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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
The Headlines On Housing Aren’t Telling The Whole Story
Mar 23rd
As a consumer, it’s very easy to be misled by newspaper headlines. Today provides a great example.
“Sales of Existing Homes Up 3.9% For The Biggest Monthly Gains In Three Years”
What was not mentioned in the headline was that total inventory rose by 5.9%, adding more supply than for which there is demand.
More supply usually pushes prices down and last month was no exception. The median sale price was down 1.3% from February 2006.
This is the second time this week that real estate headlines were misleading.
Monday, you probably saw this headline in your preferred news source: “9% Jump in New Home Construction“. The headline was followed by an article highlighting strength in the housing sector because more homes are being built.
Missing from the articles, though, was that the Housing Starts survey’s Margin of Error was 10.2%.
Without getting into the math behind it, if Margin of Error exceeds the measurement, the data measured is worthless. The headline could have read “1.2% Drop In New Home Construction” and that would have been “true”, too.
(Author’s Note: If you want to know more about how Margin of Error works, check Google and find an answer that suits you. Or, just trust me on it.)
Housing may be strong or housing may be weak. But, most likely, housing is both of these things. It all depends on your particular street because all real estate is local. Either way, look deeper than the headlines — there’s always more to the story.
The Fed Gets Ambiguous; Mortgage Rates Fall
Mar 22nd
Ben Bernanke and the Federal Open Market Committee spoke with ambiguity yesterday in electing to keep the Fed Funds Rate at 5.250%.
So far, mortgage rates have benefited.
A major goal of the Fed is to manage the expectations of markets. Therefore, what the Fed does is sometimes not as important as what it says.
In yesterday’s announcement, the Fed expressed concern that inflation is not slowing as expected, but also added verbiage that its next move may be to drop the FFR. Previously, the Fed discussed the need for “additional firming” of policy (read: rate hike); that language was removed entirely.
A lower Fed Funds Rate means that money is “cheaper” which tends to be good for consumers and business. Mortgage rates moved lower on the possibility.
The Fed Sets The Fed Funds Rate Sets Prime Rate
Mar 21st
This afternoon, the Fed adjourns after a two-day meeting and it is widely expected that they will leave the Fed Funds Rate unchanged at 5.250%.
So, what is the Fed Funds Rate and why does it matter to everyday people?
The Fed Funds Rate matters to you and me because it is used to calculate Prime Rate, a popular consumer interest rate used for credit cards and home equity lines of credit.
And why is it called “Prime Rate”?
That’s because banks are smart.
Banks know that if Prime Rate was called something like “Consumer Loan Interest Rate”, we would all have our guard up. Instead, it’s named “Prime Rate” and that makes us feel warm and fuzzy. “Prime” is a strong word with a positive connotation.
It’s important understand, though, that when the Fed makes changes to the FFR, it directly impacts Prime Rate; the two move in lock-step.
Prime Rate is always 3.000% higher than the Fed Funds Rate.
For example, in June 2004, the FFR was 1.000% and Prime Rate was 4.000%. Since that date, however, the two have increased to today’s levels of 5.250% and 8.250%, respectively.
Because of the increase, credit card balance-carrying Americans have faced a 4.00% APR increase and homeowners with home equity lines of credit have watched their HELOCs more than double in payment.
The Fed is widely expected to leave the Fed Funds Rate unchanged today, but may provide clues about the future path of the benchmark rate. Any hints that the FFR will be lowered should provide a boost to the housing market.
Of course, the opposite is true, too. If the Fed cites economic strength and that FFR may have to be increased, it should have a detrimental effect on housing.
Look Beyond Short-Term Movement Towards Longer-Term Trends In Housing
Mar 20th
Mortgage rates are somewhat restrained today as the Fed begins its two-day meeting.
As reported by the Census Bureau, Housing Starts — defined as the number of units for which construction began — surprised to the high-side, despite a cold February.
The 9% increase over January showed relative strength, but when compared to February 2006, the number of starts is down 28.5% year-over-year.
This data points to an overall slowing in the housing market.
Supporting the slowdown, Building Permits are also down. That data point registered a 2.5% decline versus last month, and a 28.5% decline versus February 2006.
Market mentality is that the FOMC will look at today’s housing data as indicative of a general housing slowdown, and that is generally good for mortgage rates.
Traders will stop short of placing heavy bets, though, so until tomorrow afternoon’s FOMC press release, expect general malaise and flatness in mortgage rates.
The Week In Review (March 19, 2007) : What To Watch For
Mar 19th
Sub-prime mortgage news dominated the headlines this past week as the Chicken Littles were out in full force. Perhaps the fears of a credit crunch are overblown, but then again, perhaps there’s reason to worry.
Like everything else in the world of economics, it all comes down to expectations.
Markets makes predictions about the future health of the economy and then they place bets to reinforce their predictions. This week, there will be several “expectation setters” to keep an eye on.
