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 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 , 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 Costs

Filed under FHA Interest Rate by on January 6, 2011 at 2:37 pm {no comments}

have been increasingly lately.  While FHA rates are slightly higher, they haven’t been increasing as quickly as conventional loans have been.

The FHA interest rate has settled in near 4.75% lately after tempting the 5% levels.  It has been so volatile lately that many individual days have seen rate swings of that full 0.25%.

Lenders used to have daily sheets.  Not anymore.  What does it mean in terms of payments when a 0.25% swing is a regular occurence? 

On any given day, on a $300,000 loan, that’s a $45/month difference and almost $3,700 in the first five years.  Feel free to update the calculator with details particular to your situation.

Assumptions

These are the values used in this loan comparison. To update any values, go here

Comparison Term (Years): 5
Property Value: $300,000.00
: 720
Input

FHA Now FHA up .25%
Loan Type FHA FHA
Loan Term (Years): 30 30
Loan Amount: $289,500.00 $289,500.00
Interest Rate: 4.750% 5.00%
UFMIP: 1.00% 1.00%
MI Factor: 0.900% 0.900%
Closing Costs ($): $0.00 $0.00
Closing Costs (%): 0.00% 0.00%

Monthly Analysis

Based on the information provided, this table shows the monthly payments for principal, interest, and mortgage insurance
(if applicable).

Loan & Payment Summary FHA Now FHA up .25%
P&I Payment $1,525.27 $1,569.64
Mortgage Insurance $219.30 $219.30
Monthly Payment $1,744.57 $1,788.94
Monthly Savings $44.37 $0.00
Total Loan Amount: $292,395.00 $292,395.00

Full Mortgage Analysis

Over the comparison term of 5 years, this table reviews the true cost of the loan over time in a way that monthly payments cannot. We remove the principal portions of payments to isolate the cost of interest, mortgage insurance, and any closing costs to calculate the total cost over time.

Real Cost Analysis FHA Now FHA up .25%
Total Payments $103,516.24 $106,238.38
Principal Payments $24,858.73 $23,892.38
Interest & MI Payments $78,657.00 $82,345.00
Remaining Balance $267,536.27 $268,502.62
Total Cost $81,552.00 $85,240.00
Total Savings $3,688.00 $0.00
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FHA Interest Rate Predictions: Week of April 26, 2010

Filed under Weekly Review by on April 26, 2010 at 7:47 am {no comments}

Mortgage markets worsened last week in see-saw trading. By the time Friday’s market closed,  rates had moved higher.

The biggest stories of last week were actually non-stories.

First, the ash cloud from Iceland’s Eyjafjallajökull volcano dissipated, allowing warehouses to move inventory, airlines to move people, and businesses to move product.  In addition, Greece moved closer to securing emergency funding that will help it stave off default.

When these two issues were threats earlier in the month, mortgage bonds rallied on buying, driving rates down. As the threats lessened over the course of last week, however, mortgage bonds sold off and rose.

By contrast, this week features lots of stories. Economic data will be at the forefront, as will the Federal Reserve which meets for one of its 8 scheduled meetings of the year.

  • Monday : Greece is expected to announce an aid package
  • Tuesday : reports on home values from February
  • Wednesday : Fed adjourns from its 2-day meeting
  • Thursday : Initial Unemployment Claims are released
  • Friday : GDP and numbers are released

Furthermore, Wall Street will have its eye on the Senate’s questioning of key employees in the wake of the SEC’s fraud charge.

In general, news that’s “good” for the U.S. economy will be bad for mortgage rates, and vice verse.  And with mortgage rates changing as quickly as they have been, rates could really rise in a hurry.

The best defense against rising mortgage rates is to execute a rate lock. If you’re nervous about rates moving higher, call your loan officer and execute your rate lock today.

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FHA Interest Rate Predictions: Week of April 19, 2010

Filed under Weekly Review by on April 19, 2010 at 7:47 am {no comments}

The approached its best levels since March on last week’s rally.

That marks two weeks in a row with considerable improvement and two weeks in a row where rates dropped due to “” buying.

Safe haven buying, which we’ve been covering a lot, is when investors sense market risk and move their money towards less risky investments.  Since and mortgage bonds are backed by the U.S. government, they are inherently less risky investments.

When uncertainty prevails in the markets, foreign or domestic, a outcome is that the FHA will dip lower.  Last week had uncertainty, both foreign and domestic.

