Mortgage Rates Officially Hit New All-Time Lows!
Mortgage Rates hit new all-time lows today. In most cases, lenders' offerings are just slightly better across the board than they were in late January, the last time we officially noted "new all-time lows," though some lenders are not quite back to their previous best levels. A much weaker-than-expected reading on a widely followed report on business conditions in the mid-Atlantic region gave rates markets a bit of an early jolt lower. From there, an absence of additional data gave way to technical momentum, helping rates even lower.
Markets are facing tremendous uncertainty over the eventual outcome of Greek elections in June as well as the fate of the Spanish banking sector. Today, Spain saw their own version of the "run on banks" that occurred in Greece yesterday, reminding traders that, even if Greece makes it out of this mess still in the Euro-zone, that there are bigger fish to fry.
All that uncertainty has investors piling into safe-haven assets. In a global economy where a currency as massive as the Euro is in serious trouble due to problems in one small Euro-zone country, investors are just looking for a safe place to park their assets. US Treasuries have been one such place and their recent rally benefits other products in that same medicine cabinet, such as MBS (the "mortgage backed securities" that most directly influence rates).
Apart from Europe, there's also the consideration of Fed policy in the US. Whether or not the Fed extends recent quantitative easing measures or embarks on new ones is a matter of great concern to bond markets. At the last policy announcement, the door was left open for additional easing as-needed, and yesterday's "minutes" from that policy meeting essentially confirmed that open door. Markets perceive that "as needed" bit as becoming more and more "needed" if the Fed sees signs in the domestic economy like the one seen this morning's weak data. So when investors think the Fed is more likely to buy more fixed-income investments, rates stay low or move lower, all other things being equal.
Any way you account for the causes, the bottom line is that mortgage rates are lower. We'd probably say that 3.75% is the new Best-Execution for 30yr Fixed loans over the past few days and really cemented that today. Keep in mind, of course, that while we generally think Europe will continue to weigh on markets, keeping rates fairly contained in this new, low range, that "cement" can always be broken if sufficient force is applied. We're fond of mentioning the increasing barriers to improvement at current levels. We don't think rates can't improve, just that it will be slow going, and with risks of periodic bounces back.
Loan Originator Perspective With Rates At All Time Lows
Alan Craft, Loan Officer at Integrity Home Loan of Central Florida
These are the best rates we have ever seen. No reason not lock and take advantage. Is it possible they could go lower? Yes it is possible, but I feel there is a much better chance of worse than better.
Ted Rood, Senior Mortgage Consultant, Wintrust
The biggest drawback to falling rates (as we've seen for a while now) is that borrowers can be lulled into a false sense of security. It doesn't do a borrower any good to stay at a high rate with the hope of getting a new rate 1/4% better than has ever been available. In the equities market, trying to time stock prices to buy at the absolute lowest price is called "catching a falling knife", and it applies to mortgages as well. If you're at a high rate now, and can profit from a refi today, waiting costs you money since you're continuing to pay a higher rate than necessary. In my experience, catching falling knives is not a fun thing to do!
Mike Owens, Partner with HorizonFinancial, Inc.
I've always been a lock it and play it safe originator, but right now I'm 50/50. Rates just keep edging down and I'm actually going to floating short term just to see what plays out. The lock trigger is ready in case, but floating seems safe for now.
Matt Hodges Loan Officer, Presidential Mortgage Group
The mortgage market is really intriguing right now. Rates have been in slow decline over several weeks, yet there's a persistent fear of a spike upwards with any positive news. Meanwhile, we keep wondering "Where/when will 3.5% or lower be readily available for clients with 0 points?" Volatility and volume have limited the improvements. For the time being, at 30 days or less to closing, lock bias is firmly in place.
Jason York, Vice President of VA Operations at Prime Mortgage Lending, Inc
With where we currently are, I am locking loans that I would typically continue to float.
