Illinois Mortgage Rates and News

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 12^th 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

If you are in the market to buy a home or condo here in the Chicago area, you are probably a little bit nervous. On 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 still a good time to buy a home here in the Chicago area, as long as you plan to keep it more than a few years.

Markets go up or down based on supply and demand, and these two factors can be broken down into fear and greed. The fear and greed isn’t just with the buyers and sellers of real estate, it extends on to all the players in the real estate market, Realtors, lenders and the financial markets. A few years back when the real estate market was on fire, greed was in the air and all people could see were dollar signs. Sellers saw prices for their homes that they wouldn’t have dreamed of a few years before. Buyers saw an opportunity to buy a home that would do nothing but appreciate, and they were convinced that if they didn’t buy now the price would be higher if they waited. Realtors and lenders saw more opportunities for sales and commissions and the financial markets looked at this as a way to convert cheap, easy money into an endless stream of high return investments. The belief at the time was that real estate in the United States never went down in value. Anyone with a long term memory would know that didn’t make sense. There had been real estate bubbles in California and Florida before, and the Texas market took a long time to recover from the bust after the Oil boom in the 80s. But here in the Chicago area, in the heart of the stable Midwest, it was easier to believe. We didn’t see the extreme highs that other areas saw, so we felt that we would escape a real down turn, too.

Since the real estate and mortgage market started to dive, people have been pointing fingers at who was to blame. Some said it was the buyers who bought homes they couldn’t afford. Others blamed the lenders for making loans to people who never should have gotten credit in the first place. Some of this blame is well deserved - I know that I shook my head at some of the loans that were offered – but I think the real cause was the big financial players on Wall Street who had too much money to invest, and not enough places to invest it. Money at the time was cheap, and there was no place on a global scale that was able to give the returns that big investors were demanding. The old secure A-Paper mortgages weren’t enough to meet this demand. This was when the creative minds on Wall Street started churning out new mortgage backed securities that would fill the void for their investor clients. Mortgages are underwritten based on risk. When greed is in the air risk doesn’t seem as important, so underwriting guidelines were thrown out the window and mortgages were available for people who never would have considered buying a home before. With so many more buyers able to qualify for financing, this means there was more demand than the supply of homes for sale was able to meet. This meant that property values had to go up, here in the Chicago area and throughout the country.

Now the pendulum has swung and we are on the fear side of the equation. At some point, probably when property values started to move down in the hottest markets, Wall Street saw the risk they were taking. They cut off the money spigot and since then mortgage underwriting has gone through a series of tightening measures so that it is harder to qualify for a loan now than it was before the whole loose money party started. With less people qualified for financing that means less people are able to buy. Lower demand means lower prices. So now fear has taken hold and everyone is looking at all the negatives. Foreclosures are up, the economy is soft and the inventory of homes for sale is the highest in years. Right now we are going through a cycle where the bad news in the market causes the lenders to pull back even more, reinforcing the bad news and making it that much harder for the market to recover. But markets are unpredictable and hard to time right. At some point the bad news will be less important than the opportunities for profit. In the stock market the recovery usually starts when people are the most pessimistic and it could work the same way in our market. By the time good news is out, we will have bounced off the bottom and prices will be heading up again. So the question is, is the time now? Are we close?

We may be closer than we think, or it may take quite a while before the market turns around. But if you have a good reason to buy it really shouldn’t matter. The Chicago area is still a dynamic economy and people still need housing. Home builders are at a standstill and not cranking out new homes, so over time the supply and demand will start to balance out. Prices are low, mortgage rates are low and if you have a long term perspective, chances are that when real estate values recover you will be rewarded, and we won’t know we are there until the train has already left the station.

Illinois Mortgage Rates and News

Welcome to Illinois Mortgage Rates and News week in review for the week ending May 9th, my take on the week’s financial news and how it affected Illinois mortgage rates.

This week offered more confirmation that our economy is a mess. Oil prices hit a new record, $126 per barrel. Food 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.

