What is Happening in the Mortgage Market

Cash Strapped Buyers Could Get Shut Out

If you have buyers in need of 100% financing, take notice! One widely popular tool for funding is about to run out of money. Buyers that need a no down payment loan guaranteed by the USDA are running out of time to get their deal done. This program is a favorite among first time home buyers.

USDA Rural Home Loans have been a phenomenal tool for helping cash strapped buyers get into homes for no down payment. Unlike many other loan programs though, the amount of funds available to fund these loans are set and capped at the beginning of the fiscal year.

Notice was delivered from Washington on March 9 that the funds are nearly exhausted, with expectations that they will run out in late April.

Unlike years past when similar notifications have been delivered, the USDA will not be issuing conditional commitments for buyers as the program awaits new appropriations from Washington. The USDA states they are "not certain when additional funding will be available."

What does this mean for your buyers?

If your buyers need 100% financing and are not eligible for a VA loan, they have to act quickly or they will have to seek other options. Combined with tightening from HUD on FHA loans in April and potentially later this summer, cash strapped buyers may be shut out if they miss this opportunity.  To take advantage of the First Time Buyer Tax Credit and the Step-Up Buyer Credit contracts must be signed by April 30th, 2010.

If you have any questions, call me and let's discuss them.

Sincerely,

Richard Woodward
Envoy Mortgage

Phone: 972-661-5136 or Toll Free:  866-430-7767
www.Envoy-Mtg.com

The great author and speaker Og Mandino once said, "I will act now. I will act now. I will act now."

This is great advice for prospective homebuyers over the next 45 days, as two key government programs that have kept home ownership more affordable than ever wind down to their completion.

First, the Federal Reserve's Mortgage Backed Securities (MBS) purchase program will come to an end on March 31, just two weeks away! Without this program home loan rates could have been at least 1.00% higher...and potentially even higher...over the last year. Throughout 2009, the Federal Reserve was the primary buyer for MBS, purchasing as much as 80% of the supply in a given month. When this program ends, a lack of willing buyers will likely cause MBS prices to drop and rates to rise as a result.

The second shot will come on April 30th, which is the deadline for purchasers to get under contract to qualify for the Home Buyer Tax Credit program, which has been providing a tax credit of up to $8,000 to first time homebuyers and up to $6,500 to repeat purchasers.

Just How Much Will Waiting Cost?
While no one knows for certain what the future holds, two things appear clear. Home loan rates will likely be higher in the future, and free money from the government will be gone. These deadlines will affect both affordability to purchase and the opportunity to refi.

In a recent Wall Street Journal article, it was estimated that 37% of all borrowers with a 30-year fixed rate have interest rates of 6% or higher. The article also quotes Credit Suisse that more than half could lower their rate by nearly 0.75%.

For prospective homebuyers, any increase in interest rates erodes your purchasing power. In other words, a 1% increase in rate represents an approximate decline in purchasing power by 10%. For example, if rates increase by 1%, people who qualify for a $200,000 purchase price today may only qualify for a purchase price of $180,000 afterwards.

If you or anyone you know is looking to purchase or refinance a home, waiting could be costly! Act now...so you can save later

Richard Woodward
Banker / Senior Manager
Envoy Mortgage
972-661-5136
RWoodward@Envoymtg.com

Important Deadlines on the Horizon

Two years ago, the Washington Post reported that home loan rates shot up to nearly 7% from 6% in less than a week. The volatility demonstrated that week resulted from turmoil in the financial markets and a lack of buyers for mortgage backed securities (MBS).

That volatility continued through November 2008 when the Federal Reserve announced a program designed to lower rates and provide stability to housing. That program has been incredibly successful, driving rates to the lowest levels of all time. However, as this program will end March 31st, people want to know: Where are rates going now?

Looking for Clarity
This month YOU Magazine turns to Barry Habib, Chairman of Mortgage Success Source, for his viewpoint. Mr. Habib has been very accurate in his assessments of both the financial markets and the direction of mortgage rates, providing education and market information to 30,000 home loan professionals across the country.

Mortgage rates are tied to the price of MBS and like other fixed income vehicles similar to U.S. treasuries, the higher the demand and price, the lower the corresponding rate or yield will be. Therein lies the issue. Throughout 2009, the Federal Reserve was the primary buyer for MBS, purchasing as much as 80% or more of all MBS issued in any given month.

