UPDATE:  HUD has now published the Mortgagee Letter: The new program will be available for FHA Case Numbers assigned on or after June 11th 2012.  This means eligible borrowers will need to wait about 3 months (and hope that rates remain low) before they can lock in.

Additional fact sheet here.
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Now here’s a refinance program that actually makes some sense.

At 12:15 Central time today, The Obama Administration will announce changes to the FHA’s streamline refinance program.  The broad details are already on the street (at the WSJ, MNI, and soon to be many more outlets) but here are the basics:

Here’s what you need to know about the changes:

- The new fee/cost structure only applies to FHA loans originated prior to June 1st 2009 which are being refinanced through the FHA’s streamline refinance program.

- For eligible loans, the up front FHA premium is being reduced from the current 1% of the loan amount to .01%.

- The monthly FHA insurance premium is being rolled back to .55% of the loan amount per year.  Down  from the current 1.15% (soon to be 1.25%)

- We do not know when exactly these changes will be implemented.  Best guess is within 30-60 days but we await guidance from HUD on this.  Program will be available for FHA case numbers assigned on or after June 11th 2012.

Bottom line:  This is a huge, positive change – it effectively “grandfathers in” the monthly insurance premiums that were in effect before the FHA began ratcheting up these fees two years ago;  and it will open up refinancing to sub 4% rates for many borrowers who to this point have not been able to take advantage of them.

FHA Streamline Refinance Basics:

Being a member of the FHA club confers certain advantages when it comes to refinancing.  The general principal of which is:  FHA already insures your risk, so if you have a solid track record in making the payments on your existing FHA loan, they care a LOT less about the details that often trip-up traditional refinances – the process is as the name suggests:  Streamlined.

Using an FHA Streamline Refinance, you can:

- Refinance with ANY lender – you are not required to refinance with your current mortgage servicer.
- Refinance without documenting income (though mileage will vary, since some lenders will require that you are currently employed.)
- Refinance without an appraisal, or any measure of the property’s current market value.  The original value is used.
- Refinance with a checkered credit history: Credit is reviewed only in context of whether or not you have had any mortgage lates in the last year (though this is another instance where some lenders have set a minimum FICO score, even though the FHA does not.)
- Refinance a home that you have converted to a rental property (even though it was an owner occupied property when you took out the loan.)
- Refinance and leave an existing second mortgage or home equity in place (both loans/lines can be up to 125% of the original value of the property.)

With an FHA streamline refinance you cannot:

- Increase the loan amount to payoff other mortgages or debts.
- Refinance a conventional loan into an FHA streamline.  Conventional-to-FHA refinances require an appraisal, full credit qualifying, and are subject to the current FHA mortgage insurance costs and structure.

Disclaimer: FHA has not released full program guidelines yet – so there may be some important, material details to follow.  Also, if it is not obvious, I am not communicating on behalf of or at the direction of HUD, FHA, or any governmental agency.

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Have questions about an FHA streamline refinance?  Drop me a line or call [952.417.8490] I’ll walk you through your specific options, quote a rate, and generally give you the rundown on how an FHA streamline refinance can reduce your rate, and save a lot of money with very little hassle.

Related posts:

1. The Obama Refinance Proposal: Don’t Hold Your Breath Just Yet
2. Congress Passes Tax Deductibility of Mortgage Insurance Premiums
3. HARP II: Fannie, Freddie Announce Changes to HARP Program

I am getting a lot of email on the new “Obama Refinance Plan” that was announced last week. I’ll be back with a more technical breakdown of the key elements of the proposal, but I wanted to poke my head out to make two quick points on this:

1. The Obama Refinance Plan is a proposal.  It is not a new program.  It is an IDEA, not a THING.

2. The Obama Refinance Plan requires Congressional Approval.  Given that it is an election year (not to mention  the well documented dysfunction in congress) there is a chance the plan is never passed, and any legislation passed may be unrecognizable from it’s currently advertised  form.

3. Get ready to wait. Even if congress acts quickly, it will likely take six months or more before loans may be refinanced under any new plan (remember HARP II? Announced in November, did not need Congress, still is not fully implemented and won’t be until mid-March at the earliest.)

Okay, that was three.

So what’s an underwater homeowner who would like to see this proposal become a real program to do?

Call or write your congressperson and tell them that they might just drag their approval ratings out of the sub-basement by deploying some government muscle in a way that directly benefits their home-owning constituents.

I am serious about this – there are powerful interests aligned against this proposal who will most certainly be heard if you choose not to speak up for your own.

Related posts:

1. ‘Obama’ FHA Refinance Program: Changes include reduced FHA insurance premiums for streamline refinance program
2. HARP II: Fannie, Freddie Announce Changes to HARP Program
3. HARP II: Three Things You Can Do Right Now to Prepare

Yesterday, the Federal Reserve Open Market Committee (FOMC) wrapped a two day conclave in the usual manner – with a policy statement and rate decision.

The policy statement, in addition to reciting the usual litany of economic yin and yang (economic growth moderate in US, slowing overseas.  Employment bad, household spending kind of OK, housing in the dumps) contained some big news for rate watchers.

But before we get to that, lets rewind a little.

What Does the Fed Have to Do with Mortgage Rates?

First things first:  The Fed does not set mortgage rates (say it with me, for emphasis: The Fed does not set mortgage rates.)

