Virginia mortgage rates and industry news

How to Tell Mortgage Rates Are Rising - pay close attention Virginia!
What are the signs that mortgage rates, now at historic lows, are about to go up?

One way to catch a clue is to read the minutes of the Federal Reserve. For instance, the Federal Open Market Committee said in its September minutes that when it came to interest rates, there is “no policy change.” And the minutes said that while the Fed believes “an economic recovery is underway,” it regards a weak economy as a greater risk than inflation. Upcoming meeting minutes are likely to be just as forthcoming if an uptick is in the cards.

Other signs include:

• Declining unemployment: The unemployment rate is sitting at 9.7 percent. If lots of Americans go back to work, an increase in interest rates is likely.
• Rising discount rate: The rate the Fed charges banks that borrow from it directly stands at 0.5 percent. If it rises or the spread between it and the Federal Funds rate widens, then mortgage rate increases won’t be far behind.

The plan’s executive summary clearly states the problems that the Obama administration foreclosure plan is designed to address:

- Due to falling property values, many homeowners cannot refinance into mortgages with lower interest rates.
- Nearly six million homeowners are facing foreclosure, primarily due to the current recession.
- The foreclosure epidemic is further depressing property values, with each foreclosure reducing nearby property values up to an estimated 9%.
- The Homeowner Affordability and Stability Plan is designed to help nearly 9 million households restructure or refinance their mortgages to avoid foreclosure. The plan has three key components:
o Provide access to low-cost refinancing options for responsible homeowners suffering from falling home prices.
o A $75 Billion Homeowner Stability Initiative for at-risk homeowners.
o Supporting low mortgage rates by strengthening confidence in Government Sponsored Enterprises (GSEs) such as Fannie Mae and Freddie Mac.

Low-Cost Refinancing

The Homeowner Affordability and Stability Plan recognizes that many homeowners cannot take advantage of historically low interest rates, because their loan-to-value (LTV) ratios are too high for them to qualify for a refinance loan. Most lenders want to see an LTV of 80% or lower before they will consider approving a refinance loan; that is, homeowners must owe no more than 80% of the current value of their property (for example $80,000 or less on a $100,000 home).

Given the fact that property values have dropped as much as 25% or more in some areas of the U.S., many homeowners have seen their LTV’s rise above the 80% cut off. Obama’s foreclosure plan is designed to “help as many as 5 million responsible homeowners who took out conforming loans owned or guaranteed by Fannie Mae or Freddie Mac refinance through those two institutions.”

By refinancing into a loan with a lower interest rate, homeowners can save hundreds of dollars per month and thousands per year - perhaps enough to protect their homes from foreclosure. On a $200,000 30-year mortgage, a reduction from 8% to 6% drops the monthly payment $268.43 - an annual savings of $3,221.16.

$75 Billion Homeowner Stability Initiative

The $75 billion homeowner stability initiative targets at-risk homeowners, many of whom are stuck in adjustable-rate mortgages (ARMs) and have seen their house payments rise to 40 or even 50% of their monthly income. The program offers cash incentives to lenders and borrowers for working out loan modification agreements that result in reasonable, affordable monthly mortgage payments and enable the homeowners to keep their homes. Following are some key points about this component of the plan:

- The primary goal of the initiative is to reduce homeowners’ monthly payments to sustainable, affordable levels.
- Real estate investors need not apply. This initiative is available exclusively to help homeowners retain possession of their primary residence.
- The plan covers households “at risk of imminent default despite being current on their mortgage payments.” In other words, you can qualify even if you haven’t yet missed a house payment.

Under the initiative, the lender is responsible to lower the interest rate so that the homeowners’ monthly mortgage payment is no higher than 38% of their monthly gross income. If the payment is still not affordable at that level, the initiative matches “further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31%.” Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs.

The lower interest rate must remain in place for five years, at which time it can gradually be stepped up to the conforming loan rate in place at the time of the loan modification.

Servicers receive an up-front incentive of $1,000 for “each eligible modification meeting guidelines established under this initiative” plus a monthly incentive up to $1,000 per year for three years as long as the borrower remains current on the loan.

