RTC Mortgage Blog

Is This The End of Low Rates?

December 18th, 2014 12:43 PM by Richard T. Cirelli


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 market.


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!


Other News:

Senate Passes Tax Bill That Includes Key Mortgage Deductions

Congress has 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.


Under the 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.


The bill 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

The two 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 FHA.


Jumbo Loans:

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.

Posted in:General
Posted by Richard T. Cirelli on December 18th, 2014 12:43 PM



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