That said, for interest rate watchers of all stripes, the Fed statement is important – though the The Fed only sets certain, short term interest rates (the ‘Fed Funds’ rate, and the discount rate ) their outlook on monetary policy, the economy, and inflation is hugely influential when it comes to market-based rates like mortgages.

For instance, yesterday, within minutes of the official Fed Statement, mortgage bond markets rallied toward lower rates.  That rally has followed through into today, with most lenders quoting 30 year fixed rates .125% to .25% lower than they were yesterday morning.  That may not seem like a big deal – .125% is only worth about $16/mo on a $200,000 loan, after all –  but as these things go,  it is an impressive one-day move in mortgage rates.

If you read the statement, there was nothing in there that said “mortgage rates are hereby lowered by .125%” but that is in fact what happened.  Which brings us to the next question.

Why Did Rates Drop?

For that answer, we need to look to the actual Fed Statement.  Here’s the key passage.

“To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy…snip… and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. ”

So big deal right?  Let’s compare that to the last Fed Statement from Dec 13 2011:

“The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.”

And there you have it – the Fed has extended the “low rate” target date by a year or more – from “Mid 2013″ to “late 2014.”

Leaving aside what that says about the general state of the economy, this is a clear signal to the markets that the Fed sees neither inflation, nor economic recovery (the two things that will send mortgage rates higher) on the medium term horizon, and will maintain the course until at least late 2014.

In turn, bond markets immediately moved toward lower rates, and mortgages (or mortgage bonds) followed along.

This happens because the bond market (or any market) game is in part one of anticipation, that discounts not only present reality, but the expected reality 6 mos or more down the road. In other words – rates rise and fall based on what is happening today, but also in anticpation of future events or conditions.

So when the Fed says “Hey, rates are going to stay low for a lot longer than we said the last time” it clears the decks for market rates to move lower.

Does this mean low mortgage rates until 2014?

Not so fast.  Remember, despite all the data, degrees, influence, and high powered minds at the Fed, they can be wrong.  Markets can move against them.  This is after all the same body that could not collectively see the 700 billion dollar housing bubble 6 mos before it popped.   Think about that before you assume rates will stay this low until 2014.

Bottom line:  All we really know is that Mortgage rates will stay low until they don’t.
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Watching mortgage rates? Need a rate quote? Follow me on Twitter for a leg up as mortgage-related news breaks, and if you are actively shopping for a mortgage, feel free to drop me a line I answer my own email and reply to all inquiries promptly..

Related posts:

1. What Today’s Fed Statement Means for Mortgage Rates
2. What Today’s (semi-surprising) Fed Statement Means for Mortgage Rates (Thanks Ben!)
3. Fed Day and Mortgages: No Policy, Rate Changes. More Help for Mortgage Rates a Possibility.

November Housing Inventory Lowest Since 2004

I’ve been telling you for a while that there is no such thing as a “National Real Estate Market” and that if you really want to understand what is going on, looking at the local picture (wherever local happens to be for you) is crucial.

Call it confirmation bias if you will, but here’s an excerpt from Calculated Risk (by far the best Macro Coverage for real estate on the web, bar none) today that should ring familiar to regular readers:

“…it is location dependent now – although I expect to see some more price declines on the national repeat sales indexes. Some areas have a significant backlog of distressed homes, and there is no rush to buy in those areas. In other areas, prices have probably already bottomed (or are close enough that there will be some attractive prices.)

So where to find the best local data?  Start with your local real estate organizations.  Be cautious – Levels of transparency vary, and you do need to get beyond the headlines and press release bullet points, which almost always have a little topspin – these are trade orgs, after all.

In Minnesota, we are fortunate to have a set of local Realtor Orgs that do a great job with transparency, hit a mostly straight ball, and put the date into multiple formats to help both realtors and homeowners make better sense of it all.  We are lucky to have them, really, as a resource.

My personal favorite’s, data wise?

1.  The monthly skinny video, which provides a nice flyover of the prior month’s real estate activity, with good insight on what to take away from the raw numbers.

2.  The Thing: For the analytical-at-heart, or those that want to dig deeper into local housing market trends.  You can search and filter sales data by zip code, city, school district, property type, price band and more. The Thing, if you will forgive the phrase, is The Shit.

Related posts:

1. Waiting for ‘The Bottom’? Think Local, Not Metro or National
2. Twin Cities Real Estate: Inventory Improves, and Why You Should Ignore Prices (sometimes)
3. All Real Estate Is Local: Best and Worst Zip Codes

A favorite question from many clients these days goes something like this:

“Help me understand why we need to document every deposit on our bank statements – I mean, we have the money, clearly.  What gives?  Are we being singled out for special treatment here?”

I find a speed limit analogy helps.

Today, it is well known that if you drive at 5-7 miles over the speed limit you will almost never get ticketed.

Imagine if one day, people driving even 1 mile over the limit almost caused a worldwide depression, and pushed the global economic system to the brink of the abyss?

That would be the end of the 5-7 mile per hour rule.

And that’s about where lending stands today. The path to loan approval is lined with virtual traffic cops who will pull you over and demand additional paperwork if any little thing is amiss.

Don’t take it personally - The good news is they won’t fine you, and as painful as it can be, they are there to ensure safe passage to your new home.

Related posts:

1. Fannie Losses May Mean Tougher Mortgage Standards to Come
2. Existing Home Sales: (Earth to NAR) Tighter Lending Standards are Not the Problem
3. De-Mystifying The Loan Approval Process (It is not as tough as you think)