Best Time To Go FHA for your mortgage needs

A Few Reasons Why Now May Be The Least Expensive And Easiest Time To "Go FHA"

The FHA loan portfolio is worsening, suggesting guideline changes ahead.Shopping for low mortgage rates is a game of luck.

Some days, mortgage rates are favorable. Other days, they're not. And while you can sometimes make an educated guess about where rates might be headed, you're not always going to guess right.

Even the experts get it wrong more often than they'd like.

But some parts of the rate shopping process can be predicted and one of them is the future of mortgage guidelines.

In general, the more often homeowners default on their respective mortgages, the harder it is for future mortgage applicants to be approved.

This is why "now" may be the best time to apply for a FHA mortgage. Defaults are climbing, suggesting that FHA underwriting guidelines are about to tighten.

Indeed, the FHA has implemented two major changes since last summer:

  1. The minimum downpayment requirement was raised by a half-percent to 3.5%
  2. Cash out refinances are now limited to 85 percent, down from 95 percent.

These changes create barriers to entry for potential FHA borrowers, improving the overall quality of the FHA loan pool.

For a taxpayer-funded agency like FHA, loan performance is an important goal. Therefore, as the number of defaults grows, expect FHA guideline to get tighter.

The problem is, though, we can't predict just where the FHA will tighten. Maybe the FHA raises its minimum FICO score requirement, or maybe it gets tough on seller-paid closing costs. A hike in loan fees isn't out of the question, either -- that's the path Fannie Mae took, after all.

Whatever the FHA does, fewer people will qualify for FHA mortgages once it's done. So, if you're planning to buy a home and your downpayment is limited, or your credit scores are suspect, or there's some other "red flag" in your profile, consider moving up your timeframe to act.

Mortgage rates may rise or mortgage rates may fall, but neither is going to matter if you can't get qualified for a home loan. And, for FHA mortgage applicants, tougher mortgage guidelines are only a matter of time.

(Image courtesy: The Wall Street Journal Online)


The Federal Reserve talk in Plain English

Explaining What The Federal Reserve Did In Plain English (April 29 2009 Edition)

Parsing the Fed from the Wall Street Journal (April 29, 2009)

The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged today within its target range of 0.000-0.250 percent. The Fed also reiterated its plan to support the mortgage market to the tune of $1.5 trillion.

In its press release, the FOMC noted that the economy may still be contracting, but that it's not happening with the same speed as in prior months. Household spending is stabilizing and financial markets are "easing".

Nevertheless, threats to the recovery are everywhere with the following items on the Fed's short list:

  • The growing ranks of unemployed workers
  • The reduction of housing wealth nationally
  • Reduced inventories and investment from business

Furthermore, the FOMC fingered today's inflation levels as too low to support economic growth. This justifies the Fed's plan to hold the Fed Funds Rate near zero percent "for an extended period".

For home buyers and refinancing homeowners, today's press release was not favorable.

After the Fed's announcement, stock markets rallied on the idea that the worst of the economy really is over and that led to a broad bond market sell-off. Mortgage rates spiked in response, adding as much as 0.125 percent, in some cases.

The FOMC's next scheduled meeting is June 23-24, 2009.


How Swine Flu Helps Mortgage Rates

Monday, mortgage markets improved with news of new Swine Flu cases.

It's a classic example of Safe Haven buying and today's rate shoppers will see the benefits.

Mortgage rates improved about 0.125 percent Monday.

It's not an official term, but "Safe Haven buying" describes the trading patterns in which large numbers of investors move money away from risky investments and toward safer ones. As a general rule in Safe Haven buying, stocks sell off and bonds make gains, including mortgage-backed bonds.

Fears that a global Swine Flu outbreak would slow the global recovery is a major reason why mortgage rates improved Monday.

Dumping risk is a common reaction on Wall Street when unexpected events occur. Because the future is uncertain, traders prefer to play it safe. Hence the jargon-like term, "Safe Haven buying".

If nothing else, Monday's mortgage rate action reminds us that the biggest influences on the market are often not the events we can prepare for. It's the events we never saw coming.

This morning, with known Swine Flu cases spreading to Asia and a Phase 4 Alert from the World Health Organization, Safe Haven buying is continuing. However, with the Federal Reserve meeting today and tomorrow, markets could be ripe for a correction.

(Image courtesy: Niman and Google Maps)

Are mortgage rates going up?

What's Ahead For Mortgage Rates This Week : April 27, 2009

Last week, like the 3 weeks prior, mortgage markets were all over the place from day-to-day.

But, also like the 3 weeks prior, when the week ended Friday, rates were right back where they started from Monday.

For the 4th straight week, mortgage rates started and ended the week essentially unchanged.

Whether or not this is good news depends on your perspective.

For active home buyers who have yet to find the "right home", long-term flatness like this is terrific. While interest rates stay even, buyer purchasing power holds flat and pre-approval letters stay valid.

For buyers under contract or homeowners looking to refinance, though, the market's pattern is a little more rough. Although rates are holding steady week-to-week, the day-to-day action is quite different. Bond markets are volatile and rate swings of a quarter-percent in a day have been common.

How good of a rate you get depends on day on which you shop. This complicates the process of "locking a rate" and makes it very hard for people trying to time a market bottom.

This week, though, the market may finally make a run and break its range.

Aside from it being an unusually data-heavy week, the Federal Reserve meets Tuesday and Wednesday to discuss monetary policy. The data combined with the Fedspeak may push the markets one way or the other towards economic optimism or pessimism for the latter half of 2009.

Lately, it's been a combination of the two -- a "cautious optimism" -- and that's a big reason why mortgage rates have held in a tight range for so long.

