How LIBOR Will Affect Your ARM

LIBOR (London InterBank Offered Rate) is an index set by a group of London based banks, and sometimes is used to determine the rate for U.S. adjustable rate mortgages.  In 4 years, LIBOR will be going away.  So what does that have to do with you?  Well nothing, UNLESS you have an adjustable rate mortgage.  When this changes it will create uncertainty for a borrower who can’t figure out what the rate is going to be. 

Some LIBOR loans have interest rates that adjust monthly, and others adjust much less frequently. Both principal and interest (P&I) and interest-only (IO) mortgages can be based on the LIBOR.  If you are not sure if your loan is tied to LIBOR take a look at the note you signed.  There is also an ARM disclosure that would say what the index and the margin were.

So what do we know?  That this brings about uncertainty.  When LIBOR goes away, the servicers can set the rate to any index they wish.  They will have to notify the borrower prior to the change date, but by then short and long term rates could have skyrocketed.  With both fixed and adjustable rates are still low, it may be the right time to review your mortgage with a professional.  

If you have any questions, please let me know.  I would more than happy to discuss your specific situation and address your personal questions.

Chris

Great News for FHA Borrowers

FHA Loans Just Became More Affordable

In a statement today, the Department of Housing and Urban Development announced that the annual mortgage insurance premium on FHA loans will drop by 25 basis points which is equal to .25% savings to any FHA borrower.  This will help ease the effect of the rising interest rates and give a little more buying power or more room in the monthly housing expense.  (The cut applies to new mortgages with a closing or disbursement date on or after Jan. 27, 2017).


“Dropping mortgage insurance premiums today will mean a whole lot more responsible borrowers are suddenly eligible to purchase a home through FHA,” William Brown, president of the National Association of Realtors, said in a statement.

The FHA said that it projects that its new premium rates will save new FHA-insured homeowners an average of $500 in 2017 alone.

So what is an FHA Loan anyways?

An FHA loan is a mortgage insured by the Federal Housing Administration. Borrowers with FHA loans pay for mortgage insurance through a Mortgage Insurance Premium (MIP), a self-sufficient insurance fund that protects the lender from a loss if the borrower defaults on the loan.  FHA loans are attractive to buyers because they require a low down payment, lower rates and more flexible guidelines.  

Please reach out to me for more information on current FHA Home Loan Rates or to find a loan program that is right for you.

Sincerely,

Chris

Mortgage interest deduction on the chopping block: My Thoughts

Watch this MSN report: "Heads up, homeowners: Mortgage interest deduction on Trump's chopping block" and see my thoughts below:

The concept of mortgage interest deduction sounds sexy, the harsh reality is that you are paying $1 to save 33 cents. That is a net loss of 67 cents. Granted you get the value of a roof over your head, but that simply minimizes the cost of the roof over your head. Keep in mind as the report mentions, there is a small percentage of people that get to take advantage of the mortgage interest deduction. For people who need more money in their pocket the most (a greater percentage of the population) this will have no change to their tax return. I say, let’s get rid of it!

Rising Mortgage Rates: Why Buyers Should Get Off the Fence

I know it seems like all our messaging right now is about rising interest rates.  For the past 8 years we have been warning of this day and most people felt like we were crying wolf.  Well the Big Bad Wolf is here now and he is showing his gnarly teeth.  Rates have gone up and the trend is not your friend.  On the good side, in December of 2015 we were at 4.25%.  As of today we are less than that.  The bad news is that we will see 4.5% in 2017.  The question is will it be in January or some other month.  If you have been a fence sitter it is now time to get off the fence.

  Don't just take it from me, read more: Do Rising Mortgage Rates Mean Buyers Should Wait or Lock?

Trump Wins! You the consumer of mortgages LOSE!

Yes, today there will be a quick drop in rates as the Dow panics and there is a flight to safety.  However in the weeks and months following you will see long term rates go up by .50 to 1.0% as mortgage backed securities and other bonds go out of favor with investors.  Trump has made it clear he is going to get this country's financial house in order and to do that, we need to make interest on the money we borrow and borrow less.  Long term (decades) this could be good for you as a citizen of the United States.  Short term (next 8 years) we will see rates go up and the cost of borrowing for your home will be more expensive.

