The Weekly Rap! Friday Jan 25, 2013

The Dow is currently trading at 13,876 higher by 300 pts compared with last Friday.  The S&P 500 is also trading higher at 1,500.  Gold is trading at $1,658 an ounce, while oil futures at $95.85 a barrel.  Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.47/Gal.

Yields on 10-year Treasury notes, which move inversely to prices, are trading at 1.93%.  30-year Treasury Bond yields are trading at 3.11%.  The MBS (Mortgage Backed Security) FNMA 30-year fixed 3.0% coupon, containing 3.25-3.625% mortgages, pretty much the benchmark or how rate sheets are priced these days.  This security is currently at 103.56 continuing to test the bottom of the current range.  We could very well be in for a new lower trading range (higher rates).

Since October 4 We’ve been trading in a range of 104.00 to 105.53 hitting the low twice and the top twice.  Basically each percent change in the price of the security translates to the price (or points paid or credited) of the mortgage rate.  Think of anything above 100 as a credit.  The higher the number (price), the better the rate.

In economic news this week; The number of people who applied for new unemployment benefits fell again last week and remained at a five-year low, though it’s unclear whether the decline reflects improved hiring or dwindling layoffs.

Sales of existing homes fell 1% in December to an annual rate of 4.94 million, reported the National Association of Realtors.  Record low mortgage interest rates clearly are helping many home buyers, but we’re still having an issue with tight inventory.  Despite the slight decline in December, existing-home sales are up 12.8% from the prior year. The median existing-home price rose 11.5% from the prior year to $180,800. Inventories fell 8.5%, a current sales rate of a 4.4-month supply, the lowest supply ratio since 2005. For all of 2012, existing-home sales hit 4.65 million

I’m really getting tired of economites and especially the media stating that restrictive mortgage underwriting standards are limiting sales.  Borrowers simply have to prove that they can repay the loan.  Seems logical right?  Loans may require more documentation and time as they are more heavily scrutinized than a few years ago, but as long as they have income and credit we’re still making loans and in many cases with little money down.

Sales of new single-family homes fell 7.3% to a rate of 369,000 in December, while less volatile longer-term trends showed a strengthening market.  Despite December’s decline, sales rose 8.8% from the same period in the prior year, with high affordability and rising household formation supporting demand.  The rate of new-home sales remains far below a bubble peak of almost 1.4 million in 2005.

The likelihood of faster domestic economic growth is rising, said the Conference Board as it reported that its leading economic index rose 0.5% in December. Although this is a small gain it’s the strongest result since September.  Among the 10 indicators tracked by the Conference Board’s index, the largest positive contribution in December came from fewer claims for unemployment-insurance benefits. The largest negative contribution came from consumers’ expectations.

For additional information please visit my Stanford Mortgage website: http://bill.bartok.stanfordloans.com/agents/Blog
Sincerely,

Bill Bartok

Mortgage Advisor

NMLS 445991

Q & A: The Facts of Buying a Home.

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The real estate industry is always evolving and as our industry evolves questions arise. To help answer those questions I’ve put together a list of some of the common questions that I’ve come across.

Q. Why should I buy instead of rent?

A. A home is an investment. If you rent, you write a check and the money is gone. When you own a home you can deduct the cost of your mortgage loan interest from your federal income taxes and usually from your state taxes as well. Also, you can deduct your property taxes. Both of which will save you a lot of money. Additionally, the value of your home may go up over the years.

Q. How do I know if I’m ready to be a homeowner?

A. Ask yourself some questions, such as:

  • Do I have a steady source of income?
  • Have I been employed on a regular basis for the last 2-3 years?
  • Is my current income reliable?
  • Do I have a good record of paying my bills?
  • Do I have a few outstanding long-term debts, like car payments?
  • Do I have money saved for a down payment and reserves in case something comes up?
  • Do I have the ability to pay a mortgage every month, plus additional costs?

If you answered yes to those questions, then you are probably ready to buy your own home.

Q. Can I become a homebuyer even if I’ve had bad credit and don’t have much for a down payment?

A. You will want to contact a mortgage advisor to know what you may qualify for.  There are still many different loan programs that may fit your needs.

