Refinance category archives

Freddie Mac just released their quarterly Refinance Report, which shows that half of borrowers who refinanced a conventional loan during July-September 2009 lowered their mortgage rate by at least 17 percent, or 1.1 percentage points below their old rate.  The accumulated savings from all of these refinances amounts to $3 billion over the first year of the new loans.

What’s driving people to refinance their homes?  Historically low mortgage rates. 

Current mortgage rates are significantly lower than they were just a few months ago. Today’s average 30-year mortgage rate of 4.78 percent is now 77 basis points (or 14 percent) lower than it was in June, when the 30-year fixed mortgage rate was at 5.55 percent, the highest level this year.

That means that on a $200,000 loan (assuming a home value of $250,000), the monthly principal and interest payment would now be $1,046.91 versus $1,141.86 for the same loan in June, saving the borrower $94.95 per month, or $34,182.00 over the life of a 30-year loan.

If you are thinking about refinancing, now is a great time. An easy way to shop for a mortgage is through Zillow Mortgage Marketplace.

• Submit an anonymous loan request, and receive unlimited custom quotes from lenders.  On average, borrowers receive 26 quotes within seconds. 
• Sort and filter quotes by APR, rate, fees, monthly payment, lender rating, distance to the lender, or True Cost, which incorporates interest rate, fees, points, and time into one easy-to-compare number.
• Use the interactive Break-Even graph to determine how long you need to live in your home to offset the cost of refinancing.  This graph also show the cumulative savings that will occur over the life of the new loan.
• After comparing quotes side-by-side and reading lender reviews and ratings, you decide which lenders to contact…they don’t call you.

No it’s not some sort of new, high tech way to search for homes or anything like that.   It’s the latest “enhancement” in Freddie Mac’s refi program.   Let me give you a few details:

• If your loan was sold to Freddie Mac originally.
• If your loan doesn’t have mortgage insurance right now.
• If you don’t owe over 125% of what the house is worth (in today’s market, not what you paid for it).
• Then you can take advantage of the Freddie Mac Open Access program.

Now you’re probably thinking - so what’s new?   That’s been in effect since like February or March?

Wrong - until now, you’ve had to work with the lender who wrote your loan.   If your loan was bought by Chase, you needed to work with Chase.   If it was bought by Bank of America, well, you get the picture.

Not any more.   Now, for any loans that don’t have mortgage insurance and were sold to Freddie Mac, you can go through any lender that has been approved to do Freddie Mac “Open Acess” loans.   That’s right, you can actually choose which lender you want to do your mortgage with!  (As long as they are approved to do these loans.

So this guy comes into my office. He sits down, we have a chat, and at one point he says, “I think I’d like to run a 10k.”

“You ever done any running?” I ask.

“Nope. Not really. Truth is I get winded climbing the stairs.”

“I don’t think you’re going to be able to run a 10k,” I tell him.

“Oh. Well, I guess I’ll come back in a few months and see if I can do it then.”

“You going to train, or anything?”

“Nah. Time takes care of everything, right?” he says

Okay, this didn’t happen, at least, it didn’t happen exactly like this. But I have people come see me all the time that would like to buy a house, only for one reason or another, they can’t qualify right now. They have a ding on their credit, or they don’t have a down payment saved up, or their income is spotty. Something.

We don’t beat around the bush with people. We tell them the straight dope – if they don’t qualify, then they don’t qualify. But the reaction to this news usually is something like what the guy said above, something like, “I guess we’ll try again later.”

Time was, nobody qualified for a home without serious preparation. It takes time to save enough money to make the down on a house. Credit fixes don’t happen overnight, no matter what the radio ads say. And establishing a good work history takes two years at a minimum. This was the way things were for generations. If you wanted a home loan, you needed 20% down, excellent credit and a solid work history.

Fast forward to the late 1990s. Congress decides that everyone should have a piece of the American Dream, and the standards start to relax. By 2006, if you had a pulse, you had a loan. It’s as if, to stick with the analogy above, everyone was entering marathons whether they had trained or not.

