Mortgage Market News

Mortgage bond prices fell last week applying upward pressure on mortgage interest rates. The bond market continued to come under pressure from significantly stronger stocks. The DOW shot towards the 8,000 mark despite data releases that showed continued economic weakness. Most worrisome were the many reports that indicated people continue to lose jobs. Consumers find it difficult to spend without a job or with the fear their job may be in peril. The weaker than expected consumer sentiment data provided evidence of that fear.

Inflation is typically the most important focus for the mortgage interest rate market. Inflation remains a concern as the Federal Government continues to print and spend money in an effort to spur the economy. Unfortunately, mortgage interest rates also continue to be pushed around by gyrating stocks and weak demand as performance uncertainty looms and the Fed has become the primary buyer of mortgage-backed securities. Most of the recent increases in interest rates have come following stronger stocks. The Fed continues to pump billions of dollars into the market to try to keep mortgage interest rates relatively low and steady. Up until this past week they have done a pretty good job of accomplishing that task. Remember, the Fed is not the only player in the game and selling pressure continues.

The level of interest rates reflects the balance between the supply of money from investors and the demand for money by borrowers. Rising inflationary expectations and uncertainty about the performance of the debt cause investors to require higher rates of return on investments to compensate for the erosion of the principal that eventually is returned to them or the risk of non-performance. Regardless of inflation levels, though, rising economic activity can increase the demand for investors’ funds, and thereby lead to higher interest rates. Investors pulling money out of bonds and into stocks have recently pressured mortgage rates.

The demand for money diminishes as the economy struggles. The Fed lowers interest rates as an incentive to businesses and consumers to increase their borrowings. The Fed hopes manufacturers will increase their investments in plants, equipment and inventories and that consumers will push housing construction along with consumer spending and with that, consumer debt.

Analysts will monitor this next week’s consumer credit levels. There is much debate in the financial community about the future. Economists, market analysts, and traders all seem to have a different opinion about the future state of the economy and especially whether or not we have hit the bottom of the economic slide. One thing most market participants agree on is both the bond and stock markets are going to see additional volatility.

So far the Fed has been able to keep mortgage interest rates relatively low while not destroying the functioning secondary market where investors buy and sell mortgage bonds. The potential negative is that the Fed has become the primary purchaser of these bonds. In the short term take advantage of these advantageous rates. There is uncertainty how things will play out once the Fed begins to unwind those positions in the futures.

FHA announced last month an increase in lending limits for both traditional loans as well as Reverse Mortgages. Pima County was raised from $271,050 back up to $316,250. Maricopa was raised to $346,250. Feel free to follow the link to HUD's website for all other counties in AZ.

This is welcomed news for your buyers looking to put down as little as 3.5% and for your sellers in these higher priced ranges. This will open up more properties that will be available for FHA financing. Keep in mind, Nova still does offer 95% financing for conforming limits up to $417k.


Please give me a call if you have any financial questions or if you need a second opinion on a loan scenario.

Changes to Mark to Market are coming.

For Months we have been saying once the Financial Accounting Standards Board (FASB) changed their stance on mark-to-market accounting there would be a large improvement in the ability of financial institutions to be profitable. Today FASB voted to relax the accounting methods financial institutions can use to mark assets. The big change is to allow financial companies to use alternate models, like cash flow analysis, in marking assets. This enormous change will significantly reduce the writedowns banks have been taking on investments like mortgage-backed securities. These writedowns had forced companies to sell good assets and write down bad one while they were still performing but the value of the asset (such as a appraised value of a home loan) had gone down.


FASB finally understood that there was still value in assets such as home loans if the loans were still performing. Today the stock market is up due to this ruling and we expect to see the market to rally off of this.


For mortgage rates this will be positive since investors will be willing to now invest in MBS (Mortgage Backed Securities) again and not have to worry about the forced writedowns of the FASB 157 ruling. Currently the Fed were the major buyers in MBS The Feds involvement in buying MBS had pushed rates down and now if there is additional cash flowing into MBS we can expect to see continued low rates and maybe more expansion of some mortgage products for homeowners.

2009 Tucson Home and Patio Show

Starting tomorrow the 2009 Tucson Home and Patio Show will be held at the TCC. I will be at the Nova Home Loan booth #1216 Friday April 3rd 2-8, Saturday April 4th 2-8 and Sunday April 5th 11-4. Stop by to register to win a $250 Target Gift Card.


I look forward to seeing you there.

FHA with less than 620 credit scores and cash out updates.

Over the last 3 months, most lenders have increased the minimum credit scores needed for an FHA loan to 620. Nova still have minimum credit scores of 580 for FHA loans and in many cases require no NO minimum credit scores for Streamlined refinances. We still have less than 30 day closings where most other lenders are 60-90 days in underwriting. Our FHA loans are still prices lower in rates and in fees compared to our competition. For several FHA loans we have seen rates as low as 4.625% for 30 year fixed rates. FHA Streamlines as low as 5%!!! If you have a FHA loan and your rate is 5.5% or higher you should have your loan reviewed.


