Bulls & Blogs

Why are appraisals so expensive?

Regulations, Residential Mortgage Comments Off

Jan 192016

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

“Back in the day, I could order an appraisal for $350.” So began a conversation with a couple other “old-timers” in the mortgage industry about the current high cost of appraisals. The only problem is “back in the day” was only a couple years ago. Today, a typical conventional loan appraisal costs $500 and an FHA appraisal can cost $600. Why has the cost increased so much in such a short time?

Several factors are to blame, and we’ll examine them today and tomorrow.

– After the financial crisis, regulators decided that because a few loan officers at Washington Mutual Bank had leaned on appraisers to falsify values that all loan officers should be punished. (Reminds me of elementary school, but then again, so do a lot of things the government does.) As a result, appraisals now are ordered through an appraisal company middleman. And, of course, the middleman charges a fee.

Initially, the middlemen just took their fee from the appraiser’s fee, meaning appraisers received less. However, recent legislation required that appraisers receive their usual fee, so middleman fees forced appraisal prices to rise.

Tomorrow, we’ll examine a couple other factors and the effect these may have on the broader housing market.

Rate update: Market turmoil helping interest rates

Interest Rates, Residential Mortgage Comments Off

Jan 152016

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Interest rates are benefiting from the “flight to safety” trade. As equity and commodity markets crater, investors are seeking the safety of bonds, which pushes interest rates down.

The funny thing is the bond market seems to be a reluctant recipient of this largess. The S&P 500 is down 200 points since Dec, and oil is trading at prices not seen in over a decade. Yet, 10-year bond prices are stuck in the same range where they’ve traded for months, albeit at the lower end of that range. This suggests that if not for the collapse in other markets, interest rates would be rising.

I mention this to keep you cautious. While US economic data still paints a mixed picture, the sentiment seems to be that the economy is supposed to improve. (Otherwise the Fed wouldn’t have raised short term rates, right?) And an improving economy portends higher interest rates.

Frankly, it’s a messy picture right now with many factors at play. The headline number in last Fri’s job report was surprisingly strong, which pundits used support the rosy economic sentiment. However, look past that number, and we find weakness. 40% of the new jobs were to people in the lowest age brakcet (read low paying service jobs) and wage growth again was non-existent (read no inflation pressure). This week brings the Christmas retail sales report and record corporate bond issuance. This is likely to keep rates volatile and unpredictable.

Take advantage of new loan limits

Loan Guidelines, Residential Mortgage Comments Off

Jan 092016

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

While Fannie Mae and Freddie Mac left the conforming loan limit for single-family homes at $417k in 2016, HUD raised the FHA loan limit in 4 TX metros. Remember that FHA sets an area’s loan limit based on 115% of the area’s median home price.

Median home prices rose in Texas last year, so loan limits rose in Austin, Houston, Dallas/Ft. Worth, and Midland. Austin’s limit rose slightly to $333,500 for a single-family home. Houston’s limit also rose only a little to $330,050. The DFW limit took the prize for the largest increase, rising $24k to $334,650, now the highest in the state. Midland also had a sizable increase, rising to $285,200. The limit in San Antonio didn’t change, remaining at $316,250.

Remember that these limits apply to the entire metro area including surrounding counties. The FHA loan limit remains at the minimum, $271,050, for the rest of the state.

Flood insurance surprise if you refinance

Regulations, Residential Mortgage Comments Off

Jan 082016

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

If your home is in a flood zone, and you have a mortgage, you need to be aware of regulatory changes that took effect on Jan 1st. The changes implement part of the Biggert-Waters Flood Insurance Reform Act of 2012 and require lenders to escrow flood insurance premiums for most new residential loans.

So, what does this mean for you? If you’re currently paying for flood insurance, and you refinance your home, at closing your lender will set up an escrow account, and you will pay the flood insurance premium as part of your monthly mortgage payment. The change applies even if you do not escrow for property taxes and hazard insurance. This likely will mean more money due at closing because when you escrow, you pay in advance of the bill coming due.

The new regulation has one interesting twist that may be appealing to homeowners who currently pay their own flood insurance premiums. As of Jan 1st, your loan servicer must give you the option to escrow flood insurance premiums. So, if you don’t like paying that flood insurance bill each year, the change allows you to spread the payments out as part of your monthly mortgage payment.

Rate update: Could we have lower mortgage rates in 2016?

Interest Rates, Residential Mortgage Comments Off

Jan 052016

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Amazingly, mortgage rates ended 2015 about where they began the year despite the predictions from talking heads that rates would rise. As we start the new year, they’re making those predictions again. So will they be right this time?

Yes, the Federal Reserve did raise short-term rates in Dec, and chances are they’re hike them further at upcoming Fed meetings. But remember that mortgage rates are much more sensitive to expectations for inflation and economic growth than the Federal Funds Rate. Inflation still seems very tame, and growth appears to be flagging. In the medium term, I don’t see much incentive for rates to rise.

