Wednesday, July 23, 2014

Housing Buoyed by 20-Year High for Vet’s Loans: Mortgages

During his third deployment in Afghanistan, Air Force Staff Sgt. Claude Hunter was so eager to return to the U.S. and buy a house that he signed a contract for a property that his agent showed him over Skype.

Hunter got back in time to close the deal, paying $219,000 in May for the four-bedroom Waldorf, Maryland, house that he financed with a U.S. Department of Veterans Affairs mortgage. It didn’t require a down payment.

“On Facebook, my friends have started posting: ‘I got my VA loan, I got my house,’” said Hunter, 31. “Everybody is just ready. A lot of them have done their jobs overseas and are coming home.”

America’s fragile housing recovery is getting a boost from military buyers using VA mortgages as the U.S. draws down troops after more than a decade of combat in Iraq and Afghanistan. About 4.7 million full-time troops and reservists served during the wars and many are now able to take advantage of one of the easiest and cheapest paths to homeownership. The program’s share of new mortgages, at a 20-year high, is also increasing as other types of government-backed loans have grown more costly.

“The reduction in uncertainty for the returning vets allows them the freedom to spend more, including buying housing,” said Sam Khater, deputy chief economist at CoreLogic Inc., an Irvine, California-based property-data firm. “VA buyers are coming into the market in higher and higher proportions and tend to be first-time buyers, one of the missing drivers in the recovery in housing demand.”

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Tuesday, July 22, 2014

Reverse mortgages have advanced

Q: I am receiving numerous sales calls for reverse mortgages. Please tell me about the downside to this program, if there is one.

A: Historically, reverse mortgages have had two major drawbacks.

First, they were relatively expensive in closing costs, insurance cost and interest rate. Second, most of the people who took them out shouldn’t have.

Recent reforms have reduced the costs for reverse mortgages. New regulations have limited the amount of the loan value that a borrower could take out in the first year.

The problems with reverse mortgages came about because they were often given to people who had no other assets, were in debt, and really needed to rethink their shelter needs rather than borrow. The result was that borrowers would take out the maximum amount and then fail to make tax and insurance payments.

This put the lenders in a tough place. But if you are retired, healthy and not dead broke, new research indicates that a reverse mortgage can be what they were hoped to be — another tool for managing retirement income and spending.

One thing that contributes to the use of reverse mortgages is that the money borrowed is tax-free, since it is your home equity.

Added withdrawals from retirement accounts, on the other hand, can be burdened with high tax rates.

Q: My wife and I (both 37) have saved up close to $100,000 for our emergency fund and other “short term” goals like replacement vehicles (current vehicles are seven and 12 years old) and home repairs.

While we don’t need this money immediately, we are planning to use the car and home money sometime in the next five years. With that in mind, I know it isn’t prudent to invest it in equities, but it pains me to watch it sit in the bank earning next to nothing.

Is there something with reasonable risk like corporate or muni-bonds that I should look into putting the money in until it is needed? Where do I start looking?

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Monday, July 21, 2014

Mortgage rates resume downward course

After a slight uptick last week, mortgage rates wandered back down, according to the latest data released Thursday by Freddie Mac.

The 30-year fixed-rate average slipped to 4.13 percent with an average 0.6 point. It was 4.15 percent a week ago and 4.37 percent a year ago. The 30-year fixed rate has fallen in four of the past five weeks.

The 15-year fixed-rate average dropped to 3.23 percent with an average 0.5 point. It was 3.24 percent a week ago and 3.41 percent a year ago. Since starting the year at 3.55 percent, the 15-year fixed rate has plummeted 32 basis points.

Hybrid adjustable-rate mortgages also fell. The five-year ARM average edged down to 2.97 percent with an average 0.4 point, the fourth week in a row it has stayed below 3 percent. It was 2.99 percent a week ago and 3.17 percent a year ago.

The one-year ARM average declined to 2.39 percent with an average 0.4 point. It was 2.4 percent a week ago.

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Friday, July 18, 2014

Average US Mortgage Rates Dip Slightly

 Average U.S. mortgage rates declined slightly this week with rates remaining near historic lows.

Mortgage company Freddie Mac reported Thursday that the nationwide average for a 30-year loan dipped to 4.13 percent, down from 4.15 percent last week. The average for the 15-year mortgage, a popular choice for people who are refinancing, edged down to 3.23 percent, compared with 3.24 percent last week.

Mortgage rates are below the levels of a year ago, having fallen in recent weeks after climbing last summer when the Federal Reserve began talking about reducing the monthly bond purchases it was making to keep long-term rates low.

Rates on one-year adjustable rate mortgages were 2.39 percent this week, down from 2.40 percent last week, while rates on five-year adjustable rate mortgages were 2.97 percent, down from 2.99 percent last week.

At 4.13 percent, the rate on a 30-year mortgage is down from 4.53 percent at the beginning of this year. Rates have fallen modestly even though the Fed has been trimming its monthly bond purchases. Fed Chair Janet Yellen told Congress this week that the purchases will likely end altogether at the end of October.

