While day to day volatility remains high, mortgage rates remain near their all time lows. The economic data is still mixed, but it looks like the recovery is losing steam, and the fear is that the economy may dip back into a new recession, or continue a long slow slog of bumping along the bottom, without a real upturn into growth.  Existing home sales fell 2.2% in May. The inventory of unsold homes on the market is sitting at an 8.3-month supply at the current sales pace, slightly better than the 8.4-month supply in April. New home sales fell 32.7% – the slowest sales pace since they began keeping records back in 1963. New home sales have fallen 78% from their peak in July 2005. Durable goods orders fell 1.1% in May after increasing a revised 3% in April. Initial claims for unemployment benefits fell by 19,000 to 457,000 for the week, showing that employment is still a major concern. One of the big market movers last week was the Fed meeting report. The Fed changed their wording slightly to a more bearish stance, which means the odds of a rate increase coming now shift even further into the future. The net result of this activity is that rates are as low as they have ever been. Not everyone can qualify, but if you do, this could be the right time to pull the trigger on a mortgage refinance or home purchase. Locking in these low rates now means big savings over time.

The big question this week is whether Congress will extend the close date for the home buyers tax credit. All contracts had to be written and in place by April 30th, but the legislation gave up until the end of June to close the transactions. This month has been crazy getting so many people in before the deadline, but their are still a lot of home buyers who bought in time, but through no fault of their own may not be able to close on time. Most of these are buyers who bought short sales or foreclosed homes. Short sales take more time to close, as you not only need to get the buyer to agree but also the lender (or lenders). This means more time, and their are buyers who bought months ago who are still trying to sort out all the details to get the deals closed. Foreclosures should be more cut and dried, but even when the bank which owns the home has agreed to all the terms, it can still be a maddening experience trying to get them to perform in a timely basis. This means there are a lot of buyers who fully expected to close on time, who are now anxiously waiting. A measure to allow more time to close was added to a jobs bill, was passed by the Senate, but died in the House of Representatives. There is still hope that a new bill will come through this week, but we are down to the wire on this. The other possibility is that something is passed in July and made retroactive. If this doesn’t happen, many of these transactions will still close, but the buyers will be out the $8,000 credit they were counting on. If you are one of the buyers affected by this, get on the phone and call your representative now. They do listen and respond to pressure.

Here are the current Chicago Illinois Home mortgage rates 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, best FHA rates assume a 660 Fico score, but loans are available with credit scores as low as 620. Mortgage rates in other states may be slightly different, give me a call and I will give you an accurate quote for your particular situation. 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 will take the time to find the rate and program that is best for you:

Conventional loans up to $417,000

For Jumbo loans over $417,000

*A better option may be to break your Jumbo loan into 2 parts a conventional loan to the limit of $417,000 and a HELOC or fixed second mortgage for the rest. The blended rate is usually much better than a single loan would be, especially for the lower end of the Jumbo range.

** 5-5 ARM is fixed for first 5 years, with 2/6 caps it can’t go more than 2% above the start rate for the next 5 years. 2% cap for next 5 years – so a blended rate over 10 years is no more than 1% over the start rate.

FHA LOANS 3.5% down payment FHA Maximum varies by County

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

FHA 203K Rehab Loans

Call for Quote

VA Veterans Administration 0 Down Loans

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.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company

It’s Fed time again, and as expected, the Fed will keep short term rates at the same 0 –.25% range. The Fed minutes are always much anticipated and analysts try to read between the lines to see if there are any hidden meanings which would telegraph the Fed’s likelihood or timing of their raising rates sometime in the future. You don’t have to be a psychic or Fed expert to read their true meaning now, rates are low and they will stay low for a long time. This version was a little bleaker than previous, versions. High unemployment, lower housing wealth and tight credit are keeping a cap on growth, the statement said, and alluding to the European financial crisis, financial conditions have worsened.