The mortgage underwriting is still tightening. Fannie Mae, the biggest player in the mortgage market, is coming out with a new version of their Desktop Underwriter automated underwriting system. The DU system (and Freddie Mac’s LP) is the first stop to approval for all conventional loans. We run a borrowers information (credit, income, assets, and all the rest) through this automatic software system and it spits out a loan decision based on all the risks present in the borrower’s profile. The new system, Desktop Underwriter version 7 will be in effect for all loans after May 31^st. The early reviews say that the new version is tougher than the old, and that, depending on the situation, there will be borrowers who qualified for a loan through the old system, but won’t pass through the new one. It will take some time to see how this all plays out.

FHA is making some changes, too. The Bush Administration released final guidance this week to a new plan that will charge flexible premiums based on the risk of each loan. Right now the FHA up-front mortgage insurance premium is 1.5% of the loan amount. Under the new plan it can go as low as 1.25% and as high as 2.25%, depending on how risky the loan appears. Again, it will take some time to see how this all shakes out, and whether it helps more borrowers qualify or if it squeezes more out. The changes go into effect beginning July 14, 2008. Also this week, an FHA modernization bill was passed by the House, but still has to go through the Senate and be signed into law, so no one knows what the final product will look like yet.

Mortgage bonds mostly had a good week though they finished on a sour note. Trading was not nearly as volatile as it has been in the past few months, and we are still just above a key level of support. The conventional wisdom in the market this week (and it can change quickly) is that the worst of the credit crunch is over and inflation is our biggest threat. That usually means bad news for bond prices and mortgage rates, but this week the stock market was taking it on the chin so bonds improved up until a bad finish on Friday. I think we will be going back and forth in this range for a while.

Mortgage rates are now close to the lowest level in the last month. That means that many people who were sitting on the fence waiting for the right time to refinance, might have an opportunity to do it now. Refinancing doesn’t just make sense for those seeking a lower rate. If you have credit cards with balances or a home equity loan you want to consolidate you may be able to save a lot of money by rearranging your debt into a new, lower rate mortgage. If you are looking to buy a new home, the timing could be right in spite of the uncertain times. Rates are low, a good selection of properties are available and it is a buyer’ market. Some of the biggest Wall Street investors are contrarians, they buy when fear keeps most people on the sidelines. If you buy for the long term, chances are you will be rewarded.

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    5.75%     5.867% APR

15 year fixed rate    5.375%   5.484% 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. A lot of information will be released next week. If the past is any indication, I think volatility will be up again. If you have any questions or want to go over a situation, let me know how I can help.

Illinois Mortgage Rates and News

I read a lot about the economy and what the experts say about it, but I get the best feel for what is happening from talking with my clients. People need mortgage money whether the economy is up, or down, but they need it for different reasons. When the economy was flying high, a typical phone call would be about buying a new, bigger home, 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.

Most people look at their home mortgage and other debt separately. For many people their home is their security and paying it off quickly is their biggest financial goal. It’s not unusual to find someone who has a 15 year mortgage because they are trying to pay down their home quickly, but also has a big balance on their credit cards. The problem here is that the mortgage rate is almost always lower, and tax deductible besides. If you are carrying a balance on your credit cards you are paying interest on the interest, and if you pay the minimum payment there is almost no way to get rid of the debt. What is your over-all debt level? Are you feeling pressure making all the payment on your credit cards and other consumer debt? This is where the debt consolidation mortgage comes in.

A debt consolidation mortgage is a type of cash-out refinance where you use the equity in your home to pay off high interest debts. If you have owned your home for a few years, chances are you’ve built up some equity. Here in the Chicago area, even in this soft real estate market, appreciation has driven home prices much higher over the last years. If you are like most people, the equity in your home may be your biggest asset or source of wealth. A debt consolidation refinance doesn’t change the amount of money you owe, what it does is restructure the type of debt. By converting credit card and consumer debt into your mortgage you can lower your monthly payments, increase your tax benefits and use the savings to pay down your debt or start a savings plan. With conventional mortgages you can remortgage up to 90% of your home’s value for a cash-out loan, but the best rates are available at 70% of the appraised value ( We do have one lender who will loan 100% of your value). With an FHA loan you can take out up to 95% of your home’s appraised value at the best rates.