Borrowers receive an incentive of up to $1,000 per year for five years, as long as they stay current on their loan. The money is applied to pay down the balance on their loan; it is not given directly to the homeowners to spend as they wish.

Servicers receive a $500 incentive, and mortgage holders receive a $1,500 incentive for modifying at-risk loans before the borrowers fall behind. This is intended to provide early assistance to borrowers - before they default on their loans.

Mortgage holders receive an additional insurance payment, linked to declines in the home price index, on each modified loan. This is designed to discourage mortgage holders from foreclosing now out of fear that property values will fall even further if they wait to foreclose.

As part of the plan, the Treasury will develop uniform guidelines for loan modifications across the mortgage industry. All financial institutions that receive Financial Stability Plan financial assistance will be required to adhere to the guidelines.

Strong government oversight will be in place to monitor performance and ensure compliance with the plan’s guidelines.

The plan allocates $1.5 Billion in relocation and other forms of assistance to renters displaced by foreclosure and $2 billion in neighborhood stabilization funds.

Low Mortgage Rates

The third major component of the Homeowner Affordability and Stability Plan is to “support low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac.” To accomplish this goal, the plan calls for the following:

- Increasing the Treasury Department’s funding commitment to Fannie Mae and Freddie Mac to ensure security of the mortgage market. Treasury is increasing its Preferred Stock Purchase Agreements to $200 billion each from their original level of $100 billion each.
- To promote stability and liquidity, the Treasury Department will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities.
- Treasury will increase the size of the GSEs’ (Government Sponsored Enterprises’) retained mortgage portfolios by $50 billion to $900 billion along with corresponding increases in allowable debt, so Fannie Mae and Freddie Mac can facilitate financing for the mortgage industry.
- The administration will work with Fannie Mae and Freddie Mac to support the efforts of state housing finance agencies in serving homeowners.

For additional details, check out the “Help for homeowners” Q&A post on the White House Blog.

This article is just one man's opinion.  Tell us what you think!

RISMEDIA, February 20, 2009-”Those who do not study history are condemned to repeat it.” So spoke Sir John Buchan, the First Baron of Tweedsmuir, back in the mists of time often referred to as “the good old days.”

Well, I may not be as old as the Baron, but I did live through President James Earl Carter, 21% prime interest rates, 20% inflation, Paul Volker and his attempt to strangle inflation by strangling the money supply, and that famous “WIN (Whip Inflation NOW!)” button the White House handed out. The period I am referring to was in the 1970s and early 1980s, and it effectively reduced the purchasing power and the true value of the dollar forever.

It wasn’t that long ago that we lived in a different economy altogether
Americans often affectionately remember the 50s, when Ike was president, America was the benefactor of the world, and life was so simple. Then, a man making $10,000 annually was quite successful. Then, a home might cost $13,000. A nice Ford or Chevy might cost $2,300; New and gleaming and using 22 cent-a-gallon gasoline.

But it was only in 1971 that I bought my first home for $33,690 in Chelmsford, MA; the same year I purchased a new 454 Corvette Roadster for $5,100 out the door. Then, $50,000 a year was the equal of my dad’s $10,000 in earning power.

I remember how excited I was when I finally had $100,000 in savings-I was wealthy, I thought, and my future seemed assured. When the pardon of Richard Nixon jolted America into changing administrations, the Peanut Farmer, James Earl Carter of Plains, Georgia, was elected to the Presidency of the United States. The wreckage his administration presided over made it possible for “The Great Communicator” to be elected in 1981; and by the time that happened, houses were $300,000 and cars cost about $30,000.

Personally, I wasn’t noticing the effects of inflation, yet-after all, we sold that original home and moved into a beautiful new home that cost $86,000 just as President Carter took office. Although I sold that home for north of $200,000 a mere five years later, it never occurred to me that our currency was being debased; no, I thought I was a brilliant investor!

Whatever happens, the stage is set for inflation to come back with a vengeance.
Discounts abound, but prices of durable goods are increasing.

