I sent out an update 3 weeks ago explaining how the stimulus package should affect mortgage loan limits. I mentioned in the article that we were waiting on HUD to publish median sales prices for each area so that we could determine the new loan limits. HUD has released the new loan limits and I wanted to get it to you as soon as possible.
DISCLAIMER – PLEASE READ THIS FIRST: Although the new loan limits have been posted for our information, the mortgage investors and servicers are still awaiting publications from FHA, Fannie Mae, Freddie Mac, and Ginnie Mae regarding their special rules for underwriting and securitization of these new loan limits. There will likely be different underwriting guidelines as well as pricing (rates) on these higher loan amounts. Once this information is published it could take a little while for the mortgage investors and servicers to let the industry know what their securitization and pricing rules will be on these higher limits. What this all means is…UNTIL THIS INFORMATION IS RECEIVED FROM THE MORTGAGE SERVICERS AND INVESTORS THESE HIGHER LOAN LIMITS ARE NOT AVAILABLE FOR ORIGINATION by myself or any other lender!!!
Review of the Stimulus Package:
The economic stimulus package passed Congress on February 7, 2008 and was signed into law by the President on February 13, 2008. This new law was effective immediately and includes a temporary increase in both the FHA and conforming loan limits to as high as $729,750 in high cost areas. This means that the interest rates on many mortgages will go down because these loans are now eligible to be purchased by Fannie Mae and Freddie Mac or insured by the Federal Housing Administration (FHA). Previously, the FHA was only allowed to insure loans with balances lower than $200,160 - $362,790, depending on the county where the property was located. Also, Fannie Mae and Freddie Mac were only allowed to purchase loans with balances at or below $417,000. This resulted in limited options and higher financing costs for those with loan balances above these limits. The new law will increase these limits in high cost areas and opens up new options and lower financing costs for many people. The new loan limits are only in affect until December 31, 2008 which means that the old limits will go back into effect after this year.
Here is the official information on how it will affect Lee and Collier Counties
(The data below is for single family homes only – the numbers go up for multi family dwellings)
Lee County (Cape Coral-Fort Myers MSA):
FHA: The current Lee County FHA loan limit is $270,750. The NEW Lee County FHA loan limit will be raised to $356,250!
Conforming: The current conforming loan limit of $417,000 in Lee County will not change.
Collier County (Naples-Marco Island MSA):
FHA: The current Collier County FHA loan limit is $362,790. The NEW Collier County FHA loan limit will be raised to $531,250!
Conforming: The current Collier County conforming loan limit is $417,000. The NEW Collier County conforming loan limit will be raised to $531,250 as well!
If you would like to look up a different market you can go to https://entp.hud.gov/idapp/fhagov/hicostlook.cfm and enter the State and County that you are looking for.
Again, I must give you a disclaimer. I am providing you this information to keep you up to date on the changes and to give you a basic understanding of how this will affect your specific market. Loans cannot be originated on these limits immediately. As I learn more I will send out more updates.
If you should have any questions on the above information please do not hesitate to call my office at (239) 275-7700.
In this constantly changing mortgage market it is my commitment to keep my clients and referral sources up to date on the latest information. It is equally important that you trust a career mortgage professional who is committed, qualified and equipped to give you timely information and expert guidance every step of the way. Is your mortgage partner still in the business? If not, I would like the opportunity to become your trusted advisor!
Thursday, March 6, 2008
Thursday, February 14, 2008
How the Stimulus Package Affects Mortgage Loan Limits
We have seen a whirlwind of legislative activity these past few weeks! There is much confusion surrounding the recently passed Economic Stimulus Package and higher loan limits. Unfortunately, the new law can be confusing to decipher, and not everyone will benefit. For this reason, we have provided an outline below that clarifies what this new law means for you and how you can benefit from the higher loan limits.
Description and Overview:
An economic stimulus package just passed Congress on February 7, 2008 and was signed into law by the President on February 13, 2008. This new law is effective immediately and includes a temporary increase in both the FHA and conforming loan limits to as high as $729,750 in high cost areas. This means that the interest rates on many mortgages will go down because these loans are now eligible to be purchased by Fannie Mae and Freddie Mac or insured by the Federal Housing Administration (FHA). Previously, the FHA was only allowed to insure loans with balances lower than $200,160 - $362,790, depending on the county where the property was located. Also, Fannie Mae and Freddie Mac were only allowed to purchase loans with balances at or below $417,000. This resulted in limited options and higher financing costs for those with loan balances above these limits. The new law substantially increases these limits in high cost areas and opens up new options and lower financing costs for many people.