Understand, though, that when mortgage rates finally do move, they're going to move in a big way. So, if you're among the crowd looking for lower rates, the best possible outcomes you can hope for this week are:

Weak consumer confidence data (Tuesday, Friday)
Weak consumer spending data (Thursday)
Falling "cost of living" calculations (Thursday)
Fed concerns about deflation and/or recession (Wednesday)
Any of these four events would likely temper hope for a quick economic revival, sending mortgage rates lower. On the other hand, if confidence or spending is strong, or the Fed has no regard for deflation or recession, expect mortgage rates to rise.


Why Sellers Should Cheer Them the lower Housing starts

Why Sellers Should Cheer Them the lower Housing starts

Housing Starts add to inventory levels With respect to housing data, news is rarely positive or negative on a universal level. There's always two perspectives to consider, after all.

1. The home buyer's perspective
2. The home seller's perspective

Usually, when data is beneficial to one group, it's less beneficial to the other. This is true for rising home prices, average days on market and so forth.

Today, the group that gets the most benefit from data is the home seller group.

Published Thursday, a government report showed that Housing Starts fell 11 percent nationwide in March and also fell short of analyst expectations. A "Housing Start" is a new housing unit on which construction has started.

The press is calling this a stumbling block for the economy, but that's not exactly true.

Fewer Housing Starts last month means that fewer new homes will come on the market later this year. This is not necessarily bad news. Especially if you're planning to sell your home in the latter half of the year. With fewer homes for sale, the supply-and-demand curve should shift in favor of home sellers. This helps stabilize home prices at a time when they might otherwise be prone to fall.

If it's true that stable housing markets are key in an economic recovery, then fewer Housing Starts is actually a push in the right direction.

But there's more to the story (as always).

As footnoted in the Commerce Department's report, a statistical disclaimer states that the Housing Starts data's Margin of Error was so high that the report's conclusion is just a guess. Technically, the entire report is invalid anyway

So, the government won't issue its final March 2009 Housing Starts data for months, but if the initial figures stick, home sellers may be in position to command higher sale prices later this year to the detriment of home buyers. It's basic economics.

And from a home seller's perspective, that news is good.

Predicting The Federal Reserve

Predicting The Federal Reserve's Next Move : April 2009 Edition

The Fed Fund Futures predict that the Fed will leave the Fed Funds Rate unchanged at its April 2009 meeting

The Federal Reserve meets next week for a policy-setting meeting.

It's one of 8 scheduled Fed meetings this year in which the Federal Open Market Committee votes on whether to raise, lower, or leave unchanged the Fed Funds Rate.

Based on data compiled by the Federal Reserve Bank of Cleveland, Wall Street's expectations of the Fed Funds Rate post-meeting are as follows:

* 97 percent probability that the Fed Funds Rate holds at 0.000 to 0.250%
* 3 percent probability that the Fed Funds Rate is raised to 0.750%.

There is no expectation for a 0.500% Fed Funds Rate.

The Fed Funds Rate influences the economy by changing borrowing costs for banks, businesses, and consumers. When the Fed Funds Rate is lowered, "cheaper money" is meant to speed the economy forward. When the Fed Funds Rate is raised, by contrast, costly borrowing tends to slow the economy down.

Changes to the Fed Funds Rate do not directly correlate to changes in mortgage rates.

Because Wall Street is nearly unanimous in its Fed Funds Rate prediction, though, expect the market's FOMC focus to be on what the Fed says rather than what it does.

If Ben Bernanke & Co. express concerns about long-term inflation and the need to contain growth, mortgage rates will rise in response. On the other hand, if the Fed says that growth is expected to be within a tolerable range, mortgage rates should idle.

In other words, there's little benefit in waiting for the Fed's meeting to make your "Float or Lock" mortgage rate decision. In a worst-case scenario, mortgage rates rise. In a best-case scenario, they likely stay the same.

The Fed's two-day meeting adjourns Tuesday, April 29 at 2:15 PM ET.

What's Ahead For Mortgage Rates This Week

What's Ahead For Mortgage Rates This Week : April 20, 2009

Consumer Sentiment is rising -- a potentially bad sign for mortgage rates For the third week in a row, mortgage markets improved early in the week, only to give back the gains before Friday's close.

Mortgage rates ended last week exactly where they started. However, if you locked your mortgage rate Tuesday, you got a rate decidedly lower than someone who waited until Friday.

Last week, one of the biggest mortgage rate drivers was a series of surprisingly strong corporate earning reports, including those from financial firms Goldman Sachs and Citigroup.

The positive reports pushed the Dow Jones Industrial Average to its 6th consecutive weekly gain. This is the market's longest winning streak in two years and its best 6-week rally since 1938, in percentage terms.

In part, the rally is boosting Consumer Sentiment, too. According to a survey, Americans are feeling better about the economy than at any time since last September's meltdown.

But while stock market rallies and rising consumer sentiment can be good for our investment portfolios, they're not always welcome when we're shopping for mortgage rates. This is because the bond market is considered a "safe place" for money, an alternative for when stock markets are risky.

When market risk is reduced like, say, following 6 consecutive weeks of gains, the safe haven of bonds loses some of its importance to investors.

As a result, bonds start to sell-off so more cash is available to invest in equities. Bond prices suffer when this happens and, because mortgage rates are based on the price of mortgage bonds, mortgage rates suffer, too.

This week, there are a number of large corporations reporting first quarter earnings including banking behemoths Bank of America and US Bank, plus companies like IBM, AT&T and McDonald's. Strong earnings may -- again -- lead mortgage rates higher.

If you're among the thousands of Americans still waiting for mortgage rates to "bottom out", consider that the bottom may have already been touched.

It's tough to follow mortgage rates in real-time so, at least in the short-term, you can find some clues in the stock market. If stock markets are rising this week, it's likely mortgage rates are, too.

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