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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
Mortgage Rates Don’t Move With The Fed Funds Rate
Aug 19th
Last week, at its 5th scheduled meeting of the year, the Federal Open Market Committee voted to leave the Fed Funds Rate in its target range near zero percent.
The Fed Funds Rate has been near zero percent since December 2008 and, in its official statement, the FOMC pledged to leave the Fed Funds Rate untouched for at least another 2 years.
This doesn’t mean mortgage rates will be untouched for 2 years, though.
Mortgage rates and the Fed Funds Rate are two different interest rates; completely disconnected. If mortgage rates and the Fed Funds Rate moved in tandem, the chart at right would be a straight line.
Instead, it’s jagged.
To make the point more strongly, let’s use real-life examples from the past decade.
- June 2004, 529 basis points separated the Fed Funds Rate and the 30-year fixed mortgage rate
- June 2006, 168 basis points separated the Fed Funds Rate and the 30-year fixed mortgage rate
Today, the separation between the two benchmark rates is 407 basis points.
1 basis point is equal to 0.01%.
Between now and mid-2013, when the Fed may begin changing the Fed Funds Rate, the spread between rates will change based on economic expectation — not Fed action (or non-action). If the economy is expected to improve, mortgage rates in Chicago will rise and the spread will widen.
Should mortgage rates cross 6 percent before the Fed starts raising rates, it will create the widest interest rate spread in history, surpassing the 615 basis point difference set in August 1982.
At the time, the Fed Funds Rate was 10.12% and mortgage rates averaged 16.27%.
On the other hand, if the economy shows signs of a slowdown for late-2011 and beyond, mortgage rates are expected to drop.
Shopping for a mortgage can be tough — especially in a volatile environment like the current one. Mortgage rates move independent of the Fed Funds Rate. Make sure you’re watching the proper market indicators. It’s your best chance to lock the lowest rate possible.
What Perks Does Your Favorite Credit Card Offer?
Aug 18th
Last week, the Federal Reserve pledged to leave the Fed Funds Rate near 0.000 percent until at least mid-2013. For credit card holders in Illinois who carry a monthly balance, this is good news. Because of the Fed’s call, credit card rates are unlikely to rise before mid-2013.
But cardholders can save on more than just interest costs, as you’ll learn from this two-and-a-half minute piece with NBC’s The Today Show. In the interview, you’ll hear about “built-in” perks offered by most credit cards and ways by which you can save on everyday goods and services.
For example, did you know your everyday credit card might offer:
- Travel perks : Automatic trip cancellation protection and car rental insurance.
- Shopping perks : Discount admission to concerts and museums; free shipping from overseas.
- Consumer perks : Price protection against a drop in price; insurance against theft; extended warranties.
And it’s not just “high end” cards that offer these options, either. Credit cards of all types do what they can to improve consumer loyalty. Offering free perks is just one way in which they try.
Most credit cards offer websites detailing cardmember perks and benefits. Visit the site of your favorite card and see where you might save on everyday items.
Housing Starts Tick Lower; Building Permits Tick Higher
Aug 17th
Single-Family Housing Starts fell to a seasonally-adjusted, annualized 425,000 units in July, according to the Census Bureau.
A “Housing Start” is defined as a home on which construction has started and ground has broken.
Furthermore, Single-Family Housing Starts were revised lower for both May and June of this year, by 6,000 units and 2,000 units, respectively.
The data may be worthless, however.
Like in most months, the government’s official report states that the Housing Starts numbers have a margin of error exceeding their actual measurement. Mathematically, this renders the data statistically irrelevant.
- July Published Results : +4.9%
- July Margin of Error : ±8.9%
In other words, July Housing Starts made have increased by as much as 13.8%, or they may have dropped up to 4.0%. We won’t know for certain until several months from now, when the Census Bureau gathers more data.
Regardless, the trend in Housing Starts has been flat since last summer. July’s reading is in-line with the 12-month average and, not surprisingly, New Home Sales have been mostly flat over the same time span.
