who are moving to larger units are choosing to rent out their smaller ones.

But he views another scenario as more likely for low-rate holders: Those who can’t afford to move on without selling will essentially be “locked into” their homes. As interest rates rise, even buying another home at the same price will result in a higher mortgage payment.

In a recent analysis of the effect of lock-ins, Mr. Hendershott predicted that if rates continue to rise, the result will be substantial declines in housing turnover in strong housing markets, in which large numbers of households refinanced at low rates.

“We had a big episode of this in the 1980s,” he said, recalling when soaring interest rates locked in large numbers of homeowners.

Research cited in his analysis found that during that period, household mobility declined by 15 percent for every 2 percent increase in rates.


Why the Homeownership Rate Is Misleading

Jed Kolko, chief economist and vice president for analytics at Trulia.

Jed Kolko is chief economist and vice president for analytics at Trulia, an online marketplace for residential real estate.

On Friday, the Census Bureau will remind us that the homeownership rate is at or near an 18-year low. After rising to an all-time high of 69.2 percent in 2005 near the height of the housing bubble, the homeownership rate fell to 64.9 percent in 2013, the lowest level since 1995. This drop represents millions of people who lost homes to foreclosure, can’t get a mortgage or haven’t been able to save for a down payment. Furthermore, the homeownership rate is likely to fall further before hitting bottom. Shouldn’t we be panicking that the American dream of homeownership is drifting out of reach?

Nope. At this stage of the housing recovery, the falling homeownership rate turns out to be misleading. In fact, for young adults, who were hit especially hard in the recession and housing crisis, the decline in their homeownership rate might paradoxically be a sign of improvement. The rate can mislead in the other direction, too: During the worst of the housing crisis, the falling homeownership rate clearly understated the damage done.

Source: Current Population Survey, Annual Social and Economic Supplement (Census Bureau and Bureau of Labor Statistics). Source: Current Population Survey, Annual Social and Economic Supplement (Census Bureau and Bureau of Labor Statistics).

Let me explain. Households can be one of two things: owners or renters. The homeownership rate equals the share of households that are owners. But look at people instead of households, and people have a third option: living under someone else’s roof. When young adults live with their parents, or older people live with their grown children, or people live with housemates, they count as part of someone else’s household. Those people are technically neither owners nor renters, and they don’t count in the homeownership rate. That’s why the homeownership rate can mislead: It omits people who are not in the housing market themselves as owners or renters.

This is similar to the better-known shortcoming of the unemployment rate, which doesn’t count people who are “not in the labor force” for various reasons, including having given up looking. As we know, the unemployment rate understated the weakness in the job market during and after the recession because more people dropped out of the labor force. To get the full view of the job market, economists look not only at the unemployment rate, but also at labor force participation.

A simple illustration shows how the homeownership rate can mislead. Suppose you have 10 friends, each living alone; five own their homes and five rent. The homeownership rate among this group is 50 percent. Then, one homeowner loses the house to foreclosure, and three renters lose their jobs and can’t afford to keep their own apartment. These four people all move in with one of the remaining homeowners. Now there remain four homeowners (one of whom is doing lots of laundry and dishes) and two renters, which means the homeownership rate went up to four out of six, or 67 percent. The homeownership rate missed the real story, which is that four of 10 dropped out of the housing market and are now couch-surfing.

When the homeownership rate steers us wrong, the “headship rate” — housing’s answer to the labor force participation rate – can come to the rescue. It’s the percent of adults who head a household. Put another way, it is the ratio of households to adults. If there are 200 million adults living in 100 million households, the headship rate is 50 percent. A higher headship rate means fewer adults, on average, per household. Over the longer term, demographics explain shifts in the headship rate (and in labor force participation, for that matter). An aging population, for instance, typically increases the headship rate because older adults are more likely to head their household than younger adults are because many young adults live in their parents’ home or with housemates.

In the short term, though, economic swings affect the headship rate, just as they affect labor force participation. When people lose their home to foreclosure or can no longer pay the rent and move in with someone else, the headship rate falls. When they get back on their economic feet and move out of their parents’ or roommate’s home into their own place – either as an owner or a renter – the headship rate rises.

