Market Comment
Mortgage bond prices were higher last week, which pushed mortgage interest rates lower. We started the week with some unfriendly data as the consumer confidence report was higher than expected. Fortunately, thin trading conditions amid the holidays, the shortened trading week, and jittery stocks all went well for MBS prices. Weekly jobless claims were higher than expected. Claims came in at 381k instead of the expected 375k mark.

The employment data this week will likely result in some mortgage interest rate volatility.

The Year Ahead
The future of the economy, whether recovery or additional weakness, will continue to be debated. There is no certainty in predictions. Data can be used to support both sides of the debate. What we can be certain of is the fact that mortgage interest rates are likely to remain volatile until the economy gains some stability. Historically, mortgage interest rates seem to improve slowly. In contrast, when rates increase, it is often fast and furious. One negative day often erases a week of positive improvements. Of course even that maxim was tested the last few months of last year as market swings of 1/2 a discount point both up and down were often seen in very short spans of time.

It is possible for mortgage interest rates to push lower considering the Fed still wants to keep rates relatively low. However, we are in unprecedented times and we have seen rate volatility throughout last year. The Fed isn’t the only player in the financial markets and there are many others buying and selling securities. Remember that the Fed does not directly dictate that mortgage interest rates will be at a certain rate. Rates are determined by the supply and demand for mortgage-backed securities. However, the Fed is the major player in the market at this time and they do set the lead.

Despite volatility throughout 2011, the Fed kept rates low. The big unknown is how things will play out this year. Now is a great time to take advantage of mortgage interest rates at these still historically favorable levels.

Copyright 2011. All Rights Reserved. Mortgage Market Information Services, Inc. www.ratelink.com. The information contained herein is believed to be accurate, however no representation or warranties are written or implied.

Market Comment

Mortgage bond prices were lower last week, which pushed mortgage interest rates a little higher. Rates came under pressure early in the week as the DOW surged higher Tuesday. Rates came under further pressure as the European Central Bank opened a long-term financing facility to help ease the credit crisis in the region. Leading economic indicators and University of Michigan consumer sentiment data both came in higher than expected. The debt auctions were generally average at best.

Liquidity

In years past, a borrower would visit their local savings and loan to obtain a mortgage. The Loan Officer at the bank would approve the mortgage and fund it with cash reserves from the vault. This system worked well until the bank ran out of money to lend. Borrowers came to the S&L looking for a loan and were told to come back when a current mortgage paid off. What the bank needed was a way to sell the loans they made, freeing up the capital to lend to new borrowers. This way they could lend the “same” money over and over, earning an income from servicing the loans and assisting the community by offering a near limitless pool of money.

To address this issue, FNMA and GNMA were established. The goal is to provide cheap mortgage money to prospective homeowners and a high quality bond for the investment community. The bond or Mortgage Backed Security (MBS) take mortgages with similar risk characteristics and pool them together. Investors in the MBS’s know ahead of time the return they are going to receive, much like a Certificate of Deposit. To ensure the performance of the bond, each mortgage is underwritten to specific guidelines.

During the past real estate boom, underwriting guidelines were relaxed, giving way to a whole new menu of mortgage products such as 100% financing. In addition, to streamline the influx of applications, income and asset verification took a back seat to a borrower with strong credit. With housing prices rising rapidly, the property could be sold to cover the note and foreclosure costs if this occurred. This cycle worked well until the price of houses moderated in 2006. Once the housing market began to cool and prices moderated, foreclosed homes were being sold for less than the notes. To add insult to injury, the loans underwritten to the looser guidelines did not perform as hoped. With the value of the collateral in question (falling home prices) and the future performance of the borrowers unknown, investors’ appetite for this risk waned. Unfortunately, the liquidity issues associated with Alt A and subprime loans carried over to more secure AAA GNMA and FNMA loans. Sellers of AAA MBS’s found it more difficult to find buyers. Fortunately, the Fed eventually stepped in and purchased mortgage-backed securities in an unprecedented effort to keep rates low, the housing market from crumbling, and the entire economy afloat. For all the criticism the Fed receives, these efforts have been successful so far.

