Rates

Once again, for the 3rd straight week, rates have slide just a little, bolstered by the lack of intelligence in Washington.

With the Fiscal Cliff, now just 32 days away, and with no hope in sight, it looks like the kids in the sand box all can't play nice and nothing will probably happen.

So even though all the economic news that has come out has been pretty good, especially the housing numbers, all eyes are focused on the Fiscal Cliff.

So what will happen if we go over the edge, well it will be a double edge sword for the housing market.

1st, the economy will slow down, estimates range from 10-15%, which could push us back into a recession.  Stock market will sell off.

2nd, the good, because of the negative economic results, bonds will be a hot item to purchase, thus rates will continue to slide, can we say rates in the 2's?????

Now what will happen if they do come up with a decision, well it is expected that if a decision is made to avoid the cliff, it will just be enough to "kick the can down the road" or a quick fix.

Results:

1st, stock market will initially rally, until they get the whole details, find out it is just a quick fix, and then they will sink again.

2nd, rates will initially rise, but once the full message is out, probably will fall back to what ever levels they were previously.

Moral of the story:  Rate should stay in this range for the next 4 weeks or until DC has some sort of finalization for the cliff.  After that, focus will be back on the US economy and Europe.

FHA tax hike

Yes, you lovely FHA loan is increasing their fees once again!

The Monthly MI fee will be going from 1.25% to 1.35%, or about $8.33 more per month.  Doesn't sound like much, but consider this, for the last 3 years FHA has raised their rate, from .55% to 1.35%, or $66.67 more per month on a $100,000 loan amount.

Don't have an exact date on when it will happen, but SOON.

FHA for LIFE?

Now although the "tax" hike on FHA is only going to be $8.33/month.  The HUGE news is this.

FHA monthly mortgage insurance, as of right now, can be potentially removed after 5 years, assuming your equity has increased by 25% or your principal has been reduced by 25%.  Then between year 5 and year 14, you can try to have it removed.  Around year 14 it will automatically come off.

COMING SOON, FHA will have the monthly MI for LIFE OF THE LOAN, never to be removed until you refinance out of a FHA loan and into a conventional loans.

So someone says no big deal, you can just refinance it.

Well that is great for me, I will make money doing the refi's but consider this.

Rate CAN"T stay this low for ever!  So Mrs. Buyer closes her home this month, gets a 3.25% on a FHA loan.  Then 5 years down the road her home has increased in value, under the old program she can get the FHA MI removed.

BUT...what if rates go up, say in 5 years the are in the 5.25% mark (were we expect that they should be)

Well under the old program, she can get the MI removed and keep her stellar 3.25% rate  and just remove the MI.

Under the NEW program, should would have to refinance in the higher 5.25% rate to get it removed OR continue to pay the high 1.35% MI.

DUMB!