Here is an example of how this works. Say you have a home that is now worth $350,000. You still owe $200,000 on your first mortgage and have a home equity loan for another $75,000 and you have credit card and consumer debt of $50,000. The monthly payments (not counting taxes and insurance) might look like this.

Principal and interest on your first mortgage $1,319

Interest on your home equity loan                      375

Minimum payments on credit cards                  1,200

Total payment                                                 $2,894 per month

If you refinanced this into a new FHA loan at 95% of the home’s value, you could borrow up to $332,500. This is enough to pay off all the debt, plus the closing costs and the amounts to set up the new escrow accounts. If the new rate is at 6.0% on a 30 year fixed rate – the same rate as I used in the example – here is how it turns out.

Principal and interest                                     $2,023

Monthly mortgage insurance                               140

Total payment                                                $2,164

This means that the debt consolidation refinance saves you $730 each month.

This plan has a lot of advantages, but you are increasing and extending your mortgage which can be a scary thing. Also, you need to have a plan on what you will do with the new savings. There can be a danger in this strategy. First, you are extending your mortgage and paying the loan over a longer period of time. You also need to watch how much the refinance costs. If you are paying too much for the refinance, it will be a long time before you see any benefits. But the biggest problem is that it is too easy to get back in the same trouble if you don’t change your credit habits. I’ve seen too many people who used a cash-out refinance to consolidate their debts and get a new start, only to run up their credit cards and get right back in debt. For a long term solution you need to be able to change your outlook and credit habits, too. On the other hand, if you take some of the money you saved and use it to start a monthly savings or retirement fund, or maybe shorten your mortgage so you are debt free years faster. What is best for you depends on your financial situation and your long and short term goals. Refinancing, if done properly, can be a tool to eliminate your debt and build wealth over time. Any time you take out a loan against the equity in your home you are trading some security for the cash you need, but if you have high balances on your credit cards it can be the right way to go.

Illinois Mortgage Rates and News

Welcome to Illinois Mortgage Rates and News week in review for the week ending May 2nd, my take on the week’s financial news and how it affected Illinois mortgage rates.

There is one week every month where all the data hits at the same time, sending an overload of information to the financial markets. This was that week. As 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.

There were two huge events which impacted mortgage rates this week. On Wednesday the Federal Open Market Committee (The Fed) released their latest decision on short term interest rates. Since last September the Fed has been on an absolute rate cutting tear. They cut rates again at this meeting, the seventh time in a row, by a .25% point, bringing the discount rate down to 2.0%. This was expected, and mostly priced into mortgage rates going into the meeting. You might think that if short term rates go lower, mortgage rates should follow. But it doesn’t work like this. Bond traders are looking at the long term, and lower rates can bring on inflation which kills the return on their bonds. As has happened nearly every time the Fed announced the cut, mortgage bond traders sold off their positions and mortgage rates got worse. At first. As the day went on, they took the time to read the statement announcing the cut, and collectively, the mortgage bond market readjusted its opinion. The wording in the statement suggested that the Fed is near the end of their cutting spree, at least for now. Mortgage bonds surged and by the end of the day we were at the best rates we’ve seen in weeks.

The other big event this week was the release of the Jobs report Friday morning. Earlier in the week unemployment insurance claims jumped to 380,000, the highest level in five years, so everyone knew the job market was weak. The expectation was that the report would show a loss of 75,000 jobs. The actual number came in at a loss of 20,000 jobs, much better than expected. The market reacted by dropping right through the floor. Mortgage bonds feel 134 basis points (a HUGE drop). At first. Upon reflection traders looked at the numbers again and decided that this still wasn’t a rosy picture. Our economy needs to add 150,000 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.

