Welcome to Illinois Mortgage Rates and News week in review for the week ending May 1st, 2009, my take on the week’s financial news and how it affected Illinois mortgage rates.

In last week’s update I wrote how quiet the mortgage market had become, how volatility had nearly vanished, and wondered if this was the calm before the storm. This week the storm clouds moved in. A lot of economic news was released this week and the reaction raised interest rates in general, though mortgage rates didn’t get hit as hard as treasury rates did. Mortgage rates went from the lowest part of the range on Tuesday, to the high point on Friday afternoon. The question now is whether this is a blip in the long term picture and we will go right back to the range rates have been for the last few months, or if this is going to be a real change where mortgage rates start trending higher, even though the Fed is doing their best to keep rates low.

As has been the case for the last months, the indicators have been mixed. Or, they are mixed in the way that they are interpreted, because anyway you look at them they are still pretty dismal. But so much in life is relative, and though the numbers have been dismal, they aren’t quite as dismal as they were before, so this is a sign of optimism. In fact, consumer confidence came in higher than expected this week. The real rally in stocks ( and the sell off in fixed income bonds and mortgages) came after the Fed meeting was finished and they had similar sentiment in their announcement. The wording in the statement said that the pace of slowing in the economy seems to be stabilizing. This is good news in the sense that we may be near the bottom. But closing in on the bottom doesn’t imply that we will be moving upward anytime soon. The Fed also said there were no signs of inflation in the near future.

Chrysler hit the mat this week. Negotiations with bond holders fell apart, so instead of a controlled settlement, they entered bankruptcy. Most of the creditors including their suppliers and the unions, have already come to agreement on the terms and the BK will pave the way for a merger with Fiat Automotive. So this won’t be a liquidation, and the expectation is that they will be through the bankruptcy within 60 days. The merger means that they will still be around, and the government has agreed to pump more money in, but as part of the settlement more factories will be closed and more jobs lost. GM is still reorganizing and even as it announces more dealership shutdowns and the closing of the Pontiac brand, it is likely that we will see a replay of this on a bigger scale with them soon.

Week over week, mortgage rates moved up slightly, but this doesn’t illustrate the real volatility in the market. Early in the week mortgage rates dropped, allowing all the rate floaters a chance to lock in, and then swung sharply higher as the week went on. Mortgage rates largely followed Treasury rates this week, and after the Fed announcement implied that the Fed wasn’t going to aggressively buy Treasuries to drive rates lower, rates shot up. Mortgage bonds tend to follow the curve that the Treasury sets, so when T bills climbed higher, mortgages went along for the ride. To an extent. The Fed has been the 800 pound gorilla in the market, and they will continue to play that part. This means that they intend to do everything they can to keep mortgage rates in a low range. The question is though, if they are the only big buyers will that be enough? Mortgage backed securities are sitting at a critical technical level, now, and actually traded below that level on Friday before recovering some at the market close. It is possible that rates could be moving up for a time. If you are planning on purchasing a new home or refinancing your mortgage, be sure to watch the market and take advantage of the dips in rates. Paying attention to the market, or working with someone who does, can save you a lot of money over time.

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            5.00%     5.159% APR

15 Year fixed Rate           4.875%     5.067% APR

5-1 A.R.M.                        4.50%        4.701% APR

For Jumbo loans over $417,000

30 Year Fixed Rate*          6.00%       6.169%

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

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

VA Veterans Administration 0 Down Loans

With 1 point origination fee – 45 day lock

30 Year Fixed Rate           5.00%     5.178%  

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.

Illinois Mortgage Rates                   First time home buyer loans  

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As of yesterday, May 1^st, a new law is now in effect which will have an impact on anyone who is applying for a new mortgage loan. The change, the adoption of HVCC, the Home Value Code of Contact, affects property appraisals and how they are ordered and it is one of the new reforms designed to end the abuses that contributed to the run up in home prices which came before the real estate bust. The idea behind the law is that mortgage lenders were pressuring appraisers for higher values in order to make the deal (purchase or refinance) work, and that it was this pressure which drove property to unsustainable levels. The new system takes ordering the appraisal away from anyone with a vested interest in getting the loan done (loan officer, sales and support staff) and goes a step further so that the loan officer isn’t even allowed to communicate with the appraiser. No doubt there have been abuses in the system, but in ranking the causes of the crisis, this isn’t near the top of the list ( too much easy money from Wall Street was the biggest factor) and there have always been checks and balances in the system to keep this from happening (the difference is that they are now being enforced). This is a good example of a well meaning law which is likely to cause more problems than it will solve, but it will impact some much more than others, and for mortgage brokers it puts one more nail in their coffin.