All the Fed watchers are looking for signs of inflation, and the view here is that inflation is in the far distance, and not a threat of any kind, for now. This isn’t great news for the economy, but if you are thinking about purchasing a new home or refinancing your current mortgage, this means that rates for mortgages are likely to remain low. Mortgage rates aren’t directly controlled by the Fed. The Fed sets short term rates for the biggest banks. Mortgage rates are determined by activity in the mortgage backed securities markets, where the bonds trade up and down based largely on the fear of inflation. This news means that with the threat of inflation lessened mortgage bond holders are more likely to accept lower yields. Rates are at record lows now, and there is no guarantee that they will stay this low, but they will stay in a low range, until unemployment starts to drop and the economy improves.

Here is the full statement:

Information received since the Federal Open Market Committee met in April suggests that the economic recovery is proceeding and that the labor market is improving gradually. Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank lending has continued to contract in recent months. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be moderate for a time.

Prices of energy and other commodities have declined somewhat in recent months, and underlying inflation has trended lower. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

Peter Thompson                              630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company

Mortgage rates are hitting record lows again. Yesterday after China announced that it was considering decoupling the Yuan from the dollar, it looked like the streak of low rates was about to turn. But this was only a head fake higher before rates resumed their march lower. The market decided that China’s move was more symbolic than anything, and that this might not be the major event it first appeared to be. Today existing home sales fell by 2.2%, worse than expected, and the stock market sold off again. The result is that mortgage rates are the lowest they have been in ages. This means that for those who qualify, refinancing is a hot bet. If you are buying a new home,this is an opportunity to lock in your loan at a rate that will make your parents jealous. The big question now is how long these low rates will last. If past history is a guide, it might not be very long. At the beginning of last year rates dropped, but the lowest rates weren’t around for long. If you can take advantage of a low, low mortgage rate through a refinance or new home purchase, it might not pay to wait.

Here are the current Chicago Illinois Home mortgage rates 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, best FHA rates assume a 660 Fico score, but loans are available with credit scores as low as 620. Mortgage rates in other states may be slightly different, give me a call and I will give you an accurate quote for your particular situation. 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 will take the time to find the rate and program that is best for you:

Conventional loans up to $417,000

For Jumbo loans over $417,000

*A better option may be to break your Jumbo loan into 2 parts a conventional loan to the limit of $417,000 and a HELOC or fixed second mortgage for the rest. The blended rate is usually much better than a single loan would be, especially for the lower end of the Jumbo range.

** 5-5 ARM is fixed for first 5 years, with 2/6 caps it can’t go more than 2% above the start rate for the next 5 years. 2% cap for next 5 years – so a blended rate over 10 years is no more than 1% over the start rate.

FHA LOANS 3.5% down payment FHA Maximum varies by County

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

FHA 203K Rehab Loans – Call for a personal Quote for your situation

VA Veterans Administration 0 Down Loans

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.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company

FHA may be about to change again. In a vote of 406-4, the House of Representatives passed a bill that, if passed by the Senate, will increase the monthly mortgage insurance for FHA loans. Over the last 2 years FHA has gone from being a bit player in the housing market, to the main choice for most first time home buyers, and now makes up about 40% of the overall loan volume. Because FHA has increased market share so quickly, and as a result of all the stress in the housing market, loan defaults have become a real problem. Some critics of the program have said that the higher default rate is a result of FHA making bad loans. The truth is more complicated. FHA, though it is a government program, has been self sufficient since it started, and uses the mortgage insurance premium that it charges to cover any losses from bad loans. This mortgage insurance (MIP) is broken into 2 parts. One part of is Up-front mortgage insurance which is a lump sum that is financed into the loan. The other part is an annual premium that is paid monthly, just like conventional mortgage insurance. This mortgage insurance has always been enough to keep the program solvent, so unlike Fannie Mae, Freddie Mac and all the big banks that make mortgages, FHA has stood on their own 2 feet and haven’t required a bail out to stay in business. But with the housing market still rocky, FHA management is moving to make sure they keep their reserve levels high, and this means raising their MIP.

