Welcome to Illinois Mortgage Rates and News week in review for the week ending July 18th, my take on the week’s financial news and how it affected Illinois mortgage rates.

This was a brutal week for mortgage bonds, and mortgage rates. After a false start where rates recovered on Monday, the rest of the week mortgage bonds got demolished and fixed mortgage interest rates rose about 3/8s of a point to the highest they have been all year. Mortgage bonds got hammered even as some of the factors that had been responsible for the recent rise in rates seem to be turning. Oil prices fell sharply this week down to $128 per barrel, the dollar strengthened, the Government announced a plan (sort of) to maintain Fannie Mae and Freddie Mac and insure that they stay solvent. These were all factors that in normal times would have propped up mortgage bonds and lowered mortgage interest rates. The CPI (Consumer Price Index) came in high at a monthly increase of 1.1%, which flashed the red light danger sign of rampant inflation. And several of the Fed governors as well as Chairman Bernanke made statements that inflation was their biggest concern. But much of this was looking in the rear view mirror. The economy is soft, credit is still tight and consumers have no purchasing power. The softness in our economy has spread over seas and China and India, the fast growing economies that have fueled the growing demand for commodities world wide, are now slowing down. Many experts think that this will bring down the inflation level in the coming months. So why did rates get so bad so quickly this week?

There is a psychological term called selective perception which states that how someone expects something to turn out will change the way that they perceive what actually does happen to them. This concept was proved by experiments showing how college students would get drunk when they were given what they were told were potent drinks, even though there was no alcohol in them. It is also why liberals and conservatives react so differently to the same information. I think we are seeing a great example of this in the stock and mortgage bond markets now. Money flows back and forth between stocks and bonds based on investor’s view of the economy. When the economy is growing and the view is optimistic the stock market usually benefits. When the economy is tanking and there is fear in the air money rushes into bonds, which means lower interest rates. This week was a great week for the stock market. The Dow Jones average gained 3.6% after a rally that was the biggest in five years. PP Morgan Chase and Wells Fargo came in with earnings better than expected and the market is now thinking that the worst is over for the big banks.

This may be wishful thinking. Coming a week after Indy Mac failed, and days after the potential bail out of Fannie and Freddie was announced, the market may be getting ahead of itself. Merrill Lynch announced another $9.7 billion in credit write downs which says that the credit crunch is still not over. With home prices down and less access to the home equity, we are seeing a reverse of the wealth effect. People feel poorer and they are less likely to spend money if they don’t have to. The stimulus checks have mostly been spent, and this kept the economy out of an official recession, but the pop is now gone. The stock market had a great week, but my guess is that fear will set in again over the next few weeks, and the pattern will reverse itself with money flowing out of stocks and into bonds. I expect that rates will come back down again in the coming weeks.

If you have a contract on a property or if you are in the market for mortgage financing, you may want to look at the adjustable rate mortgages. ARMs are available with fixed terms of 5, 7 and even 10 years before they become adjustable, and the initial interest rate is much lower than the fixed rates. Some of the banks go in and out of the market with their ARMs, but it is worth comparing the programs, especially if you don’t plan to be in the home for a long, long time. If rates come down you can refinance into a fixed rate for little or no upfront cost.

Here is what Illinois mortgage rates look like today for an A+, full doc purchase on a 30 day rate lock, with 0 points, and no origination fee.  The conventional loans are based on the highest conforming loan amounts, which give the best pricing. (Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or contact me and I’ll take the time to find the rate and program that is best for you.) :

Conventional loans up to $417,000

30 year fixed rate    6.625%   6.724% APR

15 year fixed rate    6.00%     6.143% APR

5-1 A.R.M.               5.75%     5.867% APR      

7-1 A.R.M.               5.875%   5.989% APR

For Jumbo loans over $417,000

30 year fixed rate*   7.00%    7.147% APR – Requires 20% down payment

7-1 A.R.M.*              6.00%    6.173% APR *there is a 1 year pre-payment penalty on this option.

FHA LOANS - 3% down payment

With 1 point origination fee – 60 day lock

30 year fixed rate    6.50%      7.278% APR

With no origination fee –        60 day lock

30 year fixed rate    6.75%     7.296%

FHA APR reflects 3% down payment and the effect of mortgage insurance on the loan.

