On March 4th, 2008, Primacy Mortgage received full approval to originate FHA loans from the Department of Housing and Urban development. We are proud to display the HUD logo as fewer than 10% of mortgage brokers in operation today have the honor of being HUD approved.
With this approval, we are now able to originate some of the most aggressive loan programs available today. These include the FHA 97% purchase loan, the FHA 97% rate and term refinance, the FHA 95% cash out refinance, FHA streamline refinances, the FHA Secure refinance program, as well as the various FHA renovation options (203-k, 203 streamline-k).
The Federal Reserve cut short term interest rates for the 6th consecutive time yesterday. This follows unprecedented action from the Fed over the weekend where they bailed out Bear Stearns. Rate cuts are often assumed to be good for mortgage rates, but this is often not the case.
Why Did They Cut Rates?
The Fed is trying to stimulate the economy and improve consumer confidence in Wall Street. Our economy is feeling the impacts of a slow housing market coupled with very tight credit markets. By effectively increasing the money supply, the Fed is trying to improve things somewhat.
How Will This Impact Mortgage Rates?
Remember that mortgage rates are not directly impacted by the Fed. In fact, Fed rate cuts are considered inflationary which is bad for the bonds which do directly impact mortgage rates. The bottom line is that there are a huge number of issues which affect mortgage rates each day, and short term interest rates are just one of them. The past couple of Fed moves have actually resulted in higher mortgage rates.
If you are looking to purchase a home or refinance, rates are still historically very low.
Over the past 25 years, the Federal Reserve has used basically a single tool to impart their desired effect on the economy. Short term interest rates. When the economy slowed, they dropped rates effectively increasing the money supply. When the economy got too hot, they raised rates. For the most part, it worked.
Ben Bernanke has shown that he is not afraid to venture into uncharted territory when what was working, no longer works. Yesterday, the Fed set up the Term Securities Lending Facility. The simple explanation of this is that banks can now use mortgage backed securities as collateral - which should help open up credit markets somewhat.
How does this affect American home owners?
We all know about the subprime meltdown and the coinciding decline in housing prices. A result of all of this has been that money for lending to both businesses and consumers has become very hard to come by. Up until the past few weeks, this has been limited to so-called Jumbo, Alt-A, and sub-prime loans. That is, non-conforming loans. If we continue to see tightening in the credit markets, there will continue to be fewer and fewer borrowers qualified for a mortgage, and this will worsen what is an already ugly housing market. Let’s hope Mr. Bernanke’s bold move pays off.
Last week it was announced by the various mortgage insurance companies that they were going to end the insuring of 100% financing across the board. We are pleased to report that a few of the lenders that we work with have been in negotiations with the MI companies and have successfully stalled the elimination of the 100% products. As a result, we will continue to offer Flex 100, MyCommunity 100, etc with credit scores as low as 620. Additionally, we are still able to offer 80/20 and 75/25 piggyback loans to borrowers with credit scores of 720 or greater.
At this point, the implementation is going to be on a lender by lender basis. Some will continue to offer these products, some will not. As a broker, we will follow the money and ensure that we are able to offer 100% loans for as long as someone is still offering it.
While this is great news for the short-term, the long-term trend is obvious: Credit is continuing to get tighter. Any buyers who need 100% financing should be aware that these products could be pulled at a moment’s notice and they should work as quickly as possible to secure a signed purchase agreement.
On March 5th, 2008, HUD published their new loan limit guidelines based on the recently passed economic stimulus package. These new limits will be in effect through the end of 2008, at which time legislators will decide whether to extend the new limits. The metro Atlanta Area maximum FHA loan amount is now set at $346,250. This excellent news comes at a great time - just as many of the sub-prime and high loan to value loan programs are being discontinued.
If you are putting down the FHA standard 3%, this means that the purchase price that you are looking for (including any seller’s contributions) is $356,900. Keep this in mind when you are making an offer.
