The Mortgage Bankers Association went missing yesterday, a day when they
usually release information on contract mortgage rates and
mortgage application activity. We caught up with them today and here is the
report.
Archive for October, 2006
After surging a bit during the week ended October 12, mortgage
rates barely moved according to the Primary Mortgage Market Survey
conducted by Freddie Mac for the week ended October 19.
The Mortgage Bankers Association released the results of their
Mortgage Originations Survey for the first half of 2006.
Two studies out in the last week or so are taking at look at the impact
on housing of - what else - the Baby Boomers.
Both the Research Institute for Housing (an affiliate of the Mortgage
Bankers Association) and the National Association of Realtors released the
result of studies they conducted on the real estate
behavior of this huge demographic as they enter their golden
years.
If you follow network or cable news you probably believe that the
real estate market has gone from unbridled insanity where
buyers apparently losing all perspective, bid wantonly against dozens of
other equally crazed buyers for the same house, stretched way above their
means to purchase increasingly unaffordable houses which seemingly
increased exponentially in value every hour to a market today where…
…nothing is selling!
The various new home construction indicators tracked by
the U.S. Census Bureau and the U.S. Department of Housing and Urban
Development were mixed in September, but all in all painted the picture of
a market sector that is, at worst, in an orderly retreat.
Maybe it was just too good to last.
After four weeks of declining interest rates Freddie
Mac reported a relatively sharp jump for each of the products it tracks
during the week ended October 12.
Frank Nothaft, Freddie Mac’s vice president and chief economist
blamed…
Freddie Mac’s Economic and Housing Market Outlook for October is
headlined “Finding Solid Ground.” It is another in a series of
projections that the housing market is cooling not
crashing and that the “cooling” market will have little impact on the
economy as a whole.
I asked a loan broker I use, Chris Weber of First Security Loan 415-209-7622 to give us an update on the changing loan market and this is what he had to say.
Not too long ago conservative buyers would finance the purchase of their new homes with a 30-year fixed. Usually this was the loan of choice for really well qualified buyers who intended on keeping the property for a long time. But, not everyone is considered a really well qualified buyer in the “Lender’s” eyes. Nor did everyone feel like they needed, or wanted to pay for the security of a 30-year fixed. For these buyers there were many different options to choose from.
Many first conversations with new clients began with the fact that they were referred to me was because I was so creative. I would be able to create the right loan program and payment to meet their specific needs.
Lately the market has changed. We are experiencing a “tighter” market, meaning property values have leveled or may still be dropping, and interest rates are rising. In this new, tighter market we have experienced some changes in the lending market. The first change is in the interest rates themselves. For the past few years the Fed has been trying to slow the economy by slow raising interest rates. The only rate the Fed actually controls is the discount rate, the interest rate banks lend each other money overnight. This the shortest of the short term rates. The premise is the “trickle down effect.” Slowly the short term rate increases (adjustable loans) will create long term rate increases (fixed rate loans). Interest rates will rise and inflation will be kept at bay.
The short term adjustable interest rates did rise, but a rate much faster than the long term fixed rates. At one time short term interest rates, i.e. the 5-year fixed, or 7-year fixed loan programs were higher than the 30-year fixed. All of a sudden creativity was of no value if it produced a higher interest rate and payment.
The latest change in the market is the margin between the short term rates and the long term rates has widened again. Now the savings of a 5-year fixed over a 30-year fixed is worth the risk of what could happen to the interest rate when it adjusts five years from now.
But, a new challenge has surfaced. Lenders are taking a harder look at how they assess risk. In interest rate pricing risk equals price: The higher the risk, the higher the interest rate. One of ways the Lenders are reducing risk is by reducing their qualification ratios. This is a calculation to determine a buyer’s total monthly debts, including their new home costs as a percentage of their income. Another way is by reserving the best pricing for higher credit scores, or perhaps for buyers with large down payments. Another component of risk in the Lender’s eyes is the loan program itself. Lenders feel there is less risk in a fixed loan than an adjustable. Some Lenders will allow you to carry higher ratios if your loan payment is fixed. Now, sometimes buyers who do not qualify for a lower rate adjustable will be approved on a 30-year fixed loan. My most creative approach is the most conservative loan.
The following chart shows statistics from January 2006 through Sept 2006, month-by-month and compares them to the same months for 2005. I have also shown the aggregate for the months, both for 2005 and 2006, because sometimes looking at one month only does not really show the whole trend.
What we see is prices are holding, however, the median days on market is up and the number of sale are down. Many of the new homes on the market are priced for todays market. Homes that have been on the market for a long time are taking price reductions. Well priced homes that are clean are still selling fast.
Mortgage fraud is back in the news. However, this time
it is the lenders rather than the borrowers who appear to be the main
targets of the scams.
The Wall Street Journal quotes The Federal Bureau of Investigation as
stating that mortgage fraud led to losses of $1 billion last
year, more than…