These are just a few of the programs and mortgage rates available. Which option is best for you depends on your own specific goals and needs. If you have any questions or want to go over your situation in depth, let me know how I can help. The market has been unbelievably volatile and I expect that this volatility will continue.

Illinois Mortgage Rates and News

The stock and mortgage bond markets were in turmoil last week as rumors circulated that Fannie Mae and Freddie Mac were on the edge of insolvency. Not just the mortgage market but our entire economy are dependent on the health of these organizations. It’s always been assumed that the government would do whatever was necessary to keep them afloat. The question was more a matter of what they would do to support them, whether the stock would remain solvent and who would foot the cost.

Tonight the Fed stepped in and announced a deal had been put together, just before the Asian markets opened. This was the same way they put together the Bear Stearns buy out in March, and like then it was designed to calm the markets and avoid a sell off that could have gotten out of control. This deal will increase the Treasury credit line for Fannie and Freddie, and  gives the Treasury the authority to buy the companies stocks.

By promising bold action the Fed and the Treasury hope to re-instill confidence, in the hopes that they won’t have to do a full scale bail out down the road. Here’s a Wall Street Journal Article which gives the specifics.

Illinois Mortgage Rates and News

Welcome to Illinois Mortgage Rates and News week in review for the week ending July 11th, my take on the week’s financial news and how it affected Illinois mortgage rates.

Back in March our economy barely dodged a bullet when the Fed engineered a bail out of Wall Street giant Bear Stearns. If left to fail on its own, it was feared that this would set off a panic that could shake our financial system to its core. Since then we’ve been told that the worst was over, and even though the housing market was still a mess, our economic foundations were strong. This week the bullet we missed with Bear Stearns is looking like a pea from a pea shooter, and we have a nuclear missile headed our way (Where is Superman when we need him?) The stock of Fannie Mae and Freddie Mac, the two pillars of our mortgage finance system, dived this week as the loss of liquidity pushed these giants toward insolvency. Both stocks lost about 45% of their value this week and are down about 90% in the last year. With the stock prices this low there is no way they can raise the cash they need to continue operating in the markets. If the worst comes to pass, this means 2 possibilities: a bailout where the government funds the organizations, or a receivership or complete government takeover.

Fannie and Freddie are unique in the way they operate. They are publicly traded corporations but they are backed with the assurance of the federal government. Their mission is to buy up mortgage loans and insure that there is always money available to fund new mortgages. Combined they guarantee about 5 trillion dollars (that’s 5,000 billion) worth of mortgage loans - about half the total mortgages outstanding. To say they are the 800 pound gorillas in the mortgage market is an understatement. The panic started this week with rumors that the government was preparing a plan to step in if needed. Fannie and Freddie have lost a lot of money due to bad loans, but they still have a fair amount of money in reserve, though no where near enough to settle all the possible problems. But this isn’t news. Over the last years Fannie and Freddie have branched out beyond their core business and have moved farther along the risk curve as they tried to keep profits high while the real estate market was booming. Commentators have been saying for years that the companies were undercapitalized. So this isn’t a new thing.

Everyone agrees that Fannie Mae and Freddie Mac are too big to fail. If it gets to that point the government will surely step in and do what is necessary to keep the mortgage market going. But the question then becomes how would they do this? The debt is so huge (even backed by the homes supporting all those mortgages) that it would be equal to almost ½ our current national debt. After the panic first started, Fed officials, Treasury Secretary Paulson and statements from both Fannie and Freddie assured everyone that there was no crisis. But a panic is a panic. The market calmed down a little Friday afternoon, but this will come back as an issue. Maybe this coming week, maybe later. We are still in a severe credit crunch this fear only tightens it another notch. What it means for consumers is that conventional mortgages are likely to continue their trend of becoming harder to qualify for and more expensive for those who can qualify. On the good side, there is almost no chance that the Fed will hike rates any time soon.

The news of the troubles with Fannie and Freddie obscured some other big news. IndyMac, a big California bank which was one of the big players in what was called the Alt A mortgage market, went bust this week. This was the first major bank to fail in years, and the 3^rd largest bank failure in US history. The expectation is that there are other banks teetering on the edge, and more failures will be coming. In other news oil was up again, closing the week at $145 per barrel. Pending home sales came in worse than expected and according to RealtyTrac the number of foreclosed homes nearly tripled June.

