Rate update: Rates falling on fears about economy

 Interest Rates, Residential Mortgage  1 Response »
Jan 262016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Mortgage rates continue to be tied to oil prices and stocks. When they rise, rates rise. When they fall, rates fall. It’s not always that way, but this “flight to safety” trading has been active for the last few weeks.

As I’ve stated many times, interest rates are sensitive to expectations of inflation and growth. World equity and commodity markets are reacting to indications of slowing growth, and that has the punditry whispering recession. I read a wonderful quote the other day. “Did you know that the stock market has predicted 27 of the past 11 recessions?” I don’t know if a recession is imminent, but the fear is good for rates.

One other factor you may want to consider this week is the Federal Reserve meeting. This is the first meeting after it hiked short term rates in Dec. While no one expects the Fed to hike rates again this month, markets will be very interested in the post-meeting statement. The Fed previously indicated it would raise rates 4 times this year, but bond markets are only pricing in two rate hikes. Markets are watching to see if the recent stock and commodity market volatility will force more alignment between the two.

Why are appraisals so expensive? – Part 2

 Regulations, Residential Mortgage  Comments Off on Why are appraisals so expensive? – Part 2
Jan 202016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Yesterday, we started discussing why appraisal costs have soared. We identified regulations requiring that lenders order appraisals through middlemen. Let’s look at a couple other factors.

– Regulators have increased appraisal requirements. Appraisers not only have to estimate the property’s value but also have to assess the strength of the area’s housing market. FHA appraisers now have to crawl into a home’s attic or crawl space among other new requirements.

– Finally, the new integrated disclosures regulation requires lenders to quote appraisal fees exactly at loan origination. Given that little is known about the property this early in the loan process, appraisal companies that provide the quotes must consider the risk that the property has complexities. Thus, their quoted prices have risen.

– The new regulation also has virtually eliminated the market for appraisal orders. When you eliminate market competition, you get higher prices.

The added workload and lower pay pushed a number of appraisers out of business, and the inability to control appraisal fees because of appraisal company middlemen makes the profession unattractive for potential new appraisers. As a result, a number of housing industry experts is warning of a coming appraiser shortage. For homebuyers, this initially could mean delayed closings. Eventually, it probably means even higher appraisal prices as that may be what’s necessary to attract new people to the profession.

Why are appraisals so expensive?

 Regulations, Residential Mortgage  Comments Off on Why are appraisals so expensive?
Jan 192016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

“Back in the day, I could order an appraisal for $350.” So began a conversation with a couple other “old-timers” in the mortgage industry about the current high cost of appraisals. The only problem is “back in the day” was only a couple years ago. Today, a typical conventional loan appraisal costs $500 and an FHA appraisal can cost $600. Why has the cost increased so much in such a short time?

Several factors are to blame, and we’ll examine them today and tomorrow.

– After the financial crisis, regulators decided that because a few loan officers at Washington Mutual Bank had leaned on appraisers to falsify values that all loan officers should be punished. (Reminds me of elementary school, but then again, so do a lot of things the government does.) As a result, appraisals now are ordered through an appraisal company middleman. And, of course, the middleman charges a fee.

Initially, the middlemen just took their fee from the appraiser’s fee, meaning appraisers received less. However, recent legislation required that appraisers receive their usual fee, so middleman fees forced appraisal prices to rise.

Tomorrow, we’ll examine a couple other factors and the effect these may have on the broader housing market.

Rate update: Market turmoil helping interest rates

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Market turmoil helping interest rates
Jan 152016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Interest rates are benefiting from the “flight to safety” trade. As equity and commodity markets crater, investors are seeking the safety of bonds, which pushes interest rates down.

The funny thing is the bond market seems to be a reluctant recipient of this largess. The S&P 500 is down 200 points since Dec, and oil is trading at prices not seen in over a decade. Yet, 10-year bond prices are stuck in the same range where they’ve traded for months, albeit at the lower end of that range. This suggests that if not for the collapse in other markets, interest rates would be rising.

