During the last week in March, mortgage interest rates and the number of mortgage applications both increased a bit. Also during the week, the Federal Reserve increased the Fed short-term rate by yet another quarter of one percent to 4.75 percent.That’s the 15th consecutive increase, reaching the highest rate in the past five years.
“The Fed’s most recent rate increase on March 28 was expected, but the market was a little surprised at the Committee’s comments implying more tightening in the future,” said Frank Nothaft, chief economist for Freddie Mac, one of the nation’s major buyers of existing mortgages.”The comments raised the expectation that inflation may be more of a threat than was previously thought, and that kind of thinking promotes upward pressure on mortgage rates.”
At the beginning of April, the average rate for a 30-year fixed-rate mortgage is 6.36 percent (with 0.5 points fees), according to the Mortgage Bankers Association.he average rate for 15-year fixed-rate mortgages is 6.00 percent. The rate for a one-year adjustable-rate mortgage (ARM) is 5.83 percent.The increasing number of applications reflects the consumers desire to apply for and lock-in a rate on a mortgage now before the rate moves to higher levels.
Changes in FHA mortgages
FHAmortgages those insured by the Federal Housing Administration have long
been considered one of the best ways to finance the purchase of lower-priced homes, particularly for first-time buyers.Recently the FHA overhauled their programs, making their mortgages more attractive to consumers.
FHA mortgages are especially well known for their lowdown payment requirements.In many cases buyers only need three percent of the purchase price, with military personnel paying as little as 2.25 percent. And some of that cash requirement can be applied to closing costs. However, FHA had its fair share of burdensome requirements that have made these loans less appealing in recent years, according to a report from the National Association of Mortgage Brokers.
“It wasn’t uncommon for an FHA loan to be held up because an inspector found a
cosmetic flaw in a house,” said NAMB’s FHA Committee Chairman. “This all changed when HUD (Department of Housing and Urban Development) recently adjusted some of its requirements for FHA loans.”
In December, the FHA waived the requirement to fix cosmetic flaws. It also made it easier for consumers to negotiate payment for common mortgage costs.Previously, the seller had to pay all non-allowable expenses.This would include items like the processing, document preparation, inspection, photo, tax service and underwriting fees.With the exception of the tax service fee, these costs can now be paid by the buyer,
adding more flexibility in the mortgage process, the NAMB report said. It also noted that FHA mortgage insurance is much cheaper than private mortgage insurance.
New credit scoring system
Tracking and improving your “credit score” may become easier in the future, due to a
major change in the overall system.It will also speed processing of your mortgage application by lenders. Your personal credit score plays a key role in determining if you can obtain a needed mortgage and the terms available to you on that loan.If you are planning to apply for a mortgage in the future to finance a home purchase or refinance an existing mortgage it would be wise to learn what your credit score is and take steps to improve it.
Basically, the scores are designed to help lenders determine the creditworthiness of loan applicants. It provides a viable indication of the capability and likelihood of a loan being repaid by the borrower. There are three major consumer credit bureaus that now independently calculate and report to lenders an individual’s credit score.They are Equifax, Experian and TransUnion. Scores often vary substantially as reported by each of those bureaus.
With the new development, the three bureaus are cooperating in a venture that will make it easier for mortgage lenders, and others, to evaluate mortgage applications, and give consumers a better way to measure and improve their score.The bureaus have introduced a new system, “VantageScore,” that will use one shared system to calculate all scores. The score still may vary a bit, due to the intake of data by individual bureaus, but the calculating system will be the same.It’s still in development but should be fully implemented soon.
The new VantageScore is a direct result of market demand for a more consistent and objective approach to credit scoring methodology across all three credit reporting companies, it was stated in a news release from the three bureaus.This approach is
unprecedented in the marketplace. By combining cutting-edge techniques with a highly intuitive scale for scoring, the new system will provide consumers and businesses with predictive, consistent scores that are easy to understand and apply. The new scores will range from 501 to 990.The higher the number, the more creditworthy the loan applicant.
The best way to improve your score is to pay all bills on time, keep account balances low, and take out new credit only when you really need it. Also, obtain a current copy of your creditreport and take immediate steps to correct any errors. This can usually be accomplished by callingor e-mailing the bureau that issued the report containing the errors.
ARM vs Fixed-rate Mortgages
The mortgage market is constantly changing, and smart consumers keep a close eye on those changes to determine the most strategic time to apply for a mortgage.At this
point, the difference in interest rates between an adjustable-rate mortgage (ARM) and a fixed-rate loan has narrowed significantly. Therefore, more applicants are opting for a fixed-rate mortgage when purchasing a home. And an increasing number of homeowners are refinancing their existing ARM with a new fixed-rate mortgage.
