How To Shop For Mortgages In A “Vacation Week”

Mortgage markets are like any other market — in order for goods to change hands, a buyer and a seller must first reach an agreement to “trade” at a specific price point. 

In general, the more buyers and sellers there are for a particular item, the easier it is to find that “fair value” and make the deal. 

An abundant number of buyers and sellers often creates a liquid market in which assets — in this case, mortgage bonds — can be sold rapidly with minimal loss.

This week, though — with so many traders on vacation — the “liquid market” has gone illiquid.  The treasury market posted just 41 percent of its normal, daily volume Monday, leading to erratic pricing in the mortgage bond market which, in turn, caused mortgage rates to follow.

For example, mortgage rates started the day lower yesterday before sprinting higher over a 30-minute, early-afternoon span.  Markets were largely unprovoked by economic data, geopolitical developments, or technical factors.  It just, kind of, “happened” and the move left mortgage rate shoppers in the dust.

That could happen a lot this week.  So, if you’re in the market for a mortgage, be ready to lock quickly.  With low liquidity, rates rarely sit still for long.

(Image courtesy: Purdue BCM)

For Real Estate Investors, Finding Loans Is Tougher Than Finding Good Deals

With home prices falling across most parts of the country, investors in real estate are finding good value in certain rental properties.  Unfortunately, they’re also finding it harder to get approved for a home loan.

After getting stung by defaults, conforming mortgage standards for non-owner occupied home loans tightened dramatically last quarter.

One major change was the reduction in the total number of homes Fannie Mae or Freddie Mac will finance for any one borrower. 

Prior to the chance, the number of financed properties could be as high as 10.  Today, that number is 4, stinging investors with large real estate portfolios.  Going forward, buying properties isn’t the problem; financing them with conforming mortgage money is. 

Another guideline change mandates larger downpayments.

Versus early-2008, when a real estate investor could buy a home with 10 percent down, today’s investor is required to pay 15.  But, as an added wrinkle, few private mortgage insurers write policies against rental homes anymore, rendering the 15 percent downpayment insufficient.  The de facto requirement, therefore, is now 20 percent down.

And then came the fees.

As part of its “pay-for-risk” pricing model, Fannie Mae added mandatory fees to all of its investor property mortgages this year.  Based on loan-to-value, the fees are:

• 75% LTV or less: 1.750 percent of the borrowed amount
  
• 75.01 – 80.00% LTV : 3.000 percent of the borrowed amount
  
• Greater than 80% LTV : 3.750 percent of the borrowed amount

So, if your personal plan includes the purchase of investment properties in 2009, consider the impact that tighter conforming guidelines, larger downpayments and higher fees will have on your bottom line.

All things considered, now may be a good time to make that rental property bid.  Sure, prices may fall going forward, but increased acquisition costs may wipe out the long-term gains.

How The Refi Boom May Delay Purchase Closings

In late-November, the Federal Reserve pledged $600 billion to buy mortgage-backed securities.  The announcement drove down mortgage rates and started the Refi Boom.

Then, the Federal Reserve made a second series of statements after its scheduled meeting last Tuesday, causing mortgage rates to plunge again.  This started the Refi Boom’s second wave.

Because of the surge in refinance activity, mortgage lenders are “backed up”; initial file reviews are taking up to 12 business days in some cases. 

Typically, this process takes 2 days.

Underwriting delays are problem for refinancing Americans because when a mortgage rate is locked, it’s most often locked for 30 calendar days — the standard Rate Lock Agreement contract length.  If the mortgage doesn’t close within those 30 days, the applicant must either pay an “extension fee” to preserve the lock, or risk losing the rate altogether.

30 days may seem like a long time, but let’s consider a few external variables:

• December 24, 25, and 26 plus January 1 and 2 are lost to holiday
  
• December 27, 28 plus January 3, 4, 10, 11, 17, and 18 are lost to weekends
  
• January 19 is lost to federal holiday
  
• 3 days are lost to the Right To Cancel clause

This leaves 13 days to get from Application to Closing, and of those 13 days, 12 of them are being spent on the initial review.  30-day rate locks, therefore, may be inadequate with some mortgage lenders.  A 45-day agreement may be required instead.

Typically, 45-day rate locks carry higher rates or higher fees, versus their 30-day counterparts.  This amounts to a “tax” on borrowers, a result of the nation’s rush to refinance en masse.  It also may preclude a homebuyer’s ability to close in 30 days.

As always, the best way to preserve a rate lock is to be as responsive as possible to the process.  Return paperwork when asked, schedule appraisals immediately, and arrange to signing closing paperwork on the first available day.

With mortgage rates low, application volume — and underwriting turntimes — should remain high into early-2009.

Hitting the MLS with No Photos is Like Cinderalla Coming to the Ball in Rags

After all that you and your Realtor think it’s OK to hit the market with a blank Photo? You’ve uncluttered the house, you’ve painted, you’ve had a yard sale, you put stuff in storage and finally fixed or replaced all those things you’ve always talked about fixing or replacing to put your house on the market, it looks like a million bucks and then……and then….

You and your Realtor debut the house on the Columbus MLS with No Picture.  How could you do that to your house? Ready, Willing and Able buyers are out there waiting for a house just like yours.  Your home sounds good in the description but there’s no pictures. Your home doesn’t get marked a favorite or a possibility or a drive by. The buyer waits for the pictures to hit and maybe they’ll forget about it or maybe they won’t but either way, wouldn’t it be the best possible situation to hit the ground running with 18 fabulous pictures of your house uploaded to the Columbus MLS?

I’ve written about this before but I can’t get over how often this happens. It happened today with a house I noticed hit the market today, the price and the address caught my eye, I thought it was one of two homes, read the description of the home and knew right away which home it was but just to be sure I went to the Auditor’s site for a photo–just like an interested potential buyer might–and the picture there confirmed my thought, only it was four years old and surround by scaffolding.  Now, that is the image burned into buyers’ heads about your home.

The market is tough enough without shooting yourself in the foot.  It’s a small thing, a pet peave, but it really bugs me.

possibly related: No Picture of the Kitchen?? It must be antiquated

Sellers! Make a Grand Entrance.