The Fed’s Unprecedented Move
03/13/2008

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.

100% Financing Will Continue to Be Available
03/07/2008

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.

Atlanta FHA Loan Limit Increased
03/06/2008

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.

Major Atlanta Mortgage Guideline Changes
02/29/2008

Things continue to change very rapidly on the home financing front. Over the past 9 months we have seen many areas such as Florida, California, and the northeastern US labeled as “declining markets” by Fannie Mae and Freddie Mac. Recently, mortgage insurance companies have set their own standards for declining market and the Atlanta Metro has been named as a declining market.

Major Changes to Mortgage Insurance

• 100% financing using mortgage insurance is gone as of March 10th. 95% is the new maximum. And that is not just Atlanta, this is nationwide.  The March 10th date means that we have to have a full loan package and appraisal sitting with an underwriter by 3/10.  The underwriter will pull an MI certificate at that time.  Once that certificate has been pulled there can be NO CHANGES to the loan.

• No Investment Properties with MI in the Atlanta Metro. Did I read that right? Yes, unfortunately it is true. Basically, unless you can bring a 20% down payment (and 25% is preferred), you will not be able to finance an investment property.

• No Cash Out Refinances with MI in the Atlanta Metro. Again, if you are doing cash out, then you will need a 2nd mortgage (which are hard to come by right now) or you will only be able to go to 80% Loan To Value.

• 90 to 95% Loans With MI in Atlanta now require a minimum 680 FICO.

Other Recent Changes That Affect Financing

Fannie Mae and Freddie Mac have gone to a highly risk based pricing model. What that means is that credit scores have become more important than ever before. These rules originally went into place in February 2008, and already the rules are completely changing effective June 1st. But, lenders will begin to implement the new rules in the next few weeks. Some of the highlights:

• FICO score of 680 to 720 and LTV > 60%? 0.5% hit. (Example: Borrower has a middle credit score of 805, co-borrower has a middle score of 719. They are putting down 20% to avoid MI. Loan amount is $300,000. The lender will take the lower of the two middle scores and this couple with what was once considered fantastic credit will pay a $1500 penalty at closing for having a sub-720 score. 0.5% of $300,000 is $1500.)

• FICO score of 660 to 680 and LTV > 70%? 1.25% hit. With the same $300,000 loan this would be a $3,750 penalty.

• FICO score of 640 to 660 and LTV > 70%? 1.75% hit or $5,250 on our $300,000 loan.

• FICO score of 620 to 640 and LTV > 70%? 2.50% hit or $7,500 on our $300,000 loan.

• FICO score of less than 620 and LTV > 70%? 2.75% hit or $8,250 on our $300,000 loan.

What Other Options Are Available?

One option is FHA. With FHA you can go to 97% or sometimes 100% using a down payment assistance program and currently there are no pricing hits based on credit scores. In Atlanta, the current FHA loan limit is $252,890. That limit is going to be raised somewhat in the next several weeks and the estimate is somewhere in the $320,000 range. But again, that is just an estimate. If you need more than that, FHA is out of the question.

For 100% financing we are one of the few lenders who can still do an 80/20 or 75/25 piggyback loan for primary residence purchases. It is unclear how long the investors will continue to offer that program when the new MI rule goes into effect early in March, but we are not counting on that program continuing for much longer.

The bottom line is that if you are planning to buy a home in Atlanta after early March 2008, you had better plan to bring at least 5% to the transaction unless you can qualify for FHA financing.

How Will This Impact Atlanta Housing Prices?

In our opinion, this is almost certainly going to have at least a short-term detrimental impact on an already reeling housing market in Atlanta. Essentially, we are significantly reducing the pool of qualified borrowers. Just two short years ago, nearly anyone with a 620 or higher FICO score would qualify for 100% financing without a problem. Now, even the top credit borrower cannot get 100% financing if mortgage insurance is required.

For properties that are in areas of town that were heavily purchased by investors, those values have already taken a serious beating and this will make the problem much worse. The problem is two-fold. First, most investors who have the capital do not want to tie up their capital on a 20 or 25% down payment of an investment property. Second, very few investors have that kind of money to put down. The good news on this front is that for the investors who have capital to work with and the guts to enter into this market, there are incredible deals to be had. We have little doubt that in 2018 when you look back at 2008, you will either say “That’s where I made some great money in real estate” or “If only I had the guts to buy real estate in 2008…..”.

