Category Archives: Mortgage

Mortgage Lender Optimism Could Spill into Phoenix Market

4-1-15-mortgageIf anyone involved in Phoenix real estate were to try to pick a word to characterize the mortgage industry as a whole, “sentimental” wouldn’t be among them. Especially over the past several years, “frustrated” might be apt, or “hog-tied.” Mortgage issuers been hampered by tough rules developed in reaction to the sub-prime mortgage mess. They certainly wanted to issue more mortgages, if only for their own profitability, but until recently, the lending guidelines made that difficult.

In any case, this is an industry that relies on hard facts and statistics to govern lending decisions. Mortgage industry leaders are therefore not inclined to be overly optimistic, overly pessimistic—nor are they prone to exaggeration in their public pronouncements.

So when the powers-that-be at Fannie Mae come out each quarter with their Mortgage Lender Sentiment Survey, the “sentiment” is not the Cry Me a River or You Are the Sunshine of My Life variety. This “sentiment” describes how real estate lenders (presumably including some Phoenix mortgage companies) feel about mortgage business prospects in the coming months. The actual report has a remarkable record of a lack of sentiment: it’s usually pretty much on target.

So it is that when the 2015 first quarter Survey appeared last month (this is one real estate report whose ‘first quarter’ paper actually appears in the first quarter), it sounded another positive note in the assemblage of springtime real estate projections. The summary talked about “an improving outlook among mortgage lenders” because those surveyed “expect mortgage demand…to grow over the next three months.” The hard number was 71% having that expectation, which wouldn’t be surprising, given our entry into the busy spring selling season. The optimism drew more from the fact that this is a substantial improvement compared with the same quarter last year (71% vs. the previous 59%).

If the growth they anticipate holds true for our own market, it wouldn’t just indicate improving activity for Phoenix home buyers and sellers. After what they viewed as an “uneven” 2014, Fannie Mae’s Chief Economist Doug Duncan said the results were “consistent with our view that an improving economy, strengthening employment, and increasing consumer confidence” pointed to the more cheerful outlook.

Also cheerful was the picture mortgage issuers expected for their own well-being. A year ago, lenders who thought their profitability would increase were in the extreme minority: 21%. This year, the size of the optimistic group doubled.

Local mortgage applicants could find good news in one more of the reasons for the expectation for mortgage demand to grow over the next three months. The report talked about how last year’s credit tightening was continuing to “trend down.” And there at the top was the headline which mentioned “Gradual Credit Easing.” For anyone who had found it hard to qualify under last year’s rules, that’s very welcome news.

If you will be buying or selling anytime soon, I hope you’ll give me a call: the sentiment here is also the green light kind!

The Phoenix Mortgage Payment Detail that Many Overlook

3-25-mortgage paymentIt can be a true three-ring circus as you close in on signing day for your new Phoenix home. Sometimes there’s a near-simultaneous sale of the previous house that demands attention. There are the timing issues connected with moving out and then moving in. You may be dealing with furnishing the new house, school schedules, and sometimes work requirements have to be juggled; and everything seems to be happening at the same time.

Amidst all the details you are attending to, there is one that appears so simple that it may not get as much consideration as it deserves. Seeming almost like a non-decision, this one actually has major implications. It’s a true ‘sleeper.’

The subject is your decision on how you want to time the new mortgage payments for your new Phoenix home. It turns out that “once a month” is not necessarily the best answer.

Many lenders offer a variety of mortgage payment options, and they vary in ways that can make a surprisingly great financial difference over the long haul. No matter how busy you get, this is a decision which deserves some serious attention (and probably a hand calculator).

First, there is an English language oddity to straighten out: it’s about the prefix “bi.”

If you think “bi” is a prefix that means ‘two,’ you’re right—but it also has two meanings:

  • ‘Bimonthly’ means twice a month (but not once every two months).
  • ‘Biweekly’ means every other week.

At first glance, “every other week” and “twice a month” seem to be the same thing; but they’re not. The difference is significant, because there are 52 (not 48) weeks in a year. As everyone comes to realize sooner or later, there are 4.3 weeks in an average month (not four). So the number of mortgage payments you will make could be 12 (if you go with the standard ‘once a month’ mortgage payment), or 24 (a bimonthly mortgage payment), or 26 (the biweekly choice).

Most people who choose either of the ‘bi’ payment choices consider a mortgage payment amount that’s exactly half of the monthly amount. If you choose the bimonthly plan, you might save a bit on interest by paying the first half a little bit early. But most lenders just hold the money and apply both payments at the end of the month—if so, the advantage disappears.

