Welcome to Illinois Mortgage Rates and News week in review for the week ending March 27^th, 2009, my take on the week’s financial news and how it affected Illinois mortgage rates.

One of the major factors in getting the economy back on track will be getting the banking system re-capitalized and lending again. The biggest obstacle to that goal is what to do with all the toxic assets, mostly bad pools of mortgages, that are corroding the balance sheets of the big banks. Treasury Secretary Geitner took a first stab at a plan nearly two months back, but that attempt was a bust, no specifics and no real plan. He tried again this week, announcing the Public-Private Investment Program (PIPP) which will use some public funds along with big government guarantees  to encourage private investment in these bad assets and actually make a market for what has up to now been unsalable junk.

The idea behind this plan is that our main problem in the banking system is one of confidence, and with the right incentives, investors will come out and pay higher prices for these assets than what they are now valued at. If this happens as intended, it will allow the banks to get rid of the bad debts which are keeping them from lending now, allow the new buyers of the now toxic debt to come in and do workouts and hold the loans long enough for the market to recover, assuring them a hefty profit for their risk. If this works, the government guarantees won’t kick in and this will be a relatively inexpensive way for the government to fix the problem. The first review of the new plan came from the stock market, and this was a rave review. The stock market, and especially financial stocks, surged on the news. The hope is that this will provide the missing piece of the puzzle and get us moving back in the right direction. It will take a month or two to see how this all works out, and whether the big banks will be willing to put their assets up for auction, and whether the Federal guarantees are enough to bring in the higher bids that will make the program work. Many economists think that this program will help, but it that some of the mega banks are so far gone that the only real solution is some form of nationalization. We’ll know more as this goes along.

There were a few bright spots in economic reports this week. Home sales came in higher than expected causing some to say we are approaching the bottom of the housing slump, durable goods orders came in much higher than expected and inflation data was tame. One month doesn’t indicate a trend, and all of these reports will be subject to revision later. But this week there was more optimistic news on the economy than at any time in the recent months. The stock market has also roared back this month, making this one of the best months on record. I am a true optimist and it is great to see this good news, but next week might not be so sunny. The jobs report comes out next Friday, and that is sure to be awful. Unemployment is still growing and this ripples out with more pain to every other part of the economy. GM and Chrysler are still on the ropes and another bailout is expected next week. The stock market has had a big upswing, but markets are fickle and this rally might be running out of steam.

Mortgage rates are about the same as they were last week, and near their low point. Mortgage rates ticked up a little in the first part of the week but came down after a rally in the mortgage backed securities market on Thursday. This week there were several auctions of new government debt, which usually puts pressure on mortgage rates. New debt supply means more competition for mortgage bonds and usually drives rates higher. Rates moved up a little early in the week, but not much. Fed buying is still keeping rates low, and their commitment to continue buying as long as is necessary will continue to be the biggest factor in mortgage rates over the coming months. One thing I am seeing now is mortgage lenders coming in or out of the market based on their own individual needs. One of our largest wholesale lenders who has been mostly on the sidelines over the last weeks is now pricing much more aggressively than any one else in the market. This means they need more inventory and are lowering their rates in order to get it. This is a good sign moving forward. It means that the big lenders are ramping up and ready for an increased volume of refinances. It also means that if your loan is in and moving forward, you are in a position to take advantage of the low rates as they come.

Here is what Illinois Home mortgage rates look like today for an A+ (740 Fico or above), full doc single family home purchase or rate/term refinance on a 45 day rate lock, with 0 points, and no origination fee. The conventional and FHA rates 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 (Illinois mortgage company) 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            4.875%     5.039% APR

15 Year fixed Rate           4.625%     4.724% APR

5-1 A.R.M.                          4.50%         4.652% APR

For Jumbo loans over $417,000

7-1 A.R.M.                         5.125%       5.279% APR

(For smaller Jumbo loans consider breaking your loan into 2 parts – conventional to the limit and a HELOC or second mortgage for the rest.)

FHA LOANS – 3.5% down payment – FHA Maximum varies by County

With 1 point origination fee – 45 day lock

30 year fixed rate            4.75%      5.576% APR

With no origination fee – 45 day lock

30 year fixed rate            5.00%      5.494% APR

FHA APR reflects 3.5% down payment and the effect of mortgage insurance on the loan.

These are just a few of the mortgage 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 your situation in depth, let me know how I can help.

