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Mortgage Rates at Two-month Low
As we enter a promising new year, mortgage interest rates have dipped to the lowest level in the past two months. Average rates for a 30-year fixed-rate mortgage is down to 6.22 percent, with an average 0.5 points, according to Freddie Mac...
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Other Mortgage Stories:
No Bubble-Bursting in 2006
Reverse Mortgages More Favorable in `06
New Mortgage Guidelines Coming
Mortgage Rates Down
How to Avoid Foreclosures
New Multifamily Project Mortgage Plan Announced
Investment Flipping Down
Real Estate Auctions Up
Title Industry Responds to Abuse Charges
Mortgage Rates at Two-month Low
As we enter a promising new year, mortgage interest rates have dipped to the lowest level in the past two months. Average rates for a 30-year fixed-rate mortgage is down to 6.22 percent, with an average 0.5 points, according to Freddie Mac, a major buyer of home mortgages. But that’s still well above the 5.81 percent rate of one year ago.
"Lower figures for the recently released Producer Price Index and Consumer Price Index, along with lower Gross Domestic Product, combined with the seasonal slowdown in the housing market to drive the most recent decline in mortgage rates," said Freddie Mac’s deputy chief economist. "For the year, the 30-year mortgage rate averaged 5.87 percent - slightly above the 5.84 percent rate set in 2004."
No Bubble-Bursting in 2006
No bubble-bursting is in sight for real estate sales in this new year of 2006. This is now expected to be the second best year in history for residential property sales, according to analysts at the National Association of Realtors. "Home sales are coming down from the mountain peak, but they will level-out at a high plateau - a plateau that is higher than previous peaks in the housing cycle," said David Lereah, NAR’s chief economist. "This transition to a more normal and balanced market is a good thing."
Even though mortgage rates have edged downward in recent weeks, they will generally trend upward during the year, probably to about 6.6 percent for a 30-year, fixed-rate mortgage, NAR predicts. Existing home sales, expected to reach about 7.1 million units in 2005 (when final figures are available), will probably decline a bit in 2006 - perhaps by about 3.7 percent to a volume of 6.84 million units. New home sales will be about 1.29 million units in 2005 and will probably drop by 4.8 percent to 1.23 million units this year. That would make this year the second best on record for new home sales.
"The housing market still is fundamentally healthy," said Dave Wilson, president of the National Association of Home Builders. "Many builders sense some tapering off of buyer demand because of resistance to high prices and rising interest rates, and many companies have begun offering certain incentives in order to maintain their sales and production." Confidence of home builders during December slid from its summer peak, yet remained well within the positive range, according to NAHB.
Thomas Stevens, NAR president, made this comment: "Housing has always been the soundest investment for most families. As the old saying goes, homeownership beats the heck out of a drawer full of rent receipts."
Reverse Mortgages More Favorable in ‘06
Senior homeowners can obtain a more generous reverse mortgage loan in 2006 than ever before - meaning they can convert a greater portion of the equity in their homes into tax-free income using one of these special mortgage plans. The new rules affect the federally insured Home Equity Conversion Mortgage (HECM) and the Fannie Mae Home Keeper reverse mortgages. About 90 percent of all reverse mortgage sales have been HECMs (insured via FHA).
Also, the U.S. House of Representatives recently passed legislation lifting the cap on the number of HECM reverse mortgages that can be issued -- those that are insured by the Department of Housing and Urban Development (HUD). This legislation is still pending. There are now about 150,000 HECM mortgages outstanding. Lawmakers are very aware of the increasing popularity of reverse mortgage plans with senior homeowners.
Simply stated, a reverse mortgage is a means of tapping the equity in a home to generate a stream of addition monthly income for the owner. This income can continue until the homeowners sells or moves away from the home, or dies. As an alternative plan, the homeowner can receive a lump sum, activate a line of credit, or contract for a combination of these plans. The reverse mortgage is usually funded by a lending institution such as a mortgage lender, bank, credit union or savings and loan association. The borrower must be at least 62 years of age, own and occupy their home, and (in the case of HECMs) must participate in a consumer information session offered by an approved HECM counselor.
As for the increase amount of funds available this year, the HECM product varies by geographic area. The highest of the loan limits will grow from $312,896 to $362,790. These figures apply to most metro areas. Fannie Mae's loan limit for single-family home mortgages, including its Home Keeper loans, have risen to $417,000 from last year’s $359,650.
New Mortgage Guidelines Coming
New guidelines are being developed by federal financial regulatory agencies for "specialty mortgage products" - loan programs that allow borrowers to defer repayment of their mortgage principal and interest, along with other options. It also includes interest-only mortgages, where borrowers pay no principal for the first few years of their mortgage term, and payment-option adjustable-rate mortgages where borrowers are given several payment options, including those that result in negative amortization.
These special innovative mortgage plans can be very helpful to some consumers. But the agencies are concerned that non-traditional mortgages are being offered to sub-prime and other borrowers who may not fully understand the risks that come with these products. It’s important that these risks be properly managed, they say.
Most real estate and mortgage industry leaders agree that firm guidelines are needed for the protection of consumers. But they are watching the development of the new guidelines carefully to be sure they are not so strict as to limit the availability of non-traditional mortgages that provide a good option for some borrowers, especially in areas where home costs are exceptionally high.
