Mortgage Rates Spike

Mortgage rates spike by most since Trump's election

by Bloomberg 11 Oct 2018                                                                                                            

U.S. mortgage rates, already at a seven-year high, jumped the most since the week after President Trump was elected.

The average rate for a 30-year fixed mortgage was 4.9 percent, up from 4.71 percent last week and the highest since mid-April 2011, Freddie Mac said in a statement Thursday. It was the biggest increase since Nov. 17, 2016, when the 30-year average surged 37 basis points. The average 15-year rate climbed to 4.29 percent from 4.15 percent, the McLean, Virginia-based mortgage finance company said.

Rising mortgage rates have cut into affordability for buyers, especially in markets where home prices have been climbing faster than incomes. That’s led to a slowdown in sales. Contracts to buy previously owned properties in the U.S. declined in August by the most in seven months, according to data from the National Association of Realtors.

“Rising rates paired with high and escalating home prices is putting downward pressure on purchase demand,” Freddie Mac Chief Economist Sam Khater said in the statement. While rates are still historically low, “the primary hurdle for many borrowers today is the down payment, and that is the reason home sales have decreased in many high-priced markets.”

With this week’s jump, the monthly payment on a $300,000, 30-year loan has climbed to $1,592, up from $1,424 in the beginning of the year, when the average rate was 3.95 percent.


Copyright Bloomberg News                              

Fed Raises Short Term Interest Rates Today

Breaking News!

WASHINGTON — The Federal Reserve hiked interest rates for the first time in nearly a decade on Wednesday, signaling faith that the U.S. economy had largely overcome the wounds of the 2007-2009 financial crisis.

The U.S. central bank’s policy-setting committee raised the range of its benchmark interest rate by a quarter of a percentage point to between 0.25 percent and 0.50 percent, ending a lengthy debate about whether the economy was strong enough to withstand higher borrowing costs.

“The Committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise over the medium term to its 2 percent objective,” the Fed said in its policy statement, which was adopted unanimously.

The Fed made clear that the rate hike was a tentative beginning to a “gradual” tightening cycle, and that in deciding its next move it would put a premium on monitoring inflation, which remains mired below target.

“In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate,” the Fed said.

Source:  AOL Finance 12-16-2015

Feel free to call me for a quick consultation to see how this event may affect your financing needs.


New Universal Mortgage Guidelines About To Be Implemented

By Jeff Magee

Greetings Friends, Clients and Associates.

The big news in the Mortgage Universe is the looming implementation of the Dodd-Frank inspired Qualified Mortgage and Qualified Residential Mortgage. In just a little over a month, the US Government, through it’s Consumer Financial Protection Bureau, will be the de facto arbiter of who gets a mortgage loan with the best terms going forward.  It’s not that banks will not be free to lend to anyone they want to after January 10, but the risks inherent in making a mortgage loan that is outside the underwriting criteria of the QM are so great that few if any banks will even attempt it.

Fortunately, Mortgage Resource Group has always adhered to sensible and ethical lending practices, and we estimate that 80% of the loans we originate already conform to the upcoming Qualified Mortgage definitions.  The one area of concern for some of our clients will be the new debt ratio ceiling which is to be pegged at 43%.

Mark Greene describes the issue very well in his article “The Great Qualified Mortgage Yawn”.  Excerpts follow.    

“Enter the great debt ratio argument.  The CFPB (Consumer Financial Protection Bureau) through the new QM and QRM underwriting guidelines, have decided that the absolute maximum debt ratio for any borrower should not exceed 43%.  That means that the proposed mortgage payment, including real estate taxes, homeowner’s insurance, mortgage insurance and if applicable, common area fees (Homeowner’s Association Fees, Maintenance Fees, Co-op fees, etc.), along with all other recurring monthly consumer debt (auto loans/leases, student loans, alimony/support payments, personal loans, credit card payments, etc.), cannot exceed 43% of a borrower’s gross monthly income.

This absolute is proposed as the be all/end all cure supported by statistical analysis and default probabilities, and properly administered will bring order to chaos in the mortgage lending world.  If we as lenders use the 43% debt ratio cutoff, we will substantially reduce the risk of loan defaults, buybacks, foreclosures and all of the ills that have brought about much needed reform in the mortgage lending industry.  So says the CFPB.

