Where does the money go?

If you’re like most U.S. consumers, more than half of it goes to housing and transportation costs.

According to the government’s most recent Consumer Expenditure Survey, spending patterns are little changed from years prior. 

More money is spent on entertainment and less money is spent on dining out.  Beyond that, the figures are somewhat static.

Meanwhile, using on the survey’s industry-by-industry breakdown, we can see how monthly housing payments and daily commuting costs impact a household’s budget.

For the budget-conscious, going out less often and bargain-shopping can help pad the bottom line, but not as much as living in a less expensive home or moving closer to work.

Even a refinance into lower rates can make a difference we have some excellent terms to offer well qualified Danville area home owners.

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Owner occupied, second homes, multiple vacation homes, construction loans, construction to permanent, and lot loans are all available with extremely attractive rates for large million dollar loan amounts.

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I am happy to report however that the LAST THREE WEEKS have seen mortgage rates IMPROVE, and we have gained back almost everything we had lost 6 weeks ago!

Be sure to check the updated graph on the front page of my site to see how the trends move from week to week, and of course you can always call me for an accurate quote for your particular scenario.

Now is a great time to buy Danville real estate, so work with one of our recommended Danville Realtors, and ENJOY THE EXPERIENCE!

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Mortgage markets took a beating last week, sending conforming mortgage rates soaring Wednesday afternoon.  Despite a modest recovery Thursday and Friday, though, mortgage rates still moved higher on the week overall.

It was the fourth time in 5 weeks that mortgage rates worsened.

By far, the biggest news of last week was Wednesday’s mortgage market meltdown. 

Beginning shortly after 1:00 PM ET, and in the span of about 90 minutes, the 30-year fixed mortgage rate soared.  The action was so swift that a number of mortgage lenders shut down their Lock Desks, unwilling to accept new business.

There was no “news”-like reason for the action, by the way — just a general feeling on Wall Street that the U.S. government’s massive debt load may lead to inflation sometime in the future.   As inflationary fears rise, mortgage rates often rise with them and this is what we witnessed happened Wednesday.

Markets regained their cool Thursday and Friday, but could only erase half of Wednesday’s surge. 

This week, look for data to determine whether mortgage rates rise or fall.  Monday and Friday will be the biggest days.

On Monday, in addition to releasing consumer spending data from May, the government publishes the Federal Reserve’s preferred inflation gauge.  If either number comes in hotter-than-expected, mortgage rates should rise.

Similarly, if Friday’s employment data is better-than-expected, rates should rise, too.  More working Americans means more consumer spending and spending makes up two-thirds of the economy. 

Markets expect that another 550,000 workers lost their jobs last month, raising the 12-month total to 5.65 million.

Between Monday and Friday, a number of Federal Reserve members will be speaking publicly, including Fed Chairman Ben Bernanke.  Each speaker’s statements, of course, can influence mortgage rates as well.

Overall, markets remain volatile and mortgage rates are jumpy.  If you find a rate that fits your budget and with which you can be comfortable, consider locking it in before the news gives the rate reason to change.

Related posts:

1. What’s Ahead For Mortgage Rates This Week : May 3, 2010
2. What’s Ahead For Mortgage Rates This Week : February 22, 2010
3. What’s Ahead For Mortgage Rates This Week : March 8, 2010

Truth is, you are NOT going to refinance that loan anyway!

But WHY are the rates so low, and how long will they stay down???

They are low because for the first time the Feds are actually MANIPULATING the FIXED RATE HOME LOAN MARKET.  In my 23 years as a loan originator, I have never seen the Feds do what they are doing.

BACKGROUND: The Federal Reserve raises and lowers the Federal Funds Rate and the Discount Rate. This affects the cost for banks to borrow  from the Feds.  That then impacts the cost of short term borrowing for consumers (ARM’s for the most part).  Fixed rates are affected by the price of long term bonds.  Bonds are considered a safe place to put money.  You don’t get the same return as stocks, but you are at least sure of your return. In fact, BONDS AND STOCKS COMPETE FOR AVAILABLE MONEY.

This is what affects mortgage rates, because bonds and mortgage back securities are similar in nature, they are similar in this respect.

The Feds do not control the price of bonds, which means they do not control mortgage backed securities, which means they do not control fixed rates. Got it?