But let’s look at the short term. This is a busy week for the markets. The first day back from vacation brought a big sell-off in the equity markets over concerns about global growth, but that may be temporary. I suspect US bond markets are more interested in Wed’s Fed meeting minutes and Fri’s jobs report. The Fed minutes may provide insight into the Fed’s plans for future rate hikes. Fed governors seem to be saying the hikes will happen more quickly than markets are expecting. The jobs report may tell us whether inflation pressures are building. Wage inflation has been almost non-existent during this recovery. Any change to that trend will catch the attention of markets. Both results would be negative for interest rates.

Rate update: Can the Fed get it just right?

Interest Rates, Residential Mortgage Comments Off

Dec 142015

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

The Federal Reserve meets this week, and probably the best telegraphed Fed rate hike in history will come to pass. However, the market reaction could be a big yawn. In fact, the Fed NOT raising short terms rates this week would be more likely to cause market havoc.

Markets have priced in an expected quarter point rise in the Federal Funds Rate, the tool the Fed uses to influence short term interest rates. The unknown at this point is what comes next. Will the Fed telegraph its intention to raise rates further, and if so, how quickly will that occur? Will the Fed acknowledge a softening global economic picture and the potential effects of higher US interest rates?

It’s a Goldilocks situation except no one is quite sure of the correct temperature of the porridge. If you’re floating your mortgage rate, this is a high-risk week. Rate volatility is likely, but absolute movement is hard to predict. Markets will taste and re-taste the Fed’s porridge on Wed. If the Fed gets it just right, rates could stay right where they are, which is a pretty nice place to be.

Rate update: It’s all about the Fed, or is it?

Interest Rates, Residential Mortgage Comments Off

Nov 302015

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Absent something totally unexpected, like a financial crisis that roils the world economy, it looks like the Federal Reserve will raise short term interest rates in Dec. Analysts expect a quarter percent increase, and bond markets have pretty much priced that amount into the yield on Treasury bonds.

That’s the backdrop for this week’s big economic events, specifically the jobs report on Fri and the European Central Bank meeting on Thurs. Markets expect another good jobs report, and I think only a contracting job market would sway the Fed to reconsider raising rates. Markets expect the ECB to announce additional measures to stimulate the European economies. I expect this will have little effect on US rates, but it’s interesting that the current policies of the ECB and the Fed are moving in opposite directions.

Mortgage rates could rise a little in the coming weeks as markets continue to react to expected Fed actions. However, markets soon will start looking beyond Dec’s rate hike, and future rate hikes depend on the growth prospects for the economy. Thus, it’s quite possible rates level off or even fall a little in the medium term unless economic data shows a new spark.

Government says no worries; your financial data is safe

Regulations, Residential Mortgage Comments Off

Nov 072015

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

I’ve never considered myself much of a conspiracy nut, but the government’s latest data gathering plan has me concerned for my privacy. As part of the Consumer Financial Protection Bureau’s crusade to discover housing discrimination (even where it doesn’t exist), it will start collecting far more intrusive data about every mortgage, including your income and credit score.

Do you really trust the government with your information? This is the same government that had data breaches at the Office of Personnel Management, the State Dept, the Defense Dept, the IRS, the Federal Reserve – the list goes on. Why in the world would I be comfortable with the CFPB holding this data?

What’s more, do you really trust the government to behave? Think the IRS might want to look the income you reported to your lender?

This seems to be a done deal at this point unless Congress steps in. Fortunately, the data collection doesn’t start until 2018, so we have a chance. However, if the rule doesn’t change, the only way to avoid the government collecting your sensitive information is to pay cash for your home.

Can you buy a home before you sell your existing home?

Loan Guidelines, Residential Mortgage Comments Off

Nov 062015

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

In today’s housing market, you need to act quickly when you find a home you want. This can put you in a bind if you need to sell your existing home so you can afford a new one because if your existing home doesn’t sell first, your income would have to be sufficient to support both housing payments.

But a recent change in loan guidelines could help. If you have an executed contract for the sale of your existing home, we can exclude your current housing payment no matter when the sale will close. If the contract includes a financing contingency, we will need a loan approval from the other lender to satisfy the guideline, or the buyer can waive the contingency.

The same change applies if your employer is relocating you and has a relocation plan that covers your existing mortgages.

Rate update: Rate hike on cruise control

Interest Rates, Residential Mortgage Comments Off

Nov 042015

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

I expressed concern last week that the Federal Reserve would hint at a December rate hike after its Oct meeting. In the post-meeting statement, the Fed asked, “Are we clear?” The markets responded, “Crystal.”

The Fed didn’t just lob a shot across the bow. It went for shock and awe. It seems the Fed had decided to raise rates in Sep but got scared due to the Chinese stock market collapse. Now that the crisis has receded, the Fed seems determined that it will not waver again. What credibility it has left is on the line. I don’t think economic data will matter much over the next month. The Fed is going to raise short term interest rates, and markets are pricing in that probable reality.

For the near term, mortgage rates are off their recent lows and probably won’t test that range again anytime soon. Longer term, you have to remember mortgage rates are more sensitive to expectations for inflation and economic growth. Inflation remains almost non-existent, and world economies are slowing. If economic malaise returns to the US, mortgage rates could revisit all-time lows next year.

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