Q. How do I determine my housing needs?

A. Your home should fit the way you live. Make a list of your priorities; location, size, schools, your job, public transportation, etc.  Also consider things about the home itself. What kinds of amenities are you looking for?  Establish a set of minimum requirements and a “wish list.” Minimum requirements are things which the house must have for you to even consider it, where as a “wish list” covers items you would like to have but aren’t essential.

Q. What are some things I should consider when looking at communities?

A. Select communities allowing you to best live your daily life. Do you want access to shopping and public transportation? Is access to local facilities important to you? Would you prefer the peace and quiet of a rural community? When you find a place you like, talk to the people who live there. The more you know about the area the better. Most importantly, you want to feel comfortable in the neighborhood.

Q. How do I find out about local schools?

A. You can obtain information by contacting the city or county school boards or the local schools. Also, your real estate agent may have information about the schools in the area.

Q. Where do I look to find information about community resources?

A. Contact the local chamber of commerce or talk with your agent about welcome kits, maps and other information. Visiting the local library can be a great source for information.

Q. How do I find out how much homes are selling for in a particular area?

A. Contact your real estate agent, they can give you a ball park figure by showing you comparable listings.

Q. Old vs. new home, which has a better value?

A. Unfortunately, there isn’t a definitive answer to this question. Each home has its individual characteristics. Generally, older homes are located in more established areas; offers more ambiance and have lower property taxes. If you are interested in an older home you need to consider the maintenance and repairs of the home. New homes tend to use more modern architecture and systems. They are usually easier to maintain and may be more energy efficient.

Q. What should I look for when walking through a home?

A. Besides comparing the home to your minimum requirements and wish list, you should consider the following:

  • Is there enough room for both the present and future?
  • Are there enough bedrooms and bathrooms?
  • Is the house structurally sound?
  • Do the mechanical systems and appliances work?
  • Is the yard big enough?
  • Do you like the floor plan?
  • Will your furniture fit in the space?
  • Is there enough storage space?
  • Does anything need to be repaired or replaced?
  • Will the seller repair or replace the items?
  • Imagine the house in good weather and bad and in each season. Will you be happy with it year-round?

Carefully think about each house you see. Ask your real estate agent to point out the pros and the cons of each home from a professional standpoint.

Q. How many homes should I consider before choosing one?

A. Visit as many as you want. On average homebuyers see 15 houses before they choose one.

Q. How much money will I have to come up with to buy a home?

A. That depends on a number of factors, including the cost of the house and the type of mortgage you get. In general, you need to come up with enough money to cover three costs: earnest money – the deposit you make on the home when you submit your offer to prove to the seller you are serious about wanting to buy the house; the down payment, a percentage of the cost of the home you must pay when you go to settlement; and closing costs, the costs associated with processing the paperwork to buy a house.

Q. How do I know if I can get a loan?

A. A good place to start is to check out a mortgage calculator to see how much mortgage you could pay. If the amount you can afford is significantly less than the cost of the homes you are interested in then you may want to wait awhile longer. However, before you give up, check with your Mortgage Advisor or real estate agent as they can help you evaluate you loan potential. Another good idea is to get pre-qualified for a loan. This means you go to a lender and apply for a mortgage before you actually start looking for a home, that way you know exactly how much you can afford and helps to speed up the process once you find the home of your dreams.

Q. What other cost do I need to consider besides the mortgage payment?

A. You’ll have monthly utilities and if you’re not sure what they will cost on the home you are looking at purchasing, your agent can help get this information from the seller. You might also have homeowner association or condo association dues. You will definitely have property taxes. Also, you may have city or county taxes. These may be rolled into your mortgage payment and your broker will be able to help you anticipate these costs.

Q. What will my mortgage cover?

A. Most loans cover four things: principle, interest, homeowner’s insurance and property taxes.

Q. What do I need to take with me when I apply for a mortgage?

A. You should have the following:

  • Social security numbers for both you and your spouse if you are both apply for the loan
  • Copies of checking and savings account for the past two months
  • Evidence of any other assets like bonds or stocks
  • A recent paycheck stub covering 30 days detailing your earnings
  • Copies of your last two years’ income tax statements
  • The name and address of someone who can verify your employment

Q. How do I know which type of mortgage is best for me?

A.  As there are many types of mortgages, the more you know the better. Talk with your Mortgage Advisor and/or real estate broker about the various kinds of loans.

