Mortgage Rates

Mortgage Rates rocket up quickly

By Holden Lewis • Bankrate.com

By rising abruptly, mortgage rates bared their claws this week, putting an end to three months of docility.

The benchmark 30-year fixed-rate mortgage rose 21 basis points, to 5.45 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.41 discount and origination points. One year ago, the mortgage index was 6.02 percent; four weeks ago, it was 5.23 percent.

The benchmark 15-year fixed-rate mortgage rose 12 basis points, to 4.86 percent. The benchmark 5/1 adjustable-rate mortgage declined 2 basis points, to 4.94 percent.

It actually was worse than that.

Because of its timing, Bankrate's weekly survey didn't capture the entire rate increase. The survey is conducted Wednesday mornings. Rates began rising Tuesday afternoon and continued going up Wednesday morning while the survey was being conducted. Mortgage bond yields -- and with them, rates -- accelerated Wednesday afternoon after the survey data had been collected.

Weekly national mortgage survey

Results of Bankrate.com's May 27, 2009, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:

30-year fixed
15-year fixed
5-year ARM
This week's rate:
5.45%
4.86%
4.94%
Change from last week:
+0.21
+0.12
-0.02
Monthly payment:
$931.68
$1,292.81
$879.92
Change from last week:
+$21.57
+$10.24
-$1.81

It was as if the weekly rate survey were a camera attached to the first stage of a two-stage rocket. The camera snapped a picture as the first stage was being jettisoned -- that's this week's benchmark rate -- while the second stage continued rising even faster than before.

"I guarantee that there are people who were floating, who could have locked last week at 4¾ or 4 7/8 percent, and now they're saying, 'Where's my rate?'" says Jim Sahnger, mortgage consultant for Palm Beach Financial Network in Stuart, Fla.

Dan Green, mortgage planner for Mobium Mortgage in Cincinnati, told his Twitter followers Wednesday afternoon: "A lender just sent notice, paraphrased: 'Rate sheets are suspended for now. We'll send a new one to you once we figure out WTH (what the heck) is going on.'"

People in the mortgage industry had been warning that rapid rate increases would happen. It was a matter of when, not if. But most were taken by surprise that the rate blowup happened now and not later, and that rates rose so swiftly. They expected rates to ride a jet, not a rocket.

Watch mortgage-backed securities

One can only guess what Bankrate's survey would have said had it been conducted late Wednesday afternoon instead of Wednesday morning. The benchmark 30-year rate likely would have been 15 basis points to 20 basis points higher. As an indicator of how quickly the situation deteriorated, it's instructive to look at the yields on mortgage-backed securities.

1 p.m. -- after most of Bankrate's data had been collected -- Freddie Mac's 30-year mortgage-backed security yielded 4.69 percent. At 2 p.m., it was 4.85 percent. That's an increase of more than an eighth of a percentage point in an hour. Similarly, Fannie Mae's bond yield rose 18 basis points between 1 p.m. and 2:08 p.m., according to Bloomberg's chart.

The upshot: Mortgage bond yields were at their highest level since late February. Rates followed.

"You know what? The party's over," says Dick Lepre, senior loan consultant for Residential Pacific Mortgage in San Francisco. In this case, "the party" is the remarkably low mortgage rates that had been hanging around since February -- the lowest rates in about 50 years.

Perspective is in order. Lepre points out that rates are still low by historical standards. Since 1985, the 30-year fixed mortgage rate has averaged 7.84 percent. That's distorted by years of double-digit rates in the 1980s and early 1990s, but even if you look at more recent times, today's rates look good. In 2008, the median rate on the 30-year fixed was 6.2 percent, meaning it was higher than that for half the year. In 2007, the median rate was 6.32 percent.

Analysts batted around a number of theories to explain this week's skyrocketing bond yields and mortgage rates. A federal budget deficit of nearly $2 trillion, with other gargantuan deficits to come, is believed to be inflationary, and investors demand higher interest rates to compensate for the inflation risk.

There's also anxiety arising from the impending bankruptcy of General Motors, as well as worry over the continuing decline in home prices, which could bring yet more foreclosures in the next couple of years. The bankruptcy and the foreclosures could cause investors to demand higher interest rates to compensate for credit risk.

IMPORTANT 2009 Stimulus Tax Credit Data

IMPORTANT DATA
The Economic Stimulus Plan for 2009
2009 Homeowner Affordability and Stability Plan

This information is intended to address the needs of my clients who are first-time homebuyers.
If this is not your particular purchase scenario, you may provide this data to friends or family who meet these criteria. I will be glad to help them as well. Parts of this Stimulus package also address the needs of those who are struggling with their loans; and who owe more than what their home is worth. These people can be helped by the Plan.