Let’s go to the numbers. The headship rate can be calculated from two different government surveys, the Annual Social and Economic Supplement of the Current Population Survey, a joint project of the Census Bureau and the Bureau of Labor Statistics, and the American Community Survey compiled by the Census Bureau. To the frustration of housing economists, these surveys sometimes show inconsistent trends. Among other differences, the latest Current Population Survey is more recent, but the American Community Survey is based on a much larger sample.

Sources: Current Population Survey, Annual Social and Economic Supplement (Census Bureau and Bureau of Labor Statistics) and American Community Survey (Census Bureau). Sources: Current Population Survey, Annual Social and Economic Supplement (Census Bureau and Bureau of Labor Statistics) and American Community Survey (Census Bureau).

The headship rate peaked just before the height of the housing bubble, reaching 52.3 percent in 2003 and then falling to 51.2 percent in 2010, according to the Current Population Survey; the American Community Survey showed a similar decline over the period 2006-10. That drop in the headship rate translates into 2.5 million fewer households in 2010 than there would have been if the headship rate hadn’t fallen. That means that the decline in actual homeownership was steeper than the homeownership rate alone showed. The rate fell by 3.2 percent, but the actual share of all adults who owned a home dropped 4.9 percent — half again as much – because people dropped out of the housing market altogether.

Since 2010, the trend in the headship rate is murkier. The Current Population Survey shows an increase in the headship rate in 2011, 2012 and 2013, while the American Community Survey shows continued decline in 2011 and a near-flattening in 2012, the most recent survey. That means people have either started returning to the housing market or, at least, are dropping out at a slower rate.

Looking at the headship rate is especially important to understand what happened to young adults. The headship rate for 18- to 34-year-olds dropped three times as much as for adults over all, largely because the share living with their parents climbed to the highest level in decades. But this trend has either slowed or reversed. The survey shows that the number of young homeowners has stabilized (adjusting for population growth), and the number of young renters rose by 3 percent as young adults have slowly begun to move out of others’ homes and re-enter the housing market from 2011 to 2013. (The American Community Survey shows their headship rate still falling through 2012, but by less than in the several years prior.)

In fact, the headship rate is the key to how much the housing recovery contributes to economic growth. The headship rate and the population determine the total number of households, so a rise in the headship rate means more new households, all else equal. New household formation stimulates construction activity, and construction adds jobs and investment to the economy. Builders have already increased construction to keep pace with new rental demand: 2013 saw construction begin on the most new rental apartment units in 15 years.

Headship is poised to increase. Young adults still living with their parents won’t do so forever, and the Current Population Survey headship rate in 2013 – even with its recent rise — is still below its 20-year average. That will prompt more new construction. Of course, an increasing headship rate isn’t necessarily a good thing: at the extreme, a 100 percent headship rate would mean that each adult has his or her own household, either alone or with children. That would make for a huge construction boom but a lot of loneliness. Age, marital patterns and even cultural preferences all affect living patterns: Among those 65 or older in the United States, for instance, the foreign-born are four times as likely as the native-born to live with relatives rather than in their own household.

How soon will homeownership recover? It depends on job and income growth, mortgage credit availability, affordability and more. But today, since many young adults are still living with their parents, let’s watch first for an increase in the headship rate. And we should not be alarmed by the falling homeownership rate if it’s falling because people are renting their own place instead of living in someone else’s.

Mortgage Rates Tumble to 1-Month lows After Jobs Report

Jan 10 2014, 3:25PM

Mortgage rates fell abruptly today, following a significantly weaker than expected Employment Situation report.  The data hit markets before most lenders had rates available for the day, but most of them still held back on the first round of rate sheets.  As trading levels in the secondary mortgage market only improved into the afternoon, lenders released new rate sheets reflecting more of the day’s movement.  Ultimately, it’s been enough to bring 4.5% back into view as a best-execution rate, though 4.625% remains at least as prevalent.

Today’s movement ends up being fairly uncomplicated.  Heading into late December, rates leveled-off into an extremely flat pattern.  This carried into the new year and it became increasingly clear that it would be up to today’s big jobs report to cast a vote for the next move to be higher or lower.