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The report for existing home sales came out this week and it surprised many observers by being positive. Sales in February were up by 5.1% over January. But this number is a little misleading. This is a month to month comparison, and compared to last February we are still down about 4.6%. The increase in sales is more of a seasonal factor than an unexpected surge in buying. Every year around this time, new home buyers start shaking off the winter doldrums and begin to look for new homes. Here in the Chicago area it is called the Spring Market, and a hefty percentage of the homes sold in the year occur between February and June. No matter what the economic conditions, there are a couple of big reasons why this happens like clockwork every year:

1. First time home buyers file their taxes and their tax return checks help give them the down payment they need to buy their first home, which starts the market rolling.
2. Many home buyers have families, and they want to make sure that they have bought, closed and moved in time to start the new school year in late August or early September.

So the uptick from January to February is just a normal part of the market. But one thing that isn’t normal this year is what home buyers are buying. According to the National Association of Realtors 40 to 45% of the home sales now are distressed properties, that is foreclosures or short sales. My experience matches up with what NAR is reporting, first time home buyers are the biggest factor in the market, and they are concentrating their searches on looking for bargains, and these bargains are the short sales and bank owned properties which are often priced at big discounts to similar homes in the area. As I’ve written before, this means that this won’t be a typical Spring market where first time home buyers buy at the low end of the market, giving move up buyers an opportunity to step up to the next level setting off a chain reaction of buying and selling. But the first step in getting the real estate market healthy again is to cut down on the inventory of homes for sale, and this means taking out the distressed properties first.

With the economy still slipping and unemployment spiking higher, loan defaults and foreclosures are likely to grow. But more is being done to slow the pace of foreclosures and work with struggling homeowners to help them stay in their homes. And the bad news for homeowners is great news for first time home buyers. Prices have dropped to the point where homes are the most affordable they’ve been in years. That combined with low mortgage rates and the $8,000 first time home buyer credit are making this a once in a life time opportunity for first time home buyers.

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Welcome to Illinois Mortgage Rates and News week in review for the week ending March 20^th, 2009, my take on the week’s financial news and how it affected Illinois mortgage rates.

Underneath his conservative banker’s suit, I wonder if Ben Bernanke wears a Lycra suit with a big S on his chest? Behind the closed doors of the Fed Open Market Committee meetings does he fly around the room and challenge the other Fed members to arm wrestle? He seems like a mild mannered guy but he flexed his muscles again this week. Big time. With interest rates set at 0 the fed has been active using the other tools in its utility belt, providing extra financing and pushing money out the door as fast as it could. But this move is something different. This time Ben and the Fed went down to the basement and cranked up the printing press, creating an extra 1.25 Trillion dollars to buy mortgage backed securities, treasury bonds and an extension of the TALF program (For perspective, a trillion is a million million). This is a massive increase in the money supply, and the equivalent of a neutron bomb dropping in the financial markets. This policy, quantitative easing, carries some big risks. Increasing the money supply means that the value of the dollar will drop on international markets, and inflation is sure to heat up over time. With the risks involved this couldn’t have been an easy decision, but a choice between the lesser of evils. With the economy in free fall the threat of inflation down the road was preferable to an economic implosion now, and this decision had to be made with a healthy dose of fear.

The Fed has been buying mortgage backed securities (MBS) since the beginning of this year in an effort to bring down mortgage rates. They initially announced that they would buy $500 billion in MBS by the end of June, but as of last week, with 40% of the funds spent, rates were in a low range, but seemingly tapped out. The Fed has been the 800 pound gorilla in the market and without their purchases, rates would have been much higher. But even with the Fed steadily buying and keeping the mortgage market moving, rates had bounced back and forth mostly in the mid to low fives, with an occasional short term drop into the fours. The attitude from the market was – what have you done for me lately? The announcement Wednesday afternoon changed this playing field. It says that the Fed plans on being a long term player in the mortgage market and they intend to keep mortgage rates low as a first step to fixing the housing market. They committed to buying an additional $750 billion in mortgage backed securities (for a total of $1.25 trillion) and will continue buying as long as neccessary, and as a kicker they will buy $300 billion in long term treasury bonds over the next 6 months(unprecedented and HUGE).

There is an old investing maxim – Don’t fight the Fed. After the announcement Wednesday afternoon the 10 year T note skyrocketed, sending the yield down by .5%. Mortgage bonds went on a tear, too. Rates dropped Thursday morning near the lows we saw at the beginning of January, but by the afternoon lenders were re-pricing for the worse as their pipelines filled up and bond investors worried about inflation. This is pretty much as expected, and the same thing has happened every time the rates have dropped over the last months. That doesn’t mean that you already missed out on the low rates. There are three schools of though as to what will happen going forward:

1. The Fed buying will push rates steadily lower, possibly into the mid to low 4s. This is the view you hear in the media, and I’ve been getting a lot of calls from borrowers who are waiting for rates at 4.5% or lower. This may happen, but it will take a lot more than just the Fed buying to get rates this low, and with lenders still near capacity, they are keeping more of the profit for themselves instead of passing it along to consumers.

