Mortgage Rates: Hurry Up and Wait (absence of news on the fiscal cliff)

The waiting game continues. As our Representatives in Washington DC, the President and the members of Congress dilly-dally instead of getting serious about negotiating a deal to avoid the major tax increases and automatic spending cuts known as the fiscal cliff, market participants have no choice but to wait for signs of movement. Today, with no new information to consider markets are calm.


Mortgage rates have ticked higher this morning after a positive start for the stock market. In the absence of news on the fiscal cliff, the stock market today is trading simply based on non-US and corporate news. A positive economic report from Germany and a halt to the recent fall in the stock of Apple has turned trading positive this morning.

Equally, if not more importantly today, the US Federal Reserve’s Open Market Committee begins a two-day meeting at which it is widely believed to announce a new program for the purchase of long-term government securities. It’s Operation Twist program, in which existing short-term securities in its portfolio were replaced with longer-term securities (primarily mortgage-backed securities) has helped to push rates to the all-time lows where they currently sit. However, Operation Twist will end at the end of this month. Without new buying by the Fed, rates would definitely rise, yet new purchases expand the Fed’s balance sheet which adds to the risk.

Tomorrow all eyes will be on the Fed and their decision to pursue additional quantitative easing. I also expect the market will be waiting to hear the thoughts of Chairman Bernanke in the post-meeting news conference regarding the fiscal-cliff and longer-term budget matters. I expect the Fed Chairman to let our political leaders “have it” with both barrels tomorrow and explain clearly just how much damage is possible if we fail to reach a deal on these fiscal matters.

Mortgage Rates: Low Mortgage Rates Unchanged After Big Jump in Home Prices

Low mortgage rates remain unchanged after a big jump in home prices was reported by CoreLogic, a data analysis firm. The CoreLogic home price index increased 6.3% in October as compared to a year ago, the largest annual jump in over six years dating back to June of 2006. This was the eighth consecutive gain in home prices across the nation on a year to year basis, according to CoreLogic. The firm indicated that prices fell 0.2% in October from September, but this decrease can be attributed to the end of the home selling and buying season.

Today’s 30 year fixed mortgage interest rates are as low as 3.10%, 15 year fixed mortgage rates are as low as 2.375% and 5/1 ARM loan rates are as low as 2.250%. Good credit and qualifications are required in order to receive these lowest mortgage rates available. Borrowers should be prepared to submit documentation for employment, income and assets. These are necessary for verification, debt to income ratios and to show the funds available to complete the mortgage transaction. An appraisal is also required for loan to value ratios and will be ordered by the lender. In some cases, lenders will request additional information after examining the loan file. Some borrowers, those who have loans that were sold to Fannie Mae or Freddie Mac prior to June 1, 2009, can refinance through HARP 2.0 which does not have loan to value caps or the need of an appraisal. This means that even borrowers with LTVs above 125% can obtain lower mortgage rate loans as long as the existing mortgage has been paid on time for the previous six months with no more than one late for the six months prior to that. While HARP 2.0 has been available with no LTV maximums since earlier this year, there are many borrowers who are eligible, but have not yet taken advantage of this opportunity. There are also others who have been denied and have not tried to obtain HARP 2.0 through another lender which is often a successful strategy. With the online form submission, eligible borrowers can receive more information and the opportunity to find a lender who will work with them. This process is safe since it does not require a social security number, as well as, quick since a response is returned almost instantly.

Current FHA 30 year fixed mortgage rates are as low as 3.00%, FHA 15 year fixed mortgage interest rates are as low as 2.625% and FHA 5/1 ARM loan rates are as low as 2.250%. FHA is a stronger contender when it comes to mortgages. Multiple mortgage products make it appealing to a wide variety of borrowers who may need a specific type of loan that is offered only through FHA. The low down payment requirements and flexible credit guidelines allow more borrowers to become homeowners which is something that may not be possible through other mortgage programs. Although FHA closing costs (APR) are high, which is due to various FHA fees and the upfront mortgage insurance premium, FHA allows these costs to be added to the loan amount in many cases. Seller concessions up to 6% can also be used for this purpose. After owning a home for a period of time, borrowers can refinance through the FHA streamline refinance with no cash out. The streamline does not require an appraisal, a credit history or any other documentation which makes it a quick and easy process. Borrowers who have had FHA mortgages that were endorsed prior to June 1, 2009 can use the FHA streamline to refinance to lower mortgage rates and will also receive lower upfront and annual mortgage insurance premiums for the life of the loan. This offer is only available through the end of 2013. The only requirement is that mortgage payments must be current and on time for the previous twelve months. More information about FHA loan products and the FHA streamline refinance can be obtained by submitting the online form which will return a response almost immediately.

Today’s jumbo 30 year fixed mortgage interest rates are as low as 3.125%, jumbo 15 year fixed mortgage rates are as low as 2.625% and jumbo 5/1 ARM loan rates are as low as 2.250%. Some borrowers need financing that is above the conforming and FHA loan limits, and for this purpose, jumbo mortgages are available. Excellent credit and qualifications are required in order to receive these lowest jumbo mortgage rates. Since these loans are actually private loans held by the lender, guidelines can be strict and will require substantial assets to fund the mortgage transaction, as well as, show the necessary months of reserves. As this market has been improving, some flexibility may be offered to well qualified borrowers. The best thing borrowers can do is to shop around for the best jumbo mortgage rates and terms for which they are eligible. This can easily be done by submitting the online form which does not require detailed personal information or a social security number.

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How are Current Mortgage Rates Determined?

Locking in low mortgage rates is more than the luck of the draw. There are many components that contribute to how mortgage lenders gauge the rate range they offer to borrowers.
Here are three major influencers of mortgage rates today.

#1. Supply and Demand

Like any business, the issue of supply and demand must be assessed in order to determine what to charge customers for a service. In the case of mortgages, the mortgage crisis of 2008 sent demand for mortgage loans plummeting as supply shot through the roof. The ample number of mortgage lending options in the market and a disinterest in home financing resulted in current mortgage rates dropping to historic lows.

#2. Fed’s Regulation D

The banking operates in a single, large loop when it comes to the way interest rates are determined. The Federal Reserve sets certain requirements for all financial institutions with regard to how much money they must have on deposit.

Banks who do not have enough funds to meet the Fed’s Regulation D requirement, can choose to borrow the cash from other financial institutions or the Federal Reserve itself. However, as with all loans, this borrowing comes at a cost. The borrowing institution must pay interest on the loan while still generating a profit, so consumer mortgage rates are increased as a result.

#3. Likelihood of Default

In addition to the aforementioned factors that drive mortgage rates today up or down, borrowers’ credit histories play a significant role in the rate range they can expect to receive upon submitting a mortgage application.

Even if current mortgage rates are at an all-time low, borrowers who have a less than stellar credit history, and especially those without a substantial amount of equity or down payment to allot to the loan, will likely qualify for higher mortgage rates.

When lenders review a borrower’s creditworthiness, they are essentially making a judgement call as to whether the applicant is a high-risk for default. Lending money to an individual with a track record for making late payments or who doesn’t have any credit history to speak of leaves mortgage lenders with an immense level of uncertainty as to whether they’ll even get their money back.
As a result, mortgage providers will often increase mortgage rates to expedite the return of their money, to reduce their chances of loss in the long-term.

Despite these factors, borrowers who have diligently worked toward maintain a strong credit history can still accomplish their dream of owning a home by taking advantage of mortgage rates today, while they’re still incredibly affordable.


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