The Future of Mortgage-Financing NOW!
Leandro
Leandro Hernandez is Vice President of Mortgage Lending at Guaranteed Rate, Inc., an Illinois Top-Ten mortgage company. Guaranteed Rate, Inc. is a mortgage banking and brokerage firm that is licensed to lend in 43 states. NMLS ID 2611, licensing info: www.guaranteedrate.com/licensing.php Leandro is responsible for providing strategic mortgage planning and analysis to his clients. He also works closely with attorneys, financial planners, accountants, and other advisors in order to take a comprehensive approach when serving his clients. This allows him to integrate the mortgage aspect of the equation into the client’s entire financial picture. For example, the client’s estate planning, tax strategy, and investment and retirement planning are all taken into account in order to achieve a unified goal. Born in Chicago, Leandro earned his degree from The University of Chicago with a concentration in economics and psychology. Leandro traveled extensively during his time in college; visiting and studying in various European and Latin American countries. Prior to joining Biltmore, He also worked in the finance and accounting division at United Airlines and was assigned to projects in various countries, including China and Japan. Leandro serves on several committees and boards, including The Illinois Association of Mortgage Professionals–Government Relations Committee, The Chicagoland Chamber of Commerce–Taxation Committee, The Chicago White Sox Hispanic Market Advisory Board, The University of Chicago Alumni Association–Board Member, and The Oakton Community College Real Estate Institute–Co-Chair. Leandro enjoys spending time with his wife and their three dogs. He is also a dedicated runner and martial artist.
Posts by Leandro
Is More Fed-Led Stimulus On Its Way?
May 18th
The Federal Open Market Committee released its April 2012 meeting minutes this week, revealing a Federal Reserve in the ready in the event additional monetary stimulus is needed.
The Fed Minutes function much like the minutes from a business meeting; or, condominium association meeting, for example. It’s a detailed review of the conversations and debates between FOMC members, and is typically published 3 weeks after a Federal Reserve meeting.
The Fed Minutes is a follow-up statement on the FOMC’s more well-known, post-meeting press release. It’s also much more lengthy.
Whereas the April 25, 2012 press release totaled 444 words, the Fed Minutes spanned 6,618.
Those extra words are important, too, because the detail offered within the Fed Minutes lends insight into how our nation’s central bank views the U.S. economy, its strengths and weaknesses, and its threats.
From the Fed Minutes, some of the Fed’s comments includes :
- On employment : Unemployment may remain elevated through 2014
- On housing : Tight underwriting is “holding down” the housing market
- On rates : The Fed Funds Rate should remain low until late-2014
There was also substantial talk about Europe and its role in the U.S. economy. Notably, U.S. financial institutions have been actively reducing their European exposure to contain damage in the event of a full-blown economic crisis abroad.
This has had the net effect of lowering mortgage rates in Illinois. Mortgage bonds often benefit from economic uncertainty.
In addition, because several Fed members acknowledged a willingness to add new stimulus to the U.S. economy, mortgage markets are accounting for the possibility it could happen. It’s unclear whether stimulus would be added after the Fed’s next meeting, or at some point later in the year, or at all.
The FOMC has its next scheduled meeting June 19-20, 2012.
Single-Family Housing Starts Powers Ahead
May 17th
The new construction housing market continues to improve.
One day after the National Association of Homebuilders reported a 5-year high in homebuilder confidence, the U.S. Census Bureau reports that single-family housing starts rose 2 percent for the second straight month last month.
In April, on a seasonally-adjusted, annualized basis, the government reports 492,000 single-family housing starts. A “housing start” is a home on which ground has broken.
In addition, March’s single-family housing starts were revised higher. What was previously reported as a three percent loss was re-measured and changed to a 0.2% gain.
The April tally marks a six percent increase over the one-year moving average and, along with the March revision, suggests that the springtime housing market may have just been seasonal.
In March, a number of reports suggested a housing retreat :
- Existing Home Sales slipped 3%
- New Home Sales slipped 7%
- Homebuilder Confidence fell 4 points
Since then, though, low mortgage rates and affordable home prices appear to have sustained the new construction market, which now appears poised for a strong 2012.
As one mark of proof, active buyers of newly-built homes in Chicago and nationwide are scheduling “model home” showings at the fastest pace since 2007. The burst of foot traffic high has builders upping their sales expectations for the next 6 months.
A scenario like this would normally lead new home prices higher, but the pressure for prices to rise may be offset by the amount of new home supply coming online.
In addition to a rise in Housing Starts, the Census Bureau also reports that, in April, the number of Building Permits for single-family homes rose 2 percent to move to its second-highest level since March 2010 — the month preceding the end of the 2010 federal Home buyer tax credit.
86 percent of homes break ground within one month of permit issuance.