2. Rates will stay low, but closer to the range we are in now. This means rates will stay affordable longer, but may not go a lot lower.

3. The law of unintended consequences kicks in and instead of rates dropping, fear of inflation and the devaluation of the dollar drives rates higher than they were before. There are a lot of inflation hawks out there, and I agree that down the road we are going to have to deal with inflation. But that is in the future. We’ve seen trillions of dollars of lost value in stocks, real estate and almost every market. The Fed is helping to fill this hole. This scenario calls for investors, especially foreign investors, to abandon buying our bonds, and that isn’t likely to happen. As bad a shape as our economy is in, we are still the safest place to invest, and it is in everyone else’s interest to get the U.S. up and running again.

My guess, and it’s only a guess, is that #2 is most likely. In order for rates to go a whole lot lower, the wholesale lenders need to turn on the spigot. Now most of these lenders come in and out of the market, pricing aggressively when they need loans, pulling back when their pipelines are full. Unless they staff up to the point where they can handle the extra loan volume that low rates bring in, this trend is likely to continue. The best strategy up until now has been to be patient and take advantage of dips in the market. I’ve been recommending that clients who aren’t ready to lock in at the current rates, start the process and wait to see what happens. Mortgage rates are priced based on how long the rate is locked in, the shorter the period the better the pricing. If we have a complete file and the appraisal is done, that means we can lock in for a shorter period and take advantage of the better pricing. This way when the market dips they are in a position to take advantage of it.

 Mortgage rates are slightly better than they were last week, and near their low point. The low rates mean we are starting another wave on the refinance boom we’ve been in since the beginning of December. Every time that rates drop, this means a surge in mortgage applications, which puts more pressure on the processors, appraisers and underwriters, and means that turn times get a little longer. If you are looking to refinance your mortgage, make sure that you lock in for at least 45 days (60 days if you want to subordinate a home equity or second mortgage). With the extra volume everything will take a little longer. If you are purchasing a new home, we prioritize purchases and will work with in the contract period. Either way, these rates are amazing and a real opportunity to lower your payment and put yourself on better financial footing.

Here is what Illinois Home mortgage rates look like today for an A+ (740 Fico or above), full doc single family home purchase or rate/term refinance on a 45 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 (Illinois mortgage company) 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            4.875%     5.039% APR

15 Year fixed Rate           4.625%     4.724% APR

5-1 A.R.M.                          4.50%         4.652% APR

For Jumbo loans over $417,000

7-1 A.R.M.                         5.125%       5.279% APR

(For smaller Jumbo loans consider breaking your loan into 2 parts – conventional to the limit and a HELOC or second mortgage for the rest.)

FHA LOANS – 3.5% down payment – FHA Maximum varies by County

With 1 point origination fee – 45 day lock

30 year fixed rate            4.75%      5.576% APR

With no origination fee – 45 day lock

30 year fixed rate            5.00%      5.494% APR

FHA APR reflects 3.5% down payment and the effect of mortgage insurance on the loan.

These are just a few of the mortgage 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 your situation in depth, let me know how I can help.

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Yesterday I wrote about 2 possible Fed actions that could effect mortgage rates for the better – one, a commitment to extend their program to purchase mortgage backed securities, and two, if they decided to buy treasuries. They just came out with their statement (FOMC Statement), and they decided to do both. The Fed has extended their purchase plan so they will buy an additional $750 billion in mortgage bonds, for a total of $1.25 Trillion. They also plan on buying $300 billion in long term treasuries over the next six months. The market is approving these moves, and the 10 year Treasury note is up over 400 basis points as I write this (absolutely HUGE), and mortgage backed are skyrocketing, too. So what does this mean for home buyers and those sitting on the fence waiting for the right time to refinance? It is time to pull the trigger, rates will be coming down.

Wholesale mortgage lenders haven’t re-priced yet, but they will. Over the last weeks we have been in a range where rates might have gone up or down a little each day, but have been amazingly consistent. We are out of this range now, and we don’t know if this move will continue, but rates now are in the record low range.  The last time rates dropped down in this range the best rates were only there for a few days. I expect rates to stay low, but the best rates may not last long. This is a great opportunity to lower your rate and mortgage payment and save thousands over the life of your loan. If you would like a quote for your personal situation, give me a call or send me a note.