This would seem reasonable and prudent, after all, why in the world would a lender allow a borrower to be so burdened with debt service that almost half of their income evaporates before they even get paid? But financial profiles are fluid, debts get paid off, incomes change, households change, often times one month is financially substantially different than another; individual cash flow management practices are as varied as DNA fingerprints.  Attaching the 43% debt ratio ceiling to every mortgage lending request is akin to putting a 55 mile per hour speed limiting device on every car on the road, it may save some lives, but it is a narrow solution to a broader issue.

The broader mortgage industry issues are responsible lending, successful homeowners, lower default and foreclosure rates and stable homeownership trends.  Imposing a hard 43% debt ratio cap is not the transformative magic wand that will accomplish these goals…… 

There is one nagging little issue that the CFPB framers of QM AND QRM seem to be dismissing as less than material.  Estimates ranges from 18% to 22% of all mortgage approvals have debt ratios above 43%.” 

I agree with Mr Greene.  A “hard” debt ratio of 43% will penalize otherwise credit worthy borrowers.  Aggravating the problem is the fact that calculation of acceptable income is not particularly standardized.  Ten underwriters could look at a borrower’s income tax return and come up with ten different “incomes”.  The same holds true to some degree with calculating accurately “debt”.  I can envision the aggravation in all our futures, as we have to explain to Joe Borrower that his $400,000 loan is “approved”, providing he pay off and cancel his $500 Discover Card to get the debt ratio to 43%…..and never mind about the $600,000 in the savings account.  That is immaterial where the debt ratio is concerned!

Alas, the mortgage and home finance industry will survive.  It has to.  Home ownership is practically a fundamental human right!  Hopefully the pendulum of underwriting will not swing too far to the extreme away from the Common Sense middle.

For those of you contemplating a refinance or purchase right now, you may be glad you got your application in process before Dec 31st to avoid any unpleasant surprises.


The Perfect Loan File

Mark Greene, Contributor


Want to know what is being asked of you during the mortgage process and why? Read on…

The media has it all wrong – securing mortgage approval and satisfying credit underwriting guidelines are not the difficulties plaguing mortgage consumers. It’s in meeting the rigorous documentation requirements that most people fall flat. The good news is, the fix is simple. Just scan, photocopy, fax, and deliver every aspect of your financial life. Then, shortly before closing, check everything again.

Mortgage consumers who enter the mortgage approval process ready to battle their chosen mortgage lender will come out with a nightmare story to tell. As the process, requirements, and guidelines are the same for everybody, your mindset is the game-changer. Accepting the redundant documentation necessary for lender approval will make everyone’s life easier. When I was a kid, my father occasionally issued directives that I naturally thought were superfluous, and when asked why I needed to do whatever it was he wanted me to do, his answer was often: “Because I said so.” This never seemed to address my query but always left me without a retort, and I would usually comply. This is exactly what consumers should do during the mortgage approval process. When your lender requests what seems to be over-documentation and you wonder why you need it, accept the simple edict – “because I said so.” You will find the mortgage approval process much less frustrating. So, what’s the perfect loan? Well, it’s one that (a) pays back the lender and (b) pays back the lender on time. Underwriting the perfect loan is not the goal that mortgage lenders aspire to today.

The real goal is the perfect loan file.

Mortgage lenders have suffered staggering losses and gone out of business because of the dreaded loan repurchase. As mortgage delinquencies increased, FannieMae and FreddieMac began to audit mortgage loans they had purchased and discovered substandard and fraudulent underwriting practices that violated representations and warranties made, stating these were high quality loans. Fannie and Freddie began forcing the originating lenders of these “bad” loans to buy them back. So a small correspondent mortgage lender is forced to buy back a single mortgage loan in the amount of $250,000. This becomes a $250,000 loss to a small mortgage business for a single loan, because it will never be repaid. It doesn’t take many of these bad loan buybacks to close the doors on many small mortgage operations. The lending houses suffered billions of dollars of losses repurchasing loans from Fannie and Freddie, and began to do the same thing for loans they had purchased from smaller originators.

The small and medium sized mortgage originators that survived created underwriting guidelines and procedures to eliminate the threat of future loan repurchase losses. The answer? The perfect loan file.

