Mortgage Q&A

There's More To Mortgage Rates Than Meets The Eye
April 3rd, 2009 7:05 AM


The most frequently asked question when someone is looking for a mortgage typically boils down to "what is your lowest mortgage rate", "what are your mortgage rates" or something similar.    The immediate problem with this approach is that each mortgage rate quote is different, if done properly with adequate information from the Borrower, because each Borrower's situation is unique.

The advertised lowball or "sweetheart deals" are just that, and most Borrowers are not a fit for that perfect scenario.

As a Borrower, you should always formally apply so the Lender has enough information to give you a personalized quote specific to your situation and requirements.

Getting a Custom Mortgage Rate Quote

Below is a punchlist of some of the questions that must be answered to get an accurate mortgage rate quote, and why you should never accept a quick answer to your mortgage rate if you haven't answered most of these.

  • Where is the property located? (county, city, State)
  • Is this a purchase or refinance ?
  • What type of property is it? (Single family home, condo, townhome)
  • If a condo, is it HUD approved ?
  • What is the condition of the property?
  • How will this property be occupied? (Owner occupied, second home or investment property)
  • How long do you plan on living in the home or holding the property ?
  • How long of a note would you like? 
  • How much is the property worth? (Sales price AND appraised value)
  • How much money will you be putting down? (Your own? Gift funds? Seller down-payment assistance?
  • What would you like the loan amount to be ?
  • How long of an amortization would you like on the loan?                     
  • How much land is the property being sold with?
  • What are taxes on this property?
  • What insurance is required on this property ?
  • Is this property located in a flood zone ?
  • How many properties do you already own? How many of those are financed? By whom?
  • What terms would you like to have ? (fixed or adjustable ?)
  • If you’re considering adjustable, what term would you like and which index would you like to have your ARM tied to?
  • What type of loan are you looking for? (fully amortizing, interest only)
  • How quickly are you looking to close on this loan? (lock period)           
  • Do you have a preference on which bank services your loan?             
  • What is your credit score?                                                           
  • What’s your debt to income ratio?                                                  
  • Do you plan to escrow for taxes and insurance?
  • Can you document your income?                                                   
  • Can you document your assets if needed for some programs ?
  • Will mortgage insurance (MI) be required.
  • If available, will you be getting (or do you already have) a second mortgage or Home Equity Line of Credit (HELOC) with this new first mortgage

Your answers to these, especially your credit score, could raise your mortgage rate as much as 2 full percentage points above the "perfect scenario".

Have you been quoted a rate without answering any of those questions?  How accurate could that quote be ?       

Mortgage Rates Change Multiple Times Throughout The Day

Here is the real problem. If you are really trying to call around to each bank or mortgage company (or even a couple), time is not on your side. To get accurate, competing mortgage rate quotes, you would have to compare each one of them at the same time, with the same information.  If you find a ‘better rate’ with a certain lender, that rate’s only good until the next rate sheet. For reference, mortgage rates changed every four hours last month.

Bottom Line

Just remember, make sure that you're getting the full picture when getting a rate quote. If you hear a figure before you answer any questions, don't assume it's accurate.   As an informed consumer,  ask questions and get answers.

Posted by Wolf Leonard on April 3rd, 2009 7:05 AMPost a Comment (0)

Interest Rate Basics 102
February 17th, 2009 6:48 AM

Interest rates on long-term lending are based largely on the rates paid by the U.S. Treasury when it auctions off new paper to fund budget shortfalls.

Because Treasuries are considered the gold standard of safety, turning over your money to other lenders is considered riskier — so the interest rates you get are a little bit higher.

When an investor with money to lend in the capital markets (the capital market players we referred to in the preceding post  'Interest Rate Basics 101) get nervous, they demand an even higher interest rate to make up for the risk that they won’t get paid back.

During the easy-money days of the housing boom, the capital market players showered cash at mortgage loans and asked relatively little extra “risk premium” in return. The feeling was that housing prices would continue to rise forever, and investing in mortgages – which paid higher returns than “super safe” Treasuries — was a no-brainer. Or so it seemed at the time.

Now that home prices are falling, that risk premium — the “spread” between the higher rate on mortgage loans and the benchmark rate on Treasuries — has widened.

As long as that’s the case, the Fed could cut short-term rates to zero, and it wouldn’t cut the cost of long-term mortgage rates.

Posted by Wolf Leonard on February 17th, 2009 6:48 AMPost a Comment (0)

Interest Rate Basics 101
February 17th, 2009 6:47 AM

I get tired of listening to and reading advertisements about how the Fed has just dropped the prime rate, and how you should immediately run out and get a mortgage or refinance because mortgage rates have dropped.

There is no direct correlation between the two events.

There are basically two mechanisms for setting mortgage interest rates.