Kent Mikkola, Mortgage Consultant , M & M Mortgage, LLC #213677
Improving rate environments tend to lull us into a false sense of security and often 1 day can wipe out the gains that were made over several weeks. As they say, "a bird in the hand..."
Jeff Statz Mortgage Advisor, Network Funding, L.P.
Locking most now...stay vigilant for pricing to hold for FHA 6/11 Streamline changes
FHA: No Collections Greater Than $1000 Allowed After July 1
The Federal Housing Administration (FHA) will implement a few rule changes to its methods of approving loans on July 1.
Initially set to begin this past April, the most significant rule change to be implemented by the FHA is the prohibiting of borrowers with more than $1,000 in disputed collection accounts from obtaining an FHA mortgage.
While the new rule may certainly restrict many potential homebuyers, the FHA is attempting to limit there number of default loans, most of which were from borrowers who had a significant amount of debt on their credit profile prior to securing an FHA mortgage.
In light of the pending rule change, potential home buyers should continue to monitor their credit reports closely and address any delinquent payment or miscalculated errors to avoid any setbacks. Despite the new rule change, an FHA mortgage remains to be an easy way for potential homebuyers to secure a home, as it provides low down payment costs at roughly 3.5 percent, and less prohibitive restrictions regarding ones credit history.
New FHA Refinance Starting in June. Lowered Mortgage Insurance Premiums.
Date: March 6, 2012
To: All Approved Mortgagees
Mortgagee Letter 12-4
Subject Single Family Mortgage Insurance: Annual and Up-Front Mortgage
Insurance Premium – Changes
Purpose This Mortgagee Letter (ML) announces changes to the FHA Single
Family Annual Mortgage Insurance Premium (Annual MIP) and Up-
Front Mortgage Insurance Premium (UFMIP). Changes are applicable
to all Single Family (SF) Forward Mortgage programs except those
noted in the section below titled, “Exceptions to Announced Premium
Changes”. Current Annual MIP and UFMIP remain unchanged for those
excepted programs and products at this time.
Effective Date These changes are effective for FHA case numbers assigned on or
after April 9, 2012, unless otherwise specified below.
Mortgagees must continue to comply with the requirements of
ML 2011-10 concerning requests for, and cancellation of, FHA case
numbers. Specifically, mortgagees must:
request case numbers only when they have an active loan application
for the subject borrower and property; and
certify at the time of requesting a case number that they have an
active loan application for the subject borrower and property; and
provide the subject borrower’s name and social security number for
all new construction (proposed construction and existing
construction less than one year old).
Continued on next page
2
Mortgagee Letter 12-4, Continued
Affected Topics
Below is a list of the blocks in the subject handbook that are affected.
HUD 4155.2 Lender’s Guide to Single Family Mortgage Insurance Process
7.3.e, Reference Chart: UFMIP and Annual MIP for Mortgages with Terms More Than 15 Years
7.3.f, Annual Premiums for Mortgages with Terms More Than 15 Years
7.3.g, Reference Chart: UFMIP and Annual Premiums for Mortgages with Terms Less Than 15 Years
Increase to Annual Mortgage Insurance Premium
On December 23, 2011, the President signed into law the Temporary Payroll Tax Cut Continuation Act of 2011 (Public Law 112-78), which requires FHA to increase the Annual MIP it collects by 10 basis points (bps). This change is effective for case numbers assigned on or after April 9, 2012.
The table below shows the new effective annual premium rates by amortization term, base loan amount and LTV ratio. It also shows when the new Annual MIP takes effect, based on FHA Case Number assignment date.
Term > 15 Years
Base Loan Amount
LTV
Effective
Annual MIP
Any Amount
≤ 95.00%
April 9, 2012
120 bps
Any Amount
> 95.00%
April 9, 2012
125 bps Term ≤ 15 Years with LTV above 78%
Any Amount
≤ 90.00%
April 9, 2012
35 bps
Any Amount
> 90.00%
April 9, 2012
60 bps
Note: SF forward mortgages with amortization terms of 15 years or less, and a loan-to-value (LTV) ratio of 78 percent or less, remain exempt from the Annual MIP (see Mortgagee Letter 2011-35).