FHA cash out loans will temporally have the maximum loan to value capped at 85%. FHA is trying to lower its exposure to being the only option for borrowers cashing out equity above 85%. We do no know when FHA will go back to allowing borrowers to cash out up to 95%. I would assume it will be several months before FHA will start 95% cash outs again.

How is your FICO Score Based?

Here are the Facts on what makes up your FICO score. This information is provided by Advantage Credit of Colorado.



Payment History = 35%
Do you pay your credit on time?
Length of Positive credit history.
Severity and quantity of delinquencies

Amount Owed = 30%
Quantity of credit Accounts – too many credit cards with balances can lower a score.
Keep balances to 10% of high credit.

Length of credit history = 15%
The longer the credit history, the better.
How long have your credit accounts been established?
How long has it been since you used certain accounts?

New Credit = 10%
Research shows that opening several credit accounts in a short period of time does represent greater risk – especially for people who do not have a long established credit history.


The Healthy Credit Mix


2 installment loans
3 revolving accounts with balances
Revolving debt balances below 10% of high credit
No collections accounts, public records, foreclosures or last payments
Accounts with long payments history and no balances

You may need to have a 580 credit score now for an FHA loan. Act Now!!

In the last 3 to 4 months many mortgage companies have increased the minimum credit score needed for an FHA loan. It is no surprise this is happening but I have not seen a much of a drop in volume due to increased minimum credit scores. It won’t be too long until the minimum is 620. What I am seeing are borrowers who have higher credit scores not being approved because FHA wants to see borrowers have a little in savings after closing. This is called ‘reserves’ and all it means is that after the borrower closes on a home loan they have a month or 2 of their monthly mortgage payments saved up.


Having a few months in ‘reserves’ will make a big difference for getting approved for a home loan or not. In the last week I have seen this first hand for two different borrowers. The first borrower has a 615 credit scores but has no money for reserves. I could not get his application approved for a FHA loan. If he had 2 months in reserves he would be approved. The 2nd borrower has a 589 credit score and had 3 months in reserves and was approved or a FHA loan.


Both borrowers are working on increasing their credit scores to get lower interest rates and the first borrower has actually asks his parents to gift him some money so he can have enough for the down payment and 2 months of reserves then he will be approved for the FHA loan.


For Borrowers with less than 580 credit score you need to get in and talk to me about increasing your scores. It won’t be to long before the minimum credit score for FHA loans 620. Call contact me today!!

Obama’s plan to head off millions of foreclosures??

Today Obama’s plan to save millions of homeowners from foreclosure was released. It appears to be an outline and more details are to come. The Treasury said that it is going to take some time to find out how many of the estimated 9 million borrowers this plan is targeted to help.


The plan is going to provide a standard for Mortgage Servicers to determine and to speed approval for more affordable loans to borrowers in trouble. Mortgage Servicers are the companies who receive mortgage payments for the investors of the mortgages. Currently Mortgage Servicers are over whelmed with borrowers requests for help to avoid the loss of their home. Many Mortgage Servicers will not help borrowers in trouble because the investors in the mortgage will not allow them.


The plan is hoping to help 2 groups of homeowners. First, homeowners who can no longer afford their homes because of loss of job/income, who are in loans that interest rate changed because of Adjustable Rate Mortgage, or borrower who did “liers” stated income loans to qualify for the home loan.


The 2nd group are borrowers who can not refinance because of their home is valued at less than what they currently owe. These borrowers are up side down and the Treasury is looking at allowing borrowers to refinance up to 150% of the current value of their home.


What you need to do to qualify for these “affordable loans”.


You must live in the house. Primary Residences only. No 2nd homes or investment propertied.
Borrowers in Bankruptcy may be eligible
The max loan is $729,750 Up to $1.4 million for multi family homes.
You will have to prove you are in default or facing default.

The plan will look at a 3 step process to lower your monthly mortgage payment to 31% of your gross income.


1st they will look at lowering your interest rate. The rate may be as low as 2%. The Treasury expects 70% of eligible borrowers to be offered these affordable terms.


2nd If lowering the interest rate is not enough then they will extend the term of the mortgage up to 40 years. This will help an estimated 20% of eligible borrowers.


3rd. And if the lower rate and longer term does not reduce the monthly payment to 31% of the borrowers income then they will look at reducing part of the principle balance and adding it to the end of the loan with a balloon payment.


There are many unanswered questions and major potential problems with this plan. The plan only addresses 1st mortgages and not 2nd mortgage and HELOC. It also is trying to help homeowners who did not buy more home than they could afford. It does not state how they will determine “more than they could afford”. It does not address homeowners who refinanced after they purchased their home. Mortgage Servicers my face law suites from investors who will have their returns lowered by reducing interest rates for these buyers. This is was not addressed and I would assume No Mortgage Servicers is going to lowers a borrowers interest rate to 2% with out the approval from the investor.


We don’t know when the plan will go into effect. I sure the Mortgage Servecers and Investors will have to come to agreements with the Treasury before this Plan goes into effect. Once this is done we will see how many homeowners this actually helps. I hope it is a lot because this could stop the problem with home values falling because of foreclosures and short sales.


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