Tracking Mortgage Bonds
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Thursday, March 29, 2012
Saturday, March 17, 2012
This Week from Kiplinger.com
Always good insight.....for more go to www.kiplinger.com.
For the week ending 3/16/2012:
For the week ending 3/16/2012:
On the overall economy-
Expect retail sales to grow by 6% this year, building on solid job creation and stronger-than-expected store sales in January and February. That’s a bit slower than last year, but in keeping with the slowly expanding economy. Gasoline prices are still a bit of a wild card, of course, but a strong start to the year, thanks in part to the unseasonably mild weather, is encouraging to retailers. With firms hiring more workers these days, they’ll soon need more offices to put them in. Strong employment gains in the service sector are reviving demand for office space, though the supply will remain at high levels until next year. For now, tenants still have good bargaining power, but the window is closing. The national vacancy rate, now 17.3%, will decline to about 16% by year-end. Office rents are firming fastest in Midtown Manhattan and San Francisco. Washington, D.C., is strong, too, but the city has added 2.9 million square feet of new space in the past 12 months, which softened rates a bit late last year. Among other cities on the rebound: Seattle; Raleigh, N.C.; Houston, Dallas and Austin, Texas; Denver; Salt Lake City. All have a strong tech or energy presence.
So why aren’t Federal Reserve officials more worried about inflation? Rising gasoline prices fueled a 0.4% increase in February’s Consumer Price Index. And they’ll go higher still, with the national average rising well above $4 a gallon during the peak summer driving months, before decelerating after Labor Day. Bernanke & Co. see the pace of gasoline price hikes as relatively gradual…
at about $3.80 a gallon now, the price is up 10% in the past month. One year ago however, prices soared 50% in the first quarter, followed by a 31% gain in the second. We know…small consolation when you’re standing at the gas pump.
Federal spending cuts will leave some gaping holes in state budgets… As much as $24 billion in 2013 and somewhat north of $500 billion by 2020 as grants dry up in the push to cut the federal deficit. States must balance budgets every year, unlike Washington, so governors won’t be able to postpone the pain. Look for widespread cuts…grants for sewers and clean water, federal funding for airport upgrades plus home heating help and other aid for folks with low incomes. Grants to help community colleges, too, along with programs for first responders. Many states have limited options. They’ve already raised taxes and fees, reduced the public workforce and made the easy cuts to deal with budget shortfalls.
Calif. will see more businesses relocate to other states this year, chased out by high taxes, strict regulations and a stubbornly poor state economy. As many as 300 firms may leave on top of last year’s approximately 250 departures. Texas, Utah, Nev. and Ariz. are prime beneficiaries of the moves. Texas, for example, charges neither a personal nor a corporate income tax, while Calif.’s personal income tax is among the highest in the U.S. Its corporate tax…eighth highest. And though Calif. Gov. Jerry Brown gets credit for vetoing new regs, business owners say that onerous environmental and workplace rules keep growing. At 10.9%, the state’s jobless rate is 2.6 points above the U.S. average, and that gap will continue. Departing firms spell up to 100,000 job losses this year.
On Housing:
So why aren’t Federal Reserve officials more worried about inflation? Rising gasoline prices fueled a 0.4% increase in February’s Consumer Price Index. And they’ll go higher still, with the national average rising well above $4 a gallon during the peak summer driving months, before decelerating after Labor Day. Bernanke & Co. see the pace of gasoline price hikes as relatively gradual…
at about $3.80 a gallon now, the price is up 10% in the past month. One year ago however, prices soared 50% in the first quarter, followed by a 31% gain in the second. We know…small consolation when you’re standing at the gas pump.
Federal spending cuts will leave some gaping holes in state budgets… As much as $24 billion in 2013 and somewhat north of $500 billion by 2020 as grants dry up in the push to cut the federal deficit. States must balance budgets every year, unlike Washington, so governors won’t be able to postpone the pain. Look for widespread cuts…grants for sewers and clean water, federal funding for airport upgrades plus home heating help and other aid for folks with low incomes. Grants to help community colleges, too, along with programs for first responders. Many states have limited options. They’ve already raised taxes and fees, reduced the public workforce and made the easy cuts to deal with budget shortfalls.
Calif. will see more businesses relocate to other states this year, chased out by high taxes, strict regulations and a stubbornly poor state economy. As many as 300 firms may leave on top of last year’s approximately 250 departures. Texas, Utah, Nev. and Ariz. are prime beneficiaries of the moves. Texas, for example, charges neither a personal nor a corporate income tax, while Calif.’s personal income tax is among the highest in the U.S. Its corporate tax…eighth highest. And though Calif. Gov. Jerry Brown gets credit for vetoing new regs, business owners say that onerous environmental and workplace rules keep growing. At 10.9%, the state’s jobless rate is 2.6 points above the U.S. average, and that gap will continue. Departing firms spell up to 100,000 job losses this year.