It’s unclear whether housing is on a steady path higher, but there’s a growing body of evidence that suggests the market bottom has already passed.
Homebuilder Confidence Moves To 5-Year High
May 16th
Homebuilder Confidence is on the rise once again.
After a brief dip in April, the National Association of Homebuilders reports that the Housing Market Index rose 5 points in May to 29. The increase marks the sharpest climb in homebuilder confidence on a month-to-month basis in 10 years, and raises the index to a 5-year high.
The Housing Market Index is scored from 1-100. Readings above 50 indicate favorable conditions in the single-family new home market overall. Readings below 50 indicate poor conditions.
The HMI has not been above 50 since April 2006.
The Housing Market Index itself is a composite reading as opposed to a straight-up homebuilder survey. The published HMI figure is a compilation of the results of three specific questionnaires sent to NAHB members monthly.
The survey questions are basic :
- How are market conditions for the sale of new homes today?
- How are market conditions for the sale of new homes in 6 months?
- How is prospective buyer foot traffic?
This month, builders are reporting strong improvement across all three surveyed areas. Current home sales are up 5 points; sales expectations for the next six months are up 3 points; and buyer foot traffic is up 5 points to its highest point since 2007.
With mortgage rates low and home prices suppressed, the market for new homes is gaining momentum, a conclusion supported by the New Home Sales report which shows rising sales volume and a shrinking new home inventory nationwide.
The basics of supply-and-demand portend higher new home prices later this year — a potentially bad development for buyers of new homes in Illinois and nationwide. With demand for new homes rising, builders may be less likely to make sale price concessions or to offer “upgrade packages” to buyers of new homes.
If you’re shopping for new construction in or around Chicago , therefore, consider moving up your time frame. Home affordability is high today. It may not be tomorrow.
Home Affordability Getting A Springtime Boost From Greece
May 15th
Home affordability is receiving a boost from across the Atlantic Ocean this spring.
For the third time in as many years, a weakening Eurozone is pushing May mortgage rates to new lows throughout Illinois and nationwide.
The story centers in Greece and begins in 2010.
2 years ago, it was uncovered that successive Greece governments had purposefully misreported the nation-state’s economic statistics in order to meet European Union standards. The fraudulent data had permitted Greek governments to spend beyond their means while hiding deficits from EU auditors.
The realization that Greece was heavy in debt with little means to repay its creditors resulted in a massive bailout from the IMF and the rest of the Eurozone nations. The terms for Greece said that, in order to receive its €110 billion aid package, Greece would be required to enact strict spending controls.
This is known as “austerity” and the deal was met with outrage by the Greek public. There’s been general social unrest ever since and, on May 6 of this year, Greece held a special “early election” to elect all 300 members to its legislature.
No party won majority in the elections.
7 different groups garnered seats in the parliament last week with anti-austerity groups faring well. It’s spurred concern that Greece will end its bid for fiscal restraint, and that Greece may choose to leave the 17-nation Eurozone.
The uncertainty surrounding Greece is helping U.S. mortgage rates to make new lows. As concerns mount for the future of Greece — and the Eurozone, in general — global investors seek safer markets for their money.
The U.S. mortgage-backed bond market is one such market.
With the implied backing of the U.S. government, mortgage-backed bonds are viewed as nearly risk-less and investors clamor for safety of principal during uncertain times. The boost in demand drives bond prices up and bond yields down, resulting in lower mortgage rates for home buyers and refinancing households of Chicago.
So long as Greece struggles to form its government and flirts with a sovereign debt default, mortgage rates should continue to face downward pressure. U.S. rates may not fall week after week, but analysts expect any rise in rates to be muted.
What’s Ahead For Mortgage Rates This Week : May 14, 2012
May 14th
Mortgage markets worsened slightly last week as positive U.S. economic news overshadowed growing concerns for the Eurozone’s future. Political and economic issues continue to weigh on Greece and Spain, and it’s still unknown how France’s new President will change that nation’s fiscal direction.
Conforming mortgage rates in Illinois edged higher on the week overall.
Last week was light on economic data, but the figures released suggest an improving U.S. economy.
For example, the Bureau of Labor Statistics reported 3.7 million job openings nationwide this past March, marking the highest amount since July 2008. Voluntary separations (i.e. “quit jobs”) increased, too — also at levels not seen since 2008.
Voluntary separations may hint at labor market improvement because employees rarely leave a steady-paying job without the prospect of a new job ahead. Furthermore, the four-week moving average of first-time unemployment claims fell for the first time in a month.
The jobs market is one of two key sectors expected to lead the economy forward this year.
The other is housing and, this week, there will be two key housing reports for Wall Street to review. The first is Tuesday’s homebuilder confidence survey from the National Association of Homebuilders. The second is Wednesday’s Housing Starts data for April.
