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fed might extend MBS purchases

Since November of 2008, rates moved from the high six percent range down to the levels we’re seeing today.  We’ve been in the high four to low five percent range (give or take) for over a year now.  One of the main reasons we’ve been in the ultra-low rate environment for such a long time is due to the Federal Reserve Board’s commitment to buy mortgage-backed securities.  These regular purchases keep the demand for mortgage bonds higher than they would normally be, keeping rates in check.

But when the Fed announced they would begin such purchases they at the same time announced when they would stop.  That date is March 30, 2010.  You can expect rates to begin to rise around that time when mortgage bonds have to lower their price to offer an attractive yield.  That = higher mortgage rates.

Recently however, there have been more than rumors that the program would be extended although no one would come out and admit it.  When the Fed released their most recent meeting minutes it showed that more than a few of the Board Members were in favor of extending the purchase program.  On the other hand, there were still a few more that were against it.

Today, Bernanke didn’t rule out extending the program but he didn’t quash the rumor, either.  Instead he simply said that the Fed would wait until the end of the program before deciding to extend it.

My guess is that the Fed won’t make any announcements anytime soon but will make an announcement at say, March 29th that the Fed will extend the program but by only two more quarters.

That’s my bet.  Any takers?



Rates still on their move upwards.  We’ve lost about 3/8 percent in the past two weeks.  There were some investors still holding onto the notion that the Fed will continue its mortgage-backed security purchase program but I think now they’ve all come to realize it just ain’t gonna happen.

You read it here first:  At the end of January, a conforming 30 year fixed rate will average 5.75%.


say goodbye

I’ve been working my database and telling past clients that if they’ve been thinking of refinancing they should do it now.  Right now.

I’m also doing the very same thing to those who have contracts in hand and are waiting for the right time to lock.

I’m right more than I’m wrong when it comes to interest rate predictions but I see rates moving up after the first of the year….and that’s soon, folks.

Last summer, I predicted rates would fall to current levels by year end then begin to creep back up.  But it appears they might be creeping back up a little sooner than anticipated.

Of course, no one can accurately predict these things but as of this writing 30 year fixed rates have lost nearly 1/4% in two weeks time.  That may not sound like much but when rates move above the 5.00% barrier then psychologically it sounds higher than it really is.

That’s why oil changes are $18.99 and not $19.00.  It just sounds better.

How high will they go?  I’m betting that rates will get into the mid five percent range by February (rates we temporarily saw last summer).  And that move does have an impact on affordability.

For instance, when interest rates are at 4.5 percent someone making $5,000 per month could qualify for a loan of around $325,000.

But when rates get to 5.50 percent that qualifying amount drops to about $290,000.  If a buyer put 20 percent down on each example that’s a sales price difference of $406,250 and $362,500 respectively.  6.50 percent?  Try a sales price of $326,300.

That’s an $80,000 dollar swing.

What’s causing this recent rise?  One, there are pockets of good economic news from better payroll numbers in November to higher pending home sales.  And inflation is currently no threat.

Finally, the Fed ends its mortgage-backed security purchases in March as expected.  Last September this desk wrongly predicted the Fed would extend the purchase to keep mortgage rates low but they’ve indicated the program will stop as scheduled.

It’s sort of a “bird-in-the-hand” scenario.  If rates are at near record lows now then why chance it?

The prudent move?  Lock and load.  And say goodbye to lower rates.


move up your closings

Let me do some quick math for you.  Designed especially for those who like to close on the last day of the month.  Today is the 5th.  How many days until the end of the month?  To November 30?

No, it’s not 25.   It’s more like 14 days.  Like two weeks.  How’s that?

Lenders, attorneys and title companies don’t work the weekends and neither do banks.  At least in the sense of being able to wire funds to the settlement agent.  They work on business days.  Counting tomorrow there are 16 days left.  Including the last day of the month which doesnt really count because all the work to close your deal has already been done at that point.

So that leaves 15 days.  I’m also not counting a full day on the Wednesday before Thanksgiving.  Many companies shut down a half day or the employees take some vacation time to travel.  I’m also not counting a full day after Thanksgiving for the very same reason.  That’s 14 days.

The lender needs a couple of days to get the loan papers ready and maybe a day for the settlement statement to be reviewed.  That means you need to get your ducks in a row 11 days from now.   That’s the 20th.  A Friday.