Mortgage backed securities, which control the direction of mortgage rates were improving sharply most of the week, but turned around and gave up most of their gains on Friday. Mortgage rates are a little better on some programs, and on others unchanged. FHA is due to change to their risk based pricing model this week, but all in all it is the biggest bargain in the mortgage market. For many borrowers with less than 20% equity, or credit scores under 720, FHA financing is the best option. Here in the Chicago IL. area the maximum loan amount is now $410,000, so it fits what most borrowers need.

Here is what Illinois mortgage rates look like today for an A+, full doc purchase on a 30 day rate lock, with 0 points, and no origination fee.  The conventional loans are based on the highest conforming loan amounts, which give the best pricing. (Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or contact me and I’ll take the time to find the rate and program that is best for you.) :

Conventional loans up to $417,000

30 year fixed rate    6.25%   6.364% APR

15 year fixed rate    5.75%   5.922% APR

5-1 A.R.M.               5.50%   5.678% APR      

7-1 A.R.M.               5.875%   5.989% APR

For Jumbo loans over $417,000

30 year fixed rate*   6.75%    6.877% APR – Requires 20% down payment

7-1 A.R.M.*              5.75%    6.062% APR *there is a 1 year pre-payment penalty on this option.

FHA LOANS - 3% down payment

With 1 point origination fee – 60 day lock

30 year fixed rate    6.125%     7.048% APR

With no origination fee –        60 day lock

30 year fixed rate    6.375%     7.056%

FHA APR reflects 3% down payment and the effect of mortgage insurance on the loan.

These are just a few of the programs and mortgage rates available. Which option is best for you depends on your own specific goals and needs. If you have any questions or want to go over your situation in depth, let me know how I can help.

Illinois Mortgage Rates and News

Over the last year mortgage qualification has become increasingly harder. Two new changes go into affect next week which will ratchet loan approvals a little tighter still.

One is a change that only affects mortgages here in Illinois. Senate Bill 1167 will become law as of June 1^st. This law is aimed at predatory lending and the problems caused by sub-prime loans. It restricts the types of loans available, requires home buyers counseling for home buyers in Cook County who are taking out specific types of loans, and it requires more transparency so the consumer knows exactly what they are getting when they enter into any mortgage financing. There are some good features in this bill, but most of what they are legislating against has already gone away due to market forces in the mortgage market. Sub-prime loans have been a big problem and there is no question that they were abused. But there is no such thing as a sub-prime mortgage now, so this bill is coming too late to make any real impact.

The one part of this that is going to hurt some is that stated income loans will no longer be available in Illinois. Stated income loans were loans which didn’t verify the borrower’s income, but took whatever was stated as the Gospel truth. As you can imagine, this was a license for abuse, and there were way too many borrowers who bought homes with no idea how they would pay for them. That said, stated income loans do make sense for well qualified borrowers with complicated tax returns – self employed borrowers. These loans, like so many others, have been disappearing over the last year. The guidelines in the law are somewhat vague as to what is considered stated income, but the lenders who were offering this program are taking the cautious path, and are withdrawing from the market. It looks like this will be the final nail in the coffin for any loans that don’t verify income, which means it will be harder for self employed borrowers to qualify for a mortgage.

The other big change is that Fannie Mae brings out their new version of their automated underwriting system, DU 7.0. Most conventional loans are approved through the automated underwriting system, so this will have a huge impact on how loans are approved. On the good side, this version does away with the declining market policy. Last December, in a reaction to the down turn in the housing market, Fannie Mae came up with a plan to identify markets where the prices were falling, and require a higher down payment in those areas. The plan basically made it harder to get financing in the areas that needed it most, and was not a popular move. So getting rid of this plan is a step in the right direction. It will be looked at as a bigger step if the mortgage insurance companies follow the lead and stop their declining market policies, too. The rest of the changes in version 7.0 are not going to be positives for mortgage borrowers. Some of the changes include:

• Borrowers must wait a longer time after a bankruptcy or foreclosure before they can get a mortgage again, and when they are ready they will need a higher down payment and a better credit score.
• Debt to income ratios, that is how much debt you are carrying, will be much lower.
• Condos will now be considered riskier, and harder to approve.
• Having mortgage insurance on your loan will not reduce the risk of having less than a 20% down payment.
• ARMs will be considered riskier than fixed rate loans.