Mortgage rates may also be affected by the Tuesday release of the Retail Sales report and Consumer Price Index report; and, by the Federal Reserve’s Wednesday release of the FOMC Minutes from its last meeting.
For home buyers and mortgage rate shoppers, mortgage rates remain at all-time lows. According to Freddie Mac, the average 30-year fixed rate mortgage rate nationwide is 3.83% for borrowers willing to pay 0.7 discount points and a full set of closing costs — the lowest rate-and-fee combination in Freddie Mac’s recorded history.
However, low mortgage rates may not last much longer — especially if the Eurozone can reverse course on its ailing economies.
Mortgage rates remain volatile and sensitive to changes in market conditions. If today’s mortgage rates fit your budget, consider locking in.
Mortgage Rates Make New All-Time Lows (Again)
May 11th
Conforming mortgage rates continue to drop.
For the second straight week, the 30-year fixed rate mortgage fell to a new, all-time low nationwide. According to Freddie Mac’s weekly mortgage rate survey, the average 30-year fixed rate mortgage rate dropped 1 basis point to 3.83% this week for borrowers willing to pay 0.7 discount points plus a full set of closing costs.
The 15-year fixed rate mortgage also set a mortgage rate record, registering 3.05% with an accompanying 0.7 discount plus closing costs.
Discount points are a one-time, up-front closing cost, based on loan size. 0.7 discount points is equal to 0.7% of the borrowed amount. A home buyer in Chicago opening a $200,000 mortgage and paying 0.7 discount points, therefore, would be subject to a one-time $1,400 fee paid at closing.
Borrowers wanting to avoid paying discount points can expect higher mortgage rates than Freddie Mac’s reported national average.
Falling mortgage rates are nothing new throughout Illinois. Since peaking in February 2011, mortgage rates of all types have been in steady decline. The 30-year fixed rate mortgage has shed 122 basis points since that date, falling from 5.05%; the 15-year fixed rate mortgage has shed 124 basis points, falling from 4.29%.
Low mortgage rates give today’s home buyers additional purchasing power, stretching home affordability to new heights.
Low rates also help existing homeowners to lower monthly mortgage payments. For example, as compared to mortgage rates just 15 months ago, homeowners refinancing into today’s 30-year fixed rate mortgage stand to save 13.4 percent on their respective mortgage payments.
A comparison :
- February 2011 : $539.88 principal + interest per $100,000 borrowed
- May 2012 : $467.67 principal + interest per $100,000 borrowed
A homeowner with a $300,000 mortgage at February 2011 30-year fixed rate mortgage rates would save $2,600 annually with a refinance to this week’s low rates. Even accounting for discount points and closing costs, the “break-even point” on savings like that comes relatively quickly.
Mortgage rates can’t be predicted so there’s no guarantee of low rates forever. If today’s rates meet your budget, consider locking something in. Speak with your loan officer about your options.
8-Fold Increase In “Improving Markets” Since September
May 10th
The economic recovery continues nationwide, but the recovery’s an uneven one.
Some metropolitan areas are faring very well this year, posting measurable gains in both employment and housing. Other metropolitan areas, by contrast, are struggling.
To help identify those markets in which growth is occurring, the National Association of Homebuilders created the Improving Market Index, a metric analyzing three separate, independently-collected data series “indicative of improving economic health”.
The IMI’s three collected data series are :
- Employment Growth (as published by the Bureau of Labor Statistics)
- Home Price Growth (as published by Freddie Mac)
- Single-Family Housing Growth (as published by the Census Bureau)
A metropolitan area is considered to be “improving” if all three indicators show growth at least six months after the respective area’s most recent trough, or “bottoming out”.
In May, there are exactly 100 U.S. markets that qualify for the NAHB’s Improving Market Index, down from 101 last month but higher by more than 800% from the reading in September 2011, the index’s inaugural release.
17 areas were added to the Improving Market Index list this month including Phoenix, Arizona; Ann Arbor, Michigan; and Bend, Oregon. 18 areas were removed from the May IMI.
83 metropolitan areas remained from April.
There is little actionable information in the Improving Markets Index but the report does a good job of highlighting how “real estate markets” can’t be summarized on a national level and remain relevant to everyday home buyers and sellers across Illinois and nationwide. For example, Fort Collins, Colorado is listed as an Improving Market. However, Greeley, Colorado — located just 30 miles away — was just downgraded from the same list.
Home values and economies vary by region, by state, by city, by neighborhood, and even by street.
The complete Improving Markets Index can be viewed at the NAHB website but for the best read of what’s happening in your neighborhood, talk to a local real estate agent.
