Bulls & Blogs

Rate update: Will the Fed deliver a rate goblin?

Interest Rates, Residential Mortgage Comments Off

Oct 262015

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

By G. Steven Bray

Steady as she goes. Last week was fairly quiet in terms of economic data, and interest rates stuck to their current range. This week could bring a little more excitement.

The Federal Reserve meets Tues and Wed. Almost no one expects the Fed to raise short term rates, but that doesn’t mean the Fed can’t launch some fireworks. The focus will be on the Fed’s post-meeting statement. Really, I only see downside risk for interest rates. If the statement suggests the Fed wants to raise rates in Dec or hints that the global economic picture is improving, I suspect rates will edge up. I think the Fed would have to paint a gloomy economic picture for rates to head lower, and I don’t think that’s likely.

Thurs, the government releases the 3rd quarter GDP numbers. While this is backward looking data, lessening its impact, rates may respond if the headline number differs greatly from the downwardly-revised estimate. More important will be if markets can glean some expectations for the 4th quarter and the Christimas shopping season.

Finally, we have the ongoing budget and debt ceiling talks between Congress and the President. If the talks collapse, rates could improve because of the potential impact on the economy, but volatility and uncertainty could negate any improvements.

If this week doesn’t bring some excitement, next week is a jobs report week. The last two jobs numbers have been disappointing to say the least. A third lousy report could push rate hike expectations back until next summer. We’ll talk about that more next week.

Rate update: Next week’s Fed meeting could move rates

Interest Rates, Residential Mortgage Comments Off

Oct 202015

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

By G. Steven Bray

Mortgage rates seem very content with their current lot in life. They’ve been hanging out in the same range, around 4% for a 30-year fixed mortgage, for the last couple months, and that really doesn’t seem likely to change soon.

The next big economic event that could move rates is the Federal Reserve meeting next week. The Fed indicated at its Sep meeting that it could raise short term rates in Oct, but pretty much no one believes that. US and global economic data has deteriorated since the meeting, and the Fed hardly wants to risk being blamed for the next recession.

Even if the Fed doesn’t raise rates, its post meeting statement could cause a stir. Speeches by the Fed governors since Sep have seemed contradictory. In the unlikely event the statement clarifies the Fed’s position on the timing of rate increases, I suspect rates will move. I think the risk is greater that rates will move up than down. Markets seem disinclined to push rates lower at this time, so even if the Fed takes rate hikes off the table for months, rates may remain in their current range. Alternatively, if the statement stresses the Fed’s determination to raise rates this year, look for rates to jump, at least temporarily.

FHA changes may hurt homebuyers with student loans

Loan Guidelines, Loan Programs, Residential Mortgage Comments Off

Oct 082015

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

By G. Steven Bray

New FHA loan guidelines may make it harder for you to qualify for a mortgage if you have student loans.

Previous to the new rules, FHA allowed us to ignore student loans that were deferred greater than 12 months. The new rules eliminate this exemption. All student loans must be considered as part of your monthly debt.

If your student loan servicer won’t report a monthly payment, the new rules say we must use 2% of the loan balance. Fortunately, loan servicers typically will provide an effective payment based on the loan’s current balance if you ask, and this payment typically is closer to 1% of the loan balance.

The change makes FHA more consistent with conventional loan programs. However, Fannie Mae allows us to use 1% of the balance if the servicer won’t report a payment.

FHA still provides one advantage over conventional loans. It allows the use of the actual payment for income-based student loan repayment plans. These plans often have payments that are less than 1% of the loan balance.

Rate update: Markets are chewing their cud

Interest Rates, Residential Mortgage Comments Off

Oct 062015

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

By G. Steven Bray

Rate watchers hardly could have dreamed of a better result for last Friday’s jobs report. Simply put, the report stunk. Jobs created were about 2/3rds of what was expected, and the numbers for previous months were reduced. Wages once again are stagnant, and hours worked declined. And to top it all off, the workforce participation rate dropped to a level not seen since 1977.

Markets responded by dropping rates to their lowest levels in 5 months, at least briefly. Markets seem ill-at-ease with rates this low, and they’ve bounced back this week towards their previous range. Now, understand this is a pretty sweet range with 30-year mortgage rates around 4%. But it just feels like they should be lower.

I think markets are ruminating – yes, like a cow. Interest rates are most strongly correlated with inflation and economic growth. Inflation continues to be almost non-existent and thus is exerting no pressure on rates. US consumers finally are providing some support for the US economy, but global economies are showing signs of struggle, especially the Chinese economy. Does this jobs report signal the US economy is turning, too? Finally, we have the Fed, which seems bound and determined to raise rates this year. Grind that cud.

For the near term, I suspect rates will hold their current range, seeking more input to set a direction. That input may come in the form of an unexpected event, which makes predicting the medium term a crapshoot.

Buying real estate using a trust

Loan Guidelines, Residential Mortgage Comments Off

Sep 232015

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

By G. Steven Bray

For financial planning purposes, homeowners occasionally choose to hold their property in a trust. I’ve had this situation arise several times recently, so it’s a good time to review some of the conventional loan guidelines concerning ownership in a trust.

Fannie Mae and Freddie Mac are in the business of lending money secured by real estate. Thus, they must be able to foreclose on the real estate in case the borrower defaults. Thus, a trust used in connection with a conventional loan must be a revocable trust, also known as a family trust. This guideline, revocable as opposed to irrevocable trust, probably stops more loans involving trusts than any other.

Also of consequence is that the grantor of the trust must be a natural person and must be a trustee, and the primary beneficiary must be the grantor. The income and assets of the grantor are used to qualify for the mortgage, and the grantor is liable for repayment of the mortgage.

