Starting soon, nearly all home buyers and refinancing households throughout California and nationwide will pay higher mortgage loan fees. Congress has made it law.
13 months ago, as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Congress enacted a one-year cut to FICA payroll taxes.
FICA stands for Federal Insurance Contributions Act. Taxes collected under FICA fund such programs as Social Security and Medicare.
The stimulus plan temporarily lowered tax rates for salaried workers from 6.2% to 4.2%; and for self-employed persons from 12.4% to 10.4%. Effective January 1, 2012, “regular” tax rates were to return.
That is, until late-December 2011. In one of its last moves of the year, Congress passed a temporary, two-month extension to the payroll tax cut, extending it through February 29, 2012. The expected cost to the U.S. Treasury is $33 billion.
To recoup those costs, Congress has turned to Fannie Mae, Freddie Mac and the FHA.
Each entity has been ordered to collect news fees on each new mortgage is backs, and has been told to forward said fees to U.S. Treasury directly. There’s no “workaround” allowed or forgiveness applied — each new loan is subject to the payment.
The rules are listed on page 17 of the law’s final draft, in a section unambiguously titled “Title IV — Mortgage Fees and Premiums”.
According to the law :
- Fannie Mae and Freddie Mac must collect an average fee of no less than 10 basis points (0.1%) per new loan
- The FHA must raise its monthly mortgage insurance premiums 10 basis points for all new loans
The expected cost to consumers is no less than $10 monthly per $100,000 borrowed. Some analysts, however, expect Fannie Mae and Freddie Mac to collect more than is minimally required. This could add an additional $30-50 to your monthly mortgage payment per $100,000 borrowed.
Therefore, if you’ve been shopping for a home or for mortgage rates in San Jose , take advantage. Within days, lenders are expected to start collecting Payroll Tax Extension fees from mortgage applicants — a move that will cost you money.
Lock today to avoid the big fees. Save yourself money.
Mortgage markets improved last week, pushing mortgage rates in California lower for the second straight week. Conforming fixed and adjustable-rate mortgage cut new, all-time lows, and FHA mortgage rates did the same.
In a holiday-shortened trading week, stronger-than-expected U.S. economic data and ongoing weakness within Europe drove investors into the U.S. mortgage-backed bond market. When demand for bonds is high, mortgage rates improve.
The Refi Boom continues.
Since beginning their descent last February, mortgage rates have shed 114 basis points en route to reaching 3.91%, the current, “average”, 30-year fixed rate mortgage rate nationwide and a new all-time low, according to Freddie Mac and its mortgage market survey. If you’re among today’s home buyers or would-be refinancers, on a $200,000 mortgage, the 1.14% rate drop represents a monthly mortgage payment savings of $135 — $1,623 per year.
Larger loans save more, smaller loans save less.
This week, with little economic news set for release, mortgage rates are expected to take their cue from the 8 Federal Reserve members scheduled to speak in public, and from whatever news may bubble up from the Eurozone.
The Federal Reserve said it will communicate its vision for the U.S. economic more openly and more often so Wall Street will be watching the Fed members’ speeches this week, in search of clues about the Fed’s 2012 roadmap.
For example, there has been speculation that a new round of stimulus would be introduced at the Fed’s next meeting later this month. If, after listening to this week’s speeches, investors sense it will happen, mortgage rates may be susceptible to an increase in San Jose and everywhere else.
We’ll also be watching the Retail Sales report this week, due Thursday. Retail Sales are a reflection on consumer spending and consumer spending accounts for roughly 70% of the U.S. economy. If Retail Sales make gains, it may spark stock market gains at the expense of mortgage bonds.
This, too, would result in higher mortgage rates.
You can’t time the mortgage market, but with mortgage rates this low, it’s hard to go wrong. Talk with your loan officer to get a live rate quote.
For buyers and refinancing households throughout California , adjustable-rate mortgages are a relative bargain as compared to fixed-ones.
According to Freddie Mac’s weekly survey of more than 125 banks nationwide, |**CITY**| mortgage applicants electing for a conventional ARM over a conventional fixed-rate mortgage will save 105 basis points on their next mortgage rate.
“Conventional” loans are loans backed by Fannie Mae or Freddie Mac.
Today’s average, conventional 30-year fixed rate mortgage rate is 3.91% plus points and closing costs. The average rate for a comparable 5-year ARM is 2.86%, plus points and closing costs.
In other words, for every $100,000 borrowed, a conventional 5-year adjustable-rate mortgage will save you $58.15 per month, or $698 per year.
