Virginia mortgage rates and industry news

Fed steps in and cuts again
Bernanke pulls out all the stops to ailing economy

The Federal Reserve significantly cut rates for the sixth straight time since September. This follows a busy weekend where the Fed also extended its hand to Wall Street, bailing out Bear Stearns with JP Morgan Chase. While rate cuts look good at face value, you need to prepare for what's to come.

Why did they do this?
The Fed wants you to start spending money and wants to boost consumer and Wall Street confidence. Consumers are under stress with increasing consumer prices and a slowing housing market. Wall Street banks have been under stress from mortgage defaults and their impact on corporate balance sheets.

How does this impact you?
Fed rate cuts are inflationary. Since the Fed started cutting rates in September of last year, oil prices are up nearly 40%, gold prices are up over 25%. This is the direct result of a falling dollar which occurs from Fed rate cuts.

As a result, mortgage rates will ultimately rise from here. It is inevitable. Inflation is the arch enemy of fixed-income investments, long-term bonds and mortgage-backed securities, upon which mortgage rates are based.

Here's a look at the inflation picture: Gas prices last September, prior to the Fed's current cutting trend, were roughly $2.75 a gallon. Today, gasoline averages $3.25 a gallon nationally, up 18% before the first rate cut. This is a sign of inflation.

What should you do now?
If you are looking to refinance, don't wait. Act now to get a great interest rate. Home loan rates have come down over 1.00% in the last two weeks. But after each of the last five rate cuts, we have seen rates rise significantly in a short period of time. Don't get caught saying "I wish I had…"

If you are looking to purchase a home, it's time to pull the trigger! Home prices have to fall over 10% to make back what you lose in monthly housing payments if rates increase 1.00%. There are some great buys out there today, not to mention the conforming loan limit increase ($729,750) in the DC metro area makes more expensive homes more affordable to us all! 

Many investors updated their rate sheets this week and added a new loan program...."The conforming PLUS program".  After a highly anticipated move by HUD to temporarily increase the conforming loan limit in high cost areas, most of us have watched in dismay as rates and guidelines have been released on this new program. 

Although this new loan program is offering some relief for home owners and buyers requiring jumbo financing, the requirements and rates associated with this new loan program are not as favorable as many had hoped.  Most investors are requiring a 700 or better credit score and are limiting their exposure to 90%.   Translation; you'll need excellent credit AND you'll need at least 10% equity in your home, or be required to put 10% down.  Even if you've got all of that going for you, don't expect to see rates in the 5's right now.

Let's talk rates.  Right now as I type this email, excellent credit will get you a conforming 30 year fixed rate up to $417,000 at 5.625% with zero points.  You can confirm that by clicking HERE.  Should you need to borrow even more money, the new "conforming PLUS program" may be your answer, but the rates are vastly different.  A $650,000 loan under the new program is roughly 6.50% (depending on adjustments)with zero points.  Contrast that with traditional jumbo financing, and those rates are in the high 7's!

What happened to ARM's?  Approximately ten days ago Wall Street lost their appetite for Adjustable Rate Mortgages.  So much in fact, that a traditional 3/1 or 5/1 ARM will set you back as much as a conventional conforming 30 year fixed!  Will they come back?  We are watching patiently...

Stated Loan (Update)  As quickly as investors rolled out the "Conforming PLUS program" they pulled the traditional Stated/Stated or SISA loan off the shelves.  There are only a handful of investors still doing them.  Word of advice?  If you know you need this type of financing, RUN...don't walk to lock these loans in. 

How should you structure your purchase or refinance?  That will clearly be dictated by the amount of home you need to finance.  While second mortgages still exist and provide excellent means to avoid mortgage insurance, they are no longer available up to 95% in most cases.  Mortgage insurance and "Lender Paid" mortgage insurance have made their way back onto the playing field and look to be more prevalent than ever.  

Do you have questions concerning the way your mortgage is structured, or how to structure a new home purchase?  I would be glad to discuss it with you, and make sure you are getting the maximum benefits from today's complicated mortgage arena. 

Hey, Virginia and Maryland!  Great News!!!!!!

We received word from our investors that HUD just approved an increase in the conforming loan limit! 

The new conforming loan limit has been temporarily raised to $729,750! 

This increase will benefit most counties surrounding the D.C. Metropolitan area! 

Borrowers will now benefit from substantially lower interest rates on higher loan amounts, and be able to purchase homes with less money down! 

Existing home owners stuck with jumbo interest rates or ARMs will now be able to refinance into lower fixed rates and ARMs!

When will this take effect?  Many investors will be ready to accept these new loans as early as 3/17/08! 

This temporary increase will not last forever, so let's benefit from it while we can! 

Some of our fine lender partners announced today that the very popular Stated income/stated asset loans will no longer be available as of June 1, 2008.  More importantly, many lenders will be imposing cutoff deadlines well before the June 1st date.  Fannie Mae, one of the leading purchasers of this loan, will no longer be purchasing these loans on 6/1/08, and expect the rest to follow suite.  The removal of this loan program will affect the traditional conforming "stated/stated" or SISA program loan limits up to $417,000. 

If you are unfamiliar with this type of loan, here are the basics.  A stated/stated loan allows the borrower to state (within reason) his/her income and assets.  The income and assets are not verified by the underwriter.  Instead, an underwriter will grade the borrower not on income or assets, but on credit, employment history, and "reasonableness". 

Why is this loan so popular?  Many self employed or highly commissioned borrowers earn much more income then they actually show on tax returns.  A typical borrower may actually earn twice as much as they show on their tax returns, mostly due to write offs or unreported income. 

Why is this loan so important to the housing industry, and what impact will it have when it's gone?  Since so many borrowers own small businesses or have jobs that earn a significant income in the form of commission, the removal of this type of loan may spell big trouble.  These borrowers may no longer qualify for a home they can actually afford, and may reduce their buying power to homes they can afford "on paper".  Since it's estimated that almost 40% of Americans earn income in this way, the removal of this program will be significant. 

What can you do about it?  If you are a borrower, or a Real Estate agent working with the type of buyer I've described, time is of the essence.  Now may be the best time to purchase or refinance a home while this special program is still available. 

Will stated loans go away completely?  No one knows for sure, but you can bet that if these types of loans are still available, they will come with a significantly higher cost to the borrower. 

Need more information?  Give me a call or drop me an email!

Paul Thistle, President - Loan Planet  (703) 753-5747  paulthistle@comcast.net