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The Federal Open Markets Committee (FMOC) begins its 2-day policy meeting today. The FMOC is a 12 member committee made up of the Board of Governors and the five regional Fed Reserve Bank presidents. The Fed sets monetary and economic policy and the decisions it makes have a big impact on our over all economy. The goal of the Fed is to promote growth and employment while keeping prices stable, that is, grow the economy while keeping inflation in line. This is always a balancing act. Last year there was a split among members of the FOMC with some more concerned about a return of inflation while others were more focused on the economic slowdown. Now it seems that all parties are in agreement that the economy has to pull out of its dive and grow, or deflation will be a much bigger problem than future inflation.

Controlling interest rates is the Fed’s biggest weapon, but with rates effectively at 0 there is no chance of their cutting further, and absolutely no chance that they will raise rates. They still have a lot of other weapons in their arsenal, and they have been aggressively using them to get the economy back on track. One way they are trying to get more money into the economy and into consumer’s hands is by lowering mortgage interest rates and making housing more affordable, both for new home buyers and for home owners who want to refinance their existing loans. Mortgage rates dropped down to near record levels a few months back when the Fed announced that it was starting a program to buy mortgage backed securities to drive rates down. They set a goal of buying $500 billion in mortgage bonds by July, and they have spent about 40% of their money so far. Rates have dropped, and they are much lower than they would be if the Fed hadn’t stepped in. But many home owners are waiting for rates to drop lower before pulling the trigger on their refinance. This might happen and it might not. Mortgages usually benefit from economic bad news as money rushes out of stocks and into the fixed income market. But the bad news now is mostly baked into the pricing already. On the other side, all the new plans to stabilize the economy cost money and this means the Fed is borrowing heavily through new debt issues, or printing more money to cover the expenses. Both of these are bad news for bonds in general and mortgage bonds in particular, and if it wasn’t for Fed buying, rates would be substantially higher. Over the last month or so, mortgage rates have gone back in forth in a very narrow range.

So what can the Fed do at its meeting to drive rates lower? There are two things that have been discussed, and if either of these is announced at the conclusion of the FOMC meeting tomorrow, rates may break out of their channel and drop again. They are:

1. A program to buy long term US Treasuries. The Bank of England has done this with British bank notes, and rates have dropped to their lowest point in years. There is now a big spread between long term treasury rates and corporate and mortgage debt, and if the Fed stepped in and started buying treasuries, the yield on these securities would fall, driving rates lower. The Fed floated this idea at the December meeting but backed away. A surprise announcement in favor of this plan will mean a bond market rally and lower rates overnight. But this would be a big surprise if they do this now.
2. A continuation of the mortgage backed securities purchase program. This seems more likely. The Fed has kept the market rates low over the last few months, and once they stop buying rates are likely to go back up. They have already stated that they want to keep mortgage rates low, and this is an effective program to do that. An announcement that they will extend the program isn’t likely to force a huge rally, but it will add reassurance that the Fed is in this for the long haul and this will add stability to the market.

There is an old investment saying – Don’t fight the Fed. This is as true now as it ever was. What they do is likely to influence the rates we see going forward.

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Welcome to Illinois Mortgage Rates and News week in review for the week ending March 13^th, 2009, my take on the week’s financial news and how it affected Illinois mortgage rates.

The dark clouds parted this week and we saw a few rays of sunshine. The stock market went up 4 days in a row for a 9% increase on the Dow and its best showing since December. Citi Group and Bank of America, the two mega-banks under the most pressure, announced that they were profitable so far this year and wouldn’t need any more infusions of federal funds. GM said they could muddle through for a little longer, too, and consumer confidence, though still bleak, came in a tad higher than expected. Retail sales also came in better and the first signs of the stimulus showed with a little extra in people’s paychecks this week. So does this mean the worst is over and it’s all clear sailing ahead? Don’t bet on it. Unemployment is still surging, the credit marks are still stressed, and despite this weeks announcements, more bailouts are sure to come. But for now at least we have some good news, and the optimism is welcome.

