No down payment loan for hurricane victims

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Oct 302017

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By G. Steven Bray

Government reports show Hurricane Harvey completely destroyed almost 13k homes and damaged more than 200k. As folks continue to recover from this destructive storm, some may be able to take advantage of a special FHA mortgage program specifically designed for disaster victims.

The program, called 203(h), allows a disaster victim to purchase a new home with no down payment. While the damaged home must be located in the federally declared disaster area, the new home can be anywhere. The damage to the existing home must be to such an extent that reconstruction or replacement is necessary.

As this is an FHA mortgage, it will have both up-front and monthly mortgage insurance. You can roll the up-front mortgage insurance into the loan. However, you cannot roll the closing costs into the loan. Check out my Can I Qualify video on our Web site for ideas how to cover closing costs.

The program’s guidelines provide flexibility. While you’re still responsible for any mortgage on your damaged home, we don’t have to count it when qualifying you if you provide evidence of insurance coverage. We also can ignore any late payments or other credit hiccups that resulted from the disaster as long as your credit was satisfactory before the disaster.

If this program sounds like it could help you, it’s important not to let too much time pass. You must apply for the new mortgage within 1 year of the disaster declaration date, which was 8/25. An equally important consideration is your credit. While lenders can ignore credit dings resulting from the disaster, the credit bureaus won’t, and late payments could depress your credit scores. You will find most lenders apply their standard credit score limits to the program. If you’re finding it hard to balance your finances post-disaster, it may make sense to take advantage of the program before your scores sink too low.

Rate update: New Fed chair could be unfriendly for low rates

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Oct 252017

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By G. Steven Bray

If you’re still floating your interest rate, you may be kicking yourself this week. Mortgage rates have risen 1/8% in the last week. While rates still are very low by historical standards, they’ve been fairly stable lately, making the rise seem rather abrupt.

Last week I recommended caution if you’re watching rates, and I’ll reiterate that this week. I don’t believe the forces pushing rates higher have subsided just yet. Sentiment still seems frothy, which negates the effects of factors that would limit rate increases, such as persistently low inflation.

In addition, we’ve added a couple other factors that seemingly work against lower rates. First is the nomination for Chair of the Federal Reserve. Trump is said to be seriously considering two individuals: John Taylor and Jay Powell. Markets consider Taylor to be less friendly towards low rates. Trump said he is “very, very close” to deciding, and it was reported he asked senators at lunch Tues if they approved of Taylor. The response from senators was positive, and markets took notice.

The second factor is a pending announcement from the European Central Bank. The ECB previously promised it would let us know about its plans to taper its bond buying program after tomorrow’s meeting. ECB bond buying is akin to the Fed’s quantitative easing, which led to record low interest rates. It’s not certain what if anything the ECB will announce, but markets are hedging for the worst.

Rate update: Low inflation checks interest rates

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Oct 172017

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By G. Steven Bray

Interest rates received a nice surprise from inflation data last Fri. Last week, we discussed that several inflation metrics are showing budding inflation, especially at the producer level. We also discussed how producer inflation doesn’t always translate into consumer inflation, and that’s what we saw last week.

The consumer price index, the godfather of inflation measures, showed that core inflation actually rose at half the expected rate and stubbornly remains below the Fed’s target rate of 2%. Maybe just as important, consumer’s expectations for future inflation fell significantly, and this was despite the hurricane-induced increase in gasoline prices.

Well, bond markets liked this news enough to stop their march towards higher interest rates, but it wasn’t enough to ignite a new rally. Economic optimism is fairly pervasive at the moment, and with the White House and Congress singing Kumbaya together around the campfire, I think it would take a surprise event to deflate that optimism.

Short term I still recommend caution. There’s less friction for rates to move higher than lower. In other words, a less significant event, such as progress on tax reform or another hot inflation report, could move rates quickly higher.

Longer term, I think the chances for low rates still are good. The prospects of rising inflation and stronger economic growth helped lift rates off their recent lows, but they’re still only prospects. Most economists are predicting mediocre growth and low inflation for the coming year, and that would support our current low rates.

Rate update: Budding inflation leading to higher rates

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Oct 102017

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By G. Steven Bray

Bond markets got spooked last week, and interest rates moved higher. The media blamed the move on many things, but I think the underlying motivation is fear of inflation. While the Fed’s favored inflation metric, the PCE, continues to show negligible inflation, some other measures are beginning to show pricing pressure.

