Shopping for low rate on an FHA loan? if the rate sounds too good to be true it probably is

Shopping for FHA loans with low interest rates – Be careful of what you read

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FHA loans with low interest rates can look very inviting.

When shopping for mortgages for FHA loans or any other type of loan, you have to be really careful in what you read. As you can see in regards to the snapshot on the left, some companies are listing interest rates that don’t even exist. Or do they?  Let’s look at each company’s ad.

1.)  Take the first one that states “Today’s FHA rates” in blue. Do you even know if that rate is a fixed rate or a adjustable rate? Yes, there are actually FHA adjustable rates in the low 3′s, but a 30 year FHA fixed rate would be in the mid to high 4′s. Don’t get me wrong, you could get a 30 year fixed rate at 3.875%, but it would cost you around 7 to 8 points just for the interest rate itself.

2.)  In regards to the second company, they state no social security number needed or no credit check. I could quote you an interest rate, but it wouldn’t mean squat until I asked you some questions and pulled your credit report. It doesn’t matter what lender you use, everyone needs your credit scores to help determine your interest rate. Besides, depending on your credit scores and what type of mortgage you are applying for, there could be pricing hits for your credit scores.

3.)  Lastly, the third ad states that bad credit is welcomed for FHA loans. One would need to define bad credit. This is just a feel good type of statement to give some hope. Sure, there are lenders that can help with less than perfect credit on FHA loans, but it might take some massaging. Besides, look at part of the link in green, FHA.BestRates____.us  In my opinion, when companies advertise best interest rates or lowest interest rates, it’s just to get the phones to ring.

Summary : As I mentioned, consumers need to be very careful when shopping for mortgages online. Just because someone puts a very low rate out there, doesn’t mean that you can get that rate.

There have been new laws for mortgage companies and banks when advertising interest rates. If a lender was going to advertise an interest rate for FHA loans, they would need to state the APR, a loan amount, the P&I, and the LTV. As we can see, none of this was done with the ads shown above. But there is a good reason why. The ads above are those from companies that generate leads that are sold to mortgage companies. So these companies don’t have to follow the laws that are in place for mortgage lenders. Again, why you need to be very very careful when shopping for FHA loans online or any other type of mortgage.

Red Flags For Home Buyers

Red Flags for Consumers, Agents and Mortgage Professionals

Have you ever bought a house or refinanced your mortgage and ran into one problem or another?  I have never said that I am perfect or that I know it all, but it does come down to honesty, integrity, knowledge,  very good service, and just being upfront when problems arise.

How about you first time homebuyers that have never experienced buying a home. I truly believe that there are some key phrases that can sometimes be cause for concern. I call these Red Flags. And just because you have done this before, doesn’t mean that it won’t happen to you. In my opinion, anything that I mention below, if you hear it more than once, especially in a short time period, this could be your warning, aka Red Flag.

The General / Basic Red Flags from both the loan officer and the realtor:

• After shopping for a loan officer or realtor, you found the person that you want to deal with. This person was always getting back to you. Now you have signed with the realtor or the loan application with the loan officer. A few days later, you try getting a hold of them and they don’t get back to you right away.  If you are leaving a few messages per day, both e-mail or by cell, and this continues for close to 48 hours, there is no excuse. This is a huge Red Flag if this takes place a few days prior to settlement/closing, especially the day of closing.
• Key words or phrases used often when first speaking to you. “I promise”, “I guarantee”, “no problem”, “I’ll fix it”, “I am the best”, “I am the cheapest”, or “I have the lowest fees”. I am sure there are more.
• Delayed phone calls. They say, “I promise to call later or tomorrow”. But you don’t hear back from them and now you have to track them down. Yes, things happen. But if this seems to be a reoccurring issue, then you might have problems.
• Deadlines – If there are certain dates on the contract or with the lender get everything in as soon as possible.  If the loan officer calls you up the day before or the day of settlement telling you it has been postponed or that you are denied?  Ninety-Nine percent of the time, they knew previous to this and this is a major Red Flag.