That’s a 12 percent savings just for choosing an ARM.
12 percent is a big figure that adds up over 5 years — especially for households that plan to sell within those first 60 months anyway. There is little sense in paying the mortgage rate premium for a 30-year fixed-rate mortgage when a 5-year ARM is perfectly suitable.
For the reason why adjustable-rate mortgages continue are so much lower than their fixed-rate counterparts, look no further than the U.S. economy. ARMs reflect Wall Street’s short-term economic expectations; whereas fixed-rate mortgages reflect medium- to long-term expectations.
In the short-term, analysts expect the U.S. economy to grow slowly, with low levels of inflation. This supports the U.S. dollar, the currency in which mortgage bonds are denominated. When the dollar is strong, demand for mortgage bonds tends to increase.
This supports lower interest rates.
Conversely, over the longer-term, inflation is expected to return, which devalues the dollar and everything paid in it (e.g.; mortgage-backed bonds). This is why inflation is linked to higher mortgage rates. When inflation is present in the economy, mortgage bonds lose value, driving mortgage rates up.
Adjustable-rate mortgages aren’t perfect for everyone, but in the right situation, they can be a big money-saver and a helpful tool for stretching a household budget. Given today’s rates, the money-saving potential is larger than usual.
Before you choose an ARM, discuss your options with your loan officer.
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Posted by
Elva Wormley |
Categories:
Mortgage Rates | Tagged:
ARM,
Freddie Mac,
FRM |
If you’re floating a mortgage rate, or have yet to lock one in, today may be a good day to call your loan officer. Friday morning, the government releases its Non-Farm Payrolls report at 8:30 AM ET.
The Non-Farm Payrolls report is more commonly called the “jobs report“ and, lately, it’s been Wall Street’s domestic economic metric of choice. As jobs go, so go markets.
In the 12 months beginning November 2007, the economy shed 2.3 million on its way to losing more than 7 million jobs by the end of 2009.
It’s no coincidence that the stock market has been wayward. Jobs are a keystone in the U.S. economy and the connection between jobs and growth is straight-forward :
- Workers spend more than non-workers and consumer spending is the economy’s largest single component
- Workers pay more taxes to governments and, when governments have money, they build and spend on projects
- Additional consumer and government spending creates revenue for businesses which, in turn, hire more workers.
It’s a self-reinforcing cycle. More employees begets more employees.
As a rate shopper in California , this is an important understanding. Job loss was, in part, behind the big drop in mortgage rates since 2007. A weak economy drives investors away from equities and into safer securities such as mortgage bonds (which are backed by the U.S. government).
The excess demand causes mortgage rates to drop and that’s exactly what we’ve seen. Since late-2007, mortgage rates have been in decline.
In the first 11 months of 2011, though, 1.5 million people went back to work; the economy showed signs of shoring up and economic optimism is returning. Mortgage markets have temporarily ceded to the Eurozone, but with one more strong jobs report to close out the year, momentum could tip and stock markets could roll.
If that happens, mortgage rates will rise. Maybe by a lot.
This is why Friday’s Non-Farm Payrolls data is so important. Economists expect that 150,000 new jobs were created in December. If the government’s actual number is larger than that, prepare for higher mortgage rates.
Conversely, if job creation falls short of 150,000, mortgage rates may fall.
If the prospect of rising mortgage rates makes you nervous, remove your nerves from the equation. Call your loan officer and lock your rate ahead of Friday’s Non-Farm Payrolls release.
As the new year begins, there are no shortage of stories telling us what to expect in 2012. Housing finished 2011 with momentum and mortgage rates closed at the lowest rates of all time.
Some expect those trends to continue through the first quarter and beyond. Others expect a rapid reversal.
Who’s right and who’s wrong? A quick look through the newspapers, websites and business television programs reveals “experts” with opposing, well-delivered arguments views. It’s tough to know who to believe.
For example, here are some “on-the-record” predictions for 2012 :
The issue for buyers, seller, and would-be refinancers in San Jose and nationwide is that it can be a challenge to separate a “prediction” from fact at times.
When an argument is made on the pages of a respected newspaper or website, or is presented on CNBC or Bloomberg by a well-dressed, well-spoken industry insider, we’re inclined to believe what we read and hear.
This is human nature.
However, we must force ourselves to remember that any analysis about the future — whether it’s housing-related, mortgage-related, or something else — are based on a combination of past events and personal opinion.
Predictions are guesses about what might come next — nothing more.
