American Mortgage Blog

A new survey from Zillow shows that rental markets around the U.S. continue to grow. Citing declining home values, Zillow reported that 70% of markets nationwide saw an increase in rents during January.

One of the most common questions a loan officer is asked is, “How long will my loan take to do?” Of course, when hardly any documentation was required, loans took much less time. But now, with increased underwriting, documentation, and so forth, it is taking longer. And in some instances, much longer. Refinance applications and appraisal complications are holding up home sale closings, according to a recent survey. According to the report, the normal timeline for a closing is about 30 days. However, the survey found the timeline to be between 45 and 60 days.

Lenders often remind their clients that there are several ways to build equity in their homes. We thought it would be a good opportunity to do the same with our readers.

One way is through rising home prices: owners gain equity simply because their homes will be worth more. Another way is through a falling mortgage balance – as you pay off your mortgage each month through amortization, you pay a portion of interest and a portion of principal (assuming it’s not an interest-only home loan). Every time you make your mortgage payment you’ll gain some home equity.

Loan officers are very good at helping investors buy properties for rental purposes. But is that type of activity helping the housing market? Believe it or not, increasing rental activity is expected to help the housing market in many areas recover as buyers take advantage of low rates.

"Call us NOW! If you are behind on your mortgage payments, we can rescue you from a home foreclosure and arrange a modification of your loan that will save big bucks each month."
This type of sales pitch, via many television and radio spots and heard on the phone from telemarketers, is on the rise. Unfortunately, most of the offers are scams and take money from people who can least afford it. After receiving their upfront fee, many companies do little or nothing to help the homeowner

Loan officers see that, and survey show, renters often aspire to be homeowners, but there are about five main issues holding them back. Loan originators hear these often, and can help potential borrowers analyze their particular situation to see if ownership makes sense.

The press is filled with news on foreclosures, borrowers turning in their keys, and bad credit decisions in the past that have made loans “go bad.” Our agents often see borrowers who ask us about this topic. But what does “go bad” actually mean for a home loan and a borrower?

Loans that go into default and/or foreclosure do so because of reasons completely apart from any feature of the actual mortgage loan. That is to say, there is nothing within the terms of the loan (or note) that cause it to be defaulted on. So, what causes a loan to go into default? And by the way, a loan is technically in default after even one payment is more than 30 days past due not just when foreclosure action is initiated.

With the downgrade by Standard & Poor’s of debt issued by the United States, it reminds us of the old adage: “the higher the risk, the greater the return.” Whether it is betting on a long shot at the race track or buying a penny stock and hoping it doubles in a few weeks, investors are well acquainted with the way the system works. Now only four major countries now have the AAA rating from S&P: Canada, Germany, France, and the United Kingdom.

Our borrowers will often ask their agent, “Are mortgage points good or bad?” For starters, let’s define “points,” as they are often misunderstood. A mortgage point is defined as a percentage of the loan amount, so if you take out a $150,000 mortgage, one (1) mortgage point would be $1,500. That is pretty simple, but there are different definitions of a mortgage point, as both mortgage discount points and loan origination fees are often thrown under the same umbrella and they are not the same nor treated equally.

Check with your agent - mortgage rates are the lowest they’ve been all year, despite all of the uncertainty surrounding the problems our Congress had with the budget, problems several European countries are having with their debt, and the recent downgrade of the U.S. debt by one of the rating agencies. Normally rates go higher when “the market” is nervous, but in this case the economic news points to U.S. economy that is slow enough that it won’t support higher rates. But now what? Should originators be pushing borrowers to wait until they lock?

Two press releases recently turned some heads in the lending and housing industry. First, home builders’ sentiment is showing some signs of life, although it is still dragging. One official said, "The improvement in builder confidence in July is a positive sign that the outlook perhaps isn't quite as bleak as was feared in June.” At the same time, the BuildFax Remodeling Index (BFRI) which tracks building permits and construction starts indicated that May had the highest level of remodeling activity since the Index was first introduced in 2004! (The BFRI is derived from building and permitting information from 4,000 cities and counties throughout the country assembled by BuildFax, a division of BUILDERadius.)