With LIBOR Low, Don’t Rush To Refinance Your ARM
May 9th
Is your mortgage scheduled to adjust this season? You may want to let it. This year’s ARM-holding homeowners in Illinois are finding out that an adjusting mortgage may be the simplest way to get access to today’s low mortgage rates — without paying the closing costs.
Currently, conventional adjustable-rate mortgages are adjusting to near 3.00 percent.
If your home is financed via an adjustable-rate mortgage, you’re likely cognizant of your loan’s life-cycle. At first, your ARM’s initial mortgage rate is agreed upon between you and your lender, a rate that both parties agree will remain in place from anywhere from one to 10 years, with periods of five and seven years being most common.
Then, after the initial “teaser rate” expires, the mortgage’s mortgage rate adjusts according to a pre-determined formula — one that’s also agreed upon at closing. The loan is then subject to an identical mortgage rate adjustment every 12 months thereafter until the loan is paid in full.
The most common conforming mortgage adjustment formula is to add 2.25 percent to the then-current 12-month LIBOR rate.
Today’s 12-month LIBOR is 1.05% so, as a real-life example, an adjustable-rate mortgage that’s leaving its teaser rate period this week would adjust to 3.30%.
If you’re a homeowner who took a 7-year ARM in 2005, or a 5-year ARM in 2007, your newly-adjusted mortgage rate should be roughly 2 percent lower than your initial teaser rate. On a $250,000 mortgage, a 2 percent mortgage rate reduction yields $298 in monthly savings.
Therefore, if you have an adjustable-rate mortgage that’s due to reset, don’t rush to refinance it. For at least one more year, you can benefit from low mortgage rates and low payments.
As for next year’s adjustment, however, that’s anyone’s guess.
Reverse Mortgages : Pros And Cons
May 8th
Despite several big-name banks pulling the product from their respective home loan offerings, reverse mortgages remain a popular mortgage choice among homeowners aged 62 or over.
A reverse mortgage is exactly what it sounds like — a mortgage in reverse. Rather than borrow a fixed amount of money then pay that loan balance down to zero as with a “forward” mortgage, a reverse mortgage starts at a given loan balance and works its way up as scheduled payments are added to the existing loan balance.
This 4-minute piece from NBC’s The Today Show highlights a few pros and cons of reverse mortgages, and the reasons why you may want to consider one, including :
- No mortgage payments are ever due on your home
- There is no credit check required for a reverse mortgage
- There is no income requirement to qualify for a reverse mortgage
There are some basic qualification standards for the reverse mortgage program including a requirement that all borrowers on title must be 62 years of age or older; and that the subject property be a primary residence. Loan fees can also be higher than with a conventional-type mortgage.
If you meet the qualification standards, though, with a reverse mortgage, you have flexibility in how your home equity is distributed to you. You can receive a lump-sum payment, elect for monthly installments over time, create a line of credit, or a combination of all three.
Like all mortgages, reverse mortgages are complex instruments. That’s one reason why all reverse mortgage borrowers are required to attend counseling — the government wants you to be certain that you understand the nuances of the reverse mortgage program.
Your lender will want you to understand the program, too.
What’s Ahead For Mortgage Rates This Week : May 7, 2012
May 7th
After two weeks of no change, mortgage markets improved last week, pushing mortgage rates lower throughout Illinois.
The majority of the improvements occurred Friday after the April jobs report failed to impress Wall Street, and after it became clear that the Eurozone’s struggles with sovereign debt would continue.
According to Freddie Mac, conforming 30-year fixed rate mortgage rates fell to 3.84% nationwide, on average, for borrowers willing to pay 0.8 discount points at closing plus a full set of closing costs.
1 discount point is equal to 1 percent of your loan size such that one discount point on a $200,000 loan would require $2,000 to be paid at-closing.
Freddie Mac’s reported rates for the benchmark 30-year fixed rate mortgage are the lowest in recorded history.
The 15-year fixed rate mortgage is also at its lowest point in history. According to Freddie Mac’s survey, the 15-year fixed averaged 3.07% with 0.7 discount points last week. One year ago, the rate was 3.89%.
This week, with a data-sparse economic calendar, mortgage markets will likely take cues from events in Europe. Notably, France has elected a new leader, one that prefers growth over austerity; and voters in Greece have “punished” austerity-backing leaders, in the process creating a split parliament.
Each event adds uncertainty to an already unstable economic environment and uncertainty favors U.S. rate shoppers.
Doubt spurs investors to seek “safe” assets and U.S. government-backed bonds — including mortgage backed bonds — meet that criteria. As demand for mortgage bonds rise, mortgage rates tend to fall.
This week, rates are starting the week improved. Whether it’s a knee-jerk reaction to Eurozone news from the weekend, or low rates are here to stay is tough to know. Therefore, if today’s mortgage rates look good to you, consider locking something in. There’s more room for rates to rise than to fall.