How to Determine "High Cost" Areas
There are two things you must know in order to determine if you are in a high cost area:
1. Understanding the Formula
If 125% of the local area median home price exceeds $417,000, the temporary loan limit would be that 125% of the median home price with a cap of $729,750. Here are three examples to illustrate this concept:
- If the median home price in your area is $225,000, 125% of that number is $281,250. This is below the current $417k conforming loan limit. Therefore, the conforming loan limit in your area will not change. However, if $281,250 is greater than the FHA limit in your county, your FHA limit will go up to $281,250.
- If the median home price in your area is $375,000, 125% of that number is$468,750. This is above the current $417k conforming loan limit. Therefore, the conforming loan limit in your area WILL change and go up to $468,750. This number is also higher than the highest FHA loan limits, so therefore your FHA loan limit will also go up to $468,750.
- If the median home price in your area is $650,000, 125% of that number is $812,500. This number is greater than the maximum cap of $729,250. Therefore, the conforming loan limit in your area will increase to highest allowable amount under this new law which is $729,250.
2. Determining the Median Home Price in Your Area
This article is going out to my clients and referral sources throughout the country so below is the formula that will be used for all areas. I will address Lee and Collier County later.
The Secretary of Housing and Urban Development (HUD) will publish the median house prices within 30 days of the bill going into effect (30 days from February 13, 2008). HUD does not have any interim stats or information for us to use. However, the bill also states that HUD can use any commercially available data if they are unable to compile the information on their own within the 30 day timeframe. With that in mind, it is likely that HUD’s numbers will be relatively consistent with the data published by the National Association of Realtors (NAR), which already has a solid track record of tracking and publishing this information on a quarterly basis.
Therefore, until HUD actually publishes their version of the median home prices, the most accurate way to get this information today is to utilize the data that is published by NAR. Ironically, NAR just released their latest median home price update for the 4th quarter of 2007 on February 14, 2008! I have additional information that addresses some of the areas that the NAR report does not. Contact me today and I’ll research your info and let you know exactly what the median home price is in your area and how you can benefit from this information.
What do all the dates mean?
There is some confusion because the bill has a provision that says the higher limits are only effective for loans originated between July 1, 2007 and December 31, 2008. In short, the reason it is effective beginning July 1, 2007, is because the credit crisis started to unfold in July and August of 2007. Mortgage market conditions rapidly deteriorated almost overnight. Many secondary market investors suddenly refused to purchase loans that couldn’t be sold to Fannie Mae and Freddie Mac.
Unfortunately, many mortgage banks had already funded these loans in their own portfolio or through their warehouse lines of credit. Their intention was obviously to sell these loans on the secondary market after the loans were funded. However, the credit crisis prevented them from doing so, and they were stuck holding these loans in their portfolio. The July 1, 2007 date in the bill is designed to allow these lenders to unload these mortgages and sell them on the secondary market to Fannie Mae and Freddie Mac.
However, the July 1, 2007 date has no bearing whatsoever on new refinance transactions! In other words, it doesn’t matter when the loan you are refinancing was originated. The old loan could have been originated in 2005, 2006 or anytime before or after July 1, 2007 and it would have no effect whatsoever on your current purchase or refinance transaction. If you are refinancing a new loan today, whether it is a purchase or refinance transaction, that loan is subject to the new limits set forth in the bill.
The other date of December 31, 2008 means that the old limits will go back into effect after this year. In other words, now is the perfect time to buy a new home or refinance your mortgage because after this year, your costs will be higher and your options more limited again.
How I believe this will affect Lee and Collier County:
(The data below is for single family homes only – the numbers go up for multi family dwellings)
Lee County (Cape Coral-Fort Myers MSA): The NAR data shows a median sales price of $225,300 for the fourth quarter of 2007. If this number will be used for the calculations that I have detailed above there will not be much, if any benefit for Lee County.