In the 1970s those gurus of the Federal Reserve told us that “M1 (an arcane measurement referring to the ‘money supply’-the total number of dollars in circulation), was the most key statistic to watch, for if the money supply grew too quickly, inflation would persist and continue.” We then became a nation of M1 watchers, and the Fed attempted to control the most complex economy in the world by watching that one statistic and throttling the economy with interest rate surges that brought about disintermediation, the death of the savings bank industry and that set the stage for the rise of Merrill Lynch and Wall Street to replace banks and savings and loans as purveyors of the American mortgage.

Interest rates were so high banks couldn’t keep deposits because they were subject to interest rate restrictions. “Let them compete-take the shackles off the banking industry” Washington thundered, and so the Garn-St. Germaine banking act was passed, allowing the community bank ‘to compete’ with Merrill Lynch.
Predictably, Merrill Lynch won. King Pyrrhus couldn’t have put it better: “One more such ‘victory’ and I am undone.” We are all paying for that ‘victory’ today.

The savings and loan industry abandoned 50 years of thrift and sound banking practices and put insured deposits into junk bonds sold by that ever-smiling Michael Milliken and his henchmen instead of local mortgages. When the dust cleared, there was no mortgage expertise left, no savings and loan industry recognizable to anyone left, and Wall Street had achieved their goal of displacing the community bank and becoming the “one stop shop” for all things financial (See; Sanford Weil, Citigroup, et al).

In any case there can be no debate that the trillions of dollars about to be pumped into the economy-while they will save us-will also bring inflation back; unless-of course-all that stuff about M1 and the money supply, and all those pronouncements by Paul Volcker, then-Chairman of the Fed, were mistaken . Since Mr. Volcker has now returned in a quasi-official capacity to advise the President’s team, I’d guess we’re in for inflation, now, and part of his mission is to try to minimize it.

Good luck Tim Geithner.

Our new secretary of treasury is reportedly a brilliant man– perhaps a little forgetful about taxes, but nonetheless, brilliant, by all accounts. Together with the rest of the Obama team, he will need every bit of that intelligence and brilliance to help this great country of ours avert total meltdown, but I believe that the team will indeed accomplish that and we will make a recovery, led in part by housing. It’s never smart to bet against the United States of America.

But when the money supply is increased by an amount equivalent to 20 or 30% of Gross Domestic Product or more-naturally or unnaturally, inflation must result. That means that prices of all fixed assets rise to keep pace with the devaluation of the currency. We won’t be taking the wheelbarrow to the market full of dollar bills to buy a loaf of bread, as happened in Germany after WWI, but we will be going on a pretty thrilling ride for a while.

Now, what is going to happen to home prices over the next few years?

I am not as formally schooled in such matters as our current leaders are. I’m just a guy who has seen this movie, too. It is my belief that a side effect to saving America’s economy will be a robust increase in inflation. I believe that Inflation will regain all the “value” we lost in housing over the past two years, and that it will regain it in five years or less. Simply put, to put the brakes on inflation, government must inhibit the recovery. The people in power aren’t going to do that. Inflation is a necessary evil compared to a full scale depression and an acceptable trade off for most of us. (And oil won’t stay at about $40 a barrel too long, either!)

So, tell your clients the truth: Interest rates will never be this low again in their lifetimes. Home prices won’t be this low again in their lifetimes. This is the perfect storm economically, but it also the perfect time to buy a home; provided that you buy it as a home and not a piggy bank. It’s just a nice side benefit that five years from now, the home you bought today will have appreciated so much that you’ll be thinking (just like I did in 1979): “What a smart investor I am!”

This just happens to be the perfect confluence of opportunity and necessity: we must fix the economy and we’re going to, whatever it takes. Inflation is an unavoidable side effect. Buy that house this year!

I'd love to hear your thoughts and opinions on the following article taken from thetruthaboutmortgage.com website.  If their forecast is correct, a 10% or more decline in home values will inevitably make it harder for MANY homeowners to refinance their homes, no matter how good their credit is.  A 10% + decline will also send thousands more homes into foreclosure or short sale.  My point is this...if you have 10% or more equity in your home, and your interest rate is at least a 1/2 to 1 percent higher than current market, you should seriously consider refinancing now before your opportunity passes you by.  

The article below talks about the recent mortgage rate drop in the past few weeks. 

