Illinois Mortgage Rates Weekly Update
17th May 2008
Welcome to Illinois Mortgage Rates and News week in review for the week ending May 16th, my take on the week’s financial news and how it affected Illinois mortgage rates.
If you follow the news, it was a grim week with talk of natural disasters in Asia, an earthquake in China and a cyclone in
Myanmar. With true disasters like this the mess in the real estate and mortgage markets doesn’t look nearly so bad. In fact, there were a few signs this week that we are starting to come out of the worst of the mess. While it is too soon to say that we have reached a bottom, there are signs that point to how we can navigate through this. We are still a long ways from where we were, but in a way we are coming to a new normal, and I see signs of the financial markets stabilizing and the mortgage industry gaining confidence. Two things happened this week that point to this conclusion. One, foreign investors started to show interest in buying mortgage bonds again, and two, Fannie Mae is getting rid of their disastrous declining market policy.
Let’s start out with number two, Fannie Mae’s scrapping their declining market policy. Last December, in a reaction to the down turn in the housing market, Fannie Mae, the biggest purchaser of mortgages, came up with a plan that they thought would shield them from the risk of falling home prices. The idea was to identify markets where the prices were falling, and require a higher down payment in those areas. So if someone was going to buy with what would normally be a 95% loan to value (5% down), in a declining market they would need to put down 10%. The idea was for Fannie Mae to cut their exposure in the worst markets. In a way this was a form of Redlining, a discriminatory lending practice and because of this they became a target for consumer groups. The bigger problem was that it made things worse. By making financing more difficult it took more buyers out of the system, guaranteeing that home prices would continue to spiral down. And while the original idea was to cap off the worst areas, the declining markets started to creep into areas that were looked at as more stable, including portions of the Chicago area, again making sure that prices would continue to fall. The new plan is to go back to the old plan. Financing rules will be the same for all parts of the country, with no hits based on the market condition of the area. This change will be part of the release of the new DU version 7, which is going to be tightening qualifying overall, so it’s not all good news. The changes go into affect staring June first.
The other encouraging sign was a return of foreign investors to the mortgage bond markets this week. The lack of foreign buyers in the mortgage backed securities market has been one factor in keeping mortgage rates higher than they would be otherwise. There is now evidence that the foreign investors are starting to buy again. This means they have confidence that the worst is over, and are willing to vote with their cash. We are also starting to see some movement on some programs that have been given up for dead, like adjustable rate mortgages and Jumbo loans. We’ll see how this develops as time goes on, but it is another encouraging sign.
A lot of economic reports were released this week, and as has been usual in this market, they were a mixed bag. Retail sales numbers dropped, but when low auto sales were factored out they increased by a higher than expected .5%. This could be looked at as proof that consumers are still spending, which means that the economy still has some strength. It could also be looked at as a reflection of higher prices, and the increase is due to inflation. Housing starts unexpectedly moved higher, but again this was a mixed result because the increase was due to a surge in multi unit apartment buildings. Single family home starts dropped for the 12th straight month. Consumer price index came in lower than expected, which means inflation is still manageable. Good news for mortgage rates. There were some other reports which showed that the economy is continuing to loose steam, and consumer confidence fell again to its lowest reading since 1980.
All this activity meant another see-saw market where volatility was amazingly high. Mortgage bonds tried to break through a layer of resistance, and finally did on Friday afternoon, before giving back their gains and ending down for the session. Still, mortgage rates are about the same as they were last week, and poised at level of support. Over the last few weeks rates have dropped each time they got to this level, but at some point I think we are going to break through and rates will drop down again. If you are in the market to refinance your mortgage, get your papers ready. We’ve had a couple of opportunities where the rates dropped to the lowest points, but the windows were only open for a short time. If it happens again you should be ready to jump on it.
Here is what Illinois mortgage rates look like today for an A+, full doc purchase on a 30 day rate lock, with 0 points, and no origination fee. The conventional loans are based on the highest conforming loan amounts, which give the best pricing. (Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or contact me and I’ll take the time to find the rate and program that is best for you.) :
Conventional loans up to $417,000
30 year fixed rate 5.875% 5.942% APR
15 year fixed rate 5.50% 5.657% APR
5-1 A.R.M. 5.25% 5.398% APR
7-1 A.R.M. 5.50% 5.659% APR
For Jumbo loans over $417,000
30 year fixed rate* 6.50% 6.674% APR – Requires 20% down payment
(*We have one lender at 6.125% for a Jumbo fixed rate - if you meet their guidelines – 75% loan to value, tighter ratios.)
7-1 A.R.M.* 5.75% 6.014% APR *there is a 1 year pre-payment penalty on this option.
FHA LOANS
With 1 point origination fee – 60 day lock
30 year fixed rate 5.75% 6.159% APR
With no origination fee – 60 day lock
30 year fixed rate 6.00% 6.274%
These are just a few of the programs and mortgage rates available. Which option is best for you depends on your own specific goals and needs. If you have any questions or want to go over a situation, let me know how I can help.
