Understanding the Federal Open Market Committee’s (FOMC) announcement of April 29, 2009 in Plain English May 1, 2009
Posted by mortgagebloke in FOMC Announcement, Mortgage, Mortgage Market.add a comment
The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged today within its target range of 0.000-0.250 percent. The Fed also reiterated its plan to support the mortgage market to the tune of $1.5 trillion.
In its Press release, the FOMC noted that the economy may still be contracting, but that it’s not happening with the same speed as in prior months. Household spending is stabilizing and financial markets are “easing”.
Nevertheless, threats to the recovery are everywhere with the following items on the Fed’s short list:
- The growing ranks of unemployed workers
- The reduction of housing wealth nationally
- Reduced inventories and investment from business
Furthermore, the FOMC fingered today’s inflation levels as too low to support economic growth. This justifies the Fed’s plan to hold the Fed Funds Rate near zero percent “for an extended period”.
For home buyers and refinancing homeowners, today’s press release was not favorable.
After the Fed’s announcement, stock markets rallied on the idea that the worst of the economy really is over and that led to a broad bond market sell-off. Mortgage rates spiked in response, adding as much as 0.125 percent, in some cases.
The FOMC’s next scheduled meeting is June 23-24, 2009.
FHA Cash Out Refinances Get More Restrictive as of April 1, 2009 March 30, 2009
Posted by mortgagebloke in FHA, FHA Loan, Financing Strategies, HUD, Mortgage.Tags: FHA Loans, Refi, Refinance
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Mortgage guidelines continue to get more restrictive. If you’re looking for a cash out refinance, the most liberal cash out program available is making its guidelines more restrictive
Effective April 1, 2009, FHA is reducing the maximum loan-to-value on cash out refinances by 10%, dropping the loan size limit from 95% of the home value to 85%.
As per its official press release, the FHA says
Given the continued deterioration in the housing market, and FHA’s need to limit its exposure to undue risk, this reduction to the maximum LTV for cash-out refinances is being instituted on a temporary basis while FHA further analyzes the housing and mortgage industry as well as its own portfolio to determine whether permanent measures should be taken.
It also lists the following cash-out requirements :
- If the property has been owned for less than 12 months, the home’s value cannot exceed the purchase price for the purpose of calculating the new loan-to-value, even if home improvements have been carried out.
- A home owner must be current on his mortgage payments to qualify
- A second appraisal may be required in certain cases, depending on laon amount and property location.
- A Co-signer cannot be added in order to qualify for the new FHA mortgage.
The last day to register an FHA 95% cash out refinance is Tuesday March 31, 2009. The loan needs to be ‘registered’ by this date to qualify for the 95% cash out. You could lock the loan later in the processing / approval process.
So, if you are looking for a 95% cash out FHA refinance, now is the time to call you loan officer / mortgage consultant about registration of the loan, Wednesday April 1, 2009 will be too late.
Understanding the Federal Open Market Committee’s (FOMC) announcement of March 18, 2009 in Plain English and what to expect with Mortgage Rates March 19, 2009
Posted by mortgagebloke in FOMC Announcement, Financing Strategies, Interest rates, Mortgage, Mortgage Market, Mortgage backed Securities.Tags: FOMC Announcement, interest rate, Interest rates
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The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged yesterday, within the target range of 0.000-0.250 percent. This doesn’t mean the Fed stood pat, however.
On plan to resurrect the economy using “all available tools”, the Fed announced a new, $1.5 trillion round of fiscal support for the treasury and mortgage markets.
The stimulus is today morning’s headline story.
In its press release, the FOMC touched upon a few of the prevailing economic issues, using these points as a legitimizing backdrop for its newest debt load:
- Job losses and wealth loss are dragging down consumer spending
- Some U.S. trading partners are falling into recession
- Businesses are cutting back on investment and inventory
For home buyers and potential refinancers, this is terrific news — at least in the short-term. By introducing new demand for mortgage bonds, the Fed will help pressure mortgage rates to remain low. Already yesterday afternoon, mortgage rates fell and they will continue to fall until the market reaches a new equlibrium.
After the Fed’s last intervention, markets reached their balance point in about a day-and-a-half.
Unfortunately the media is already spinning this differently. This is not the time to stay on the fence, hoping and waiting for significantly lower rates. Home loan rates remain within inches of all time record lows, but may not move significantly lower .The reason for this is see the details of what the fed is buying .. they are buying a lot of FNMA 30-yr 4.5% and 5.5% Bonds which actually represent outstanding mortgages with rates of 5.5 – 6.50%… which are precisely the loans being refinanced at today’s great interest rates. The Fed buying these higher rate coupons will not necessary help rates move significantly lower, as their actions do not impact the loans being originated at today’s low rates. Yes, the Fed buying activity should definitely support the MBS market and help to keep the rates low.