There are a number of analysts who believe that the next housing boom is fast approaching, in spite of all the negative media, government focus, mortgage delinquencies and foreclosures going on, and the record levels of housing inventory. They expect it to come from pent up demand, which is closely tied to the rate of household formation which, if you hadn't noticed, has been lacking the last 4 or 5 years.  Any growing economy creates more households and more households eventually need more houses. Right now, due to the poor economy and the dismal jobs market, household formation is on hold. This is one reason why the housing market continues to remain depressed.

Late last week the June employment numbers were released by U.S. Bureau of Labor Statistics. "Nonfarm payroll employment was essentially unchanged in June (+18,000), and the unemployment rate was little changed at 9.2%, the U.S. Bureau of Labor Statistics reported today. Employment in most major private-sector industries changed little over the month. Government employment continued to trend down." What does this mean for mortgage rates?

It is tough to find positive economic news in the latest jobs report, but for interest rates it is a different story. Following payroll gains averaging 215,000 per month from February through April, employment has been essentially flat for the past 2 months. At least we're still adding jobs though, not losing them, albeit at a very slow pace.  This offers more confirmation that our economic recovery is facing strong headwinds as we cross into the 2nd half of the year.

There has been a lot of gloomy news about the nation’s housing market in recent months, and even farther back. But there is good news, and it is not hard to find.

First, many people in their 20’s and 30’s are now finding that properties in some areas have come down in value to the point where they can buy their first home. Housing prices, especially on the lower end, may soon begin to rise quickly, argue some economists, and that the correction in house prices and the low level of home building is really the cure for the housing industry's problems.

For the year mortgage applications are down nationally and locally. But in recent weeks borrowing has increased, with homes purchases being financed and borrowers still refinancing. So what type of loans are consumers obtaining, and how difficult are they?

Government Loans – These include both FHA and VA loans. The FHA buyer has to put at least 3.5% down. This is a tad harsher then it was 5 years ago, but not that different than 10 years ago. Yes, the government mortgage portion of our business is off from previous years, but there are other contributing factors, such as slightly higher mortgage insurance premiums.

Most borrowers are very well aware of the stock and bond markets. In fact, most people have a relatively fixed number of investment opportunities available to them. These include keeping their money in cash, buying property, buying bonds, or buying stocks. Currently anyone keeping their money in cash (in the bank, for example, in a savings account) knows that the interest that they are earning is very little – probably near 0%. But it is safe, up to the insured FDIC limits. Of course, no one knows what the stock markets are going to do over the next year, or the next ten years. But currently, if a person was to purchase the 30 stocks that make up the Dow Jones index, the dividend yield on the Dow is approximately 3%. If one were to buy a 10-yr Treasury Note, it pays an interest rate of about 3.00%. Therefore the dividend yield is about the same as the current yield on the benchmark U.S. Treasury note. Of course, both go up and down on a daily basis.

Freddie Mac recently reported that during the first quarter of 2011, only 25 percent of those who refinanced existing mortgages pulled cash out of their home.  Even more striking, 21 percent took out smaller loans than the ones they were refinancing.  The percentage of home owners whose loan balance remained unchanged, 54 percent, was the highest since Freddie Mac began keeping track of such figures in 1985. (Freddie Mac defines a "cash-out" mortgage as one in which the new principal balance exceeds the old one by more than 5 percent.)

The ability of a borrower to deduct interest on a home mortgage is often a large part of the home buying decision. Currently one can deduct interest on up to $1.1 million of mortgage debt, which is where the vast majority of borrowers find themselves. Part of the issue with home loans of this magnitude is “leverage,” which can amplify gains in a rising market just as it amplified losses in a falling one. But thanks to federal tax law, no form of debt is potentially as beneficial to the average citizen as the home mortgage.

Born between 1979 and 2000, “Millennials” also known as “Echo Boomers” or “Generation Y,” are key to today’s purchase market. Based on 2010 U.S. Census data, there’s approximately six million more Millennials in the prime “First Time Homebuyer” age group (ages 20 – 31) than there were Baby Boomers in the same age group in 1977! Because of the sheer size of this entire group – about 89 million total – Millennials represent an enormous first time homebuyer opportunity both today and into the future. So it’s important for any loan agents, builders, Realtors, and potential borrowers, to know a little more about them. After all, agents will want to lend to them, and other borrowers may be competing with them to buy homes.