Jesse R Wojdylo asked:




With interest rates moving up recently many American homeowners are looking to compare mortgage interest rates today. Some analysts feel that April 2010 is going to be the turning point when it comes to the current low rate environment we are in. Since the beginning of April we have seen the 30 year fixed mortgage rate move up from 4.75% all the way to 5.1%. Do not be surprised to see this trend continue.

The Federal Reserve Bank is no longer purchasing mortgage backed securities and the 10 year treasury rate yield has seen a strong up trend over the last few weeks. These are two strong indications that mortgage rates are set to move much higher over the next few weeks and months.

By going through the process of comparing home loan rates today Americans could save a significant amount of money on their monthly home loan payments. It is important to understand that not all homeowners are going to qualify for a very low rate in the current economic environment. Unfortunately, some homeowners are going to find that they qualify for a rate closer to 6% than 5%.

No one knows if April 2010 will be the yearly lows for mortgage rates but many analysts continue to predict much higher rates in the very near future. Some analysts have been predicting this since as early as November of 2009. Luckily, overall rates are still low but do not be surprised if current loan rates move up to levels closer to 6%.

Dorothy

Josh Harmatz asked:


At the end of the dot com bust, we saw money-hungry investors worldwide thirsty for more. Their new fix came via mortgage-backed securities (MBS), lots of home loans, and the proceeding hangover is still lingering.

Rise of Home Loan Lending

The influx of money into the United States from the rising economies in Asia and oil-producing countries combined with low interest rates in the U.S. contributed to good credit conditions from 2002 to 2004, which created housing and credit bubbles.

The credit conditions were so favorable that there has been a significant increase in home ownership rate—from 64 percent in 1994 to 69.2 percent in 2004. The major contributor to the increase was the rise in subprime lending, a financial term that involves financial institutions extending credits to borrowers who did not qualify for loans at the prime rate. Subprime lending caused housing prices to increase. In fact, between 1997 and 2006, the price of a typical American house increased by 124 percent.

As home ownership rate rose, so did mortgage-backed securities. MBSs are debt obligations that represent claims to cash flows from mortgage loans, most commonly on residential properties. Simply put, MBSs get their value from mortgage payments and housing prices. Because of the housing and credit booms, institutions and investors worldwide invested in the U.S. housing market.

Homeowners were refinancing their homes at lower interest rates. Taking advantage of the appreciation in housing prices, some homeowners resorted to financing consumer spending by taking out second mortgages. What can be concluded from this pattern is that consumers were borrowing and spending more yet saving less, thereby increasing household debt from $705 billion at the end of 1974 to $7.4 trillion at the end of 2000, to $14.5 trillion in the middle of 2008.

The financial system enjoyed the housing boom for a while, but not for long.

Fall of Home Loan Lending

Housing prices began declining in the middle of 2006. As a result, the same institutions and investors that invested heavily in MBS suffered significant losses. Overall, the losses suffered worldwide are estimated to be trillions of U.S. dollars.

The housing crisis is greatly affecting Americans. President Obama said that it is “unraveling homeownership, the middle class, and the American Dream itself.”

One of the causes of the decline in housing prices is that policymakers did not recognize the fact that financial institutions (such as investment banks and hedge funds) are increasingly becoming important in the financial system. These institutions were not subject to regulations that cover commercial banks. Hence, they were not able to protect themselves from MBS losses. These losses affected their ability to lend, thereby slowing economic activity.

Others proposed the following causes:

- inability of homeowners to pay their mortgage, attributed mainly to the resetting of adjustable-rate mortgages

- borrowers overextending

- predatory lending

- speculation and overbuilding during the boom period

- risky mortgage products

- high personal and corporate debt levels

- financial products that distributed and perhaps concealed the risk of mortgage default

- monetary policy

- international trade imbalances

- government regulation (or the lack thereof)

An interesting thing to note is that the predatory lending practices of mortgage brokers are cited as one of the more important causes of the crisis.

Because of this ongoing crisis, many homeowners lost their homes and investments, and homes for sale are significantly increasing.

The Future

The future of the housing market is still obscure. However, the deteriorating housing market prompted central banks around the world to cut interest rates and governments to implement economic stimulus packages to prevent any more damage to the bigger economy.

To address this crisis, some leaders in developing countries met in November 2008 and March 2009 to find solutions. As of April 2009, however, many of the root causes of the crisis had yet to be addressed. Government officials, central bankers, economists, and business executives have proposed solutions, while various agencies and regulators have taken additional steps to best handle the crisis.

President Obama and his key advisors, on the other hand, introduced a series of regulatory proposals in June 2009, but the proposals have yet to be implemented. Whether it will work or not, only time will tell.



ERNESTO

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