Also included in the Housing Starts report is the Building Permits tally. As compared to June, permits were higher by a half-percent nationwide, with varying results by region.
- Northeast : +2.9 percent from June
- Midwest : +0.0 percent from June
- South : -1.4 percent from June
- West : +4.9 percent from June
When permits are issued, 86 percent of them start construction within 60 days. This means that new home sales and housing stock should follow the Building Permits trend, but on a 2-month delay.
Expect improvement into the fall season.
Homebuilders Expect A Soft Winter Housing Market
Aug 16th
Two months after posting their worst confidence reading of 2011, home builders say they foresee no improvement in the immediate- or medium-term market for new homes nationwide.
In August, for the second straight month, the Housing Market Index read 15.
The HMI is a monthly housing survey, published by the National Association of Homebuilders. It’s scored on a scale of 1-100 with readings over 50 suggesting favorable home builder conditions. Readings under 50 suggest unfavorable conditions.
The Housing Market Index has been below the 50-point benchmark since 2006.
To calculate the HMI, home builders are asked 3 separate questions, each addressing the different element of the new home sales business.
- How are today’s market conditions for the sale of new homes?
- How do you expect market conditions to be 6 months from now?
- How are the current foot traffic of prospective buyers?
Based on the August answers to these questions, builders are witnessing an improvement with the current market, partially fueled by low mortgage rates, but expect momentum to fade into early-2012.
As a home buyer in Chicago , this may bode well for you. If you can wait to buy a home, you may find builders more willing to concede on price or upgrades.
The other side of that conversation, though, is that while you may save money on the home, you may lose it in your monthly payments. Rising mortgage rates can quickly zap your savings — adding tens of thousands in interest costs to your budget long-term.
For now, home prices remain low and mortgage rates do, too. Home affordability is at an all-time high. Take advantage of what the market gives you.
What’s Ahead For Mortgage Rates This Week : August 15, 2011
Aug 15th
Mortgage markets improved again last week. The combination of global economic uncertainty plus a dour outlook from the Federal Reserve pushed mortgage bonds to highs for 2011, and drove mortgage rates below their all-time lows.
Bonds were volatile, driven by the stock market’s gyrations.
On 4 consecutive days, the Dow Jones Industrial Average moved by more than 400 points. Rate shoppers in Illinois had no choice but to go along for the ride.
The week began with the market’s reaction to Standard & Poor’s U.S. credit rating downgrade. Mortgage bonds caught a boost on the news, and pushing rates lower throughout the day.
Tuesday, rates idled ahead of the Federal Open Market Committee meeting. There was speculation that the Federal Reserve would introduce a new round of economic stimulus but that didn’t happen. Instead, the Fed pledged to keep the Fed Funds Rate in its current range near zero percent until mid-2013, at least.
Mortgage rates dropped on the announcement and continued to drop until they fell to their lowest levels of the year — and of all-time — late Wednesday afternoon.
This proved to be the lowest rates of the week.
Thursday and Friday were marked by better-than-expected jobless figures and an improving Retail Sales number. Mortgage rates rose slightly.
This week, mortgage rates should be equally as volatile.
In addition to new bailout talks within the Eurozone, there is a bevy of economic data due for release in the U.S., as well as a full Fed speaker docket:
- Monday : Homebuilder Confidence Survey; Fed President Lockhart speaks
- Tuesday : Housing Starts; Building Permits
- Wednesday : Producer Price Index; Fed President Fisher speaks
- Thursday : Existing Home Sales; Fed President Dudley speaks
- Friday : Fed President Pianalto speaks
Mortgage rates have been trending lower in recent weeks and there are few reasons to think that trend will reverse. However, mortgage markets can be wildly unpredictable — especially when acted upon by an outside force such as the Federal Reserve or the U.S. government.
Stimulus and rheotoric can change mortgage rates in a hurry.
Therefore, if you see today’s rates and they fit within your budget, consider locking something in. Once rates start to rise, they’re going to rise quickly.
Foreclosures Sink To 4-Year Low
Aug 12th
Foreclosure activity continues to slow.
