San Jose Mortgage News

The Federal Open Market Committee begins a 2-day meeting today, its fourth scheduled meeting of the year, and fifth overall.

The FOMC is the monetary policy-setting part of the government and its primary tool for that purpose is the Fed Funds Rate. 

The Fed Funds Rate is the dictated rate at which banks borrow money from each other and, since December 16, 2008, the Federal Reserve has voted to keep the benchmark rate within a target range of 0.000-0.250 percent.

This is the lowest Fed Funds Rate in history. A rate near zero-point-zero percent renders borrowing by business and consumers cheap which, in turn, promotes investment and growth.

There’s no expectation for the Fed to change the Fed Funds Rate after it adjourns tomorrow, but that doesn’t mean consumers in San Jose should expect mortgage rates to remain unchanged, too.

To the contrary, mortgage rates tend to be volatile when the FOMC is meeting.  This is because the FOMC issues a press release after each meeting and in that press release, it comments on the economy’s unique threats, strengths and weaknesses.

When the FOMC speaks, Wall Street listens. 

The words of the Chairman Ben Bernanke’s press release will be dissected and analyzed.  A single mention of higher-than-expected inflation levels, or better-than-expected growth, and traders will rush to dump their bond positions in favor of equities. 

This has a negative effect on mortgage rates.

Conversely, if the Fed is dour on the economy, mortgage rates may fall.

We can’t know for sure what the Fed will say or do tomorrow afternoon so if you’re floating a mortgage rate and wondering whether to lock, the safe choice is to lock prior to 2:15 PM ET Wednesday.

Mortgage markets improved last week on weaker-than-expected jobless figures, ongoing troubles in Europe, and a tame reading on domestic inflation.

As a result, conforming mortgage rates for California fell last week, drawing loads of new refinance applications.

For a brief moment Thursday afternoon, mortgage bond prices pierced a key support level, dropping rates in San Jose to their best levels of the year. 

It didn’t last long, however. By Friday morning, pricing was worsening on profit-taking and in preparation for this week — a week that promises to be heavy on both data and rhetoric.

To mortgage markets, this can be a dangerous combination.

The biggest news of the week is the Federal Reserve’s 2-day meeting, scheduled for Tuesday and Wednesday in Washington D.C. 

The Fed is expected to hold the Fed Funds Rate in its target range near 0.000-0.250 percent. It won’t be what the Fed does at its meeting that will matter to rates, though. It will be what the Fed says — about jobs, about growth, about inflation — in its post-meeting press release.

Remarks that reflect well upon the economy should lead mortgage rates higher. Remarks viewed as negative should lead mortgage rates down.

There’s key data due for release next week, too:

• Tuesday : Existing Home Sales and Home Price Index
• Wednesday : New Home Sales
• Thursday : Continuing Jobless Claims
• Friday : GDP and Consumer Sentiment

Mortgage rates remained relatively tame last week.  This week, volatility should return.

If you’re shopping for a mortgage, rates remain very low but could reverse quickly. Your biggest risk is tied to the Fed’s adjournment Wednesday afternoon.

As its June 30, 2010 closing deadline approaches, the federal home buyer tax credit is back in the news.

Unfortunately, the headlines are misleading.

Contrary to what you may have read (or heard), the federal home buyer tax credit has not been extended past June 30, 2010. At least not yet. And here’s why there’s confusion.

Look at these headlines from earlier this week:

• Senate Extends Date On Home-Buying Tax Credit (Philadelphia Inquirer)
• U.S. Senate Approves Extension Of Home Buyer Tax Credit (NASDAQ)
• Senate Approves Home Tax Credit Extension (Reuters)

Now, nothing above is factually incorrect, but each neglects a key piece of the country’s law-making process — it takes more than the Senate to pass a law. For a bill to become a law, it must pass the Senate and the House of Representatives and then it must be ratified by the President.

To date, we’ve only cleared just one of those 3 steps.

This means that the federal home buyer tax credit has not been formally extended. As of now, it’s still in discussion.  Ultimately, though, if the extension does pass, it’s expected to extend the closing date deadline for San Jose home buyers beyond the original June 30, 2010 date into September 2010.

Homeowners must still have been in contract as of April 30, 2010 to claim up to $8,000 in federal tax credits.

Single-family housing starts plummeted to a one-year low in May, just 30 days after soaring to a 20-month high.  It’s no wonder home builders are confused.