Part of the picture, but not all of it, the Fed can target the interest rate paid by U.S. banks for overnight loans among themselves. But using short-term loans to back long-term mortgages can be risky.

If a Mortgage Lender, say National Bank, takes out a short-term loan of $200,000 from the Fed and lends it to Jane HomeBuyer for 30 years, it still has to come up with $200,000 right away to pay it back. It could do so with another short-term loan, but then it has to keep doing this over and over, indefinitely “rolling it over.” If, during this process, short term rates go up, the bank loses money. 

The other part of the interest rate picture is when the Mortgage Lender making long-term loans, turns to the capital markets for compensating long-term loans to avoid having to constantly rollover short term loans. 

The capital markets are a global network of banks, corporations, institutions, pension funds, governments and individual investors who buy and sell money.

When these capital market players lend money for the long term, they agree to get paid back in installments, plus an interest rate that’s usually fixed for the life of the loan.

As long as the rate the Mortgage Lender agrees to pay the capital market players is lower that the rate it charges its customer, the Lender makes money.

And if the rate is higher than what its customers would bear, the Lender would lose money, and no Lender would logically make a long-term mortgage loan in that climate. 


Posted by Wolf Leonard on February 17th, 2009 6:47 AMPost a Comment (0)

Mortgage Insurance . . . Revisited
January 21st, 2009 9:20 AM

I'm revisiting an old subject, because I've developed a question that's unanswered as yet :  In the current declining home value market can the PMI requirement kick back in ?  Say in the case of a "upside" mortgage where the house is worth less than the mortgage balance ?

Stay tuned in ...


Cancelling Mortgage Insurance is a very complicated issue, affected by factors such as:

  • When the mortgage originated?
  • Who eventually purchased the mortgage (Fannie Mae / Freddie Mac)?
  • Has the property value increased / decreased?
  • Have you made any late payments?
  • Do you have a 2nd mortgage / equity line?

If you believe you now owe less than 80% of the value of your house and you are still paying Mortgage Insurance, contact a mortgage broker immediately to help you work through this complicated issue.

Mortgage insurance will not be required from your lender once you have paid down the principal balance below 80% of the original sales price or appraised value. Lenders usually require you to be at 78% of the original value and the MI or PMI will automatically be dropped.

Typically the lender will allow the PMI to be released after 12 months and a new appraisal from one of their chosen appraisers if it shows sufficient equity.

You can also find lenders who do not require Private Mortgage Insurance. Many lenders also offer their financing in '2' loans . One 80 percent of the loan, and the remaining 20 as another to avoid paying Private Mortgage Insurance.

Federal law forces most lenders to automatically cancel PMI when a homeowner pays down their mortgage balance to at least 78 percent of the home's original purchase price. Home owners also may apply to have the insurance removed when the mortgage balance is paid down to 80 percent of the original value. In many cases the homeowner is required to pay for a new appraisal.

A No PMI loan may also be obtained to do away with any PMI on your existing loan. Ask your mortgage professional about refinancing today!

PMI, which protects the lender if a home isn’t repaid, was required when you obtained your loan because your loan-to-value ratio (ltv) at the time was greater than 80 percent. When your loan has reached an LTV of 80 percent of less, you may be eligible to cancel your PMI, which would reduce your total monthly home loan payment and save you money.

If you currently pay private mortgage insurance premiums, you may have the right under federal law to cancel the insurance and stop paying premiums. This would reduce your total monthly payment.

You may have the right to cancel private mortgage insurance if the principal balance of your loan is 80 percent or less of the current market value of your home. Under Minnesota law, the value of your property can be determined by a professional appraisal. You need to pay for this appraisal, but in most cases you will be able to recover this cost in less than a year if your mortgage insurance is canceled.

The following notice is provided in keeping with the Homeowners Protection Act of 1998.

If your loan was for a single family home that is your principal residence, was funded on or after July 29, 1999, and you meet certain conditions, you have the right to cancel your PMI when either the principal balance of your loan is first scheduled to reach 80 percent of he original value of your home, or based on actual payments, first reached 80 percent of the original value.

If not previously cancelled, the PMI on your loan will be terminated when the principal balance of your loan is first scheduled to reach 78 percent of the original value of your home, if your loan payments are current. If your payments aren’t current on that date, the PMI will terminate when your loan payments become current.

The definition of “original value” is the lesser of the purchase price or appraised value for which your home was owned by you for less than one year; for all other loans, the original value is based on the appraised value of your home.

If your loan was funded before July 29, 1999, you may, under certain circumstances, be able to cancel the PMI on you loan with the agreement of you lender or in keeping with applicable state law.

No matter when your loan was funded, the cancellation of PMI is subject to conditions.

You must contact your lender to find out what their guidelines are exactly in regards to trying to get your mortgage insurance dropped. Different lenders have different policies on how this is handled. Your personal mortgage profesional, mortgage broker, may be able to help you find the necessary information out. Please consult him/her first to see what they can do for you.

