Roseville Loan Guy » Rates

HARP 2.0: The Facts!

Greg Cowart — Thu, 01 Mar 2012 21:12:30 +0000

With more than 11 million homeowners underwater on their mortgages, 2008’s HARP (Home Affordable Refinance Program) mortgage has been updated to allow more homeowners to refinance their mortgages, taking advantage of today’s historically low interest rates. AKA: HARP 2.0…

The first edition of HARP was a great idea, in theory anyways. If the banks, lenders, and servicers implemented the program exactly as it was written it would have helped many millions of homeowners refinance to lower interest rates, lowering their payments, and even probably had a positive effect on the national housing market and overall economy as less of those homeowners would have lost their homes and had more money in their pockets to spend.

But that’s not how it happened, the banks and servicers applied their own “overlays” to the program’s guidelines, making it hard for many underwater homeowners to qualify. Because of this only about 800,000 homeowners were able to take advantage and lower their rate/payment.

In comes HARP 2.0, with easier guidelines for borrowers to qualify, now unlimited Loan-To-Value ratios are allowed, as well as “Representation & Warrants” requirement waivers, relieving lenders of almost all Reps & Warrants of the original loan, making it much more likely that they participate. The Federal Housing Finance Agency estimates that at least another 1 million homeowners will benefit from a HARP 2.0 refinance before expiration of the program at the end of 2013.

Here are some important facts!

The current loan must be backed by Fannie Mae or Freddie Mac. You may not know your loan is backed by either of these entities because you make your payment to someone else (Bank of America or Wells Fargo for example) but in reality they are probably just the servicer of your loan and the security was at some point sold to Fannie/Freddie. I can quickly help you do this search to find out.
The current mortgage must have been originated before May 31^st, 2009.
HARP loans are available for all occupancy types (primary residence, second home, and investment properties).
The mortgage must have not had a 30 day late payment in the past 6 months, and must have had no more than one 30 day late payment in the last year.
The current Loan-To-Value ratio must be over 80% (otherwise you may already qualify for a non-HARP refinance)
Except for a small exception for some of the earliest HARP refinances in March-May of 2009, those that have previously refinanced under the HARP program will not qualify.
Both Fannie and Freddie’s guidelines are nearly the same but Fannie Mae’s are actually a little bit more liberal (which is a good thing as they hold many more HARP-eligible loans than Freddie Mac does).
Loan-Level-Price-Adjustments (LLPA’s), fees added on that can increase closing costs, the interest rate, or both (depending on how your lender structured your scenario) have been drastically reduced for HARP 2.0 loans. This was one of the issues with HARP the first time around, LLPA’s would make it very tough to refinance as they would add up to a point that HARP borrowers were no longer eligible for the lowest rates. Under the new program it’s feasible for a HARP borrower to get a lower rate than an non-HARP borrower because of the LLPA cap.
Property Inspection Waivers (PIW’s) are the big one here. Under the new rules lenders will be issuing PIW’s allowing the HARP borrower to not have to have an appraisal at all. Not only making a lot of these refinances possible, but saving consumers a few hundred more dollars in the process! PIW’s will not be issued on all refinances, but they will be on many (I can tell you before you shell out $400 for an appraisal if your loan was issued a PIW).

This is great news for homeowners who have made it a point to keep up with their payments! With the updated guidelines rolling out in March eligible homeowners in this category may be able to take advantage of HAPR 2.0 in the very near future. And even if you did miss a payment this program is available through December 2013. If you can get and stay current for the next 6 months, you may be eligible too.

The ALL-TIME, all time lows are here!

Greg Cowart — Tue, 03 Jan 2012 01:32:00 +0000

Interest rates on homes continue their downward trend. GSE Freddie Mac reported that the average 30-year fixed-mortgage rate sank to 3.91% last week, setting an all-time record low. 15-year fixed rates settled in at a historic low at 3.21%.

To put the declines into perspective, today’s homebuyers are paying over $1,200 less per year on a $200,000, 30-year fixed-rate loan than they would have just a year ago today!