There’s more, but the bottom line is that this is a way of tightening more, and some borrowers who will qualify for a loan today, may not next week.

Illinois Mortgage Rates and News

Oil prices are up to record highs. Last week the price went as high as $135 per barrel, and I’ve seen predictions that it will be $150 or even $200 per barrel by the end of the year. We’ve all seen how this spike in prices has affected gas prices at the pump. Yesterday I filled up at $4.20 per gallon, about $15 a tank higher than what I’ve gotten used to paying (which already seemed too high). Depending on how much you drive, this extra cost is taking a nice sized bite out of your disposable income. Add that to the effect of higher gas prices on the economy as a whole, everything that needs transportation (both goods and people) now costs more, as does anything which is made with oil (fertilizer, plastics and so on). This means that prices in general are going up. So the question of the day is how does this affect our housing market here in Chicago and throughout the Chicago area?

The people who are feeling this the most are the people who have the longest drives to work. Over the last years the Chicago suburbs have spread out further and further. New roads have opened up and areas that used to be farm land, like Plainfield, Oswego and Huntley, are now booming suburbs. On the good side you can buy a lot more house for your money in these areas. The bad side is long commutes and now, with higher gas prices, much higher transportation costs. The growth in these areas has already slowed down because of the soft housing market. Will the high gas prices slow development in the far suburbs long term? Maybe. But only if gas prices stay high.

Part of the increase in oil prices is speculative. When ever a market starts moving in one direction, speculators jump on for the ride, magnifying the move. High speculation can lead to a bubble, and when the bubble pops prices fall. With the economy slowing down the natural effect of higher prices will lower demand. Also, the high prices will lead to more oil production, maybe in areas which were cost prohibitive before, but will now make sense with the higher price per barrel. So over time the supply will increase. After the Iranian revolution in 79 and through the early 80s the price of oil surged to record highs, and then dropped back down to the same level it was at before. It could be different this time though. India and China are growing and using more oil and some think we are nearing peak oil, which means the oil that is left will be harder to get to and harder to get out of the ground. These trends point to higher prices long term.

So if oil prices do stay high, how will this affect the real estate market? The conventional wisdom says -

• Demand will be higher for houses in the city and close to public transportation.
• Energy efficient housing will go main stream and there will probably be more tax breaks.
• Interest rate may move higher long term, as higher fuel prices feed inflation.
• Suburban sprawl will slow down over the long term.

I think these are all accurate predictions - if oil keeps going higher - but if history is a guide, I think it will be a while before we see any of these predictions come off in a major way. Oil prices were around $90 per barrel at the beginning of the year, so we have had almost a 50% increase since then. The question is whether the prices will continue to climb and, how far will they go. My guess is that we will have higher gas prices long-term, but there are reasons to think that prices will come down some first, and that we will get used to higher prices.

• The economy is slowing down and with consumers having less money in their pockets, or feeling like they have less money in their pockets, demand for energy will naturally slow down.
• People are driving less because of the high cost of gas. Travel was down considerably over the Memorial Day weekend.
• People will not only change their driving habits, they will also change what they drive. SUV sales have been circling the drain all year, and Hybrid sales have gone through the roof.
• Over time people get used to higher prices, and it will take a big increase before people change their habits for good.
• A lot of the increase in oil prices is due to speculation, and what goes up fast will often come down just as fast.

So my opinion is that oil prices will make people feel poorer for a while, but I don’t think they will make a huge difference in their home buying decisions. At least not for a while. I do think the far suburbs are going to take longer to recover, and high gas prices are part of that, but over building and high commuting times are bigger factors.

Illinois Mortgage Rates and News

A recent article in the Chicago Tribune talked about the amount of new condo units coming on the market this year here in Chicago. According to the article 5,984 units are due to come on the market this year. Last year there were 4,794 new units, and next year they are projecting 4,160 units. Condo construction has been a big part of the city’s resurgence over the last years, and the new condo units help to revitalize neighborhoods. But with so many units coming onto an already glutted market, at the same time that condo financing is getting increasingly more stringent, we are sure to see some problems.