“The most recent economic indicators show that inflation is, indeed, being held in check,” said Freddie Mac’s Frank Nothaft. “That news allowed long-term mortgage rates to drift a little lower in recent weeks. Shorter-term rates, however, rose in reaction to comments by Chairman Bernanke, of the Federal Reserve Board, that hinted at continuing rate hikes this year.The housing industry remains fundamentally fit as we continue to progress into the spring home buying season,” Nothaft said.
Fortunately, mortgage interest rates are still at historic low levels, while home prices
continue to rise.An increasing number of applicants are applying for 35 and 40 year term mortgages as a means of reducing their monthly payments while staying with a fixed-rate loan. This also makes it easier to qualify for a needed mortgage.
The concern about an ARM loan’s increasing interest rates and payments in future
months and years is understandable.Many recent applicants are seeking more peace of mind by applying for a fixed-rate loan when purchasing a home or refinancing their mortgage.
ARMs confuse many
Adjustable-rate mortgages (ARMs) confuse many borrowers, according to results of a survey by Federal Reserve Board economists. The study found that about 35 percent of people with an ARM loan didn’t know how much the rate could increase at one time, and 41 percent weren’t sure of the maximum rate they could face.
About 28 percent of survey respondents didn’t know what index was being used to determine their interest rate adjustments. Many others gave incorrect answers, such as the consumer price index or “the going rate.” People with low incomes and less education are most likely to be unsure of the terms of their mortgages, the Fed economists noted.
ARM loans accounted for about a third of all mortgages granted last year up from an average of one-quarter during the 1990s, according to the Mortgage Bankers Association. In recent months, the rise of short-term rates has reduced the
attraction of ARMs, and more borrowers are choosing or switching to fixed-rate loans.
New controls on nontraditional mortgages
The mortgage industry is taking a dim view of the currently proposed Interagency Guidance on Nontraditional Mortgage Products.This includes such loans as interest-only and payment-option mortgages. Here’s what Kurt Pfotenbauer, senior vice president of Mortgage Bankers Association, had to say on the subject:
“We believe the creation of guidance on nontraditional products is a positive development, but we find the proposed guidance is overly prescriptive in mandating specific underwriting standards and that some sections should be clarified, modified or removed to ensure the proposed guidance does not stifle mortgage product innovation and hurt consumers’ access to homeownership opportunities.”
Use of mortgage-related Web sites
According to a recent study by Synergistics Research Corporation, the use of Web sites for learning about and applying for mortgages is on the increase.The survey included key questions to homeowners who have a first mortgage. They were asked if they did any of a number of activities online the last time they applied for a mortgage. Overall, seven in 10 respondents indicated they did at least one of these activities online.
About half of respondents researched interest rates in general and used calculators and Web sites to determine monthly payments under various criteria.More than four in ten compared rates and terms among different lenders and brokers. A fourth of them read information or general news about mortgages online. One in seven actually applied for a mortgage online. The incidence of having applied online for a home mortgage increases to one-quarter for borrowers with home values of $500,000 or more, according to the study report.
Unexpected increase in home sales
Housing forecasts by experts often don’t turn out as expected. For example, sales of existing homes increased by 5.2 percent in February to a seasonally adjusted annualized rate of 6.91 million units, according to a report from the National Association of Realtors.Most analysts predicted a downturn in sales.Leading economists were expecting sales of about 6.52 million, according to a survey conducted by MarketWatch.
However, the supply of unsold homes rose by 5.2 percent in February to 3.03 million.That’s close to the all-time record of 3.04 million in 1986.That inventory represents 5.3 months supply of home inventory. NAR still predicts a lower level of home sales this year.Existing home sales are expected to fall 5.7 percent to 6.67 million units during the year down from
the record 7.08 million last year.
New home sales are expected to drop by 7.7 percent this year. New home construction starts will probably total 1.98 million this year, down 4.3 percent from last year. As for home prices (nationally), they are expected to increase by about 5.4 percent this year. The 30-year, fixed-rate mortgage will probably increase gradually during the year to about6.9 percent by the fourth quarter, according to NAR.
Home selling market in transition
The home selling market is in a state of transition.
For months, economists have been saying the housing market was about to change course from a sellers’ market to a buyers’
market, and possibly from a value bubble to a bust. However, statistics and indicators do not currently point to a definitive direction to be taken by the market, according to a report issued by Freddie Mac, one of the nation’s primary buyers of
existing home mortgages.
The Home Price Index for the fourth quarter of last year, released in March, showed an annual growth in home value at about 13 percent.Housing starts in January reached 2.28 million units, the highest pace since 1973. There are no signals of a cooling housing market here, the report stated.However, sales of both new and existing for-sale homes fell significantly in January, and inventories of existing single-family homes and condos rose to their highest levels since 1999.These contradictory statistics are signs of a probable slow-down.