What this Memo Includes:

Details about the 2009 Homeowner Affordability and Stability Plan
Information about who qualifies for the Tax Credit and how to obtain it

Details about the 2009 Homeowner Affordability and Stability Plan
The $787 Billion dollar Stimulus Bill is made up of tax cuts and spending programs aimed at reviving the US economy. Although the package was scaled down from nearly $1 Trillion, it still stands as the largest anti-recession effort since World War II. One of the major benefits of the plan is a tax credit for new homebuyers. According to the plan, first-time homebuyers who purchase homes from the start of the year until the end of November 2009 may be eligible for the lower of an $8,000 or 10% of the value of the home tax credit.

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 you were to owe $8,000 in income taxes and would qualify for the $8,000 tax credit, you would owe nothing.

Better still, the tax credit is refundable, which means you can receive a check for the credit even if you have little income tax liability. For example, if you're liable for $4,000 in income tax, you can offset that $4,000 with half of the tax credit... and still receive a check for the remaining $4,000!

The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000.

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. Buyers will have to repay the credit if they sell their homes within three years.

Here are the major points to consider:

· If you purchase your first home on or before 1/1/09 or until 11/30/09 you will qualify for the tax credit.
· The tax credit can be applied against your 2008 tax return.
· This is a tax credit – it will reduce the amount of taxes you owe by the amount of the tax credit and unused credit will be issued a refund to you.
· If you file a joint return, your income must be less than $150,000.00 in order to qualify for a full tax credit. You may receive partial credit up to $170,000.00.
· If you file a single return, your income must be less than $75,000.00 in order to qualify for a full tax credit. You may receive a partial tax credit up to $95,000.00.
· If your home closing is scheduled to take place after April 15, 2009, you can choose to file an extension to October 15, 2009 to file your 2008 tax return to take advantage of the tax credit and receive your refund.
· If you have already filed your 2008 tax return, you can immediately amend your return.
· You must repay the credit if you own your home for less than three years.

As you all know, I am not a tax accountant and you should consult one to determine how to best take advantage of this tax credit. I am here to make sure that you have all the information you need, in clear and easy to understand terms, so you can make great financial choices in real estate. Please make sure to pass on this data to someone who needs it.

Refinancing and Stability Initiative

President Obama unveiled his plan to help stabilize the housing market and keep millions of borrowers in their homes. The Homeowner Affordability and Stability Plan includes two initiatives to help struggling homeowners. One is a refinancing program for homeowners with less than 20% equity in their homes, or who owe more than their home is worth. The second program attempts to lower monthly payments for homeowners at risk of losing their home. Many of the plan's details are still being worked out and will not be announced until March 4. Here is an overview of the plan's main components.

Refinancing Initiative

Under current rules, those families who own less than 20% equity in their homes have a difficult time refinancing and taking advantage of the historically low interest rates. This initiative is open to homeowners who have conforming loans which are guaranteed by Fannie Mae and Freddie Mac, and who owe up to 5% more than their home is worth.

According to the plan, "credit-worthy" or "responsible" homeowners can refinance their mortgage into a 30- or 15-year, fixed-rate loan based on current market rates. The refinanced loan, however, cannot include prepayment penalties or balloon payments. For many families, this low-cost refinancing may help reduce their mortgage payments by up to thousands of dollars per year.

As with the rest of the plan, details about this initiative will be released at a future date--including what, if any, credit score requirements will be included.

Stability Initiative

This initiative aims at providing help to individual families as well as entire neighborhoods by helping reduce foreclosures and stabilize home prices. It is intended to help homeowners who are struggling to afford their mortgage payments, but cannot sell their homes because prices have fallen significantly.

The goal of this initiative is simple: "reduce the amount homeowners owe per month to sustainable levels." To accomplish this, lenders are encouraged to lower homeowners' payments to 31% of their income by lowering their interest rate to as low as 2% or by extending the terms of the loan. In addition, lenders can also lower the principal owed by the borrower, with Treasury sharing in the costs.

Homeowners who are current on their mortgages but are struggling can still apply for this program. As such, this is one of the few programs designed to help homeowners who may face delinquency soon, but are current at the moment.

This is a program that can help may people, including Seniors, who have seen their home values fall dramatically since the time they purchased them.

This initiative also includes a number of additional elements and incentives, including an extra incentive for borrowers to keep paying on time. The initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.

Since the focus of this initiative is on helping families and neighborhoods, investment properties do not qualify.

Here are the major points to consider:

· This part of the plan is designed to aid those homebuyers who are “credit-worthy” and “responsible”.
· Homeowners who meet that standard will be encouraged to contact their lenders directly to renegotiate the terms of their home loans so as to make them more affordable and allow them to stay in their home and continue to make timely payments.
· Banks will have financial incentives for reducing payments to 31% of family income by lowering interest rates on the home loan to as low as 2%.
· Additional details and incentives will be released on March 4, 2009.
· If your party does not meet “credit-worthy” guidelines, a short sale must still be arranged through a real estate professional. This will limit the homeowner’s borrowing opportunities for at least two years, compared with the estimated 4-year penalty for foreclosure.

I hope this information is helpful to you and your family and friends. We have worked together to ensure that the homes you have purchased are affordable to you and none of my Buyers have ever sold short or foreclosed. However, if you know someone who is struggling, do something to help them by passing on this data.