New refinance system being considered

Greg Cowart — Sat, 03 Sep 2011 19:32:35 +0000

The administration is now considering a new refinance program that would provide millions of homeowners with new, lower interest, lower payment mortgages…

The initiative would reportedly allow borrowers with loans backed by Fannie Mae and Freddie Mac to refinance at today’s rates, even if they are in negative equity or have bad marks on their credit. Two Columbia business professors say such a move would save homeowners an average of $350 a month and pump an extra $118 billion into the economy, the report stated.

This would be wonderful for Sacramento area homeowners that can’t currently qualify a refinance at today’s low rates, and in turn have a positive effect on the local economy as people have more money to spend every month. There really is no negative. Since this would apply to mortgages already backed by Fannie Mae and Freddie Mac there is no additional risk to the government. In fact it will reduce risk to Fannie Mae and Freddie Mac by making it so homeowners can more easily make their monthly mortgage payment. Let’s see how this all plays out in today’s Washington…

Maximum Loan Limits are going down (but that is OK)…

Greg Cowart — Wed, 13 Jul 2011 22:53:25 +0000

If you have heard about the coming expiration of temporary higher loan limits for FHA, VA, Fannie Mae, and Freddie Mac mortgages put into place in 2008 as an attempt to not let the housing market in higher priced areas fall off a cliff, you may have heard reports of doom and gloom for the housing market. There have been numerous and varied contentions about the future state of the mortgage market once loan limits drop from the current maximum of $729,750 to $625,500.

The National Association of Homebuilders released a report saying it will be catastrophic however there isn’t really much to worry about for most American markets according to many economists and academics…

“As far as Fannie Mae and Freddie Mac are concerned, there is a tradeoff there between supporting the higher priced homes and weaning the housing finance system off of unusual limits it was put under during the crisis.” This is what Fed Chairman Ben Bernanke said to Congress this week. A study done by George Washington University suggested the same thing; the decrease in the maximum loan amount would raise the cost of borrowing for very few people (forcing them into JUMBO loans) and this world have no effect on most mortgage shoppers and a negligible effect on local housing markets.

FHA loans should see the same (lack of) change. According to the G.W. report “The FHA still could serve 95 percent of its historic targeted market even if the maximum FHA loan limit were reduced by nearly 50 percent” and “FHA’s expansion played a major role in keeping the housing market afloat during the economic collapse of 2008 and 2009. However, we now are left with large loan limits that were set when home prices at the top of the bubble. They don’t reflect current market conditions and are unlikely to assist the FHA in reaching its historical constituencies – first time, minority and low income homebuyers.”

“I understand the private sector is taking at least a significant number of the jumbo mortgage market but at a higher cost,” Bernanke also said.

Bernanke does admit that jumbo loans will come, “at a higher cost,” but we have to put in perspective what exactly that higher cost will be. Interest rates on mortgages today are already near historic lows at about 4.5% today and bond yields don’t look like they will be changing too much in the near future.

The bond market doesn’t seem to think the U.S. is really in danger of defaulting on its obligations, so rates should remain steady. If a jumbo rate is higher, even by a full percentage point, it’s still historically pretty low, and buyers looking at a higher-priced home likely expect to pay a higher interest rate already anyway. The jumbo market has always been like this, except before the temporarily loan amount increase the maximum loan amount was $417,000 (more than $200,000 less than the new lower amount will be) so in all reality no one, not even the homebuilders association, should complain.

-Greg

Credit Makeover In Five Steps

Greg Cowart — Fri, 03 Jun 2011 19:56:24 +0000

My friends at local credit repair agency, Blue Water Credit Repair, gave me this GREAT five step path to a credit makeover. While I know all of this myself I can’t take credit for putting it into words (and Blue Water taught me a bit of this stuff anyways). Here you go, a free five step outline to a complete credit makeover!

CREDIT MAKEOVER IN FIVE STEPS

A lot of homeowners have the mind set that making payments on time automatically equates to good credit and credit scores.

