Hello, sorry for the long hiatus in my blogs, been slightly busy…on to the news!
Rate
Holy COW, rates have continued for the last 3 months to improve, and as of yesterday, we are at 3 year lows, yep, you heard me right THREE YEAR LOWS!!!
Government rates are in the low 3’s and conventional rates are in the mid 3’s, so what the heck….
Well first let’s look at the Federal Reserve, in February, it was anticipated that the Fed would raise rates by .125 to .25 in June, the bookie’s had them at almost 80% likelihood. But then we had some economic news, like new US jobs in may were only 38,000, OUCH! Typically, over the last few months’ jobs growth has been 180,000 or more.
Then, we have Brexit, if you don’t know, next week the UK is voting on whether or not to stay in the European Union. You can Google the full details, but from the talking heads, if the UK does bail on the EU, we should get about 2 weeks of financial chaos, and then people will return to normal. But this could, could be the end of the EU if UK does exit. Watch this CLOSLY, rates will tend to improve with financial chaos.
And along with Brexit, comes Foreign Bonds, just like the US, most foreign government sell bonds to pay debts. Let’s take German, Germany sold $4.5 Billion in debt on June 1st. The return on this investment for bond holders is -.33%. Yep, negative. So this means, if you purchase $100 in German bonds, YOU the borrower would have to PAY the German government back $6.73, thus the bond is worth $93.27. Where as if you were to purchase US 10 Year Bond, today, its return today is 1.62%, POSITIVE, this means the US Government would PAY YOU $1.62, return on your investment would be $101.62.
This means that more foreign investors are NOT purchasing German bonds, but sending their money over to the US. Thus keeping our interest rates down, thus shooting mortgage rates down also.
Moral of this story, I would pretty much float rates right now, if the UK votes to exit the EU, according to the talking heads, rates could continue to fall. Do we dare say 2’s????
FHA Update
FHA has been making quite a bit of news lately, mainly for the good reason. It seems that FHA has now exceeded their Congressional Mandated Reserve requirement. This Reserve pool is funded by FHA Up Front mortgage Insurance plus FHA monthly mortgage insurance. And now there is calls for FHA to reduce the month MI, from .85% to .55%, where it was prior to the Great Recession. And there is calls for them to reduce their Upfront MI from 1.75% down to 1.00%. This story is gaining tractions, could we see something happen in November?
Trending Credit Data
Well, we were suppose to have a monumental shift in FICO scores on June 25th. Where as credit scores were going to be all re-calculated based on a persons attitude towards revolving credit, for the last 24 months.
For borrower who rack up the credit cards to their limits, and only make minimum payments and never pay off the credit card fully, their FICO scores are going to drop.
But for someone who only charges <30% of the limit, pays more than the minimum each month or even pays it off, those borrowers will have their FICO scores go up.
But….Fannie Mae came out this week, citing technical issues, will hold off implementing this until August. Which is a break for borrowers. But the shift is coming!
Pre-qualifying
I can’t stress it enough, please ensure that you get your borrowers pre-qualified PRIOR to writing up the contract. We have seen quite a few contracts having to be cancelled because borrowers indicate how much money they make, but with all the new rules and regulations with Frank Dodd, and the Ability to Repay rules, files are being denied.
And lately, we have had people with student loans, not calculating those payments because they are in deferment or income based repayment with $0 payment due. But rules changed back in September 2015, all student loan payments with $0 payment due, have to be calculated at 1% of balance, i.e. if a person has $50,000 in student loans, deferred with $0 payment, we have to calculate 1% or $500 for a payment.
Idaho Housing Good Reward 2nd
Beginning June 30, IHA is changing their 2nd mortgage program, they are getting rid of all of their 2nd mortgage and consolidating them into 1 program, and increasing the rates and increasing the FICO requirements:
-2nd mortgage can be used on any of IHA products, well except for VA and RD, which is already 100%.
-Maximum amount is 3.5% or $8000 whichever is less.
-Borrower’s FICO scores have to be above 680
-Rates will be 3% above 1st loan rate, i.e. FHA rate today is 3.25% + 3% = 6.00% for the 2nd mortgage.
-Payment are amortized on a 10 year loan.
This is a pretty dramatic change, especially for the FHA First Loan, where before a buyer could get a 2nd mortgage with a 620 or higher FICO score, and it was a 30 year fixed mortgage.
Make sure if you have borrowers that are already qualified for this mortgage, with FICO <680, that they are locked into the current program.