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| Federal Reserve Stops Buying MBS The Federal Reserve has ended its commitment to buy mortgage back securities. Over $1.25 trillion has been invested. This strategy was one of the arrows in the quiver of the Obama's Administration. It was hoped that it would hit a bull's eye and rescue homeowners from the current housing crisis. The big question now is "will mortgage rates increase?". In the short term rates will increase, but only slightly. The housing market is still lukewarm and a significant jump in rates would undo all the good the Fed has accomplished by purchasing mortgage backed securities. Ed Halderman, CEO of Freddie Mac, thinks that mortgage rates are not going to rise significantly in the short term. The Fed exit from mortgage backed securities is huge. Who will step up to the plate and be a replacement? There are private investors, and there are the banks. As long as there is confidence they will be players. The banks have strong balance sheets and are looking for a safe harbour to put their funds. Where better to put the money than in a MBS that has the full backing of Fannie Mae and Freddie Mac. So far, the market has reacted calmly. The Fed has given fund managers and bankers some degree of confidence by assuring them that the $1.25 trillion portfolio will remain intact. This is vital since the Fed now owns about 25% of the MBS market. Realtors are the ones who are sitting on pins and needles. The $8,000 first time buyer's tax credit ends. If we add increased mortgage rates, and a tight credit market, this is more than a blip in revenue. This is a disaster. We ran some numbers using the Affordability Calculator. At a 5% rate and income of $8,000 a month, and downpayment of 20%, this couple can buy a house for $490,300. If the rate jumps to 6%, they can buy a house for $439,100. There is a significant drop of $51,200. If you are one of the millions of homeowners trying to refinance or modify a loan, no need to worry about interest rates. Rates are likely to remain below 5.75% for a 30 year fixed, and below 4.95% for a 15 year fixed. Do not expect to see rates at 4.92% as we did in December 2009. |
| How To Prepare Your Refinancing Application The process of applying for a refinancing loan should begin 12 months before you make the application. In other words, try and get your financial house in order. Many times, because we are stressed and short on time we go with the first lender that would talk to us. Planning will get you a better rate and better terms and conditions on the mortgage. A savings of $100 or $200 a month over a period of five or six years will amount to a significant savings. Here are five areas that need your focus, energy and time. 1. Avoid opening any new credit cards, and do not apply for any consumer credit or loans. 2. Do not make any major purchases. Forget about the new car, the exotic vacation, the Caribbean cruise, the new stainless steel appliances. Postpone these for after the refinance is complete and you get the cash. 3. Pay you mortgage on time. If you can pay the mortgage one or two days ahead of the due date, that is even better. And do not neglect your credit cards. Continue to pay them on time, and keep the balances low. 4. Do not change jobs unless the increase in pay is substantial. 5. Get an up-to-date credit report so that you can review and check the accuracy of the report. Never assume that all the information on your report is accurate. A score of 760 plus, will get you the very best rate, but 700 to 740 will get you a good rate. Any score below 680, will require some serious negotiating. Now you are ready to apply. Research the available lenders, interview them and then select one. Do not apply to several lenders, as this will lower your credit score, and make you seem desperate. Readers of this article also enjoyed: My Community Mortgage From Fannie Mae |
| Why Refinance Or Get A Home Equity Loan There are several reasons to refinance, including:
Warning All of the above are good reasons to refinance or get a HELOC. However, we would like to caution you about consolidating your bills and paying off high interest debt such as credit cards. You must have a plan. First, as you pay off each credit card, cut-up the card. You can survive with 2 cards. Keep one card in your wallet and the other in a safe place at home. You need a debit card and one credit card in your wallet. Use the credit card for gasoline, restaurants and special occasions. Use the debit card for every day purchases, fast food, groceries, hair salon and at the pharmacy. This strategy keeps you on track and prevents you from repeating the mistakes that got you in trouble in the first place. A relative of mine went through the refinancing process three times! At the end when she sold her house and moved into a retirement home, she got a check for $3,250. This is all she got for 15 years in a home she loved. She didn't have a plan. She continued to carry 6 or 7 credit cards. Everytime she refinanced, she would pay a lump sum on each card. Some cards received $4,000, some $1,000. But she never destroyed any cards. And that was her downfall. |
| Changes To Fannie Mae Loan Products Fannie Mae has made some concrete changes that will tighten its underwriting guidelines. The objective is to allow homeowners to sustain their mortgage payments. The official announcement was April 30, 2010. The changes will be implemented over the next 12 weeks. These changes will affect Adjustable Rate Mortgages (ARMs), Balloon Mortgages, and Interest Only Mortgages. ARMs 5 years or less are targeted. Borrowers must now qualify based on a rate 2% more than the note. For example, if the note is 6% the homeowner must qualify at 8%. The seven year standard balloon mortgage has been eliminated. There are tighter rules on Interest Only mortgages. The new rules go into effect on June 19, 2010. The property must be the primary residence or a vacation home, and it must be one unit. With these changes, the borrower's credit and net worth have to be strong. The FICO score has to be 720 or higher. The mortgage must be for a purchase, or a refinance rate and term. No more cash out refinance. Furthermore, if the borrower meets all of the above, he now has to show at closing that he has to have liquid reserves to cover 2 full years of mortgage payments. This is incredible. It means that if your payments are $2,000 a month you have to show a minimum of $48,000. In addition to these requirements, the borrower also has to put down 30% of the purchase price on the house. Readers of this article also enjoyed: Why Do Borrowers Default On Their... |
| Buying A House For Cash: Do You Deserve A Discount? Many homebuyers who pay cash for a house expect a discount. The reality is that it doesn't always workout to the seller's advantage. They are several reasons why cash doesn't matter. The seller must be very motivated to offer a discount. If they are closing on their dream house a cash deal will be a blessing. However if the seller has several months before closing on the new home, the more money they get the better. You also have the situation where the seller has very little equity in the house. Generally a cash offer will not be motivation for a discount. The flip side is true. The seller will be trying to get as much from the buyer as possible. Developers hate to give any discounts. A discount is possible, but be prepared to haggle. The reason is simple. Many builders have their own financing company. And this becomes a separate profit center. Builders are also known to have special arrangements with lenders and banks. Therefore to give a discount will be seen as supporting the competition. Many realtors are steering their buyers towards foreclosures. However the banks that are selling these properties do not seem to have a strong preference to cash or financing. In my opinion the bank would prefer to give a discount if the buyer is willing to take a mortgage from the bank. Despite these drawbacks, a cash offer will get a seller's attention and it will mark your offer as serious. If you do decide to go the cash route, make sure your offer asks for everything a lender normally would require—namely an appraisal, a home inspection, a wood-boring insect inspection and title insurance. Lenders typically insist on these items because they help determine the price, condition and ownership status of a home. For your own protection, you should, too. Readers of this article also enjoyed: Do Not Disregard Your Mortgage... This Tax Gives You Money Each Year... |
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