Last year FHA raised their Up-front MIP requirement from 1.5% of the loan amount to 2.25% (again, financed into the loan). The new bill focuses on the monthly premium. This bill would allow FHA to increase the annual premium from the current .55% of the loan amount (divided by 12 and paid monthly) to a maximum of 1.5%. This nearly triples the amount they could collect, and if they put this in all at once, would be a major hardship for most borrowers. But it is more likely that they will tinker with the formula, lowering the Up-front premium and raising the annual, but not all the way to the limit. One combination that has been discussed, is lowering the Up-front MIP to 1% of the loan amount, and raising the annual to .90% (again, divided by 12). This approach gives a little on one side, while taking away on the other. An increase from the current .55% to .9% would result in about $30/mo on a $100,000 loan, while reducing the Up-front premium by $1,250. This may not be the intended result, but what this really does is make FHA more attractive for those who don’t plan on being in the property long term, and may make FHA a better alternative for some who would otherwise be able to finance with a conventional mortgage. I will have more analysis on this once we know how this will really shake out.

Nothing will happen until this bill passes through the Senate. No Senator has sponsored the bill yet, but based on the lopsided passage in the house, I have no doubt it will be coming soon. The higher payments will make it more expensive for some buyers, but this is a small price to pay to keep the FHA program on track. In order for the housing market to recover, FHA needs to stay healthy.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company

Volatility in the markets is high again, but mortgage rates ended the week in the lowest range of the last year, at record low rates. Mortgage bonds were strong most of the week, but when the stock market staged a rally on Thursday, volatility hit hard and as bonds dropped, mortgage rates got hit hard. But the trend was back on track by Friday as low retail sales numbers came in much lower than expected, casting doubt on the strength of the recovery. Some of the other reports released were a little more mixed, but mortgage rates aren’t really moving based on economic reports now. The big mover in the interest rate market is the stock market. Stocks are at a crucial point now, and the question is whether the rally is pausing before making the next leg higher, or if the problems in Europe are an indicator of more trouble to come. Either way, for a quick read on what is happening with mortgage rates, look to the stock market. If stocks are improving rates are moving higher. I stocks are selling off, mortgage rates are likely moving lower. This has always been one factor in mortgage bond pricing, but now it is the biggest influence, by far.

At any rate, if you are in a position to take advantage of these rates, don’t delay. Last year when rates dropped to this level, a lot of potential borrowers waited on the sidelines convinced that rates would drop to 4.50%. It never happened. Even if mortgage bonds improve, the wholesale lenders who buy the mortgages in the mortgage aftermarket are hesitant to pass along the gains (which would mean a huge runoff in their servicing portfolio as home owners refinanced into lower rates) and they are more likely to sit back and make higher profits rather than passing the gains on. At some point rates will rise, the question is a matter of time. If you want to refinance your Chicago area mortgage or get a free mortgage pre qualification, let me know. This could be a great time to pull the trigger.

Here are the current Chicago Illinois Home mortgage rates 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, best FHA rates assume a 660 Fico score, but loans are available with credit scores as low as 620. Mortgage rates in other states may be slightly different, give me a call and I will give you an accurate quote for your particular situation. 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 will take the time to find the rate and program that is best for you:

Conventional loans up to $417,000

For Jumbo loans over $417,000

*(Another option is to break your Jumbo loan into 2 parts a conventional to the limit of $417,000 and a HELOC or fixed second mortgage for the rest. The blended rate is usually much better than a single loan would be.)

** (5-5 ARM is fixed for first 5 years, with 2/6 caps it can’t go more than 2% above the statr rate for the next 5 years. )

2% cap for next 5 years

FHA LOANS 3.5% down payment FHA Maximum varies by County

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

FHA 203K Rehab Loans

Call for Quote

VA Veterans Administration 0 Down Loans

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.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company

When I talk with prospective home buyers, one of the biggest surprises is how much it cost to buy a home. Most buyers expect that they will need to come up with a down payment, and with FHA requiring a minimum of 3.5% down (and that can come from a gift), but it is often a shock that there are additional charges they will need to come up with at closing, and in order to even qualify for the mortgage we will need to see that they have the ability to come up with the cash needed to close. Besides the down payment, some of the items you will need to pay for include:

• Bank fees, including the appraisal and credit report, underwriting and processing charges.
• Title charges.
• Transfer taxes. In Chicago the transfer tax is .75% for buyers, or $2,250 on a $300,000 home, so this can be a big item.
• Attorneys fees.
• Home inspection costs.
• The first year’s insurance payment.
• Pre-paid interest and the money to set up your escrow accounts (you will get a tax credit from the seller, which will reduce your costs).