“It may be some time before we see definite trends in the national housing market, especially as measured by changes in home prices,” the Freddie Mac report stated.”Prices tend to be `sticky’ on the way down as sellers will leave a home on the market longer or offer non-price concessions to buyers. The prevalence and types of seller concessions are difficult to measure. But we believe the housing market crested during the third quarter of last year and that single-digit growth in home values will occur nationally as this year progresses.”
The report pointed out that fixed-rate mortgage rates are still historically low and a wide variety of mortgage products are available. That means the capital market is well positioned to support homebuyers.”When the smoke clears, we expect to find that the housing market has decelerated to a more normal level of active, but certainly not crashed,” the report concluded.
Good news:Home sales are down
Home sales generally are down.That’s not bad news, according to most housing experts. “Last year’s record-level of housing construction starts and double-digit price appreciation were unsustainable and encouraged many investors and speculators to enter the market,” said David Seiders, chief economist for the National Association of Home Builders. “With demand slowing, we expect to see price appreciation also falling back into the single-digit range, and that will discourage short-term speculators from jumping into the market.
“We anticipate a solid year for housing this year, with new home construction and sales down about 7 percent from last year’s all-time record highs,” he said.A lower level of home sales, expected this year, will create a more level playing field for buyers and sellers on the heels of a five-year sellers’ market, according to a report from the National Association of Realtors. Existing-home sales are expected to fall by 5.7 percent to 6.6 million units this year. That’s down from 7.08 million units last year.
Here’s what Doug Duncan, chief economist for the Mortgage Bankers Association, said about the currently rising mortgage delinquencies: “The increase in delinquencies is not surprising.We have been expecting an up-tick in delinquencies due to a number of factors, such as the seasoning of the loan portfolio, the increased shares of the portfolio that are adjustable-rate mortgages (ARMs) and subprime mortgages, as well as the elevated level of energy prices and rising interest rates.”
MLS operations are expanding
In an effort to modernize and enhance the effectiveness of multiple listing services (MLSs), many of these groups are now expanding their data-sharing agreements with other MLSs and generally consolidating their communication capabilities.
Most MLSs are owned and operated by a local or regional board of Realtors. A few are independently owned and operated. Their basic function is to provide data, photos and maps of homes and other properties currently being marketed to their
member brokers.
In a recent survey of Realtors, it was shown that an increasing number of brokers are concerned about information security and accelerating trends in technology use, including major increases in the use of mapping on MLS systems.According to the
survey, most Realtors believe the ideal MLS size after consolidation would be a large region within a state, or even statewide.
Some MLS execs feel consolidation within a Metropolitan Statistical Area is ideal.
Most Realtors recognize the benefits of the consolidation of their local MLS with others, thus widening their geographic outreach for promoting the sale of their listed properties. But many see this move as widening the competition for their own company Web sites.Any way you look at it, real estate brokerage is a highly competitive business.
Working families strive for home ownership
Working families with children, the folks who desperately need a home of their own, are least likely to become homeowners in today’s market. That’s the finding of a new study of homeownership trends over the past quarter century a study conducted by theCenter for Housing Policy, the research affiliate of the National Housing Conference.It showed that low- to moderate-income families with children are less likely to be homeowners now than they were in the late 1970s.
That’s quite surprising in light of all the government efforts to boost homeownership over the past couple of decades.
In fact, the study revealed that the homeownership gap between white and minority working families with children not
only didn’t improve but worsened between 1978 and 2003. Specifically, the disparity widened to 26
percentage points.
The study was titled, “Locked Out: Keys to Homeownership Elude Many Working Families with Children.” Nearly 70 percent of Americans now own their home. That’s the highest homeownership rate ever. However, most of the gain has been among
families without children and upper-income families with children.Upper-income families are defined as those who earn above 120 percent of local area median income.
Regionally, the homeownership rate among working families with children has dropped a couple of percentage points in the West. Only about 52 percent of those families now own their home down from 54 percent in 1978. The rates have declined the most in Midwest markets where about 68 percent of those families own their home down from 72 percent in 1978.In the Northeast, the homeownership rate for minority working families with children is about 33
percent, compared to a 73 percent rate for their white counterparts.
Buying a home without seeing it
A rather scary prediction was seen in another recent survey, this one conducted by Prudential California Realty.It revealed that about 31 percent of homebuyers believe it is likely that people will consider buying a home on the Internet in the future without ever seeing the property in person.
“The idea that some buyers may buy a home over the Internet without actually viewing it is not as far fetched as it would have seemed a few years ago, as buyers become more active and involved in transactions through Web sites,” said a spokesperson for Prudential.
Jim Woodard writes a nationally syndicated newspaper column on real estate news and trends, carried in about 230 U.S. newspapers – along with freelance features. Reproduction of this report, in part or entirety, is prohibited without the express permission of the author. E-mail: storyjim@aol.com. Web site: www.jimwoodard.net