Early in the week, virtually all air travel in and out of Europe was grounded as Iceland’s volcanoes spewed ash into the air.   Since plane engines don’t fare that well when covered in ash, it grounded planes.  Planes aren’t just for vacations.  Goods, especially perishables, are stuck in warehouses around the globe unable to reach a market.

Domestically, we had “a little bit” of news as well.  Friday, the SEC announced fraud charges against Goldman Sachs.  This sent Wall Street into a tailspin on Friday and the move from stocks to bonds pushed rates lower again.

This Week’s FHA

We have a very light economic calendar this week and the news doesn’t look to be the biggest element moving rates.  On tap for Thursday we have:

  1. Initial Jobless Claims : Important vis-a-vis broader employment figures. A strong number could push rates up.
  2. Existing Home Sales : Housing remains a key part of the economy. Strong sales are expected because of the tax credit.
  3. Producer Price Index : A “Cost of Living” index of business. A weak reading is expected because inflation is low.

The bigger risk to the rate this week is a reversal of this trend of safe haven buying.  It is what has pushed rates down over the past 10-day rally.  When it reverses, so too will .

If you’re evaluating a lock or float decision, rates have significantly more room to go higher rather than lower.

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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 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 Rate Predictions: This Week, April 5, 2010

Filed under Weekly Review by on April 5, 2010 at 7:47 am {no comments}

rates took one on the chin again last week.  That’s two in a row and last week was bad each trading session, although there weren’t many surprises.

Hot economic data, a holiday-shortened week, and the end of the $1.25T Federal Reserve purchase program all contributed.

The hit its highest levels since late-December.

Jobs move economies.  They also move .  Last week, the economy saw some very positive news related to jobs and lost a bit:

  1. “Temporary Employment” — a leading jobs indicator — is up 313,000 in the last 6 months
  2. The average work-week and factory overtime both rose in March — a sign that hiring should increase soon

Predictions – This Week

This could be another crazy week.

First, the Fed is in an emergency meeting today to review the Discount Rate policy.  The market is on edge waiting for results.

Second, we’re in a really odd spot and patterns could take over direction for a few days and the influence on the FHA loan rate could be staggering.

Unlike fundamental trading in which markets move on data and projections, technical trading is how markets move based on patterns over time. The two methods co-exist on Wall Street but, occasionally, technical forces can be pronounced, leading markets to lurch up or down.  This week may be one of those times.

Mortgage pricing is far below its 200-day moving average, resting slightly north of a key support level. If pricing worsens this week and bonds fall below the support level, mortgage rates could easily tack on quarter-percents or more per day until the market refinds its balance.

Overall, it’s a week you don’t want your rate to be floating.   Sure, rates could improve, but there’s a lot more room for them to worsen.

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FHA Interest Rate Predictions | Week of March 29

Filed under Weekly Review by on March 29, 2010 at 7:47 am {no comments}

Mortgage markets tanked last week and the saw its highest levels in a month.  Wednesday was the bad day and saw the worst sell-off in over six months.

The major concerns are tied to the current mess in the EU and worries of how our federal debt will impact rates.  The best time to lock a conventional or FHA last week was Tuesday morning.

Predictions for This Week

This week, markets should remain volatile. There’s a large set of economic data due for release, plus trading volume will thin as the week goes on because markets are closed Friday for Good Friday.

Coincidentally, Friday is also the day that the March jobs report is released.  Growth is forecasted for this report, a net gain of 187,000 in March.  This is a large number as compared to last month’s net loss of 36,000 job. However, analysts are already dismissing March’s numbers as skewed by both the bad storms of February, and the temporary hiring of Census workers.

In most months, major job growth would be bad for .  This month, that won’t be the case. It will take a figure north of 200,000 to cause rates to rise and the higher the actual number, the more that rates will respond.

Also this week, on Wednesday, the Federal Reserve’s $1.25 trillion program to support mortgage markets sunsets. Fed insiders estimate that the program dropped rates 1 percent since its inception in 2008. It’s reasonable that FHA mortgage rates will rise after its end.

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FHA Mortgage Rate Predictions | This Week | March 22, 2010

Filed under Weekly Review by on March 22, 2010 at 7:47 am {no comments}

FHA interest rates closed the week relatively unchanged last week, but it was anything but a steady week.  Rates improved Monday, Tuesday and Wednesday and then sold off Thursday and Friday.