You know the rest. It turns out that the average Joe can’t run 26.2 miles. The world we live in now is much more like things have been for most of history. We’re back to the circumstances that used to exist – if you want a home, you’re going to have to work at it, just like if you want to run from Marathon to Athens, you have to train.

It’s far from the end of the world. All it takes is a bit of planning and some guidance. This part is actually fairly critical. It is certainly possible to get yourself in mortgage-shape without help, but it’s always going to go faster and be less stressful if someone helps you put a plan together. Rates are headed higher, home prices are rising, every month’s delay in getting in financial shape could cost you thousands. So why do it? The help is free.

Call your friendly neighborhood mortgage professional and ask for a checkup. If he’s not happy to speak with you and help you, call me and I’ll do it.

Refinancing to a lower rate is fun.

Buying a new home is exciting.

Receiving junk mail about bi-monthly payments, mortgage insurance and other hassles is neither fun nor exciting.

Once you close on your purchase or refinance, public record triggers an onslaught of loan related offers, credit card applications and “welcome to the neighborhood” advertisements. Some solicitors may even try to trick you into thinking that the loan related mail is coming from a trusted source, like the actual lender you worked with on your recent transaction. They often list “lender of record” which often causes confusion and unfortunately, unnecessary concern.

Recently, we’ve also seen companies send letters that imply that there could be lien on the letter recipient’s property or that their property title is somehow in jeopardy. If you ever have a question about these notices, please call your loan consultant and ask them to check it out. They will be able to tell fact from fiction and give you peace of mind.

To stop receiving these letters and other junk mail, you can call 1-888 5-OPT OUT (1-888 5 678-688). This number is maintained by the three major credit reporting companies. Your decision to remove your name from this list is shared among the three.

When you call, you will get two opt out choices:
* two years or
* permanently.

NOTE: You WILL be asked for your social security number (SSN) here. Supplying your SSN ensures that your data gets processed within a week. And soon, you’ll notice a little more space in your mailbox and lot more time to read the mail that matters.

Refinance requests on Zillow Mortgage Marketplace are up 20% so far this month versus August.  The chart below shows that lower mortgage rates appear to be driving this spike in demand.

In an effort to continute to prop up the financial markets, the Federal Reserve’s policy-setting panel just announced that it plans to continue purchasing mortgage-backed securities into next year.  This activity should help to keep mortgage rates at low levels.

So with rates this low, now is a great time to see if it makes sense to refinance.

Despite signs of an improving housing market, homeowners continue to be under financial stress.  According to Reuters, the 30-day mortgage delinquency rate increased again in August, reaching a new all-time high.

The chart above shows significant year-over-year increases in the delinquency rate.  The August ‘09 rate of 7.58% increased 55% versus the August ‘08 rate of 4.89%.  Month-to-month, the rate increased 3.6% versus the July ‘09 rate, which was 7.32%.

This delinquency rate is an important number to watch, as it is a leading indicator of home foreclosures and personal bankruptcies.

Looks like we’re not out of the woods yet.

In today’s credit score driven world, it often seems as if there are rate add-ons for loans with anything under a 740 credit score. It has become increasingly important to monitor and maintain one’s credit rating to ensure qualifying at the best interest rates available. One of the most pesky things that can adversely affect one’s credit score are collection accounts. Here are some basic tips regarding collection accounts:

1. Review your credit report with a seasoned mortgage professional, and create a strategy for paying off collection accounts. For example, paying off collection accounts more than 2 years old may actually adversely affect your credit rating in some cases. You may be able to simply payoff a collection account at closing.
2. Document, Document, Document: If you do payoff an account, be sure to keep receipts from the creditor. Try to make sure the receipt corresponds with the account number reported on the credit bureaus.
3. Ask your lender what accounts will need to be paid off prior to closing. Some aged and/or smaller accounts may not be required to be paid off to complete your real estate transaction.
4. Contact your creditors. You can be your own advocate by taking the initiative to contact your creditors and make payment and/or payoff arrangements. You may also be able to document a filing made in error, and get documentation to remove an adverse credit item.

Best of luck!