Add these together and you are looking at thousands of extra dollars you will need at closing. Coming up with the down payment and cash needed to close is usually the biggest obstacle to buying a home, especially for first time home buyers. But the good news is that you don’t have to save all this money before you can buy. You can ask the seller to help you buy their home by contributing to your closing costs. We are in a buyer’s market, and with the leverage on the side of the home buyer, this has become a normal and accepted part of many transactions. If you want to make use of a seller credit, you have to ask up front when you are negotiating for the home. From the seller’s perspective this is the same as offering a lower price for the home. Any money that the seller pays out is deducted from the sale price. If the contract for the home is $200,000 and they are paying $3,000 for closing costs and pre-paids, the true sale price is $197,000. So the seller is more interested in how much they are netting, not how the transaction is structured. This applies to short sales and foreclosures, too. I have heard many people say that you can’t ask for seller closing cost credits when buying a distressed property, but that is simply not true. If a closing cost credit will help, ask for it.

FHA allows up to a 6% seller concession (though they have talked of reducing this to 3%) and you can get up to 3% credit on conventional loans. Work out the numbers with your lender beforehand, and have him put together an estimate of closing costs so you know everything you will need to cover at the closing. You can ask for these closing costs either as a dollar amount, or as a percentage of the purchase price. Because there are so many fixed items, the percentage needed will be much higher for lower priced items (bank fees and title charges) then for higher priced homes, so there is no rule of thumb as to what percentage of the sales price you will need. The closing cost credits have to be used at the closing and you can’t get any cash in your pocket from the credit, but you want to make sure that you use it all.

The most common way to use a seller credit is to use it to pay off your closing costs so you don’t need as much cash at the closing. But there are other, more creative ways to use the seller credit, which can work great for specific situations. Sometimes the seller credit can make the difference between buying, and waiting another year. Here are a few ways you can use a seller closing cost credit:

Pay off Up-front MIP  – One of the major costs of an FHA loan is the up-front mortgage insurance premium. This is now 2.25% charge, but it is usually added into the mortgage so you don’t pay it in cash. For most borrowers this is just a cost of doing business and worth the price to take advantage of all the benefits of FHA financing. But if you are only planning on being in the home for a relatively short period of time, it may be an issue. One solution is to use a seller credit to pay off the up-front MIP. By doing this you have in a sense, increased your equity by 2.25%. You will also lower your monthly payment by a bit. One thing to keep in mind is that the premium has to be paid in full or not it all. It can’t be split or reduced.

Buy down the interest rate – You can also use the credit to permanently lower your interest rate. The seller credit will pay for points, or up-front interest charges. Usually 1 point (one percent of the loan amount) will lower your rate by about 1/4 of a point in interest. If you are planning on being in the home long term, this could be a great way to lower your payment and save a lot of money over the course of the loan. This can also be used to help you qualify for a higher amount.

Temporary interest rate buy down – Another option is instead of lowering your payment for the life of the loan, to lower the payment much more in the first few years of the loan. An example of a temporary buy down would be a 2-1 buy down. If current rates are at 5.0%, this buy down would mean that you pay 3.0% for the first year, 4.0 for the 2nd year and then the market rate of 5.0% for the next 28 years. The cost of the buy down is the difference in payments for lower rates you are paying for the first 2 years, paid at closing (this will usually be around 2.5% of the loan amount). There are 2 main advantages of going this route. First, with FHA, you can qualify for the mortgage with the first year’s payment. This is a big advantage if you know that your income will be going up. The other big advantage is flexibility. I am working with a client now who can afford the home priced as it is, but is nervous about the jump in payments compared to their rent. At the same time, they have some expenses that will be dropping off soon, and the spouse is finishing up school so more income will be coming in over the next few years. A temporary buy down is the perfect solution.

