Mortgages Market Update: 01/09
Before I begin I would like to apologize for not posting anything in a while, it has been a little crazy here in the mortgage world (thank God) and I’ve had very little time for anything else but my clients. That said the past couple of months have been brutal to say the least, so let’s backtrack a little bit…
October and November were pretty much quiet, no sudden bursts of refinance activity, no one really purchasing much of anything, lots of downtime. Needless to say, I was pretty much bored. So to compensate for very little business and a drastic change in income, I went back to trading a bit and am now up about 24% in my portfolio. Not bad for an amateur (I think).
December started out slow but ended 2008 with a bang. Rates are low, business is there, and people are anxious to save money. Great news for all of us!
OK so now on to the changes…
1. Rates: First thing, first. I’m sure you guys read CNNMoney/Bloomberg/WSJ or listen to Suze Orman (barf)… Rates are at their very lows for conforming products! If you have a mortgage that is over 6.00%, a home equity, and you are not over the limit of $625,500 (NYC and many other counties nationwide) you should contact your mortgage loan officer/broker to refi! If your mortgage or combination of mortgage is above $625,500, and you have some money to pay down your balance, it may be a good investment to refinance as well.
Here are my rates as of today on conforming products:
30 Year Fixed: 5.25% @ 0 points
15 Year Fixed: 4.75% @ 0 points.
Guys, we haven’t seen rates sub 5.625% since 2004 and if I know anything about the mortgage world it’s that rates go up much faster than they come down. Please don’t get greedy and make the excuse of waiting for the government to stabilize rates at 4.50%. Even if they do somehow accomplish this, there will be limitations. Nothing is free in this world.
2. PMI: Gone! If you are seeking a mortgage of over 80% financing and your mortgage professional is promising to get you the financing via Private Mortgage Insurance, please contact someone else, it’s not happening. All financial institutions use pretty much the same sources for mortgage insurance, either Radian, PMI, Genworth, AIG, MGIC, or RMIC. None of which want anything to do with mortgage insurance at the present time. The only way to get more than 80% financing is via an FHA mortgage.
3. New Construction Condominiums/Existing Condos: Whether you are going for a conforming or jumbo mortgage, PLEASE CONFIRM WITH YOUR LOAN OFFICER/BROKER THAT THEY ARE ABLE TO FINANCE IN THE PROJECT.
All banks who finance condos have an underwriting guideline certificate with the GSE’s which expires at different times for all financial institutions. Once they expire, new guidelines go in effect and they are extremely stringent and may put you at risk of not getting a mortgage!
Here is a short list of what will be needed:
• Declining market areas (Manhattan, 5 boroughs) 71% presale requirement! 51% for non-declining market areas.
• The unit must be 100% complete
• Building is in occupancy condition.
• No more than 10% of the building belongs to any one single investor.
Remember: it doesn’t matter if your mortgage is conforming or jumbo, these guidelines are a blanket for all products.
4. Jumbo Products: If you are shopping around for a jumbo mortgage I only have the following advice to offer: stay away from the big gorillas if you want a decent rate. Just don’t forget to make sure they are able to finance your property before doing so. Large banks do not want any unsalable loans on their portfolio and no one is buying jumbos at this time.
Before I sign off I would like to give you one last piece of advice in these crazy times. If your mortgage loan officer is quoting you a rate, it makes sense to you, and is within the market, PLEASE LOCK IN AND GET A CONFIRMATION! Rates change 4 times a day, everyday, and are very volatile - if the terms are decent, lock that sucker in!
Happy New Year guys! I wish you all the very best in the new year, may the year be prosperous for all of you!
Posted by Don
Fri Jan 2nd, 2009 12:23 PM
This looks VERY rough for all new buildings:
Here is a short list of what will be needed:
• Declining market areas (Manhattan, 5 boroughs) 71% presale requirement! 51% for non-declining market areas.
• The unit must be 100% complete
• Building is in occupancy condition.
• No more than 10% of the building belongs to any one single investor.
Am I missing something or is it going to be close to impossible for new devs to sell any units (unless 71% can pay cash for their units?)?
Thanks.
Posted by Noah
Fri Jan 2nd, 2009 12:35 PM
I'm in no position to argue with the MortgageMan because Im not in his business, but I believe bldgs that do not meet these guidelines will make arrangements with a lender or two to offer options to those with contracts signed soon to close.
I just closed on Laurel Condo 3 weeks ago, and its like 49% sold I believe. One of the first 5 I believe to close.
Posted by Still Hung-Over
Fri Jan 2nd, 2009 01:15 PM
Let's see... You can't get a mortgage unless the building is 71% sold... And none of the units can be sold since it's nowhere near 71%... Now I'm not a rocket scientist... and I'm still a little drunk, but am I the only one who sees a problem here?
