Greek Debt Deal Unlikely to Change U.S. Mortgage Rates Soon

US Mortgage Rates – Week Ending 2/10/2012

A debt deal has been struck with Greece, and one would think that would instill a sense of calm through the markets and rates would slightly rise.  But, I don’t think anyone is completely sold on the idea that Greece has seen the last of its economic problems.   The debt deal comes with many strings attached.  Simply put, the cost cutting measures voted on in are based on lower spending and a reduction in the amount of benefits and public services provided.

This agreement is causing riots in Greece.

Banks and foreign businesses have been the target of looting and burning.  The Greek people, already suffering through what is basically an economic depression are now up in arms over more budget trimming measures which will only make matters worse.

Mortgage rates fell again yesterday and Greece's financial woes are right at the center.

What is influencing the rates right now:

Greece is on the cusp of disaster.  The quandary is that bailout funds must be provided to Greece very soon, regardless of whether Greece agrees to the conditions or not.  A Greek default will have disastrous consequences across Europe particularly among banks holding Greek debt.

The weekly jobless claims report indicated a drop in first-time filings for unemployment benefits, yet continued to stay above the threshold that suggests an improving job market. 

Housing starts over the past month were improved more than analysts’ expectations.  This is good news, yet much of the gain was in the multi-family homes category which simply reflects the fact that fewer people own their own homes and need rental property.

Current 30 year mortgage rate – 4.5%

Bank of America has taken heat for foreclosing on wrong houses, but this one is a little different. This house doesn't have a mortgage with any bank!

Naples, FL – Warren and Maureen Nyerges, originally from Cleveland, Ohio decided to call Florida their new home and shelled out $165,000 cash, to buy a home in Naples.

Four months later a Bank of America processor came knocking at the door.
The couple told Bank of America officials the house was paid in full. But, the bank wasn't hearing any of it and told the couple to get a lawyer.

Bank of America filed a foreclosure claim against the couple, so the the Nyerges took the bank to court. The couple won, and then asked Bank of America to pay for more than $2,000 attorney fees. A judge ruled in their favor, but the bank never paid up.

The Nyerges say they called many times over, visited the bank and even wrote a letter to the president of Bank of America, but they got no answers, and more importantly, no money.

According to reports, the Nyerges, their lawyer, two sheriff's deputies and moving company workers, went to a local Bank of America branch to take possession of furniture inside the bank to settle the debt. An hour later, the bank wrote a check for more than 5-grand to satisfy the original debt and additional costs and fees.

Bank of America has apologized to the couple saying, "We apologize to Mr. Nyerges that there was a delay in receiving the funds.

No, Bank of America is just sorry another major embarrassing mistake went public.

Tax Credit Extension Would Allow Three More Months to Get Credits.

To qualify for the credit, buyers had to be under contract for a purchase by April 30. But under current law they have until June 30 to close on the sale.

Under the amendment, they would get an extra three months to close — useful for those who are experiencing delays in getting their mortgages approved or are somehow being affected by the many other issues that can arise and prevent a closing from occurring on time. The amendment would apply solely to buyers who entered a purchase contract by April 30.

"Because of this program's popularity and the time it takes to complete transactions such as short sales, I led the effort today to extend the closing deadline for this tax credit through September of this year — allowing lenders more time to clear a backlog of 180,000 potential home buyers nationwide," said Senate Majority Leader Harry Reid, in a news release after the amendment passed in the Senate this week.

The house had passed their own bill earlier in the year and now the two must iron out their differences.

My Take: Mixed

The Home Buyers tax credit was undoubtedly the shot in the arm that the housing market needed at the time.  Part one of the program which ended in November of last year, and the extension through this April which also added a credit for current homeowners was very successful. 

The reason stated to request an extension of the payout deadline was a backlog of thousands of mortgages that could not close on time.  Specifically noted where short sales and foreclosures. To take the first point regarding a backlog of volume, I completely disagree.  I consider 2005 to be the height of the bull market for real estate.  From January 1, 2005 to June 22, 2005 we had 4134 single-family homes at the closing table.  The same time this year there were just 3216.  So in Rhode Island's case anyway, it wasn't because of an incredible burden of volume.

Regarding short sales and foreclosures and the desire to give extra time to collect because of the delayed closings; I personally think that risk is part and parcel of buying such a property.  It is disclosed from the beginning that the closing date on a short sale or foreclosure is absolutely not written in stone.  People take the risk of a short sale or foreclosure because they are buying a property below market value.  The risk is the uncertainty of the closing date.  In my opinion the buyer has already been compensated, and fully knew the risks of going into contract on this kind of property.

We can do more with this money.

Adjustable Mortgage Rates Down As Well – Good News!

According to Freddie Mac, the 30-year fixed-rate mortgage averaged 4.93 percent with an average 0.7 point for the week ending May 13, 2010. This rate is down from last week when it averaged 5.00 percent. Last year at this time, the 30-year FRM averaged 4.86 percent. The 30-year FRM has not been lower since the week ending December 10, 2009, when it averaged 4.81 percent.

The 15-year FRM this week averaged 4.30 percent with an average 0.6 point, down from last week when it averaged 4.36 percent. A year ago at this time, the 15-year FRM averaged 4.52 percent. The 15-year FRM has not been lower since the week ending December 3, 2009 when it averaged 4.27 percent.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.95 percent this week, with an average 0.6 point, down from last week when it averaged 3.97 percent. A year ago, the 5-year ARM averaged 4.82 percent. The 5-year ARM has not been lower since Freddie Mac started tracking the 5-year ARM in January of 2005.

