Welcome to Illinois Mortgage Rates and News week in review for the week ending March 28th, my take on the week’s financial news and how it affected Illinois mortgage rates.

There is a certain kind of action movie where the hero (heroine?) moves from one disaster to another, each time escaping just in the knick of time, but only momentarily before falling into even worse peril. That’s what the mortgage market has been like over the last 6 or 8 months, edge of the seat excitement and cliffhangers galore. Since the Sub Prime bubble popped, it’s been week after week of fear and excitement, companies imploding, mortgage programs eliminated, rate cuts and the mortgage rates moving up and down so fast it is hard to keep track. Compared to what has been going on, this week was uneventful and almost boring by contrast. Does this mean the markets are starting to calm down and get back to normal? Or is this just the calm before the next, bigger storm?

First, an update on the big news from last week. Bear Stearns, which was forced into a shotgun wedding with JP Morgan Chase as it was about to implode, ended up this week with a 500% increase as shareholders negotiated for a few extra bucks from their liquidation pricing. This is still an incredible loss of value in a short period of. There is still a question if there are other big players out there on the verge of falling, but for now things have quieted down.

The economic indicators were a bit mixed, but generally showed that the economy is still slowing down and inflation is in control. Durable goods, a measure of strength in manufacturing, was down 1.7% for the month, much worse than expected. Consumer confidence fell to 64.5, also much lower than expected and the lowest level in over 35 years. On the other hand, jobless claims came in slightly better than expected, 366,000 as compared to 371,000 anticipated. This is still a number that is consistent with our being in a recession. Consumer spending was flat, home sales improved, though they are still down, and inflation came in with in the range of Fed expectations. All this taken together suggests that the economy is either in a recession or a major slow down, and that the Fed will continue to cut rates.

Conventional mortgages are still tightening. As of the end of the month, mortgage insurance companies will no longer insure 100% purchases. Fanny Mae and Freddie Mac responded to this by altering their guidelines on the few 1005 financing programs they still offered, including DreaMaker, MyCommunity Mortgage, and Home Possible, all of which are programs targeted toward low and moderate income borrowers. These programs are still available, but they now require at least a 3% down payment. FHA guidelines even targeted a little. All the major lenders are now requiring a minimum credit score of 580 to qualify – still amazing in this market. It is now clear that FHA mortgages are going to be the best option for many borrowers here in the Chicago area, even those who could qualify for a conventional mortgage.

So how did all this activity affect mortgage rates? Over all, not that much. Rates were still volatile and worse off for most of the week. But on Friday, after the release of the inflation numbers, mortgage bonds went on a tear, finishing at their best level for the week. Rates are still slightly higher than they were last week, but not by much and the trend (for what that is worth) is for the better. We are going back and forth between a floor and a ceiling of resistance. Over the last few weeks, every time that it looked like rates were going to go much lower, they hit the resistance and bounced the other way. I think we will test this level again this week. If mortgage bonds break through it, mortgage rates should improve markedly. And this could happen any day. Or not. If you are thinking of refinancing your mortgage, be sure and get your documentation into your mortgage lender (or contact me, I welcome the business). Rates have been all over the board and there is no guarantee that if they drop lower, they will stay low.

As I’ve mentioned before, one of the bright spots for buyers, especially those with low down payments, is FHA. FHA, a government insured program, recently increased their lending limits. Here in the Chicago area the new lending limit for a single family home is now $410,000. With FHA there is no hit to the pricing for credit scores and you can buy with a low or in some cases no down payment. FHA is a great alternative for home buyers here in the Chicago area, even those who could go conventional.

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%      5.832% APR

15 year fixed rate    5.25%      5.337% APR

5-1 A.R.M.               5.50%      5.659% APR      

7-1 A.R.M.               5.75%      5.879% APR

For Jumbo loans over $417,000

30 year fixed rate*  7.125%     7.262% APR

(*We have one lender at 6.125% for a Jumbo fixed rate - if you meet their guidelines.)

7-1 A.R.M.              6.00%       6.174% APR

FHA LOANS up to $410,000 with 1 point origination fee

30 year fixed rate  5.625%       5.897% APR

These are just a sampling of the mortgage rates available. We have special programs for first time home buyers and all the bond programs including the City of Chicago Bond program which offers no down payment and below market pricing.

