Nicole Lahti, Austin Texas Mortgage

If you haven't noticed, I took a long hiatus from blogging -- BAD BLOGGER! Ya, I know what you're thinking, "Just another blogger that gets going then fizzles out -- chalk this one up to just another statistic." Well, sort of, these last two months mortgage rates have consistently averaged in the mid to high 4.0's%, which has brought an onslaught of business that left me gasping for air at the end of the day. Hey, I'm not complaining, it was a nice run; a good portion of the business was rate driven refinances which will likely slowdown as mortgage rates have suffered a presipitious climb these last two weeks.

You've been living under a rock if you haven't heard about mortgage rate's recent increase. As a mortgage professional, its been tough to keep up -- these last two weeks have averaged three rate changes a day, and sometimes four! I've begun telling clients that rate quotes are good for the minute I quote them, because the market is so volatile, and I could get a re-price for the worse (or better) at any minute. Therefore, let your mortgage professional know quickly when you're putting an offer on a home, or ready to refinance, so your rate is locked in quickly.

Mortgage Rates

Rates ended last week about .375% to .5% worse than where they began. According to Bankrate.com, a conventional 30-yr fixed rate purchase is averaging about 5.45% nationwide. Much of this change was due to Friday's Jobs Report; although, the report showed the U.S. continues to loose jobs, less jobs were lost than expected -- 345,000 jobs lost in May, vs. 520,000 expectation, taking our unemployment rate to 9.4% from 8.9%. This caused a rally in the stock market, which sent money flowing out of bonds and into stocks, causing mortgage rates to rise.

Where are rates headed?

According to a panel of mortgage professionals on Bankrate.com, rates are headed higher with slightly over 1/3 of the panel giving this prediction. I tend to agree -- over the shortrun we may see some downward movement in rates; however, over the longrun, rates will rise. Our large government deficits, and monetization of debt will eventually lead to inflation (the arch-enemy of mortgage rates), its just a matter of when and how successful the government will be in combating it. Even the slightest scent of inflation will increase mortgage rates.

Should you lock or float your rate?

Whether or not rates will increase or decrease in the shortrun is difficult to predict, as our turbulent times are causing some major volatility. I recommend calculating your monthly payment at current rates, and locking your rate if it yields you a monthly payment within your budget. If the rate increase has taken the monthly payment on your home out of your budget, then wait to see if rates drop AND begin looking at other house options within your budget in case rates don't fall.

Forecast for the Week

On Thursday, we'll hear Retail Sales numbers which will have a direct affect on the stock market, this will cause money to flow in or out of bonds, causing rates to fall or rise, respectively. Remember, as a general rule weaker than expectedd economic data is good for mortgage rates, while positive data causes rates to rise.

HUD has succumbed to pressure on its recent ruling against home builders who make incentives contingent upon using their mortgage companies.

Last November, it ruled these builder incentives violated RESPA's required use provision. This provision states affiliated businesses are exempt from the "required use" provision as long as they offer a combination of settlement services at a total price lower than the sum of the market price of the individual services, and if the discount is not made up by higher costs elsewhere in the settlement process.

HUD asserted it had proof of many cases where builder incentives violated the required use provision because they resulted in higher mortgage rates, fees and sales prices for homebuyers. The National Association of Home Builders (NAHB) immediately filed a 90-day injunction postponing the implementation of this ruling to from January to April, and now another 90-day injunction has been filed extending implementation of this ruling to July while HUD seeks public opinion on whether it should withdraw its new definition.

However, a joint motion issued by HUD and NAHB seems to indicate the ruling has been withdrawn altogether in an effort to start over. HUD then issued a notice stating everyone from homebuyers to industry professionals would be better served by a new rule-making proceeding that ensures consumers are best served by builders' affiliated business arrangements. This new rule-making proceeding would allow the public the opportunity to comment on the issue of "required use", so HUD can then make a decision based on the commentary.

OK, so there's the background on this issue; here's my opinion and that of others who disagree with me. In my last post on this topic, I argued in favor of a crackdown on how builder incentives are only offered through chosen mortgage companies. Refer to my previous post for an explanation on how builders' affiliated business arrangements with mortgage companies discourage competition AND many times lead to higher costs for the consumer.

Not all builders' affiliated business arrangements result in higher costs to the buyer, but I've experienced many cases in which they have. Here's an example from a Good Faith Estimate sent to me by a Realtor who thought the rate and fees charged by the builder's mortgage and title company were high. In this case, in order for the builder to offer certain incentives, the buyer had to use the builder's mortgage company and title company. Compare the builder's mortgage and title company fees to market fees (defined as what I and the title company I use would've charged), and you'll clearly see how the builder's incentives cost this consumer more in fees.