Unfortunately, this couldn’t be further from the truth.
While paying your bills on time accounts for a large portion of your credit score, there’s still a lot more to it. In fact, paying your bills on time only drives 1/3rd of the points in your credit score, which means that 2/3rds of your score has nothing to do with making on time payments.
Five main categories go into making up your overall credit score calculation. Let’s briefly review each category and how much they count:

1. Payment History – The Most Important Category

This category is pretty self-explanatory. It doesn’t take a rocket scientist to figure out that if you pay your bills on time, you’ll do well in this category. Likewise, if you have a history of late payments, collections, chargeoffs, public records, etc. – you’re not going to do so well in this category.

In addition, the number of negative items on your credit reports is important. The more incidents of credit transgressions, the more your score will suffer. And if you have recent negative information that will punish your scores more than if they are several years old.

2. Debt – A Very Close Second

The most important non-payment category in your credit score is, by far, the amount of debt that you carry. And while your installment debt (auto loans and mortgages) are factored into your scores, it’s really your credit card debt that’s most important.

This includes anything from Visa, MasterCard, Discover, American Express, gas cards and/or retail credit cards like Macy’s or Target. The balances that you carry on your credit cards can affect your scores almost as much as whether or not you make your payments on time.

This category calculates the proportion of balances to credit limits on your revolving credit card accounts – also referred to as ˜revolving utilization’. Simply put, the higher your revolving utilization percentage, the fewer points you will earn in this category.

So what is revolving utilization and how is it calculated?

To determine your revolving utilization, you’ll need to add up all of your current balances and all of your current credit limits on your open revolving credit accounts (except for Home Equity Lines of Credit). This will give you a total balance and a total credit limit. Divide the total balances by the total credit limit and then multiply that number by 100. This will give you your total revolving utilization percentage.

See the example provided below:

Remember, the lower your utilization percentage, the more points you’ll earn and the higher your credit score will be. To earn the most possible points in this category, you should try to keep your revolving utilization at 10% or less. If you can’t reach 10%, just remember that the lower the better. While 50% is better than 60%, 40% is better than 50% and so on.

How you pay your bills and your revolving utilization are by far the most important factors used to determine your credit scores. They account for 2/3rd of the points in your score. That’s a hefty chunk! Needless to say, if you don’t do well in both of these categories, your scores aren’t going to be very good regardless of how you do in the remaining categories.

While the remaining categories are worth fewer points, they are still very important for consumers who want to earn the highest scores possible, certainly a requirement in today’s difficult credit environment:

3. The Age of Your Credit History - Secondary Category

Don’t confuse this with your age. It’s the age of your credit reports. Basically, the score is looking to see if you have a lengthy history of managing your credit obligations. The age of your credit history is determined
by the “date opened” on the oldest account listed on your credit report. The older your credit report, the more points you will earn in this category.

There’s really not much you can do in this category except wait it out. As your reports get older, you will gradually earn more points. This means that you should never try and get old, good accounts removed from your credit reports.

You want the history!

4. New Credit/Inquiries – Secondary Category

When you apply for credit you are giving the lender permission to pull your credit reports and credit scores. Each time this happens, your credit report will reflect what’s called an “inquiry.” To perform well in this
category, you should really only apply for credit when you need it.

5. Credit Mix – Secondary Category

What types of accounts do you have? You will do well in this category if you have a nice diverse list of different types of accounts in your credit report. This includes mortgages, auto loans, installment loans, credit cards, etc.

If your credit report is dominated by one type of account (or lack of others), this could negatively affect the number of points that you earn from this category.

That pretty much covers the factors that are used in determining your credit scores. Let’s do a quick recap:

1. How you pay your bills – on time is good, late is bad

2. How much you owe your creditors – keep your credit card debt low (10% utilization is optimal)

3. How long you’ve had credit – the longer the better

4. How often you apply for credit – apply only when you really need it

5. Account mix – diversity is good
If you can stick by these five key principles, you should be well on your way to healthy credit and credit scores.

Housing in the US never as “undervalued” as it is today…

Greg Cowart — Mon, 21 Mar 2011 17:22:50 +0000

Continued depreciation of property values in 2010 has made housing more undervalued relative to income than ever before. Using the latest Case-Shiller home price index American housing was 21% undervalued when compared with disposable income per-capita.