Private Mortgage Insurance premiums are costly. The higher the Loan-to-Value ratio, the more PMI costs. PMI costs cannot be deducted for tax purposes. Although PMI has helped many homeonwers to buy homes they otherwise would not be able to get into, it should always be eliminated as soon as possible either by paying down the loan balance or, if the property has appreciated in value, by way of an appraisal.

Paying PMI initially, can actually get you a lower rate, because of the fact that there is insurance on the loan. Getting an 80/20 loan will most likely have a lower payment to start, but when PMI is removed, it is possible the 80/20 loan will have a higher blended rate.

» DISCLAIMER: The information contained in this article on 'Can I cancel my Mortgage Insurance (MI)?' is a collection of contributions by licensed mortgage professionals and is not intended as advice or opinion to readers of this website. Always consult a licensed professional before applying for a mortgage.

Posted by Wolf Leonard on January 21st, 2009 9:20 AMPost a Comment (0)

2008 Tax Law Change Highlights
January 16th, 2009 3:06 AM

Highlights of 2008 Tax Law Changes: Tax Breaks Renewed, Recovery Rebate Credit, Homeowner Relief

Internal Revenue Service,
Tue Jan 6, 12:00 AM EST

AMT exemptions rise; several expiring deductions and credits get a new lease on life; a new standard property tax deduction and a special first-time homebuyer credit are available to some homeowners; and retirement savings incentives expand. These are among the changes taxpayers will find when they fill out their 2008 tax returns. More information about these and other changes, summarized below, can be found on and in various IRS documents, including the Instructions for Form 1040.

Economic Stimulus Payments Tax Free

Economic stimulus payments are not taxable, and they are not reported on 2008 tax returns. However, the stimulus payment does affect whether a taxpayer can claim the Recovery Rebate Credit and how much credit he or she can get. The credit is figured like last year's economic stimulus payment except that the amounts are based on tax year 2008 instead of 2007. A taxpayer may qualify for the Recovery Rebate Credit if, for example, she did not get an economic-stimulus payment or had a child in 2008. See Fact Sheet 2009-3 for details. In most cases, the IRS can figure the credit. The instructions for Forms 1040, 1040A and 1040EZ have more information.

AMT Exemption Increased for One Year

For tax-year 2008, Congress raised the alternative minimum tax exemption to the following levels:

  • $69,950 for a married couple filing a joint return and qualifying widows and widowers, up from $66,250 in 2007
  • $34,975 for a married person filing separately, up from $33,125 and
  • $46,200 for singles and heads of household, up from $44,350

Under current law, these exemption amounts will drop to $45,000, $22,500 and $33,750, respectively, in 2009. Form 6251 and the AMT Calculator provide more information.

Expiring Tax Breaks Renewed

Several popular tax breaks that expired at the end of 2007 were renewed for tax-years 2008 and 2009. As a result, eligible taxpayers can claim:

  • The deduction for state and local sales taxes on Form 1040 Schedule A , Line 5
  • The educator expense deduction on Form 1040, Line 23 or Form 1040A, Line 16
  • The tuition and fees deduction on Form 8917and
  • The District of Columbia first-time homebuyer credit on Form 8859

In addition, the residential energy-efficient property credit is extended through 2016. In general, solar electric, solar water heating and fuel cell property qualify for this credit. Starting in 2008, small wind energy and geothermal heat pump property also qualify. Use Form 5695 to claim the credit.

The non-business energy property credit for insulation, exterior windows, exterior doors, furnaces, water heaters and other energy-saving improvements to a main home is not available in 2008 but will return in 2009.

Standard Deduction Increased for Most Taxpayers

Nearly two out of three taxpayers choose to take the standard deduction rather than itemizing deductions such as mortgage interest and charitable contributions. The basic standard deduction is:

  • $10,900 for married couples filing a joint return and qualifying widows and widowers, a $200 increase over 2007
  • $5,450 for singles and married individuals filing separate returns, up $100 and
  • $8,000 for heads of household, up $150

Higher amounts apply to blind people and senior citizens. The standard deduction is often reduced for a taxpayer who qualifies as someone else’s dependent.

New this year, taxpayers can claim an additional standard deduction, based on the state or local real-estate taxes paid in 2008. Taxes paid on foreign or business property do not count. The maximum deduction is $500, or $1,000 for joint filers.

Also new for 2008, a taxpayer can increase his standard deduction by the net disaster losses suffered from a federally declared disaster. A worksheet is available in the instructions for Forms 1040 and 1040A.

