Fed Rate Cut! Mortgage Rates Rise!!

As expected the Federal Reserve lowered short term interest rates today. For the news story please click here http://articles.moneycentral.msn.com/Investing/Dispatch/071031markets.aspx. So why are interest rates rising? If you have paid any attention to my previous writings you will understand that the Bond Traders make moves prior to a Fed announcement to position to profit from any move the Fed might make. In this case, they took their positions last week starting on Wednesday when the consensus was a .25% rate drop. Today and for the next few days they will be trading and taking their profits off the table. While doing this the demand for the bonds will drop off and the yield or interest rate will rise.

So what should you do? Don’t worry about it! For most consumers .25% means less than $50 per month. Make your decisions based upon long term goals and work to eliminate the non tax deductable debt that you might have. There are still enough loan programs that you can offset that .25% by other means such as interest only products or even better yet the long forgotten but still the better than an adjustable rate mortgage the 2-1 buydown. http://www.investopedia.com/terms/1/2-1_buydown.asp

If the speculators are correct the Fed will make more moves in the next 60 days and if you are smart you will get a relationship with a professional Mortgage Banker who will manage your mortgage for you and let you know when you should take advantage of market movements prior to Fed actions. It is always better to be proactive than reactive!

For comments or more information on have your mortgage managed please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

Downpayment Assistance Rule

For the past few years, FHA has allowed charitable non-interested parties to supply the down payment to a borrower on FHA loans. Unfortunately, this practice caused housing prices to be inflated as the seller would raise their price and then contribute the increase to the charity as a donation. The charity would then give a gift to the borrower and thus have the down payment for a home with an FHA mortgage. The challenge is that the borrower had no vested interest in the house and when times got tough it was easy for them to walk away since they would be losing nothing other than a home with an inflated price. Selling the home was difficult in a flat or declining real estate market. This practice is one of the logs on the bonfire of the mortgage industry that is burning across our nation. Here is the latest on this practice:

FHA will issue official guidance regarding implementation of the regulation regarding a mortgagor’s cash investment. In the interim, to address the questions raised by many industry partners, FHA is providing the following information:

1. Nehemiah Corporation of America, due to a previous Settlement Agreement and as discussed in the rule, is granted relief from the effective date of the rule until April 1, 2008.

2. HUD has agreed to grant the AmeriDream Downpayment Assistance Program relief from the effective date of the rule until February 29, 2008.

3. All other similar downpayment assistance providers have not been granted relief from the effective date of the rule, which is October 31, 2007.

Provided that the homebuyer has entered into a contract of sale (including any amendments to purchase price) on or before October 31, 2007, FHA will recognize the gift if made to the homebuyer and properly documented as an acceptable source of the downpayment.

To read the final rule in its entirety and for more information please visit: http://hudclips.org/sub_nonhud/cgi/pdf/4846a.pdf

For questions or comments please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

Lock Now!

Over the last week we have seen interest rates for fixed rate mortgages drop between .25% and .375%. Why is this you ask? Wall Street is taking positions based on what they think the Federal Reserve will do with short term interest rates. For those of you that are waiting until the Federal Reserve Board makes its announcement at 1:15 p.m. C.S.T. on Wednesday October 31, 2007 you will be too late. See my previous writings about how the market moves before and after a Fed meeting.

Other things to consider, with the 30 year fixed rate hovering just above 6% we are at a psychological barrier. For the long term rates to go below 6% takes tremendous pressure. I don’t see the economic reasons that would apply this pressure taking place at this time. There are too many other signals that rates should be going up as opposed to down. This could be your last time for 6 months to lock into that really low rate!

For your questions or comments please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

You Can't Wait!

Guess What? You Can’t Afford to Wait!

If you had a crystal ball and could see what direction interest rates and house prices where going you wouldn’t be reading this blog. Now that you have had a chance to think about that and agree with me on that premise, let’s move on to the bigger issue which is “You Can’t Afford to Wait!”

If interest rates go up while you are reading this blog you will lose money! Why you ask? Because you could have locked into an interest rate for a period of time and by waiting you may have missed that opportunity.

What are you waiting for? When are you going to:

Purchase your first home?

Purchase your next home?

Invest in real estate?

Refinance your home?

Get a home equity loan to improve your home or pay off bills?

Do anything?

