that the initital post-election shock is over, what are rates doing?
You'll recall that we had an immediate .75% rise in mortgage
rates following the presidential election. Optimism over the
expectation of a stronger Trump-led economy, higher inflation, the
assumption that the Fed may raise the Federal Funds Rate three times in
2017 and a super-strong positive reaction in the stock market all led to
But, as with most news events, the initial reaction was an over-reaction
and the markets seem to be settling down. Mortgage rates have come
down about .25% and the market seems to have adjusted to what will
probably be a mortgage rate range in the low 4% area for the next few
Here's a look at the trend of rates for the past 12 months.
Fannie Mae's chief economist, Doug
Duncan, says that rising interest rates will not stop home prices from
increasing. Duncan claims that as long a income is growing,
home prices will grow, irrespective of interest rates.
Retirees Shouldn't Overlook Reverse Mortgages
Buying a new home with a reverse
mortgage is an often overlooked strategy by retirees who could
potentially benefit from borrowing against their home equity instead of
raiding their savings to cover the purchase price with a traditional
mortgage, according to a recent article from U.S. News & World
Many consumers, and even real estate agents, are unaware of the program
or describe reverse mortgages as being useful only for those who cannot
get a regular mortgage on thier own. For retirees who want to
remain homeowners, but not in thier current homes, the article notes that
a Home Equity Conversion Mortgage, i.e., Reverse Mortgage, may help ease
the financial pain of the purchase.
originating Reverse Mortgages for 12 years now. I've seen lots fo
changes in the program, particularly in recent years, and the most recent
changes have been to the benefit of the borrower. Financial advisors have
embraced the product as an excellent financial planning tool
now. Please give me a call to learn more.
week I wrote about the Trump Effect on mortgage rates as we've seen about
a .50% rise in mortgage rates since the morning of the election. If you
missed it, here is a link:
I'd also like to thank the many people that sent such positive feedback
on the article. I always welcome your comments.
The stock market continues to enjoy the "Trump Bump" with the
S&P 500 up over 3% since the election as money managers rotate funds
from bonds (including Mortgage-Backed Securities) to stocks when the
stock market is rising.
Optimism over an improved economy under the Trump Administration is not
the only factor that influences mortgage rates. The potential for
inflation and the future decisions by the Fed are also weighing on
interest rates right now too.
Review the information below for a better understanding of what drives
been a few weeks since the election and you would think that the
financial markets would be settling down. But, so far that does not
seem to be the case.
What Was Expected?
While the election was thought to be close, the financial markets were
clearly expecting a Clinton victory. To the financial guru's, that
meant continued heavy entitlements, higher taxes, low GDP growth, low
inflation and the possibility of a recession in 2017. All of this
led to ultra-low interest rates. Prior to the election, mortgage
rates were around 3.5% for the benchmark 30-year fixed rate
As we all know now, Trump won and, it surprised the market makers.
Now, if Trump's Republican Congress gets their way, we
should see lower taxes - both personal and corporate taxes; no more 3.8%
Obamacare tax; less regulation; and fiscal stimulus that has so far been
absent from the weak recovery over the last eight years.
Based on the above, money quickly moved out bonds, including
Mortgage-Backed Securities, and into US stocks. The move out of
bonds was particularly large with mortgage rates rising .50% or more!
What is Likely to
Was the rise in mortgage rates too much too fast? Was it an
over-reaction? Only time will tell. The Mortgage Bankers
Association of America (MBA) predicts the interest rate for a 30-year
fixed rate mortgage will average 4.2% in 2017, increasing gradually from
this year's average of 3.5%. It also expects the Federal Reserve
will raise the federal funds rate in December and three more times in
also forecast an increase in home-buying in 2017 as due to the potential
for higher home prices and higher rates.
The next Fed meeting is December 14th. They are expected to raise
the Federal Funds Rate by .25%. That is almost a certainty.
My guess is that they won't give any hints about possible future
rate hikes yet. It's just too soon to tell what the Trump Effect
will be despite the optimism over his intentions and a faster-improving
economy. I do think that most of the damage is done for
now. And, maybe it will settle somewhere between the lows just prior
to the election and where they stand for now.
It is important to remember that mortgage rates can and do change daily
and they react instantly to financial news and speculation. The
recent rise in interest rates assumes this already is already happening;
therefore; rates can only rise so far before getting too far ahead of the
Here is a look at the weekly Freddie Mac Survey of
Mortgage Rates this year:
Everybody is talking about the Fed’s next move and what that means for rates for the rest of this year and beyond. I guess I can’t help but talk about it too.
The problem is that nobody knows and it seems even harder than ever right now to predict the outcome. Not even the heads of the Government enterprises Fannie Mae and Freddie Mac agree. And their predictions don’t match the chief economist of the Mortgage Bankers Association either.
First, let’s take a look at their forecast, announced just last week at a national conference in New York:
· Fannie Mae forecasts a flat to slightly declining rate environment for the next 2 years with rates hovering around 3.7% for the standard 30-year fixed rate mortgage with loan amounts up to the national limit of $417,000.