The real significant difference arises if you are offered a biweekly option. You can use any of the online mortgage sites to work out the precise details for yourself. Because you are making two extra payments a year, for instance, what would have been a 3.8% 30-year $225,000 loan for a Phoenix home actually turns into a 26-year loan. All else being equal, you’d own your Phoenix home free and clear four years earlier—and save more than $23,000 in the process!

No matter how hectic a house hunting and moving process becomes, it’s part of my job to help my clients keep the important details and decisions front-and-center. Getting the best answer to the mortgage payment choice is one of them; and of course, another best answer is to give me a call!

 

Scottsdale Mortgage Down Payment Rules See Spring Turnaround

3-18-springmortgageThe first day of spring! The vernal equinox! This year, March 20 is the red-letter day on Scottsdale’s real estate calendar. It’s the nominal kickoff to the traditionally rambunctious spring selling season—historically, the go-go time of year. It’s when more homes come on the market, more prospective buyers come out to see them, and more sales are launched than in any other season.

But this year, what happens three days later might well turn out to be nearly as noteworthy.

The 23rd may not mark an annual event, but it could become a second red-letter day for Scottsdale home buyers and sellers in 2015. If all goes according to plan, it’s the day when Freddie Mac joins Fannie Mae in easing the down payment requirements mortgage lenders observe.

This is part of a development that surfaced last fall when sharp-eyed Scottsdale residents first noticed some trial balloon announcements from the mortgage lending industry. The sources were insiders who leaked details of an agreement being hammered out between Fannie Mae, Freddie Mac, and the lenders they underwrite. Fannie buys mortgage loans from the large commercial lenders, Freddie, smaller houses. Both of the mortgage behemoths are regulated by the Federal Housing Finance Agency. FHFA is the government overseer that lost most of its trusting good humor after it had to bail out Freddie and Fannie during the subprime mortgage fiasco (actually, it was we taxpayers who got the bill).

But last falls’ news leak indicated a reversal was in the wind. Borrowers with weaker credit might soon find it easier to land a mortgage, because Fannie and Freddie would resume making such loans less risky for lenders. That would be welcome news for Scottsdale home buyers and sellers alike. Tight Scottsdale mortgage lending rules had been part of the national reaction to the subprime mortgage mess, but the result had been predictable: a throttling back of the number of loans banks were willing to grant. Fewer mortgage loans meant that some sales simply wouldn’t take place. In some cases, it was downright irritating.

That’s why, for some Scottsdale mortgage applicants, March 23rd could mark the resumption of renewed home owning possibilities. It’s the kickoff date for a program Freddie Mac calls “Home Possible”—and it means that Fannie will be joined in offering “flexible credit terms and low down payment options”…options that can include down payments as low as 3%. Freddie’s website calls the result “more flexibility for maximum financing.”

With the kickoff of the spring selling season, Freddie’s “Home Possible” couldn’t have come at a better time (some humor-minded real estate professionals had begun to think of Freddie’s previous programs as “Home Impossible”). Even just the expected publicity should encourage some formerly gun-shy prospective Scottsdale mortgage applicants to resume their quest for a home to call their own.

If you could be one of them—or a homeowner preparing to list for the spring season—I hope you will give me a call. Your timing couldn’t be better!

Phoenix Real Estate Watchers Note Rise in U.S. Jumbo Loans

2-27-jumboloanInside Mortgage Finance is a periodical that precisely lives up to its name: Phoenix residential real estate professionals can turn to it for the latest word on national trends inside the mortgage industry. Admittedly, this usually makes for pretty dull reading for outsiders (that is, everyone else); but one story in last week’s edition was interesting enough that it was picked up by the general business press.

The topic was jumbo loans. In Phoenix real estate circles, the issuing of jumbo loans is of particular interest because of their indicator status. Jumbos are the ones with mortgage amounts exceeding the limits for government-backed loans. They’re also known as ‘nonconforming’—and like all the other non-conformists in life, they don’t quite behave like everyone else. Phoenix jumbo loans tend to be slightly harder to qualify for than run-of-the-mill mortgages, and as a rule carry higher interest rates. If their share of the home loan market grows, it indicates that high-end home sales are improving.

And that’s what happened in the U.S. in 2014, according to IMF. “Jumbo Lending Stronger than Overall Market, Hits Highest Share in 10 Years” was the headline in a report that pegged fourth quarter jumbo loan volume at $67,000,000,000. That’s a lot of high-end real estate!