Economic Stimulus Package and Mortgages
02/23/2008

We have a lot of clients who are asking about the impact of the new stimulus package signed last week by President Bush on mortgages.  The press has been reporting this as if everyone will see an increase in the conforming loan limit from the $417,000 that we have been sitting at for the past few years.  This is simply not the case.

For the vast majority of the US, the limit will continue to be $417,000.  Only certain high cost areas (as determined by the HUD median sales price) will see an increase in the conforming limit.  HUD has not yet released the final numbers, but we should see the final numbers in the next couple of weeks.  For those of us in Georgia (including metro Atlanta), the conforming mortgage limit appears very unlikely to be increased in any part of the state.

Wild Ride for Atlanta Mortgage Rates
02/15/2008

Rates have been all over the map over the past 2-3 months.  We had a fantastic rally in December and were able to get many of our clients into a no closing cost loan to save them money each month.  Rates came back up in early January, then with recession fears on the horizon, we had another rally in late January where we saw the lowest rates in 3 years.  Some clients who were in our RateWatch system were able to nail the bottom of that cycle and get in at no closing cost rates on a 30 year fixed as low as 5.5%.

Unfortunately, all good things must come to an end.  The past 3 weeks have seen rates climb by over 3/4%.  Many clients missed the boat while waiting for "the bottom".  As I always explain to clients who want to float, no one knows we hit the bottom until it is in the rear view mirror.  Always take your money off the table whenever you can get 1/4% or better by doing the no closing cost loan.  It's a no lose situation since you aren't putting any skin into the game other than a couple of hours of time to gather paperwork and close the loan.

The good news is that the economy appears as though it is still faltering.  I anticipate another bond rally over the next few months and I believe we will see another excellent refinance opportunity.  If you have not already done so, I encourage you to give us your basic information and get into our RateWatcher program.  To get started, just take 2 minutes to fill out our form here:  http://www.primacymortgage.com/mortgage-management-form.html.  We'll watch the market for you, and when we hit your target rate, we'll get you locked into that rate immediately.

30 Year Fixed Historical Rates 1971 to 2007
08/14/2007

For everyone who is panicked right now over where mortgage rates are or are going, I thought it would be good to post a chart of the historical mortgage rates since Freddie Mac began recording them in 1971. Looking at the chart below, you can see that historically, rates are still excellent and that we are still well positioned for a good recovery from the current real estate downturn.

Should I be fixing my Atlanta mortgage rate?
08/10/2007

Many Atlanta homeowners may be wondering whether now is a good time to be fixing their Atlanta mortgage rates - especially given that fixed rate Atlanta mortgage rates still appear to still falling, while adjustable rate Atlanta mortgage rates are on the rise.  The short answer here is that nobody really knows.  Many in the industry have not seen events like these in over a decade, if at all.  As such, nobody really knows what to expect in the next thirty to ninety days.  While sub-prime mortgage rates should not really affect prime mortgage rates - given that there is a difference in the credit risk, if nothing else - it is also true that the fall effect of the woes in the sub-prime market may not still be fully know.  However, if you keep to the fundamentals, namely that if you are not looking to sell or refinance your property in the short to medium term, then fixing your Atlanta mortgage rate now is certainly an option you should be considering.  Alternatively, if you think you may be on the move soon, then sticking with an adjustable rate Atlanta mortgage rate while the market works through the present turmoil is certainly an option you should be keeping in mind.

Mortgage Rate Trends for the week 08/10/2007

Although fears surrounding the mess the sub-prime mortgage sector is currently in have been bounding about for some months now, announcements by several funds that they were to freeze withdrawals has had markets around the world running for cover in the fear that a credit crunch is on the way.  It comes as a somewhat pleasant surprise, therefore, to find that according to Bankrate.com's national survey of large lenders, fixed rate mortgage rates saw a fall for the third week in a row.  Both 30-year fixed rate mortgages and 15-year fixed rate mortgages fell five basis points over the course of the last seven days.  30-year fixed rate mortgage rates ended this week at 6.66 per cent.  15-year fixed rate mortgage rates ended the week at 6.33 per cent.  Unfortunately, however, 5-year adjustable rate mortgage rates didn't fair so well, climbing nineteen basis points over the course of the week to end the week at 6.55 per cent.  Unfortunately, this has more than clawed-back the recent falls seen in 5-year adjustable rate mortgage rates.  A reduction or increase of one basis point is equivalent to a reduction or increase of one-hundredth of one percentage point.