All major economic reports have a published consensus level, readily available from the likes of Reuters and Bloomberg.  These are median values based on surveys of economists and other forecasters which essentially amount to the market’s expectations.  The farther away from those expectations a given piece of data falls, the more of an impact it can have on markets.  The more important the report, the more magnified the effect.

With that in mind, today’s Employment Situation report is THE most important piece of recurring economic data and the margin by which it missed expectations is among the largest ever.  Weaker employment data tends to push rates lower and today was obviously no exception.

While that’s great news in the short term, the conclusion is less obvious in the longer term.  The Fed has already begun tapering and it will probably take more than one jobs report (no matter how far off the mark it is) to even get markets considering a potential change in course.  As of right now, this report amounts to a very welcome push back against the broader uptrend in rates though the uptrend remains intact.  The question simply concerns how long the push back will last.  The longer it does and/or the bigger it gets, the riskier it is to float.
Loan Originator Perspectives

“Todays employment data comes just in time to save us from taking another significant move higher in rates. I would say wisdom will lean towards locking in these gains as they probably will be short lived, but there may be more to this recent move in the immediate near future. The SAFE BET -If closing within 30 days you should should be locking your loan as a defensive move on a bullish day, longer than 30 may consider the same as we are in a very volatile and unfriendly environment for rates. ” –Constantine Floropoulos, Quontic Bank

“All eyes were on highly anticipated Jobs Report that was released this morning, and report was considered a major miss with only 74k new jobs created in December with initial estimates closer to 200k. 10 year Treasury has continued to hover around 3.00%, and the impact of this report has moved the 10 year below levels seen last before the FOMC tapering announcement. Today’s report has shifted the momentum towards lower interest rates, and Retail Sales next week can further confirm this momentum swing. Cautiously floating is your best bet. ” –Justin Dudek, Senior Loan Officer, Supreme Lending

“Remarkably poor NFP report today as job growth was the smallest since January 2011. Mortgage rates predictably improved, but it’s common for secondary departments to initially hold back a portion of large one day gains. With that in mind, it’s possible that Monday’s pricing may be better than today’s. Not ready to concede that rates will plummet in the days to come, but today’s data sure indicates the economy still faces challenges.” –Ted Rood, Senior Mortgage Planner, Wintrust Mortgage

“A pleasant surprise today with a horrible jobs number printing. Rates have actually improved noticeably in price. The talking heads on various financial news networks are saying this is an outlier on the recent data trends for jobs and that revisions next month will show the Dec # to be wrong, but we’ll take it for the short term. Locking was still the safe bet yesterday and if the downward trend continues, renegotiations on locks will take place. For now the market might be spooked into a rate retreat and next month we’ll know for sure. Locking in gains and hoping for more is recommended in my opinion. ” –Michael Owens, VP of Mortgage Lending at Guaranteed Rate, Inc. NMLS # 107434

Today’s Best-Execution Rates

  • 30YR FIXED – 4.5 – 4.625%
  • FHA/VA – 4.25%
  • 15 YEAR FIXED –  3.5%
  • 5 YEAR ARMS –  3.0-3.50% depending on the lender

Ongoing Lock/Float Considerations

  • The prospect of the Fed reducing its asset purchases weighed heavy on interest rates for the 2nd half of 2013, causing volatility and generally pervasive upward movement.
  • Tapering ultimately happened on December 18th, 2013.  Markets had done so much to come to terms with it ahead of time that it essentially just confirmed the the 6 month move higher in rates, but didn’t make for another immediate spike higher.
  • That said, we should assume that we’re still in a rising rate environment on average with scattered pockets of recovery providing clear opportunities to lock.
  • (As always, please keep in mind that our Best-Execution rate always pertains to a completely ideal scenario.  There are many reasons a quoted rate may differ from our average rates, and in those cases, assuming you’re following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).


History of Mortgage Rates Infographic

Date:January 6, 2014 | Category:Market Trends | Author:Erin Lantz

Since 1971, when mortgage rates first started being tracked, they have ranged from a high of 18.63 percent in the early 80′s to a low of 3.20 percent in late 2013. Currently, rates are still relatively low and for many prospective home buyers, low rates can greatly affect the affordability of a home and the monthly mortgage payment. But, what will the future hold?