Posted by anonymous
Fri Jan 2nd, 2009 01:33 PM
For jumbo mortgages, what rates are you seeing? And since you are recommending staying away from the big banks, what banks are offering the most competitive rates?
Posted by MortgageMan
Fri Jan 2nd, 2009 01:35 PM
Don, Noah, and S.H.O:
I believe that, yes, you will see some condos go directely to a lender and negotiate a "preffered lender status" so that the bank can finance in that building. I am not sure how this will be accomplished, perhaps portfolio loans only or some kind of fidelity bond but there will probably be some work around.
It definitely is a problem and is just a result of lax lending standards from before, and strict underwriting now.
Posted by MortgageMan
Fri Jan 2nd, 2009 01:45 PM
Anonymous:
I work for a big bank, here are my rates today for Jumbo's:
5/1 ARM: 6.375%
5/1 ARM I/O: 6.75%
30 Year Fixed: 7.50%
As far as smaller banks, I know Astoria has decent ARM rates and Hudson City has great rates outside of Manhattan (they will only lend where they have branches).
Posted by anonymous
Fri Jan 2nd, 2009 01:56 PM
I just bought a place in jersey city in august, and never would have thought it would make sense to refi already, plus I didn't want to deal with the hassle of getting the approval, appraisal, fees, etc. But we called our current lender (hudson city savings bank who keeps loans in porfolio) and they actually allow loan modifications to take advantage of lower rates for a very small fee (.4% of loan, rate goes from 6.125 to 5.375 for an ARM) - no new appraisal, financial verification, etc, just a simple loan modification that they say only takes 2 weeks. I was shocked at how easy it is and the savings will repay the entire fee in 8 months. I'm mentioning this because it never occurred to me that a lender would allow something like this, so it never hurts to call your current lender up and ask.
Posted by Colgin
Fri Jan 2nd, 2009 02:27 PM
For those of us in Jumbo land it is sadly not so easy to refinance. We closed in June of this past year with a 30-year fixed jumbo of 6.875%, which is not oo bad. Given where interest rates on conforming mortgages have gone I have made many calls to banks and brokers to see what coudl be done on a jumbo loan. SO far it has not been encouraging. There has been nothing attractive on 30-year fixed as nobody wseems to want to write those for jumbos at least. We have been quoted some decent rates on 7/1 and 10/1 ARMS. However, in those cases the max LTV have typically been 65% or 70%. We financed 80% of our purchase. Even assumign our apartment still appraises for what we purchased (good luck, right) we would still need to put in more money. In this environment I have no interest in sinking anything other than minimal costs into our place (e.g., refinancing closing costs) in order to get a lower rate as I think being liquid is very important now. So even if we had the money the last thing we would do with it is pay down another 5 or 10% n our mortgage.
Posted by Shalom Patrick Hamou
Fri Jan 2nd, 2009 02:38 PM
Quantitative Easing Won't Work
In a Liquidity Trap although Saving (S) is abnormally high investment (I) is next to 0.
Hence, the Keynesian paradigm I = S is not verified.
The purpose of Quantitative Easing being to lower the yield on long-term savings it doesn't create $1 of investment.
It does diminish the yield on long-term US Treasury debt but lowers marginally, if at all, the asked yield on savings.
This and other issues are explored in my tract:
A Specific Application of Employment, Interest and Money
Plea for a New World Economic Order
Abstract:
This tract makes a critical analysis of credit based, free market economy, Capitalism, and proves that its dysfunctions are the result of the existence of credit.
It shows that income / wealth disparity, cause and consequence of credit and of the level of long-term interest-rates, is the first order hidden variable, possibly the only one, of economic development.
It solves most of the puzzles of macro economy: among which Business Cycles, Stagflation, Greenspan Conundrum, Deflation and Keynes' Liquidity Trap...
It shows that no fiscal or monetary policy, including the barbaric Quantitative Easing will get us out of depression.
A Credit Free, Free Market Economy will correct all of those dysfunctions.
The alternative would be, on the long run, to wait for the physical destruction (through war or rust) of most of our productive assets. It will be at a cost none of us can afford to pay.
A Specific Application of Employment, Interest and Money
http://www.17-76.net/interest.html
Posted by anonymous
Fri Jan 2nd, 2009 03:01 PM
My wife works at the bank that currently holds or mortgage. Our current fixed rate is 6.5 on a 30 yr mortgage. With the drop in rates and with an employee discount they're currently offering a 4.875 rate on a 30 yr refinance (we locked at 5.25 but they can do a rolldown for a $1200 fee)
Anybody think that's low enough? Hang just a tad longer? Thoughts? Opinions.
Feel free to argue -- I need all and any perspectives
Posted by MortgageMan
Fri Jan 2nd, 2009 03:06 PM
Anonymous:
What is the balance of your mortgage and what will be the final loan amount of the new mortgage?