Continued on next page
3
Mortgagee Letter 12-4, Continued
Increase to Annual Mortgage Insurance Premium on Mortgages with a High Outstanding Base Loan Amount
FHA is also exercising its pre-existing statutory authority to add an additional 25 bps to mortgages with base loan amounts exceeding $625,500. This change is effective for case numbers assigned on or after June 11, 2012.
The table below shows the new effective annual premium rates by amortization term, base loan amount and LTV ratio. It also shows when the new Annual MIP takes effect, based on FHA Case Number assignment date.
Term > 15 Years
Base Loan Amount
LTV
Effective
Annual MIP
≤ $625,500
≤ 95.00%
June 11, 2012
120 bps
≤ $625,500
> 95.00%
June 11, 2012
125 bps
Above $625,500
≤ 95.00%
June 11, 2012
145 bps
Above $625,500
> 95.00%
June 11, 2012
150 bps Term ≤ 15 Years with LTV above 78%
≤ $625,500
≤ 90.00%
June 11, 2012
35 bps
≤ $625,500
> 90.00%
June 11, 2012
60 bps
Above $625,500
≤ 90.00%
June 11, 2012
60 bps
Above $625,500
> 90.00%
June 11, 2012
85 bps
Note: SF forward mortgages with amortization terms of 15 years or less, and a loan-to-value (LTV) ratio of 78 percent or less, remain exempt from the Annual MIP (see Mortgagee Letter 2011-35).
Decrease to Annual Mortgage Insurance Premium on Certain Streamline Refinance Transactions
For all SF Forward Streamline Refinance transactions that are refinancing FHA loans endorsed on or before May 31, 2009, the Annual MIP will be 55 bps, regardless of the base loan amount. The endorsement date is on the Case Query screen in FHA Connection. This change is effective for case numbers assigned on or after
June 11, 2012.
Continued on next page
4
Mortgagee Letter 12-4, Continued
Increase to
Up-Front Mortgage Insurance Premium
The UFMIP for affected SF forward mortgages will be increased from 1 percent to 1.75 percent of the base loan amount. This increase applies regardless of the amortization term or LTV ratio. FHA will continue to permit financing of this charge into the mortgage and will continue to calculate actual premium charges against the base loan amount before adding any financed UFMIP. This change is effective for case numbers assigned on or after April 9, 2012.
Decrease to
Up-Front Mortgage Insurance Premium on Certain Streamline Refinance Transactions
For all SF Forward Streamline Refinance transactions that are refinancing existing FHA loans that were endorsed on or before
May 31, 2009, the UFMIP will decrease from 1 percent to 0.01 percent of the base loan amount. The endorsement date is on the Case Query screen in FHA Connection. This change is effective for case numbers assigned on or after June 11, 2012.
Exceptions to Announced Premium Changes
The changes specified in this ML apply to all mortgages insured under FHA’s Single Family Mortgage Insurance Programs except:
Title I
Home Equity Conversion Mortgages (HECM)
Section 247 (Hawaiian Homelands)
Section 248 (Indian Reservations)
Section 223(e) (Declining Neighborhoods)
Continued on next page
5
Mortgagee Letter 12-4, Continued
Please address any questions about the topics in this Mortgagee Letter to the FHA Resource Center at 1-800-CALLFHA (1-800-225-5342). Persons with hearing or speech impairments may reach this number via TTY by calling the Federal Information Relay Service at 1-800-877-3339.