So how has all this activity affected mortgage rates? We are now seeing the best rates we’ve seen over the last several weeks. 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    5.75%     5.867% APR

15 year fixed rate    5.375%   5.484% 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  5.625%        6.047% APR

With no origination fee –        60 day lock

30 year fixed rate  5.875%        6.164%

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. Next week will be a lighter week for economic reports, but if the past is any guide, I expect we will still see some big swings over the course of the week. If you have any questions or want to go over a situation, let me know how I can help.

Illinois Mortgage Rates and News

The Check is in the mail - The first batch of economic stimulus checks are going out this week. Anyone who files a tax return up through 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.

Take a ride on the Foreclosure Bus - I live in Dupage County, in the Western Suburbs of Chicago. The other day I noticed a number of small plastic signs set strategically along the side of the road. You’ve seen these kinds of signs before, they are often an ugly yellow that demands attention, and they usually appeal to some basic need, like sex or money. More specifically they tout themselves as the answer to what you need. Two examples are: Real Estate Investor Needs Apprentice - $40,000 per month, or Downers Grove (or Lisle, Wheaton, Glen Ellyn, insert your town) Singles Wanted, with a web site or phone number underneath. This was a new sign, one I hadn’t seen before. This one read: Tour Foreclosures by Bus. Now this got my curiosity going. I know that Hollywood has a tour of celebrity homes, and Chicago has architectural tours and ghost tours and all sorts of tourism related activities. But taking a tour of foreclosed properties seems a little bizarre. I know there are investors who are looking for ways to take advantage of the real estate slow down, and foreclosed properties sound like a natural. It’s not always easy to find the bargains, though. I have an investor 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.

The Waiting Game - Tomorrow is a big day for those who are watching interest rates. The Federal Open Market Committee (the Fed) is expected to lower short term rates again by an anticipated .25 point. This cut is already built into the pricing, but the real interest is in what the Fed will say when they announce the cut. The last 2 meetings have ended up with major rate cuts, but some dissent from inside, as some Fed members worry that the rapid cuts in rate will go too far and fuel inflation. The conventional wisdom now is that the Fed is nearing the end of their series of cuts (for now, at least). If they say this in their announcement, look for mortgage bonds to surge and mortgage rates to fall. The Chicago PMI and the GDP (both show signs of strength or weakness in the economy) will also be released, so this should be a wild day for interest rates. I’ve been looking for rates to go lower, and I stand by that prediction.

Illinois Mortgage Rates and New

Welcome to Illinois Mortgage Rates and News week in review for the week ending April 25th, my take on the week’s financial news and how it affected Illinois mortgage rates.

There were a lot of mixed signals in the mortgage backed securities markets this week, and the upshot is that we are back in a battle between inflation and recession. Whichever side wins, we already know who loses – the American consumer. For now, it looks like inflation has the advantage. Commodity prices have spiked higher and oil hit a record high this week. Signs of inflation are easy to find, especially at the gas pump and the grocery store. Any sign of inflation kills mortgage bonds and sends mortgage interest rates higher. The reason for this is that mortgage holders (lenders and loan servicers) know that their loan, if all goes as expected, will pay them back at a set interest rate over a certain number of years (a 30 year loan will pay off within 7 years, on average). Inflation upsets this system because when inflation is raging prices move up and consumers have to spend more to get the same value they used to be able to buy for less. In other words, their money doesn’t go as far and dollars are cheaper. So a mortgage holder is worried that they will be stuck with a long term loan and their borrowers will pay them back with cheaper dollars, lowering the value of their investments. There is no doubt that we are seeing inflation, and it is now a global concern. But this is only part of the story.

Inflation is usually a sign of an overheating economy. When the economy is running strong and inflation is moving up, this is usually the point where the Fed steps in and raises short term interest rates to put on the breaks and bring inflation back in line. That’s not the case now and we aren’t exactly in boom times. In fact consumers as a group are feeling real pain now. One measure of consumer confidence, the University of Michigan Consumer Sentiment Index, came in today at the lowest reading since 1982. Fuel prices and food prices have moved up sharply at the same time that home values have fallen (much more in some areas than in others). This means that most people will pull back, and only buy the things they truly need.