First-Time Homebuyer Credit

Those who bought a main home recently or are considering buying one may qualify for the first-time homebuyer credit. Normally, a taxpayer qualifies if she didn’t own a main home during the prior three years. This unique credit of up to $7,500 works much like a 15-year interest-free loan. It is available for a limited time only - on homes bought from April 9, 2008, to June 30, 2009. It can be claimed on new Form 5405 and is repaid each year as an additional tax. Income limits and other special rules apply.

Tax Relief for Midwest Disaster Areas

Special tax relief related to severe storms, tornadoes or flooding, occurring after May 19, 2008, and before Aug. 1, 2008, is available to individuals in portions of Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska and Wisconsin that were affected by these disasters. Tax benefits include:

  • Liberalized rules for certain personal casualty losses and charitable contributions
  • An additional exemption amount for persons who provided housing for someone displaced by these disasters
  • The option to use 2007 earned income to figure a 2008 earned income tax credit (EITC) and additional
  • child tax credit
  • An increased charitable standard mileage rate for use of personal vehicle for volunteer work related to these disasters
  • Special rules for withdrawals and loans from IRAs and other qualified retirement plans

Details on these and other relief provisions are in Publication 4492-B.

Contribution Limits Rise for IRAs and Other Retirement Plans

This filing season, more people can make tax-deductible contributions to a traditional IRA. The deduction is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $53,000 and $63,000, compared to $52,000 and $62,000 last year.

For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $85,000 to $105,000, up from $83,000 to $103,000 last year.

Where an IRA contributor who is not covered by a workplace retirement plan is married to someone who is covered, the deduction is phased out if the couple’s income is between $159,000 and $169,000, up from $156,000 and $166,000 in 2007.

The phase-out range remains $0 to $10,000 for a married individual filing a separate return who is covered by a retirement plan at work.

The worksheet in the instructions for Form 1040 Line 32 or Form 1040A Line 17 can help a taxpayer figure the IRA deduction.

For 2008, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b) and most 457 plans remains unchanged at $15,500. This limit rises to $16,500 in 2009. The catch-up contribution limit for those aged 50 to 70.5 remains at $5,000 in 2008 but rises to $5,500 in 2009.

The AGI phase-out range for taxpayers who contribute to a Roth IRA is $159,000 to $169,000 for joint filers and qualifying widows and widowers, compared to $156,000 to $166,000 in 2007. For singles and heads of household, the comparable phase-out range is $101,000 to $116,000, compared to $99,000 to $114,000 in 2007.

Standard Mileage Rates Adjusted for 2008

The standard mileage rate for business use of a car, van, pick-up or panel truck is 50.5 cents per mile from Jan. 1, 2008, to June 30, 2008, up 2 cents from 2007. The rate is 58.5 cents for each mile driven during the rest of 2008.

From Jan. 1, 2008, to June 30, 2008, the standard mileage rate for the cost of operating a vehicle for medical reasons or as part of a deductible move is 19 cents per mile, down a penny from 2007. The rate is 27 cents from July 1 to Dec. 31.

The standard mileage rate for using a car to provide services to charitable organizations is set by law and remains at 14 cents a mile. As noted earlier, special rates apply to the Midwest disaster area.

Exemptions Rise

The value of each personal and dependency exemption is $3,500, up $100 from 2007. Most taxpayers can take personal exemptions for themselves and an additional exemption for each eligible dependent. An individual who qualifies as someone else's dependent cannot claim a personal exemption, and though personal and dependency exemptions are phased out for higher-income taxpayers, the phase-out rate is slower than in past years.

This is one of more than three dozen individual and business tax provisions that are adjusted each year to keep pace with inflation. A complete rundown of these changes can be found in 2008 Inflation Adjustments Widen Tax Brackets, Change Tax Benefits.

Earned Income Tax Credit Rises

The maximum earned income tax credit (EITC) is:

  • $4,824 for people with two or more qualifying children, up from $4,716 in 2007
  • $2,917 for those with one child, up from $2,853 last year and
  • $438 for people with no children, up from $428 in 2007.

Available to low and moderate income workers and working families, the EITC helps taxpayers whose incomes are below certain income thresholds, which in 2008 rise to:

  • $41,646 for those with two or more children
  • $36,995 for people with one child and
  • $15,880 for those with no children

One in six taxpayers claim the EITC, which, unlike most tax breaks, is refundable, meaning that individuals can get it even if they owe no tax and even if no tax is withheld from their paychecks.

Taxes Lowered for Many Investors

The five-percent tax rate on qualified dividends and net capital gains is reduced to zero. In general, this reduction applies to investors whose taxable income is below:

  • $65,100, if married filing jointly or qualifying widow or widower
  • $32,550, if single or married filing separately or
  • $43,650, if head of household.

Note that taxable income is normally less than total income. The worksheet for Form 1040 Line 44, Form 1040A Line x or Schedule D and its instructions provide details.