“After dropping to all-time lows at the end of 2012, rates have steadily rebounded throughout 2013. Now that the Federal Reserve has announced plans to begin winding down its stimulus program, which has helped keep rates low while the economy was still fragile, we expect rates will rise above 5 percent in 2014 as the economic recovery gains steam. Although those who missed out on mortgages in the 3 percent range may be disappointed that they missed that historic window, rates are still extraordinarily low by historic standards,” says Erin Lantz, director of Zillow Mortgage Marketplace.

Mortgage Rates Hold Ground Near 3-Month Highs

30 Year Fixed

4.63%    +0.00

15 Year Fixed

3.64%    +0.00

10YR Treasury

3.00%    +0.0076

FNMA 30YR 3.5

99.39    +0.02

FNMA 15YR 2.5

102.05    +0.06

Mortgage Rates Hold Ground Near 3-Month Highs
January 3, 2014
Market Summary

Mortgage rates technically ended the week in slightly better shape than last Friday’s rates.  The difference was almost negligible, however, equating to 0.02% in terms of rate and leaving rates very close to 3-month highs.

4.625% remains the most prevalently quoted 30yr Fixed, Conforming rate for ideal scenarios (best-execution).

Although the holidays are officially behind us, the bond markets that underpin mortgage rate movement managed to remain in “holiday mode.”  Part of this has to do with the fact that this week still contained a day and a half of down time for bond markets, but a blizzard in New York certainly didn’t encourage traders to be in the office.

This time around, light holiday activity didn’t result in any extreme volatility for interest rates, as it sometimes can.  Although we shouldn’t necessarily expect excessive movement in either direction, the level of activity should pick up next week.  More traders will be back from vacations (forced or otherwise) and important data will require more attention, especially Friday’s Employment Situation Report.  The implication of increased activity is more potential movement in rates, for better or worse.

Matthew Graham, Chief Operating Officer, Mortgage News Daily

30 Year Fixed Rate Mortgage

Week in Review
Rates shown below are based on the 30 Year Fixed Rate Mortgage
Beginning Average: 4.65%
Ending Average: 4.63%
Weekly Change: -0.02%
Yearly Change: +1.17%
Friday, December 27, 2013  :   4.65% (-0.01%)

Mortgage rates recovered modestly in most cases, falling just below the highest levels in more than 3 months. As has been the case for the entire week, the bond markets that underlie mortgage rate movement were exceptionally quiet.  There haven’t been any significant developments for them to react to, and market participation is too low to muster much of a reaction anyway.

As such, we’ve simply been drifting in the direction of the last hard push Back in early November.  Unfortunately that “push” was in a moderately higher direction.  The pace has been fairly gentle compared to what we endured this summer, but even though the interest rates being quoted aren’t rising as quickly, the closing costs associated with those rates have been drifting higher and higher.

Monday, December 30, 2013  :   4.62% (-0.03%)

Mortgage rates continued lower to begin the week after pulling back just slightly from 3-month highs on Friday.   Activity continues to be subdued in the financial markets that underlie the day to day movement on lenders’s rate sheets, making day-to-day changes less a factor of the day’s events and more to do with random chance.


In addition to that randomness, there’s certainly been default momentum leading higher in rates.  In general, that momentum has now led rates back to longer-term highs seen in August and September right as the year draws to a close.  While this isn’t an environment where you’d want to plan on falling rates, the way that we’ve hit recent highs presents the first opportunity to see a pocket of improvement within the longer-term trend higher.

Tuesday, December 31, 2013  :   4.63% (+0.01%)

Mortgage rates were little-changed today, ending the year less than a quarter of a percentage point away from their highest levels in more than 2 years.  4.625% remains the most prevalently quoted rate for ideal, conforming 30yr Fixed loans  (best-execution), with the only changes being seen in the form of closing costs.

On average, rates were an eighth of a percentage point higher on several occasions in August and September this year.  Before that, we’d have to go back to April 2011 to see higher.