· Freddie Mac believes rates will rise to about 4.08%
· The MBA predicts an average rate of 3.95%.
Granted, it’s not a huge difference between the low and the high predictions and rates have remained in a very low historical range for over 8 years now. But small differences and borrower perceptions make a big difference in the volume of home sales and mortgage applications.
And there are factors beside the Fed Reserve that are influencing the markets now such as; the rate of economic growth, the Presidential election, housing inventory, and more.
Rates today according to the weekly Freddie Mac rate survey are at 3.64% with an average cost of .5 points.
NBC Nightly News Spotlights Reverse Mortgages
I’ve been originating Reverse Mortgages for many years but the growth in this product has increased dramatically this year. That’s because various news outlets have reported on reverse mortgages and the program changes that have now made these loan products safer and more effective retirement planning tools. Perhaps none, however, have given reverse mortgages such an enormous viewership platform as a recent NBC Nightly News segment that aired this month.
Click Here to see the news clip:
Highlights of the report:
Having originated Reverse Mortgages for over 10 years, I agree that it is a much more desirable product. In fact, many of my clients have utilized the Line of Credit feature which requires no initial draw and grows in value over time.
I now have a Jumbo Reverse Mortgage Product too that allows loan amounts as high as $3,000,000
If you think you or someone you know might benefit from a Reverse Mortgage feel free to call me for a free consultation and presentation.
Financial tech is growing in popularity but when it comes to
mortgage advice, a traditional approach wins hands down. A recent
poll found that while most people seek information online for recipes (79%)
and medical advice (75%), only (32%) trust the internet with their finances.
Having a great website can help attract clients, but when it comes to
mortgage advice 70% of respondents said they would talk to an advisor
before pursuing financial advice. That beats financial websites
(41%), parents/family (36%) and real estate agents (25%).
What Turns Them Off?
About 50% said the glut of information online puts them off and although
89% feel it is easier to find information they need online rather than seek
it out from other sources, an overwhelming 73% say even though the
information is helpful, they will still always seek advice from an expert.
In my 40 years of mortgage experience, I can assure anyone that only an
"expert" can provide the kind of advice that consumers can depend
on to make what is probably the the largest financial decision of their
life. Mortgage Brokers can not only offer the best expert advice but
also have the largest array of products and services to meet their
Mortgage Brokers took the unfair rap for the bad mortgage
loans that led to the mortgage and financial market meltdown around
2008. But it's the big banks that beat the system the most.
It was recently announced that Wells Fargo will pay the US government $1.2
billion for hiding bad loans ahead of the housing market crash. The
mortgage lender's certification of thousands of loans which were given FHA
insurance led to taxpayers footing the bill when the loans were defaulted.
A statement from Manhattan U. S. Attorney Preet Bharara said:
"Wells Fargo enjoyed huge profits from its FHA loan business,
the government was left holding the bag when the bad loans went bust.
Wells Fargo, one of the biggest mortgage lenders int he world, has been
held responsible for years of reckless underwriting."
Similar settlements have already been reach between the government and
Goldman Sachs, Morgan Stanley and JP Morgan Chase.
I’m witnessing an interesting continuance of last years’
trends in mortgage demand over the past few months. So, while nothing is
really new, certain patterns exist that are worth talking about.
The proliferation of Jumbo lenders and products persist – all for the good.
Rates are about the same as they are for their smaller “conforming”
counterparts. More lenders are entering the arena as rates remain low, the
purchase market remains strong, refinance opportunities rise, underwriting
criteria loosens, and the secondary market for securitization of jumbo
This loan product has seen the biggest increase for RTC Mortgage during the
past year for this once unpopular product. The reason is simple: the
Reverse Mortgage loan has been re-designed such that it is no longer a
product just for the desperate seniors that are out of money. It is now
considered a valuable financial planning tool that is being endorsed by
financial advisors and accountants that understand and endorse the
benefits. The most popular feature being touted is the Line of Credit that
grows in value over time.
Reverse Mortgages can be used for purchases too. There are too many
features to go over here and with so many options within the Reverse
Mortgage program, everyone’s benefits are different. If you or someone you
know is interested, give me a call and I can easily work up some figures to
demonstrate how it may work for you.
The Domination of Non-Bank Lenders
As mentioned in previous emails, the major banks have lost their large
share of the mortgage market to “Non-Banks, including Mortgage Brokers.
Market share for Non-Banks has grown from a low of 10% in 2007 to 50%. The
reasons are that non-banks have more products; better rates and terms; more
efficient and local service; and usually more expertise among the
Loosening of Underwriting Guidelines
Not only have I seen looser guidelines among the Jumbo lenders but now, the
Government Agencies of Fannie Mae and Freddie Mac have finally loosened
many of the guidelines and restrictions that were imposed during the
mortgage meltdown period around 2008. The underwriting changes are long
overdue but welcomed. If you didn’t qualify before, you may qualify now.