Kiddie Tax Revised

The tax on a child's investment income applies if the child has investment income greater than $1,800 and is:

  • Under 18 old
  • 18 years of age and had earned income that was equal to or less than half of his or her total support in 2008 or
  • Over 18 and under 24, a student and during 2008 had earned income that was equal to or less than half of his or her total support.

Previously, the tax only applied to children under age 18. Form 8615 is used to figure this tax.

Self-Employment Tax Changes

For those who receive Social Security Retirement or disability benefits, any Conservation Reserve Program (CRP) payments are now exempt from the 15.3-percent social security self-employment tax. Schedule SE and its instructions and Publication 225, Farmer’s Tax Guide, have the details.

More farmers and self-employed people this year can choose the optional methods for figuring and paying the self-employment tax. These optional methods allow those with net losses or small amounts of business income a way to obtain up to four credits of Social Security coverage. The income thresholds for both the farm optional method and the nonfarm optional method are increased for 2008 and indexed for inflation in future years. Choosing an optional method may increase a taxpayer’s self-employment tax but it may also qualify him for the earned income tax credit, additional child tax credit, child and dependent care credit or self-employed health insurance deduction. Schedule SE and its instructions have details.

Posted by Wolf Leonard on January 16th, 2009 3:06 AMPost a Comment (0)

First Time HomeBuyers : June 30th is closing deadline for $7,500 tax free loan
January 12th, 2009 8:50 PM

First, as a quick lead in explanation, one major aspect of the housing rescue bill passed and signed into law in July, was a $7,500 “tax credit” for first time homebuyers.

A closer look shows the tax credit is actually an interest free loan with some qualifications. You have to start paying back this loan within two years and you make equal payments over 15 years.

When you sell your home, any profits will go first into paying off that loan. If you sell at a loss, the difference will be forgiven… meaning you will not owe any money on the loan (though it should be recorded as income as is typical with most loan forgiveness agreements, so you will owe taxes on it).

Why it was ever called a tax "credit" is not clear, but was most likely called that because the receipt of the loan proceeds (as a "refund") and the subsequent repayment is thru the Federal income tax return filing mechanism.

If the word "credit" appears below, it should be construed to be referring to this interest free fifteen year loan.


  • The $7,500 tax credit is available for first-time homebuyers only.
  • The law defines a first-time homebuyer as a buyer who has not owned a home during the past three years.
  • All U.S. citizens who file taxes are eligible to participate in the program.
  • All homes within the United States, whether single-family, town homes, or condominiums will qualify.

However, there are several conditions:

  • The home must be used as a principal residence, and
  • The buyer has not owned a home in the prior three years.

Income Limits

  • Homebuyers who file as single or head-of-household taxpayers can claim the full $7,500 if their adjusted gross income (AGI) is less than $75,000. (The price of the purchased property must be $75,000 or more to receive the full loan; otherwise the loan will be 10% of the sales price.)
  • For married couples filing a joint return, the income limit dou­bles to $150,000.
  • Single or head-of-household taxpayers who earn between $75,000 and $95,000 are eligible to receive a partial first-time homebuyer loan.
  • Married couples filing jointly who earn between $150,000 and $170,000 are eligible to receive a partial first-time homebuyer tax credit.
  • The loan is not available for single taxpayers whose AGI is greater than $95,000 and married couples filing jointly with an AGI that exceeds $170,000.


First-time homebuyers could receive a $7,500 tax credit for the purchase of any home on or after April 9, 2008 and before July 1, 2009. To qualify, you must close on the sale of the home during this period.

  • A refundable credit means that if you pay less than $7,500 in federal income taxes, then the government will send you a check for the difference.
  • For example, if you owe $5,000 in federal income taxes, you would pay nothing to the IRS and receive a $2,500 payment from the government.
  • If you are due to receive a $1,000 tax refund from the government, your refund would increase to $8,500 ($1,000 plus $7,500 from the homebuyer tax credit).
  • If you purchased the home in 2008, the tax credit is taken on your 2008 tax return. If you buy in 2009, you have the option of taking the credit on your 2008 or 2009 returns.

Payback Provisions

  • The tax credit is an interest-free loan that must be repaid over 15 years.
  • The minimum repayment amount must be 15 equal annual installments. For example, if the credit amount is $7,500, then the homebuyer must repay a minimum of $500 each year for 15 years.
  • A homebuyer must begin repaying the credit two tax years after claiming the credit. For example, if the credit is claimed on the 2008 tax return, repayment of $500 (or less, if the credit amount is less than $7,500) per year begins with the 2010 return.
  • If the homeowner sells the home for a profit and there is a remaining credit, then the homeowner is required to repay the remaining credit during the tax year of the home sale. The amount of the repayment will depend upon the amount of profit from the home sale.