Need those variables to answer intelligently. But I can tell you this much, 4.875% is a phenomenal rate. I suggest you take it and run.
Posted by Michael Oliver
Fri Jan 2nd, 2009 03:19 PM
This is good honest info about what to expect in the mortgage business for 2009. Thanks for the update seems like most (if not all) banks are shutting down the mortgage spigot this year and hoping to save from future losses..
Posted by Donald
Fri Jan 2nd, 2009 04:54 PM
Hi MortgageMan,
I have a 30 year fixed @ 5.6% with a balance of roughly $225,000. I keep seeing Ditech commercials advertising 4.8%. Should I refinance? I plan to sell within the next 5 years, so it it worth refinancing? How much in fees will I have to pay?
Thanks!
Posted by Anonymous
Fri Jan 2nd, 2009 05:07 PM
MortgageMan or other Jumbos: any concrete advice for getting a lower jumbo rate? I shudder a little when I think that even with a higher conforming loan ceiling I am still in jumbo territory, but there it is. I have a good-ish rate, 6.375 / 30 year fixed on a coop with a major bank. We financed about 55% of purchase, so have substantial equity, but who knows where re-assessments are these days. We're about 200K over the 625,500 conforming loan figure, with no substantial cash to bring to the table. Is it worth it / possible to get a conforming loan at, say, 5.25 -- saving more than a full percentage point! -- and then a second loan for the remaining 200K? What do you think?
Sign me,
Cautiously Speculative
Posted by MortgageMan
Fri Jan 2nd, 2009 05:26 PM
Anonymous: Absolutley!! You can definitley get a second mortgage behind the $625,500 for a combined 55% LTV (I think the GSE's go up to 80% CLTV). I will let you know for sure a bit later as I am posting from my BlackBerry.
Donald: I will do the calculation for you and will post it here in about an hour. I am posting wirelessly from my BlackBerry right now.
Posted by MortgageMan
Fri Jan 2nd, 2009 06:34 PM
Anonymous:
You can definitely get a second mortgage behind the $625k for $200,000.
Now to see whether or not it makes sense, lets do the math...
$625,500 @ 5.25% = $3,454/month
$204,000 @ 4.00% (using an average rate) = $680/month
($4k closing cost approx.)
TOTAL MONTHLY EXPENSE (without maintenance fee)= $4,134.00
I'm not sure what you are paying at the moment but will guess its around $5,150/month. That's over $1,000/month savings AND you make up your closing costs in the first 4 months!
The catch? The Home Equity line payment is interest only AND the rate is tied to prime so it is variable - prime moves, your rate moves. Golden question is when does it move?
If your present monthly expense is close to what I estimated, I truly do suggest you do this.
Leave your email here and I can contact you if you wish, so that we can go over this in more detail... Please leave it in a "john.doe at test dot com" format so that you don't get any spam mail.
Posted by MortgageMan
Fri Jan 2nd, 2009 06:44 PM
Donald,
I am not sure what type of property you have or what your current monthly payment is, but will assume it is a single family home and will use a assumed payment.
Now let's do the math:
$225,000 + ~$7k in closing costs = $232,000 mortgage.
$232,000 @ 4.875 = $1,227/month (principal & interest, not including any taxes or insurance)
Your current monthly payment is probably around $1,439.00/month
Savings = ~$212 (depending on your current monthly payment of course)
$7,000/212 = 2 Years, 8 Months to recoup your closing costs. Does it make sense? Depends on your situation. If you are looking to free up your monthly cash flow by $200, then yes. Otherwise I wouldn't do it unless you recoup the closing costs within the first 2 years.
Just like anonymous, if you would like to talk some more about this, leave your email here in a "john dot doe at test dot com" format and I will contact with more details.
Best of luck!
Posted by Donald
Fri Jan 2nd, 2009 08:18 PM
Thanks MM. And yes, it is a single family house in northern New Jersey.
Posted by Mochi
Mon Jan 5th, 2009 10:37 AM
Mortgage Man
I am also looking at various ways to qualify for a lower jumbo rates mortgage. We financed 30% of our home purchase and put in a substantial amount for renovation. It's a 2 family brownstone in harlem. my email is "kchen15 at yahoo dot com"
TIA
Posted by JD
Mon Jan 5th, 2009 11:02 AM
Mortgage Man,
What is the breakeven point for when you recommend refinancing? I have a 5/1 5% interest only ARM from when I purchased my apartment in March 2008. Now it seems I can lock in that rate for a longer period of time and pay a slightly lower interest rate. Or am I missing something in the equation, such as taxes/fees? My lender is Indymac, so I don't know what type of modifcations are possible anymore...
Thansk.
Posted by MortgageMan
Mon Jan 5th, 2009 12:51 PM
Mochi:
Email sent.