This was the big Regulatory change that was going to delay all loan
closings and scared the heck out of everyone in the business. Now that we
have had some time to adjust, it seems to be working out just fine. That
said, some lenders are much better than others at performing. But as a
broker that can submit loans to many lenders, we know who does a good job
and who doesn’t. With borrowers that are pre-approved in advance, we can
still easily close loans within 30 days.
Commercial Real Estate
Now that I co-own a commercial mortgage company with long-time commercial
lending expert Jeff Redeker, I’m much more aware of commercial real estate
and lending. I’ve read many published articles about the strength of the
commercial market too. Our company is doing well and has financed quite a
few commercial properties including multi-family, offices, restaurants and
more. Beach Cities Commercial and RTC Mortgage are located in the same
office building. Give us a call if you have an interest in financing a
commercial building or business.
Well, the Federal
Reserve finally did it! They raised the target federal funds rate 0.25%, its
first boost in nearly a decade. That does not, however, mean that the
average rate on the 30-year fixed mortgage will be a quarter- point higher.
That's not how mortgage rates work.
Mortgage rates follow the yields on mortgage-backed securities which are traded
in the financial markets. The price of these “Mortgage-Backed Securities”,
which are a form of “bond”, change every day and throughout every day, regardless
of the Fed. And, they move in anticipation of what the Fed may do in the
future. They don’t wait for the actual event plus there are many other factors,
domestic and global, that also impact the course of mortgage rates.
As it relates to this week’s rate hike by the Fed, it was expected for a long
time and so was already baked into mortgage rates. We may even see a slight
temporary decline in rates as a result. The Fed’s comments after the
announcement imply that future rate hikes will be slow to come and dependent on
future data. They said this:
"The Committee 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 and of rolling over maturing Treasury
securities at auction, and it anticipates doing so until normalization of the
level of the federal funds rate is well under way." This means that the
Fed will continue to buy Mortgage-Backed Securities as they get paid off on previously
I’m hoping the rate hike will decrease the volatility that has plagued the
market for some time now and allow it to stabilize going forward – until
something else occurs that will move rates or the pricing of Mortgage-Backed
Securities. In the long-run though, mortgage rates are expected to rise over
time next year, particularly if the Fed get more aggressive with future hikes
in the Federal Funds Rate.
Originations Up Sharply
Residential lenders originated an estimated $70.0 billion of jumbo loans in the
first quarter of 2015 nationwide, a 59% increase from first quarter 2014.
Moreover, a number of jumbo lenders more than doubled their production during
that time. “Our jumbo pipelines are near record high, as the demand for jumbo
mortgages remains healthy,” said an official from a leading jumbo lender.
Jumbos accounted for 19.4 percent of total mortgage originations in the first
quarter of 2015, consistent with the peak of 19.7 percent in the previous
quarter. For all of 2014, jumbos accounted for 19.0 percent of total
production. Keep in mind these are national figures. In our local, high-priced
market I’m sure that the numbers are even higher.
As an independent mortgage broker, I am seeing continued interest in jumbo
loans from new and old lenders, some with creative financing including stated
income loans, lower down payment requirements, larger loan limits and more
creative underwriting methods. As the market has slowed down a bit due to
slightly higher interest rates, competition among lenders for jumbo loans has
increased. In many cases, jumbo loans have lower rates than conforming loans.
Call me for any conforming and jumbo needs.
Review of Lender Appraisal Regulations:
The appraisal regulations
continue to be a point of confusion for borrowers and real estate agents. For
that reason I thought I would review the procedure here and mention a new rule
The most important thing
for all to understand about appraisals is that no party to the transaction can
choose the appraiser. Therefore, the appraiser is not chosen by the lender, the
mortgage broker, buyer, seller, real estate agent or any other person or entity
involved in the transaction.
Appraisals are ordered
through Appraisal Management Companies (AMC’s). These are companies responsible
for managing a panel of qualified appraisers and for randomly assigning an
appraiser for each order. Once the appraisal is complete, the appraiser turns
it in to the AMC where it is reviewed for accuracy and compliance before it is
released to the lender.
One more important requirement is that the borrower cannot be charged for an
appraisal until they have acknowledged the lender’s loan disclosures. Lenders
and mortgage brokers have 3 business days by law to disclose once a loan
application has been taken or received. To be legally compliant, appraisals
cannot be ordered in advance or at the same time that a loan application is
received. Disclosures must come first if the borrower is paying for the
New Appraisal Rule:
New rules on appraisal management companies (AMCs) requires every state to have
laws regulating AMCs or lose the ability to appraise FHA, Fannie Mae or Freddie
Mac loans in the state. If the AMC has more than 15 appraisers in the state or
25 total that provide services for them, they must register. The real meat of
this is that now both the appraiser and the AMC are required to abide by the Uniform Standards of Professional Appraisal Practice
(USPAP). The rule also creates a national registry of AMCs that
comes with a fee, of course. This will probably result in appraisals becoming
more expensive again.
IRS Breach Causes Mortgage Delays:
You probably heard that the IRS last week disclosed a massive security breach
that allowed hackers to obtain detailed tax-return information on 104,000