Illinois Mortgage Rates and News
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one hand, the property values are down and you are able to buy a home at a bargain price compared to where homes were selling just a year or two ago. On the other hand, you wonder if we are near the bottom, or if the bargain you buy now will seem over priced a year from now. The truth is that markets (whether stock markets, bond markets or real estate markets) are unpredictable, and we won’t know where the bottom was until we have gone past it. That being said, I’m not sure we are at the bottom yet, but it is
and commodity prices are moving up sharply, too. At the same time in the real estate market few properties are selling, home prices are down and foreclosures are up. The economy is still shedding jobs, though at a slightly lower pace than before. Consumers are still piling on credit, but they are using more credit to buy gas and groceries. Not a good sign. We can see a lot of dark clouds on the horizon. So with all this bad news, is there a silver lining or, to mix metaphors, is the light at the end of the tunnel an oncoming train? We don’t know now and we probably won’t know for a while, but some on Wall Street think that the worst of the credit crunch is now over. But even if the big Wall Street players are starting to get confidence back, that won’t necessarily translate down to our streets for a while.
starting an addition to their current home or buying a vacation home. I’m still doing a fair amount of new purchases, but a lot of my calls now are about cash out refinances to consolidate debt. It always makes sense to make sure your mortgage is in line with your overall finances, but it is especially important when money is tight. A debt consolidation loan can help you to restructure your debt in a way that puts more money in your pocket and gives you a plan to actually pay down your debts.
I’ve written before, mortgage interest rates go up and down based on activity in the mortgage bond market. Mortgage bond traders are the financial market’s version of tea readers or fortune tellers. Collectively, they take in all the data as it is released, make split second judgments on how the data will affect the value of their investments over the long term and buy or sell the bonds based on their predictions. And they do this throughout the day, each day. A lot of money is riding on each decision, and the pressure to get the call right is enormous. This is especially true in our current market where volatility is so high. So as the information is released, all the traders make their decisions, usually assuming the worst. Later, it’s not uncommon that they look a little deeper and change their minds about the impact of the data. We saw great examples of that this week.
jobs each month, just to stay even. A loss of 20,000 jobs means we are 170,000 jobs worse than we need to be just to keep running in place. By the time lenders released rates in the morning, the loss was much lower, and at points in the day mortgage bonds traded in positive territory before ending with a moderate loss for the day. But this doesn’t tell the full story. The jobs report is the most anticipated report released each month, but it is almost never right. The report is based on a historical model, and much of it is compiled by assuming that the numbers will correspond to historical averages. This means that when the economy is growing the job gain is underreported, and when the economy is contracting job loss numbers look better than they really are. We are in a contraction now, and the previous reports have all been revised downward as the real numbers came in. So expect that these numbers will end up worse than reported, too.
October of this year is eligible, and with payouts of up to $600 per individual and $300 for each child under 17, this should cover several tanks of gas. What are you planning to do with your check? The idea behind the checks is the hope that if everyone goes out and buys something, this will kick the economy back in gear. There are of course, a few problems with this theory. First of all, not everyone is going to buy something. If you are feeling the economic pinch, you might rest easier putting this money in your savings account or paying off your credit cards. And those who do their civic duty and go out shopping are likely to buy foreign goods which will give a more limited kick. But if the checks make people feel more confident about their own finances, then the plan will have done its job. I think it will take more than this to prime the pump.
or client who put an offer on a pre-foreclosed property (a short sale – this is where the lender would have to agree to let the buyer buy for less than the full amount of the mortgage so they don’t have to go to the expense of foreclosing the property) 3 months ago. He’s still waiting for an answer. I called the number on the sign and was referred to a web site. The web site offers several tours in an “air conditioned bus” stopping at a variety of pre-foreclosed and bank owned properties. A Realtor is giving the tour and you will be able to make offers on the homes if you choose. The bus isn’t free, though. A ticket for one tour cost about $100, another tour of luxury homes was priced at over $300. But lunch is included. It is a sad fact of life that foreclosures are on the rise, even in the nicest areas. But if you are looking to invest, you don’t have to take a bus. If you are looking for investment property and need the name of a Realtor who can help you, let me know and I’ll direct you to an expert who can offer personalized service.
New claims for unemployment insurance came in at 342,000, this week. High, but lower than the 375,000 released last week. Existing home sales fell both nationwide and in the Chicago area. New home sales came in well below expectations, and there isn’t much new housing going up.
cases, money in reserve. Again, this all goes back to the idea of risk. Not so long ago it was common to buy a home with no money down. But that was before the real estate market turned down. Conventional lenders have now eliminated 0 down financing and you will, in most cases, need to have at least 5% of the purchase price for a down payment.
Gifts for your down payment - Gifts are a special case, and if you are expecting that some of your money will be from a gift, a little planning ahead of time will make your experience much easier. First of all, gifts aren’t allowed on every program. With some conventional programs, unless you are putting at least 20% down, 5% of the down payment needs to be from your own funds - all the rest can come from a gift. With FHA loans all your cash can come from gift, or a grant from a non-profit agency. 
basis points (a huge loss). It looked like bonds were on track to test the worst levels we’ve seen in months, when they switched direction and rallied higher. At the end of the day mortgage bonds closed up 31 basis points, up over 100 points from their low. What news came out to justify this switch? Not a thing. After the fact commentators came up with justifications for the switch, but the truth is it is all about market sentiment and this can switch on a dime. Traders and big investors are thinking that the worst is over, and they can see a time when the housing crunch is over and the economy is back on track. They can see it clearly, but we may have some valleys we have to cross before we get there. When we hit these valleys - or if there is even a hint that these valleys are out there - stocks will tank money will rush into mortgage bonds and rates will improve.