The current Lee County FHA loan limit is $270,750. The calculation of 125% of the above median sales price is $281,625. This would mean a minimal increase in the FHA loan limit. And no increase over the current conforming limit of $417,000.
Collier County (Naples-Marco Island MSA): The NAR report does not list the Naples-Marco Island MSA. I have done some extensive research to obtain what I believe to be a relatively accurate median sales price number of $420,000.
The current Collier County FHA loan limit is $362,790. The calculation of 125% of the above median sales price is $525,000 which would be a significant increase in the FHA loan limit and Conforming loan limit for Collier County.
When does this all go into effect?
February 13, 2008 – immediately upon the President’s signature. Therefore, HUD is obligated to publish the median home prices within 30 days of that date. However, Fannie Mae, Freddie Mac, and various wholesale lenders may have different policies as to how these new loans are going to be priced and underwritten.
Again, I must give you a disclaimer. I am giving you the information that is available at this time to give you a basic understanding of how this will affect your specific market. These are subject to change based on the information that HUD is required to put out within the 30 day time frame.
Saturday, February 2, 2008
How does the Fed lowering rates affect mortgages?
In order to answer this question, it is helpful to understand the four major interest rates that are affected by the Fed:
Discount Rate (currently 3.5%) - the interest rate that banks pay when they borrow money directly from the Fed. The rate has been largely symbolic in the past because banks prefer to get short term financing by:
Issuing "commercial paper" – these are short term IOUs of typically one to ninety days that are sold on the open market to Wall Street investors. Interest rates on these short term loans are often better than the discount rate offered by the Fed.
Borrowing money from other financial institutions using the Fed Funds Rate as illustrated below. In most cases, this rate is also better than the discount rate offered by the Fed.
Borrowing money using the Fed's new "Term Auction Facility" that allows Banks to bid anonymously on what interest rate they want to pay when they want to borrow money from the Fed.
Fed Funds Rate (currently 3%) - the interest rate that banks pay when they borrow money from each other here in the US. This rate is also determined by the Fed because banks in the US are part of the Federal Reserve System. You see, the Fed's main role is to maintain "monetary stability" by keeping a close eye on the flow of money throughout the economy. One way they do this is by regulating the interest rates that banks charge each other for short term funds.
LIBOR Rate (One Month LIBOR is currently 3.14%) – the London Interbank Offered Rate (LIBOR) is the interest rate that banks pay when they borrow money from other banks anywhere in the world (primarily in the international wholesale money market based in London). There are various types of LIBOR rates including the 1 week LIBOR, 1 month LIBOR, 6 month LIBOR, and 1 year LIBOR; these are the rates banks would pay if they want to borrow funds for 1 week, 1 month, 6 months, etc. Although the LIBOR rates are determined by the financial markets at any given time, they are very closely related to the Fed in that LIBOR most often changes when the market anticipates that the Fed will change their Fed Funds Rate. LIBOR is the base rate that is used on most adjustable rate mortgages (ARMs) in the US and large corporate / commercial loans. The reason LIBOR is used most often for US adjustable rate mortgages is because LIBOR is really the most accurate measure of a bank's cost of borrowing funds since most banks do business internationally these days.
Prime Rate (currently 6%) – the Fed Funds Rate + 3; this is the base rate that is used for most consumer loans such as credit cards and home equity lines of credit, as well as most small business loans. Like the LIBOR, the Prime Rate is also tied to the Fed Funds Rate.
So there you have it.
You see, as the Fed lowers the Fed Funds Rate, the business and consumer-based interest rates of LIBOR and Prime will also go down as illustrated above. The Fed would be reluctant to continue lowering rates if they feel that businesses and consumers would start borrowing and spending so much money that inflation will go up significantly.
Remember, the Fed's main goal is to "maintain monetary stability" by keeping a close eye on the flow of funds in the US economy. It would be reckless of them to artificially encourage too much borrowing and spending as this would only artificially drive up asset prices and cause money to lose its purchasing power. This phenomenon is known as "inflation." The good news, however, is that inflation seems to be under control based on some of the latest economic reports.
How does the Fed affect mortgage rates?