My advice, if you are thinking about refinancing LOCK TODAY!  If you are thinking about buying in the near future move your timeline up. Rates will be higher in 3-6 months and you will not be able to afford as much.

Please contact me: http://www.cornerstonemortgage.com/ChrisScheer/

Is The Next Housing Crash Coming?

This is a fantastic article if you are a person who believes in trends!  As I read it, we are currently in phase II but depending upon the market next spring we could easily move into phase III.  Not only do we have the potential for hyper supply; look around you, do you see a lot of new construction?  We are also almost assured of rising interest rates.  Those are 2 of the 3 signs with a recession being the 3^rd sign.  Any significant event on the global stage could trigger the recession which would put us right back where we were in 2008.  Maybe not as drastic, but far too many homeowners are 1 paycheck away from a missed mortgage payment.

As I have the opportunity to look at borrower's balance sheets and assets regularly, there simply is NOT enough saving happening.  Too many people are trying to live the life of a wealthy person or if not wealthy, at least the life of someone they see on television.  Those that stop trying to keep up with the Joneses and live frugally will be prepared for when the next housing crash comes.

-Chris

SaveSave

Do Election Years Affect Mortgage Rates?

Wherever you look, you can find opinions on both sides.  Some say an election year has no direct bearing on interest rates while others say it most certainly does.  There is evidence to back both views.  One thing that is for certain: given that this election is unlike any other election, all bets are off.

Neither candidate has intensely focused on the issue of housing so there does not appear to be a direct policy that will largely impact the industry.  But as humans we have a fear of the unknown.  So yes, during an election year buyers tend to be uneasy.  Markets & stocks do not like uncertainty either. This could, in turn, affect job creation, unemployment and the overall strength or weakness of the economy.  That of course, trickles right down to housing.

Right now Wall Street is leaning toward Hillary Clinton being elected and the market is priced as such.  If she does become president, yes there may be a slight increase in rates but Wall Street likes someone who is not likely to make radical changes.  If Trump is elected, it will be like going back to July 3rd when we saw the effects of BREXIT, which largely affected consumer and manufacturer confidence.  

Whatever will happen we will be looking at a 4-yr cycle until the next election.  So I wouldn’t hinge my decision on an election, I would hinge it on the needs of your family and your pocketbook.  One thing I can say, in looking back at rate trends we will still most likely still be enjoying the lowest rates in history.  Just look back at 1981 where the ANNUAL AVG was 16.63% (SEE HISTORY BY YEAR AT http://www.freddiemac.com/pmms/pmms30.htm)

Mortgage Mistakes

I came across a good article today:  5 Newbie Mortgage Mistakes (and How Much Each Could Cost You)

In the article they touch on two mistakes I would like to comment on, "Falling for Marketing Gimmicks" and "Not Knowing How to Eyeball the Paperwork."

The article discusses getting a Loan Estimate (LE) from a lender before choosing them. However, the lender will not issue a LE unless the borrower makes formal application and that includes having a property address.  You will not get a LE when you are looking to get pre-approved.  However, in most cases the mortgage company will provide a closing cost worksheet to give the borrower an idea of anticipated expenses.  

Do not make your decision off of the closing cost worksheet.  The lender is not held to those fees and often unscrupulous lenders will have more fees on the LE than they did on the closing cost worksheet. 

-Chris

Weighing In On Brexit: A Loan Officer's Perspective

Thursday's historical 'Brexit' ("British exit", which refers to the June 23, 2016 referendum by British voters to exit the European Union) vote has caused panic and uncertainty in the financial markets.  Whenever something like this happens there is an immediate flight to safety.  That means that large institutional investors move their money out of stocks and buy bonds.  When bonds are in demand, their price goes up and thus their yield or effective interest rate goes down.  This is why we saw rates fall between .125-.25% on Friday, June 24th, 2016.

The challenge with the rates falling is that they are near historical lows.  Realistically they don’t have much room to go lower.  The large institutional investors will get to a point where a return less than 3.5% is just not worth tying their money up and they will look for either higher returns or short term places they can wait for the market to determine when the uncertainty is over.