Illinois Mortgage Rates and News

Here in the Chicago area we are starting to see the first signs of Spring. The days are getting longer, the air is warmer (for today, anyways), and people seem to be smiling more. For those of us in the real estate and mortgage fields, one of the major signs of Spring is when first time home buyers start to appear. By that gauge, it must be Spring because my phone is ringing a lot. Are you thinking of buying a home this year? If you are a first time home buyer, you are probably nervously looking at the housing market, wondering if this is a good time to take the plunge. On one hand mortgage rates are low, there are lots of properties to choose from and the sellers are extra motivated. On the other hand you’ve probably heard about how the mortgage market has changed, and how much harder it is to get a loan now. It is true, mortgage qualification is harder than it was before, and some people who might have qualified last year won’t be able to buy now.

This might be a great time for you to buy, or it might not. The first step to finding out is to see how you best qualify for a mortgage. This means you need to be pre-qualified, or pre-approved for a mortgage. Both terms are different levels of the same thing. With both, you are sharing your financial information with a mortgage loan officer, and they are helping you figure out how much of a home you can afford to buy, and what the best program is for your needs. I often start with a mortgage pre-qualification, which is usually just a conversation over the phone. I often start out the conversation by saying we are going to play a game of 20 questions (sometimes it turns out to be more). The idea is that I will ask you everything about your jobs and financial situation, your future plans and goals. My questions are designed to find out all I can about a potential home buyer’s income, credit and assets. By going into depth, I am looking for both opportunities and red flags. If a red flag pops up and I see a problem of some sort, I will ask more questions to make sure I have the full story. Sometimes things that look like major problems can be easily solved with a little foresight. The other part of what I am doing is narrowing down the options, and figuring out what loan programs you can qualify for, and what programs would work best for you, both now and down the road.

Once I have had this pre-qualification conversation, I generally have a pretty good idea of whether you are ready to buy, or not. But to make sure, it makes sense to take the next step, mortgage pre-approval. This is especially important now when mortgage guidelines are changing on a regular basis. A mortgage pre-approval means we are investigating further, and approving you for a mortgage before you find a property. This means I will need to have the right documentation. Depending on your situation and the loan program you are applying for, we may need more or less, but typically we’ll need to see at least the following:

• W2s for the last 2 years (full tax returns if you are self employed).
• Your pay stubs for the last 30 days.
• Full bank statements for the last 2 months, along with statements from any retirement or stock accounts.

Once I have your documentation, I will run your credit, and put all the information into our automated underwriting system. With most loan programs, the underwriting system has become the key factor in loan approval. The underwriting software is set up based on Fannie Mae and Freddie Mac guidelines (FHA, too) and takes into account all the factors that a human underwriter would consider. Years ago, it could take a week or more to get a pre-approval. Now I can usually do it with a single phone call, and have a preliminary answer for you within an hour.

There are times when we need to go a step further and have the underwriter sign off on the loan, but in most cases this approval is all that you need. One thing to keep in mind is that the approval is only as good as the person asking the questions. Garbage in, garbage out. So make sure that you work with someone who knows enough to ask the right questions and understands your full situation as well as the mortgage guidelines.

Illinois Mortgage Rates and News

Welcome to Illinois Mortgage Rates and News week in review for the week ending March21st, my take on the week’s financial news and how it affected Illinois mortgage rates.

The biggest story this week was what didn’t happen. At the end of last week the Fed stepped in to engineer an emergency bailout of Wall Street giant Bear Stearns. The company was near death as a result of its cash crunch and their heavy position in Sub Prime mortgages. It turned out that the Fed bail out was just triage, a temporary solution to the problem. Over the weekend the Fed worked with JP Morgan Chase, an even bigger Wall Street giant, to put together a deal to take over Bear Stearns and keep it from bankruptcy. The deal was put together and the news released on Sunday afternoon, right before the Asian markets opened. The surprising – no, make that shocking – part of the deal was the price. $2.00 per share! Bear Stearns (BS?) was worth about $68 per share just a week before (and $160 per share last year), so the market value had free fallen from about $3.5 Billion down to $236 Million in a matter of days. Now here is the part about what didn’t happen. If Bear Stearns had been left alone, its collapse would have started a panic which would have shaken our entire financial system. The Fed has been getting a lot of heat for not stepping in soon enough (from some) and for being too aggressive and fostering inflation (from others). This time they did what they needed to keep the whole system from imploding.

Disaster was averted, but it still wasn’t pretty. If the Street had been so wrong with Bear Stearns, how many other time bombs are still out there, ticking away? As I’ve said before, everything is rooted in confidence. If you believe the system works, that you will have value in your paper, the common belief makes it so. When belief disappears, the value disappears too. My guess is that most of the toxic mortgages out there are not nearly as toxic as feared. The worst of the worst, the sub prime, no income verification loans, even these have value. Many of these loans will continue to pay off with out a problem. I am willing to bet that someone is going to make a huge fortune working out the distressed portfolios. The Fed understands how important confidence is to the markets, and in addition to their role in the Bear Stearns deal, they took several actions this week which went a long way toward restoring confidence in the financial markets:

1. They cut the discount rate on Sunday (over the weekend!) by a .25% of a point, before the scheduled Fed meeting on Tuesday.