Signature
__________________________________
Carol J. Galante
Acting Assistant Secretary for Housing – Federal Housing Comm
FHA Condo Spot Approval
An FHA condo spot approval is a process where a lender can have a single condominium unit approved for FHA financing. Since FHA has become one of the most and well used residential loan programs available today it goes without saying that FHA loans are needed in order to fund the majority of condo sales or condo sales will continue to fall through the bottom. FHA loans for condominiums can be done only if the Condo complex has been approved for FHA financing.
FHA condo spot approvals are now being abused in huge numbers. Reason: spot approvals require that the lender conduct due diligence in the existing ratio of FHA loans versus non-FHA loans in the entire complex. The process requires that the lender send a questionaire to the home owners association for completion and determination of the proper FHA loan ratio. FHA will only insure a spont condo if the complex is not overweighted with FHA loans. FHA doesn't want to have too many loans in one complex.
What most often happens is that the fraudulent mortgage banker will send the questionaire to the association for completion and the HO will tell the broker that they don't have the required information- this is the case in 99% of the cases. Associations don't keep FHA loan or practically any financing data on record. So what happens? The fraud heavy mortgage broker or banker pushed to complete the deal by the Realtor in the transaction will 'customize' the form as needed by whiting out the form or creating a new one. I imagine this occurs in most of the spot approval transactions. The taxpayer will again pay for the fraudulent activity of the mortgage banking industry.
The proper way to conduct the due diligence for the spot approval, and the way we do it in our office is to pull all the mortgage deeds in the complex and write a letter as to the findings of the actual data.
FHA Downpayment
Starting January 1, lenders will be converting to a 3.5% downpayment for FHA home loans. Along with this change you can expect other changes which I will chronicle in upcoming blog articles.
The 3.5% has been implemented by many lenders already but is not a mandate until January 1, 2009. Still with the increase in the FHA downpayment, FHA is the best alternative for most buyers in this market. The reason is that conventional loans are very difficult to obtain in declining markets and the PMI - private mortgage insurance payments are sometimes prohibitive. In most cases, the FHA loan would be a better choice than even a conventional loan with 10% down simply due to the increase in loan level pricing adjustments with conventional loans and the increasing cost of private mortgage insurance.
Gil, your FHA expert
What's FHA UFMIP - Up Front Mortgage Insurance Premium
When borrowers use FHA to obtain a home loan, FHA will charge a mortgage insurance premium to insure against default. Remember that FHA does not make the loan, they only insure the loan against default.
A lender will make the loan and will obtain a mortgage insurance certificate from FHA to secure the mortgage. FHA applys two types of mortgage insurance premium. One is a monthly mortgage insurance cost called "MI" the other is up front mortgage insurance premium which is a one time charge that is placed on top of the loan amount. On top of the loan amount means that the client doesn't have to come up with the money but that it goes on top of the new loan.
Currently at this date, the up front mortgage insurance premium is 1.75% of the loan amount for "normal" purchase or refinance transactions. HUD/FHA also offers various "bailout" loans that require a higher premium.
Risk based UFMIP for FHA was slated to start in 2008 but was held back for a little bit. I expect once the market settles down, the new risk based premiums will commence. Look for more changes in 2009. Email or call if I can help.
Gil
The Fed and Agencies Working on Lowering Interest Rates
Today Fannie Mae sold approximately 3 billion dollars worth of mortgage backed security bonds offering some of the lowest yields seen in a while. The last billion or so sold that I remember were at much higher yields ( interest rates ). This could be the positive momentum the housing market craves. Probably the best the government has done since November to bring down mortgage interest spreads. The Fed and Treasury has stated that they will pump about 500 billion dollars into buying agency debt. Agency debt is what Fannie Mae and Freddie Mac sell to the investor markets in order to fund mortgage lending.