On Housing:
Home prices are on the rise in most states. In 38 states, prices are above early-2011 lows. In 30 of them…more than two quarters of growth. But the national average hasn’t hit bottom. Over the next few months, it’ll drop another 2% or so before finally starting to head up later this year.
Five states are a drag on the market: Ariz., Calif., Fla., Mich. and Nev., a handful that suffered the greatest declines from peak prices and are home to 46% of all foreclosures in the country.
What’s the key to a speedier recovery? How a state handles foreclosures. In 24 states, judicial reviews clog the pipeline. Those where a judge must sign off on the deals have 2.6 times as many homes being foreclosed on…many blighted and vacant…depressing the value of neighboring real estate. In states with no reviews, three times as many foreclosure sales occurred in Jan.
Where turnaround times are shorter…Home prices are starting to tick higher. In Del., where the time between delinquency and foreclosure averages 106 days, home prices rose by 0.6% in the fourth quarter of last year. The pipeline is even shorter in Texas…a mere 90 days. Prices there climbed 1.2% in the fourth quarter of 2011. In N.Y., however, where judicial reviews stretch the typical foreclosure to a whopping 1,019 days, prices fell 1% that quarter. Even where the overhang of foreclosures is huge, there’s a big difference. Compare what’s happening in Fla. and Ariz. It takes an average of 806 days to complete foreclosure in the Sunshine State, which requires a judge’s approval.
In the Grand Canyon State, which doesn’t, it takes less than 200 days. As a result, Ariz.’s market is turning the corner. Phoenix home prices, for example, gained 2.7% in the fourth quarter of 2011, after plunging a staggering 55% from the 2006 peak. In Fla., where prices plummeted by a similar percentage, the trend is still down.
Fla. is trying to cut the damaging delays with legislation to let lien holders request an expedited process. But it appears the move will be put off until next year. Other states are headed in the opposite direction, imposing requirements for mediation between homeowners and lenders, adding more months to delays.
Nationally, there’s some movement to help clear excess inventory. Lenders’ recent agreement with state attorneys general will provide relief for about 500,000 homeowners, keeping many of them from going into foreclosure. And a pilot program at Fannie Mae to sell off foreclosed homes in bulk
will help. Look for Fannie to expand it and for other mortgage holders to follow suit. Still, the number of foreclosures nationwide will continue to climb this year.
Sunday, March 11, 2012
Monday, March 5, 2012
Planning on a FHA loan to purchase?
FHA loans have been an effective way for buyers with little down payment to take advantage of the opportunity in the housing market. With low fixed rates and depressed home prices, first time buyers have who don't have a house to sell have really been in position to maximize long term gains to thier overall net worth.
The FHA tool isn't going away but it is getting ready to get more expensive. On April 1 of this year, the FHA funding fee, also known as the MIP, is increasing from the current factor of 1.0% of the loan amount to a factor of 1.75% of the loan amount. This will increase a buyers loan by .75% since the MIP is rolled into the amount financed. Also increasing on April 1 is the monthly MI. Currently at a factor of 1.15%, it will increase by 10bp to 1.25%.
To flesh this and to show the cost increase for a buyer that will result, we need to look at things as they are now. (Taxes and insurance are a constant so I have left them out of the example.):
On a $100,000 purchase price with 3.5% down payment on FHA financing, the loan amount would be $96,500 and MIP would be $965. That would be a total loan amount of $97,465. Currently the monthly MI is 1.15% factor, so $92.48/mo in this example. Using a 4% interest rate for our example this would mean a principal and interest payment of $465.31/mo + the monthly mortgage insurance of $92.48 for a total of $557.79.
After April 1, this exact same loan looks like this:
$100,000 purchase price, 3.5% down payment gives us a base loan amount of $96,500. New MIP at 1.75% is $1,688.75 for a total loan amount of $98,189. Same rate of 4% on a 30 yr fixed FHA gives us a monthly payment of $468.77. Monthly MI at a factor now of 1.25% is $100.52/mo. So principal and interest + monthly MI gives us a total payment of $569.29/mo.
$11.50/mo difference in payment. Doesn't sound like a lot but that's just a $100k purchase price home. The FHA option has been attractive for anyone buying homes as much as $275,000 (maxing out the FHA loan limit here in Columbia.) So lets look at the same example on a $250k home.
