FHA Mortgage Rate Predictions = Irrelevant

Filed under FHA Interest Rate by on March 17, 2011 at 9:00 am {no comments}

FHA interest rates have been on an absolute tear for the past few days.  The loan rate is controlled by trading on Wall Street, not the FHA.   HUD is “the FHA,” and their job is to maintain the underwriting standards.  For the most part, they only control who can get a loan, not the rate.

Except for one critical detail:  HUD is also mandated by Congress to maintain the liquid reserves at a level so that we don’t have Fannie Mae Part Deux on our hands.  As such, they’re raising the MIP by .25% on April 18th.  MIP is similar to a conventional loan’s PMI.  It’s your money that gets set aside to create a pool of money that insures future defaults.  That insurance is what allows the on an to be so low in spite of the loose guidelines and low down payment requirement.

Wall Street has been selling stocks and buying bonds for the past few days.  At the opening bell, that’s reversing a bit.  Nonetheless, global investors have been pouring money into U.S. denominated bonds for the past few days, including mortgage bonds.  That’s what has pushed the down anywhere from .25-.50%.  That’s the great news.

We’ve gone from a wide band of 5.00-5.25% to somewhere between 4.50% and 4.75% in just a few weeks.

All FHA have a problem right now.  You shouldn’t care about the mortgage rate, you should care about the total costs.

FHA interest rates on April 18th are going to effectively be .25% higher with the new FHA MIP guidelines.

For argument’s sake, say that you were looking at a 5.00% mortgage last week on the current guidelines for a 3.5% down, 30 Year Fixed loan.  That MIP was 0.90%.  It’s a crude way to get to the number, but say that the effective cost was 5% in rate and .9% in MIP, voila, we’re at 5.90%.

Starting April 18th, that MIP will be 1.15%.  Basically, any mortgage rate higher than 4.75% would be “higher” than today’s 5%.

Add to it one more thing:  today’s are based on the past few days of trading.  Wall Street is trading on the assumption that there will be a total meltdown in Japan.  Anything less than a full meltdown and we already have plenty of room for mortgage rates to go up.  No matter what, they’re going up .25% in just a month if you treat the MIP like a rate change.

What does this mean?  If you can find your home, reach an agreement on price, and enter into an FHA mortgage application soon, you stand to gain both in terms of the mortgage rates but also utilize the lower MIP factor.

It makes now a great time to apply for a mortgage.  Unless FHA interest rates go down another .25% or more, the real cost of your FHA loan will be more expensive after April 18th than it is today.

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FHA Interest Rate Predictions – Week of April 12, 2010

Filed under Weekly Review by on April 12, 2010 at 7:47 am {no comments}

The Fed wrapped up its $1.25T mortgage bond purchase program at the end of March and rates had an absolutely miserable week to end March.

Last week, the trend reversed and mortgage bonds made up two-thirds of the prior week’s losses.  Both conventional and FHA interest rates clawed back in a rather surprising rate rally.

There wasn’t much economic data, but Greece stepped in and filled the news.  If you haven’t been following this story, it’s worth it.  The Greek Parliament makes the US Congress seem not as childish.

Faced with a mountain of debt and a series of awful policy decisions, Greece has been spending much of their time complaining about how the rest of the EU is nagging them.

Yeah, that will happen when you lie about your budget and sell your sovereign debt throughout the .  The uncertainty overseas brought investor money into the US pushing the FHA lower in spite of a flood of reports that revealed a US economy that continues to get stronger.

Predictions – This Week

Loaded domestic calendar + continued Greek mess = .

Wednesday to Friday includes , Retail Sales, and Housing Starts.

Continued economic strength should mean higher rates.   Resolution in Greece should mean higher rates.

If both occur at the same time, watch out.  Rates have a lot of room to jump higher and not much room to move lower.

This week, locking in before Wednesday may be your safest, near-term rate locking strategy.

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FHA Interest Rates Rally on March Fed Minutes

Filed under FOMC Minutes by on April 7, 2010 at 7:47 am {no comments}

rates had a nice day on the release of the Fed’s minutes from the March meeting.