It’s no longer necessary to have excellent credit, a big down payment and stable employment with income sufficient to support your debt service to guarantee your loan approval. However, you must have a borrower profile that meets the credit underwriting guidelines for the loan you are requesting. And, more importantly, you have to be able to hard-copy-guideline-document your profile.

Every nook and cranny of your financial life has to be corroborated, double- and triple-checked, and reviewed again before closing. This way, if the originating lender has created a loan file that is exactly consistent with published underwriting guidelines and has documented while adhering to those guidelines, the chances are that your loan will not be subject to repurchase.

Borrowers also need to prepare for processing and underwriting. Processors and underwriters are the people trained and charged with gathering (processors), all of your required-for-approval financial documents, and then approving (underwriters), your loan. You can assume these people are well trained and very experienced, as they are tasked with assembling and approving a high-quality-these-people-will-pay-us-back loan file. But just how do they go about that?

The Process Begins

The process begins with the filter – the loan originator (a.k.a loan officer, mortgage consultant, mortgage adviser, etc.) – tasked to match the qualifications of a particular mortgage deal to the appropriate underwriting guidelines. It is the filter’s job to determine if a loan scenario is approvable and to gather the documentation to support that determination. It is here, at the beginning of the approval process, where the deal is made or broken. The rest of the approval process is just papering the file.

The filter determines whether the information provided by the borrower can be validated and documented. This is simple, since most mortgages are approved by automated underwriting engines such as Desktop Underwriter, and the automated approval generates a list of the documents needed to paper the loan file. An underwriter can, at this stage, request additional supporting documentation evidence at their discretion, as not all circumstances neatly fit into the prescribed underwriting box. If the filter creates a loan file with accurate information, then secures the documentation resulting from the automated underwriting findings, the loan will close uneventfully.

So, let’s begin with the pre-approval call. Mortgage pre-approval is typically accomplished with a telephone interview. A prospective borrower calls a mortgage rep (filter), and the questions begin. There will be lots of questions as this critical phase of the process is akin to the discovery period in a trial – you’ll need to disclose everything. Expect to answer queries on what you do for a living, how long you’ve been employed in your current field, and what your salary is. If there is a co-borrower, they will have to answer the same questions. Every dollar in checking, savings, investments and retirement accounts, also known as assets to close, as well as gifts from relatives and non-profit grants, has to be accounted for. Essentially everything appearing on a borrower’s asset-radar-screen has to be documented and explained.

If you were previously a homeowner and sold your home in a short sale, or if you own a home now and plan to keep it as an investment or rental property, there are new and specific underwriting guidelines created just for you. In these cases, full disclosure of your credit and homeownership past can potentially eliminate unforeseen mortgage approval woes. For instance, FannieMae has a new underwriting guideline called “Buy-and-Bail,” for current homeowners’ planning on keeping their existing home as an investment/rental property. Properties not meeting the 30% equity test for “Buy-and-Bail” result in additional asset requirements to purchase a new home. Buyers with a short sale history may have to wait two to three years before they are eligible for mortgage financing again. Full vetting of your previous mortgage life will save you the dreaded we-have-a-problem call from your mortgage lender.

It all comes down to your proof.

If the lender asks for a specific document, give them exactly what they are asking for, not what “should be OK,” – because it won’t be. This is where the approval process tends to go off the rails, when the lender asks for specific documentation and the borrower supplies something else. Here, too, is where both sides get frustrated. So if the lender asks for a bank statement and there are 5 pages for that bank statement, send them all 5 pages, and not just the summary. If you send them the summary page and they ask again, don’t complain that the lender keeps asking for the same thing when you never sent it in the first place. This may sound elementary, but the vast majority of mortgage approval process woes stem from scenarios just like this. The reason the mortgage approval process is now so rigorous is simple. Avoiding defaults and loan buybacks has become the primary goal of mortgage lenders. Higher standards are reducing loan defaults, which should mean fewer foreclosures in the future. Government data shows that less than 2% of loans originated in 2009, that were resold to Freddie Mac and Fannie Mae went into default after 18 months, down from more than 22% default rates for 2007 loans.

So when your lender requests specific documents from you, give them to them just “because they said so.”

You can thank my dad for that.