Here is the question I have. Inflation is here, but will it continue to rise if people aren’t buying at the same rate they have been? A lot of companies released their earnings this week, and overall earnings were better than expected. Is this a sign that the economy is over the worst and ready for a rebound? I think there is a real split between corporate health and consumer health. A lot of the earnings surprises were a result of companies trimming their workforces, and sales overseas. I still don’t think we can have a real rebound until housing comes back. Is inflation a real problem when people are feeling crunched and their overall wealth level is down? I hear a lot of predictions that mortgage rates will continue to rise because of fear of inflation. I think we may have a problem with inflation down the road, but we need to get through the valley first. If consumer spending doesn’t pick up (and with credit getting tighter I don’t see how this will happen) inflation may be bled right out of the system. Rates have risen toward the high point of the range over the last 2 weeks, but they are still in the same range we have been in since before the first of the year. We will see how this all shakes out in the coming months.

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.

All this being said, there is still mortgage money available and we are in a buyer’s market. The contacts coming in show the buyers getting excellent prices compared to what homes were going for last year, and in many cases the sellers are chipping in by paying closing costs or other concessions. Rates are still very affordable and historically low. If you are thinking about buying a home in the Chicago area, or anywhere, and are ready to pre-qualify for a mortgage, let me know, I would love to help.

So where are we with mortgage rates? Rates moved down, then up, ending close to where they were at the end of last week.. 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    6.00%     6.164% APR

15 year fixed rate    5.625%   5.754% APR

5-1 A.R.M.               5.50%     5.658% APR      

7-1 A.R.M.               5.75%     5.839% APR

For Jumbo loans over $417,000

30 year fixed rate*  6.75%     6.869% 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.*             5.875%    6.142% 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%       6.047% APR

With no origination fee –        60 day lock

30 year fixed rate  6.00%       6.246%

These are just a sampling of the mortgage rates available. Which option is best for you depends on your own specific goals and needs. Next week’s economic news includes Tuesday’s 1st Quarter GDP growth, the FOMC meeting and rate decision on Wednesday, and Friday’s Jobs Report, always a big mover of mortgage rates. Expect another wild week.

Illinois Mortgage Rates and News

In a recent post, I talked about how an underwriter looks at a borrower’s credit history, income and job history to determine how much of a mortgage they can qualify for. The other big part of qualifying for a mortgage is showing how much skin you have in the game, that is how much are you investing in the home, and where the money is coming from. We need to make sure you have enough money for your down payment and closing costs, and in some 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. You still can buy a home with little or no money down, but you have to plan ahead and it won’t work in all situations.

Why does the lender want you to have your own money invested in the property you’re buying? There are a few reasons. First, if you have your own money at stake, you’re more likely to take care of the property and make sure you make your payments on time. An investment in your home strengthens your commitment. Mortgage insurance and 2^nd mortgages allow you to buy with lower down payments while taking some of the risk off the lender. How ever much you are putting down, we need to verify it, know where it’s coming from and be able to prove that you have enough to close.

In order to check for assets, we need to know where the money you need to close (down payment and closing costs) is coming from. Here are some acceptable sources for a down payment:

• Money on deposit in the your checking, savings, money market, certificate of deposit or any other liquid account.
• Money from liquidation of stocks or bonds.
• The proceeds from the sale of a house or other assets (an extra car, a boat or having a garage sale).
• A loan against your current home or other secured asset.
• A liquidation or loan against your 401K or IRA.
• A gift from a relative or a grant from an agency (like AmeriDream or Nehemiah) that doesn’t have to be repaid.
• Cash value from a life insurance policy.

If you are using money from a bank or other cash account, we will need to verify that the money in the account is really yours. We will look at the statements for the last 2 months. If there are any large deposits (not counting your normal payroll checks) we need to show proof with a paper trail of where the money came from. As you can see, there are lots of ways to raise the money for your down payment - here is a bigger list. Where it can’t come form is an unsecured loan (no credit cards). Again, the lender wants to make sure you have skin in the game, and borrowing more money doesn’t cut it.