This is a widely anticipated release that follows every meeting.  The press release is typically around 500-600 words and the minutes are often 5,000-6,000.  They’re ten times as long and often ten times as influential.

rallied, but could have gone the other way just as easily.

Wall Street was looking for clues and here’s what they found:  the Fed is less concerned about than they’ve stated in other recent releases.

That’s big.  Inflation is the enemy of .  Low inflation leads to lower .

The economy is recovering.  This is the new normal.  It’s not going to be hyper-growth fueled by hyper-leverage.   Of note for , when falls, both rates and home prices will rise.  If you’re looking for that once-in-a-lifetime opportunity, the window to act is closing.  Rapidly.

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FHA Interest Rate Predictions: Watch Inflation

Filed under FHA Interest Rate by on March 19, 2010 at 7:47 am {no comments}

Homes are significantly more affordable today because of these low rates.  We’ve been hovering around 5% for quite some time.

When is the ?  If housing prices were to jump a whopping 5% in just a few months, it wouldn’t be as expensive as getting a 6% rate instead of a 5% rate.

Example:  If a home jumped from $100,000 to $105,000, the payment would go up somewhere around $25-30.  If the home priced stayed steady at $100,000, but rates jumped from 5% to 6%, the increase in payment would be more than double at just over $60 extra dollars per month.

The FHA , not prices, have been driving this affordability.

So, when’s it going to end?

Watch .   Mortgage rates are highly responsive to .

By definition, inflation is when a currency loses its value; when what used to cost $2.00 now costs $2.15. As consumers, we perceive inflation as goods becoming more expensive.  However, it’s not that goods are more expensive, per se. It’s that the dollars used to buy them are worth less.

This is a big deal to mortgage rates because mortgage bonds are denominated, bought, and sold in U.S. dollars.  As the dollar loses value to inflation, therefore, so does the value of every mortgage bond in existence. When bonds lose their value, investors don’t want them and bond prices fall.  Mortgage rates move opposite of bond prices.

Prices down, rates up.

In today’s market, the relationship between inflation and mortgage rates is helping home buyers. The Cost of Living made its smallest annual gain in 6 years last month and the Fed has repeatedly said that inflation will stay low for some time. The combination is driving investors to buy mortgage bonds which, in turn, is suppresses rates.

So long as it lasts, the cost of homeownership will remain relatively low. Combined with the expiring , these FHA interest rates have never been lower.

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FHA Interest Rate Predictions: January 25, 2010 Edition

Filed under FHA Interest Rate by on January 25, 2010 at 7:46 am {no comments}

The FOMC meets this week -- mortgage rates will be volatileConforming and improved last week on the combination of soft economic data and new talk from the White House about tightening up banking regulations.

The S&P dropped 4% in its worst week since October.  As money left stocks, it went into bonds, and pushed lower.

Since a very ugly December, mortgage bonds have made up half of the losses and it is helping with and has opened the window on another surge of refinancing activity.

This week is loaded with news and could push rates back up in a blink.

Today, the December report came in and it was very weak.  This is because of a combination of factors including:

  1. The initial expiration date of November 30, 2009
  2. Sharply rising throughout the month of December
  3. A general slowdown from the holidays and from the weather

Home sales are down 16%, but there are a lot of reasons.

Later this week, we’ll see the Case-Shiller Index – a measure of home prices nationwide — and the New Home Sales report. The Index has registered mild home price improvement over the past 8 months and its latest report is expected to show the same.  New Home Sales should be similarly strong.

But, the biggest news of the week is the first Federal Open Market Committee meeting of 2010.

The Fed meets Tuesday and Wednesday this week and Wall Street will be watching closely.  The Fed is not expected to change the Fed Funds Rate from its current target range of 0.000-0.250 percent, so, instead, markets will watching for the Fed’s post-meeting press release.

As always, what the Fed says is almost more important than what they do. If the Fed says the economy is growing and everything is going as expected, mortgage rates should rise.  On the flip side, if the Fed says there are still significant risks, rates could drop a little lower.

Rates will be volatile all week, but once the Fed’s press release hits the wires, it’s anyone’s guess what will happen.

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