I got an e-mail yesterday asking: What is a 203K loan?  Every once in awhile I need to remember that I sometimes use acronyms and assume everyone knows what I am talking about.  The reality is…in many cases the acronyms do more to confuse folks than to clarify.  So I am going to take a step back and explain a little about the “203K” loan.

This loan program can be used for the purchase or refinance of a property that needs work.  It allows you to borrow the funds you need to purchase and renovate the property.  These loans are not new but took a back seat to other ways of financing the cost to renovate.  With property values no longer increasing by double digits, and with equity loans being capped at 70-80% of current values (rather than 100% you could get just a few years ago), the options for financing renovations are limited.  I started a thread on Zillow asking how folks are paying for home improvements.  Inquiring minds want to know! 

In addition to the FHA 203k program similar programs are offered by Fannie Mae and Freddie Mac.

Well….I figured I would give YouTube a whirl… I finally got around to putting some before and after photos together from a K loan I closed on 12/28/2008.

Purchase Price $192,000

Cost of Renovation $32,642

After Improved Value $260,000

Equity After Renovations $35,000+…..$33,000 can make a HUGE Difference!
I sent my clients a link to my blog when I posted it….This was her response:
“Wow, so cool that you used my pics :)   A month ago another lady was driving by and said she was an appraiser using my house as a comp.  She came in to see the improvements and then when we queried her on what she thought we’d be able to get for this house today she hemmed and hawed, then said, prices have dropped since we bought so we’d probably lose money…. because she can see we’ve put in a ton of money (not true, but that’s what she thought).   Then she said in this market with the economy so bad, I’d be able to get $350,000
That made me very happy :)”     -Owner of the home in the video

Take it easy on us, folks.  Mortgage rates are tough to predict on a  quarterly basis let alone a weekly one.  Three times this year, I changed my long-term bias from floating, to locking, then back to floating.  Moreover, a long-term floating bias is still going to have times when it makes sense to “get while the getting’s good” and lock immediately.

My September 2009 mortgage rates outlook examines that very conundrum.  In short, I’m locked for all closings before October 7, 2009 but floating longer-term closings.  There is a substantial pricing difference between a 60-day rate lock and 30-day rate lock (usually as much as a .5% discount fee).  That means that it would cost $1500 more to lock a rate, for a $300,000 loan, for 60 days rather than it would for 30 days.  That’s why we try to “play the rate game” with y’all when we offer mortgage rates prognistications.

Rate lock management is about managing RISK, not trying to manage the rate. Simply put, we KNOW we can’t catch the absolute bottom of the market but we try to analyze how economic, political, and financial markets’ forces might affect those rates between the time you apply for a loan and when you close.  THAT is the mark of a true mortgage professional.

In August, you saw a difference between Tom Vanderwell’s bias and mine.  Tom advises that the inflationary pressures, not limited to but including the increase in money supply, higher taxes, and commodities-push inflation could propel mortgage rates higher.  I ultimately agree with Tom but believe that the probability of a prolonged (or double-dip) recession will keep conforming mortgage rates below 6% for the rest of the year and possibly into the first half of next year.

…and I can STILL be wrong. If I am, you’ll see me change my bias faster than Madonna changes lovers.  I’ll give you an example of where Tom’s current bias will save his customers money while my current bias will cost my customers money; when the federal mortgage rates subsidy expires.  We could wake up Tuesday to find out the Fed prematurely arrested that program.

Let me reiterate what I said at the beginning of my tenure on Mortgages Unzipped; professional mortgage originators WILL understand:

• which market moves mortgage rates
• which impending economic figure release will move the market
• how to measure a customer’s tolerance for the risk of mortgage rate fluctuations
• how to renegotiate a rate-lock, for the customer’s benefit, in volatile markets

Look for the mortgage professional with the guts to answer the all important question:

What do you think mortgage rates are gonna do, in the next 30 days?

It could save you, literally… thousands of dollars to your closing costs.  What we write in public isn’t as important as the personal advice you receive when engaging us for your next mortgage transaction.  What we write in public demonstrates HOW we develop our lock management strategy.

If you think working with a real mortgage professional is expensive, wait until you see how much an amateur can cost you.