April 11th Moorings

Hello and welcome to this week’s edition of Moorings. To say it has been a tumultuous past week in both the mortgage world and the political world would be an understatement.  Between a possible government shutdown and the Dodd Frank Act, we in the mortgage business have been kept on our toes. However, before we get into all of that, let’s take a look at rates. Currently a borrower looking to purchase a home could expect to obtain a mortgage at 5% for a thirty year fixed rate, assuming adequate credit, income, etc… Another option for a qualifying customer with less than perfect credit is an FHA loan which would be available at 4.875%, but does come with limitations such as the amount of the loan and value of the house. Take a good look at the incredibly great rates on 5 and 7 year Adjustable Loans, which are fixed for 5 or 7 years and then adjust over the remaining term. Very little risk for substantial savings.

Moving on to the big story of the past week, the possibility of a government shutdown definitely impacted the financial markets. A partial shutdown was avoided late Friday night when Democrats and Republicans agreed on a budget deal and a short-term funding extension, less than an hour before the deadline, but it only lasts until April 15th…tax day.  All of this uncertainty throughout the week caused Bonds and home loan rates to worsen through the week. In addition, the dollar is rather weak at the moment which helps the stock market with investors moving money into it, but this takes money away from the bond market which hurts interest rates.

In other news, the Dodd Frank Wall Street Reform and Consumer Protection Act was schedule to go into effect on April 1st, but an appellate court stay held off the implementation of this new bill until the 6th, when it became law. As I have stated in a previous article, this bill is quite complex, but the immediate effect to mortgage industry is the compensation of loan officers, with them receiving the same compensation on every loan and loan type, with the only variable being the loan amount.   One of the likely side effects of this bill is that over time, rates will most likely equalize across mortgage companies and customer service will become the main factor for choosing a mortgage provider. If and when this happens, be sure to look for certain things from your mortgage company such as: they should be a mortgage bank and not a broker, use of local appraisers, in-house underwriting and processing, and long term experience is always a plus.

With all that said and done, interest rates are still at incredibly low levels in comparison to historical averages. Anyone who lived through the 1980’s knows that rates well into the teens were not uncommon and even the 1990’s saw rates that were nowhere near as favorable as current levels. Too many clients look for the lowest possible rate and will often wait and wait until they have missed out on the savings they would have had with a rate that is lower than their current mortgage. You can always refinance if a year from now you want to, but that savings can never be recovered. Well that’s it for this week, until next, Be Blessed and Numbers 6:24-26 be on you.