Thursday, October 25, 2012

MARKET TRENDS: Consumer Sentiment Improves on Job Reports and Low Mortgage Rates

Surprising everyone this week, the preliminary October reading for the Thomson Reuters/University of Michigan Consumer Sentiment Index rose to 83.1 which was an increase from 78.3 for the month of September. This is the highest level reached in five years, since September of 2007. Consumer Sentiment is a measure of personal financial conditions and future expectations of consumers.'s survey of wholesale and direct lenders showed that mortgage rates remain at historically low levels this past week with 30 year fixed mortgage rates as low as 3.000%, 15 year fixed mortgage rates as low as 2.375% and 5/1 adjustable mortgage rates as low as 2.375%. Borrowers must have good credit and qualifications in order to receive these lowest mortgage rates available.For the week ending October 6th, jobless claims plunged according to the Labor Department who stated that there were 339,000 initial claims for unemployment benefits, a drop of 30,000 from the previous week and the lowest since February, 2008, 4 1/2 years ago. The Fed's Beige Book showed economic growth was boosted by stronger housing markets in almost every region of the country at the end of the summer. In addition, Fannie Mae's latest Housing Market Survey showed 37% of consumers expect home prices to increase over the year and 40% believe the economy is on the right track. Consumers have been showing optimism due to low mortgage rates and the improvement in recent job reports.

Conforming mortgages, also known as conventional loans, require borrowers to submit documentation for employment, income and assets, all of which will be verified by the lender. Home purchase loans and traditional mortgage refinancesalso require both an interior and exterior appraisal of the property. The non-traditional mortgage refinance, HARP (updated to HARP 2.0) is available for borrowers who have loans that were sold to Fannie Mae or Freddie Mac prior to June 1, 2009.

This refinance has no loan to value caps and does not require an appraisal, but it does have a minimum LTV of 80%. Borrowers must be current with mortgage payments and show no late payments within the most recent six months and no more than one late within the past
twelve months. Many borrowers have already taken advantage of HARP 2.0 in recent months, but there are many more who can still move to lower mortgage rates with this program. For more information about HARP or any mortgage program, the online form does not require a social security number, but will return a response almost immediately.
Current FHA 30 year fixed mortgage rates are as low as 3.000%. FHA loans are available for financing up to $729,750 which amount depends on the location of the property. Having low down payment requirements and flexible credit qualifying guidelines, FHA mortgages are widely used by first time home buyers. Multiple mortgage programs, such as rehab and energy efficient loans, make it possible for homebuyers to purchase a home that requires improvements or upgrades.

Down payments can be funded with gifts that meet FHA guidelines and housing grants or loans from state or local housing initiatives. Even though FHA closing costs (APR) are high because of various FHA fees and the upfront mortgage insurance premium, FHA allows these costs to be added to the loan amount, in most cases, or to be paid with seller concessions. One of the many benefits of obtaining an FHA loan is being able to refinance through the FHA streamline refinance program.

This refinance does not allow for cash out, but also does not require an appraisal or any other documentation from the borrower. Until the end of 2013, the FHA streamline refinance is available with reduced upfront and annual mortgage insurance premiums for borrowers who have loans that were FHA endorsed prior to June 1, 2009. Even eligible borrowers who have a reduction of income or are underwater with their mortgage can refinance to lower FHA mortgage rates with this program. Borrowers can obtain more information about the FHA streamline refinance or other FHA mortgage programs by submitting the online inquiry without the need of detailed personal information.

Jumbo mortgage rates once again remained slightly higher than conforming and FHA mortgage rates. Jumbo 30 year fixed mortgage rates are as low as 3.500%, jumbo 15 year fixed mortgage rates are as low as 3.125% and jumbo 5/1 adjustable mortgage rates are as low as 2.500%. Borrowers who require jumbo mortgages must have excellent credit in order to obtain the lowest jumbo mortgage rates.

These are large loans that are required for financing above the conforming and FHA loan limits depending on property location. Jumbo mortgages require the same documentation as conforming loans, but may have stricter guidelines. Substantial assets are needed in order to fund the large down payment and additional months of reserves. Since these loans are held within the lender's portfolio, they are usually considered risky. On the other hand, they are also profitable for lenders who may offer flexibility to well qualified applicants.

Mortgage rates remained mostly steady this past week as there were no major fluctuations in MBS prices (mortgage backed securities). MBS prices affect mortgage rates which move in the opposite direction. QE3 is also keeping mortgage rates low as the Feds have begun to purchase $40 billion of MBS per month as a means of stimulating the housing and jobs market. Last week's economic data had very little influence on MBS and mortgage rates. September Import Prices increased 1.1% from August. The August Trade Deficit increased 4.1% according to the Commerce Department. September PPI increased 1.1% and was higher than expected. Core PPI, which excludes food and energy, remained unchanged in September. surveys more than two dozen wholesale and direct lenders’ rate sheets to determine the most accurate mortgage rates available to well qualified consumers at about a 1 point origination fee.

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