Against a revised April figure, Housing Starts fell 97,000 units in May, a figure representing almost one-fifth of the total market size.

It’s the worst showing for Housing Starts since May 2009, a surprise to builders and economists alike.

Furthermore, single-family Building Permits plunged in May, too — down 10 percent from April. A permit is a certification from local government that authorizes home construction.

Housing permits are a precursor to Housing Starts with 82% of homes starting construction within 60 days of permit-issuance. Fewer permits, therefore, directly reduces the number of new homes coming to market in the coming months.

For home buyers in San Jose , this should create a sense of urgency.

Home prices are based on supply and demand and supply appears to be falling about the same time that economists predict a surge in home demand.  It could spell rising home prices and a complete loss of negotiation power with home sellers.

For now, though, home affordability remains high with properties cheap and mortgage rates near all-time lows. If you plan to buy a home later this year, the May 2010 Housing Starts data may be a reason to move up your timeframe a bit.

If you plan to finance your San Jose home with a conforming interest only mortgage, get your loan application submitted no later than this Friday, June 18. 

Starting next week, Fannie Mae is clamping down on the popular loan product.

An “interest only” mortgage is exactly what its name implies — a mortgage for which the monthly payments consist entirely of interest with no principal reduction. Because there’s no amortization, payments are less costly on a month-to-month basis.

For example, assuming principal + interest payments at 5 percent, a $250,000 mortgage carries a monthly payment of $1,342.  The payment on a comparable interest only mortgage, however, drops to $1,042.

That’s a payment difference of $300 and the size of the cost savings, not surprisingly, is the biggest reason why Fannie Mae is making its changes.

In its official announcement, Fannie Mae says it wants the give the interest only option to “borrowers who are in a position to choose it as a financial management tool” rather than allowing homeowners use it as an affordability tool for their budgets.

Going forward, there are new minimum standards for interest only home loans.

• Applicants must have a 720 credit score or better
• Applicants must have at least 24 months of reserves
• The property type may not be a 2-unit, 3-unit or 4-unit
• The property must be a primary residence, or vacation home

Furthermore, only purchase and rate-and-term refinances are eligible.  Cash out refinances are prohibited.

Interest only home loans aren’t for everyone, but if you plan to finance with a Fannie Mae mortgage and interest only is your preference, get your loan application submitted as soon as possible. Starting Monday, approvals will be tougher to come by.

In May 2010, Retail Sales at non-store retailers — a category that includes Amazon and eBay — topped $29 billion, up 16 percent from May 2009. Clearly, Americans are doing an increasing amount of shopping online.  And we’re paying our bills online, too.

But how well are we protecting our identities?

In this 5-minute piece from NBC’s The Today Show, you’ll learn the basics of online fraud and methods to minimize the likelihood of identity theft.  Furthermore, the tips go beyond the basic “choose a challenging password”.  For example, you’ll hear about:

• Why you shouldn’t pay bills from a coffee shop
• Who might be hiding behind an unprotected public wifi network
• The dangers of storing credit card numbers with an online retailer

And, although, at one point, the interviewee goes over the top with respect to spyware and anti-phishing prevention, the point being made is a good one — you can’t be too careful with your online financials and common sense goes a long way.

Mortgage markets posted four good days last week and one awful one.  Unfortunately for rate shoppers in California , that one bad day outweighed the gains of the other four and mortgage rates worsened on the week overall.

Despite re-touching all-time lows on Tuesday and Wednesday, Conforming and FHA mortgage rates moved higher on the week.

There wasn’t much domestic data on which for mortgage markets to move so rates took their cues from global economic activity. Strong data from Japan and China, plus an improving outlook from the Eurozone, sparked optimism among Wall Street investors. Cash poured into the stock market and it happened at the expense of bonds — including the mortgage-backed ones.

It’s the primary reasons rates rose and not even the worst Retail Sales report in 8 months could undue the damage.

Often, weak Retail Sales data causes mortgage rates to fall. Last week, however, that wasn’t the case. 

This week, there’s cause for rates to rise again with Wednesday emerging as a “data day”.

First, at 8:30 AM ET, the government releases two key housing statistics and one major gauge for inflation — Housing Starts, Building Permits and Producer Price Index, respectively.  Strength in any or all three should lead mortgage rates higher.