The concern is that when the Fed concludes the program, who will step in to pick up the supply of mortgages for the rest of 2010 and beyond. If investor interest is scarce, look for rates to rise. Also, filling the hole with avid buyers is not the only potential headwind facing MBS and other fixed income investments.

Think About It this Way
Throughout the boom years of real estate, homeowners could just about set any price they wanted when the time came to sell their property. In many cases, simply putting a sign in the front yard would bring multiple offers, driving the price of the home up.

Little Consensus Among Experts
Up until now, the predominant opinion of economists and financial pundits has been that interest rates will rise. The only disagreement has been to what degree and how quickly rates will do so.

On one extreme, David Greenlaw, chief fixed-income economist of Morgan Stanley, expects that rates could climb by more than two points before year end. On the other hand, CNBC has recently paraded people before the camera with the opinion that rates may remain closely unchanged.

Mr. Habib holds fast to his original assertion though that home loan rates are set to rise. "Interest rates for a 30 Year Fixed Rate could rise to 6% by year end and consumers need to be prepared for that." Habib goes on to state that MBS are similar to other fixed income investments that are subject to inflation risk. Inflation erodes the value of bonds and forces rates to rise.

Inflation risk exists not only from the possibility of an improving economy but also increased debt coming from the U.S. Treasury to support stimulus packages and the budget.

One More Thing to Consider
The purchasing of MBS by the Fed does not occur immediately after a loan closes. Several weeks must pass after the consumers close on their mortgages before they can actually be delivered, packaged and sold to investors like the Fed.

Because of this, many people anticipate that any potential move higher in rates may not occur until April 1st, after the conclusion of the Fed program.

Habib states that this is not the case for many reasons. Rates have already started to move higher over the past few months, and will likely increase a bit more after the Fed stops buying - not just because the largest buyer is absent, but because speculators will be less confident and unload their positions ahead of the deadline. This gradual increase combined with what we've already seen will be meaningful, and as the year progresses, rates will oscillate higher still. It's like walking up a long staircase...you don't realize how high up you are, until you turn around and look down.

What Now?
If you are a candidate for purchasing a new home or refinancing your mortgage, call your mortgage professional today to lock in your best opportunity for a low rate. In addition to the potential for rates to rise, there are also other programs in place...that are scheduled to end in June...to assist people who otherwise could not refinance due to loan to value.

For prospective home buyers, any increase in interest rates erodes your purchasing power. In other words, a 1% increase in rate represents an approximate decline in purchasing power by 10%. For example, if rates increase by 1%, people who qualify for a $200,000 purchase price today may only qualify for a purchase price of $180,000 afterwards.

For those who qualify for the tax credit for first-time and repeat home buyers, another deadline also exists. The last day to obtain a contract to qualify is April 30th and closing must occur by the end of June. Miss either deadline and it could cost you up to $6,500 or $8,000, depending on eligibility.

No matter which way you look at it, waiting could cost you. Mortgage rates are still near the best levels we have ever seen. If you are in the position to move forward with obtaining a mortgage, the best decision would be to act sooner rather than later.

Richard Woodward
Banker / Senior Branch Manager
When Trusted Advice Counts

Office: (972) 661-5136 17311 Dallas Parkway Suite 173 Dallas, TX 75248

Visit Us Online - www.Envoy-Mtg.com

  How to buy a Fixer-Upper  

FHA 203(k) For Purchases

Real estate agents and home buyers are scrambling to adjust to today’s real estate market which is filled with foreclosed homes that have suffered from disrepair and neglect. Many banks that own these foreclosed properties are unwilling to repair them. As a result, many foreclosed properties do not qualify for traditional loan programs.

FHA’s 203(k) loan program provides the funds necessary for both the purchase AND the renovation of a home.

Loan Program Advantages:

• Streamline Program, Limited Repairs Up to $35,000
• Low Down Payment
• Credit Scores as Low as 620
• Competitive Fixed Rate Terms
• 1-4 Owner Occupied Homes - Maximum Loans up to $281,000

One of the biggest misconceptions about a 203(k) loan is that obtaining it is a hard and time consuming process. Although there is a bit more involved in completing a streamline 203(k) purchase, most loans can still be closed within 30-60 days from start to finish. It is preferred that a 203(k) loan be written on a 60 day contract; however, 45 days is generally a sufficient time to close these loans.

Have Questions? Call Me!