The first hint was the consumer price index a couple weeks ago, which showed consumer inflation approaching 2% again. Some analysts discounted the reading due to potential effects of Hurricane Harvey; however, the rise was greater than expected.

Very strong Manufacturing and Non-manufacturing surveys followed last week. The internals of both reports showed businesses reporting significantly higher input prices. While these pricing pressures don’t always percolate up to consumer prices, the magnitude of the increases was disconcerting.

The topper was the jobs report last Fri. The headline numbers were contradictory. The business survey showed the economy lost 33k jobs, but the household survey showed it gained about 900k. But what caught my eye was the impressive 0.5% monthly wage growth. Economists have been predicting low unemployment would push wage growth for years now, and we finally may be seeing it.

But, as I’ve said before, one month doesn’t make a trend, so it will be interesting to see if the readings remain higher once the effects of the hurricanes dissipate. It also will be interesting to see if consumer sentiment surveys begin to show expectations of higher inflation. If expectations start to align with economic reports, higher inflation could get locked into place.

Could rates move lower again? Sure they could, especially given all the potentially explosive issues facing the world. But I suggest you stay defensive unless and until you see rates heading down again.

Rate update: If Rocketman only knew

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Sep 262017

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By G. Steven Bray

The Federal Reserve sounded slightly more optimistic about the economy last week, and bond markets had a fit. The fit didn’t last long, but it was enough to put a dent in our recent rate rally.

Looking at the specifics:

– The Fed said it will start trimming its enormous balance sheet by reducing the amount of bonds it buys each month. It still will take the Fed many years to normalize its balance sheet, and markets fully expected this announcement, so its effect was minimal.

– The Fed indicated that it’s likely to raise short term interest rates again in Dec and that it expects the economy to chug along despite the recent disasters and low inflation. Markets didn’t expect this, which probably caused the fit. Chances of a Dec rate hike as measured in the market went from around 25% to around 75%.

But a good weekend’s rest and some elevated rhetoric from North Korea seem to have calmed the nerves, at least with respect to interest rates.

This week has some moderately important economic data. Any evidence of weakness or falling inflation could reignite our rally. Is that likely? I wouldn’t count on it; however, new North Korea headlines could pressure rates lower through flight-to-safety bond buying. We’re also at the end of the month, which tends to see bond purchases to rebalance portfolios. That can help keep a lid on rates.

Waive the appraisal to save some money

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Sep 212017

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By G. Steven Bray

Fannie Mae and Freddie Mac for a while now have allowed some borrowers who refinance their mortgages to forego an appraisal. Each has internal, computer-based valuation models, and if they feel sufficiently confident in a homeowner’s estimated value, they will accept it in lieu of an appraised value.

This month, both Fannie and Freddie announced they will start waiving appraisal requirements for some purchase transactions. The change could save a homebuyer $500 and shorten the mortgage process by a week or two.

Neither has released its formula for deciding when to offer the waiver; however, it’s expected that most waivers will go to homebuyers making large down payments, and that waivers will be offered on only 5% to 10% of transactions. Your mortgage lender will notify you of the waiver option after plugging your transaction into Fannie’s or Freddie’s computer-based underwriting system.

Even if you receive a waiver offer, you still can choose to get an appraisal. I suspect a significant number of homebuyers will waive the waiver and order an appraisal to make sure they’re not paying too much for their homes.

Feds extend special refinancing program

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Sep 202017

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By G. Steven Bray

The Federal Housing Finance Agency (FHFA) announced that it’s extending the Home Affordable Refinance Program, or HARP, through next year. The program was set to expire at the end of Sep. FHFA estimates more than 143k homeowners still could benefit from the program.

HARP was created to allow homeowners to refinance to lower interest rates regardless of their financial situation as long as they were current on their mortgage payments. Of the myriad rescue programs adopted by the Feds during the depths of the financial crisis, it was one of the safest because a homeowner willing to make a mortgage payment at a higher interest rate is quite likely to continue doing so at a lower rate.

Remember that HARP only applies to mortgages owned by Fannie Mae and Freddie Mac and closed before June 2009. You can determine whether Fannie or Freddie owns your mortgage by visiting their Web sites, links to which are the end of my blog.