Then, at 5:45 PM ET, Fed Chairman Ben Bernanke makes a public speech and anytime Bernanke speaks, mortgage rates can move.

Mortgage rates remain unnaturally low and a lot of Americans have taken advantage already. If you’re a homeowner and you’ve wondered whether or not a refinance makes sense, talk to your loan officer straight away. Low rates like this can’t last forever so lock one in while you can.

Starting sometime later this year, the monthly cost to carry an FHA-insured mortgage is expected to rise.

In a near-unanimous vote, the House of Representatives gave the FHA power to raise the monthly mortgage insurance premiums it charges to its borrowers.

Currently, monthly mortgage insurance premiums are 0.55% of the unpaid loan balance, divided by 12.  The recently approved Federal Housing Administration Reform Act provides for an increase in monthly premium of up to 1.55 percent, among other details of the bill.

Despite the ability to charge 1.55 percent, FHA officials say an increase to 0.90 percent would be sufficient to self-insure its loans.

In everyday terms, assuming a $200,000 mortgage, the math to a homeowner looks as follows:

• Current Premium (0.55%) : $91.67 monthly mortgage insurance premium
• Expected Increase (0.90%) : $150.00 monthly mortgage insurance premium
• Maximum Increase (1.55%) : $258.33 monthly mortgage insurance premium

A increase in monthly mortgage insurance premiums will reduce home affordability for buyers in San Jose and strain household budgets. 

The news isn’t all terrible, however.

Because higher monthly insurance premiums are expected to pad the FHA coffers sufficiently, the FHA has said it plans to reduce its upfront mortgage insurance premium paid at closing from 2.25 percent down to 1.000 percent. 

On the same $200,000 mortgage, a move like that would reduces closing costs by $2,500.

The bill awaits companion legislation in Senate and final approval into law, but considering the House’s lopsided vote Thursday, it could happen rather quickly.  If you’re planning to buy or refinance a home using an FHA mortgage, you may find that waiting to take the next step could be a costly one, long-term.

The FHA insured close to a quarter of all mortgages made in the first three months of 2010.

According to foreclosure-tracking firm RealtyTrac.com, bank repossessions reached record levels for the second straight month in May, topping 93,000 properties nationwide.

As compared to May 2009, all 50 states now show an increase in annual REO activity.

Data like that won’t surprise today’s active home buyers in San Jose.  Foreclosed homes are prevalent, available and accounted for one-third of all home resales made in April. 

Furthermore, total foreclosure actions — the sum of REO, default notices, and foreclosure auctions in May — topped 300,000 for the 15th straight month.

Foreclosures remain a huge influence on the housing market.

However, two interesting trends emerged in the data:

1. 9 of the top 10 metro areas for foreclosure posted annual activity decreases
2. Each of the top 4 states for Foreclosures per Household posted annual activity decreases

We can infer, therefore, that foreclosure activity may be in permanent decline in the areas hardest hit through 2007, 2008, and 2009.  In 2010, the data shows, foreclosures are waning.

This is reason for optimism — especially as FHA delinquencies slow nationwide. As fewer homeowners go delinquent, the pace of foreclosures will slow further and that should help boost home values on every block in the country.

If you’ve been considered bank-owned homes for your own purchase, give a look at the RealtyTrac foreclosure report.  It’s provides insight on a state-by-state level, and in the nation’s largest metropolitan areas. 

Then, to complement your research, talk to your real estate about the foreclosure market and what opportunities may exist.   Competition for bank-owned homes can be fierce at times, but there’s plenty of “deals” out there.

You just have to know where to look.

Mortgage rates may be dropping, but mortgage costs are not.

According to Freddie Mac, the average required discount points on a conforming mortgage rate are higher by 0.1 percent since early-May.

A “discount point” is prepaid mortgage interest; an up-front fee paid by a borrower in exchange for a lower mortgage rate. In most cases, discount points are tax-deductible.

Tax-deductible or not, though, rising costs are rising costs and Freddie Mac glosses over it.  In its weekly press release, the government group offers mortgage rate comparisons to weeks prior, but doesn’t do the same for required points.

The press fails to mention discount points entirely.

An increase of 1/10 percent in discount points costs homebuyers and refinancing households in San Jose an extra $100 per $100,000 borrowed.

The hike reminds us that there’s more to a mortgage than just its rate — costs matter, too.  And if you’ve only been watching the headlines, you would have missed how costs are rising.