Mortgage Rates Rise Sharply
Although nothing has fundamentally happened over the last week to push mortgage rates higher, rates have indeed soared greatly over the last seven days. But why? I offer you three main reasons:
1. Supply and Demand. With rates falling as low as 4.5%, mortgage lenders have locked in more loans than they can handle over the last month. It is natural to see rates bump up a bit after they have been so low. Don't forget that there are 50% less loan officers out there today than there were two years ago. The mortgage industry is clogged right now and it's going to take a few weeks or longer for things to resume to normal. Higher rates will enable everyone to catch up a bit.
2. Investor Fees. With mortgages paying off more quickly due to the super low rates, investors are not paying as much in the secondary market for these loans. Mortgage lenders are in turn charging a little bit more to offset this loss of income. This has contributed to the recent rise in rates.
3. The Silly Government. Fannie Mae and Freddie Mac, now run by the government, implemented higher fees beginning last week that make it more expensive for many to take out a Conforming loan. These fees will impact those making smaller down payments, those with credit scores under 740, and even those buying condo's. Yes, this is very counterproductive to the aims of the Federal Reserve to lower mortgage interest rates but they are doing it because they feel that this risk based pricing policy will make their Mortgage Backed Securities more valuable on the secondary market. The bottom line is that mortgage rates have pushed up a good .5% over the last week and are now over 5%. I believe the surge is temporary and that we will see rates drop below 5% again in the days / weeks ahead.
Hello to Down Payment Assistance?
Last week, there was a bill introduced in Congress that would reinstate seller-funded downpayment assistance (DPA). With the minimum FHA down payment rising to 3.5% effective Jan 1st, it would be great news to see the 100% option come back again.
Good-Bye to Interest-Only Loans!
Fannie Mae announced this past week that they will no longer purchase "interest-only" loans. About five years ago, interest-only loans came out of the blue and all of a sudden were available on most any program at little or no premium. They were the rage with it seems like every other borrower obtaining this feature. During 2008, the cost of obtaining an interest-only loan jumped to about 1 discount point which more or less eliminated this as a good option. And, now, the feature is being buried with many of the other programs and features that rose to prevalence over the last decade.
News from Last Week
Good news last week with inflation. The December Consumer Price Index (CPI) declined -0.7% from November, mostly due to lower energy prices. The core CPI rate, which excludes food and energy, rose a scant 1.8% from one year ago. The December Producer Price Index (PPI) report contained similar results, and inflation concerns are nonexistent right now. All of the other economic reports showed continued weakness in the economy. It is worth reporting that oil prices fell last week to $35 per barrel, down from $145 in July!
A Great Idea Our own Senator from GA, Johnny Isakson, has just introduced legislation to jump-start housing demand and to boost the economy by expanding the home buyer tax credit passed by Congress last year. The final version of the legislation that was signed into law last year only included a tax credit for first-time home buyers that must be repaid over a 15-year period. The legislation introduced by Isakson today would expand that tax credit to include all purchasers and would eliminate the current requirement that it be repaid. Repayment of the tax credit would only be required if the home is sold within three years. Hopefully, this bill gets passed because it sure seems like it would offer a pretty big incentive for many to buy! Rate Update Mortgage rates are sharply higher this week but still at super low levels not seen since the 1950's!
Have a great week and when you think of financing, please think of Fairfield! To unsubscribe, please notify me at jaw@fairfieldmortgage.com. The information contained herein is believed to be accurate, however no representation or warranties are written or implied. All Rights Reserved.