2. They made it possible for big broker dealers (like JP Morgan Chase) to borrow directly from the Fed, a privilege only available to depositary banks before.

3. They slashed the discount and Fed funds and discount rate by .75%, a huge, but expected, amount.

4. Restrictions were lifted from Fannie Mae and Freddie Mac allowing them to buy up to $200 billion in mortgages.

All these moves (especially the last one) went a long way toward stabilizing the markets. That doesn’t mean that volatility decreased, we saw some of the biggest swings of this wild year in both the stock and mortgage backed securities markets. It also doesn’t mean that we are now back to normal, or even that the worst is over. There is still a lot of fear and the markets are truly dysfunctional. What it does mean is that the Fed, and perhaps the government as a whole, understands what would happen if our system went down, and they have signaled that they are ready to step in and do what is necessary to keep things on going. While volatility this week was out of sight, by the end of the week on Thursday (the markets were closed for Good Friday), the market ended unchanged for the day. An amazing occurrence in these wild times. Though the economic indicators took a backseat to the other news this week, there were a number of indicators released, and the consensus reading is that the economy is slowing down but inflation is still a concern.

So how did all this activity affect mortgage rates? Mortgage rates are are moving down again. There are still a lot of problems in the market. ARMs have disappeared (temporarily, I believe), Jumbos are still out of whack and the mortgage lenders continue to tighten their guidelines. But fixed rates are coming back down, and we are on the verge of another refinance boom. If you are thinking of refinancing your mortgage, be sure and get your documentation into your mortgage lender (or contact me, I welcome the business). Rates have been all over the board and there is no guarantee that if they drop lower, they will stay low.

As I’ve mentioned before, one of the bright spots for buyers, especially those with low down payments, is FHA. FHA, a government insured program, recently increased their lending limits. Here in the Chicago area the new lending limit for a single family home is now $410,000. With FHA there is no hit to the pricing for credit scores and you can buy with a low or in some cases no down payment. FHA is a great alternative for home buyers here in the Chicago area, even those who could go conventional.

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, 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    5.625%    5.749% APR

15 year fixed rate    5.00%      5.148% APR

5-1 A.R.M.               5.50%      5.659% APR       

7-1 A.R.M.               5.75%      5.879% APR

For Jumbo loans over $417,000

30 year fixed rate*  7.125%     7.262% APR

(*We have one lender at 6.125% for a Jumbo fixed rate - if you meet their guidelines.)

7-1 A.R.M.              6.00%       6.174% APR

FHA LOANS up to $270,200 with 1 point origination fee

30 year fixed rate  5.375%       5.794% APR

These are just a sampling of the mortgage rates available. We have special programs for first time home buyers and all the bond programs including the City of Chicago Bond program which offers no down payment and below market pricing.

A lot of information is coming out next week, and there are sure to be surprises. Be sure to check back for more news and opinion. Have a great Easter.

Illinois Mortgage Rates and News

Not so long ago, FHA loans were the red-headed step child in the housing market. They didn’t get any respect. That wasn’t always the case. Back in the old days FHA loans were the only option for most first time home buyers or others who had little money to put down. FHA was the way for many borrowers to take their first steps into home ownership here in the Chicago area. Not only could you buy a home with a small down payment, but the entire down payment could be a gift, and your credit didn’t have to be perfect. There were problems with FHA loans, though. It took longer to get a loan approved and closed than with a conventional loan, and if there were issues with the homes condition (like peeling paint) the issues had to be fixed before closing. Many people felt that FHA underwriters were professional nitpickers, so if they had a choice, many Realtors and home sellers would take a conventional buyer over an FHA buyer. As time went on FHA became less and less of a factor in the market. Conventional loans came out with low, and later no down payment options, and other loans catered to borrowers with bruised credit. Another part of the problem was that FHA didn’t keep up with the market values. As home prices moved up in Dupage County and throughout the Chicago area, FHA kept their loan limits low, and became a non-issue for all but the lowest priced homes. Now, as the conventional market is in turmoil, it looks like FHA has another shot at its glory days, and there is no doubt that FHA financing is the best loan option for many Chicago area home buyers.

