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.

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