Well, if you have a home equity line of credit based on Prime or short term ARMs based on LIBOR, you should see an immediate reduction in your interest rate in the coming weeks. However, if you are considering a fixed rate loan or longer term ARM with a fixed period of 3, 5, 7 or 10 years, rates on those types of loans are not directly related to the Fed. Instead, these rates are closely tied to the Mortgage Backed Securities that trade on the bond market. For more on how this process works, please contact me to request the article entitled, Saga of the US Mortgage Industry.
With all this in mind, it is more important than ever to work with a mortgage professional who can decipher market conditions and help you make informed decisions in today's volatile market. Whether you have or are considering an ARM or a fixed rate loan; whether you are buying, selling or refinancing a home; whether you are dealing with a primary, vacation or investment property; now is the time to be dealing with an expert.
My team and I are committed, qualified and equipped to help you navigate today's turbulent mortgage marketplace. Don't delay in implementing the mortgage and real estate equity planning strategies that will make a positive impact in your life and the lives of your loved ones!
Discount Rate (currently 3.5%) - the interest rate that banks pay when they borrow money directly from the Fed. The rate has been largely symbolic in the past because banks prefer to get short term financing by:
Issuing "commercial paper" – these are short term IOUs of typically one to ninety days that are sold on the open market to Wall Street investors. Interest rates on these short term loans are often better than the discount rate offered by the Fed.
Borrowing money from other financial institutions using the Fed Funds Rate as illustrated below. In most cases, this rate is also better than the discount rate offered by the Fed.
Borrowing money using the Fed's new "Term Auction Facility" that allows Banks to bid anonymously on what interest rate they want to pay when they want to borrow money from the Fed.
Fed Funds Rate (currently 3%) - the interest rate that banks pay when they borrow money from each other here in the US. This rate is also determined by the Fed because banks in the US are part of the Federal Reserve System. You see, the Fed's main role is to maintain "monetary stability" by keeping a close eye on the flow of money throughout the economy. One way they do this is by regulating the interest rates that banks charge each other for short term funds.
LIBOR Rate (One Month LIBOR is currently 3.14%) – the London Interbank Offered Rate (LIBOR) is the interest rate that banks pay when they borrow money from other banks anywhere in the world (primarily in the international wholesale money market based in London). There are various types of LIBOR rates including the 1 week LIBOR, 1 month LIBOR, 6 month LIBOR, and 1 year LIBOR; these are the rates banks would pay if they want to borrow funds for 1 week, 1 month, 6 months, etc. Although the LIBOR rates are determined by the financial markets at any given time, they are very closely related to the Fed in that LIBOR most often changes when the market anticipates that the Fed will change their Fed Funds Rate. LIBOR is the base rate that is used on most adjustable rate mortgages (ARMs) in the US and large corporate / commercial loans. The reason LIBOR is used most often for US adjustable rate mortgages is because LIBOR is really the most accurate measure of a bank's cost of borrowing funds since most banks do business internationally these days.
Prime Rate (currently 6%) – the Fed Funds Rate + 3; this is the base rate that is used for most consumer loans such as credit cards and home equity lines of credit, as well as most small business loans. Like the LIBOR, the Prime Rate is also tied to the Fed Funds Rate.
So there you have it.
You see, as the Fed lowers the Fed Funds Rate, the business and consumer-based interest rates of LIBOR and Prime will also go down as illustrated above. The Fed would be reluctant to continue lowering rates if they feel that businesses and consumers would start borrowing and spending so much money that inflation will go up significantly.
Remember, the Fed's main goal is to "maintain monetary stability" by keeping a close eye on the flow of funds in the US economy. It would be reckless of them to artificially encourage too much borrowing and spending as this would only artificially drive up asset prices and cause money to lose its purchasing power. This phenomenon is known as "inflation." The good news, however, is that inflation seems to be under control based on some of the latest economic reports.
How does the Fed affect mortgage rates?
Well, if you have a home equity line of credit based on Prime or short term ARMs based on LIBOR, you should see an immediate reduction in your interest rate in the coming weeks. However, if you are considering a fixed rate loan or longer term ARM with a fixed period of 3, 5, 7 or 10 years, rates on those types of loans are not directly related to the Fed. Instead, these rates are closely tied to the Mortgage Backed Securities that trade on the bond market. For more on how this process works, please contact me to request the article entitled, Saga of the US Mortgage Industry.