If rates go down while you are reading this you will lose money. Why you ask? Because now you will get greedy and wait for them to go down further. By the time you figure out they are at their lowest point they will be on the way back up again. Remember, pigs get fat, hogs get slaughtered.

If you don’t make an offer on that house you like, someone else will. Maybe not today, but sooner or later someone will purchase that house. The sooner you do it, the sooner you get a chance to lock into building equity and creating wealth. I subscribe to the theory that there is a house out there for everyone and sometimes you want to buy the wrong house. But that is why you should have a good buyer’s agent representing you. They will make sure that you buy at the right price for this time and that the house is the right house for you at this time.

If you are thinking about buying investment property, what are you waiting for? The next 12-18 months will be the best time to purchase single family investment property here in the United States for at least the next 20 years. Every day that you wait to start you are passing up the chance to build your real estate fortune!

If you wait to get that home equity loan it might not be available to you when you want. The loan programs that were available in March 2007 have changed. Credit score minimums have changed, loan to value limits have changed. House prices may have fallen your area limiting how much you can borrow. Waiting will cost you $$$$$$$$$$$$$$.

For comments on this or other postings please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

Where did you go Jumbo?

I was on the phone with a past client last night that is building a $1,300,000 house and will need a loan for $800,000. When she asked about the rate on the 15 year fixed rate mortgage I tried to prepare her for the rate shock, but I almost had to call the paramedics after she heard the rate. As the fallout from the break up of the marriage of Wall Street and Mortgage Backed Securities continues, the pressing question on the mind of many borrowers is, “Why are Jumbo rates so high?” First we need to define what a Jumbo mortgage is and for that we turn to our new “bff” Wikipedia http://en.wikipedia.org/wiki/Jumbo_mortgages. Now that you know what a Jumbo mortgage is, hopefully the fact that it is the insurance companies and banks that are the ones who purchase these Jumbo Mortgage Backed Securities for their investment portfolios will help shed some light on why there is not as much demand for them. No different than any commodity in a capitalistic society, the laws of supply and demand rule the day. As the demand for these products has shrunk, the price of them has fallen. Because they are a bond instrument, back to my new “bff” http://en.wikipedia.org/wiki/Bond_valuation, when the price falls, the yield or interest rate rises. In the case of the Jumbo loans, the price has fallen so much that spread of the yield from Conventional loans is greater than it has been in the last 20 years. So we have all the Banks and Insurance Companies that would normally be gobbling these securities up straying away from them because they are mortgages.

Mortgages right now to investors are a very bad word. Jumbo mortgages are part of the 3 trillion in adjustable rate mortgages are coming due this year and next. There is too much demand for these products for the spread to stay where it is today. As I have challenged the industry before I will challenge them again. Somewhere there is an insurance company or a bank that is willing to put these loans on the books at a more reasonable price. As I type these words I am sure that those companies are out there, it is just harder to find them but we will!

For your comments or questions, please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

New Money Available

The Missouri Housing Development Commission opened the registration window for First Time Home Buyers on Thursday with its fifth bond issue of the year. (http://www.mhdc.com/homes/firstplaceloans/index.htm ) What does this mean for you? If you have not owned a home for the last 3 years and if you earn less than the required amount per family, you can receive a below market interest rate and take advantage of a 3% grant towards down payment or closing costs.

Years ago when there was little hope for people to purchase a home without a down payment, this programs was the great hope provider. For the past 4 years this program had lost appeal with all of the 100% financing available. With what has happened in the mortgage industry this year, the down payment assistance program will be the best way for low to moderate income earners to achieve the dream of home ownership. HUD is looking at eliminating the Ameridream program (www.ameridream.org) and others that allow a charity to provide down payment assistance to borrowers obtaining FHA insured loans; http://sev.prnewswire.com/real-estate/20071002/DC0378002102007-1.html which will eliminate even more potential opportunities for buyers to get into homes. Thus, the MHDC program as well as other State assistance programs will become the vehicle of choice again for assisting buyers with down payments and closing costs.

As the State of Missouri continues to streamline the process to make it easier for lenders to get loans registered and as they continue to provide training and recognition for the individual loan officers I can see this as the answer to many people’s hopes and dreams.

For more information on this program or to register with Cornerstone Mortgage, a MHDC Top Ten Lender; please contact Chris Scheer at cscheer@cornerstonestl.com or call 314.223.9824.