Over the last few years FHA has updated the way they make loans. They’ve eased off on their property conditions, and with direct endorsement underwriters we can approve and close an FHA loan as fast as we can a conventional loan. But the biggest change is that FHA has increased their loan limits here in the Chicago area and throughout the nation. In the Chicago area (this includes all of the collar counties including Dupage, Kane, Lake and Will) you can now get an FHA loan on a single family home up to $410,000. This is already making an impact. FHA’s market share in 2006 was about 3% of total mortgage originations. Today FHA is closer to 10%, and moving up.

Why would you consider an FHA loan over a conventional loan? Here are some of the advantages:

1. No Risk Based Pricing adjustments- Risk Based Financing is the idea that those borrowers with the best credit scores will be able to get the best mortgages rates, and those with lower credit scores will have to pay more. Fannie Mae and Freddie Mac, the two big buyers of mortgage loans in the mortgage aftermarket, recently changed their guidelines in a way that meant all but the very best borrowers will pay more for a loan. Now buyers with credit scores under 720 and with down payments under 20% are getting hit on their pricing. This isn’t the case with FHA. With FHA if you qualify for the loan you get the best pricing. You can qualify for an FHA mortgage with credit scores in the upper 500s – without any price hits.
2. FHA uses common sense credit guidelines –FHA looks at the buyers over all history, not just their credit scores. FHA uses a common sense underwriting approach that understands credit problems can happen to anyone. Their concern is that the problem has been addressed and isn’t likely to occur again. If you have had credit problems in the past, you may need to document why they happened and what you have done to correct the problems, but you aren’t automatically frozen out of a loan, as you would be now with most conventional loans. If you have some issues with your credit, give me a call before you are ready to buy. Working to fix your credit earlier will help you save money later.
3. You can buy with a low down payment – or no down payment – This is another area where FHA has a big advantage over conventional loans. It is now much harder to get a conventional mortgage with a minimal down payment. But FHA only requires 3% down. And this down payment can come from a gift from a relative or as a grant from a down payment assistance program. That means that you can still buy a home with no money out of your own pocket.
4. FHA allows a seller concession of up to 6% - By using seller concessions, you can structure your purchase in more creative ways. One way many buyers use this is by converting a seller concession into a grant from a non-profit down payment assistance program like Nehemiah or AmeriDream. Here is how it works. When you negotiate the contract with the seller, you would ask for a concession on the price upfront — the amount will usually be between three and a half to four percent of the price (more if you want to build in closing costs, too). Three percent will go for the down payment; the rest goes to pay for the organization’s administrative costs. The seller agrees to give this negotiated concession to the grant provider at the closing table, and they in turn give a "grant" to you for your down payment. This is all done on paper and no money really changes hands, but it allows you to buy your home with no money down. There are other ways to use the seller concession, including buying down your interest rate to lower your monthly payment. The important thing is to make sure you ask for the concession right up front when you first start to negotiate your purchase.
5. FHA is more lenient with past bankruptcies – With FHA you can buy a home 2 years after a Chapter 7, and 1 year after a Chapter 13 bankruptcy – sooner if the bankruptcy is medically related or due to actions beyond your control. You will still need to show that you have reestablished your credit and can afford your new payment.
6. FHA financing is available for Permanent Resident Aliens – With FHA you don’t need to be a U.S. citizen and you don’t need to have your green card. You will need to have a social security number, established credit and proof that you are able to work in the United Sates.
7. No cash reserves are required – This is another way that FHA differs from conventional financing. Saving up for a down payment is the biggest obstacle to buying for most first time home buyers. With conventional loans you need to have saved not only the amount for the down payment, but also have some money left over in reserve. With FHA they only require enough cash to close and you don’t need money in reserves.
8. No income limits – Many of the low and no down payment conventional loans are set up to help low and moderate income home buyers. This isn’t the case with FHA. It’s goal is to help more people buy homes and there are no limits on how much you can make.
9. Non traditional credit is accepted – Most conventional loans require that you have a credit score and an established credit history. But not every one uses credit. With FHA we can build up a credit history from other payments you have mad. This would include your rent and utility payments, and any other non-traditional credit you have used.
10. Mortgage insurance is lower than conventional – FHA splits their mortgage insurance into 2 parts – an upfront insurance which is added to the loan amount, and a premium which is paid monthly. If you are buying with a minimum down payment, the combined premium on FHA is better than it is with conventional loan programs – especially if your credit scores aren’t the highest.