Over the last few years we have seen a boom in new condos, both in Chicago and throughout the Chicago suburban area. Part of these were new construction condos, and a lot were conversions from apartment buildings to condo units. The condo conversions made sense when the market was flying. If you could buy an apartment building based on the rental income it produced, make some improvements to the property and change the ownership to condominium, the developers could sell the new units at a much higher per unit basis, ensuring a huge profit. The same economics apply to new construction condos, but the lead time between starting the project and finishing can take much longer. Because of the longer lead time, we are now seeing a surge in new units coming on the market, even though the market has shifted and demand is much lower than it was a year or two back.

Even as more condos are coming on the market, condo financing is getting tougher. Mortgage qualification has gone through a series of tightening over the last 9 months, and it is harder for most buyers to qualify than it was before, but this is especially true of condos. Condos carry a higher risk because the lender has to measure the risk of not only the borrower, but also the condo project. When processing a loan for a condo we need to send out a condo questionnaire which asks information about how many units have been sold and closed, how many units are owned by investors and what financial shape the condo association is in. In order to qualify for the best financing, the condo needs to meet Fannie Mae guidelines. Condo projects that have a history have an easier time, but they are still looked at as riskier than a single family home and some lenders require more documentation and charge premium pricing to finance any condo unit. But it gets tougher for new and rehab condos which have to go over a higher hurdle than existing condo units. Fannie Mae (and Freddie Mac) require a higher down payment and pre-sale requirements for early buyers. Not long ago there were lots of lenders willing to offer mortgages for condos that didn’t meet these guidelines, no matter how much they had available for their down payment. We still have lots of condo financing sources, but now lenders are pulling back. With less buyers able to qualify for financing, this means that there are fewer buyers, period.

The article picked up on this trend in the city, but the same thing is happening throughout the suburbs, too. I know of one large apartment complex in Naperville that converted to condo last year, but now has a sign offering condos for rent. The real estate market is slow right now, and the added units keep prices down until the supply of units is absorbed by new buyers, or possibly renters. New construction for single family homes has already ground to near a halt. With less new properties coming on the market this will help reduce the supply and this will act as a kick start when the real estate market starts to pick up again. It won’t be the same with the condo market. When the market for single family homes is on the upswing, condos will still be behind the curve.

If you are in the market to buy a home or condo here in the Chicago area, you are probably a little bit nervous. On one hand, the property values are down and you are able to buy a home at a bargain price compared to where homes were selling just a year or two ago. On the other hand, you wonder if we are near the bottom, or if the bargain you buy now will seem over priced a year from now. The truth is that markets (whether stock markets, bond markets or real estate markets) are unpredictable, and we won’t know where the bottom was until we have gone past it. That being said, I’m not sure we are at the bottom yet, but it is still a good time to buy a home here in the Chicago area, as long as you plan to keep it more than a few years.

Markets go up or down based on supply and demand, and these two factors can be broken down into fear and greed. The fear and greed isn’t just with the buyers and sellers of real estate, it extends on to all the players in the real estate market, Realtors, lenders and the financial markets. A few years back when the real estate market was on fire, greed was in the air and all people could see were dollar signs. Sellers saw prices for their homes that they wouldn’t have dreamed of a few years before. Buyers saw an opportunity to buy a home that would do nothing but appreciate, and they were convinced that if they didn’t buy now the price would be higher if they waited. Realtors and lenders saw more opportunities for sales and commissions and the financial markets looked at this as a way to convert cheap, easy money into an endless stream of high return investments. The belief at the time was that real estate in the United States never went down in value. Anyone with a long term memory would know that didn’t make sense. There had been real estate bubbles in California and Florida before, and the Texas market took a long time to recover from the bust after the Oil boom in the 80s. But here in the Chicago area, in the heart of the stable Midwest, it was easier to believe. We didn’t see the extreme highs that other areas saw, so we felt that we would escape a real down turn, too.