When The Wall Street Journal picked up the story, they pointed to a decrease in mortgage lending overall, but pointedly less so for jumbo loans. Bank of America reported a 3% growth in the number of first-time home buyers who took out jumbos in 2014—and applicants were a younger bunch, too: their average age decreased from 46 years to 44. Wells Fargo Home Mortgage, the largest jumbo provider, observed a similar trend: more first-timers taking out jumbo loans.

If this has local real estate watchers wondering whether the popularity of jumbo loans in Phoenix will follow the national trend (and if so, why), there was at least one straightforward explanation. HSH, the housing and mortgage data firm, reported that by the end of this January, the average interest rate for a 30-year fixed jumbo mortgage “dropped below 4% and was at a historic low of 3.92%….” With rates like those, the WSJ wrote, “Low interest rates are spurring more older affluent Americans to consider a mortgage.”

You don’t have to be in the jumbo market to seize the financial advantages this winter’s favorable real estate climate offers. Just call me!

 

Scottsdale Property Buyers Choice: On the Deed/On the Loan

2-27-deedHome buyers direct a series of major decisions when it comes down to finalizing their Scottsdale property purchase. Among the most important are two with decisive ownership and financial consequences: who will be the primary borrower for the mortgage; and who will be named on the deed?

The answers to these questions are the opposite of the fine print details that few of owners ever need to concern themselves about. These cast defining roles in determining the eventual ownership of the Scottsdale property and in assigning financial responsibility for loan repayment.

Whose Name Goes On the Loan?

Determining who is to be the primary borrower may not be as simple as you would think. After all, one person might have the excellent credit needed to insure the best interest rate, while the other person currently brings in a higher annual income—providing the cash flow boost that enables a sufficient mortgage. It is often necessary for both members of a couple to sign on the dotted line to get a Scottsdale property financed. A loan officer will walk buyers through the process, explaining which combination will offer the greatest loan amount at the most favorable terms.

Whose Name Goes on the Deed?

It’s important to keep in mind that the deed is almost completely separate from the loan. Even if only one person signs for the loan, several people can be listed on the deed. Placing a name on the deed shares ownership of the property. That can be helpful in the event of an untimely death or to avoid probate during an estate settlement, but there can also be drawbacks.

Since those named on the deed share in title rights to the property, that can empower them to prevent a sale—and also leave the property vulnerable to their debts. That’s why it’s important to be clear about all outstanding obligations before adding people to a deed, lest a pre-existing debt result in a lien being filed against the property. It’s also good to remember that until the loan is paid in full, the bank or lender also has an ownership interest, which is why the bank can take possession for non-payment.

Making the Decision

Making the most of your Scottsdale property is a continuing planning exercise that begins with these first ownership decisions. For individuals as well as couples, the multiple issues that come into play have financial and tax ramifications that merit careful consideration.

Before buttoning up those final decisions, I always advise clients to consult with their accountant and lawyer to get the whole story—it’s a story which begins with your first call to my office!

Scottsdale Mortgage Watchers Eye ‘Wealth Building Home Loan’

2-13-homeloanSomething new is stirring in the ordinarily hidebound world of residential mortgage offerings: a new way of approaching the financing of home purchases. If successful, it might well shift the way some Scottsdale mortgage contracts are written.

The experiment is known as the “Wealth Building Home Loan,” and it addresses a home-ownership problem that has been talked about for a long time, with little being done to solve it. The issue in question is how to unburden new homeowners from spending years in a situation that bears more resemblance, financially, to renting than to owning— especially during the first 3 to 5 years. For low- and moderate-income mortgagees, that’s the difference between sinking into more debt and actually building wealth. After all, every dollar that goes toward interest is lost, while dollars that pay down principal are investments.

According to Edward Pinto, one of the authors of the WBHL, often during the opening years of a 30-year loan, “68% goes to pay interest.” In the new program, 77% of monthly payments go to pay off principal—with the result that in a short time, new homeowners have a much larger equity stake in their homes. And, it is hoped, a sizeable increase in pride of ownership: “a stake in the game.”

It sounds good, but you might be wondering how this could be possible. Is this just a ‘pie in the sky,’ feel-good idea that will never see daylight in the real world? Apparently not. The pilot program is being put into action by some serious players: the American Enterprise Institute (if that sounds like a conservative outfit, it is) and administered by the Neighborhood Assistance Corporation of America (if that sounds like a liberal outfit, ditto). And it’s being funded by Bank of America and Citi Mortgage—neither of which would be likely to bankroll some fly-by-night scheme.