These are other just a few of the advantages of FHA financing. There are other advantages of FHA financing which help some individual needs. One of the biggest things to keep in mind is the pricing. FHA pricing is as competitive as conventional financing –and much lower if you are buying with a low down payment or if your credit scores aren’t the absolute best. If you would like to see how FHA could work with your situation, give me a call or contact me. I would love to work with you.

Illinois Mortgage Rates and News

Welcome to Illinois Mortgage Rates and News week in review for the week ending March14th, my take on the week’s financial news and how it affected Illinois mortgage rates.

Do you remember the scene in It’s a Wonderful Life where they had the run on the bank? In the movie Jimmy Stewart was on his way out of town, just about to go on his honeymoon, when he noticed the crowd of people swarming around the Building and Loan. The rumor was that the bank was out of funds, so the town’s people were in a panic as they tried to get out with whatever they could before they lost everything. Jimmy stepped in and calmed the people by doling out his honeymoon savings and assuring them that they were all in this together. We had a similar situation in the mortgage backed securities market this week with Fed Chairman Bernanke playing the Jimmy Stewart role, but to much less success.

The run on the bank started last week when Thornburg Mortgage and the Carlyle Group, a heavily leveraged hedge fund, were unable to meet margin calls from their lenders. Panic set in as mortgage bond investors wondered if there was any value in mortgages at all. Like any panic, this was all about confidence. As the big banks sit on their portfolios of mortgages, investors wonder how much of their holdings are junk, and with buyers in short supply the value of the mortgage portfolios deteriorate. The banks are forced to sell their good loans at fire sale prices in order to raise funds to keep their financial numbers up, but this only makes matters worse.

On Tuesday the Fed came in with a plan for a $200 billion dollar fund which banks could borrow against, using their mortgage portfolios as security. This was just what the markets needed. After the news was announced, the stock market had its best day in ages, and the mortgage bond market started to improve, too. Unfortunately, it was too little too late. The Carlyle Group was too far under (they were leveraged to the hilt with $97 borrowed against every $3 of equity) and they missed their margin call on Thursday. But that was just a hint of trouble to come. Friday morning Bear Stearns, one of the biggest players on Wall Street, got caught in the liquidity crunch and had to be bailed out by the Fed and fellow giant JP Morgan. This was truly scary news. If the big boys can be in such bad shape, who is going to be the next to crack?

The reports coming out this week confirmed that the economy is in a recession. The one good piece of news was the release of the Consumer Price Index this morning showing no increase in inflation. The CPI is a measure of inflation in the economy, and inflation has been the fear over the horizon. The low reading means the Fed is now nearly certain to cut rates again next week, a .75% cut is expected. The thing that I wonder is, what comes next? The Fed has already cut short term rates by 2 points in the last 6 months and credit still continues to tighten. Money is much cheaper but the credit market is frozen. What happens when the Fed lowers rates down to the bottom, what can it do next? The major problem in the market now isn’t that short term rates aren’t low enough; the problem is that no one wants to lend money if they think that things are going to get worse later. We are back to confidence and the Fed’s tinkering at the edges isn’t enough to do the job. I expect we will have a bailout of some sort. This is going to be a bitter pill for many, but I expect that the only way out of this mess will be through some form of political solution - probably a free pass for the big banks, a plan where the Fed buys up their troubled mortgages. What ever the solution, it won’t be fair and it won’t be pretty, but we are up the proverbial creek if we don’t get the credit machine moving again.

So how did all this mess affect mortgage rates? Volatility was again off the charts. Mortgage rates lately have been like weather in Chicago, constantly changing. The swings have been outrageously wide and it is now normal to have intra-day re-prices from our wholesale lenders. Fixed rate mortgages moved down over the week, but not nearly as much as you would expect given the state of the economy. Even as fixed rate mortgages improved, there were signs that the credit crunch was worsening. Last week adjustable rate mortgages went up sharply. This week they virtually disappeared. The rates on most ARMs is now higher than on fixed rate mortgages, even though short term interest rates are very low. (There are still a few private investors with good pricing – check out their rates below). Again this comes down to confidence. The other big move was that Fannie Mae and Freddie Mac, the 2 big buyers of mortgages in the mortgage aftermarket, came out with their second round of risk based pricing, the idea that those with the best credit scores will get the best interest rate. The idea makes sense, but they have increased the pricing on those with excellent credit and good down payments. This looks more like a way to get themselves out of the hole they dug, then a plan to price according to the risk.

With all the changes in the conventional market, one of the best deals out there is buying with an FHA mortgage. FHA, a government insured program, recently increased their lending limits. Here in the Chicago area the new lending limit for a single family home is now $410,000. With FHA there is no hit to the pricing for credit scores and you can buy with a low or in some cases no down payment. FHA used to be thought of as a loan for those who had few other options, now it is a good alternative for home buyers here in the Chicago area who could go conventional.