I mention this to keep you cautious. While US economic data still paints a mixed picture, the sentiment seems to be that the economy is supposed to improve. (Otherwise the Fed wouldn’t have raised short term rates, right?) And an improving economy portends higher interest rates.

Frankly, it’s a messy picture right now with many factors at play. The headline number in last Fri’s job report was surprisingly strong, which pundits used support the rosy economic sentiment. However, look past that number, and we find weakness. 40% of the new jobs were to people in the lowest age brakcet (read low paying service jobs) and wage growth again was non-existent (read no inflation pressure). This week brings the Christmas retail sales report and record corporate bond issuance. This is likely to keep rates volatile and unpredictable.

Take advantage of new loan limits

 Loan Guidelines, Residential Mortgage  Comments Off on Take advantage of new loan limits
Jan 092016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

While Fannie Mae and Freddie Mac left the conforming loan limit for single-family homes at $417k in 2016, HUD raised the FHA loan limit in 4 TX metros. Remember that FHA sets an area’s loan limit based on 115% of the area’s median home price.

Median home prices rose in Texas last year, so loan limits rose in Austin, Houston, Dallas/Ft. Worth, and Midland. Austin’s limit rose slightly to $333,500 for a single-family home. Houston’s limit also rose only a little to $330,050. The DFW limit took the prize for the largest increase, rising $24k to $334,650, now the highest in the state. Midland also had a sizable increase, rising to $285,200. The limit in San Antonio didn’t change, remaining at $316,250.

Remember that these limits apply to the entire metro area including surrounding counties. The FHA loan limit remains at the minimum, $271,050, for the rest of the state.

Flood insurance surprise if you refinance

 Regulations, Residential Mortgage  Comments Off on Flood insurance surprise if you refinance
Jan 082016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

If your home is in a flood zone, and you have a mortgage, you need to be aware of regulatory changes that took effect on Jan 1st. The changes implement part of the Biggert-Waters Flood Insurance Reform Act of 2012 and require lenders to escrow flood insurance premiums for most new residential loans.

So, what does this mean for you? If you’re currently paying for flood insurance, and you refinance your home, at closing your lender will set up an escrow account, and you will pay the flood insurance premium as part of your monthly mortgage payment. The change applies even if you do not escrow for property taxes and hazard insurance. This likely will mean more money due at closing because when you escrow, you pay in advance of the bill coming due.

The new regulation has one interesting twist that may be appealing to homeowners who currently pay their own flood insurance premiums. As of Jan 1st, your loan servicer must give you the option to escrow flood insurance premiums. So, if you don’t like paying that flood insurance bill each year, the change allows you to spread the payments out as part of your monthly mortgage payment.

Rate update: Could we have lower mortgage rates in 2016?

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Could we have lower mortgage rates in 2016?
Jan 052016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Amazingly, mortgage rates ended 2015 about where they began the year despite the predictions from talking heads that rates would rise. As we start the new year, they’re making those predictions again. So will they be right this time?

Yes, the Federal Reserve did raise short-term rates in Dec, and chances are they’re hike them further at upcoming Fed meetings. But remember that mortgage rates are much more sensitive to expectations for inflation and economic growth than the Federal Funds Rate. Inflation still seems very tame, and growth appears to be flagging. In the medium term, I don’t see much incentive for rates to rise.

But let’s look at the short term. This is a busy week for the markets. The first day back from vacation brought a big sell-off in the equity markets over concerns about global growth, but that may be temporary. I suspect US bond markets are more interested in Wed’s Fed meeting minutes and Fri’s jobs report. The Fed minutes may provide insight into the Fed’s plans for future rate hikes. Fed governors seem to be saying the hikes will happen more quickly than markets are expecting. The jobs report may tell us whether inflation pressures are building. Wage inflation has been almost non-existent during this recovery. Any change to that trend will catch the attention of markets. Both results would be negative for interest rates.