  • If the profit on the sale is more than the remaining credit, then the homeowner must repay the entire remaining credit.
  • If the profit on the sale is less than the remaining credit, then the homeowner must repay an amount equal to the profit on the home sale. The remaining credit payback will be forgiven.
  • If the homeowner sells the home but did not make any profit on the home sale, then the remain­ing credit payback would be forgiven.

Further information regarding the tax credit may be found at and

(Also see my 7/31/08 post on the same subject in the Archives here)


This information is provided for general consumer awareness only, and is not intended for the purpose of providing legal, accounting, tax advice or consulting of any kind.  

Posted by Wolf Leonard on January 12th, 2009 8:50 PMPost a Comment (0)

mid-December Opinions About Interest Rates | Consensus : Lock In Now
December 12th, 2008 8:59 AM


This week, a majority of the panelists at believe mortgage rates will fall over the next 35 to 45 days. Just 6 percent think rates will rise, and 38 percent believe rates will remain relatively unchanged (plus or minus 2 basis points).

O.K. if we accept mortgage rates probably won't rise, the other 94% think they'll stay the same or be lower.   My post earlier today, suggests the only way rates are going to go much lower is for government intervention that goes contrary to market influences.   ie.   the government starts aggressively buying mortgage backed securities and accepts lower than the 3% spread the market looks for.

IMHO that's the only thing that's going to drive interest rates lower than where they are.

So the real bet is on whether the government will jump into the foray or not, and how long that will take.  

Meanwhile,  monthly principal and interest on a $200,000 30 year fixed mortgage at 5.5% is $1,135.  At 4.5% the payment would be $1,013.   Is saving the $122 difference worth the risk of never reaching 4.5% and the current lows around 5.5 vaporizing ?

I'd suggest not.    Get your paperwork together and let's lock your purchase or refinance rate now ! 



Rates are now between 5 percent and 5.25 percent. We will see some significant structural changes to lending, which may include interest rate bonuses when President-elect (Barack) Obama is sworn in. Until then, there will be little movement for fixed rate mortgages.
Jeff Lazerson, president, Mortgage Grader, Laguna Niguel, Calif.

There are so many forces at work at this point, which makes forecasting tough. The government being involved makes it even worse as they change their direction more than wind. However, getting rates lower seems to be a priority. Coupled with a few accounting changes that may occur early next year, I see rates sliding lower. But don't be greedy.
Chris Sipe, senior mortgage consultant, Mason Dixon Funding, Frederick, Md.

Given the rapid shift down in rates, the propensity of another of any magnitude is limited (this takes into consideration the anticipated 75-basis-point decline in the Fed target (rate) scheduled on or before the 16th). For borrowers, simply consider that rates are currently 140 (basis points) lower than the average over the last five years, so taking advantage of this time during the eye of the storm is a good move.
Cameron Findlay, chief economist,, Charlotte, N.C.

Currently the 10-year is trading at 2.68 percent, which is only slightly below last week. But we did drop just below 2.5 percent late last week, making it a great time to lock any loans. The job losses were more than double what ADP predicted, totaling more than 500,000 job losses just last month. The inflation component is down to 0.33 percent and the rates on short-term Treasuries are reaching all-time lows. Watch for lower rates across the board.
Mitch Ohlbaum, president, Legend Mortgage, Los Angeles

Only one thing is certain in this market, and that is volatility. Look overall for rates to remain range-bound, with considerable swings day to day. Bottom line, if you need or want to obtain financing today, lock your rate. Rates are incredibly attractive today and it will be difficult to nail a lower rate.
Jim Sahnger, mortgage consultant, Palm Beach Financial Network, Stuart, Fla.

Mortgage-backed securities are holding steady for now, even as the stock market continues to struggle. There's not much pending economic news at this time, other than the Fed meeting, which will likely be a nonevent for bonds yet again. For those looking to buy, build or refinance, this is an opportune time to lock into very attractive financing. Take advantage of great pricing today, rather than speculating on the unknown (rumors of 4.5 percent money, for example). Very often, when rates hit a new low, the stay there is very temporary.
David Kuiper, mortgage planner, First Place Bank, Holland, Mich.

It's coming, the question is when. Timelines for government action have been "flexible," to say the least. Bond traders have certainly factored this into to recent purchases of TBA pools.
Dan Dowling, senior mortgage adviser/president, United Mortgage Capital Corp., Altamonte Springs, Fla.

They say rates are coming down! I certainly hope so to jump-start this housing market.
Bob Moutlon, president, Americana Mortgage, Manhasset, N.Y.