Now stay with me because…

IT IS A COMMON MISCONCEPTION THAT THE FEDS  CAN CONTROL, OR COULD EFFECT, LONG TERM FIXED RATES, BUT THEY DON’T, THEY HAVE NOT, THEY CANNOT…..THAT IS, UNTIL NOW!!!!!!!!!!!!!!!!!! 

From now until the end of the year, the Feds are actively buying existing mortgage backed securities. Because there is this huge buyer of BONDS, IT MEANS THE YIELD IS LOW.  Normally the yields must be high, to attract a buyer, but the Feds are buying so much ($1,250,000,000,000) it keeps the yields, and the rates low. That is 1.25 TRILLION dollars. 

NOW FOR THE GREATEST PART!!!

THIS IS WHY YOU READ THIS POST….

You might think, “GREAT!” more bailouts! But that is not true, the money will come back to us, because they are buying securities yielding 5.5%.  So, by buying these securities they drive rates down (big buyer remember?) AND THAT WILL CAUSE THESE 5.5% RATES TO REFINANCE TO 4.5%, AND THE FEDS WILL GET THEIR MONEY BACK!!!

BRILLIANT!!!!

So, in a nutshell that is why Danville mortgage rates are low.

UNTIL THE END OF THE YEAR….

So now is the time to apply for your 4% rate loan,  as next year will be too late!

Click on the “apply” or call me to discuss your specific scenario!!!

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1. Existing Home Sales Drop Again In January But Stay On The Trendline
2. The January 2010 Jobs Report May Lead Mortgage Rates And Home Prices Higher

Getting approved for a home loan isn’t getting easier, but it doesn’t appear to be getting much more difficult, either.

In its quarterly survey to member banks, the Federal Reserve asked senior bank loan officers whether “prime” residential mortgage guidelines had tightened in the last 3 months.

Nearly 50 percent of banks said guidelines tightened last quarter, a much lower figure than during all of 2008 and a signal that mortgage lending may be turning a corner.

Guidelines remain restrictive, however. 

Versus 18 months ago, lenders subject would-be borrowers to all of the following:

• Higher minimum credit score thresholds
• Larger minimum downpayments
• Lower debt-to-income requirements
• Mandatory fees based on certain loan traits

In addition, the availability of subordinate financing has all but disappeared when a home’s loan-to-value exceeds 80 percent.

Combined, these changes preclude a lot of Americans from getting access to today’s low rates but that could change in the coming months if the Fed’s reported trend continues.

Some experts believe that credit tightening started the recession.  Credit loosening, therefore, could help lead us out.

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1. Mortgage Approvals Are Getting More And More Scarce
2. 1 In 8 Banks Tightened Prime Mortgage Standards Last Quarter
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Yes, it’s true!  Stated income lending is currently available through me, in the state of California, once again.  I knew it was just a matter of time before we would see investors return to the market, and THAT TIME IS NOW!

This is NOT the old “Fog a Mirror, get a loan”, stated income.  This is more of a “Common Sense” type of lending, that we really NEED to get our real estate market moving again.  Why do we need it?  Because many of our home buyers are self employed.  Self Employed people use accepted tax strategies to lower their tax liability.   That whole segment of buyers has been unable to qualify for thier mortgage, and have been sitting on the sidelines until now.

Here is how it works.  Self employed people must have 3 years in the line of work.  The income that is declared must be reasonable.  What is reasonable? That means if you make $20K a month, you better have more that $5K in your bank, and a better than 700 credit score.

For a salaried person, we MUST verify that you are employed.  The income used is 90% of the high income as indicated on Salary.com.  This proves “reasonablness”. 

Of course there are more guidelines, and each loan is looked at pretty closely (aren’t they all?!?!)

For details, or to run your scenario by a nationally known loan originator, shoot me an email, or give me a call, and we will get your deal closed.

All the best- Mike

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The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000. Buyers will have to repay the credit if they sell their homes within three years.

Tax Credit Versus Tax Deduction

It’s important to remember that the $8,000 tax credit is just that… a tax credit. The benefit of a tax credit is that it’s a dollar-for-dollar tax reduction, rather than a reduction in a tax liability that would only save you $1,000 to $1,500 when all was said and done. So, if a homebuyer were to owe $8,000 in income taxes and would qualify for the $8,000 tax credit, they would owe nothing.

Better still, the tax credit is refundable, which means the homebuyer can receive a check for the credit if he or she has little income tax liability. For example, if a homebuyer is liable for $4,000 in income tax, he can offset that $4,000 with half of the tax credit… and still receive a check for the remaining $4,000!