The mechanics of this kind of mortgage work out like this. First, it’s based on a 15-year term, which of course speeds the rate at which equity builds; and second, it’s a mortgage that carries a very low interest rate. Something for nothing? Not quite: the concept is to
change the underwriting standards to tilt away from credit history and toward recent payment history and residual income, thought to lower lender risk
eliminate the down payment altogether, instead allocating that initial cash toward “points”: buy-downs of the mortgage’s interest rate to .5%, (or even 0%)!

It boils down to an approach that could be a win-win. Borrowers (even those who suffered credit black marks during the economic downturn) could be newly eligible for a home loan, and because lenders pocket the interest rate buy-down amount, a proposition they might find acceptable.

Should Scottsdale mortgage applicants expect this deal to be available next week? Not likely: it’s in the pilot phase. But if it seems to work out, it could be a shot in the arm for homeowners who can manage a slightly higher monthly payment. If you would like to chat about today’s home loan availability (or any other current Scottsdale real estate doings), I hope you’ll give me a call!

Phoenix Mortgage Interest Rates Could Become a Missed Opportunity

1-7-mortgagePhoenix’s mortgage interest rates have been so low for so long that there is the definite possibility that the real value they represent—for both Phoenix home buyers and sellers—may now be being taken for granted.

It’s only natural. If you believe that past history is the best predictor of future performance, last January’s common wisdom that mortgage interest rates in 2014 would head up to at least 5% or more wouldn’t have fazed you a bit. One quick glance at the squiggly lines on a chart showing either 30-year or 15-year fixed mortgage interest rates reveals a pronounced downward slope. Ever since mid-year 2007, it looks like a playground slide. It does level off at the end, starting around three years ago; but if you take in the longer view, back to 1982, you see an even steeper tumble—all the way down from (gulp!) 18%! Only the bravest child would dare climb the ladder to that playground slide…

For a couple of years now, most of us assumed the bottoming-out of Phoenix mortgage interest rates would reverse soon enough. But, as The L.A. Times pointed out on New Year’s Day, “…instead of the year ending with 30-year mortgage rates at 5% as many had projected, it wound up at an average of 3.8%…” Now, although some industry leaders (like the Mortgage Bankers Association) again expect mortgage interest rates to end 2015 at around 5%, most forecasts “now come with more sheepish comments about clouded crystal balls.” And The Times also acknowledges that some observers think rates could stay low, or even decline.

“I’ve been wrong about fixed mortgage rates all year,” the chief economist for Moody’s Analytics is quoted as having grumbled. Now “he wouldn’t be surprised if fixed mortgage rates are near 4.5% at the end of 2015.”

With this newly-voiced uncertainty about future rises, coupled with last year’s rates refusing to budge from the familiar comfort of basement levels, it would hardly be surprising if most folks have simply adjusted to today’s Phoenix mortgage interest rates—and allowed their own real estate planning to proceed accordingly.

If so, that’s likely to become a real forehead-slapper when they look back on it…possibly in the near future. Low mortgage interest rates in Phoenix are in actuality a rare gift: a true windfall for those able to capitalize on them.

If you are contemplating buying or selling a Phoenix home anytime in the future, I do hope you’ll give me a call to discuss today’s market—and the opportunities that are here (and right now). As we know from our own playground experiences, once you find yourself at the bottom of the slide, sooner or later you’ll be climbing up that ladder once more!

Phoenix Mortgage Applicants May Find Welcome Rule Shift

10-22-2-mortgageThe financial press has been on it for a while: in September, Bloomberg News was pointing out that FHA mortgages to borrowers with weaker credit scores had plummeted 19% in the previous nine months. Something, you could sense, was about to give—but, per Bloomberg, “Washington regulators and major banks continue to haggle…”

True, home prices were up, which put a smile on Phoenix homeowners’ faces. Yet the number of sales was less than overpowering. In reaction to the housing bust, regulators had tightened the screws on mortgage lenders, causing them to raise requirements for borrowers—Phoenix mortgage applicants included. So although the price rises were encouraging, the difficulty in getting mortgages became a drag on the number of home sales.

Now the latest rumbles could be potentially breakout news for Phoenix homeowners and investors—indeed, for anybody with an inkling to sell a Phoenix home. It’s not a done deal, but on Saturday we got more than a hint of what’s likely to come. Lead rumor-monger: The Wall Street Journal.