If markets moved solely on fundamentals right now, mortgage rates would be rising. Instead, they're flat.
Dan Green, Mobium Mortgage, author of, Cincinnati

I am going to be totally uncool and repeat most of what I wrote last week because I believe that is accurately reflects where we are.
We are in a place not seen before. Mortgage rates will not be driven by fundamentals or techs, but it appears that they may be driven to wherever the Federal Reserve wants to drive them to. The Fed is no longer operating by using its now depleted reserve of Treasuries to buy and sell. It is creating money to buy MBS.
I am surmising that the Fed will see value in driving conforming 30-year (mortgages) under 5 percent. The Treasury Department has indicated that in addition to the Fed's monetary side stimulus it might be willing to borrow money on the fiscal side and buy MBS.
Dick Lepre, senior loan officer, Residential Pacific Mortgage, San Francisco

Bankrate's analysts Panel
With mortgage rates remaining at a spread of 280 basis points -- or more -- versus Treasury notes, expect the Fed and Treasury to continue throwing things at the wall until something sticks and brings those mortgage spreads down.
Greg McBride, senior financial analyst,

It's government policy now to keep mortgage rates low, so market forces don't have much bearing.



Posted by Wolf Leonard on December 12th, 2008 8:59 AMPost a Comment (0)

Twelves Days Until Christmas Eve -- A Good Time To Lock In New Or Refinance Mortgages
December 12th, 2008 6:20 AM

Driven down by a series of unsettling dispatches from the financial front, the 10-year Treasury yield touched 2.50% last week, a level not seen since 1954 reports Barron's.  The 30-year Treasury dropped within a fraction of 3%, a level not seen since the U.S. government began issuing 30-year paper.  Yields dropped all over the world:  the Bank of England slashed its target short-term interest rate to 2%, the lowest since 1951 . Sweden's Riksbank, the world's oldest central bank, dating back to 1668, dropped rates 1.75%.  The world's newest central bank, the European Central Bank, reduced rates by 0.75% (to 2.50%).   Even the Pacific Rim was not immune:  Australia and China cut rates by more than 1.00% each.

It is a good time to lock in your mortgage rate.  Low rates have touched off a modest refinance boom.  Without direct government intervention, mortgage rates to the consumer may not get all that much lower.  The spread between mortgage and Treasury yields is likely to drift higher, and even if Treasury yields drop further, the capacity of the mortgage industry is so low that mortgage originators are more likely to widen margins than lower rates.  At 2.86%, the spread between mortgage and Treasury yields is well off of its highs. 

However, there is limited demand for mortgage securities.  Regardless of purchases by the Treasury, it appears that the market has found 3.00% over Treasury yields as the balance between supply and demand for mortgage securities. **  

Manufacturing contracted in November by the fastest pace in 26 years, and 533,000 people were laid off -- bringing jobs cut in the past three months to more than 1.25 million. A flurry of post-Thanksgiving bargain-hunting didn't help much:  Retailers suffered the worst November in a generation.  The 2.3% jump in the unemployment rate in the past 20 months was the biggest in the past 25 years.  The number of unemployed has swelled by 2.7 million (to 10.3 million).  Those who were working worked less:  only an average of 33.5 hours a week, the lowest on record.  

Good news.  One of the sand states is showing signs of life (At the height of the credit boom, Wall Street coined the phrase "sand states" to describe the centers of sub-prime origination:  Arizona, California, Florida, and Nevada).  Home sales in California were up 5% from September and up 64% from October last year.  October was the strongest month since December 2006.  The median price paid for a home was $278,000, down 2% from the month before, and down 34% from a year ago.  The typical mortgage payment that home buyers committed themselves to paying was $1,310.  That was down from $2,016 a year ago. Adjusted for inflation, mortgage payments are back to where they were in early 2001. They are 37% below the spring 1989 peak of the prior real estate cycle, and 49% below the current cycle's peak in June 2006.  50% of all people in California can now afford homes, a much higher proportion than in years past.

source :  Tom Million, Capital Markets Cooperative


**  In other words, add 3% to the 10 year Treasury yield and you should get an approximate estimate of prevailing mortgage rates.  With the 10 year Treasury yield at 2.5%, the lowest since 1954, the chances of market mortgage rates going below that are very slim.   Of course government intervention, popular of late, can always muck up market influences, and throw even the best of projections into the gutter.    -Wolf

Posted by Wolf Leonard on December 12th, 2008 6:20 AMPost a Comment (0)

Lords-A-Leaping ! Check out the 2008 Christmas Price Index ! No Surprise Really.
December 12th, 2008 5:53 AM


(Click on chart above to enlarge)

(The PNC Chrismas Price Index Chart was moved to the beginning of this post.)

Happy Holidays !

Posted by Wolf Leonard on December 12th, 2008 5:53 AMPost a Comment (0)

Happy Thanksgiving . . . At Least For Mortgage Rates !
November 28th, 2008 5:37 AM

Another good day for the stock market yesterday. Up almost 400 points. If we keep this up every day for the next three years, we'll almost be even again. – Jay Leno

Sometimes you’re the windshield; sometimes you’re the bug. After being the bug for so many months, the mortgage industry finally had its day as the windshield.