Mortgage Rates Dropping, but Is It Time to Refinance?

RISMEDIA, Jan. 1, 2009-(MCT)-This year’s holiday season is likely to be a little cheerier at Kevin Coughlin’s home. Coughlin refinanced the adjustable-rate mortgage on his Shorewood, Minn., house this month into a 30-year fixed-rate mortgage that’s going to save him $200 a month.

“It takes the pressure off the cash flow,” he said, speculating about how he and his family might benefit from the savings. “Whether it’s groceries or the ability to eat out one more time each month-before, you weren’t going to do it.”

Nationally, mortgage rates fell to an average of 5.19%, the lowest level in 37 years, according to a weekly survey released Dec. 18 by Freddie Mac. Some lenders were reporting even lower rates, and area mortgage lenders say applications are pouring in.

It’s too soon to say what effect the rates will have on the moribund real estate market. The most immediate beneficiaries appear to be homeowners hoping to swap their adjustable-rate mortgages for fixed payments.

“This is nearly a historical and probably unprecedented opportunity,” said Keith Gumbinger of HSH Associates, a financial publisher in New Jersey.

Not everyone will be able to latch on to the lower rates. Homeowners whose property values have fallen may not have enough equity to qualify for the lower rates, and lenders are scrutinizing applications more closely now than during housing’s go-go years earlier this decade.

The decline in mortgage rates comes after aggressive moves by the Federal Reserve aimed at propping up the U.S. housing market. On Dec. 16, the Federal Open Market Committee lowered a key interest rate, and last month the Fed said it would buy $600 billion in mortgage-related securities and other debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan banks.

The latest rate decline is unlikely to revive the ailing housing market. According to a survey by the Mortgage Bankers Association earlier this month, refinancings represented almost 77% of all mortgage applications.

Buying a house is a much more complicated process than simply refinancing, and many prospective borrowers aren’t feeling confident enough about the economy to make a big financial commitment, said Ken Johnson, vice president of the Coldwell Banker Burnet office in Minnetonka, Minn.

But a refinance boomlet is also good news for the broader economy. Millions of homeowners still have costly adjustable-rate mortgages. With access to credit tightening, rates on consumer loans rising and the value of equities falling, the opportunity to lock into a fixed-rate mortgage and to reduce payments could relieve pressure on some household budgets.

On a $200,000 mortgage, for example, a shift from 6.25 to 5.25% interest can save more than $100 per month.

“The recasting of debt could mean many billions of dollars let loose in the marketplace to support a very leaky economy,” said Gumbinger, who said recent 30-year, fixed-rate mortgages were the lowest since the 1960s.

Likewise, a flurry of refinancing could help financial institutions that are saddled with risky mortgage debt by getting those loans off their books and freeing cash for other kinds of loans.

Already, loan officers are saying that their phones are ringing off the hook, mostly with people who want to refinance.

“I’m swamped with calls,” said Randi Livon of Residential Mortgage Group in Minnetonka.

Unfortunately, many callers have no equity or owe more than their home is worth. “Their values just aren’t there, and these are people who are working two to three jobs to make their payment,” said Livon.

With the support of the federal government, Gumbinger said, it’s likely that the historic low rates could linger.

“That support is not going away,” said Gumbinger. “The federal government is not like the private market that has to turn tail and run when things get ugly.”

Loan Planet strongly believes that refinancing now can save you hundreds of dollars per month and thousands of dollars over the life of your mortgage.  If you're in an adjustable rate mortgage (ARM) and you have the ability to get out of it and into a fixed rate, NOW IS THE TIME.  Many of our clients have several years left on their ARM before it adjusts, but are moving to a more secure, fixed rate loan. 

We talk to a lot of people who are "waiting" for rates to drop to 4.5% or lower.  Personally, we feel that's a bad idea, as there are no guarantees or indicators that suggest rates will ever get that low, and economic forecasts project that rates may actually start to go up sooner than later.  If you're on the fence about refinancing, let us email you a good faith estimate so you can see your potential savings and determine whether you should refinance now.  At Loan Planet, we have the lowest mortgage rates in Virginia and we are ready to help you fulfill your financial goals!  Contact us today!