The spectre of inflation in the horizon could also work against mortgage rates.
Sometimes I talk to clients who are in a situation where it makes sense to refinance right now, and save $250 per month for example. But when they hear the media throwing around teases of lower rates ahead, they decide to hold off on making the decision to save the $250 per month right now, in the hopes of gaining another $30 per month in additional savings with a lower rate than where we stand presently. Now clearly, rates could turn higher, and this window of opportunity could pass them by entirely.
Even if those clients ultimately are correct in timing the market, and eventually grab that lower rate and save another $30 per month – think of what they have lost by waiting. While they delayed, they lost the savings they could have gained by taking action sooner – or in the example used, $250 – for every single month they waited. So even if they got lucky and obtained the rate they were looking for, it could take years to make up what they lost by waiting.
Source: Parsing the Fed, Wall Street Journal, March 18, 2009
First Time Homebuyer Credit Form : Form 5405 from the IRS March 4, 2009
Posted by mortgagebloke in ARRA 2009, Financing Strategies, Mortgage.Tags: First-Time Homebuyer, Home Purchase, IRS Form 5405
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As part of the American Recovery and Reinvestment Act of 2009, the IRS has officially released Form 5405 – better known as the First-Time Homebuyer Credit Form.
True to tax code standards, the 10-field form is accompanied by 3 pages of instructions.
Form 5405 is a helpful, go-to resource for home buyers with questions about the tax credit.
For example, the form distinguishes tax consequences for homes bought in 2008 versus 2009, and clearly defines the term “first-time home buyer”.
In addition, Form 5405 highlights the math behind the tax credit. In general, the First-Time Homebuyer Credit is equal to the lesser of:
- $8,000 for homes bought in 2009
- 10 percent of the home’s purchase price
Married couples filing separately are entitled to half of the expected credit, and homes sold within 3 years are subject to a credit repayment in the year the home ceases to be the “main home”.
Form 5405 is a comprehensive reference. However, be sure to check with your accountant for specific questions about your personal returns and how the First-Time Homebuyer Credit may impact your finances. There is no substitute for professional, paid advice.
Fannie Mae Increases Investor Loan Limits from 4 to 10 Properties February 20, 2009
Posted by mortgagebloke in Conforming Mortgage, Fannie Mae and Freddie Mac, Financing Strategies.Tags: Fannie Mae, Mortgage, Mortgage Blog
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Fannie Mae rolled-back one of its least popular mortgage guidelines updates of the last 12 months.
Effective March 1, 2009, real estate investors can once again own and finance up to 10 individual properties. The restriction reversal does come with new minimum requirements, however.
Homeowners buying a 5th, 6th, 7th, 8th, 9th or 10th home must meet the following standards, as set forth by Fannie Mae:
1. 720 credit score
2. 25% downpayment for a 1-unit (30% for a 2-4 unit)
3. No mortgage delinquencies in the last 12 months
4. 2 years tax returns showing rental income form all rentals
5. 6 months of reserves for each investment property
In other words, Fannie Mae is re-opening the lending spigot for real estate investors with good credit, a sizeable downpayment and ample reserves.
According to Fannie Mae,
Fannie Mae is committed to providing financing opportunities for high-credit quality, bona fide investors. Experienced investors play a key role in the housing recovery
The use of the adjectives “high-credit quality”, “bona fide” and “experienced” was a conscious one, by the way. Fannie Mae is averse to first-time investors and other foreclosure opportunists. Instead, it wants to serve individuals with a history of owning and successfully managing rental property.
Going forward, expect a more expedient foreclosure liquidation nationwide which should, in turn, provide further support for the housing market. Investors can go to auction and know that (relatively) cheap financing will be available from the government. This should speed the reduction of REO inventory nationwide. In addition, with more investors eligible for financing, expect greater competition for prime foreclosed properties, helping to keep home prices from falling into the abyss.
The rollback gives a secondary benefit to investors, too — even those not buying additional property.
See, when the 4-property restriction went into effect, it was a surprize, 11th-hour announcement made on the Friday before Fannie Mae’s nationalization. This date, meanwhile, has come to be known as the Day Before The Refi Boom Started.
So, on the following Monday, when mortgage rates instantly plunged three-quarters of a percent, homeowners with 5 properties or more found themselves ineligible.
They couldn’t refinance their investment homes, they couldn’t refinance their vacation homes, and they often couldn’t refinance their primary homes, either. While rates fell for nearly every borrower class, experienced real estate investors were locked out. Today, that’s no longer the case. “High-credit quality, bona fide” real estate investors are back in the game.
It’s good for them, it’s good for the banks, and it’s good for housing.
Not every bank sells loans to Fannie Mae, however, so if you think the new guidelines will impact your mortgage plans, be sure check with your loan officer first