This data includes the index published by the Federal Housing Finance Agency and shows that housing in the 4^th quarter of 2010 was 15% undervalued as measured against American’s disposable income. The results point to the idea that housing is exceptionally undervalued, and the gap has gotten bigger.

Current low housing prices, coupled with historically low interest rates (the 20 year average is 7% but a minimum down FHA loan can be had for 4.5% today), explains why the monthly mortgage payment on a median priced house bought with a 20% down payment has fallen to an all-time low of 13% of the median income. Real estate costs now appears close to fair value when set against rents according to the numbers (and I have seen plenty of people buy for less than they were paying in rent recently).

These low prices and rates mean there is plenty of scope for housing to perform well in the near to mid-term. Also, the Sacramento market currently has MANY more buyers than there are properties to sell in this low-mid price range, so the demand is there to keep it moving.

Looking at the long term, as I have talked about a number of times recently, a sharp fall in the mortgage delinquency rate throughout 2010 means there will be fewer homes in the foreclosure pipeline, and as current foreclosure pipelines continue to shrink we should see a return to a more normal real estate market in the Sacramento region. This will not happen overnight but with less and less first payment defaults, there will be less and less foreclosures going forward.

So, with home prices as “undervalued” as any time in history, what are you waiting for?

~Greg

FHA 5/1 ARM, a fools bet, or are you a fool to ignore it?

Greg Cowart — Mon, 07 Mar 2011 17:23:50 +0000

This is an answer to a question posted to me in Zillow.com. A homeowner in Southern California was pondering a 5/1 FHA ARM with their loan officer. Of course it’s sad to me that one would have to turn to a bunch of strangers on a website to ask this question when their LO should be able to provide this information (but it doesn’t surprise me knowing as many loan officers as I have over the years). Anyways, here’s my answer…

“Anna,

I’m going to have to make a couple small estimates without knowing everything (which I could not know without actually having an application and ordering some documents from HUD) but this should be pretty close to accurate give when you’ve told us.

Right now your P&I + MI is $4147.02. As an estimate I used $457,000 as a new loan balance, should you be able to refinance into a 5/1 ARM at 3.85%, and came up with a P&I of $2142.45 + MI of $342.75 for a total of $2,485.20 and a difference of $1,661.82 a month!

Looking at this we know that the FHA 5/1 ARM is fixed for 5 years and can change by a maximum of 1% every year after the first 5 years. So it would actually be a full 7 years before the rate could increase to what it is today, a full 8 years before it could be higher than it is today, worst case scenario. So we’re looking at a 5/1 ARM with close to 8 years of rate safety. Not too bad.

Lets dig further… So you’re saving $1,661.82 a month for the first 60 months of this loan. If you were to be disciplined and save this for those 60 months, even if you earned NO interest you would have saved about $100,000 compared to your current payment before the payment could adjust even 1%. Over 8 years, by the time your payment could be more than it is today, you’d have saved about $140,000. Again, this is while earning NO interest on that money along the way (which you obviously wouldn’t do).

So, worst case, 8 years from now you have $140,000 (probably a lot more) saved and your payment has finally risen to be slightly higher than it was in 2011. Will the market have recovered enough to sell? I don’t know but I’d assume so. Has your income increased? Again we don’t know but we can pretty safely assume so. If not, you have $140,000 in the bank to bridge the gap now that, 8 years later, your payment is finally higher than it was in 2011.

Again this is not taking into account tax savings, compounding interest on the money saved, the fact that your rate is not guaranteed to increase by 1% annually (it can be less, or even go down), or the fact that you’ll also be paying down principal faster, etc. I’m looking at this very conservatively, the wealth building opportunity could, and probably would, be even bigger.

I would asses the refinance with your financial planner and create a plan, a plan you will force yourself to stick to, if you want to make the most of it. Maybe you only save $1,000 a month from the $1,661 and use the other $661 for whatever you want. You’d still save $60,000 over the first five years and put another $40,000 in your pocket for whatever you want to do. Either way the 5/1 FHA ARM is a great opportunity if utilized correctly, as I illustrated in the above scenario.