There was good news on the mortgage side, too. Rates stayed about the same this week, but in a week where the stock market surged and $64 billion dollars in new debt was auctioned off, that is as good as a win. Those dark clouds are still around though. Our biggest foreign creditor is China, who holds about 1 Trillion dollars of our debt. It was China who financed our growth over the last decade, and now, with the economic bust, they have the most to lose. Prime Minister Wen Jiabo made that public this week, worrying about the safety of their investments as the US goes on a spending spree to get us out of this hole. In our interlinked global financial syste m, the increase in government spending brings the threat of future inflation, which should make the value of the dollar go down and bring down the value of their investments. But these aren’t normal times. The dollar has remained strong despite our problems, because even now we are in better shape than most of the rest of the world. The Chinese have just put in a big stimulus plan of their own, and they won’t have as much surplus cash to invest because their exports have dropped as the rest of the world slid into recession. So China may bluster, but there is not much they can do as their economic fate is tied closely to our recovery.

Mortgage rates are close to their lows again but there are still a lot of potential refinance borrowers sitting on the fence waiting for them to drop still lower. We could drop down lower, but there is a good chance that this is as good as it’s going to get. The Fed has been buying mortgage backed securities in an effort to bring the rates down (The Fed bought a net of $27 billion in mortgage backed securities this week for a total of about $217 billion in mortgage backed securities out of a goal of $500 billion by the beginning of July. Here is a link to the New York Fed which tracks the Fed’s mortgage bond purchases.) and has now bought 40% of their goal. While rates are low, they haven’t pushed down into the mid 4s like many hoped. As the Fed has bought, the overall market has sold off, so the fed buying is keeping us in the range rather than bring rates down to the lower range. In order for rates to drop lower the Fed can’t do it alone. If the rates are going to go lower, the rest of the market will need to shift into buy mode. This may happen as the new Home Affordable program comes on line, or it may not. We will find out soon enough.

Here is what Illinois Home mortgage rates look like today for an A+ (740 Fico or above), full doc single family home purchase or rate/term refinance on a 45 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 (Illinois mortgage company) 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            5.00%     5.169% APR

15 Year fixed Rate           4.75%     4.843% APR

5-1 A.R.M.                          4.50%       4.652% APR

For Jumbo loans over $417,000

7-1 A.R.M.                       5.125%       5.279% APR

(For smaller Jumbo loans consider breaking your loan into 2 parts – conventional to the limit and a HELOC or second mortgage for the rest.)

FHA LOANS – 3.5% down payment – FHA Maximum varies by County

With 1 point origination fee – 45 day lock

30 year fixed rate         5.00%      6.026% APR

With no origination fee – 45 day lock

30 year fixed rate         5.50%     6.135% APR

FHA APR reflects 3.5% down payment and the effect of mortgage insurance on the loan.

These are just a few of the mortgage 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 your situation in depth, let me know how I can help.

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It’s hard to watch the news or read the papers without feeling depressed. Unemployment is up, the stock market is down. Fear is in the air and we wonder how much worse this can all get – which makes me think we are getting close to the bottom, or at least close to the bottom of the housing market. The economy in general is still likely to get worse. Unemployment is growing at an alarmingly fast pace, and that is likely to continue for at least several more months. The stock market could get worse, too, and we won’t see any economic growth until something is done to get banks to start lending money again. But housing was the first sector to fall, and odds are that it will recover before the economy bounces up.

Here are some reasons I think we are at, or close to a bottom in the real estate market here in the Chicago area:

• Fear is in the air – Think about it, most of the time when something looks like a sure thing, that is the worst time to buy. Commentators were predicting that the Dow would go to 36,000, right before the market hit its peak and started heading down. A few years back real estate was the hot topic. Think of how many TV shows were made on how to get rich by flipping homes. Now we’re on the down side of the ride and conventional wisdom is that no one is buying homes, and no one can qualify for a mortgage. The wild optimism wasn’t right before, and the pessimism is way overdone now. My contrarian side says this is a reason to expect better things in the future and a sign that we are a lot closer to the bottom than many people think.
• Bad news is taken for granted – It used to be that bad economic news would roil the markets and send out ripples of fear and destruction. We’re still getting the bad news, but the impact isn’t the same now. Last week the unemployment numbers came out and they were absolutely horrendous. But the markets basically yawned. We are getting used to bad news, and as long as the bad news doesn’t affect us personally, it becomes the new normal.
• Affordability increases – With both home prices and mortgage interest rates at their lowest points in years, homes have become much more affordable. I know that I am making purchase loans for prices I haven’t seen in years, and this makes owning a home more competitive to renting. This also gives first time home buyers a strong reason to buy now instead of waiting.
• New home construction is gone – Home prices are determined by supply and demand, and a big part of the problem is that we have way too much supply on the market. This recession hit the new construction market hard, and new home construction has come to a complete halt. The market has to get inventory back in balance with the current demand, and with no new supply of homes coming onto the market, this will happen faster.
• Foreclosures and short sales need to stabilize – This has to do with inventory, too. A big part of the real estate market now is in bank owned properties and pre-foreclosures. According to the National Association of Realtors these are about 45% of market, and based on personal experience, this seems a little low. As the economy worsened and home prices dropped, there’s been an explosion of mortgage defaults. Lenders were slow to deal with this problem and for a while they resisted modifying loans or even responding to offers to buy distressed property. Their attitude has changed. Loan modifications are becoming more common and I am seeing banks respond quickly (or at least a whole lot quicker) and more aggressively to offers to buy. The government has come out with several plans in the past to help homeowners in default, and these plans have been close to worthless. That may be about to change, too. The new Obama mortgage plan, Home Affordable, has 2 parts, one to help home owners at risk of losing their homes, and the other part to help home owners who have paid their loans on time but haven’t been able to refinance at lower rates because of lost home value. The early reviews of this plan have been positive. We don’t have all the details yet and this won’t be available until the beginning of April, but if this plan works as expected it could put a dent in problem loans and keep a lot of homes from coming onto the market, stabilizing supply.
• Pent up demand – In a normal market first time home buyers buy the lower end homes, setting up a chain where these sellers can buy homes further up the ladder and the whole market moves. That’s not happening this time. Most of the activity is in the lowest priced homes, and a good part of this is first time home buyers buying the short sale and foreclosed properties, so there is no move up market. But there is a lot of pent up demand with both first time buyers who want to buy but don’t want to come in too early, and home owners who are in homes too small for them and need to buy something bigger. At some point the demand is going to step up. One extra incentive for buyers to get off the fence is the $8,000 first time home buyer tax credit. This will prompt a lot of new purchases before the year is up.
• Investors are coming back – Home prices (especially with short sales and foreclosures) have gone through the way back machine, and real estate investors are starting to dip their toes in the market again. Financing investment homes is more difficult than it used to be, and the old flipping strategy isn’t working any more. But well funded investors are looking at this as a chance to pick up good properties and hold them for the long term.
• A lot of money is coming into the system – The government is sending a boatload of cash out to get the economy moving again. We haven’t seen the impact yet, but it will be felt. So much of the economy is based on confidence, and the ripples from this may be enough to make more buyers feel it is the right time to buy.

No one will know when we’ve hit the bottom until we’ve gone past it. With real estate the market is so localized that some areas may be well on the way to recovery while others are still in free fall. The truth is that most people don’t buy when prices are at or near the bottom. Bottoms occur when the news is gloomy and most people have abandoned hope, the times it is the hardest to see the value. But home prices are now at bargain price levels and mortgage financing is readily available. At some point the economy will recover, but because of all the money we are spending now we are sure to see high inflation and higher interest rates in the future. Looking back, too many people will wish they had bought when things were a little scarier and more uncertain.

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Welcome to Illinois Mortgage Rates and News week in review for the week ending March 6^th, 2009, my take on the week’s financial news and how it affected Illinois mortgage rates.

The question of the week is, where is the bottom? This question could apply to a number of things, the stock market, unemployment, the housing crisis and our over all economy. These are all interrelated, of course, and bad news in one area means more pressure on the other areas. For now we are trapped in a cycle and the negative feedback loop has us in free fall, wondering if there even is a bottom. Markets run on a battle between fear and greed and right now fear is winning, hands down.

We’ve gotten used to bad news, and as a rule, much of the bad news is already baked into the market prices of both stocks and bonds. But this was a particularly ugly week for news. GM is on the ropes again and the odds of bankruptcy are higher than ever. The biggest banks continue on life support. A record number of home owners are in default of their mortgage or underwater with home values less than the amount they owe. And then the kicker, the unemployment rate this week came in right as expected with a loss of 651,000 jobs last month (horrendous), but the 2 previous months were adjusted downward and the unemployment rate hit 8.1%. The numbers themselves are frightening, but the velocity of the change is an even bigger concern. The economy has shed nearly two million jobs over the last 3 months and more pain is expected.

Consumer spending has been the biggest engine for our growth, but as the unemployment rate rises, fear takes over and even those who have safe jobs are pulling back and feeling nervous. This mans less business, which impacts corporate profits, which mean stocks slide further, hitting 401k values, meaning consumers pull back further, and the cycle keeps itself going. The Government is frantically trying to spend us out of this cycle with the just passed stimulus plan, the hefty new budget and the Fed TALF program which will try and get lending back on track with $1 trillion of loans to consumers and businesses. But so far, government spending is like trying to fill up a bathtub when the drain has been pulled. It’s not going to work if more is flowing out than is coming in.