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, 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%    6.147% APR

15 year fixed rate    5.25%      5.377% APR

5-1 A.R.M.               5.50%      5.659% APR       

7-1 A.R.M.               5.75%      5.879% APR

For Jumbo loans over $417,000

30 year fixed rate*  7.125%     7.262% APR

(*We have one lender at 6.125% for a Jumbo fixed rate - if you meet their guidelines.)

7-1 A.R.M.              6.00%       6.174% APR

FHA LOANS up to $270,200 with 1 point origination fee

30 year fixed rate  5.50%        5.794% APR

These are just a sampling of the mortgage rates available. We have special programs for first time home buyers and all the bond programs including the City of Chicago Bond program which offers no down payment and below market pricing.

The big news next week will be the Fed meeting on Tuesday. I expect it to be another crazy week.

Illinois Mortgage Rates and News.

Not so long ago the mortgage market was a lot like Baskin Robins 31 Flavors Ice Cream - a flavor for every need or taste. You wanted Rocky Road or Lemon Custard? No problem. A 5 year fixed payment Jumbo option ARM or a 30 year fixed rate with interest only payments for the first 10 years? Those were on the menu, too. Now that the credit crunch has hit the mortgage market full force, the mortgage options have shrunk. Borrowers can still get their ice cream, but they better like Vanilla.

The mortgage market has been dysfunctional ever since the Sub Prime melt-down last summer. Price swings, both up and down, have been exaggerated. Mortgage options have disappeared and credit and appraisal guidelines have tightened. Some of the biggest mortgage lenders in the country have been on the ropes, unsure if they will stay in the business. Throughout all this turmoil, the core market for conventional loans has chugged along. Conventional loans are those loans eligible for sale to Fannie Mae or Freddie Mac, the two 600 pound gorillas who buy up most of the mortgages in the mortgage aftermarket. These two companies are backed by the U.S. Government, and though their loans are not insured by the government, it has always been assumed these loans are completely safe. Over the last week that assumption went out the window. Mortgage rates spiked upward last week when investors seemed to lose confidence in mortgage backed securities. Rates have recovered a good deal over the past few days, but confidence is still a big problem. This week the market for conventional adjustable rate mortgages has virtually dried up.

While the Fed has continued to cut short term rates over the last months, long term mortgage rates have moved higher. In times where there is a big spread between long term and short term rates, it usually makes sense to consider adjustable rate mortgages. Last week, before panic hit the market, the spread between a 30 year fixed rate and a 7-1 ARM (the rate is fixed for the first 7 years before it becomes an adjustable) was nearly a full percent. By the end of the week the rates were the same. This week because there is no liquidity in the market, ARM loans are not selling at all, which means that most of the big wholesale lenders are not even offering adjustable rate mortgages at any price.

I’m hoping that this is a temporary problem. Yesterday the Fed stepped in with a program to inject $200 billion dollars into the system for banks to borrow against, and they can use mortgages as collateral. This should help restore confidence. The mortgage bond market is on a tear today, which means investors are starting to look more kindly on mortgages, at least for today. But with the volatility in the market there is no guarantee that this trend will continue and we will get back to a normal market any time soon. If the Fed can continue to calm investor’s fears, and confidence improves, adjustable rate loans should find favor again and the rates should be much lower than where the fixed rate loans now are.

In the meantime, there are still some lenders (we have some regional and local banks who keep their loans for their own portfolios and don’t sell them in the mortgage aftermarket) who still have attractive rates on ARMs. So, if you are shopping for a loan now there are some options. But until the market gets straightened out, the options are fewer than before and the mortgage market has shrunk.

Illinois Mortgage Rates and News

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

I think it is safe to say that the mortgage system is officially broken. Mortgage rates are determined by the buying and selling of mortgage backed securities (MBSs), a type of bond backed by home mortgages. They trade on an open market and, like stock prices, go up and down by supply and demand. Mortgage bonds have always been looked at as one of the safest investments around. They paid slightly higher yields than Treasury notes, which are backed by the Federal Government, but the biggest risk with mortgage bonds was that interest rates would go down and the loans would pay off early, lowering the over all yield. Over the last year, ever since the sub prime mess hit the fan, there have been signs that the mortgage system was out of whack. Whole classes of mortgages (sub prime and Alt A) have disappeared and the Jumbo mortgage market still hasn’t recovered. But conventional loans, those loans bought up by Fannie Mae and Freddie Mac, were considered as safe as safe can be. Now it seems that investors are getting scared off even from these loans, and this could be a big problem going forward.