To make the loan approval process as smooth as possible, it’s important to know where your down payment money is coming from. It’s best not to transfer money from account to account, if possible, but if you have to, make sure you keep records so we can trace the flow of funds. If you have any questions about your down payment, and whether it will be acceptable, discuss it with your loan officer before you are ready to make an offer, to make sure you can structure it correctly and this won’t be a problem later.

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.

Gifts also have to be documented in a particular way. We have to be able to show that this truly is a gift, not a loan. To show this, we use what is called a gift letter. This is a form that is filled out by you and the person giving the gift. It states how much the gift will be, what your relationship is to the person (it has to be a family member of some kind), and that this is a gift and won’t need to be repaid.

The next step is we need to prove that the donor (the person giving the gift) has enough money to give the gift. For this we will need an account statement or a letter from the donor’s institution stating that they have the funds available. The last step is that we need to show the transfer of funds from their account to yours. The easiest way to prove this is for them to give you a certified check showing them as the donor and you as the payee. Make a copy of the check and show the deposit into your account, and we’re done. If they give you the gift as a personal check, you will need to allow extra time because then we’ll have to see the canceled check. This whole process is clumsy and redundant, but following each step will make things much smoother in the long run.

One other note, this letter and the documentation are only used for approving the loan. None of the information will be shared with the IRS, or any other government agency.

Your credit, income and assets are what we look at when approving you for a mortgage. The other part of the approval is approving the property. I’ll have more on appraisals in a future post.

Illinois Mortgage Rates and News

Welcome to Illinois Mortgage Rates and News week in review for the week ending April 18th, my take on the week’s financial news and how it affected Illinois mortgage rates.

In last weeks review I said that the calm in the mortgage backed securities market was unlikely to last, and that I

expected rates to make a move out of their range soon. On that count I was 100% correct. I did however think that the odds were that the move would be toward lower interest rates. I blew it on that call. Mortgage bonds tanked this week sending mortgage interest rates higher - though there was an impressive recovery on Friday afternoon which brought rates back from the brink. Last week the consensus was that the economy was softening and we had a ways to go before the credit crunch played out. This week traders are feeling more optimistic on the economy and think that the worst is over. The view now is that we are finished with Fed rate cuts and our biggest worry is inflation. Not a lot has changed over the week to justify such a big swing in perception. There were some better than expected earnings reports this week, and a few economic reports came in better than projections. But most of the news was in line with earlier reports of a soft economy. In fact, most of the news that came out this week showed that there may still be some bumps in the road ahead of us. Credit is still tight and consumers are feeling pressured. The slowdown appears to be spreading beyond our borders and becoming global. We may be at the tail end of the credit crunch - at least from the perspective of the big financial players - but it is going to take a while before this trickles down to the American consumer.

The most anticipated reports this week were the release of CPI and PPI, two measures of inflation. PPI, the producer price index, came in a little hotter than expected, but this was due to high fuel costs. This isn’t always the best measure of inflation because in a soft economy producers aren’t always able to push their higher costs on to consumers, and often take the hit in their profit margins. CPI, the consumer price index, came in right as expected, with a moderate increase, not in the danger zone. Unemployment claims inched higher to 322,000. The levels of unemployment claims are at the level seen in past recessions. The Philadelphia Fed index came in much worse than expected and at the lowest level since 2001, another sign of a slowdown, and the Fed Beige book showed that economic conditions have “weakened” and residential construction is “anemic”.

All this data would normally cause mortgage bonds to rally pushing mortgage rates lower. So what happened that made traders so optimistic? A couple of things. First, some big corporations – IBM, Google and Caterpillar - came in with higher than expected earnings – mostly due to a rise in sales over seas, partly helped by a weak dollar. And then some financial powerhouses – Citigroup and Merrill Lynch – came in with huge losses, but less than expected. Citigroup announced the write down of another $12 Billion from bad credit loans, a quarterly loss of $5.1 Billion, and plans to layoff 9,000 employees. I figured out a long time ago that traders (stock, bond, whatever) live in Bizarro world, so this doesn’t completely surprise me. The thinking is that these losses, while HUGE, are less than what they could have been, so this means we are now near the bottom and we are ready to get back to the way things used to be. It is true that corporations like Citi can make a ton of money quickly. Their cost of borrowing has gone down, but they haven’t lowered the rates that consumers pay for most loans. The question here is whether or not rising defaults on credit cards and car loans will cut into these profits down the road.