Currently: $250,000 purchase price After 4/1/12: $250,000
$241,250 base loan $241,250
$2,412.50 up front mip $4,221.89
$243,662.50 total loan amount $245,471.89
$1,163.28/mo principal and interest $1,171.92/mo
$231.20/mo mortgage insurance $251.20/mo
$1,394.48/mo payment (w/out tax/insurance) $1,423.12/mo
$28.64/mo higher payment over just 5 years is almost $1800 out of pocket. Plus you would owe more against the home because the initial loan amount was $1808 higher. Since most first time buyers will be potential move up buyers in 5 years, these two factors alone can increase costs by about $3,700 over those first 5 years.
Does this mean don't buy? Not at all. Does this mean don't use FHA? No, not at all. What it means is that it is yet again, that much more important that you are using an actual mortgage planner and not an application taker. This has been the focus of so much of what I have been putting out there over the last year+ and each little "tweak of the market" or change in guides only highlights this importance that much more. It means that a slightly more in depth look is going to be required to make sure that the financing you have chosen is the financing that best fits your plans, and best fits your goals, and not just because it was the easiest box for a loan officer to fit you in.
You are a unique individual with your own set of needs, goals, objectives, and that requires just a little more sophisticated approach than "low down payment = FHA....next..."
Set up an appointment with me via email or give me a call, we can figure out what does and doesn't make sense and this is just another reason why it's important that our conversation takes place before we start looking for a home.
The FHA tool isn't going away but it is getting ready to get more expensive. On April 1 of this year, the FHA funding fee, also known as the MIP, is increasing from the current factor of 1.0% of the loan amount to a factor of 1.75% of the loan amount. This will increase a buyers loan by .75% since the MIP is rolled into the amount financed. Also increasing on April 1 is the monthly MI. Currently at a factor of 1.15%, it will increase by 10bp to 1.25%.
To flesh this and to show the cost increase for a buyer that will result, we need to look at things as they are now. (Taxes and insurance are a constant so I have left them out of the example.):
On a $100,000 purchase price with 3.5% down payment on FHA financing, the loan amount would be $96,500 and MIP would be $965. That would be a total loan amount of $97,465. Currently the monthly MI is 1.15% factor, so $92.48/mo in this example. Using a 4% interest rate for our example this would mean a principal and interest payment of $465.31/mo + the monthly mortgage insurance of $92.48 for a total of $557.79.
After April 1, this exact same loan looks like this:
$100,000 purchase price, 3.5% down payment gives us a base loan amount of $96,500. New MIP at 1.75% is $1,688.75 for a total loan amount of $98,189. Same rate of 4% on a 30 yr fixed FHA gives us a monthly payment of $468.77. Monthly MI at a factor now of 1.25% is $100.52/mo. So principal and interest + monthly MI gives us a total payment of $569.29/mo.
$11.50/mo difference in payment. Doesn't sound like a lot but that's just a $100k purchase price home. The FHA option has been attractive for anyone buying homes as much as $275,000 (maxing out the FHA loan limit here in Columbia.) So lets look at the same example on a $250k home.
Currently: $250,000 purchase price After 4/1/12: $250,000
$241,250 base loan $241,250
$2,412.50 up front mip $4,221.89
$243,662.50 total loan amount $245,471.89
$1,163.28/mo principal and interest $1,171.92/mo
$231.20/mo mortgage insurance $251.20/mo
$1,394.48/mo payment (w/out tax/insurance) $1,423.12/mo
$28.64/mo higher payment over just 5 years is almost $1800 out of pocket. Plus you would owe more against the home because the initial loan amount was $1808 higher. Since most first time buyers will be potential move up buyers in 5 years, these two factors alone can increase costs by about $3,700 over those first 5 years.
Does this mean don't buy? Not at all. Does this mean don't use FHA? No, not at all. What it means is that it is yet again, that much more important that you are using an actual mortgage planner and not an application taker. This has been the focus of so much of what I have been putting out there over the last year+ and each little "tweak of the market" or change in guides only highlights this importance that much more. It means that a slightly more in depth look is going to be required to make sure that the financing you have chosen is the financing that best fits your plans, and best fits your goals, and not just because it was the easiest box for a loan officer to fit you in.
You are a unique individual with your own set of needs, goals, objectives, and that requires just a little more sophisticated approach than "low down payment = FHA....next..."
Set up an appointment with me via email or give me a call, we can figure out what does and doesn't make sense and this is just another reason why it's important that our conversation takes place before we start looking for a home.
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