How this all plays out in the long term is still up for debate. The one thing that is certain is that rates remain historically very favorable. Now is a great time to take advantage of these low mortgage interest rates.

Copyright 2011. All Rights Reserved. Mortgage Market Information Services, Inc. www.ratelink.com. The information contained herein is believed to be accurate, however no representation or warranties are written or implied.

SmartMove Mortgage Products from the Illinois Housing Development Authority offer affordable interest rates and down payment assistance for borrowers of low to moderate income. The programs are ideal for borrowers who need extra flexibility on sources of income, or who have limited funds for a down payment and/or closing costs. Features of these products include:

•    Offers up to $6,000 in down payment and closing cost assistance as a 10-year 0% forgivable loan
•    Maximum LTVs from 96.5 - 100%
•    Conventional / FHA / USDA insured products available
•    Fixed rate with terms up to 30 years
•    Reduced mortgage insurance requirements on conventional programs

Note, however, that certain qualifications apply.

•    Minimum credit score requirement: 620 (FHA and USDA loans); 660 (conventional loans)
•    Maximum total debt (back end) ratio of 45%
•    Buyer must contribute 1% or $1,000 of the purchase price, whichever is greater
•    First-time homebuyer or qualified exemption
•    Household income and purchase price limits apply
•    Homeownership counseling is required

Check with your PERL Mortgage Advisor to see if these products could be right for you!

Depending on the lender, homeowners will receive a mortgage statement either monthly or quarterly. If you’ve never dealt with such statements, they may seem difficult to understand…but considering that the statements reflect the status of what is likely your largest investment, it’s essential that you learn how to read it.

The standard statement has the following components:

Loan number – This number is crucial in order to receive proper service on the loan. By having this number handy when you speak to your loan officer, you’ll expedite any assistance you need and avoid having to discuss personal information such as your social security number.

Interest rate – This may be fixed or variable, depending on the type of loan you received at the start of the home-buying process. Keep an eye on this number and on the state of the market; you may decide to explore refinancing based on the difference.

Escrow Account Balance – Some lenders may require a separate escrow account be maintained to pay for property taxes and insurance. This balance shows you how much currently remains in the account.

Principle Paid, Interest Paid, Escrow, and Total Payment – Your monthly mortgage payment is broken down into a few parts. The total payment shows your principle, which is the amount paid towards the value of the house, and interest, which is the amount paid to the lender as a condition of borrowing. A portion will also go towards the escrow account. The statement will specify how much of your payment goes to each, as well as showing you the total payment each month.

Customer Service Information – Your statement should clearly tell you who to call if you have questions or concerns about your mortgage. Make sure you have the loan number when you call!

Newspapers and magazines have a limited amount of space they can use for print, including the property listings. To help squeeze as many different listings into the section as possible, a set of understood abbreviations or short phrases have developed over time that give a snapshot of each property. These can be confusing to a first-time home-shopper, so here’s a look at some of the more common ones:

Measurements
sf – square feet
ac – acres
#/#/# – number bedrooms/number bathrooms/size of garage (number of cars)
yo – years old (age of property)

Rooms
br – bedroom
mbr – master bedroom
kit - kitchen
dr – dining room
lr – living room
ba – bathroom
½ bath – bathroom incl. toilet and sink
¾ bath – bathroom incl, toilet, sink, bathtub OR shower
Full bath – bathroom incl. toilet, sink, bathtub AND shower
wic – walk-in closet

Amenities
a/c – air conditioning
c h/a – central heating and air conditioning
hvac – heating, ventilation, and air conditioning
hwh – hot water heater
w/d – washer/dryer
fp – fireplace
glfp – gas log fireplace
wbfp – wood-burning fireplace
pl – swimming pool
hdwd – hardwood floors
w/w cpt – wall-to-wall carpeting

Other
fsbo – for sale by owner
frbo – for rent by owner
hoa – homeowner’s association

Once you’ve spent some time with the short-hand, it will all seem like second nature. Happy hunting!