Sincerely,
Greg”

Being seduced by a 15 year mortgage?

Greg Cowart — Sat, 18 Dec 2010 19:27:24 +0000

Mortgage rates are sitting at record lows. If you haven’t refinanced lately, maybe you should consider it. And when you do, don’t be tempted to obtain a 15-year mortgage. Instead, stick with the 30 year fixed. Let me tell you why…

We’ll say you’re refinancing a $250,000 mortgage and you have two choices, a 30 year fixed and a 15 year fixed…

With the 15-year loan, it LOOKS LIKE you will save $144,614 in interest by paying $539 more each month.

But that just isn’t the case. This illustrates the interest you’d pay over 30 years compared to the interest you’d pay over 15 years. It is more accurate to compare what happens with each loan after the first 15 years.

Sooo…. For the first 15 years of a 30 year mortgage, you’ll pay a total of $151,280 (or 68% of your payments) in mortgage interest. That means 68% of your payment is tax-deductible. With the 15-year loan, only 26% of your payment is interest — meaning MUCH less is tax-deductible.

And what does that mean to you? Assuming you are in the 25% tax bracket…

At The End Of The 15 year Loan:

Not only does the 15 year mortgage force you to pay an extra $539 a month, money that you can’t use on anything else during the month and you’ll have ZERO flexibility with if you need the cash, you’ll also spend an extra $116,077 in interest!I know what you’re saying, “but now my home is paid off, it was worth it.” Well, if you were to invest that $539 difference at a conservative annual return of 7%** you’d accumulate $170,843 — enough to pay off the $169,710*** balance that’s left on your 30 year mortgage anyways. But you wouldn’t do that because then you would see the folly in the 15 year mortgage. Not only does the homeowner lose HUGE in the tax department, they didn’t benefit from paying that $539 a month because they have enough to pay off their mortgage if they wanted to. But it’s 15 years later and your income will probably be much higher and your fixed rate mortgage, with 15 year left, will be a much lower percentage of your income, so it’s much easier to pay.

When weighing whether to refinance, contact a professional mortgage planner to help you make the right decision. As the above demonstrates, the best choice is not always obvious.

I have learned a lot about planning for the future and using one’s mortgage as a financial tool to build wealth and attain real financial security rather than a debt to be gotten rid of as quickly as possible by reading Ric Edelman’s books. For more information on this strategy as well as Ric’s 11 Reasons to Carry a Big, Long Mortgage, read the newly revised edition of The Truth About Money, available December 21.

*Assumed interest rate and monthly payment are for illustrative purposes only.
**Assumed 7% rate of return for illustrative purposes only.
***Assumes a federal tax bracket of 25%, no withdrawals and no dividend reinvestment.

Free or “No Cost” Refinance? Do they exist?

Greg Cowart — Fri, 15 Oct 2010 01:10:01 +0000

If you’re like me you can’t go anywhere without hearing ads for FREE and so-called “No Cost” refis. If only it were that easy. The truth is, there is no such thing as a no cost refinance. The lender is simply taking a higher rebate from the bank and applying it to your fees. But how do they get this higher rebate from the lender? By charging a higher rate of course. So, even though they are paying your closing costs for you, are you getting the best deal?

If anyone is interested in HOW this works and WHY this is a bad idea, please leave a comment here. Many mortgage companies have no idea how finances work, only how to market and get the phones ringing. These people are doing Sacramento area consumers a disservice incessantly blasting this message all day, every day. But hey, they just want to sell you a loan. It doesn’t matter if it’s the right loan for you or not.

Sure a no-cost refinance sounds great, but it simply isn’t. It’s one of the worst financial decisions any of us can make.

How crazy is it?

Greg Cowart — Mon, 23 Aug 2010 17:37:17 +0000

Just a quick look at last week’s mortgage bond market. Up and down (red is bad) in huge strokes all week long. I hope you see how important it is to work with a mortgage professional that not only has access to this data, but understands how to use it to your advantage. It could make a huge difference in how much interest you pay over the life of your loan!

Here’s to hoping this week starts off with a bang and we can keep these historically low rates for a little while longer (so far it’s already looking good)!

-Greg