For example, at the start of 2009, few people expected the 30-year fixed rate mortgage to stay below 6 percent, but it did. Then, at the start of 2010, few people expected the 30-year fixed rate mortgage to stay below 5 percent, but it did.
All we can know for certain about today’s market is that both mortgage rates and home values are low, creating favorable home-buying conditions in and around Cambrian and nationwide.
At that start of last year, few people expected mortgage rates to even reach 4 percent. Today, rates “with points” price in the 3s.
What 2012 has in store we just can’t know.
Mortgage markets improved last week during a holiday-shortened trading week. The mortgage bond markets were closed Monday for Christmas, and closed early Friday afternoon. Trading volume was light all week long, which contributed to a year-end rally.
Mortgage bonds made their largest one-week gain in two months as conforming mortgage rates in California fell to new lows nationwide.
Because most of the improvements transpired Wednesday and Thursday, Freddie Mac’s weekly mortgage rate survey failed to capture the action. The survey’s poll of more than 125 banks across the country “closes” Tuesday.
As a result, Freddie Mac reported mortgage rates rising to 3.95% with an accompanying 0.7 discount points plus closing costs, where 1 discount point equals one percent of your borrowed amount. However, those rates represented the high point for the week.
By Friday, conforming loans “with points” were noticeably lower as compared to Freddie Mac’s weekly survey. Loans without discount points were little changed, however.
The same was true for FHA mortgages.
This week, though, the calendar reads 2012. Unfortunately, we’re still watching the stories that drove mortgage rates for much of 2011 — the Eurozone and its members’ debt obligations, and the U.S. jobs market.
As the year concluded, there were fresh fears of trouble in Italy, which has large amounts of debt due in the early part of the year. There were also stern warnings from Eurozone leaders that a difficult 2012 may be ahead.
Events like these are often good for U.S. mortgage rates.
And, this week, the government releases its December Non-Farm Payrolls report. The report moves markets — especially when the actual number of jobs created deviates from consensus estimates.
Economists expect that 150,000 net new jobs were created in December.
Momentum may draw rates lower this, or mortgage rates may begin to rise instead. The direction depends on the outlook for 2012, both domestic and international. The safe play is to lock a mortgage rate now.
Rates have more room to rise than to fall.
Low home prices and mortgage rates have combined to push home affordability to record levels nationwide. Home buyers are taking advantage.
The Pending Home Sales Index rose 7 percent in November to rise to its highest level since April 2010, the last month of last year’s home buyer tax credit program.
The Pending Home Sales Index is published monthly by the National Association of REALTORS®. It measures homes under contract nationwide, but not yet “sold”.
In this way, the Pending Home Sales Index is different from other housing market indicators. It’s a “forward-looking” figure; a predictor of future home sales. According to the National Association of REALTORS®, more than 80% of homes under contract close within 60 days.
By contrast, housing data such as the Existing Home Sales report and the New Home Sales report “look back”.
November marks the second straight month of Pending Home Sales Index improvement. The housing market metric made big gains of 10 percent in October 2011, as well.
On a regional basis, each part of the country showed an increase in homes under contract.
- Northeast Region: +8.1 percent from October 2011
- Midwest Region : +3.3 percent from October 2011
- South Region : +4.3 percent from October 2011
- West Region : +14.9 percent from October 2011
However, here in San Jose, we must discount the value of even the regional data, somewhat. Like else in real estate, the volume of homes going under contract vary by locality.
Throughout the West Region, for example, the region in which pending home sales increased the most from October, there are nearly a dozen states. Undoubtedly, some of those states performed better than others in terms of “homes under contract”, but we don’t have an indication of which states those were.
In addition, within each state, every city, town, and neighborhood realized its own unique market in November, and produced its own sales statistics.
For buyers and sellers throughout California and the country, therefore, it’s more important to watch data on a local level than on a national one. Reports like the Pending Home Sales Index are helpful in showing national trends, but as an individual, what you need are local trends.
For local real estate data, be sure to ask your agent.
The government confirms what the private-sector Case-Shiller Index reported yesterday. Nationwide, average home values slipped in October.
The Federal Home Finance Agency’s Home Price Index shows home values down 0.2% on a monthly, seasonally-adjusted basis. October marks just the second time since April that home values fell month-over-month.
The Case-Shiller Index 20-City Composite showed values down 0.7 percent from September to October.
As a home buyer in San Jose , it’s easy to look at these numbers and think housing markets are down. Ultimately, that may prove true. However, before we take the FHFA’s October Home Price Index at face value, we have to consider the report’s flaws.
