December 18th, 2014 12:43 PM by Richard T. Cirelli
IS THIS THE END OF THE LOW RATES?
For the past few weeks we’ve enjoyed the lowest rates in over 18
months. And that was despite the positive Employment figures for November and
the expectation that the Fed will raise the Fed Funds rate by the middle of
2015. The lower rates were driven mostly by global concerns in Europe and Asia
and weakness in the domestic stock markets. Investors looked to the safe haven
of US based securities such as Mortgage-Backed Securities.
This week we’ve seen a bit of a rise in rates as international fears
have simmered down. And yesterday the Fed concluded their last Federal Open
Market Committee (FOMC) meeting of the year by suggesting a pledge to be
“patient” on interest rates which is interpreted by traders to mean an increase
by the middle of next year. The US Stock Market has risen over 500 points since
yesterday’s announcement and money flowed out of bonds and into the stock
I think we are repeating the pattern that we've
witnessed following virtually every Fed rate announcement. The market gets
spooked over nothing, the DOW goes crazy and then days later the market wakes
up, realizes nothing has changed and trading normalizes. Remember, the Fed does
not control long-term rates. The Fed controls only the discount rate and the
Fed Funds Rate and both are very short term. Long term investors make their own
decisions. If the Fed tightens, short term rates will spike, long term rates
will slide down and the yield curve will flatten. Why? Because raising short
term rates will halt what little business borrowing we are seeing, the economy will
skid...thus forcing down long term rates.
It will be interesting, to say the least.
Let’s see what happens. I don’t see a need to panic but I also don’t see any
sense in waiting or hoping for lower rates. We are near historic lows and
eventually rates have to rise. I say lock it in now!
Senate Passes Tax Bill That Includes Key Mortgage
approved a bill late Tuesday that would retroactively extend over 50 expiring
tax provisions for one year, including one that shields distressed homeowners
from paying taxes on any mortgage debt forgiven in a short sale.
bill, homeowners can deduct the cost of mortgage insurance premiums on their
2014 tax forms. This tax break covers private mortgage insurance premiums as
well as premiums paid on Federal Housing Administration, Department of Veterans
Affairs and Rural Housing Service guaranteed loans. The U.S. Mortgage Insurers
welcomed the extension.
also ensures underwater borrowers that sold their homes in a short sale in 2014
will not be penalized.
Prior to the
housing bust, troubled homeowners had to pay taxes on any mortgage debt that
was canceled or forgiven by a lender. The amount of forgiven mortgage debt was
treated as ordinary income and taxed accordingly.
New Low Down Payment Program Approved To Help Stimulate Home Buying
Government Sponsored Enterprises known as Fannie Mae and Freddie Mac now allow
97% financing on loan amounts up to $417,000. There are some restrictions but
it does help, particularly first-time homebuyers. FHA loans continue to allow
down payments as low as 3.5% for loan amounts up to $625,500 in certain markets
such as Orange and Los Angeles counties. Mortgage insurance on the new
Fannie/Freddie programs is less expensive than FHA’s so if everything else is
equal, I advise my cllients to choose the conventional programs rather than
New jumbo loans and investors continue to emerge and with rates that
compete with their smaller conforming loans. Lenders are loosening up
guidelines too with some lenders allowing for smaller down payments of just 15%
on loans up to $1.5 Million. And, with no mortgage insurance.
It’s exciting to see so many Jumbo products returning
to the mortgage market, including even a “Stated Income” loan.