The volatility in this market is absolutely crazy. There is a real disconnect between the economic fundamentals and mortgage interest rates. This week was one of the worst weeks I’ve seen in the mortgage backed securities market, and the effect on mortgage rates. Mortgage bonds plunged and rates moved up sharply over the course of the week. Part of this was due to financial problems with 2 lenders, Carlyle Capital and Thornburg Mortgage. They were forced to liquidate mortgages to raise funds, and buyers were scarce. On Thursday, when we saw the worst of it, we had 3 re-prices, all for the worse, over the course of the day.

One of the more puzzling things going on now is the widening spread between mortgage bonds and Treasury bonds, which are issued by the US government and considered nearly risk free. Over the course of the week Treasury rates barely changed, but mortgage rates jumped by about half a point. The spread between Treasuries and mortgages is well over 2 points now, much higher than normal. Investors are demanding a higher return from mortgage bonds, and this means higher mortgage rates.

Though mortgage rates did take a hit this week, fixed rates were looking much better by the end of Friday when the markets closed. But some programs this week got hit harder. Over the last several months I’ve encouraged borrowers to look at adjustable rate mortgages. That meant a borrower would save a tremendous amount on their payments while still having the security of knowing that their payment was fixed for the first 5 years. Last week the spread between a 30 year fixed and a 5 year Arm was almost a full point. This week the spread has nearly disappeared. Jumbo mortgages got hit hard this week, too. The big question is whether this is the new reality in mortgage pricing, or if this was just an uncommonly bad week and we will start to return to normal in the coming weeks.

The week was a disaster for mortgage rates, but they did improve some on Friday. The widely watched employment numbers came in much lower than expected. The expectation was that the economy would create 25,000 new jobs, instead it lost 63,000 jobs. The numbers for January and February were revised downward too, so the overall job picture is bleak. As I’ve said before, bad news for the economy is good news for mortgage rates, and the mortgage rates had a great day today, erasing much of the loss from yesterday, though they are still much higher for the week.

The other big news for the week was the release of the new FHA lending limits. Here in the Chicago area, the new lending limit for a single family home is now $410,000. This is great news for home buyers here in the Chicago area. The increase in loan limits will mean that many people who couldn’t buy a house before, will now be able to through the common sense underwriting of FHA.

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, 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    6.25%       6.478% APR

15 year fixed rate    5.625%     5. 778% APR

5-1 A.R.M.               6.00%       6.239% APR       

7-1 A.R.M.               6.125%     6.287% APR

For Jumbo loans over $417,000

30 year fixed rate*  7.125%     7.262% APR

(*We have one lender at 6.125% for a Jumbo fixed rate - if you meet their guidelines.)

7-1 A.R.M.              6.125%        6.275% APR

FHA LOANS up to $270,200 with 1 point origination fee

30 year fixed rate  6.00%        6.249% APR

These are just a sampling of the mortgage rates available. We have special programs for first time home buyers and all the bond programs including the City of Chicago Bond program and the State of Illinois Bond program which offer no down payment and below market pricing.

Next week the Consumer Price Index will be released, and the focus will be on inflation again. There are a number of other reports scheduled for release, but the bigger issue may be about investor confidence, and whether they are willing to come back into the market. I expect the week will be volatile again. As usual.

Illinois Mortgage Rates and News.

FHA just released their new loan limits for Northern Illinois and the Chicago area. This determines the maximum loan for FHA financing in Cook County, Dupage County, Kane County, Lake County, Will County and McHenry County. The limits are:

1 unit    $410,000

2 unit    $524,850

3 unit    $634,450

4 unit    $788,450

This is great news. As underwriting for conventional loans has become progressively tighter, FHA is shaping up to be a great alternative. Some of the advantages of FHA financing include:

3% down payment required – the down payment can come from a gift from a relative or as a grant from a down payment assistance program, so the buyer can come in with no money out of their own pockets.

FHA allows a seller concession of up to 6% - this allows more creative ways to structure your purchase, including ways to buy with no down payment or closing costs, or using this concession to lower your interest rate.

FHA is not credit score based – this means you can qualify for an FHA mortgage with credit scores in the upper 500s – without any price hits. With low down payment conventional mortgages the rates go up if your FICO score is below 680. FHA uses a common sense underwriting approach. It understands that credit problems can happen to anyone. Their concern is that the problem has been addressed and isn’t likely to occur again.