Finally, it’s important to remember that Fannie and Freddie still do not allow borrowers to title property in a corporation’s name, even a single-member LLC. This is true even if the borrower agrees to be personally liable for the mortgage.

Rate update: Fed adds new act to its juggling routine

Interest Rates, Residential Mortgage Comments Off

Sep 222015

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

By G. Steven Bray

The Federal Reserve didn’t just postpone a rate hike last Thurs. It appeared to give itself a new job description, and in the process, introduced new uncertainly into the markets.

The Fed has a dual mandate to try to maximize employment and keep inflation in check. On Thurs, the Fed said it now is concerned about global growth prospects and market stability.

Granted, both may affect the Fed’s original mandates, but identifying them as influencing the Fed’s rate decision is, well, interesting. And what really got markets moving last week was the Fed’s gloomy assessment of global growth. While markets have noticed disappointing growth headlines, the Fed statement caught everyone by surprise and has them thinking is it really this bad?

So where does this leave us? If the global economy is tanking, rates should improve. The Fed said it still wants to hike rates before the end of the year, but that seems unlikely given its new focus on global growth. On the other hand, the most recent jobs data has shown a slight untick in wages. Should that continue, US inflationary pressures could build even as global pressures relax. Any hint of inflation could send rates up quickly.

That leaves us right back in the previous rate range with no clear direction for higher or lower rates. If you haven’t locked your mortgage rate, float cautiously.

Fannie Mae wants to give you money

Loan Programs, Residential Mortgage Comments Off

Sep 182015

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

By G. Steven Bray

If you’re a 1st-time homebuyer, Fannie Mae wants to give you money – that is, if you buy a HomePath home. Fannie uses its HomePath program to dispose of properties it has recovered through foreclosure. Fannie will give qualified 1st-time homebuyers up to 3% of the purchase price to pay for closing costs.

In order to qualify, homebuyers must not have owned a home in the last 3 years (which Fannie defines as a 1st-time homebuyer) and plan to live in the home. Additionally, homebuyers must complete on a homebuyer education course. The 4-1/2 hour course is completely online and covers the complexities and responsibilities of homeownership.

If you want to take advantage of the assistance, keep in mind you must complete the course before you make an offer on a HomePath home. The course costs $75, but Fannie will reimburse the fee at closing.

Click here for the course sign-up and additional program information.

Could fewer cash sales be good 1st-time homebuyers?

Investment, Real Estate Market, Residential Mortgage Comments Off

Sep 162015

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

By G. Steven Bray

Based on the most recent data from Corelogic, cash sales of homes fell for the 29th consecutive month in May to 31.9% of total sales, which represents the lowest share since 2008. The percentage of cash sales peaked in Jan 2011 at 46.5%. Prior to the housing crisis, cash sales averaged about 25% of the market.

While this statistic may reflect a healing housing market on a national level, it’s interesting to view the data on a more local level. Cash sales still represent almost half of all sales in FL, GA, NY, and NJ. Given that the strengthening dollar is dissuading cash sales to foreign buyers, it’s likely these elevated percentages still indicate distress in these markets. In TX, the share of cash sales has dropped to 28%.

One positive takeaway from declining cash sales is it may indicate less competition from investors for a tight housing inventory. Given that investors tend to purchase lower-priced homes, this may open up more inventory for first-time homebuyers.

How will the Fed meeting affect mortgage rates?

Interest Rates, Residential Mortgage Comments Off

Sep 142015

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

By G. Steven Bray

Fed week is finally here. The Federal Reserve will decide this week whether to raise short-term interest rates. Markets are pricing in only a 28% chance of the Fed raising rates, and the consensus of economists is that the Fed won’t pull the trigger. So, how does this affect mortgage rates?

Until the Fed’s announcement on Thurs, I don’t expect rates to move too much absent some unexpected happening. Markets are in wait-mode. This prediction is a little risky because this week provides some important economic reports, including retail sales and consumer inflation numbers. Should either of these be very strong, rates could trickle higher in anticipation of a Fed rate hike.

If the Fed doesn’t hike short-term rates on Thurs, we could see a short relief rally, meaning lower mortgage rates, but I think it will be very short and rather shallow. Markets generally don’t expect a hike now, and they’ll just start anticipating the next Fed meeting.

If the Fed hikes rates on Thurs, I think we could see an outsized initial reaction with rates rising quickly. However, you must remember that the Fed sets short-term interest rates. Mortgage and other longer-term rates are more in tune with inflation expectations and global economic concerns. For that reason, I think rates could recover within a couple weeks, especially if the Fed reiterates its intention to raise rates very slowly.

The case against the 15y mortgage

Loan Programs, Residential Mortgage Comments Off

Sep 102015

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

By G. Steven Bray

Very low interest rates have many people refinancing their 30y mortgages into 15y mortgages. The question is is this a good decision?

The argument in favor of the 15y mortgage is that it allows you to build up equity more quickly. For example, for a $250k mortgage, you would lower your principal balance by over $70k at the end of 5 years if you used a 15y loan. In that same period, you would have built only about $24k of equity with a 30y loan.

But is that equity beneficial? Do you risk being house rich and cash poor?

Let’s continue the example. The principal and interest payment on a $250k 30y loan today would be $1194. For a 15y loan, the payment would be $1757, or $563 more each month. Money is cheap right now. Could you gain greater benefit by investing that $6756 each year in a retirement account?

A further consideration is that mortgage interest currently is tax deductible. During the first year, you’d pay $9920 in interest on the 30y mortgage and only $7930 on the 15y mortgage. The 30y mortgage will provide a larger deduction and one that will last longer into the future. Thus, depending on your tax situation, the IRS may refund you some of that extra interest you paid.

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