I commend the Fed for working diligently to stimulate housing demand. Stimulating lower interest rates, in my humble opinion, needed to be done a year ago. I felt so strong about the topic that I commenced a fax campaign to Senators Obama, McCain and Durbin: http://gilkerk.realestateloans.com/fha/2008/11/25/solution-to-housing-crisis-fha-temporary-buydowns.html
The Fed IS doing a good job but I just wish they would have focused more on the housing demand side sooner. Now, most consumers are so apathetic or paranoid that it may take a difibulator to revive the housing market. A little monetary medicine well placed on the demand side early on would have gone much further. I know we're all learning as this crisis unfolds.
Think of it this way, you can tell your grandkids what it was like during the big financial crisis in 2008.
Best regards from one history junkie to another.
FHA : Streamline Refinances Fast and Cheap
If you currently have an FHA home loan, whether its an adjustable or fixed loan, you can do what's called an FHA streamline refinance.
This program was created by FHA to offer a practical way for FHA borrowers to lower payments or improve their mortgage situation without having to go through the whole process of a full mortgage refinance. The FHA streamline is a terrific program but not offered by all banks. Actually, many of the community and big box banks don't even know how to process these loans so they choose not to offer them. Some banks don't even know that you can do these loans WITHOUT an appraisal and credit report.
Thousands of homeowners refinance their FHA home loans daily and are unaware of the streamline program because their lender is unable to offer the program, or is apt to charge additional fees for the banks benefit.
FHA streamlines can be done very simply. The borrower should start the process with a proficient FHA streamline lender. Write me and I'll find an approved lender in your state.
The full streamline refinance doesn't require a credit report- great for those that have incurred high debt and wouldn't be approved if credit were to be pulled anew. Doesn't require an appraisal- great for some of the recently declining value markets.
Industry professionals reading this blog, here's an overview of the program to help your borrowers save money while making it easier on yourselves during loan processing:-Credit Report (Not required): Verification of mortgage (VOM) only.
-Appraisal: Appraisal is required unless new base loan amount is lower thanprevious loan’s beginning total loan amount (base loan amount + MIP).
-LDP/GSA: Required
-Termite Inspection: Not required.
-Engineer’s Certification: Not required.
LTV: 96.5% unless no appraisal is required (see above).
-DTI Ratio: Not applicable.
-Skipped Payments: Can only skip one month’s payment (payment during closingmonth must be made before closing).
-Occupancy: Generally owner-occupied only.
-Removing Borrowers: Cannot remove borrowers.
-Adding Borrowers: Must be occupants of property.
-Late Payments on Mortgage: 1X30, with Underwriter exception to 2X30 (Anylates requires Modified Pricing) FHA Jumbo 0X30; NO exceptions
-Derogatoriness on Other Accounts: Not applicable (no credit report required)
-Manufactured Homes: yes with modifications
-Credit Scores: Not applicable.
-Community Property States: Not applicable.
-Bankruptcy: Not applicable.
-Foreclosure: Not applicable.
-Shortening Term: New PI payment cannot be more than 20% higher than the oldPI payment.
-Increasing Term: Cannot add more than 12 years to the existing term.
-1 year ARM to 1 year ARM: Must be an immediate reduction in payment andthe new lifetime interest rate cap cannot exceed the old lifetime cap.
-ARM to Fixed (1 year and Hybrid ARM): New PI payment cannot be morethan 20% higher than current payment. No 30 day lates in past 12 months, unless
the new PI payment will be less than the old PI payment. From 1 year ARM only:
new interest rate cannot be raised by 2% or more.
-Fixed to Fixed: Must reduce PI payment and interest rate.
-Fixed to ARM (1 year): New interest rate must be at least 2% lower than thecurrent fixed rate.
-Fixed to ARM (Hybrid): Must reduce PI payment and interest rate.
-Cash Out: The max a borrower can receive is $500.00 limited to “Incidental” Cash ONLY.
Mortgage Rates Now a-la-carte
Mortgage rates have gotten sliced and diced in very narrow catagories and credit score ranges. Last year we were able to pool 700 ficos with 650.. this doesn't hold true any longer. I've included the MAIN FANNIE MAE AND FREDDIE MAC matrix below for what we as mortgage lenders have to look at before we price a loan. There is also matrices for cash-out refinances, condo's, investment properties and 2nd homes.