The conventional wisdom among economists is that we can’t turn the economy around until the banking problems are fixed. The Fed is now administering stress tests to the nation’s 19 biggest banks, but even before the results come back, the consensus is that some of these banks are insolvent now. Up until now the plan was to keep sending them money as they ran low, but this money was used to keep them solvent and not for additional lending. That may be about to change. The FDIC (Federal Deposit Insurance Corporation) is borrowing $500 billion from Treasury, in anticipation for future problems.

There was some good news released this week. Details of the Obama mortgage plan, Home Affordable, were released this week. There are two parts of the plan. One is geared toward those home owners who are behind on their mortgages and at risk of foreclosure. This plan gives incentives for both the home owner and the loan servicer to modify the terms of the loan and to help keep more homes out of foreclosure. This is done directly through the loan servicer. This program has some great features and it will help more than previous plans to stem the tide of home foreclosures. But the other part of the program may have a wider impact. It has been frustrating over the last months as mortgage rates have dropped and refinancing has become a great way for many home owners to lower their rates and payment, but many borrowers couldn’t take advantage of this because their homes had lost value. The Home Affordable DU Refi Plus program allows home owners who have been paying on time to refinance at favorable terms, even if their first loan is up to 105% of their home’s value. Loans have to be held by either Fannie Mae or Freddie Mac, and the specifics of how this will all work are still being worked out. This looks like it could be a big winner for a lot of home owners and it will be available from affiliated mortgage brokers or mortgage bankers. I will have more details as they come available.

Mortgage rates improved this week and are close to their lows again. We have been going back and forth in a range. If you are looking to refinance your mortgage or buy a new home, this may be an opportunity to lock in for a low rate. But it pays to be nimble. Rates have dropped down in this range or slightly below a few times in the last month, but the low rates haven’t lasted long. The Fed bought just over $30 billion in mortgage backed securities this week for a total of almost $190 billion in mortgage backed securities out of a goal of $500 billion by the beginning of July. Here is a link to the New York Fed which tracks the Fed’s mortgage bond purchases. This number is updated every Thursday.

Here is what Illinois Home mortgage rates look like today for an A+ (740 Fico or above), full doc single family home purchase or rate/term refinance on a 45 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 (Illinois mortgage company) 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          5.00%     5.169% APR

15 Year fixed Rate         4.75%    4.843% APR

5-1 A.R.M.                       4.50%     4.652% APR

For Jumbo loans over $417,000

7-1 A.R.M.                     5.125%       5.279% APR

30 Year Fixed Rate*       5.875%       6.098% APR

Special Pricing – Available up to $750,000 loan amount, 75% LTV Purchase/70% LTV Refinance – some restrictions apply.

FHA LOANS – 3.5% down payment – FHA Maximum varies by County

With 1 point origination fee – 45 day lock

30 year fixed rate         5.00%      6.026% APR

With no origination fee – 45 day lock

30 year fixed rate         5.50%     6.135% APR

FHA APR reflects 3.5% down payment and the effect of mortgage insurance on the loan.

These are just a few of the mortgage 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 your situation in depth, let me know how I can help.

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The details of the Home Affordable Program, the Obama mortgage plan, have now been released. The initial response is that this is a move in the right direction and will help a lot more people than previous plans did. The plan is broken into 2 parts, one for homeowners who are behind on their mortgage and facing foreclosure, and the other for homeowners who are paying off their loan as agreed, but haven’t been able to take advantage of refinancing into a lower rate because they have lost equity in their homes.

Here is a quick breakdown of both parts of the plan:

Home Affordable Refinance

This part is designed to help homeowners who are well qualified but can’t refinance because they have lost equity in their homes.

• It is available only for those homeowners whose mortgages are held by Fannie Mae or Freddie Mac.
• The refinance can be done by the loan servicer or any lender who is an authorized Desktop Underwriter user (mortgage bankers and mortgage brokers).
• This is available for owner occupied homes only, second homes and investment properties don’t qualify.
• Borrowers will be able to refinance as long as their first mortgage is up to 105% of the appraised value (5% underwater). This will help a lot of borrowers who bought in the last few years with 10 or 20% down payments and have watched their equity disappear, but it probably won’t help buyers who are in deeper water (0% down buyers and those in states like Florida, California and Nevada who have seen the biggest drops in value).
• Mortgage insurance guidelines will be relaxed and based on the equity of your original loan. We need more clarification to see how this will be applied.
• All normal closing costs will apply, but these costs may be rolled into the new loan.
• Many of the Loan Level Price Adjustments (price hits) required for new loans have been eliminated or decreased. Credit scores are still important, but the best pricing is available for a 720 score now, instead of 740, and other Fico hits are lower.
• The new loan can be either a 30 year or a 15 year fixed rate.