The major expectation setter will be Wednesday as Ben Bernanke and the Federal Open Market Committee meet to discuss U.S. monetary policy. After their meeting, the FOMC will issue a press release that will be heavily scrutinized by global investors.
Traders will be reading between the lines to see if the Fed believes our economy is expanding or contracting.
Any whiff of contraction and mortgage rates will plummet because the prevailing expectation is that the Fed is comfortable with the current expansion levels.
The other expectation setter comes in two parts: Monday’s Housing Starts data and Friday’s Existing Home Sales data.
Markets will be looking at both of these figures to see if sub-prime mortgage defaults spilled over into builders’ development plans and the general housing market, respectively.
This could be a volatile week for mortgage rates with so much uncertainty ahead.
The Cost of Living Index Increases; Mortgage Rates Increase, Too.
Mar 16th
The Consumer Price Index came in higher than expected this morning, registering a 0.371% increase. Excluding volatile gas and food prices, CPI grew by 0.241%. The latter figure is called “Core CPI”.
CPI is sometimes referred to as the “Cost of Living Index” because it measures how consumers are impacting by changing prices of energy, housing, transportation, food and beverage, apparel, entertainment and medical services.
When CPI moves higher, it generally “weakens” the value of a dollar because that dollar buys less. This is an inflationary cycle and generally leads to higher mortgage rates.
While both CPI figures are slightly higher than expectations, markets are taking the news in stride. Mortgage rates are only slightly off their best levels of the week, mostly on Friday-related profit-taking.
How To Answer “How Much Home Can I Afford?”
Mar 15th
Home shoppers know to consider the impact that a new home will have on their household budget and that is called keeping your eye on the ball.
Unfortunately, most shoppers are keeping their eye on the wrong ball.
The proper way to answer the “How Much Home Can I Afford” question is to think in terms of monthly payment and not in terms of a home’s listed sale price.
When a shopper considers affordability in terms of purchase price, he negates the monthly payment impact of:
- Real estate taxes
- Condo/management fees
- Homeowner’s insurance
- Mortgage insurance (if applicable)
- Downpayment
A hypothetical $300,000 home could have a combined payment as low as $1,800 or as high as $3,000, depending on the factors listed above.
In addition, mortgage rates change daily, so that can swing the payments either direction, too.
A smarter way to answer “How Much Home Can I Afford” is to determine a target monthly payment and then work backwards.
This way, each home is considered for its overall holding costs (i.e. mortgage, taxes, related fees) instead of its sticker price.
Conforming ARMs Are Going Delinquent More Rapidly Than Sub-Prime ARMs
Mar 14th
The Mortgage Bankers Association released a report yesterday detailing how mortgage-holding homeowners are meeting their obligations.
The statistics were a major factor in the Wall Street sell-off yesterday as investors increasingly grow nervous that sub-prime mortgage defaults will spill over into other credit markets and take the economy with it.
The report stated that fourth quarter sub-prime mortgage delinquency rates increased to 14.44% from 13.22%.
This is a 9% jump.
But (as we should always do with statistics), let’s go a little deeper.
The report also listed data on non-sub-prime loans. The delinquency rates on these “other” mortgages was even worse! Delinquencies rose from 3.06% to 3.39%.
This is a 10.78% jump.
You would never know it without looking deeper into the numbers, but conforming ARMs went delinquent in Q4 with more vigor than sub-prime ARMs.
Either way, so long as markets are worrying about credit markets, it will siphon money out of stocks and into bonds. Added demand for bonds usually helps to keep mortgage rates low so there may be silver living here after all.
Moving To A New Town Means Adjusting To A New Cost Of Living
Mar 13th
For the budget-aware, buying a new home involves calculating how new PITI payments will impact the household budget.
For in-town moves, the math is fairly simple — consider your existing budget and replace your old housing cost with your new housing cost.
For non-local moves, however, the budgeting grows more complicated because each city has a distinct Cost of Living.
Bankrate.com makes an interesting calculator available that — while not perfect — does a fairly good job of helping a home buyer plan for a new life in a new town, complete with estimated heating bills and grocery tabs.
The Week In Review (March 12, 2007) : What To Watch For
Mar 12th
The mounting pressure on sub-prime lenders sparked talk of a recession as economists wonder how the housing market will be impacted.
Many sub-prime lenders discontinued 100% financing programs this past week and a few of the biggest names — New Century and Fremont — stopped taking applications altogether.
These changes pushed mortgage rates lower through market close Thursday. Upon Friday’s open, however, the Non-Farm Payrolls report revealed enough employment and wage strength to make markets reconsider their long-term perspective.
Mortgage rates snapped back quickly and erased much of the week’s gains.
This week is back-end heavy with data which should generate more volatility as the week goes on.
Most important to watch for: Thursday’s Producer Price Index (PPI) and Friday’s Consumer Price Index (CPI). Both are widely watched for clues about economic growth prospects.