Sub prime Meltdown Update - A Spillover Into Prime
08/04/2007

A couple of months ago we posted information regarding the state of the sub prime mortgage market.  Unfortunately, as this situation has continued to play out, things have started to spill over into the prime side of the market.  I wanted to bring everyone up to speed on where things are and where we may be headed.

The Background - Sub prime issues

Starting around November of last year, sub-prime lenders (those lending to people with credit scores under 620) began to fail.  The problem was that their underwriting guidelines were dependent on appreciating home values.  Meaning that as long as prices continued their march upward, folks who would otherwise be forced into foreclosure were able to do a cash out refinance and delay that foreclosure.  When home prices stalled 12 to 24 months ago, these borrowers were no longer able to make their mortgage payments and the foreclosure rates skyrocketed.  This started a domino effect.

Sub prime lenders typically sell their loans to investors by packaging a number of loans together.  This is done usually within a month or two of closing the loan.  When they sell these packaged loans, there is typically language in the contract that when the foreclosure rate on these bundled loans exceeds a certain percent, it triggers a buyback clause whereby the originating lender must begin buying back the loans.  These buyback clauses began kicking in late last year and caused a liquidity crunch in the sub prime market.  The lenders only have a minimal amount of liquid assets available at any given time.  When they are asked to buy back too many loans, they run out of cash and then they lose access to money for new loans.  At this point they are no longer able to fund the loans that are in their pipelines and they quickly fold up shop.  This has happened to dozens of sub prime lenders over the past 9 months.

Problem expands to the "Prime" side of the business

What is happening now is that this problem is beginning to spill over into what is known as the "Prime" side of the business — Lenders who lend to borrowers with credit scores above 620.  Specifically, it is currently affecting "portfolio products".  These are products which for one reason or another do not meet the guidelines set forth by Fannie Mae or Freddie Mac, and that makes them "non conforming" loans.  Examples would be jumbo loans (loan amounts above $417,000), stated income or stated asset loans, certain investor loans, no doc loans, etc.

Monday of this week a company called American Home Mortgage was caught in this liquidity crunch and was unable to fund $300 Million in mortgages that day, probably affecting 1,000 or so borrowers.  The problem got worse on Tuesday.  They have not funded a single loan this week and last night they announced that they were permanently closing their doors.  Now, you may be saying to yourself, I've never heard of this company, who cares?  They were the #8 mortgage lender in the US by mortgage volume in 2005 as ranked by the Mortgage Bankers Association.  Ranking ahead of companies you have heard of such as Wachovia, Citigroup, First Horizon, Homebanc and many others.

The good news is that the sky is most certainly not falling.  The vast majority of mortgages are conforming or government loans which to this point are basically unaffected.  I expect there will be some changes to underwriting guidelines on conforming mortgages in the months to come, but the bottom line is that the entire US economy is very dependent on the real estate market, and the powers that be are not going to let this get too far out of hand.

What you need to do

That said, you need to take a close look at your clients who have been pre-approved and who are still looking for a house.  Specifically look for these three things:  1)  Are they going to need a Jumbo loan?  2) Are they planning to use stated income loans or no doc loans to qualify?  3)  Are they planning to borrow 100% of the purchase price of the house?  If you have pre-approved clients who are in those situations, let them know that their pre-approved status is at risk.  That if they are ready to move, now is the time.  It is possible that this will blow over and they will remain unaffected, but present evidence suggests otherwise.  In the last 24 hours I have one lender who raised rates on their portfolio products by 2 points across the board in a single day and another who simply will no longer accept new loans on a large percentage of their portfolio products.   Obviously, you may also have potential clients who have no idea this is occurring - they have great credit, so they thing how could they possibly be impacted?  You'll want to get these clients in touch with a reputable mortgage lender - and by making them aware of this issue, you'll solidify your standing as an expert in the real estate world.

How does Primacy Mortgage fit into all of this?  We are a mortgage broker, so we cannot be caught up in this liquidity crunch - only the lenders we work with can be.  As a precaution, we have ceased doing business with a number of lenders who we think may be in trouble.  At this time, we're working with several of the largest banks pretty much exclusively.  These are very strong financial companies who have a well diversified portfolio of business who are highly unlikely to end up in a situation where they cannot fund a loan.  If any loan officer you are working with on current business is not aware of what is going on with this liquidity crunch and is still funding loans with smaller companies, be very careful. This situation will continue to play itself out over the next several months.  Until things stabilize, proceed with caution.