Since the real estate and mortgage market started to dive, people have been pointing fingers at who was to blame. Some said it was the buyers who bought homes they couldn’t afford. Others blamed the lenders for making loans to people who never should have gotten credit in the first place. Some of this blame is well deserved - I know that I shook my head at some of the loans that were offered – but I think the real cause was the big financial players on Wall Street who had too much money to invest, and not enough places to invest it. Money at the time was cheap, and there was no place on a global scale that was able to give the returns that big investors were demanding. The old secure A-Paper mortgages weren’t enough to meet this demand. This was when the creative minds on Wall Street started churning out new mortgage backed securities that would fill the void for their investor clients. Mortgages are underwritten based on risk. When greed is in the air risk doesn’t seem as important, so underwriting guidelines were thrown out the window and mortgages were available for people who never would have considered buying a home before. With so many more buyers able to qualify for financing, this means there was more demand than the supply of homes for sale was able to meet. This meant that property values had to go up, here in the Chicago area and throughout the country.

Now the pendulum has swung and we are on the fear side of the equation. At some point, probably when property values started to move down in the hottest markets, Wall Street saw the risk they were taking. They cut off the money spigot and since then mortgage underwriting has gone through a series of tightening measures so that it is harder to qualify for a loan now than it was before the whole loose money party started. With less people qualified for financing that means less people are able to buy. Lower demand means lower prices. So now fear has taken hold and everyone is looking at all the negatives. Foreclosures are up, the economy is soft and the inventory of homes for sale is the highest in years. Right now we are going through a cycle where the bad news in the market causes the lenders to pull back even more, reinforcing the bad news and making it that much harder for the market to recover. But markets are unpredictable and hard to time right. At some point the bad news will be less important than the opportunities for profit. In the stock market the recovery usually starts when people are the most pessimistic and it could work the same way in our market. By the time good news is out, we will have bounced off the bottom and prices will be heading up again. So the question is, is the time now? Are we close?

We may be closer than we think, or it may take quite a while before the market turns around. But if you have a good reason to buy it really shouldn’t matter. The Chicago area is still a dynamic economy and people still need housing. Home builders are at a standstill and not cranking out new homes, so over time the supply and demand will start to balance out. Prices are low, mortgage rates are low and if you have a long term perspective, chances are that when real estate values recover you will be rewarded, and we won’t know we are there until the train has already left the station.

Illinois Mortgage Rates and News

The Check is in the mail - The first batch of economic stimulus checks are going out this week. Anyone who files a tax return up through October of this year is eligible, and with payouts of up to $600 per individual and $300 for each child under 17, this should cover several tanks of gas. What are you planning to do with your check? The idea behind the checks is the hope that if everyone goes out and buys something, this will kick the economy back in gear. There are of course, a few problems with this theory. First of all, not everyone is going to buy something. If you are feeling the economic pinch, you might rest easier putting this money in your savings account or paying off your credit cards. And those who do their civic duty and go out shopping are likely to buy foreign goods which will give a more limited kick. But if the checks make people feel more confident about their own finances, then the plan will have done its job. I think it will take more than this to prime the pump.

Take a ride on the Foreclosure Bus - I live in Dupage County, in the Western Suburbs of Chicago. The other day I noticed a number of small plastic signs set strategically along the side of the road. You’ve seen these kinds of signs before, they are often an ugly yellow that demands attention, and they usually appeal to some basic need, like sex or money. More specifically they tout themselves as the answer to what you need. Two examples are: Real Estate Investor Needs Apprentice - $40,000 per month, or Downers Grove (or Lisle, Wheaton, Glen Ellyn, insert your town) Singles Wanted, with a web site or phone number underneath. This was a new sign, one I hadn’t seen before. This one read: Tour Foreclosures by Bus. Now this got my curiosity going. I know that Hollywood has a tour of celebrity homes, and Chicago has architectural tours and ghost tours and all sorts of tourism related activities. But taking a tour of foreclosed properties seems a little bizarre. I know there are investors who are looking for ways to take advantage of the real estate slow down, and foreclosed properties sound like a natural. It’s not always easy to find the bargains, though. I have an investor client who put an offer on a pre-foreclosed property (a short sale – this is where the lender would have to agree to let the buyer buy for less than the full amount of the mortgage so they don’t have to go to the expense of foreclosing the property) 3 months ago. He’s still waiting for an answer. I called the number on the sign and was referred to a web site. The web site offers several tours in an “air conditioned bus” stopping at a variety of pre-foreclosed and bank owned properties. A Realtor is giving the tour and you will be able to make offers on the homes if you choose. The bus isn’t free, though. A ticket for one tour cost about $100, another tour of luxury homes was priced at over $300. But lunch is included. It is a sad fact of life that foreclosures are on the rise, even in the nicest areas. But if you are looking to invest, you don’t have to take a bus. If you are looking for investment property and need the name of a Realtor who can help you, let me know and I’ll direct you to an expert who can offer personalized service.