“Mortgage Giants Set to Loosen Lending” was the front page headline. Fannie Mae and Freddie Mac were the giants: the two mortgage titans are essentially creatures of the federal government, regulated by the Federal Housing Finance Agency. They are owned by the Feds and some private shareholders (who seem to sue each other frequently). The long and the short of the story was that they are close to an agreement with mortgage companies—a deal that would protect lenders and make it easier for borrowers with weak credit to access home loans.

When Fannie and Freddie say ‘boo,’ the banks shriek in terror (and not just when it’s this close to Halloween). Their lending guidelines govern a huge proportion of the nation’s mortgages. They impact Phoenix mortgage availability—and therefore the number of qualified potential home buyers. Following the worldwide financial meltdown, a lot of worthy people found themselves in that “weak credit” category. It couldn’t help but affect Phoenix mortgage volume, and therefore real estate activity. Sales suffer.

Although the Journal relied on unnamed sources, the tone of the story (and its top-of-Page 1 positioning) sounds like the principals are sending up a trial balloon. They might be testing public opinion, since the new agreement would amount to a partial rollback of the strictures created in reaction to the loose mortgage governance that preceded last decade’s meltdown. The new guidelines would make it “easier for lenders to offer mortgages with down payments of as little as 3%” for some borrowers.

Fannie and Freddie’s new generosity may have something to do with the fact that they have reclaimed tens of billions of dollars in penalties paid to them for past underwriting mistakes. The new agreement would also offer some protection for lenders on that score, which would lower mortgage creators’ overall risk calculation. If that happens, it should be the break many Phoenix mortgage applicants have been awaiting.

If you have been looking for a positive sign to list your Phoenix home, or if you are a potential homebuyer who’s been discouraged by tight Phoenix mortgage lending, your wait may be over. Per The Journal, “The moves could be announced as soon as this coming week.” Give me a call if you’d like an update on that and on the overall current situation!

Continuing Low Mortgage Rates May Tempt Phoenix Homebuyers

9-17-4-mortgageLocal homeowners are among the keenest observers of Phoenix mortgage rates because they are such a large factor in the long-term investment that is their house. It’s the factor that determines if and when refinancing makes sense; the factor that plays a large part in heating (or cooling) the overall Phoenix real estate market.

For the most part, home buyers simply accept the mortgage rate in Phoenix that happens to be currently offered when they decide buy a Phoenix home. The timing of their purchase is generally triggered by their own financial fortunes, or when the right home comes along, or when some outside circumstance forces them to find new digs—or any of a dozen reasons other than the current Phoenix mortgage rates.

If they even consider how Phoenix mortgage rates come into play, they may look to financial experts—but only for guidance in how to land the lowest available rates (and that answer is always the same: “protect your credit score”). Few consider whether a mortgage rate dip should in itself be the determining factor for triggering their home purchase—but it wouldn’t be such a crazy idea.

So, why do I bring this up now? Let me quote the way Tim Logan, the housing and residential real estate columnist for the L.A. Times, led off his article at the end of last month:

“If you’re borrowing to buy a house, there’s
almost never been a better time to do it.”

He and other residential market observers are not just pointing to the surprisingly low national interest rates reported by Freddie Mac—although that’s certainly the case. Per the Times: “Interest rates on an average 30-year fixed-rate mortgage hit 4.1% this week, a low for the year.” Only last year, the basement-level interest rate phenomenon was widely predicted to come to an end (and rates did begin to rise). But as Logan described it, rates have “been bouncing in the low 4% range for months, not quite record territory, but not far from it.” (I’ll echo that: at this point, they’re close to as low as they ever get.)

But perhaps the most compelling reason for the urgency in that “never been a better time” statement is this prediction (also from the L.A. Times):

“…fairly soon, forecasters say—interest rates
will rise, posing housing-market hurdles.”

The “hurdles” would be a natural consequence of any upward spike in mortgage rates. In that scenario, homeowners will become reluctant to part with their own home since a new mortgage would carry higher interest rates. Not just that: if that causes the supply of homes on the market to tighten, prices will do what supply shortages always cause—higher prices.

Such a scenario is far from certain. But what isn’t in doubt is today’s decidedly low Phoenix interest rates. If all this has you thinking of buying or selling this fall, as the Times says, your timing couldn’t be better…an excellent reason to give me a call me today!