We have had a sellers’ market all year long with a large amount of buyers, small housing inventories and low interest rates.  That being said, the changes made to the mortgage underwriting process after the mortgage crash of 2008 has placed a significant amount of weight on accurate appraisal values.  Even with competing offers, buyers offering over list price and houses selling the first day of listing (or even before), the scrutiny in which appraisals are facing will control any potential bubble.  

Over the past 90 days I have seen 5-10% of the purchase transactions where the appraised value has been lower than the sales price.  This forces either the seller to lower their price or the buyer to pay the difference.  In both cases the mortgage industry and the country are protected from a perceived “bubble.”  The lender is lending off of the appraised value or the sales price, whichever is lower.  Thus they are certain that their risk is appropriate for the loan program that the buyer has chosen.  If there is one lesson that the industry learned in 2008 it was that collateral appropriately valued is key.  The industry is continuing to hang their hat on that and we will not see the overvaluations that occurred prior to 2008.

One thing to keep in mind though, is that if you purchased your home between January of 2013 and March of 2016 there is a good chance that your interest rate may be higher than the market and with the increase in home valuations that has occurred your equity position may have changed enough to warrant a mortgage fitness checkup.  I highly recommend that you reach out to your preferred loan officer and discuss your situation with them.  

Please feel free to contact me with questions or for a mortgage fitness checkup.

-Chris Scheer

TRID-Top 9 Things Real Estate Agents Should Know

The Two Largest MLS's in Missouri Agree To Share Listing Data

As of September 1, 2015 realtors in Kansas City and St. Louis will be able to share listings.  This will give someone almost the entire state to look at when they are looking for houses!

*MARIS  and **Heartland Multiple Listing Service (HMLS) of Kansas City excitedly announced an agreement to share real estate listing data beginning September 1, 2015. 

Accordin to the announcement: "The reciprocal share of data will be facilitated through Realtors Property Resource (RPR). As the two largest Multiple Listing Services in Missouri, this agreement to share listing data will significantly broaden exposure for active listings within the state and provide more than 16,000 real estate professionals with access to expanded real estate data."

*MidAmerica Regional Information Systems (MARIS) provides the regional multiple listing service for the St. Louis Association, St. Charles Association, and the Jefferson County, Franklin County, East Central, South Central, Pulaski County, Lebanon, and Mineral Area Boards of REALTORS®.

**Heartland Multiple Listing Service (HMLS) is the most complete and accurate source of real estate information in the Greater Kansas City Metropolitan area. HMLS provides services to more than 7,500 real estate professionals in Kansas and Missouri.

"Know Before You Owe" Rule Has Been Delayed

Big changes were expected in the mortgage industry beginning August 1, 2015, as the Consumer Financial Protection Bureau (CFPB) planned to enforce the "Know Before You Owe" rule (aka TRID or TILA-RESPA Integrated Disclosure rule).  But as of yesterday, they have decided to delay the effective date until Oct. 1st. 

The director of the CFPB issued the following statement:

“We made this decision to correct an administrative error that we just discovered in meeting the requirements under federal law, which would have delayed the effective date of the rule by two weeks,” said Richard Cordray, CFPB director. “We further believe that the additional time included in the proposed effective date would better accommodate the interests of the many consumers and providers whose families will be busy with the transition to the new school year at that time.”

This decision is interesting as it comes on the heals of a letter from Congress several weeks ago, asking the CFPB for a grace period (which was granted).  The grace period benefits all parties involved, including the consumer.  David Stevens, chairman and CEO of the Mortgage Bankers Association, stated: “This is a vast system of integrated service providers that spreads far beyond just lenders – there are servicing companies, real estate companies and third-party vendors who all have to make sure their systems are compliant and coordinated with each other.”  Further more, Chris Polychron, National Association of Realtors President, stated this will: "ensure the rule works effectively for consumers, who shouldn’t have to bear the burdens of the industry conforming to the new regulatory requirements.”

While Cornerstone Mortgage has worked diligently on preparing for all of the changes happening in the mortgage industry, the end goal is for a smooth transition for ALL PARTIES involved in the process. The hope is that this delay will benefit all involved, most importantly, the consumer.

Please don't hesitate to contact me with any questions.

Have a great weekend,
Chris