Q. When I find the home I want, how much do I offer?

A. Your real estate broker will help to guide you through this process. However, there are several things to consider:

  • Is the asking price in line with similar homes in the area?
  • Is the home in good condition or will you need to spend a substantial amount of money making it the way you want it?
  • How long has the home been on the market?
  • How much mortgage will be required?
  • How much do you really want the home?

Q. What do I do if my offer is rejected?

A. You can begin negotiations with the help of your broker. Often, negotiations on price go back and forth several times before a deal is made. Just remember not to get so caught up in the process you lose sight of what you want and what you can afford.

Q. What will happen at closing?

A. You’ll sit at a table with your broker and a closing agent. The closing agent will have a stack of papers for both you and the seller (usually at another time) to sign. You’ll be given a basic explanation of each paper, however you may want to take the time to read each one or consult your agent to make sure you know exactly what you are signing. After all, this is a large amount of money you’re committing to paying for a lot of years! Ask questions if you’re confused about anything!

Q. What is earnest money and how much should I set aside?

A. Earnest money is money put down to demonstrate your seriousness about buying the home. It is usually between 1-5% of the purchase price. If the offer is accepted, the earnest money becomes part of your down payment or closing costs. If the offer is rejected, your money is returned to you. If you back out of the deal, you may forfeit the entire amount.

Q. What are home warranties?

A. Home warranties offer you protection for a specific period of time against any potentially costly problems (e.g. unexpected repairs on appliances or home systems).

Q. What types of loans are available and what are the advantages of each?

A.  For a more in-depth explanation you can visit my company website:  bill.bartok.stanfordloans.com  and click on Products, but here are some simple explanations.

Fixed Rate Mortgages: Payments remain the same for the life of the loan Types

  • 15 year
  • 30 year

Adjust able Rate Mortgages (ARMS): Payments increase or decrease on a regular schedule with changes in the interest rates; increases are subjects to limits

Advantages

  • Generally offer lower interest rates
  • Monthly payment can be lower

Q. When do ARMS make sense?

A. If you are confident your income will increase steadily over the years or you anticipate a move in the near future and aren’t concerned about potential increases in interest rates.

Q. What are the advantages of a 15 and 30 year loan?

A. 15 year:

  • Predictable
  • Loan is usually made at a lower interest rate
  • Equity is built faster because early payments pay more principle
  • Significant savings over 30 year because you have a lower rate and pay over less time.
  • Housing costs remain unaffected by interest changes and inflation

30 year:

  • Predictable
  • In the first 23 years of the loan, more interest is paid off than principal, meaning larger tax deductions
  • As inflation and costs of living increase, mortgage payments become a smaller part of overall expenses.
  • Housing costs remain unaffected by interest changes and inflation

Q. Can I pay my loan off ahead of schedule?

A. Yes. By sending in extra money each month or making an extra payment at the end of the year, you can accelerate the process of paying off the loan. When you send extra money, you will want to let the lender know the extra payment is to be applied to the principal. Most lenders allow loan prepayment, you may have to pay a prepayment penalty to do so, ask your lender for details.

Q. What can I do if interest rates decrease and I have a fixed rate loan?

A. If interest rates drop significantly, you’ll want to investigate refinancing. Most experts agree that if you plan to be in your house for the next 18 months and you can get a rate 1% less than your current one, refinancing is smart. Refinancing, however, may involve paying many of the same fees paid at the original closing, plus origination and application fees.

Q. How do I get a credit report?

A. There are three major credit reporting agencies: Equifax, Experian and Trans Union. It’s a good idea to get copies from all three companies to make sure there are no mistakes.

Experian – 888.397.3742

Equifax – 800.685.1111

Trans Union – 800.916.8800

Q. What if I find a mistake on my credit history?

A. Simple mistakes are easily corrected by writing to the reporting company and point out the error. You will also need to send proof of the mistake. You can request to have your own comments added to explain problems. For example, if you made a late payment due to illness, explain that for the record. Lenders are usually understanding about legitimate problems.

