Rates
WOW, that is all that can be said, rates have improved to their best levels since October 2nd of last year. This mainly is due to economic data from everywhere BUT the US. If we looked at US economic data, technically rates should be in the Mid 4’s, but since we are such a global economy, we are seeing conventional Rates in the High 3’s and Government rates in the Mid 3’s, AND trending lower.
Today’s big announcement was from the Bank of Japan, where they took their Funds rate and went negative, which is really unheard of. What does this mean, well….
If you are a big bank, and have $100,000 you can do a couple of things with it, you could loan it out in the way of a mortgage, but there is a high risk that it could default or you could drop it into you Country’s bank. In the US, the Federal Reserve is paying .25% to keep it in the bank. A very low return on your investment, but a guaranteed return.
Well the Bank of Japan (BOJ), took their .25% they were paying and turned it negative, i.e. -.25%. This means if that big bank wants to park its money with the BOJ, the big bank will have to pay.
Well investors were caught off guard with the BOJ’s decision, and instead of lending that money out, say on a mortgage, they bought US Bonds, thus more bonds being bought, interest rate go down.
Until something happens in the world to calm it down, i.e. OPEC reduces output or China shows more growth, more and more investors are going to sock their money away in Bonds and less in Stocks, which is GREAT for rates!!!
Major Credit Rule Changes
Well, change is good, right. But for some borrowers, the new rules that Fannie Mae and Freddie Mac are releasing may prevent people from getting homes, even if they have a good FICO score.
Why, well beginning on June 26th of this year, a person’s credit report is going to be analyzed in-depth more that it has ever been! Not only is the credit score being looked at, and any collection, late payment or over limits, but now a person’s overall history is going to be looked at as well.
Below is directly from Fannie Mae:
Trended credit data is an innovative tool that leverages an expanded consumer credit report to help predict customer behaviors through the correlation of historical patterns. It allows for better analysis of a borrower’s credit history by providing an expanded, more granular view of the borrower’s debt repayment behavior, and historical debt utilization and trends, to support well-informed, insightful decisions.
Credit reports currently used in mortgage lending indicate only the outstanding balance, utilization and availability, and if a borrower has been on time or delinquent on existing credit accounts such as credit cards, mortgages, or student loans. With trended credit data, lenders will have access to historical monthly data (when available) that shows the current limit, current balance, high balance, scheduled payment, and actual payment amount that a consumer has made on these accounts.
The use of trended credit data, provided by Equifax and Transunion, into DU’s credit risk assessment will
support a more precise credit risk analysis. Among other benefits, this will allow lenders to determine if the borrower tends to pay off revolving credit lines such as credit cards each month, or if the borrower tends to carry a balance from month to month while making minimum or other payments.
So what does this mean well:
- No more spiking a borrower’s credit report by having them go out and get a credit card, charge a couple of times and pay it off immediately, now we are going to need a 24-month history.
- No more paying minimum on credit cards, pay more or pay it off is the best option.
- No more “Credit Repair” companies doing sneaky stuff to temporarily repair a person’s credit.
- 24 Month history is going to be key.
And the results will be:
- Less people with challenged credit will be getting homes.
- More people will be going FHA or more people will need to wait to purchase a home for better history.
Moral of this story is, get people with challenged credit qualifed and approved prior to June 24, but come June 26th they may not be qualified anymore or may have to go with a different loan program.