There are three of them — and they’re glaring. As we address them, it becomes clear that the Home Price Index — like the Case-Shiller Index — is of little use to everyday buyers and sellers in places like Blossom Hill.
First, the FHFA Home Price Index only tracks home values for homes backed by Fannie Mae or Freddie Mac mortgages. This means that homes backed by the FHA, for example, are specifically not computed in the monthly Home Price Index.
In 2007, this was not as big of an issue as it is today. in 2007, the FHA insured just 4 percent of the housing market. Today, the FHA is estimated to have more than one-third of the overall housing market.
This means that one-third of all home sales are excluded from the HPI — a huge exclusion.
Second, the FHFA Home Price Index excludes new home sales and cash purchases, accounting for home resales backed by mortgages only. New home sales is a growing part of the market, and cash sales topped 29 percent in October 2011.
Third, the Home Price Index is on a 60-day delay. The above report is for homes that closed in October. It’s nearly January now. Market momentum is different now. Existing Home Sales and New Home Sales have been rising; homebuilder confidence is up; Housing Starts are showing strength. In addition, the Pending Home Sales Index points to a strong year-end.
The Home Price Index doesn’t capture this news. It’s reporting on expired market conditions instead.
For local, up-to-the-minute housing market data, skip past the national data. You’ll get better, more relevant facts from a local real estate agent.
Since peaking in April 2007, the FHFA’s Home Price Index is off 18.3 percent.
New home inventory is approaching bull market territory.
According to the Census Bureau, the number of new homes sold rose 2 percent in November. On a seasonally-adjusted, annualized basis, home buyers bought 315,000 newly-built homes last month.
November’s New Home Sales data marks the 4th straight month of rising sales volume, lifting the housing-market metric to a 7-month high, and adding to the housing market’s recent show of strength.
Last week, we learned that Existing Home Sales also climbed in November.
The big story in the New Home Sales report, though, is the remaining new home supply nationwide.
With just 158,000 homes “on the market” and the pace of home sales hastening, the complete, national inventory of “new homes” would now be sold in just 6.0 months, a 0.2-month improvement from October. This is the quickest home sales pace in nearly 6 years for the new construction market.
It’s even faster than in April 2010 — the buyer-deadline month of last year’s federal home buyer tax credit.
Home builders expect the trend to continue, too. Buyer foot traffic is on the rise and builders have a strong outlook for the next 6 months.
It’s an unsettling series of developments for today’s San Jose home buyers. As home supplies drop and builders gain confidence, the ability of an buyer to negotiate for price reduction and/or upgrades shrinks.
If you’re a home buyer in search of new construction, therefore, consider that the best new construction “deals” of the next 12 months may be the ones you find today.
Mortgage markets worsened last week on renewed optimism from the Eurozone, additional evidence of a U.S. economic recovery, and ongoing strength in housing.
The action sparked a stock market rally at the expense of mortgage bonds, sending conforming and FHA mortgage rates meaningfully higher for the first time in more than 2 months.
Markets closed early Friday and remained closed Monday. When they re-open today, conforming mortgage rates will already have bounced off last week’s new, all-time lows.
As reported by Freddie Mac’s weekly mortgage rate survey, the average 30-year fixed rate mortgage fell to 3.91 percent nationwide, with an accompanying 0.7 discount points plus closing costs. 1 discount point is equal to 1 percent of your loan size such that 1 discount point on a $100,000 loan is equal to $1,000.
It’s not just the conventional 30-year fixed that made new lows last week, either. All of Freddie Mac’s reported rates fell to new, all-time lows.
- 30-year fixed : 3.91% with 0.7 discount points
- 15-year fixed : 3.21% with 0.8 discount points
- 5-year ARM : 2.85% with 0.6 discount points
These rates are no longer valid, however. FHA mortgage rates rose slightly last week, too.
This week, mortgage rates will be more volatile than usual. There isn’t much economic data on which to trade, and it’s a holiday-shortened week (again). Look for geopolitics and momentum to nudge markets forward, therefore — a potentially bad combination for today’s rate shoppers. There is very little room for mortgage rates to fall, but lots of room for them to rise.
If the stock market rallies to close 2011, mortgage rates will rise right on with it.
For now, rates remain historically low. If you’ve been shopping for a mortgage — waiting for rates to fall — this last week of the year may be your last chance at sub-4 percent, fixed-rate mortgage rates. Don’t wait too long or you might miss it.
It’s a good time to execute on a rate lock.