Despite the steep rise in rates in 2013, the average rate for the entire year (4.25%) is the second lowest on record next to 2012’s 3.75%.  The previous 3 years were each roughly 0.25% higher and 2008 was roughly a full 1.0% higher than that.  To make this easier to digest, here’s a quick recap of that info:

Thursday, January 2, 2014  :   4.63% (+0.00%)

Mortgage rates were almost perfectly flat today.  Various lenders were in slightly better or worse shape, but on average, today’s quotes will look very similar to Tuesday’s.  That means 4.625% remains the most prevalently quoted rate for ideal, conforming 30yr Fixed loans  (best-execution), with the minimal changes coming in the form of closing costs.

The financial markets that underlie mortgage rate movement managed a slightly more active day with the arrival of the new year, but things won’t be close to normal until next week.  That means rates are currently being decided with fewer than the normal amount of votes.  When the majority returns next week, it could result in more pronounced movement.

Friday, January 3, 2014  :   4.63% (+0.00%)

Mortgage rates were even more unchanged today than yesterday.  Not only was the average rate among various lenders unchanged, but individual lenders all stayed closer to the yesterday’s rate sheets, whereas some were a bit higher or lower yesterday.

That said, the flatness was only accomplished after some mid-day price changes when improving market conditions allowed lenders to release better rate sheets.  Before that, the day’s average would have been slightly higher.  4.625% remains the most prevalently quoted rate for ideal, conforming 30yr Fixed loans  (best-execution).

Co-branded Daily Rate Report for:
Leo Hefner
Loan Officer
Courtesy Mortgage
License:  MLS# 995044
In this current market place, it is less about what the rates are and more about being able to listen to the borrower and find the product that best fits their situation. At Courtesy Mortgage, I am the only person you will speak with, no Junior Loan …view more
Email Me | Visit My Website
(619) 756-7119
View My Profile
Today’s Rates
Best Execution
Rate Change
30 Yr FRM 4.63% +0.00
15 Yr FRM 3.64% +0.00
FHA 30 Year Fixed 4.25% +0.00
Jumbo 30 Year Fixed 4.55% +0.00
5/1 Yr ARM 3.25% +0.00
Average Mortgage Rates
Rate Points Change
15 Yr. Fixed 3.62% 1.06 +0.18
30 Yr. Fixed 4.49% 1.21 +0.22
MBA **
30 Yr. Fixed 4.64% 0.41 +0.02
15 Yr. Fixed 3.74% 0.29 +0.08
30 Yr. Jumbo 4.63% 0.24 +0.02
30 Yr. FHA 4.29% 0.24 +0.04
5/1 ARM 3.26% 0.39 +0.06
Freddie Mac **
30 Yr. Fixed 4.53% 0.80 +0.05
15 Yr. Fixed 3.55% 0.70 +0.03
1 Yr. ARM 2.56% 0.50 +0.00
5/1 Yr. ARM 3.05% 0.40 +0.05
* FHFA averages are updated monthly.
** Mortgage Bankers Association (each Wednesday) and Freddie Mac (each Thursday) averages are updated weekly.
Secondary Markets
Price Change
30YR FNMA 3.0 94.97 +0.03
30YR FNMA 3.5 99.39 +0.02
30YR GNMA 3.0 96.47 -0.02
30YR GNMA 3.5 100.77 0.00
15YR FNMA 3.0 102.05 +0.06
15YR FNMA 2.5 98.94 +0.02
Yield Change
2 YR 0.4004% +0.0164
5 YR 1.7333% +0.0119
10 YR 2.9985% +0.0076
30 YR 3.9276% +0.0046
Prices as of: 1/3/2014 4:30PM EST
MBS and Treasury data provided by Thomson Reuters.
Mortgage News Daily and MBS Live! are exclusive re-distributors of Real Time Thomson Reuters Mortgage Information.
Secondary Marketing Managers:
If you are interested in gaining access to the most accurate real-time back-month TBA indications from Thomson Reuters and Tradeweb. Request More Information
About This Report

Mortgage News Daily is a trusted source of mortgage rate market data and analysis, with over 1 million readers each month.

Our Daily Rate Report is the most accurate and timely report of its kind, factoring in actual rate sheet data from top lenders combined with reports from our community of originators on how they’re generating quotes based on TODAY’S rate sheets.