Seller tax credits can be a great way to extend your buying power, save money and structure your loan in a way that works best for your needs. If this will help, be sure to work the numbers out ahead of time and negotiate it into the contract.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company

After a bad unemployment report, and more trouble out of Europe, mortgage rates are improving. The unemployment numbers while positive on the face, were ugly once you looked at the details. The overall gain was almost all a result of temporary census hiring, and the jobs gained was much lower than expected. Ad  to this more rumblings from Europe, Hungary this time, and the result is a bad day for stocks and a big day for bonds. Confidence in the strength of the recovery is now fading, and the odds of inflation being a threat any time soon, is now close to 0. So mortgage rates are near the best rates we’ve seen over the last year.

Mortgage rates are great, but money is still tight. There are a lot of home owners who would greatly benefit from a refinance, but aren’t able to take advantage of it due to a loss of equity in their homes, or because their situation doesn’t match up to the tighter underwriting criteria that is now standard (you have to prove your income now). At the same time, there are programs which can help those who have lost value in their homes, and there are an awful lot of home owners who could qualify for a loan, and save hundreds of dollars each month, who haven’t taken advantage of a refinance yet. It is worth checking to see if refinancing would work for you and your situation. For those buying a home the situation is better, the price of homes is down so you can afford much more than you could in years past, but you still have to make that first move and make the commitment to buy now. With low prices and low interest rates this could be a great time to buy, but the key is whether the timing is right for you and your personal situation.

Here are the current Chicago Illinois Home mortgage rates 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, best FHA rates assume a 660 Fico score, but loans are available with credit scores as low as 620. Mortgage rates in other states may be slightly different, give me a call and I will give you an accurate quote for your particular situation. 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 will take the time to find the rate and program that is best for you:

Conventional loans up to $417,000

For Jumbo loans over $417,000

*(Another option is to break your Jumbo loan into 2 parts a conventional to the limit of $417,000 and a HELOC or fixed second mortgage for the rest. The blended rate is usually much better than a single loan would be.)

** (5-5 ARM is fixed for first 5 years, with 2/6 caps it can’t go more than 2% above the statr rate for the next 5 years. )

2% cap for next 5 years

FHA LOANS 3.5% down payment FHA Maximum varies by County

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

FHA 203K Rehab Loans

Call for Quote

VA Veterans Administration 0 Down Loans

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.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company

The BLS jobs report this morning shows an increase of 431,000 jobs, but 411,000 of those jobs are temporary, government paid census workers, so the real increase is only 20,000 jobs for the month. The unemployment rate, which is figured through a different system, ticked down to 9.7%. In the mortgage world, the monthly unemployment report is always the report which is most anticipated and has the most influence on mortgage rates. Employment is the base of the economy, and when employment is strong more people feel good about their prospects, and are willing to spend money. When employment is weak people tend to pull back, and even if they have a job, they save more than they spend. Over the last months the employment has changed from bleak, to somewhat optimistic. The pace of job loss has slowed considerably and we have gained jobs each of the last several months. The expectations for this job report were all over the board, and with so many census workers in the mix, the popular wisdom was that a surprise to the upside was likely. Some analysts were predicting as many as 700,000 new jobs, so this is a very weak reading on the economy. For more bad news, the prior 2 months employment numbers were revised lower, too, and in a because new people are constantly added to the job market it takes 150,000 new jobs a month just to break even.

This report is always looked at as a way of taking the temperature on the economy. We have been in a severe recession, but many analysts were anticipating that due to stimulus spending, we were going to shoot back to recovery quickly (the V shaped recovery). The stock market has been in that camp. The fear from those who thought that this would be a fast, robust recovery was that with so much money flowing into the system inflation was sure to follow. This report is one more indicator that inflation is the least of our problems. The popular thinking now is that this recovery is likely to be slow and arduous, and that there is more pain to come. This news is bad for stocks, but bonds (including mortgage backed securities) will benefit. Low inflation (or deflation) means that bond investors know their long term interest won’t be eaten away by inflation (paying back their guaranteed return with cheaper dollars). As i write this, mortgage bonds are up a HUGE 43 tics for the morning. This means that mortgage rates will be lower today, and it also means that the trend may be for lower rates. There is no doubt that this report is bad news for the economy, but if you are looking to buy a home or refinance your mortgage, this is good news and you are likely to get a lower mortgage rate.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company