According to RealtyTrac, a national foreclosure-tracking firm, the number of foreclosure filings nationwide fell 35 percent as compared to July 2010, a statistic suggesting that the housing market continues to improve.
“Foreclosure filing” is a catch-all term encompassing default notices, scheduled auctions, and bank repossessions.
Filings fell to a 44-month low in July 2011.
For all the improvement, though, activity remains concentrated in just a few states. More than half of all bank repossessions last month occurred in just a handful of states.
In July, 6 states accounted for 52% of activity.
- California : 19% of all repossessions
- Georgia : 8% of all repossessions
- Florida : 7% of all repossessions
- Texas : 6% of all repossessions
- Michigan : 6% of all repossessions
- Arizona : 6% of all repossessions
At the other end of the spectrum is Vermont. With just 11 repossessions for all of July, Vermont accounted for 0.016% of repossessions nationwide.
Distressed homes are in high demand with today’s home buyers. According to the National Association of REALTORS®, they account for 30% of all home resales. That’s no surprise, either.
Distressed homes typically sell at 20 percent discounts as compared to non-distressed ones.
But, if buying a foreclosure is in your agenda, be sure to do your homework. Buying bank-owned homes is different from buying from “people”. The contracts are different, the negotiations are different, and the homes are sometimes sold with defects.
If you plan to purchase a foreclosure in Chicago , therefore, be sure to speak with a licensed real estate agent first. There’s plenty of available information online but when it’s time to buy, have an experienced agent on your side.
Strong Job Growth In July Trumped By Credit Downgrade
Aug 11th
More Americans are getting back to work.
The latest Non-Farm Payrolls survey from the Bureau of Labor Statistics shows that 117,000 net new jobs were created in July, thumping analyst estimates and surprising Wall Street investors.
In addition, May and June’s originally-reported figures were both revised higher:
- May 2011 was revised higher by 28,000 jobs
- June 2011 was revised higher by 28,000 jobs
The national Unemployment Rate slipped to 9.1 percent.
The jobs report’s strong readings would typically be a boon to stock market and a threat to mortgage rates. This is because more employed Americans means more disposable income spent on products and services; and more taxes paid to governments at the federal, state and local level.
This combination fuels consumer spending and supports new job growth, a self-reinforcing cycle that spurs economic growth and often to draw investors into equities.
This month, however, the market reaction has been decidedly different.
Since the Friday release of the July Non-Farm Payrolls report, the Dow Jones Industrial Average has lost close to 6 percent of its value. Furthermore, mortgage bonds — which typically sink on a strong jobs figure — have thrived.
High demand for mortgage-backed bonds have pushed mortgage rates below their all-time lows set last November; the biggest cause of which is Standard & Poor’s credit downgrade of U.S. government-issued debt.
Ironically, the credit rating downgrade sparked a surge of safe haven bidding that has been tremendous to rate shoppers and home buyers in Chicago and nationwide. Bond buyers are flocking to the U.S.
If you’ve been shopping for a mortgage, therefore, or recently bought a home, use this week’s action to your advantage. Call your lender and ask about rates. You may be surprised at what you find.
A Simple Explanation Of The Federal Reserve Statement (August 9, 2011 Edition)
Aug 9th
Tuesday, the Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent.
The vote was 7-3 — the first time in 5 meetings that the nation’s Central Bank was non-unanimous and the first time since 1992 that the FOMC adjourned with as many as three dissenters.
In its press release, the FOMC had little good to say about the U.S. economy, noting that since its last meeting in July:
- Growth has been “considerably slower” than expected
- Labor market conditions have deteriorated
- Household spendng has “flattened”
The Fed also noted that the housing sector remains depressed.
On the positive side, the Fed said that business investment in equipment and software continues to expand, and that energy costs have dropped and no longer contribute to inflationary pressures on the economy.
In fact, the Fed worries that inflation may be running too low for the country’s good.
To that end, the Federal Reserve has pledged to keep the Fed Funds Rate in its current range near 0.000 percent “at least until mid-2013″. This is a departure from prior statements in which the Fed gave no such date.