Don't expect any of the mortgage rates you see in the paper or online to hold true. The mortgage rates you see online are "base" rates and are only offered to a very small percentage of the population with the highest credits scores and largest down payments.
With declining property values, high loan defaults and lower credit scores so common now you will be better served working with a mortgage person you can first trust and one that has access to many lenders. Access to many lenders will help you find the right rate and approval for your particular needs.
As you can see on the below matrix 720 credit scores with lots of equity home owners are getting the best rates. This matrix applies to conventional loans only not FHA or VA loans. FHA and VA loans offer there own risk based adjustments. Guideline changes have been almost non stop since the end of 2007 due to the disrupted nature of mortgage lending.
Below adjustments are strictly for addtional points added for risk based add-ons. 1 point equals 1% of the loan amount. EX: 1 point for a $100,000 loan is $1,000, 2 points for a $100,000 loan is $2,000, and so on.
A borrower that doesn't want to pay risk based 'points' can typically increase their rate to absorb points. It usually costs a .25% increase in rate to eliminate 1 point.
Example: .25% increase in rate may eliminate a 1 point charge, .50% in rate may eliminate a 2 point charge. A 5.0% rate may have a 2 point charge or the client may pay 5.5% rate with 0 points.
The below risk based point adds are national guidelines that apply to all conventional mortgage lenders. Some lenders can add on their own additional "regional" risk premiums.
Clients can choose to incur the below addtional points or a higher rate to offset any additional points that must be charged due to additional risk.
| Fanne Freddie Conventional Conforming Adjusters | Increase rates or charge borrower below points or a combination of point/rate | |||||||||
| LTV% | <=60% | 60.01-<=70% | 70.01-75% | 75.01-80% | 80.01-85% | 85.01-90% | 90.01-95% | 95.01-97% | ||
| LTV / FICO Adjusters: All Products w/Terms > 15 Yrs | ||||||||||
| >=740 | FIXED/ARM | (0.250) | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 | n/a | |
| 720 - 739 | FIXED/ARM | (0.250) | 0.000 | 0.000 | 0.250 | 0.000 | 0.000 | 0.000 | n/a | |
| 700 - 719 | FIXED/ARM | (0.250) | 0.500 | 0.500 | 0.750 | n/a | n/a | n/a | n/a | |
| 680 - 699 | FIXED/ARM | 0.000 | 0.500 | 1.000 | 1.500 | n/a | n/a | n/a | n/a | |
| 660 - 679 | FIXED/ARM | 0.000 | 1.000 | 2.000 | 2.500 | n/a | n/a | n/a | n/a | |
| 640 - 659 | FIXED/ARM | 0.500 | 1.250 | 2.500 | 3.000 | n/a | n/a | n/a | n/a | |
| 620 - 639 | FIXED/ARM | 0.500 | 1.500 | 3.000 | 3.000 | n/a | n/a | n/a | n/a | |
| <620 | FIXED/ARM | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | |
|
ADDITIONAL CONVENTIONAL CONFORMING ADJUSTERS CHARGE A HIGHER RATE OR BORROWER MUST PAY ADDITIONAL BELOW POINTS |
|||||||
| LTV > 90% <= 95% | 0.250 | ||||||
| 15 -year FRM w/ 120-month term | 0.250 | ||||||
| Investment Property LTV <= 75% | 1.750 | ||||||
| Investment Property LTV >75% <= 80% | 3.000 | ||||||
| Investment Property LTV >80% <= 90% | n/a | ||||||
| 2 Unit Property | 1.000 | ||||||
| 2 Unit Second Home Cash-Out refi <= 75% | 0.500 | ||||||
| 3 & 4 Unit Property | 1.000 | ||||||
| Secondary Financing | |||||||
| 75/20/5 LTV>65%/CLTV>90<=95% & FICO>=720 | 0.250 | ||||||
| 75/20/5 LTV>65%/CLTV>90<=95% & FICO<720 | 0.500 | ||||||
| 80/10/10 | 0.250 | ||||||
| All Other LTV>75% & FICO>=720 | 0.250 | ||||||
| All Other LTV>75% & FICO<720 | 0.500 | ||||||
| Non-escrowed (except CA, IA, IL, MN, NJ, NY, OR) | 0.250 | ||||||