Q. What is RESPA?

A. RESPA stands for Real Estate Settlement Procedures Act. It requires lender to disclose information to potential customers throughout the mortgage process. It protects borrowers from abuses by lending institutions.

Q. What is a good faith estimate?

A. It is an estimate that lists all fees paid before closing, all closing costs, and any escrow fess. The lender must supply it within three days of your application so you can make accurate judgments when shopping for a loan.

Q. What is my responsibility during the lending process?

A.

  • Be sure to read and understand everything before you sign.
  • Refuse to sign any blank documents
  • Do not buy property for someone else.
  • Do not overstate your income.
  • Do not overstate how long you’ve been employed.
  • Do not overstate your assets.
  • Accurately report your debts.
  • Do not change your income tax returns for any reason. Tell the truth about gifts. Do not fake co-borrowers on your loan application
  • Be truthful about your credit problems.
  • Be honest about your intention to occupy the house
  • Do no provide any false supporting documents.

Q. What is the FHA?

A. The Federal Housing Administration (FHA) was established in 1934 to advance opportunities for Americans to own homes. It is now an agency within HUD (Department of Housing and Urban Development). It provides private lenders with mortgage insurance and the FHA gives them the security they need to lend to first-time buyers who might not be able to qualify for conventional loans.

Q. Who can qualify for FHA Loans?

A. Anyone who meets the credit requirements, can afford mortgage payments and cash investment, and who plans to use the mortgaged property as a primary residence.

Q. What is mortgage insurance?

A. Mortgage insurance is a policy which protects lenders against some or most of the losses which result from defaults on home mortgages. It is required for any borrower making a down payment of less than 20%.

Q. What is PMI?

A. Private Mortgage Insurance or Insurer (PMI) are privately-owned companies who provide mortgage insurance. PMI’s usually have more strict qualifying ratios and larger down payment requirements then the FHA. The premiums, however, are often lower and they insure loans exceeding the FHA limit.

Q. What is a 203(b) loan?

A. This is the most commonly used FHA program and offers low down payments, flexible qualifying guidelines, limited lender fees and a maximum loan amount.

Q. What is a 203(k) loan?

A. This is a loan enabling homebuyers to finance both the purchase and the rehabilitation of the home through a single mortgage. A portion of the loan is used to pay off the sellers existing mortgage and the remainder is then placed in an escrow account and released as rehabilitation on the property is completed.

Q. What is an Energy Efficient Mortgage (EEM)?

A. An Energy Efficient Mortgage allows buyer to save future money on utility bills by financing the cost of adding energy efficient features to the home.

The Weekly Rap! Friday Jan 11, 2013

The Dow is currently trading at 13,476 higher by 64 pts compared with last Friday.  The S&P 500 is also trading lower at 1,469.  Gold is trading at $1,656 an ounce, while oil futures at $93.28 a barrel.  Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.35/Gal.

Yields on 10-year Treasury notes, which move inversely to prices, are trading at 1.90%.  30-year Treasury Bond yields are trading at 3.08%.  The MBS (Mortgage Backed Security) FNMA 30-year fixed 3.0% coupon, containing 3.25-3.625% mortgages, pretty much the benchmark or how rate sheets are priced these days, is about 75% of the over-all production.  This security is currently at 104.06 flirting with the bottom of the current range.

Since October 4 We’ve been trading in a range of 104.13 to 105.53 hitting the low twice and the top twice.  Basically each percent change in the price of the security translates to the price (or points paid or credited) of the mortgage rate.  Think of anything above 100 as a credit.  The higher the number (price), the better the rate.

In economic news this week; Mortgage rates ended the week near their highest level in eight months (although still very low by historical standards) as long-term worries about steps Washington still needs to take, and confidence in the Fed’s buying is at the moment preventing a continuation of last week’s selloff.  The markets (especially bonds) trade mostly on rumors, and the rumor floating among traders is the Fed may slow or stop buying treasuries and Mortgages by the end of the year.