Though rates have risen, I still think we are going to see lower mortgage rates before this is all over. Traders are fickle creatures. They jump on a trend and ride it as far as they can, but they are quick to jump off and ride in the other direction at the slightest change in direction. Little changes make big moves, especially now in a time when volatility is so high. Friday afternoon was a good example of this. Mortgage bonds started the day off with a loss of 66 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.

There is still a wide spread between T-bills and mortgage bonds, the market for Jumbo loans is still broken and ARMs are still priced out of the market. Investors still lack confidence in mortgage bonds, and mortgage wholesale lenders are holding back on their pricing to make up some of their losses. All this being said, there is still mortgage money available and this is a great time to buy a home. If you are thinking about buying a home in the Chicago area, or anywhere, and are ready to pre-qualify for a mortgage, let me know what I can do to help.

So where are we with mortgage rates? Rates are sharply higher than last week, but still historically low. 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%   6.064% APR

15 year fixed rate    5.50%     5.675% APR

5-1 A.R.M.               5.50%     5.675% APR      

7-1 A.R.M.               5.75%     5.839% APR

For Jumbo loans over $417,000

30 year fixed rate*  6.75%     6.869% 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.*             5.875%      6.142% 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%       6.047% APR

With no origination fee –        60 day lock

30 year fixed rate  6.00%       6.246%

These are just a sampling of the mortgage rates available. Which option is best for you depends on your own specific goals and needs. The big question for next week is if the rally on Friday will carry though, or if it is a temporary blip in a worsening market. Stay tuned to find out more.

Illinois Mortgage Rates and News

Are you just starting to look for a home in the Chicago area, and wondering how much of a home you can afford? There are all types of rules of thumb for how much of a home you can qualify for, but rules of thumb are simply estimates, not guidelines. It used to be that there was a hard set formula for how much of a loan you would qualify for, now the underwriting process is more technology driven and in many cases you can qualify for more of a mortgage than you can comfortably afford. But how much you can qualify for is just a first step. The mortgage you choose has to fit your life style and future goals, as well as your current financial situation. To find out how much of a home you can afford, and how much of a mortgage payment is right for you, you need to understand what we look for in the mortgage process, and how mortgage loans are approved.

What lenders are looking for: When qualifying for a mortgage, I look at it as a game of twenty questions. I need to get as much information about you and your finances as possible to make sure we find the best loan program for you. The whole idea behind the qualifying process is to measure the risk, that is, to figure out how likely it is that a borrower will pay back the money they’re borrowing. I ask a lot of questions, but the personal qualifying issues all revolve around 3 areas:

Credit

Income

Assets

Your history in these 3 areas determines what type of loan you can get, how much you can afford, and what your payments will be. All conventional loans (those loans eligible for purchase by Fanny Mae and Freddy Mac, the 800 pound gorillas in the mortgage market) are now put through an automated underwriting process. This is a computerized artificial intelligence program which weighs all of your risk factors and spits out a decision on whether or not the loan is acceptable. In most cases the loan decision is made by computer, but loan officer and underwriter have to make sure that all the information that is put in is true and verifiable. FHA also uses the same programs, but there is more leeway and more chance of an approval if the loan is underwritten manually (that is, by a real live person). Let’s break these factors down a little.