First the bug :  Last week (11/17 - 11/21) ended with fixed mortgage rates a whopping 3.15% above equivalent Treasury yields.

According to a new study sponsored by Inside Mortgage Finance, nearly one in seven home sale contracts nationwide were cancelled during September and October because buyers were unable to obtain mortgage financing. Sales of distressed properties – those involving real estate owned (REO) or so-called short sales – made up more than 40 percent of home sale transactions occurring over the past two months, the study found.

Potential home sellers remain in denial about the true value of their homes.

Now, the windshield :  As a result of this past weeks dramatic Treasury actions, fixed mortgage rates plunged by more than 0.50%. The average conforming rate closed the day at 5.50%, a level at which $2.5 trillion of mortgages are eligible for refinance and origination, even after considering credit restrictions and home price declines.

Treasury actions comprise three main components : 

First, the Treasury announced that it would guarantee Fannie and Freddie debt (the debt that the agencies issue to finance their mortgage purchases), and that it would purchase up to $100 billion of that debt.

The problem in the past few weeks has been that the Treasury guaranteed bank debt, but not agency debt. So of course everyone bought bank debt to the detriment of mortgages. The result today? The yield on agency debt dropped 0.34%, and the spread between mortgage and Treasury yields dropped by the same amount. The spread closed today at 2.80%.

Second, the Treasury announced that is would purchase up to $500 billion of Fannie, Freddie, and Ginnie securities, which further pumped up mortgage prices. Third, Treasury yields dropped (the five-year Treasury yield closed today at 2.05%). These three phenomenon combined to create a whopper of a day for mortgages. CMC patrons locked almost a month's worth of loans today alone.

Third, the Treasury decided to enter the commercial banking business. It announced a program to finance hundreds of billions of dollars in car loans, student loans, and business debt. The Treasury will form a government bank(!) and seed it with $20 billion of TARP funds. The Federal Reserve will lend the new entity up to twenty times that amount to create loans. Of course the bank regulators would shut down a private institution if it were levered twenty times, but never mind that. These are truly incredible times.

"You seem to be flying a $700 billion plane by the seat of your pants." – Rep. Gary Ackerman, D-NY, as the House Financial Services Committee took pot shots at Henry Paulson. The $700 billion bailout of the banks has undergone more transformations in less time than any government program ever dreamed up .  Finally, however, some of the money is having a positive effect on the mortgage industry.

Mortgage rates might stay low for a while. The yield on two-year Treasuries last week fell below 1% for the first time ever, and longer-term yields posted their biggest drop since October 1987.

At the same time, the yield spread between 10-year nominal Treasuries and 10-year Treasury inflation-protected securities, or TIPs, collapsed to just four basis points, another record low. That means the market is expecting essentially no inflation over the next ten years – and that is why many predict Fed Funds will drop to 0% and stay there for most of 2009. There isn't much risk of higher Treasury yields any time soon. 

Goldman Sachs economists warned Friday that the unemployment rate will rise to a jaw-dropping 9% from 6.5% currently. As a result, the 10-year-note yield could fall as low as 2.75% in the first quarter of 2009, reports Barron's .

As for stocks, the carnage continues. If stock-market movements followed the normal distribution, like human heights, an annual drop of 10 percent or more would happen only once every 500 years, whereas in the case of the Dow it has happened in 20 of the last 100 years. And stock-market plunges of 20 percent or more would be unheard of—rather like people a foot and a half tall—whereas in fact there have been eight such crashes in the past century.

When the S&P went below 804 last week, the percentage decline off the highs marked the greatest bear market in history since the Great Depression. The S&P 500 index dividend yield, about 3.79%, exceeded the 10-year Treasury yield. For the first time in half a century, the dividend yield is higher than the bond yield. Stocks are cheaper than they were, but they could get a lot cheaper.

Perhaps today is a turning point, and the constructive efforts of the new administration have begun. And not a moment too soon. Since Sept. 24, when Obama opened up a nine-point lead in the race, the Dow fell 19%. In order of urgency, most analysts call for Obama to support a bold new stimulus package, aid for Detroit, foreclosure relief, a delay on tax hikes, free trade, new financial regulation, fuel-efficient cars and fair rules for union votes.

Happy Thanksgiving ! Thanks for your business and have a good week. -- 




Wk Chg

30-Yr Mortgage

5.52 %

-0.66 %

10-Yr Treasury

3.11 %

-0.64 %

2-Yr Treasury

1.19 %

-0.02 %

Fed Funds



Fed (Dec ‘08)

0.43 %

-0.05 %

Fed (Jun ’09)

0.58 %

-0.20 %

Dow Industrials











source:  Tom Million at Capital Markets Cooperative (

Posted by Wolf Leonard on November 28th, 2008 5:37 AMPost a Comment (0)

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