Another new change in the mortgage industry starts today, June 1^st – the adoption of the Fannie Mae Loan Quality Initiative. This initiative is an order from Fannie Mae, the largest buyer of mortgages in the mortgage aftermarket, that all lenders who want to sell them loans must do extra due diligence, and check to make sure that there are no red flags that the lender would have otherwise missed. Most of these changes are ones that have already been adopted over the last year, like running social security numbers through a data base to make sure they are correct, and pulling IRS tax transcripts on every transaction. But there is one new ingredient to this mix which is likely to throw the industry for a loop, and delay and in some cases blow up the closing on the last day. This new change is that starting with applications taken today, June 1^st, any loans sold to Fannie Mae will have to have a credit report run again on the day of funding to make sure that the borrower has not taken on any additional debt. If they have new accounts, or if they have inquiries on their credit report which means that they could have opened new credit but it hasn’t shown up yet, the loan has to go back to the underwriter and more research has to be done to see if this is a problem, or not.

This new underwriting overlay, like so many of the other changes, is a reaction to the soft real estate market and the high rate of foreclosures. Underwriting was way too lax before, which got us into this mess, but underwriters now are going out of their way to make sure that there is absolutely nothing in the file that could be used as an excuse for the end lender (the wholesale lender or Fannie Mae) to require that they buy back the loan if for some reason it does go bad. Overall, this is a good thing. Making risky loans is bad for everyone. But this new initiative is going to add a whole new level of uncertainty to every real estate transaction. So far all the extra checking and verifications that are part of the loan process have been things that we do at the beginning when we first take on the loan. This, coming at the end, means that you can never have a fully approved loan until the closing.

So many real estate transactions are links in a chain of sales where the seller of one home is buying another, and each transaction is subject to the closing of the prior transaction. If a first time home buyer on a sale at the beginning of the chain is kicked out for going beyond his ratios, this means that all the other transactions downstream are also on the rocks. In practical terms, what this now means is that there is no such thing as a “clear to close” approval. A clear to close means that all of the prior to close conditions have been signed off on and that the loan is moved into the closing department. Real estate attorneys traditionally demand to see that a loan is clear to close before they will waive on their client’s mortgage contingency (which protects their client’s earnest money), and many attorneys won’t set a closing until they have this in writing. Now, even if you have a written loan approval with all the conditions signed off, it still isn’t a real approval, because something could still come up on the credit report the day of the closing, either with your buyer or one further up the chain.

Another potential issue is that Fannie Mae states in the initiative that they are concerned with the items on the credit report and how they affect the borrower’s purchasing power. The initiative doesn’t mention credit scores, but I’m betting that some lenders will look at this in a more conservative way. If they interpret this as having to pull a full credit report, and if scores are stated, this too could effect the loan approval. Many loan programs are based on credit scores, and if the score drops prior to closing will that mean the loan no longer fits the guidelines? This could be another can of worms.

So long story short, be aware that your credit use can affect your loan approval even after you have an initial approval. Here is what you need to watch out for until the loan has closed:

First of all, don’t take on any debt that you can’t comfortably afford.

Don’t open any new credit accounts, don’t buy a car or even furniture or appliances with no payments for the next six months. All of these will have to be accounted for.

Put your credit cards on hold until closing. You can make your normal monthly purchases, but don’t buy anything out of the ordinary.

If you absolutely have to buy something, check with your loan officer first and make sure you document the new credit.

Think twice before having someone pull your credit. Even if you don’t take on new debt the credit inquiry looks like you are and will need to be explained.

The initiative is strictly with Fannie Mae at this point, but usually whatever Fannie does Freddie Mac quickly follows, and FHA is likely to adopt these regulations, too. Even if they don’t, many lenders will take the initiative and run these on every loan to shield themselves from liability. So this is likely to become an industry standard.

Peter Thompson 630-479-6424

Illinois Mortgage Rates                   First time home buyer loans

Chicago Mortgage Company