| Temporary buydowns >80% LTV w/no MI | 1.000 | ||||||
| Condo > 75% LTV | ALL PRODUCTS W/ TERMS > 15 YRS | 0.750 | |||||
| Low Loan Size Adjuster | |||||||
| $0 - $49,999 | 0.500 | ||||||
| $50,000 - $99,999 | 0.250 | ||||||
Senator Dodd Stops TARP Accountability Amendment Introduced by Rep. Tim Walz
On January 13th Congressman Tim Walz from Minnesota introduced an amendment to establish additional public accountability methods for TARP funds. As most of us have come to realize, the first half of TARP (350 billion dollars worth) have gone pretty much unaccounted for since being released. Yes, there is no "public" record of how the funds were used and no clear disclosure has been forthcoming from the Fed or the banks that have received the money.
These are YOUR hard earned taxpayer dollars being blindly given to some of the worlds worst run financial enterprises.
It seems, because of Senate Banking Chair Christopher Dodd's efforts to NOT allow the amendment to be introduced to the Senate, the 2nd installment of the 350 billion dollars is also going to be released again with little to no public accountability. Thanks to Dodd's efforts, we still won't know how or where the money is being spent.
Senator Dodd has routinely been a central figure in the banking crisis.
Senator Dodd's contact information:
| Dodd, Christopher J. - (D - CT) | Class III |
| 448 RUSSELL SENATE OFFICE BUILDING WASHINGTON DC 20510 | |
| (202) 224-2823 | |
First Payments Are Paid At Close... Why?
It can be summarized by stating that the first payment of a home mortgage, whether it's a real estate refinance or a home purchase loan, is always paid forward. All other payments for a mortgage are paid "back".
Let's explore this with an example.
Mary closes her new loan on the 15th of January. That means the loan has funded and recorded. If it's a home purchase loan, she has been given her keys. If it's a refinance, the new rate kicks in.
At Mary's closing, she was given a settlement statement otherwise known as a HUD-1. ON this HUD-1 Mary sees all the expenses of her loan. Expenses such as: loan costs, appraisal fees, title costs, tax expenses, closer fees AND her first payment among other costs.
The line item that we are discussing is called "prepaid interest". It's labeled prepaid interest because the first payment to the bank, the one that is always paid at the closing table, is always interest only- no principle. Banks are authorized, only on the first payment, to collect interest ahead of time to the end of the month.
Banks cannot collect any interest unless they have earned it. Which means that all payments after the first "interest only" payment, are paid backwards. The reason for this paying back is because borrowers will start using the money hence banks start earning the interest as the month ticks off. Once the month ticks off, the lender sends a coupon for the month that was just used.
Why is the bank allowed to collect the first payment in advance? This grace period is given to banks so that they can their administrative and loan servicing roles. Loan servicing, is the process of managing and collecting payments.
If Mary closes her loan on the 15th, she will pay all the interest forward (unearned yet by the bank) from the 15th to the end of the month. Stay with me... she has paid the interest forward to the end of the month, now the loan converts to the normal process of paying backwards. Does she have to pay for February on the 1st of February? No, because now the bank has to earn the interest and send a coupon for the month earned. Mary's first payment will be due March 1 paid back for all of February.
