Mortgage Interest Rates
Mortgage rates improved this week, not because of economic news, but mainly due to the release of the Tax Reform Bill.
As stated in past blogs, the tax reform and North Korea are the two major concerns in the market. We anticipated that the stock market would rally and thus causing mortgage bonds to sink with the release of the Tax Bill. But what was anticipated in the tax bill wasn’t what was expected. The corporate rate will eventually go down to 20%, but over time, rather than one lump sum. This caused investors to pause, and digest the whole bill.
We will see what actually comes out of the Bill in the end.
What was unexpected was last Friday, when the providence of Catalonia, which is in Spain, tried to basically succeed from Spain. Spain then went in with “Police” and started to remove politicians.
This is going to be something to watch, if Catalonia does succeed from Spain, and remember Spain is part of the European Union. Will Spain’s economy collapse, thus having to have the EU bail them out, or worse yet, Spain removes itself from the EU, as Britain has???? This is definitely going to be something to watch, and could keep mortgage back securities, and interest rates in a very nice trading range.
Our anticipate is that rates are, maybe someday, going to go up. But with the Tax Bill now out, and not quite what Wall Street wanted, and the “Rocket Man” still threatening the US with a Nuke, we are in for more stable, mortgage rate range. Still in a locking mode, but gambling may pay off.
Also this week, Trump nominated Jerome Powell to replace Janet Yellen as head of the Federal Reserve, Mrs. Yellen’s term is up in February. The word on the street is Mr. Powell will be must of the same, a dovish conservative. So we do not expect any sudden moved in the Fed Funds rate.
FHA and VA down to 500 FICO
I recently did a blog about FHA and loans down to 500 FICO scores. Quite a few lenders call me…well not nice name, saying I was smoking crack. Keep in mind FHA WILL do loans, and so will VA down to 500 FICO scores. And I definitely have borrowers in the pipe or closed with low 500 FICO scores. Here is a web page I setup that goes over FHA loans, a pretty good read, with a basic overview of FHA loans: http://www.375loan.com/resources/fha_loan_for_homebuying/
Tax Reform Bill
As stated above, the Tax Reform Bill was announced this week, and they are taking LOTS of deductions out. But one that affects our industry is the reduction of the Mortgage Interest Deduction. Now there will be lots of alphabet industries that are going to oppose it, such as MBA, NAR, NAHB, etc. But the sky isn’t falling, according to the IRS only 21% of tax filers, who are eligible to file to this tax break, do so. And currently homes with a purchase of $1.0M or less qualify.
But the tax bill will now reduce the home price to $500,000 or less, but WILL grandfather in those $1.0M to $500K homes.
Below is a graphic, that shows who are going to be affected, and obviously who is raising the most concern. Under the new program, it is anticipated at the 21% will drop to 6%.
Source NLIHC