The Waiting Game - Tomorrow is a big day for those who are watching interest rates. The Federal Open Market Committee (the Fed) is expected to lower short term rates again by an anticipated .25 point. This cut is already built into the pricing, but the real interest is in what the Fed will say when they announce the cut. The last 2 meetings have ended up with major rate cuts, but some dissent from inside, as some Fed members worry that the rapid cuts in rate will go too far and fuel inflation. The conventional wisdom now is that the Fed is nearing the end of their series of cuts (for now, at least). If they say this in their announcement, look for mortgage bonds to surge and mortgage rates to fall. The Chicago PMI and the GDP (both show signs of strength or weakness in the economy) will also be released, so this should be a wild day for interest rates. I’ve been looking for rates to go lower, and I stand by that prediction.

Illinois Mortgage Rates and New

In the mortgage industry, the present is looking more and more like the past. Back in 1992 when I first got into the mortgage market, George Bush was finishing his last year in office (though he didn’t know it at the time), a Clinton was running to take his spot and Brett Favre had just been picked up by the Green Bay Packers. A lot has happened in between, but another George Bush is finishing his time in the White House, another Clinton is running for president and now that Favre has finally retired he is threatening to un-retire and continue his reign of terror against our beloved Chicago Bears. In the mortgage industry the future is looking a whole lot like the past, too. Back when I first started there were two types of loans which covered the majority of lending options – conventional and FHA. Conventional mortgages were for those home buyers who had strong credit and a good down payment. FHA was for everyone else.

Back in the day, we put together loan packages which highlighted the strengths of the borrower, and showed that they met all the guidelines in regards to credit, income, job stability and having enough money to close, as well as a full detailed appraisal. With changes in technology and a strong national real estate market, mortgage underwriting loosened up a lot. The credit score became the biggest factor in the approval process. With a high FICO score lenders would overlook weaknesses in other areas. It got to the point where some of the biggest wholesale lenders were doing most of their business taking on loans where the borrower stated their income and assets without proving the figures were true. (Even the appraisal guidelines loosened and many loans were approved with just a drive by appraisal, or a computerized estimate of value.) These loans were sold as a way for well qualified borrowers to cut down on their paper work and to streamline the loan process. Unfortunately, this opened the way for abuses and led to “Liar’s Loans”, and some people who bought way over their heads, and couldn’t afford to make their payments.

It wasn’t until property values declined (not so much here in the Chicago area, but very sharply in some areas of the country) that the abuses in the system really showed. When home prices were moving up borrowers found a way to make the payment, even if it was by borrowing more against their home. Now loan defaults are up and mortgage lenders have found that old time religion again. This means we are back to the old ways of doing things, tighter underwriting for everyone, and FHA is again the best option for many borrowers and first time home buyers.

So what can you do if you are planning on buying a home or refinancing your mortgage and you want to make sure you present your self in the best light? Here are a few things you can do ahead of time to improve your chances of getting a loan at the best rate and terms:

1. Focus on your credit – One thing that hasn’t changed is that your credit score and your credit profile are still a crucial part of the loan approval. Make sure you review your credit before you need a loan. If you have problems, work on them when you still have time to get them fixed. Here is a series on credit that will help you understand your options, and show you how to increase your credit score.

How to understand and improve your credit score-part1

How to understand and improve your credit score-part2

How to understand and improve your credit score-part3

How to understand and improve your credit score-part4

2. Address problems up-front – If you have had problems of some type in the past, don’t try and hide them. In the mortgage process we look into all the information you present and verify everything. But some things that you may think are huge problems we may be able to work around. For example, if you have credit problems from the past that are hurting your credit score, FHA can still be an option. The key here is to show that you have moved beyond these problems and they are no longer an issue. To show this you will need to write a letter addressing any credit problems that show up on your credit report. In the letter you need to explain what happened, what you have done to correct the situation and why this isn’t a problem anymore. If you have any documentation to help your case, provide it. The same applies for other problems like job gaps and

3. Put together your documentation – The days of the no-doc loan are gone, so you will need to have documentation proving you make enough income to afford the mortgage payments and you have enough money or other assets to pay for the down payment and closing costs. This usually means putting together some simple documentation. In some cases we can get by with less, and in others we will require more, but this is a good list to start with -

W2s for the last 2 years (in some situations we will need full tax returns),

Your pay stubs for the last 30 days

Bank and investment statements for the last 60 days with all pages attached.