FHA is more lenient with past bankruptcies – you can buy a home 2 years after a Chapter 7, and 1 year after a Chapter 13 bankruptcy. If the bankruptcy is medically related or due to actions beyond your control, you can buy sooner.

FHA pricing is as competitive as conventional financing – the pricing on FHA is on par with any conventional program, and much lower if you are buying with a low down payment or if your credit scores aren’t the best.

These are just a few of the advantages of FHA financing. When I first got into this business, a long, long time ago, FHA was the preferred program for first time home buyers or others who didn’t have a lot of money available for a down payment. FHA lost favor over the years as more low down payment conventional options came on the market. It was hard to do an FHA here in Dupage county and other parts of the Chicago area when the max loan limit didn’t keep up with the increase in housing prices. FHA has worked toward modernizing their underwriting over the years, and it is now much more streamlined and user friendly. For many home buyers FHA is now the best loan alternative, by far.

Illinois Mortgage Rates and News

If you are a home buyer here in the Chicago area or around Illinois, and are looking for a Jumbo mortgage, your options aren’t what they used to be. A Jumbo loan is a mortgage higher than the conforming loan limit set by Fannie Mae and Freddie Mac, the two big purchasers of loans on the mortgage after-market. The current Fannie Mae limit here in the Chicago area is $417,000 for a single family home, so anything above that is considered a Jumbo mortgage. Because these loans aren’t covered by Fannie and Freddie, Jumbo loans are considered slightly riskier than conventional loans and have always been a little more expensive. Last summer, before the credit crunch (also known as the sub-prime melt down) hit the mortgage industry, the premium on a Jumbo 30 year fixed rate was just a ¼ point higher than a conforming fixed rate. This made sense at the time. Jumbo mortgages are typically made to people with higher incomes, good credit and good assets. These are usually people who have owned homes before, and are considered good credit risks. But then the credit crunch hit, and suddenly the market for Jumbo loans disappeared. The market for Jumbo loans has returned, but now the difference between a 30 year fixed rate Jumbo and the 30 year fixed rate conventional has grown to as much as 1% difference in rate, so if a conventional is at 6.0%, a Jumbo would be at 7.0%.

This means that Jumbo loans have gotten much more expensive than they were before. If you are a Jumbo buyer, the difference in rates and the larger loan size means you are paying thousands of dollars more now than what you would have before. So what are your options if you are in the market for a Jumbo loan? Do you need to just grit your teeth and pay the extra money? Not necessarily. There are a few options for Jumbo buyers that can keep the rates and payments down, and save money.

1. Adjustable rate Jumbos are still competitive. The market for fixed rate loans has been hit the hardest, but there are still adjustable rate loans which are priced more aggressively. The most popular adjustable mortgages are actually a combination of a fixed rate and an adjustable. That is they are fixed for a set period of time, typically 5 or 7 years, before they become ARMs. This gives you the security of knowing that your payment and interest rate are fixed for the first 5 or 7 years while saving you thousands of dollars in payments. If you are planning on staying in the home longer than that you are taking a risk that payments may go up, but you can refinance your mortgage at any time, and odds are good that you will have some opportunities to refinance into a lower rate sometime down the road.
2. Break the loan into 2 parts a first and a second mortgage. This works best if you are in the lower range of jumbo mortgages. Here is how this works. Let’s say that you are buying a home for $700,000 with a 20% down payment and financing $560,000. If the interest rate for a 30 year fixed rate on the full loan amount is 6.75%, the payment would be $3,632 per month. If you break the mortgage in to two pieces, the first mortgage would be at the conforming limit of $417,000 and the second mortgage would be for the difference, $143,000. Let’s say the rate on the first is 5.75%. That gives you a payment of $2,433 per month. The rate on the second is higher, say 6.50% for a fixed rate. This means a payment of $904 per month. Add the two payments together and you get a total payment of $$3,369 – a savings of $263 each month compared to taking out a single jumbo loan.
3. 3. Portfolio Investors. All the problems with Jumbo mortgage pricing stem from the breakdown in the mortgage backed securities markets. With the uncertainty in the market, buyers for these loans have dried up and prices have risen. But there are some lenders who don’t sell their loans in the mortgage after-market. These lenders price their loans based on what makes sense for their own investment needs. We have one lender who is currently offering Jumbo loans at 6.125% with no points, much lower than anyone else in the market. The guidelines are tighter and the money is available only for a limited time, but it is a great deal.

The conventional wisdom is that the credit markets will eventually loosen up and Jumbo mortgages will be in demand again. When this happens I expect that the rate difference will narrow and Jumbo loans will be priced much more attractively. In the meantime, there are still options.

Illinois Mortgage Rates and News