Phaseout Examples

According to the plan, the tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000.

To break down what this phaseout means to homebuyers who are over those amounts, the National Association of Homebuilders (NAHB) offers the following examples:

Example 1: Assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time homebuyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.

Example 2: Assume that an individual homebuyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.

Remember, these are general examples. You should always consult your tax advisor for information relating to your specific circumstances.

Homes that Qualify
The tax credit is applicable to any home that will be used as a principle residence. Based on that guideline, qualifying homes include single-family detached homes, as well as attached homes such as townhouses and condominiums. In addition, manufactured or homes and houseboats used for principle residence also qualify.

Higher Loan Amounts

More good news – there is an extension on the additional tier of conforming loan amounts which had been first established in 2008.  This tier of home loans are those greater than $417,000, and with a maximum that depends on the area, but is not greater than $729,750.  These loans will again be eligible for rates that are slightly higher than conforming loan rates, but less expensive than the standard “jumbo” loan rates.

Additional Housing-Related Provisions

Tax Incentives to Spur Energy Savings and Green Jobs — This provision is designed to help promote energy-efficient investments in homes by extending and expanding tax credits through 2010 for purchases such as new furnaces, energy-efficient windows and doors, or insulation.

Landmark Energy Savings — This provision provides $5 Billion for energy efficient improvements for more than one million modest-income homes through weatherization. According to some estimates, this can help modest-income families save an average of $350 a year on heating and air conditioning bills.

Repairing Public Housing and Making Key Energy Efficiency Retrofits To HUD-Assisted Housing—This provision provides a total of $6.3 Billion for increasing energy efficiency in federally supported housing programs.Specifically, it establishes a new program to upgrade HUD-sponsored low-income housing (for elderly, disabled, and Section to increase energy efficiency, including new insulation, windows, and frames.

Expanding Housing Assistance—This provision increases support for several critical housing programs. It includes $2 Billion for the Neighborhood Stabilization Program to help communities purchase and rehabilitate foreclosed, vacant properties.

More Help for Homeowners in the Future
Another thing to keep an eye on in the coming weeks is President Obama’s plan to help struggling borrowers before they are faced with a default on their mortgage.

According to reports, the Obama administration is discussing plans to help borrowers who are struggling to stay afloat, but who have not yet fallen behind on their payments. At this point, details are scarce; however, reports indicate that President Obama is looking to spend approximately $50 Billion to directly help homeowners before they face foreclosure and financial disaster.

While this is good news for individual homeowners, it will likely be good for the housing industry as a whole. That’s because, assisting struggling borrowers before they default should help stop the wave of foreclosures, which are estimated to top two million this year. That, in turn, will help stabilize home prices.

The Economic Stimulus Plan is huge, and impacts a number of industries. I’ve highlighted some of the major provisions that may impact you now and in the future.

As always, if you have any questions or would like to discuss how this may specifically impact you, I’d be happy to sit down with you. Just call or email me to set up an appointment.

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1. Housing Starts Soar To 6-Month High In January… Or Do They?

Friday, Fannie Mae rolled-back one of its least popular mortgage guidelines updates of the last 12 months.

Effective March 1, 2009, real estate investors can once again own and finance up to 10 individual properties.  The restriction reversal does come with new minimum requirements, however. 

Homeowners buying a 5th, 6th, 7th, 8th, 9th or 10th home must meet the following standards, as set forth by Fannie Mae:

1. 720 credit score
2. 25% downpayment for a 1-unit (30% for a 2-4 unit)
3. No mortgage delinquencies in the last 12 months
4. 6 months of reserves for each investment property

In other words, Fannie Mae is re-opening the lending spigot for real estate investors with good credit, a sizeable downpayment and ample reserves. 

According to Fannie Mae, the change rationale is that experienced investors can “play a key role in the housing recovery”.  Until now, foreclosure auctions have gone at less than full speed because investors unable to pay cash have been halted by the existing 4-property Fannie Mae limit. 

Going forward, expect a more expedient foreclosure liquidation nationwide which should, in turn, provide further support for the housing market.

And lastly, not to be forgotten, homeowners with more than 4 properties can finally participate in the ongoing conforming mortgage Refi Boom. Until now, they’ve been stymied by the 4-property restriction, too.

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