Mortgage Update for the Week of December 12, 2010

iStock-000020911287XSmallMortgage rates continue to be very low levels. Freddie Mac has been reporting average interest rates for 30 year at under 4% for the last year with 15 year fixed rates being under 3% for the last six months.

While the Fed works at keeping rates at artificially low levels, Congress is considering increasing the guarantee fees to new conventional mortgages to help fund programs that have nothing to do with Fannie Mae, Freddie Mac or even the housing recovery. The guarantee fees (aka g-fees) are factored into the pricing of a mortgage rate. FHA mortgage loans are also becoming more expensive in 2013 with the increase of mortgage insurance premiums.

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Mortgage Rate Update for the week of December 3, 2012

mortgageporter-economyNot everything that impacts mortgage rates are scheduled economic indicators, like what I’m sharing with you below in this post. Sometimes Congress tacks on fees that are priced into interest interest rates too. For example, the House of Representatives just passed a new “G-Fee” to help fund an Immigration Bill, HR 1629. This “G-Fee” will impact new Fannie Mae and Freddie Mac mortgages. Why new home buyers and people refinancing have to pay for this bill which does not relate to mortgages during a time housing is trying to recover puzzles me. Click here to see how your House Rep voted on this bill.

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Mortgage rate update for the week of September 17, 2012

Last week the Fed announced they’re stepping up their purchase of mortgage backed securities to help keep mortgage rates low. While they are doing this, the FHFA (oversees Fannie Mae and Freddie Mac) is increasing the cost of conforming mortgages by increasing the “g-fees”. I’m seeing banks and lenders increasing rates from 0.25 to 0.50 in fee (the cost for a certain rate) and up to 0.625% more with extension fees (when your loan does not close in time). 

My advice with mortgage rates tends to be that if you like the rate, you should consider locking it. When it comes to locking rates, do a “gut check”. If you’re more uncomfortable with having a certain rate secured (locked) while rates may improve or if you can stomach not being locked and having mortgage rates increase. 

Here is a list of some of the economic indicators scheduled to be released this week:

Monday, Sept. 17: Empire State Index

Wednesday, Sept 19: Building Permits, Housing Starts and Existing Home Sales

Friday, Sept. 21: Initial Jobless Claims and Philadelphia Fed Index

As I write this post (9/17/12 at 8:45am PST) I’m quoting 3.500% for a 30 year fixed based on a loan amount of $400,000 with a sales price of $500,000 (80% loan to value). Seattle area home buyer has credit scores of 740 or higher and the purchase is closing by October 25, 2012. (apr 3.566) with closing cost estimated at $3525 and a principal and interest payment of $1,166.67 (taxes and insurance are not waived).

If you would like me to provide you with a mortgage rate quote on a home located anywhere in Washington, please contact me.

The Fed Says…Let’s Twist

No surprise that the FOMC is not making any changes to the Fed Funds rate. What may have surprised some is the Fed’s focus on trying to keep mortgage rates low with it’s purchase of mortgage backed securities.  From today’s press release:

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

….If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities….

The efforts to keep mortgage rates low will be in contrast to the increase in the “g-fees” by Fannie Mae and Freddie Mac. It will be interesting to see how much of an impact the Feds efforts will make.

Stay tuned for Ben Bernanke’s press conference happening in a few hours. Meanwhile… let’s twist!

Major Bank Jacks up the Cost to Extend Rate Locks

When a mortgage rate is locked, it’s committed for a certain period of times, such as 30, 45 or 60 days. When a mortgage refi or purchase that has been locked does not close by that date, the lender may charge a fee to extend.  The fee is essentially the cost to buy additional days to add to the original lock commitment. 

I just received this notice from one of the lenders we work with that they’re dramatically increasing their extension fees and, even worse, they’re only giving us ONE DAY’S NOTICE!  Kind of stinky if you ask me. This is the same bank that increased their fees just over a month ago.  The bank is doing this as a result of the 0.10% increase to G-Fees by Fannie Mae and Freddie Mac.

Extension Fees 001

Thankfully we work with several lenders and we’re not limited to only working with this bank.

More often than not, it’s better to error on having a longer lock period than a shorter one and paying for an extension.

UPDATE: Another bank just announced they are increasing their pricing by 0.500% basis points to their rates (not extension) as a result of the “G Fees”.

FHFA Announces Increase in G-Fees for Conforming Fannie/Freddie Mortgages

Last Friday, the FHFA announced they’re increasing the “guarantee fee” (aka “g-fee”) by an average of additional 0.10 basis points on single family mortgages.  What is a guarantee fee? From the FHFA annual report:

Fannie Mae and Freddie Mac acquire single-family mortgages from mortgage companies, commercial banks, credit unions, and other financial institutions. Lenders may exchange loans for mortgage-backed securities (MBS) backed by those mortgages or sell whole loans for cash proceeds.

When lenders receive MBS in exchange for their loans, they may hold them as an investment or sell them in the capital markets. The Enterprises also issue MBS backed by pools of loans acquired from multiple lenders.

Each Enterprise [Fannie Mae or Freddie Mac] guarantees the payment of principal and interest on its MBS and charges a fee for providing that guarantee. The guarantee fee covers projected credit losses from borrower defaults over the life of the loans, administrative costs, float income (or expense), and a return on capital.

From Housing Wire:

Lenders paid an average 28 basis points in 2011 for Fannie and Freddie to guarantee their loans in the bonds issued to investors, up from 26 bps the year before, according to a report released by the FHFA Friday.

The GSEs raised their fees by 10 basis points in April in order to pay for a tax cut passed by Congress in December. But before the enactment, the FHFA pledged to raise the fees through 2012 in order to allow private issuers room to compete.

Do not expect banks or lenders to absorb this cost. The 0.10% increase in basis points will be passed on to consumers and factored into the pricing of mortgage interest rates. This is set to happen towards the end of this year, however I wouldn’t be surprised to see lenders factoring in the fee increase much earlier.