Remember, the first payment is always paid forward, and all the other payments are paid back. Whether the loan closes on the 1st, 2nd, 10th, 15th, 28th or 29th it is paid to the end of the month. If it closes on the 29th, then Mary owes two days interest. If it closes on the 1st, Mary owes 30 days interest.
People like to close their loans at the end of the month, so that their closing costs, reflected through less days of prepaid interest, are lower.
Closing costs saved by paying the prepaid interest at the end of the month are important if someone is low on savings- closing at the end of the month is cheaper. However, closing at the end of the month is also riskier because "everyone" is trying to close at the end of the month, and delays do happen.
Usually most closing entities are going nuts in the last five days of the month. If you can avoid closing at the end of the month do so. Try closing between the 15th and the 25th for less anxiety.
Negative Home Equity? Fannie Mae 105% Refinance Coming Soon
|
The new Fannie Mae refinance program will be offered to homeowners struggling with negative equity and high mortgage rates. Negative equity exists when a homeowners mortgage balance exceeds the property's current value. The program was developed to assist these "upside down" homeowners take advantage of today's historically low rates. Soon, tens of thousands of homeowners that couldn't refinance due to declining home values may be able to refinance as long as their loan is "held" by Fannie Mae.
This new refinance program may also be referred to as the Fannie Mae streamline refinance. -Full income documentation -Possibly no appraisal depending on area, credit scores, type of property, date of purchase, etc. -Must be a Fannie Mae loan -Borrower or lender must check to see if the loan is with Fannie Mae -Fico pricing adjustments still impact the borrowers loan fees
-2nd mortgages must be subordinated, so ask the 2nd mortgage lender approval before starting |
FHA : What are Origination and Discount Points?
Definition of a "Point": A "Point" is a financial term used in the mortgage business to represent a percentage of the loan amount. One Point would be 1% of the loan amount, two Points would be 2% of the loan amount, so on and so on.
Origination points: Points charged to originate a mortgage loan. FHA allows a maximum of 1 point to be charged on FHA insured transactions.
Discount points: Points charged by the broker or lender to obtain a specific rate. To "buydown" a rate from 5% to 5.25% may cost 1 discount point.
Origination and discount points are labelled as such and must segmented into their own categories on the Good Faith Estimate.
Discount points DO NOT count towards the minimum statutory committment amount.
Mortgage Rate Observer ( While Mike is out )
10 year bond is increasing in yield which is influencing other long term investments such as 30 fixed mortgage back securities. There is some sell off at this time requiring yields to increase.
We're hovering around 5.25% on 30 year conventional fixed mortgages- fico's above 740.
Northwest Young Scholars Foundation : Spelling Bee
We at the NWYSF expect to promote this not-for-profit event and its sponsors to approximately 20,000 community leaders, parents and children through internet and print. We would like your organization to become a sponsor of this very unique and worthwhile event. Families and teachers from all over the area will have an opportunity for their 7th and 8th grade student’s to compete and win an educational scholarship.
It’s for the kids but we want to bring value to our sponsors too. You, as a scholarship and event sponsor, will be highlighted on all literature and advertising for this event. But it’s more than advertising: When you attach your name to a community event such as this you will be building incredible Goodwill.
All of our staff and support personnel will be volunteering their efforts to this event so none of your sponsorship dollars will go to administration expenses. 100% of your sponsorship will be directed to the students solely.
Your contribution will positively impact our local children while promoting you as a community leader and a thoughtful advertiser. Because we are a full volunteer organization, the educational sponsorships are very affordable with three levels to choose from: Platinum sponsorship is $1000, Gold $500 and Silver $250.
Please take a moment to consider this worthwhile event and call us today to secure a level. Remember, all your dollars go to the children. We need your support today so that we can start executing the remainder of the events activities.
Gil Kerbashian and Donald Brewer
Directors
Gil Kerbashian (847) 873-7295
Don Brewer (847) 217-7126
We are currently seeking Prounouncers and other volunteers to help us with this wonderful project.