Market Mortgage and Title Company Fees

Mortgage fees = $3,465.29

Title fees = $541.82

Builder's Mortgage and Title Company Fees

Mortgage fees = $4,233 ($766.70 higher than market)

Title fees =$829 ($287.18 higher)

*Title fees do not include Owner's Title Policy, which the buyer also paid for

Builder's incentives actually cost this borrower $1,053.88 more in fees

One argument in favor of builders' affiliated business arrangements is the sales builders loose when "outside" mortgage companies drop the ball. This is avoided by using their own mortgage company because they know and trust them. This is a fair argument; however, I would argue builders' salespeople need to scrutinize the lender the buyer wishes to use before accepting the contract. Salespeople are smart, qualified real estate professionals, and should know the right questions to ask the borrower's lender to ensure they are qualified to close the loan. Additionally, the buyer's lender needs to do their job to make sure the builder feels confident in their ability to close the loan, this includes (1) an upfront conversation with the builder with an anticipated time-line (2) addressing and providing solutions to any/all known issues, and (3) frequent status updates throughout the underwriting process.

For those who believe builders' affiliated business arrangements are worth the streamlined closing process and/or incentives, I encourage you to present your buyers with a quote of what an "outside" mortgage and/or title company would charge them. If the builder's companies are more expensive, leave it to the consumer to decide if the streamlined process and/or incentives are worth the higher fees.

If the buyer decides the extra fees are worth it, then great, you've at least done your job of educating the consumer, and promoting transparency.

I argue builder incentives themselves are not anti-consumer, but making them available only through certain companies is anti-consumer as it discourages competition. If a builder wants to offer incentives, they should be able to; but they should be made available through any mortgage or title company the buyer wishes to use (including the builder's). This spurs healthy competition, resulting in more transparency and lower costs to the buyer.

Whether you agree with me or not, I encourage you to make your opinion known by submitting your comments to HUD. Click the attached notice for directions on how to submit your comments.

Last week provided some good news on the economic front, relative to what we've seen lately. The U.S. Personal Savings Rate came in at 4.2% -- the highest we've seen in decades! This is great news, especially considering we had a negative savings rate not too long ago (see chart).

It also looks like the Treasury is FINALLY using TARP funds to buy toxic assets -- well, that's a novel idea (eh-hmm). Treasury Secretary, Timothy Geitner, announced last week the Treasury would team-up with private investors to buy toxic assets off banks' books. The Treasury will provide private investors billions of dollars of low-interest loans to buy the toxic assets, and the FDIC will guaranty the debt.

Lastly, Existing Home Sales for February exceeded expectations increasing 5.1% over January, but decreased 4.6% vs. last year.

Mortgage Rates

Rates moved around quite a bit last week, but ended close to where they began -- near historic lows. According to Bankrate.com, 30-yr fixed conventional mortgages averaged at 5.19%, down .10 from the previous week.

I locked rates for clients in the 4.0%'s last week, so if you're thinking about lowering your mortgage payment by refinancing call me first to make sure it makes financial sense for you. If buying a home is on your radar, read my post Thinking About Buying a Home? Consider This First... for tips on what to consider before making a move.

Forecast for the Week

On Thursday we should hear the FASB's ruling on whether to modify Mark-to-Market accounting standards. As I've discussed in a previous post, Mark-to-Market accounting is what escalates the weakening of banks as the value of the assets on their books drops.

The Labor Department will also announce their Jobs Report for March. Last week's Initial Jobless Claims showed the number of people collecting state unemployment benefits jumped to a record high (seasonally adjusted 5.56 million), which doesn't bode well for this week's Jobs Report.

Washington is doing its very best to give you “warm ‘n fuzzies” when it comes to buying a home right now – from historically low interest rates, to literally giving you money when you buy a home. Has it worked? I think so as there has been a recent uptick in activity. So is it time to jump in and buy while the “gettin’ is good”? Perhaps, but if I were thinking about buying a home right now, here are a few things I’d consider first.

1. Mortgage rates will rise.

Mortgage rates are at historic lows, but this won’t last long. Rates have dropped considerably as the government gobbles up mortgage-backed securities and injects capital into Fannie Mae and Freddie Mac. This has caused a sharp increase in the money supply, and a weakening of the dollar, and although we don’t feel it now, inflation will become a threat, and inflation is mortgage rates arch-enemy.

Even if Bernanke can succeed at keeping inflation at bay once it arrives, I believe mortgage rates will still increase in reaction to even the slightest hint of inflation. So what does this mean for you? Jump on the home-buying train? Perhaps, but a few more considerations first.