4. Have a plan – Do you know how much of a payment you can afford? Do you know how much cash you can come up with for a down payment and closing costs? There are still ways to buy with little or no down payment required, and there are ways to buy with no closing costs. If you have money to put down, where is it coming from? Will you still have money left over afterwards for other purchases or emergencies? You need to think about these things before you look for a home and applying for a mortgage. The answers to these questions will help you to decide what to look for and how you will finance it.

5. Get pre-approved for a mortgage – With all the changes in the mortgage market this step is crucial. A mortgage pre-approval will tell you how much of a loan you can qualify for and how much of a home you can afford. A good loan officer will take it a step further and help you to figure out the best way to structure your financing so it meets your long and short term needs. And if there are any problems, a good loan officer can also give you advice on how to put yourself in the best position to buy a home, if not now in the future.

The mortgage industry might have gone back to the past, but if you make a plan and follow through, there could be a new home in your future.

Illinois Mortgage Rates and News

Not so long ago the mortgage market was a lot like Baskin Robins 31 Flavors Ice Cream - a flavor for every need or taste. You wanted Rocky Road or Lemon Custard? No problem. A 5 year fixed payment Jumbo option ARM or a 30 year fixed rate with interest only payments for the first 10 years? Those were on the menu, too. Now that the credit crunch has hit the mortgage market full force, the mortgage options have shrunk. Borrowers can still get their ice cream, but they better like Vanilla.

The mortgage market has been dysfunctional ever since the Sub Prime melt-down last summer. Price swings, both up and down, have been exaggerated. Mortgage options have disappeared and credit and appraisal guidelines have tightened. Some of the biggest mortgage lenders in the country have been on the ropes, unsure if they will stay in the business. Throughout all this turmoil, the core market for conventional loans has chugged along. Conventional loans are those loans eligible for sale to Fannie Mae or Freddie Mac, the two 600 pound gorillas who buy up most of the mortgages in the mortgage aftermarket. These two companies are backed by the U.S. Government, and though their loans are not insured by the government, it has always been assumed these loans are completely safe. Over the last week that assumption went out the window. Mortgage rates spiked upward last week when investors seemed to lose confidence in mortgage backed securities. Rates have recovered a good deal over the past few days, but confidence is still a big problem. This week the market for conventional adjustable rate mortgages has virtually dried up.

While the Fed has continued to cut short term rates over the last months, long term mortgage rates have moved higher. In times where there is a big spread between long term and short term rates, it usually makes sense to consider adjustable rate mortgages. Last week, before panic hit the market, the spread between a 30 year fixed rate and a 7-1 ARM (the rate is fixed for the first 7 years before it becomes an adjustable) was nearly a full percent. By the end of the week the rates were the same. This week because there is no liquidity in the market, ARM loans are not selling at all, which means that most of the big wholesale lenders are not even offering adjustable rate mortgages at any price.

I’m hoping that this is a temporary problem. Yesterday the Fed stepped in with a program to inject $200 billion dollars into the system for banks to borrow against, and they can use mortgages as collateral. This should help restore confidence. The mortgage bond market is on a tear today, which means investors are starting to look more kindly on mortgages, at least for today. But with the volatility in the market there is no guarantee that this trend will continue and we will get back to a normal market any time soon. If the Fed can continue to calm investor’s fears, and confidence improves, adjustable rate loans should find favor again and the rates should be much lower than where the fixed rate loans now are.

In the meantime, there are still some lenders (we have some regional and local banks who keep their loans for their own portfolios and don’t sell them in the mortgage aftermarket) who still have attractive rates on ARMs. So, if you are shopping for a loan now there are some options. But until the market gets straightened out, the options are fewer than before and the mortgage market has shrunk.

Illinois Mortgage Rates and News