My Take:

This continued suppression of mortgage rates is extremely good fortune besides the obvious opinion that lower mortgage rates are good for the real estate economy. 

A tremendous catalyst in the real estate debacle that began a couple of years ago was the rolling over of adjustable-rate mortgages.  If you consider the height of the real estate market to be the years between 2004 to 2005 when a plethora of these adjustable-rate mortgages were born, then looking at the years in which they began to adjust is not only an important history lesson but a forecaster for the future as well.  It's no coincidence that the majority of the foreclosures hit the market in 2007 to 2008 when people could no longer afford there now higher mortgage payments (3 year ARM) coupled with a downturned economy.

Fortunately the second wave of these adjustable arms (5 year ARM) is coming do now in 2010 where the adjustable rate is actually lower than the initial rate in most cases. Consider it a bullet dodged.  For many people it's just like getting a slight loan modification or refinance.  Even if it amounts to just a few hundred dollars per month, that is often just enough to keep heads above water while the economy rebounds.

Mortgage Rates Actually Dip by the End of the Quarter

For the first time in nearly six months, Fannie Mae is imposing strict, new guidelines on American homeowners.  This time, the hardest hit demographic is owners of 2-unit homes.

In its official announcement, Fannie Mae listed the following changes to its 2-unit financing programs, separated by occupancy type.

Primary Residence:

• Purchase: Maximum loan-to-value drops to 80%; FICO minimum score now 640.
• Rate Refinance: Maximum loan-to-value drops to 80%; FICO minimum score now 640.
• Cash Out Refinance: Maximum loan-to-value drops to 75%; FICO minimum score now 680.

Investment Property:

• Purchase: Maximum loan-to-value drops to 75%; FICO minimum score now 660.
• Rate Refinance: Maximum loan-to-value drops to 75%; FICO minimum score now 660.
• Cash Out Refinance: Maximum loan-to-value drops to 70%; FICO minimum score now 680.

With Fannie Mae’s new loan-to-value limits falling by as much as 15 percent, it’s a certainty that fewer 2-unit homeowners will be approved in the mortgage process. This could slow both purchase and refinance activity in the coming months.  What it does, then, by limiting the number of possible buyers is depress the home prices.  This we do not need!

However, while Fannie Mae recommends that lenders institute the new policy immediately, September 1, 2009, is the “effective date”.

Therefore, if you plan to buy a 2-unit home, or if you own one and know you’ll need to refinance it soon, it may be a good idea to move up your timeframe.  Lenders could implement the new guidelines at any time up until September 1. So please check with your lender to see where they stand.

The volume of mortgage applications filed last week rose 10.9% from the week before, spurred by a surge  in refinancings.

Applications to refinance existing home loans rebounded 15.2% for the week ended July 3, while applications for mortgages to purchase homes also increased, up 6.7%.

Overall, the pace of mortgage filings recovered from the week ended June 26, when refinancings had weakened to their lowest level since last November.

Refinancing applications made up 48.4% of all mortgage activity, up from 46.4% the week before, while adjustable-rate mortgages accounted for 4.4%, up from 4.3%.

According to the most recent survey, 30-year fixed-rate mortgages carried an average interest rate of 5.34% last week, unchanged from the week before.

To obtain this rate, the mortgage required payment of an average 1.13 points. A point is 1% of the mortgage amount, charged as prepaid interest.

Fifteen-year fixed-rate mortgages averaged 4.83% last week, up from 4.81% the week before; the mortgage required payment of an average 1.06 points to obtain the rate.

As recorded by Freddie Mac, since 2006, 30-year fixed-rate conforming mortgage rate have made a habit of rising in May, June, July and August before settling down through football season.  This year, the “June Swoon” looks especially strong.  Mortgage rates are higher by 3/4 percent versus late-May and we’re only at the start of the summer trend.

The biggest reason why mortgage rates are up is because of inflation fears.  Inflation devalues the U.S. dollar and renders fixed-rate investments — a set that includes mortgage-backed bonds — become less attractive to investors. When the dollar is worth less, bond repayments are worth less, too.   This is why traders don’t like holding mortgage bonds in their portfolios when inflation looms — it can be a real money-loser.  So, mortgage bonds tend to sell-off when inflation is coming which, in turn, causes mortgage-backed bond prices to fall.

Bottom line for cocktail party conversation: Lower bond prices yields higher mortgage rates.

Rates for 30-year home loans fell back this week after soaring to the highest level in seven months a week earlier.  The average rate for a 30-year fixed mortgage was 5.38 percent this week, down from 5.59 percent a week earlier.

Rates had risen for three consecutive weeks after yields on long-term government debt, which are closely tied to mortgages rates, had been climbing as investors worried that the huge surplus of government debt hitting the market could trigger inflation.

But data released Wednesday suggested that inflation remains largely in check.  Though there are signs that the troubled U.S. housing market is beginning to stabilize, higher rates could threaten or slow down any recovery, since borrowers would be able to borrow less money and might decide to hold off on their purchases.

Simply put, buyers have a certain amount of money they can afford to spend.  If interest rates shoot up, then house prices will have to fall to make up the difference.  The three-week run-up in rates started to slow home buyer demand.