Mortgage Rates Down
Even seasoned real estate and financial analysts were surprised when average mortgage interest rates declined a bit during December -- soon after the Federal Reserve again raised its funds rate, the overnight lending rate between banks. That’s good news for consumers who are seeking mortgage financing for their purchase of a home, or for homeowners wanting to refinance their existing mortgage. It’s generally agreed by analysts that mortgage rates will rise in coming months and years, but current developments offer a welcome "window of opportunity" for many consumers.
"Mortgage interest rates dropped recently because financial markets had been a little anxious about what language the Federal Reserve would use in its statement about future actions," said Frank Nothaft, Freddie Mac vice president and chief economist. "When the Fed signaled that it’s interest rate tightening may be coming to an end soon, the financial market breathed a sigh of relief, and rates eased somewhat."
Many people who have been fence-sitting while waiting for more favorable rates to surface are now taking action to buy and finance a home or refinance their mortgage, according to Michael Levy, president-CEO of Home Saving Mortgage, a multi-office mortgage banking firm based in Oxnard, California. "Many of our recent applicants are also taking advantage of creative new plans to minimize their mortgage payments and help them qualify. This is a very strategic time to make a loan application and lock-in a low rate, before rates continue their inevitable rise," Levy said.
How to Avoid Foreclosures
It’s amazing how many families lose their homes needlessly. When a family encounters financial problems and can’t keep their mortgage payments up to date, they could explain their situation to their lender or mortgage servicer and probably work out a special plan to resolve the problem. But in most cases they just let the problem worsen until their home is taken in foreclosure.
That’s the finding of a recent survey taken by Freddie Mac and Roper Public Affairs and Media, a noted market research firm. In over half of all home foreclosure cases the homeowners never contacted their lender about their problem, it was found. It was also noted in the survey responses that about 75 percent of the delinquent mortgage borrowers recall being contacted by their mortgage servicers. But most of them gave a variety of reasons for neglecting to follow-up with those servicers to discuss workout options. Mortgage servicers collect monthly housing payments on behalf of the lender or other owner of the mortgage.
"The results of the survey are a wake-up call to delinquent borrowers everywhere," said a Freddie Mac vice president. "Its message is clear: when you get a phone call or letter from your servicer, don’t ignore it - act on it. Pick up the phone, call your servicer and talk to them about the possibility of forbearance or some other repayment alternative because it just may be your best chance to avoid foreclosure. Part of the problem, as shown in the survey responses, is that there’s a dangerous knowledge gap. People are definitely interested in the options available to them, but their awareness of those options is low."
New Multifamily Project Mortgage Plan Announced
A new mortgage plan for financing multifamily projects was recently announced by Freddie Mac. It would provide borrowers with up to 85 percent of the market value of the project. It’s designed to streamline the process and reduce the cost of obtaining higher leverage financing by eliminating the need to pursue additional proceeds from several sources, according to a Freddie Mac report.
Under this new plan, lenders will have the ability to offer additional financing for conventional fixed-rate mortgages ranging from $3 million to $22.5 million. "Borrowers no longer have to go through separate processes and lenders to combine first mortgage financing with a higher leveraged piece, at it offers them larger loan proceeds at competitive prices," said Freddie Mac’s vice president. For more information, contact a Freddie Mac approved mortgage lender or broker.
Investment Flipping Down
In many markets, an increasing number of investors are pulling back from buying homes and condos as investments. That could accelerate the cooling of the housing market generally. Many investor-owned properties are now returning to the market for sale. With the rate of price appreciation slowing, some investors are leaving the pack of those acquiring residential properties for quick resale (flipping properties). The slowing trend is particularly prevalent in markets that have been super active in past months and years.
TopReal Estate Auctions Up
Real estate auctions are gaining popularity. They now represent a $48 billion dollar industry nationwide and are becoming the preferred selling method for more property owners each year, according to the National Auctioneers Association. They report residential and commercial real estate auction sales have increased by 14 percent and 11 percent, respectively, from year 2003 to 2004.
The trend is particularly noticeable in New England’s real estate market, as residential, commercial and industrial property owners select this sales method to generate quick results, even during the current winter season when sales are usually slow. The association noted that unlike the traditional brokered sales method, auctions almost always guarantee a contingency-free sale within 90 days with a 98 percent closing rate. For those carrying a property through the long winter months while paying higher heating costs, only to face a predicted sluggish spring market, real estate auctions promise the viable solution.
Title Industry Responds to Abuse Charges
The title insurance industry had a tough year in 2005. They faced a rising tide of accusations of abuses in the sale of title policies - overpricing, illegal kickbacks, etc. The strongest flow of accusations probably came from John Garamendi, California Insurance Commissioner. He issued a scathing report on the industry. Understandably, this upset leaders in the title industry.
Here’s a response to that report from Lawrence Green, executive vice president of the California Land Title Association:
"Stated quite simply, the bogus report issued by John Garamendi is not worth the paper it’s written on. It’s simply the product of a politically connected insider hired to help the Commissioner achieve a predetermined, media-friendly outcome. In order to produce this report, Garamendi hired an out-of-state consultant, via a $60,000 no-bid contract," Green said. "Contrary to the ridiculous and self-serving results from the Garamendi study, a recent examination of closing costs and rate comparisons indicates that California has highly competitive title insurance rates. Title insurance rates in this state are below the national average and are significantly lower than comparable title insurance rates in other large states," Green concluded.
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