Credit Qualifying – Credit scores are key. With a high credit score you can get approved for a much higher mortgage than someone with the same income and debts, but a lower score. Your credit score is crucial not only for approval, but for how much you pay for your loan. One big change in the mortgage market is the new Risk Based Pricing model. This is the idea that those borrowers with the best credit scores and higher down payment will be able to get mortgages at the best rates, and those with lower credit scores and lower down payments will have to pay more. The people affected by this change are borrowers with credit scores good enough to qualify for Fannie Mae and Freddie Mac based conventional financing. This concept has been talked about for years, but it is only now with the soft real estate market that it is going into effect. Or more to the point, it’s only going into effect now when the big mortgage players are taking it on the chin for all the bad loans they wrote when credit was easy. Those with lower scores and not much equity (first time home buyers?) will be hit hardest. FHA does not have risk based pricing, which makes it a good option for many home buyers. Here is some information on what you can do to make the most of your credit.

Income Qualifying - The second area we look at is your income. Again, we’re measuring risk here. In this case we want to make sure that your income is high enough to comfortably make the payments on your new mortgage and that your income is . To do this, we look at two things: How stable is your income? and, How does your income relate to the housing payment and your other debt? I’ll go over both.

Income stability - When people are trying to figure out how much they can afford, this is one area where it’s easy to get bad information. First we need to determine how much you make each month. We use gross income, not your take home pay. If you’re in a job where you get the same amount of pay each month, it’s pretty simple. But if you have a job where your income fluctuates from month to month, like commissioned sales or construction, or if part of your pay comes from bonuses, it gets more complicated. In these cases we need to go back and look at the history of your income over the last two years and make sure that this income is likely to continue.

The truth is, lenders look more favorably on someone who has been in the same (or similar) line of work for at least 2 years. If you haven’t been working steadily for the last two years, we need to know why. There are many acceptable reasons, including:

· You recently finished school, vocational training, or left the military.

· Your work is typically seasonal and gaps in employment are normal in your industry.

· You have been laid off from your job.

· Frequent employment changes are normal in your line of work (if you are in car sales, for example), but you have been consistently employed and maintained a consistent level of income over the past 2 years.

Besides income from your job, other sources of income can also be used. These can include alimony or child support (we need to see that you have a history of receiving it), pension or disability payments, investment income, trust income, income from a part time job and so on. Again, in order to use this income to qualify, we need to be able to show that the income is likely to continue.

Housing and Debt Ratios -This is a big factor in how much you qualify for, but one that has changed a lot recently. There are actually 2 ratios we look at. The first, the housing ratio, is a measure of your total housing cost compared to your monthly income. The housing figure includes all the normal monthly costs of owning a home: the principal and interest payment, the monthly taxes and insurance, mortgage insurance, and the association fee if it’s a condo or townhouse. The second ratio is the total expense ratio. This measure includes not only your housing expenses, but all your other monthly debts, too. So this takes into account all your minimum credit card payments, car payments, student loans, any alimony or child support, and the like. (There are some obligations that you are required to pay, things like car insurance and day care for children, that don’t count in the ratio. You do, however, need to keep these items in mind when budgeting.)

For years, the maximum ratios were 28/36; that is, no more than 28% of your income could go toward your housing payment, and all your debts combined couldn’t be above 36% of your income. This isn’t the case anymore. As I mentioned before, credit scoring changed everything. With good credit, it’s now common to qualify for a much larger payment than you would have before. You still need to budget and make sure that the payment you qualify for is one you are comfortable with.

What if you can’t prove all the income you receive? This is another area where the underwriting guidelines have changed a lot. Not so long ago, there were lots of loans that didn’t even ask about how much you made, or if they did, they didn’t try to verify it in any way. These programs went under a variety of names such as, no income verification (NIV), no ratio loans, stated income and ‘No Doc’ loans. These opened the system to a lot of abuse. Some people bought houses they had no hope of making the payments for, and foreclosures in these loans skyrocketed.

Because of these problems, lenders have pulled most of these loans off the table. Still, if you are self employed, or if you know that you’ll be able to make the payments, but there’s income that we can’t use for qualifying, and you have good credit, there are some options available. It all depends on the amount of your down payment and your credit score. If you have questions about whether we can use all of your income to qualify, give me a call and I can find the program that works best for your circumstances.

I’ll go over the third area, asset qualifying, in my next post.

Illinois Mortgage rates and News