Mortgage market reaction to the FOMC statement has been positive this afternoon. Mortgage rates in Illinois are improving, but note that sentiment can shift quickly — especially in a market as uncertain as this one.
If today’s mortgage rates look good in your household budget, consider locking in a rate.
The FOMC’s next scheduled meeting is September 20, 2011.
Mortgage Rates Drop After U.S. Credit Downgrade
Aug 9th
Mortgage rates continue drifting downward, despite — or because of — a ratings downgrade on long-term U.S. government debt. Standard & Poors issued a single-notch downgrade after Friday’s market close, from AAA to AA+.
Of the roughly $9.4 billion in publicly-held U.S. debt, 72 percent is long-term (i.e. with duration of 2 years or longer).
U.S. short-term debt was not downgraded.
When an entity — government, business, or other — is cited for a credit downgrade, it means that the risk of lending money to that entity has increased. In theory, higher risk should lead to higher borrowing costs and higher consumer rates.
Except in today’s U.S. Treasury and mortgage bond markets, the opposite is occurring. U.S.-backed bonds are in demand, leading rates lower. It’s an unexpected response to the S&P downgrade.
There are 3 main reasons why mortgage rates aren’t rising.
First, Wall Street is “brushing off” S&P’s downgrade, citing the rating agency’s opinion as flawed. This is, in part, the result of a supposed “math error” in the S&P findings, as caught by the U.S. Treasury.
Second, global finance leaders have made public statements since the Friday downgrade re-asserting their faith in the U.S. government’s ability to repay its debts. This is helped stabilize bonds as well.
And, third, of the three major rating agencies, only Standard & Poor’s downgraded long-term U.S. debt. Competitors Moody’s and Fitch instead chose to re-affirm the top-status rating for U.S. government-issued debt after last week’s debt ceiling accord.
The likely cause for falling rates today is that the global economy is showing signs of a slowdown and the U.S. Treasury market remains the largest and most liquid bond market in the world. Ergo, they’re relatively safe — despite the credit rating of the nation backing them.
What’s Ahead For Mortgage Rates This Week : August 8, 2011
Aug 8th
Mortgage markets were especially volatile last week, taking rate shoppers in Illinois on a roller-coaster ride. The week’s news schedule was full. It included debt ceiling debates, jobs figures, and ongoing maneuverings within the Eurozone.
Each story a material impact on mortgage rates and, as a result, rates varied wildly from day-to-day.
Throughout the early part of the week, mortgage rates fell.
Monday, bond markets improved as leaks of the congressional debt ceiling agreement surfaced. Investors approved of the accord’s general terms and bought U.S.-backed debt to prove it. Tuesday, when the final agreement was reached and the terms were made public, mortgage rates dropped again.
This is because the debt ceiling agreement is based on spending cuts and tax increases. In response, analysts revised lower their respective growth estimates for the United States, benefitting bonds.
By Thursday, markets were in full rally mode.
On the eve of the July jobs report, traders flocked to the ultra-safe bond market; “whispers” put the net jobs created figure at a negative. Wall Street feared the worst. By Thursday’s close, mortgage pricing was at its best levels since November 2010.
Friday morning, though, markets recoiled. When the Non-Farm Payrolls report showed much-better-than-expected growth, it triggered a bond market sell-off and rates reversed higher. Rates rose more Friday than on any single day since November 30, 2010.
If you were quoted a mortgage rate on Thursday, on Friday, the same mortgage rate cost 1 discount point more.
This week, rates may rise or fall — it’s too soon to tell.
Friday afternoon, after markets closed, S&P downgraded the long-term debt of the U.S. government a notch. Typically, lower credit ratings means higher borrowing costs which leads to higher mortgage rates, among other things. However, it’s unclear how markets will react to the S&P decision.
Plus, the Federal Open Market Committee meets Tuesday and that, too, can affect markets.
As always, the prudent move is to lock your mortgage rate if its payment and terms are sensible. There’s too much volatility to know what markets might do tomorrow.