Welcome to Illinois Mortgage Rates and News week in review for the week ending May 15th, 2009, my take on the week’s financial news and how it affected Illinois mortgage rates.

The data released this week mostly confirms that the economy is still slowing, but not as fast as before. Retail sales numbers were quite a bit worse than expected, though not surprising when you consider how many people who have lost their jobs in the last year. Industrial production numbers were down, but not as much as expected and much better than last month’s figures. The Consumer Sentiment Index went up a touch, showing that people are feeling a little more optimistic about the future. Inflation gauges PPI and CPI (Producer and consumer price indexes) came in a little hotter than expected. CPI base rate was at 0% for the month, showing no inflation, as expected. The core rate however, which excludes volatile food and energy costs, came in .3% higher. Inflation may be building, but this is just as likely to be a blip in the numbers. Until the economy is back on track inflation will just be a secondary issue.

The big news in the mortgage and real estate markets this week was the announcement by HUD Secretary Shaun Donovan that the $8,000 first time home buyer tax credit would be allowed for use as a down payment on FHA mortgages. He promised more details by next week, but if this comes through as projected, it will be a big boost to the housing market. First time home buyers have been the bulk of the purchase market all year. The biggest obstacle to buying a new home has always been coming up with the down payment, and even the FHA 3.5% minimum down payment can be a big barrier to many potential buyers. Monetizing the $8,000 tax credit will be enough to cover or supplement the down payment for many renters who have been on the side, trying to figure out how they could take advantage of the low home prices and low mortgage rates which make homes more affordable than they have been in years. The housing market can’t recover until the excess inventory of foreclosures and short sales are absorbed. The new buyers are going for the bargains, and this will help the entire market recover over time. The danger is that by allowing this credit to be used up front, it will send another wave of unqualified buyers into the market, meaning more foreclosures down the road. I don’t buy into this view. FHA mortgages are fully underwritten and the borrowers have to qualify by income and credit standards. Even without a large down payment, buying a first home is a big commitment and buyers don’t take it lightly. Many of the first time home buyers are already buying with gifts (with FHA the down payment can all be a gift), many of which, I’m sure will be paid back after the buyer gets the credit back (by filing an amended tax return). Foreclosure and distressed loans are more linked to job losses and the value of their homes (people who can afford their payments only walk away when their homes are deep under water).

There are a lot of details that need to be worked out before this program is up and running. Right now the tax credit isn’t available until after the home is closed. This means that the borrowers need to have the money at closing, but can apply for the credit right after the close. The plan is to allow a bridge loan against the tax credit so more borrowers have the money when they need it most. This presents several problems, though:

• Who will make these loans?

• How will the lenders fit this into their approval and closing processes?

• How can they fit the program into FHA guidelines?

The lenders themselves aren’t likely to make these loans. They aren’t equipped to handle the details. It is likely that non-profit organizations will be the ones to fill in the gap, but they will be starting from scratch, so it may take some time to get the programs approved and in place. Once there is a mechanism for these bridge loans, the lenders will have to decide how they will treat them. Lately they have been picking and choosing which programs to take on, going along with some and ignoring others or adding on extra cost overlays, making the programs more expensive. So they will have to both come on board with the spirit of the program, and set up the procedures of how they will accept these credit loans. This again will take time. The other obstacle is how they will do this so it fits FHA guidelines. You can file your tax return now and get a loan from the tax preparer for the return (at a high interest rate) so you can use the money right away, but this isn’t eligible for use by FHA. These tax credit loans are essentially the same thing. Some kind of patch will need to be worked into the guidelines to allow this. Since the policy is something the administration wants, and it will be good for the housing market in general, they will find a way to make this work. But don’t expect this to happen right away. I’ll post more details on this program as they come out.

This was a good week for mortgage rates. Mortgage rates improved 4 days in a row before ending the week on an off note. So we are now solidly back in the range we’ve been bouncing back and forth in over the last months. For some people low mortgage rates are starting to get boring. When rates first dived last December, there was a real frenzy to jump in and take advantage of the low rates by refinancing at a much lower rate. Mortgage rates are still in the all time low range, but the urgency to refinance isn’t the same, even for borrowers who could save a lot. Rates have been predictable lately, and it is likely that, with some ups and downs, rates will be in a good range for a while. But at some point rates will go up. If a refinance would help you now, don’t put it off for too long.

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%     5.069% APR

15 Year fixed Rate             4.50%      4.663% APR

5-1 A.R.M.                        4.25%        4.386% APR

 

For Jumbo loans over $417,000

30 Year Fixed Rate*          5.875%       6.057%

*Best rates are based on 70% LTV, 760 and above FICO single family homes.

7-1 A.R.M.                         5.25%       5.343% APR

(For smaller Jumbo loans another option is to break 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%      5.339% APR

With no origination fee – 45 day lock

30 year fixed rate              5.00%      5.523% APR

FHA APR reflects 3.5% down payment and the effect of mortgage insurance on the loan. Call for information on no-cost FHA streamlined Refinances

 

VA Veterans Administration 0 Down Loans

With 1 point origination fee – 45 day lock

30 Year Fixed Rate           5.00%     5.178%  

Call for information on no-cost VA Streamlined Refinances

 

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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