But at the same time, Yellen said during congressional testimony that the Fed still sees the need to keep its benchmark short-term rate at a record low near zero to give the economy support.

To calculate average mortgage rates, Freddie Mac surveys lenders across the country between Monday and Wednesday each week. The average doesn't include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

The average fee for a 30-year mortgage was 0.6 point, down from 0.7 point last week. The fee for a 15-year mortgage was 0.5 point, down from 0.6 point last week.

The average charge for a five-year adjustable rate mortgage was 0.4 point, unchanged from last week. For a one-year ARM, the charge was also 0.4 point, also unchanged from last week.


Thursday, July 17, 2014

JP Morgan Chase mortgages down 66 per cent

America’s largest bank saw its earnings drop by half a billion dollars over the past year after mortgage originations fell sharply.

On Tuesday JP Morgan Chase reported net income for the second quarter of $6 billion, down from $6.5 billion in the second quarter of 2013.

The US lender wrote $16.8 billion in mortgages during the June quarter, down 66 per cent from the previous year and 1 per cent from the previous quarter.

The group’s mortgage banking net income was $709 million, a decrease of $433 million from the previous year, driven by lower net revenue and a lower benefit from the provision for credit losses, partially offset by lower non-interest expense, according to a company statement.

“Despite continued industry-wide headwinds in Markets and Mortgage, the firm has continued to deliver strong underlying performance,” JP Morgan Chase chairman and chief executive James Dimon said.

“Consumer & Community Banking deposit growth and card sales volume both outpaced the industry, and we had record loan originations in Business Banking,” Mr Dimon said.

US applications for owner-occupied mortgages are roughly 15 per cent below last year’s pace, while refinance applications are almost 60 per cent slower than a year ago, according to The Mortgage Bankers Association of America.


Wednesday, July 16, 2014

Debunking the Myths about Homeownership

As a result of the recent housing crisis, many potential homebuyers, especially first-timers, are hesitant to enter the market. But if you’re holding back, evaluate why. Experts say your reasons may be based on myth.

“Buying a home is more affordable than ever for families with stable incomes and good credit,” says Christina Boyle, Vice President and Head of Single-Family Sourcing & Relationship Management, at Freddie Mac.

So before ruling out homeownership, get the facts. Boyle is offering some tips to help you sort fact from fiction.

• Myth:   I need to make a big downpayment, as much as 20 percent, to get a mortgage.

• Fact: A 20 percent downpayment is not the golden rule. Generally you should expect to put down about five or 10 percent. Note however, you may be required to pay mortgage insurance if you make a downpayment of less than 20 percent.

When deciding whether homeownership is right for you, don’t forget to consider other expenses like closing costs, property taxes, and maintenance costs.

• Myth:  I need perfect credit to buy a home and will never qualify for a loan.

• Fact: In response to the housing crisis, banks re-evaluated the criteria for lending money to help put buyers in a more financially comfortable position and ensure they can afford what they buy.

So while it’s true that getting a mortgage today requires a stronger credit history than in past years, you don’t need perfect credit. Keep in mind though, that the higher your score, the more options you have when looking for a mortgage.

• Myth:  I don’t make enough money to own a home so I plan to rent for the long-term.

• Fact: In many areas of the country, it is more affordable to own a home than rent one, especially as rents are rising fast.  With a 30-year fixed-rate mortgage, you’ll have the certainty of knowing what your mortgage payment will be for 30 years, whereas rents could continue to rise.

Despite these facts, note that homeownership is not necessarily the right step for everyone. If you move frequently or don’t have time for home maintenance, renting might make more sense for your lifestyle.

• Myth:  Mortgage rates are rising too fast and I’ve missed the window of opportunity to buy.

• Fact: While mortgage rates have risen over the past year, they are still at near historic lows, with a 30-year fixed mortgage under 4.5 percent at the start of 2014.  These rates make homeownership very affordable.

For comparative purposes, in 2000, rates averaged eight percent; and in the 80s, they spiked to 18.5 percent. To put that in perspective, a mortgage payment on a $150,000 loan at today’s 4.5 percent is $760 per month, whereas in 2000, it would have been $1,100 (not including taxes and insurance).


Tuesday, July 15, 2014

0 down loan mortgages are back

Zero down home loan mortgages are making their way back into the housing market.  They are raising red flags, following the risky lending practices that led us into the housing crisis of 2008.  The question many are asking, is history repeating itself?  “The loans that caused the crisis were all packaged to be resold,” said San Diego State real estate lecturer Mark Goldman.  He says this time around it is different, “Navy Fed is keeping these loans they’ve got skin in the game, they want these loans to perform so they can get repaid according to terms,” said Goldman.

Navy Federal Credit Union is offering 100% financing on a home loan under its Homebuyers Choice program.   While the bank is taking all the risk by keep it in its portfolio, they are making money from charging a higher interest rate.   There are 100% financing loan programs that have adjustable rate mortgages and this is where Goldman says a borrower can get into trouble.  “The borrower is taking some of the interest rate risk of what will happen 5 years out there, is it risky sure, if interest costs go up their payment will go up and that can be a problem," said Goldman.