Jim Bisnett asked:




The mortgage industry has experienced slow application activity over the past several months, but that jogging pace may turn into a sprint as mortgage rates fell to historical lows recently. On November 25, the government announced some major credit stimulation initiatives in a bold move to bolster the depressed housing and mortgage markets. On the news, home loan rates tumbled by one-half percent, a move seldom encountered in the mortgage business. Three major components came together to create the sharp drop. First, the Treasury announced that they would now guarantee Fannie Mae and Freddie Mac debt and purchase up to $100 billion of that debt, thereby bolstering investor attraction to the safety of their issued bonds. Secondly, the Treasury announced that it would purchase up to $500 Billion of Fannie, Freddie, and Ginnie securities, creating much needed liquidity in the mortgage markets. Finally, Treasury yields dropped in a major one-day move, almost one-quarter percent on the 10-Year Treasury bond.

The result of this perfect storm of financial news was a one-half percentage point drop in mortgage rates and a potential beginning for stabilization in housing. Historically low mortgage rates may be just the stimulus needed to drive potential homebuyers off the fence to begin the offering process. After the government announcement, many lenders were offering par rates in the 5.5 percent range for 30-year fixed rate mortgages. Home loans at this price may be a hard deal to pass up for those refinancing loans and purchasing homes, especially in light of the roller coaster ride that mortgage rates have taken so far this year.

On the refinancing front, although interest rates are low, home prices continue to deteriorate across the country. The National Association of Realtors recently announced that sales of existing homes fell by 3.1 percent in October, and the median home sales price plunged 11.3 percent from a year ago to $183,000. On this news, it’s important to keep in mind that a homeowner’s qualified refinance home loan interest rate may not be as low as advertised offer rates, if their loan-to-value (LTV) ratio exceeds 80 percent. So, it’s a good idea for those considering a mortgage refinance to get a handle on the value of their home, before they start shopping rates. The spread appears to be tightening for higher LTV home loan scenarios, but those refinancing over 90 percent of their home’s value will most likely get the best deal with an FHA refinance.

As for the rate outlook ahead, many feel that the current low mortgage rates will continue for a while. Whether they decline even further is anyone’s guess, but a leveling in home prices could be just the medicine needed for further rate dips.

Lucy

Kristin Abouelata – Home Loans asked:


According to Wikipedia, the definition for a white elephant is “a valuable possession which the owner cannot dispose of, but whose cost (particularly of upkeep) exceeds its usefulness.”    Hmmm.  Sounds like some of the higher priced homes we hear may be sitting on the market a little bit longer than usual.  According to the Knoxville Area Association of Realtors (KAAR), the number of homes valued at $500K+ which sold in May 2008 was 34.  But there were 205 new listings.

 

Ok, so I have to give you a little bit of history about the origin of the phrase white elephant.  It really has nothing to do with mortgage lending, but it’s a cool information nugget to know.  Per Wikipedia (yes, again),  in the tales from the Buddhist scriptures, Buddha’s mother dreamt of a white elephant giving her a lotus flower on the eve of Buddha’s birth.  Thus, in Southeast Asia, it became a status symbol to own a white elephant (basically a requirement if you were some type of royalty).  However, due to being sacred and all, the owner couldn’t have the white elephant actually do any work or labor to offset its keep.  Ever wonder how much food an elephant can consume a day?  Think of the clean up after it eats!  You not only get to feed the beast constantly, but you also have nothing to show for it when you’re done.  You get the picture.

 

So, my analogy of there being a few white elephants in the real estate market right now is due in part to the jumbo rates not being so hot as of late.  Loans below $417,000 are sold into mortgage backed securities.  But jumbo loans are sold into private backed securities.  And unfortunately due to the debacle in the mortgage industry that occurred in markets such as Florida, Nevada and California (where a lot of loan sizes are above $417K), there’s not a great appetite for the jumbo loan.  It’s kind of like jumbo loans are liver and spinach on the menu.  A few people will buy that stuff, but it’s not as popular as the cheeseburger.

 

So what to do if you need a jumbo loan?  Make sure you work with a lender who knows their stuff and can present you with options.  Adjustable rate mortgages (ARM) may suit your needs as long as they are fixed for a decent amount of time and won’t paint you into a corner.  An ARM may buy you enough time to refinance at a later date when the market calms down.  You might also be able to wrangle a first and a second so the first loan fints under the conforming loan size umbrella and the second part of your financing is at a smaller loan amount with a higher interest rate.  Just be smart and make sure your lender is smart.  And if you’re selling your home, sit tight.  These homes are moving, however it might be at an elephant’s pace.  Don’t fret, though.  An elephant’s top speed can reach 25 mph.



BLAIR