Consumers took on plenty of debt in November for auto purchases and student loans, but they didn’t use their credit cards very much in the first month of the holiday season.  Consumer credit rose by $16.1 billion in November, marking the second straight sizable gain, according to the Fed.  Consumers usually add debt when they feel more confident about the health of the economy and their ability to pay off their loans.

New applications for unemployment benefits rose slightly in the first week of the new year, but the level of claims is basically unchanged over the past few months and is consistent with a modestly improving labor market.  Job openings were about the same at  3.68 million in November as in October. Compared with the prior year, job openings rose 12% with private openings increasing 14% to 3.32 million, and government openings increasing by 2% to 355,000. There were more than 4 million jobs open when the recession began in December 2007. With about 12.04 million unemployed people in November, there were about 3.3 potential job seekers for each opening.  Not exactly something to shout about.

The cobbled-up Fiscal Cliff deal that Congress passed a week ago extends the ability to deduct the cost of mortgage insurance on a qualified personal residence. The deduction is phased-out ratably by 10% for each $1,000 by which the taxpayer’s AGI exceeds $100,000. Thus, the deduction is unavailable for a taxpayer with an AGI in excess of $110,000. The bill extends this provision for two additional years, through 2013.

In many cases a conventional loan with mortgage insurance is a better choice over an FHA loan (if the borrowers have a high enough credit score) as the insurance rate is much lower and can be more easily removed.  The conventional loan also doesn’t have a 1.75% upfront insurance premium.  The fact that the insurance is deductable is just another positive.

The Consumer Financial Protection Bureau or CFPB  issued new mortgage rules yesterday designed to prevent a return to lending practices that cratered the housing market and brought the financial system to its knees during the past decade.  The rules, which go into effect next January, were designed to enhance consumer safety without tightening credit standards beyond current levels.

If you know anyone who can benefit from my services, please call me.  My greatest goal is to see clients and friends happy.  I guess that’s why I love providing mortgage financing.  It’s an immediate gratification when you can help someone purchase a home, or lower their payment on their existing home.

Bill Bartok

Mortgage Advisor

NMLS 445991

“CFPB sets new rules that reshape the U.S. mortgage industry”

We have gone through a wild ride in the roller coaster of the mortgage industry; from truly qualifying for a loan, to being handed one for walking through the door.  I say Wall Street is to blame but that’s another story.  Following the financial crisis over the last few years some much needed regulation was needed.  The Dodd-Frank financial reform Act signed into federal law by President Obama on July 21, 2010 and was meant to be such reform.

The federal Consumer Financial Protection Bureau, or CFPB took over consumer protection oversight from the Fed in 2011 after lawmakers criticized the Fed for not doing enough to regulate the subprime mortgage market.  Dodd-Frank tasked the CFPB with providing lenders with easy-to-identify criteria for a “qualified” mortgage that would satisfy the new ability-to-repay mandate.   Until now though we had no clear definition of what a “qualified” mortgage consists of.

The CFPB  has rolled out new rules that reshape the U.S. mortgage industry, and are designed to ensure that lenders don’t return to the lax standards that fueled the housing market’s boom and bust.

The rules implement what seems to be a logical proposition—that lenders consider borrowers’ ability to repay the loans they are given.  But given the complexity of the issue, it took months of work for the CFPB to arrive at a definition of a “qualified mortgage” that would meet standards spelled out in the Dodd-Frank financial law of 2010.

The CFPB decided that lenders could satisfy this requirement in two ways: by making loans where the borrower is spending up to 43% of their income on total debt payments including the mortgage as well as credit cards, car loans etc, or by satisfying the  computerized lending standards of Fannie Mae, Freddie Mac and the Federal Housing Administration which I’m sure will be updated to include the newly established debt to income ratio.

Overall, the rule is a big change from last spring, when there were widespread fears in the real estate world that the rule would seriously impact the availability of loans. The rule is far less onerous than what banks expected just six months ago.  At the core of the rule lies a common-sense business principle: If a borrower can’t afford to pay back the loan in full, the lender has no business making that loan in the first place.