These rates continue to confound the experts.  No one forecast this 5% range to have held steady for this long.  Thursday and Friday’s sell-off might be indicative of the speed at which rates will go up–and they will eventually go back up.

Last week’s big story was the Fed meeting.  Synopsis:  unchanged, likely to stay low for a while, and things are improving.  Notably, we have improvements in the credit markets, businesses are spending, and the recession is behind us.

That’s not to say the economy is completely fixed. There are still looming threats that could slice into consumer spending and slow down this recovery.

FHA

This week, we are watching two things.  The Fed’s $1.25 trillion mortgage buyback program ends at the end of the month.  All indications are that rates will rise.  The Fed’s estimates are that the program lowered rates by about 1%.  The question is how quickly the market will absorb that 1% back in the form of higher .

We’re also watching the news:

  1. The Existing Home Sales data for February is released Tuesday, along with the Home Price Index
  2. The New Home Sales data for February is released Wednesday
  3. data hits Friday

Strength in any — or all three — of these reports should put pressure on mortgage rates to rise.

Add one more wildcard:  Kansas Fed President Hoenig’s scheduled speech Wednesday morning. Hoenig was the lone dissenting vote at the Fed meeting–Hoenig voted to raise rates.  Normally, Fed members stay on topic in public appearances, but it wouldn’t be unprecedented for a Fed President to speak his or her mind.

His words could lead Wall Street to rethink its position on the mortgage bond market and that could cause rates to spike Wednesday afternoon.

Mortgage rates remain volatile and are still relatively low. If you’re unsure of whether now is a good time to lock in, consider that there’s a lot more room for rates to rise than to fall right now. Especially with momentum shifting for the worse.

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FHA Interest Rate Predictions – Feb. 16, 2010 Edition

Filed under Weekly Review by on February 16, 2010 at 7:47 am {no comments}

FHA interest rates ticked higher last week, although they didn’t jump as much as they could have.   It was the first time in five weeks that rates ticked higher.

Mortgage bonds had rallied so much in the past few weeks that some natural profit-taking was to blame and the Greece issue appears to have some potential rescue efforts in the works.

This week’s predictions are back to basics:  domestic news.   The calendar is loaded starting on Wednesday.

We’ll see:

  1. Housing Starts and (Wednesday)
  2. The release of the last month’s (Wednesday)
  3. Business and figures (Thursday and Friday)

Housing starts could be soft as weather was brutal across the country last month.  Keep an eye on permits.  Weather delays a start, but builder optimism is what triggers the permit.

The Minutes are significantly more involved than the simple press release after the meeting.  Wall Street acts on what it thinks that the Fed is thinking.  That guessing game resumes when the minutes hit later this week.

Inflation could move rates on Thursday and Friday.  Bonds hate inflation and a hotter-than-expected reading could cause interest rates to jump.

If you know you are likely to need to lock an FHA mortgage this week, the odds favor locking before the landslide of data hits.  Rates have a little room to go lower and a lot of room to go higher.

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2010 FHA Mortgage Rate Predictions

Filed under FHA Interest Rate by on January 15, 2010 at 11:03 am {no comments}

hit all-time lows on December 1st and shot right back up during the month of December.   We came into 2010 with just trading higher one day, lower the next.

We’re starting to get some direction this week.  The FHA 30 Year Fixed rate has moved back to 5% and is now developing a fairly clear trend towards lower rates…for now.

The reason for the move this week has been that the economic news simply wasn’t that great.  The Retail Sales showed we aren’t buying very much and the low inflation data today indicates we’re not growing very fast right now.

2010 FHA Predictions

I don’t believe that the data we’ve seen is enough to forecast rates going lower for the entire year.  Things simply weren’t as great as they appeared in December and they’re not as bad as they appeared in the past 48 hours.

To get the best rate in 2010, you need to lock in your rate before the average person starts to think the economy is recovering.  There was great news in housing for nearly all of last year, the jobs market isn’t better–but it’s not worse, and the stock market has come back a lot since the lows.

Still, people aren’t confident.  The “trick” to getting a great rate or buying at the lowest price is simply doing it before CNN broadcasts that housing has recovered.   is low and the Retails Sales reports confirm it.

When confidence levels soar, so do home prices and mortgage rates.

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