Thanks.
Posted by MortgageMan
Mon Jan 5th, 2009 01:01 PM
JD:
Great question. Unfortunately every person is different in their wants and needs when it comes to a accomplishing a senseful refinance, so I'm going to try to answer as generally as I can:
There a couple of different factors I use to determine the breakeven point or the point where it either does or doesn't make sense to refinance.
First, I would only suggest a refinance where you can pay off your closing costs within the first two years.
Second, if your financial scenario permits and it is your desire to stay in your home for a while, I like to refinance people with 30 year mortgages into 15 year mortgages at a lower rate, without changing their monthly payment. This helps out long term as obviously you don't incur any additional monthly expense but cut your mortgage term in half.
If your current ARM is at 5.00%, you plan to stay in your home for over 7 years, and your closing costs are not outrageous, then I would definitely recommend refinancing the home.
What kind of property is it? Single Family, Co-op, Condo? And where is it located?
Posted by Rob P
Mon Jan 5th, 2009 10:35 PM
Hi MortgageMan,
I'm getting close to having to close on a new construction condo and am planning on a jumbo loan. What are the banks writing jumbos in Manhattan? Do any of those that write in Manhattan (as you point out, Hudson does not) keep the loans on their balance sheet? Thanks!
Posted by MortgageMan
Tue Jan 6th, 2009 10:40 AM
Rob:
Which building are you closing in? I can check it on my bank's (sorry can't disclose here) database and tell you the status of it.
I know right now Wells is very competitive as well as Chase, but there is also Astoria that might be able to finance the new construction in Manhattan.
Give me the buildings name and I can provide more info.
-MM.
Posted by Steve F.
Tue Jan 6th, 2009 12:06 PM
MortgageMan,
I'm in contract with a new construction condo in Long Island City and am trying to close in January 2009. I am currently working with the preferred lender after getting turned down by a bank who needed condo reserves. I'm putting down 20% and the loan amount is $506K. The preferred lender is saying that the loan amount makes it agency/conforming jumbo (between $417K and $625K)and therefore I need to pay .50 percentage more in interest rate for 3o yr fixed unless I split the loan into two. In other words, I could save half a percentage in interest rate by going with a variable rate home equity line of credit for the amount above 417K.
I'm concerned that while the second HELOC loan is for 90K, the rate will shoot up soon resulting it to be expensive in the long run. Should I pay little more in monthly payment and go with the 30 yr fixed for one single loan or split the loan with the variable component? Is there any point in shopping around since other lenders may not finance in the building?
I was told by the attorney that I should expect to pay around $30K in closing cost. What's the typical closing cost for new construction condos where developer is passing down the transfer cost?
My email is strive28 at yahoo dot com and would appreciate your advice especially since I need to close on this property quickly. Thanks in advance.
Posted by Rob
Tue Jan 6th, 2009 07:17 PM
Thanks for the reply MM.
The building is the Linden.
much appreciated.
Posted by MortgageMan
Wed Jan 7th, 2009 11:46 AM
Rob,
I'm trying to find this on our database but am not coming up with anything... Is it The Linden 78? Manhattan correct?
If you can, leave your email here in a "john dot doe at test dot com" format and I will email you for more details.
-MM.
Posted by Rob
Wed Jan 7th, 2009 05:29 PM
MM,
Yes it is.
uwsrob at gmail dot com
thanks.
Posted by Larnaca Properties
Thu Jan 8th, 2009 09:46 AM
just about everything has gone for a toss. But you have managed 24% jump in your portfolio, I think that is awesome. Can you lend me some tips.
Posted by New Condo
Tue Jan 13th, 2009 11:58 AM
Mortgage man,
I am in contract for a new construction but can only pull together 90% for financing on the building. My bank has stated verbally that they will not be able to get PMI but I need more assurance that this is not possible in case the sponsor challenges this and I am not sure my bank wants to put this in writing. Can you email more research or analysis to support that PMI is no longer viable ? My deposit is riding on this so I greatly appreciate it.
email "fredxrok at gmail dot com"
Thanks
Fred
Posted by Juliana
Tue Feb 10th, 2009 01:43 PM
Hmm, on my 3rd try here. Your blog program reeeeeally likes to wipe comments when you make an entry error on the mail line. :P
We are: A Silicon Valley couple looking to do the previously impossible: Build a lovely home in the hills near Stanford for about 500k...
I'm PRAYING I can use an FHA conforming loan here? With cash and/or second behind it...
Total project cost: About 500k
Cash available: About 75K
Area values are still declining slightly - but sales are happening on comps for 875k to 900k... Values tend not to dip below that.
Can you advise on FHA for new construction? Or if other products would be needed (apart from prayer and bribery that is...)
And we agree about Suze Orman. :)