I understand the logic behind this law. Lenders only get paid if a loan closes, so the appraiser, who relies on the lenders for business, may feel pressured to come in with higher values than they would other wise give or risk being cut off from their referral source. I know that this happens, especially in a market where prices are moving up. In a down drafting market like we are in now, the opposite is more likely. Every appraisal is getting intense scrutiny from the underwriters who make the final loan decision, and every appraisal we get is being marked up and sent back to the appraiser asking for more comps or clarifications on why they made the adjustments they did. Appraisers are coming in with conservative values because fear is the motivator now. They are getting beat up on each appraisal they do, so the inclination is to come in with a safe, low value. It is the end lender who makes the rules, and when the boom was on they wanted more volume so they had a bias toward rising prices, now the bias is toward the lowest values.

This law was passed a year ago, but with opposition from all the real estate industry groups it was an even bet whether it would actually go into effect. There aren’t any real winners with this new law. It will cause problems for everyone from the appraisers themselves to the consumers who are supposed to benefit from this new program. Here is what this will look like from different perspectives:

• Appraisers – For many appraisers, their income will be going down. Many loans will be placed through Appraisal Management Companies (AMCs) which will rotate the appraisal orders through their members, and take off a hefty fee for doing so. It also means that the good appraisers who have built their business through strong relationships, will be in the same boat as a newer appraisal who is willing to work for less.

• Consumers – This law was designed to help consumers, but it is likely that it will cost them more over time. One of the provisions of the new bill expressly prohibits doing value checks before an appraisal is ordered. One of the first things I do when I talk with a new borrow about a refinance, is check on the value. If it looks like the value is close on what we need, I will contact one of my appraisers and ask for a value check. This means they will run some comparable sales and do some preliminary work to see if the home looks like it will appraise out, or not. It doesn’t make any sense to charge a customer for an appraisal if we are not able to do the loan. We will have some alternatives that will allow us to do this, but these alternative will cost more, one way or the other. It is to early to know for sure, but without accountability, appraisals may take longer to get done, which means longer lock periods and higher rates.

• Mortgage bankers and correspondent lenders – Mortgage bankers and correspondent lenders, like the company I work for will mostly be inconvenienced. We will need to institute policies which will rotate the appraisers on our approved list and put all contact through an internal appraisal management department. We won’t have any contact with the appraiser, so when there are property issues we won’t have any control. For example, this week I had an FHA closing where some work needed to be done prior to closing. The work wasn’t finished until the day before the close, but I was able to call the appraiser and he rearranged his schedule in order to get the job done quickly so we could close the purchase in time. I doubt if this will happen as easily now without having big rush fees added.

• Mortgage brokers – This may be the biggest casualty of the new program, and if it means that more mortgage brokers are put out of business, this means less competition and higher prices to the consumer. Mortgage brokers will have to order the appraisal through the end lender and the appraisal will come in the lenders name. If for some reason the loan doesn’t go through with this lender (and this could be because they couldn’t get an approval, or maybe the rates have dropped and they can relock at a lower rate with a another lender) they will need to get a brand new appraisal. This will add a lot more time and more cost to the loan process.

Every one loses some control with this new program, but for mortgage brokers, who have been under pressure with all sorts of new rules aimed at them, this will be a big obstacle to over come. If you are shopping for a mortgage, either for a purchase or a refinance, one question you need to ask is what type of company are you dealing with and ask how the new appraisal rules will affect you if you move forward with a loan from that company.

Illinois Mortgage Rates                   First time home buyer loans  

We Lend in All 50 States