2. Home values aren’t dropping in all areas.

Low post 9/11 interest rates and easy mortgage qualification made everyone a homeowner and sky-rocketed home prices. The good news? Although not totally immune from the housing bubble, Texas home prices didn’t surge as dramatically as other parts of the country, so we shouldn’t see as steep of a decline (see figure below from the Dallas Federal Reserve). As for Austin, sales of single-family homes have dropped 36% in February 2009 (compared to February 2008), but the median home price is holding strong at a 6.1% increase.*

However, it’s still good practice to scrutinize the sales price of the home to protect yourself against any over-valuation, and hopefully hedge against any future value drops IF they occur. Recent comparables are used to establish the sales price of your home, but all it takes is one over-valued house to sell to raise the sales price of your home.

Therefore, look at sales over a longer time horizon to make sure your house is experiencing healthy appreciation, and not just a quick jump. Your Realtor has access to all this data; therefore, choosing a Realtor you trust to properly analyze the market is extremely important.

3. What if you buy a home and home values STILL fall?

First off, remember current low rates provide you a much lower payment than normal, even if the price is higher today. Look at the Austin-area statistics below. Although the single-family home median sales price for February 2009 is 13% higher than February 2006, lower 2009 interest rates make the principal and interest payment equal to a home purchased in 2006.

Feb. 2009

Single-family home median sales price: $193,848*

Average 30 year conventional mortgage rate: 5.13%**

Principal & interest payment ($193,848 with 20% down): $844.86

Feb. 2006

Single-family home median sales price: $171,600*

Average 30 year conventional mortgage rate: 6.25%**

Principal & interest payment ($171,600 with 20% down): $845.26

However, if you’re worried about “taking a bath” on your home when you sell, ask yourself how long you plan to stay in your home. See what your mortgage balance would be on that future date (your Loan Officer can provide this), then add reasonable fees associated with selling your home to your future mortgage balance (your Realtor can provide this). This is what you need to sell your home for in the future to break-even. Discuss with your Realtor whether you believe selling the home for the break-even amount in the future is possible.

I know, this negates any tax benefits you may enjoy, but let’s keep it simple for illustrative purposes.

4. Make sure you’re financially prepared to buy a home.

Examine your personal financial situation to determine if it’s a good time for you to buy a home. Most importantly, make sure you have a few months of living expenses in savings AFTER incurring the cost of buying a home. An emergency fund, especially as a homeowner during these turbulent times, is vitally important.

Also, consider the total cost of moving (i.e., movers, cleaning, appliances, etc). and make sure you can pay this in cash – now is not the time to go into credit card debt to buy your home. Lastly, make sure your mortgage payment is a reasonable percentage of your income. There are plenty of opinions on what is considered “reasonable”, but in my opinion 30% is a healthy number.

*Multiple Listing Service, via Jason Aleem, Broker/Owner of Greylux Group

** www.federalreserve.gov

Last week's big news was the rally stocks enjoyed -- the largest in 2009. Wall Street certainly liked hearing Citigroup state it wouldn't need anymore capital injections, and Bernanke stating our recession could be over by end-of-year if the banking system can be stabilized. He also made it abundantly clear that major institutions would not be allowed to fail.

The consequences of our recessionary spending loomed its ugly head again as China expressed its concern over the safety of the U.S. assets it holds. Bernanke has attempted to quell these inflationary fears by stating the U.S. has an "exit strategy" for preventing inflation by retracting the money supply in a timely manner.

Why should you care about inflation? Well, other than the fact that it raises prices of everything you buy, it also is the arch-enemy of mortgage rates -- when inflation increases, so do mortgage rates -- and fast.

Mark-to-Market accounting was also discussed in Washington as Securities and Exchange Commission's (SEC) Chief Accountant, the Financial Accounting Standards Board's (FASB) Chairman and the Deputy Comptroller for Regulatory Policy in the Treasury Department testified in front of the House Financial Services committee.

Market-to-Market was created to bring more transparency into business, but has escalated the depths of the financial crisis. Expect some sort of change to Mark-to-Market accounting principles as Congress urged the SEC and FASB to present a solution to repair the Market-to-Market situation within three weeks. This change could help stabilize the banks.

Mortgage Rates

Despite stocks' big rally, mortgage rates ended the week only slightly better than where they began. According to Bankrate.com, conforming 30-year mortgage rates averaged 5.37% last week (5.41% the previous week).

Forecast for the Week

Potential big market movers this week come on Wednesday as the Fed delivers its policy statement and rate decision. Tuesday and Wednesday's, Producer Price Index (PPI) and Consumer Price Index (CPI) will also be of particular importance as it measures US inflation (or deflation). These reports are especially interesting after China's recent concern over future U.S. inflation.

Remember: Weaker than expected economic reports are generally good for mortgage rates, and visa versa.