I think the media is to blame for consistently saying that lending is too tight and mortgage loans are hard to get.  Truly, mortgage loans are not hard to get if you qualify to repay them.  I will admit that loans today are more difficult to document with lenders requiring a paper trail on almost everything, but with everything online I think it’s actually easier to find a document today rather than a few years ago when you had to find it in a box somewhere then make copies.

With the Government backing about 90% of all loans today in one way or another through USDA, VA, FHA, and Fannie Mae and Freddie Mac there had to be a simple solution.  It’s either this of the Banks can go back to lending their own money, which we all know isn’t going to happen any time soon.

Bill Bartok

The Weekly Rap! Friday Jan 4, 2013

The Dow is currently trading at 13,412 higher by 382 pts compared with last Friday.  The S&P 500 is also trading lower at 1,463.  Gold is trading at $1,640 an ounce, while oil futures at $92.40 a barrel.  Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.35/Gal.

Yields on 10-year Treasury notes, which move inversely to prices, are trading at 1.93%.  30-year Treasury Bond yields are trading at 3.13%.  The MBS (Mortgage Backed Security) FNMA 30-year fixed 3.0% coupon, containing 3.25-3.625% mortgages, pretty much the benchmark or how rate sheets are priced these days, is about 75% of the over-all production.  This security is currently at 103.83 having broken out of its current range.

Since October 4 We’ve been trading in a range of 104.13 to 105.53 hitting the low twice and the top twice.  Basically each percent change in the price of the security translates to the price (or points paid or credited) of the mortgage rate.  Think of anything above 100 as a credit.  The higher the number (price), the better the rate.

In economic news this week; The Mortgage Forgiveness Debt Relief Act of 2007, signed into law by President Bush, which enables struggling homeowners to avoid paying taxes on forgiven mortgage debt from short sales or loan modifications was extended through Congress’s fiscal-cliff deal this week. The tax break was scheduled to expire in the new year, but has been extended through 2013.

Manufacturing expanded in December after contracting slightly in November, according to the Institute for Supply Management (ISM) index. which rose to 50.7% from 49.5% in November. Readings over 50 indicate more manufacturers are expanding instead of contracting.  The ISM’s new-orders gauge was flat at 50.3% and the production index came in at 52.6%. The employment gauge, however, climbed 4.3 points to 52.7% to boost the overall ISM index. That’s the highest employment reading since September.  At least we’re moving in a positive direction.

The Fed Gods released the “minutes” from their last meeting and for the first time since the financial crisis started five years ago, may have made its first signal that its extraordinary loose monetary policy will start to get tougher.  The minutes show, the Gods are starting to say, enough is enough. Of the crowd that supported bond buys, a few said they should continue until the end of the year, and several said it could stop, or slow, well before then.

So does the Fed expect a big upturn in the economy, so that there just won’t be a need for more juice in the form of bond purchases?  I don’t think so, the alternative explanation is that the Fed just doesn’t think there’s much benefit to bond buys for the broader economy. The minutes say the program to buy MBS has been “effective” but also that the benefits are “uncertain” and that risks are growing as the balance sheet rises.  Keep in mind that everything the Fed has been buying (taking the security’s out of the market and thus causing its price to rise and rate to fall) will eventually have to be sold back into the market.  Not something I for one, am looking forward too.

To put it differently: the Fed thinks the economy isn’t that great and there’s very little inflation to worry about, but its primary program to improve the economy doesn’t do very much.  It’s a clear admission the Fed is running out of gun powder.  And that’s quite a shot it has fired to the markets. This is what is majorly affecting bond prices and causing rates to go higher. Markets trade more on rumors than on facts.

155,000 jobs were created last month and the unemployment rate was unchanged at 7.8%, suggesting the budget battle in Washington over the fiscal cliff didn’t do much damage to the economy.  The pace of hiring in December almost perfectly matched the level of job growth over the past two years. The U.S. has added an average of 153,000 jobs each month in both 2011 and 2012.

If you know anyone who can benefit from my services, please call me.  My greatest goal is to see clients and friends happy.  I guess that’s why I love providing mortgage financing.  It’s an immediate gratification when you can help someone purchase a home, or lower their payment on their existing home.

Sincerely,

Bill Bartok

Mortgage Advisor

NMLS # 445991