With all this in mind, it is more important than ever to work with a mortgage professional who can decipher market conditions and help you make informed decisions in today's volatile market. Whether you have or are considering an ARM or a fixed rate loan; whether you are buying, selling or refinancing a home; whether you are dealing with a primary, vacation or investment property; now is the time to be dealing with an expert.
My team and I are committed, qualified and equipped to help you navigate today's turbulent mortgage marketplace. Don't delay in implementing the mortgage and real estate equity planning strategies that will make a positive impact in your life and the lives of your loved ones!
Tuesday, January 1, 2008
Reputable Lending
How to Determine Whether Your Loan Officer is Reputable
In slower markets, some loan officers may feel pressured to close deals that aren’t in the homeowner’s best interest. In order to avoid getting into difficult and financially compromised positions with their mortgages, borrowers are well advised to be acutely aware of the signs of a responsible loan officer when selecting a mortgage professional.
First, look for a Mortgage Planner whose values are focused on helping individuals to achieve their financial goals in both the fastest and the safest way possible. A reputable Mortgage Planner will show you the numbers associated with the proposed loan and provide you with concrete information that backs up his or her claims. Review all of the numbers. If they don’t add up, ask for clarification. If your loan officer can’t or won’t answer your questions, move on--without the loan.
Secondly, a responsible Mortgage Planner will present you with financial information that goes beyond the point of the transaction, and will illustrate the total cost of the loan over time. If your loan officer is focusing only on rates and fees, you may be working with someone who’s looking out for his or her own best interests, not yours.
Responsible Mortgage Planners will also tailor their strategies to fit your unique situation. In other words, they always take your personal financial goals into account. No one should try to place you into a loan without knowing the intricacies of your personal financial situation.
Finally, if your loan officer is advising you on issues other than mortgages, you could be working with someone who is compromising your best interests. Issues like investment rates of return and real estate appreciation aren’t the areas of expertise for the vast majority of mortgage professionals and should be left to the professionals who have training and direct experience in those areas.
When seeking a loan officer, look for someone who specializes in mortgage planning, which is the process of evaluating a borrower’s unique financial situation and advising the borrower on a loan that best suits his or her individual needs and goals. If your loan officer is trying to put you into a loan without evaluating how that loan will effect your entire financial situation--including debt management, tax benefits, investment goals and net worth--it’s quite possible that you’re only getting half of the picture.
The bottom line is that your mortgage representative should always be looking out for your best interests, regardless of market conditions.
In slower markets, some loan officers may feel pressured to close deals that aren’t in the homeowner’s best interest. In order to avoid getting into difficult and financially compromised positions with their mortgages, borrowers are well advised to be acutely aware of the signs of a responsible loan officer when selecting a mortgage professional.
First, look for a Mortgage Planner whose values are focused on helping individuals to achieve their financial goals in both the fastest and the safest way possible. A reputable Mortgage Planner will show you the numbers associated with the proposed loan and provide you with concrete information that backs up his or her claims. Review all of the numbers. If they don’t add up, ask for clarification. If your loan officer can’t or won’t answer your questions, move on--without the loan.
Secondly, a responsible Mortgage Planner will present you with financial information that goes beyond the point of the transaction, and will illustrate the total cost of the loan over time. If your loan officer is focusing only on rates and fees, you may be working with someone who’s looking out for his or her own best interests, not yours.
Responsible Mortgage Planners will also tailor their strategies to fit your unique situation. In other words, they always take your personal financial goals into account. No one should try to place you into a loan without knowing the intricacies of your personal financial situation.
Finally, if your loan officer is advising you on issues other than mortgages, you could be working with someone who is compromising your best interests. Issues like investment rates of return and real estate appreciation aren’t the areas of expertise for the vast majority of mortgage professionals and should be left to the professionals who have training and direct experience in those areas.
When seeking a loan officer, look for someone who specializes in mortgage planning, which is the process of evaluating a borrower’s unique financial situation and advising the borrower on a loan that best suits his or her individual needs and goals. If your loan officer is trying to put you into a loan without evaluating how that loan will effect your entire financial situation--including debt management, tax benefits, investment goals and net worth--it’s quite possible that you’re only getting half of the picture.
The bottom line is that your mortgage representative should always be looking out for your best interests, regardless of market conditions.
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