Most of the major wholesale lenders have agreed to participate with this new program, but we still don’t know how some of the details will be applied. This is program is separate from the normal refinance programs so pricing may be different. If it is close to normal pricing it will help a lot of borrowers. Also, most of the less than 20% down payment purchase loans taken on over the last several years didn’t use mortgage insurance but a combination of a first and a second mortgage. These second mortgage holders will have to agree to subordinate the loans to the new first loan in order for this to work (as a rule, they aren’t doing this now).

Loans will be eligible after April 4^th, so we will have more specifics as the wholesale lenders figure out how this will all work. The first step to see if you qualify, is to find out if your loan is held by Fannie or Freddie. Here are the links to see if Fannie or Freddie hold your loan. I will be able to help with these loans as they are implemented. If you have any questions let me know.

Home Affordable Loan Modification

The second part of the program is for those who are currently delinquent on their mortgage and in danger of foreclosure and need their loan terms modified.

• Also only for Fannie or Freddie loans.
• Available only for owner occupied homes.
• The modification must be done by the company servicing the loan.
• The goal is to bring the borrowers mortgage debt down to 31% of their income, making the loan affordable. The mortgage rate can be adjusted down to as low as 2% for the first 5 years to make this work.
• There are incentives for the mortgage servicer to go along with this program and also incentives for second mortgage holders to come on board.
• There is no maximum loan to value.
• The borrower pays no fees to have their loan modified.
• Borrowers who stay current on their payments will receive a principal reduction of $1,000 per year for the first 5 years.
• You can only modify the loan once.

Here is more information on the specifics of Home Affordable, and here are the links to see if Fannie or Freddie hold your loan. You will need to work with your current lender on this plan and you can call them directly to see if you qualify.

I doubt that this is enough to fix the real estate market on its own, but it is clearly a step in the right direction and will help many homeowners who would otherwise not be able to refinance, and help some distressed home owners keep their homes.

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These are perilous times. The news is filled with stories of unemployment, foreclosures and bailouts. If you have a 401K or stock account, your retirement date just got pushed further into the future. According to the ADP employment report released today, 697,000 jobs were lost in February, 70,000 more than expected. It seems like bad news is the only news and our economic future is obscured by dark clouds. But the thing about dark clouds is they tend to have a silver lining, and that is the case now. The silver lining here is that homes are becoming affordable again – especially for first time home buyers, or those who don’t have a home to sell.

How affordable a home is depends on several factors, home prices, interest rates and your income among them. Here are 3 ways that homes are more affordable now:

Home prices are down – Over the years the expectation got baked into the market that home prices would always go up. As the bubble inflated, high home prices meant that borrowers had to allocate more and more of their income toward housing payments. Now we are seeing the flip side of this trend. Home prices have been moving down sharply over the last few years, and the most active homes on the market are foreclosed and short sale homes where the prices are marked down even further.

Mortgage rates are down – Mortgage rates are at historic lows. The lower the mortgage rate, the lower your housing payment, so this means you can buy more home for the same payment you could before, or lower your payments and spend less of your income on housing. Rates are low, but changes in the market mean not all borrowers will benefit. There are now Loan Level Price Adjustments, also known as pricing hits or add-ons, which raise the effective interest rate for many home buyers. But FHA, the biggest loan program for most first time buyers, doesn’t have these loan hits so the rates are still affordable.

Down payments are down – The amount needed for a down payment is a percentage of the home’s selling price. With home prices at their lowest point in years, this means that you need less for the down payment. Saving up for the down payment has always been the biggest obstacle to buying a home, so this is another way that lower home prices increase affordability. FHA requires a 3.5% down payment, so low down financing is still available.

Some (NAR) say that housing affordability is at an all time high, others say the index is skewed and we need to drop lower still before housing is truly affordable. But the bigger question is what is right for you and your situation. There is no guaranty that home prices won’t slip lower, but for most first time home buyers housing prices are bargains.

(Photo courtesy of Flickr -Julio Teixeira’s photostream)

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