Archives for December 2008

How to get your personal bailout

Kenneth R. Harney had a great article syndicated in the Seattle Times this weekend “Be Ready for Your Own Little Bailout“.

Perhaps my favorite part:

“So what do you do if you’re already well along in your shopping, you’ve found a house at a great price, and you’re ready to apply for a mortgage at 5.5 percent but don’t want to miss out on potentially lower rates?

Ask your broker or loan officer whether you can lock in today’s rate but still have the ability to move down should cheaper money become available to you.

Not all lenders can accommodate such requests. Some brokers offer 60-day locks with that option; others may charge you.”

By the way, this applies to refinances too.  Do check with your loan originator before you commit to a lock what their lock policies are.

Another reason to lock in lower rates now with a lender who has the ablity to provide you a lower rate, should they drop further, is the plan that Obama’s team is considering.  From Bloomberg:

“While Paulson’s team is only exploring an initiative for new purchases, the incoming administration wants to go beyond that and address the record surge of foreclosures. Some industry lobbyists have urged the inclusion of refinancing for existing homeowners, up to one-fifth of whose loans are bigger than the value of their properties, estimates show….

“It’s a much more efficient use of the government’s balance sheet to do this as a purchase program” only, said Nicholas Strand, a mortgage analyst at Barclays Capital Inc. in New York. He estimated the cost of a plan to buy 4.5 percent loans for new purchases at about $300 to $400 billion. Adding the refinance option could cost up to $3 trillion, he said”.

If you benefit from restructuring your mortgage with today’s low rates, you may want to consider securing (locking) a rate now with a lender who has the ability of providing a lower rate should it become available prior to closing…if it happens.


Christmas Ships at Alki

Last night we ventured into the snow and cold to see the Argosy Christmas Ships land at Alki in West Seattle.  If you have a chance to see the boats as they tour around the Puget Sound area, please do.  It will really set you in the holiday spirit.




Question about the 2009 Lower FHA High Balance Loan Amounts

Here's a question from a Mortgage Porter subscriber (not from King, Pierce or Snohomish counties, which is why the loan amounts are lower):

"My husband and I are presently in the process of buying a home. The closing is scheduled for Jan. 31st 2009. We have been approved for 302,500. We understand that the new FHA guidelines are changing to 271,050 as of Jan. 1st. 

We want to wait until the last minute to lock in our interest rate. Our mortgage banker wants us to lock in because "We may need to lock the rate to ensure that we have met all of the FHA requirements before year end, as the mortgage limits are changing on Jan 1.  The is only $271,050, so we must make sure that we are guaranteed the stimulus loan limit of $302,500."   Our loan commitment letter that we signed says we can lock in within 5 days of closing.

What do you think about this?"

HUD's guidelines state that the new FHA loan limits "are effective for those loans which have credit approval on or after January 1, 2009".  This sounds like you can continue to originate an FHA mortgage at the higher 2008 limits as long as the loan is fully credit approved by December 31, 2008.  However, it's just not that simple.  Various lenders will have their own guidelines to determine how long they'll accept the loans with the higher 2008 loan limits in order to stay compliant with HUDs guidelines and to have the ability to package or sell the mortgage.  The lower 2009 "high balance or FHA jumbo" loan limits has caused borrowers caught between the two loan amounts to be in an awkward position.

The cut-off time for accepting the 2008 loan limit may vary from lender to lender.  If your lender is telling you that you need to lock now and that it will guarantee the funding of your 2008 loan amount in 2009, I recommend you listen to her.    One lender we work with is requiring that all 2008 FHA loans over the 2009 limit be funded/closed and delivered to them by December 19, 2008.  Yet another lender will allow 2008 FHA Jumbo loan limits for credit approved loans locked by December 31, 2008 as long as they are purchased by February 13, 2009.  No lender or mortgage company wants to have a loan in their system that is above the loan limit. 

The loan commitment letter is probably a template that was not created considering that we might be dealing with lower loan limits in a new year.  Dealing with a higher loan limit is a much easier transition.

Should You Wait for 4.5% Mortgage Rates to Refi?

Personally, I would not wait for the proposed, much talked about 4.5% mortgage interest rate.  Check out the last word from this Sunday's Seattle PI's real estate section: "4.5% mortgage rate seen as possible".

For the most part, mortgage interest rates are determined by supply and demand: they are bonds (mortgage backed securities) that are traded.  The Treasury has been discussing buying mortgage backed securities (MBS) from Fannie Mae and Freddie Mac which should lower rates.  Mortgage interest rates are not set or directly controlled such as the Fed Funds rate where the Fed decides exactly how much the rate will adjust, if at all.  Another factor to consider, if this becomes more than the current speculation, is that the talk has just been about purchasing Fannie and Freddie MBS.  Those who would potentially benefit from the future lower rate would need to qualify for a conventional mortgage.

What would I do if I were considering a refinance?

  1. Contact a qualified mortgage professional who has the ability to float down or renegotiate your rate should they dramatically drop after your rate is locked.

  2. Consider pricing the mortgage as a no-cost refinance so that should rates drop low enough, you can refinance again should it be justified.   

  3. Have a plan.  Review your goals with your mortgage professional to make sure refinance makes sense.  If you're not planning on retaining your mortgage long enough to break even, it may not make sense to proceed with a refi.  Focusing just on the rate and not factoring in closing costs and break-even periods can be costly.

  4. Get ready.  Apply early so you're in the best position to lock.  If today's current rates do not pencil out, determine what rate will.  Some mortgage professionals will agree to a "forward lock" in the event your target rate (or better) becomes available.

If a refi boom happens, be prepared for the transaction to take longer.  Fact is, there are now fewer people in this industry from Loan Originators, Processors, Underwriters and Escrow Officers to handle the increased volumes. 

Questions?  I'm licensed to provide mortgage in Washington State.  Contact me.

Related posts:

Get Ready, Get Set: Refi!

Declining Home Values: Good for Buyers, Bad for Refi's

Why Your Loan Originator Needs a Complete Loan Application Before Locking

Happy Birthday Mom!


Mom with her girls a couple of years ago.  I'm in the flowered top with my two little sisters below.  

Five Questions You Must Ask Your Loan Originator

If you've been a Mortgage Porter subscriber or have seen my posts at Rain City Guide, you know how I feel about chosing your mortgage by who's quoting the lowest rate.   However, if you feel you must…here are a few quick questions to ask the loan originator to make sure they qualify to care for your largest debt which is tied to your biggest asset. 

What are mortgage rates based on?

What is the next economic report or event that can trigger interest rate movement?

When the Fed changes rates, how does this impact mortgage rates?

Should rates improve after we lock, what are my options?

Will you gurantee your closing cost shown on your good faith estimate?

Nothing is more expensive than chasing rates and winding up with the wrong mortgage.  The best plan is to have the correct mortgage from the start so you can hopefully avoid refinancing (unless rates dip low enough to justify based on your financial plan).