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Mixed Signals in the Mortgage World

 Yesterday we heard the news that the First Time Homebuyer Tax credit that was slated to expire on November 30^th, 2009 is being extended until next spring. Future homeowners need to get under contract before May 1^st 2010 to take advantage of the extension. This is great news for realtors, mortgage people and most of all buyers. This is also smart way of phrasing the bill because prior to this we have seen a mad rush to try to get existing loans closed by November 30, 2009.

November was expected to be a stressful one for lenders and customers who were desperately trying to get their deal through the system and closed before the deadline. I have several customers who ran into credit score issues or time saving money time constraints that just made the deal impossible by November 30^th, 2009. At least this way, based on the new verbiage of the extension, they just need to sign the contract by May 1^st, 2010.

Mortgage Interest rates improved Friday morning amid concerns about unemployment figures. The labor department reported a spike in unemployment to 10.2%, higher than expected estimates of 9.9%. (Bad news for the stock market is typically good news for mortgage rates.) Typically anything that is anti-inflationary will help our mortgage rates. With less people in the work force and therefore less spending there is less chance of run away inflation.

I am seeing other mixed signs on the mortgage frontier as the year draws to a close. Many lenders have closed the doors to manufactured home customers. In my own experience, I know of eight who have turned this program off within the last few months, leaving only two available sources for me at the moment. This is another sign of the weakening economy as lenders track performance by borrowers on each segment of their portfolios.

Alternatively, I am seeing a few sources bringing back stated income loans, foreign national loans and home equity lines of credit to 89.99% of loan to value. The stated loans and foreign national loans are at 60% loan to value but at least they are there.

Lastly, the programs that I expect to see further change in the coming months is the Fannie Mae DU Refi Plus and the Freddie Mac Home Relief. These programs typically will lend up to 105% of the value of the home for existing Fannie Mae and Freddie Mac customers who purchased their homes without mortgage insurance and subsequently lost equity. The thresholds of these programs have been expanded to 125% of appraised value due to falling values. The cost of this added feature is expensive. Where the 105% loan is typically around 5%, the 125% alternative is around 5.75%. There is more talk of expanding the guidelines of this program again to allow customers who previously obtained lender paid mortgage insurance or traditional mortgage insurance.

Look for new lending alternatives in 2010 because they are necessary for our economy to rebound. Every time we go save $200 here or $300 there a month for a customer, it acts as a true stimulus for our ailing economy.

This news is great in a lot of ways!

• It helps loans in process which are running behind due to slow lender turnaround times or borrowers who are still saving or repairing their credit scores.
• It also goes one step further by offering incentives to existing homeowners who have been in their home for at least five years. This avoids benefits for "flippers" or "speculators" yet it provides bread and butter benefits to mainstream homeowners and senior citizens who wish to retire into a smaller home.

New York Times Nov 5, 2009: To spur the housing market, the bill extends an $8,000 tax credit for first-time home buyers that was due to expire on Nov. 30, making it available to those who have a contract before May 1 on a primary residence priced at up to $800,000. The bill also creates a new credit of up to $6,500 for existing homeowners who buy a new residence if they have lived in their current one for at least five of the last eight years.

Further expanding the number of eligible people, the measure raises the income limits for those claiming the credit to $125,000 a year for individuals and $225,000 for couples, up from $75,000 and $150,000. After that, the break begins phasing out.

The Obama administration had been unenthusiastic about extending the home buyers’ credit; many economists say most people claiming it would have bought homes anyway.