Here’s How Declining Landlord Profitability Benefits the Rental Market

Here’s How Declining Landlord Profitability Benefits the Rental Market
Jan 2 2014, 1:39PM

While investors placing their money and hopes on single family houses is not a new phenomenon, CoreLogic in its current issue of MarketPulse, says it was an important one in the successful recovery of the housing market.  What was different about single family investment post-recession was the “aggregation and professional management of large portfolios of properties and, most importantly, the availability of institutional investor capital to fund the acquisition of properties.”

CoreLogic’s chief economist Mark Fleming, in an article titled Slow Money is Replacing Fast Money, asks “Where would prices be today if investors had not been willing to buy distressed properties in the dark days of the housing market just a few years ago?”  But now he says the market is changing.

The maturation of the market combined with rising home prices is challenging the profitability of large scale single-family investment.  To demonstrate this Fleming computed rental cap rates for a number of markets where this type of investment was a significant activity in both 2012 and 2013 using August-over-August rates as that month signals the end of the home-buying season.

Fleming used market-level single-family rental rates, assumed one-month’s vacancy, one month’s leasing costs, an 8 percent management fee and 2 percent maintenance.  Acquisition cost was based on the average single-family sales prices discounted 30 percent under the assumption it was a distressed sale and assuming a 5 percent cost to rehab.

Out of the 10 markets Fleming examined eight had declining cap rates with only Charlotte, North Carolina and Houston increasing.   The declines, Fleming said, were largely due to the increase in home prices outpacing any increases in rents.  Nonetheless, the implied return he said is still strong, especially if one factors in capital appreciation from rising home prices.




Fleming spoke with investors attending a first-of-its-kind REO-to-Rental Forum held recently in Arizona and found participants had a positive attitude toward continuing this asset class for long-term rental cash flow even aside from any capital appreciation.  He found them talking continually about how to select the right properties, buy them at the right price, and to find operational management efficiency and gain economies of scale.

Fleming says that as the single-family residential rental asset class matures, the “slow money,” i.e. investing for extended income return, is replacing the “fast money” and that this is a good sign for the long-term success of this asset class.

Mortgage Rates Run to 3-Month Highs Complicated by Fee Hikes.


Mortgage Rates Run to 3-Month Highs Complicated by Fee Hikes

Dec 19 2013, 4:09PM

Mortgage rates continued higher today, reaching levels not seen since the week before the FOMC Announcement in September.  Today’s weakness owes itself completely to yesterday’s news.  While the Fed’s decision to “taper” didn’t cause an excessive move higher yesterday, it did confirm the significant move higher that began in May.

While we’re not moving higher at the same pace seen in May and June of this year, the determination is as high as ever.  In a real sense, the pace of the movement–in general–and the mass behind it, are glacial.

Against the backdrop of that overall gradual move higher, we have had, and will have our ups and downs.  Some days will be flat.  Some days we’ll improve or deteriorate modestly, other days a lot.  Today was a bit more than modest for most lenders, though some borrowers will only experience it in terms of closing costs.

That means that 4.625% remains intact as the most prevalently quoted rate for ideal, conforming 30yr Fixed scenarios  (best-execution), but that it will be more expensive to obtain than it was yesterday.  4.75% is creeping up quickly.

If it seems like rates have been slow to move up recently despite talk of “higher rates,” it’s because the gap between rates (usually 1/8th or .125% increments) has gotten increasingly expensive in terms of PRICE (related in terms of percentage of the loan amount such as 0.75 = $750 on a $100,000 loan).

In the past, when we’ve discussed “affordable buydowns,” that might look like .4 to .5 in terms of upfront cost to move between rates (i.e. paying to move an eighth lower in rate, or being charged less to move an eighth higher in rate).  Those same costs are now closer to 1.0, meaning that it costs more to buy down to the next lower rate, but that there is also better insulation from being pushed up to the next eighth higher in rate or better compensation in terms of decreased closing costs if you do move to the next higher rate.

So will rates continue to go higher?  Remember the glacial pace with ups and downs.  There will always be pockets of correction and consolidation even within broad trends higher.  The entire month of October was a great example.  Whether or not we’ll see another extended period of time like that in the near future is uncertain, but less likely than it was for two reasons.