It’s sneaking up on you as you read this.


the mortgage zombie

Honestly, I am going to beat this thing in the noggin with a baseball bat until it stops moving.  I swear.

Earlier this week an author sent me an email telling me she was writing a book on investing in real estate and she had some questions about financing investment properties and did I have some time to chat with her?

Of course I had the time.

She had a list of questions she sent me ahead of time so I could do any homework I needed to do.  A couple of days later she called and we had a long talk, probably a 45 minute phone conversation.

We talked about various aspects of financing investment properties from which is better, an ARM or a fixed rate (a fixed), how much should one put down (as much as possible to cash flow and not drain your resources) and what type of term is best for investors (the shortest term that still cash flows and doesn’t hurt the wallet).

It was a nice conversation and the author really knew her stuff and the more we talked the more questions she had for me.

But towards the end of the conversation she asked, “But is there any money out there and are lenders even making loans these days?”

Yes.  For the millionth time.  Lenders are making loans these days.  If we weren’t I would have been out of business long ago.

I don’t know why people still think that people can’t get home loans anymore but they do.  I know for a fact because our little office closed 28 loans in October alone.  And we sold them to various other lenders like Chase or GMAC so we could go out and make even more loans.


There.  Sorry for yelling, but…for crying out loud….it’s like a zombie movie or something….


Yeah, I know that guy….

How many times have you seen a “prequal” letter from someone you’ve never heard of?  If a buyer presents your seller a letter saying they’ve been preapproved, have you ever taken pause?  Or maybe the letter said they were approved when in fact they were nowhere near such a milestone?

Of course you have and if you haven’t then it’s simply a matter of time.  But just because you’ve never heard of the lender or the loan officer who appears in the signature line doesn’t mean they’re just a bunch of flakes.  There’s some real talent out there and after all, you’re in the real estate business not the lending business.

But there are a couple of things you can do to make you feel a little more at ease when faced with a foreign figure.

The first thing you do is call the loan officer and ask them about the buyers.  Ask:

  • Have you reviewed their credit and are their scores okay?
  • Have you verified their income and employment?  and, (most important)
  • Have you ran their file through DU?

The last question puts the loan officer on notice that this isn’t your first rodeo.  “DU” stands for Desktop Underwriter and it’s the automated underwriting system most lenders and mortgage brokers use when getting a loan approval.  Freddie has one too called “LP” for Loan Prospector.

But it’s not knowing whether or not the file was submitted via DU or LP but letting the loan officer know that you understand the loan process and don’t even think about messing with you.  Only those “in the know” use the term DU or LP.

Finally, call up your loan officer you normally refer your clients to.  Most lenders are members of local banker or broker organizations and if they’ve been in the business for any length of time they’re likely aware of their competitors.  I get occasional calls from my Realtor clients wanting to know if I’ve heard of so-and-so and are they any good, etc.   Most often they are and I’ll tell my Realtor so and if I don’t know I’ll tell them that as well.

Either way, just pick up the phone and ask a few questions.  You’ll feel better.


Rat Prediction. Er I mean Rate Prediction.

In an earlier newsletter I predicted we’d see a rate drop in October leading through November.  So far, I’m right, with 30 year rates hitting 4.50% for conforming loans.

But the other shoe has yet to drop, that of the Fed making an announcement to purchase still more Mortgage Backed Securities beyond the October 30 deadline.

The Fed didn’t do exactly that but they kinda sorta came close by stating that they were not canceling their purchases as many had speculated.  On the contrary, they settled the markets by not only reiterating their position on purchases but extending the time frame that they’ll continue to invest in mortgage-backs until early next year.

This means that rates should stay at current levels for at least this quarter.

What could mess up this prediction?

It appears much attention has been given the “recovery” in terms of the unemployment reports.  The September payroll numbers were worse than expected and with all the relatively good news on the jobs front in August’s report it appears August was an anomaly.

If however the October payroll reports look more like August than September then we’ll see rates move back up into the low five percent range fairly quickly.

Inflation is also tame but when, not if, inflation does hit the streets mortgage rates will shoot up and will never look back.

When will that happen?  I can’t predict any date but you can’t keep printing money like we’re doing now and in the future without rates moving up.

That’s just a fact.


July 2018
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