Fannie Mae: Click here
Freddie Mac: Click here

Rate update: Markets waiting for this week’s Fed meeting

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Sep 192017

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By G. Steven Bray

All eyes are on the Federal Reserve again this week as it meets to discuss monetary policy. The Fed isn’t expected to change interest rates at this meeting; however, markets do expect it to announce when it will start reducing its massive portfolio of Treasury and mortgage bonds.

The Fed already has broadcast the details of the plan, which actually won’t result in the Fed selling any bonds. Instead, it will buy less, allowing run off to slowly reduce the portfolio over time. Less Fed buying could put a little upward pressure on rates in the coming months; however, given that markets have known the plan’s details for a while, I suspect current bond prices already reflect that.

I think it’s more likely reduced Fed buying will weaken its shock-absorber effect. Positive news, such as higher wages or world peace, normally lessens the demand for bonds, but the Fed has been there for most of the past decade to pick up the slack. Without the Fed, rates may bounce a little higher on such news.

I think markets will pay more attention to the Fed’s post-meeting rate projections and Fed head Yellen’s press conference. Last week’s inflation report, which showed the first uptick in a while, gave the Fed a little cover if it chooses to raise rates again this year. I’m sure markets will be very interested to know what Yellen and the other governors think about the prospects for inflation going forward. Should the Fed drop its recent concern over persistently low inflation, rates could jump.

Rate update: Tensions relax and rates rise

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Sep 122017

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By G. Steven Bray

Mortgage rates bounced off their low for the year last week. While the bounce reflects a relaxation of the uncertainties we’ve discussed, the broader trend for rates still is favorable.

First, let’s look at the reasons for the bounce.

– Congress kicked the can down the road on funding the government and the debt ceiling. While calling this a legislative success would be an insult to failure, it may allow Congress to focus on tax reform, which in a roundabout way pressures rates higher.

– Irma, while still a damaging storm wasn’t the disaster weather guys and gals were predicting last week. The storm’s damage undoubtedly will be counted in billions of dollars, but markets are breathing a sigh of relief that it wasn’t worse.

– North Korea surprisingly decided to celebrate Founder’s Day without fireworks. After the recent nuclear test, the world seemed convinced the Koreans would shoot another ICBM into the Pacific on Sat. When that didn’t occur, the world exhaled.

So, fear and uncertainty are waning. That leaves our focus for the moment on inflation and the Federal Reserve. We get the Consumer Price Index this week. While it’s not the Fed’s preferred measure of inflation, it’s got street cred. Expectations are the report will show a continued absence of inflationary pressures.

That may factor into the Fed’s decisions at its meeting next week. Analysts aren’t expecting a rate hike, but they do expect the Fed to announce a start date for reducing its balance sheet. Markets, however, will probably focus more on the after meeting statements. If the statements suggest a more cautious Fed, rates could improve. Alternatively, if the statements suggest full-steam-ahead, they could end our summer rate rally.

Rate update: Uncertainty leading to lower rates

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Sep 052017

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By G. Steven Bray

Mortgage rates continue at their lows for the year, and it has some market watchers scratching their heads. The economy continues to chug along at a reasonable clip, and central bankers are dialing back stimulus programs, signaling they think the growth is self-sustaining. This should give rates a lift.

Instead, we have a confluence of news and events that has markets increasingly on edge. For weeks now we’ve had US political uncertainty. Congress is back from vacation, and it has a huge to-do list for Sep, including preventing a government shutdown. Given its inability to get any major legislation passed this year, markets are understandably nervous, and legislative sausage-grinding will keep them that way.

North Korea hit the headlines again this week. The intractable nature of that situation and the more strident attitude of the Trump administration will help bond purchases, keeping downward pressure on rates.

Harvey and now Irma are unsettling factors. While they shouldn’t derail the economy, the storms impart an emotional cost that leaves everyone feeling a little more vulnerable.

The fear is that the persistence of these factors could erode consumer and business confidence, leading to a weaker economy. That would lead to lower rates, but for an unwelcome reason.

The one scheduled event this week is the European Central Bank meeting. The ECB is expected to discuss curtailing its stimulus program at the meeting, and an announcement to that effect could pressure rates a little. However, it may have a hard time overcoming the factors pushing the other way.