First, the tapering corner has been turned.  Even though markets will continue to speculate about whether or not each upcoming Fed Announcement will result in another $10bln reduction in bond buying, the biggest speculation as to whether or not the process will start, is in the books.  Some have suggested that this calms volatility, and that may well be true, but it was volatility working in our favor that allowed October’s little bounce back to happen.

The other incredibly important factor is the recently announced increases to the Guarantee Fee imposed by Fannie and Freddie’s conservator the FHFA.  This will raise rates by .25-.375% for many borrowers by the time the up-front cost changes are applied, and that’s happening a lot sooner than most people realize.

In fact, at least one big bank has already applied part of the G-fee change to rate locks of 60 days.  It instantly made those locks way more expensive than they were yesterday.  Borrowers would either pay for it by moving up to the next eighth of a percent higher in rate, or by raising their up-front costs by around three quarters of a point (so $1500 on a $200k loan). If 60 day locks just took the hit, it will be 2 weeks or less before it affects 45 day locks.  Time is ticking…

Not only does this put a big consideration on the horizon, but it also means that lenders aren’t going to be too eager to put out lower rates between now and then because it’s unprofitable and unwise for them to get locked into earning interest rates that aren’t in line with the rest of the market in a few weeks’ time.


Loan Originator Perspectives


“The same song and dance continues. Matthew Graham equated the recent trend in rates this morning to “glacial momentum higher in rates.” I think this is a perfect analogy. It will take something big to break up the glacier slowly moving down the hill (or up in rates) at this point. I still think locking at or shortly after application is the best move for the foreseeable future.” –Stephen Chizmadia, Mortgage Advisor, American Capital Home Loans

“More deterioration in MBS markets today as bond investors pondered the short and long ramifications of yesterday’s Fed tapering announcement. As noted repeatedly, we’re in a rising rate environment, even before new pricing adjustments from Fannie and Freddie kick in over the next couple of months. Mid-upper 4’s may not seem like exceptionally appealing rates now, but rest assured in a few months we may be wishing they were still available.” –Ted Rood, Senior Originator, Wintrust Mortgage

“The tourniquet seems to be applied stopping the slow bleed to weaker levels. Would be nice if the worst is behind after the first taper announcement, but that is wishful thinking. Floating in hopes of a meaningful drop is asking for pain in my opinion. ” –Mike Owens, VP of Mortgage Lending Guaranteed Rate, Inc.


Today’s Best-Execution Rates

  • 30YR FIXED – 4.625%
  • FHA/VA – 4.25%
  • 15 YEAR FIXED –  3.5%
  • 5 YEAR ARMS –  3.0-3.50% depending on the lender

Ongoing Lock/Float Considerations

  • The prospect of the Fed reducing its asset purchases weighed heavy on interest rates for the 2nd half of 2013, causing volatility and generally pervasive upward movement.
  • Tapering ultimately happened on December 18th, 2013.  Markets had done so much to come to terms with it ahead of time that it essentially just confirmed the the 6 month move higher in rates, but didn’t make for another immediate spike higher.
  • That said, we should assume that we’re still in a rising rate environment on average.
  • NOTE: Lenders will be adjust rate sheets at various times in December and January to account for the most recent hike in Guarantee Fees.  This will unequivocally raise rates by at least an eighth of a percent for almost every borrower, and in most cases .25-.375%.  Depending on the lender, those changes will take place overnight and have already begun.
  • (As always, please keep in mind that our Best-Execution rate always pertains to a completely ideal scenario.  There are many reasons a quoted rate may differ from our average rates, and in those cases, assuming you’re following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).

Fannie Mae Policy Update 12/16/2013

Announcement SEL-2013-09: Pricing Update
This Announcement reports that the Federal Housing Finance Agency has directed Fannie Mae to increase pricing, reflecting a “gradual progression to more market-based pricing.” The pricing changes include increases in guaranty fees and loan-level price adjustments (LLPAs) and the elimination of the Adverse Market Delivery Charge (with the exception of four states). Both the LLPA Matrix and the Refi Plus™ LLPA Matrix have been updated and are available on Fannie Mae’s Business Portal.