Red Flags from loan officers or lenders:

• You are shopping for lenders and the loan officer never offers you an itemized fee sheet. They can’t give you a Good Faith Estimate until a full application has been taken.
• They don’t offer you the rate or the payment.  This might sound silly, but I had 3 clients just in one month that this happened to them. Yes, the consumer should have asked.  But maybe the loan officer talked circles around that client, and then they just forgot. Sometimes just hearing, “you are qualified” or “you are approved”, gets you excited, hence why you might forget to ask these important questions. The loan officer should have offered more than just words.
• You find a loan officer because their rates were very good. But since you have so much on your mind, they never go over the rate lock-in features of that program. If they don’t cover this prior to application or when you were shopping for a mortgage, and especially during application, this could be trouble. Or they get you to sign a rate lock form, but they convince you to float. Question, did that rate even ever exist then?
• You might qualify for a FHA or VA loan, but tell you that you don’t want those kinds of loans, because conventional is better for you.  This has happened to at least 5 people that I know of. The main reason was because the lender wasn’t FHA or VA approved.
• If your lender/loan officer changes rates or fees during the process or at settlement, don’t just give in. Avoid excuses such as; “your credit score dropped”, “you have less income”, “your credit isn’t as good”, etc, etc.  There are new laws to where such changes have to be told to you in writing 3 days prior to settlement.
• When comparing the Itemized Fee Worksheet, aka the good faith estimate, don’t just compare the bottom line, “total costs to borrower”. Some loan officer’s low ball certain 3rd party fees to make their good faith look cheaper. Or they escrow fewer taxes on paper that is mandatory in each state.
• You are at closing and the loan officer says, “Don’t worry about those docs, we can correct that later”. NO!!! Once you sign, it’s over.
• If you have a credit score less than 680 and less than 20% down. You know you should have a FHA loan, but the lender says going the conventional way is better…. major red flag. It’s been proven that going FHA in this scenario is cheaper monthly.

Red Flags from realtors or real estate offices:

• When an agent only shows their listings. If you want to see homes and they keep showing those only listed by their company or those they are selling themselves.
• One complaint – When a realtor has a full time job that is not real estate related. I heard a story that the buyers had to wait until their realtor got up to show them the house. This was at 1 pm.

Red Flags from consumers:

• Consumers, never hesitate to tell your loan officer or realtor everything. Even if they don’t ask you and you think it’s pertinent to the transaction. Don’t take that chance in not telling them. We are all here to help you and not pass judgment.
• Be loyal and just don’t hop to every realtor showing houses. Build a rapport with that person. That’s if you feel comfortable with that person.

Conclusion:  If you keep getting excuses over and over, don’t keep falling for them.  Yes, things happen, but 9 out of 10 times, it shouldn’t happen often. These types of excuses are usually to delay you in finding out the truth, until it’s too late. If anything above happens for 2 or more days in a row, don’t wait, contact their manager or boss. If you don’t feel like you are getting anywhere at any time, seek a professional in the particular field or possibly seek legal advice. It’s one thing to give someone the benefit of the doubt, it’s another to be lied to or misled intentionally. Never hesitate to ask questions.

30-Year Mortgage Rate Jumps Up to 4.39% - CNBC

30-Year Mortgage Rate Jumps Up to 4.39% - CNBC

Mortgage Market update for November 4th 2010

Current Trend Direction: Sideways to Higher

Risks favor: Locking Bias

Current Price of FNMA 3.5% Bond: $101.34, +44bp

Yesterday, the Fed announced the details on their upcoming round of Quantitative Easing, and were quite clear about what they will be buying, how much and when.  Slightly different than what the market had expected, they announced that they intend to purchase $600B in Treasuries, starting now and continuing through mid-2011, which equates to about $75B in purchases per month.  And note - this amount is in addition to the current program, where the Fed is reinvesting the proceeds from their existing Mortgage Bonds portfolio.  When you add in these purchases, it appears that the Fed will be buying a total of about $110B or so per month…or just under $1T by the end of June 2011.  That's some big purchasing.

And as you likely saw, the initial reaction in the Bond market was dramatic, to say the least.  Bond prices whipsawed higher and lower - before ultimately making a move lower, prompting our Alert to Lock.  The Bond market reaction looked to be a "sell on the news" response as well as not liking the stretched out time frame of the purchases.

Never remaining quiet for long, outspoken Kansas City Fed President Thomas Hoenig was the lone dissenter to the Policy Statement, commenting that he believes "the risks of additional securities purchases outweigh the benefits."  He is further concerned about "the risks of future financial imbalances" and "an increase in long-term inflation expectations that could destabilize the economy”.

This morning, Bond prices are starting the day sharply higher - and let's break down why.  Based on the Fed's announcement, it appears that the Fed will be buying all the 10-Year Treasury Notes coming to auction over the next eight months.  And while we know that mortgage rates are based on Mortgage Bonds and NOT the 10-Year Treasury - there is a piece of the relationship between the two that is important to understand.  If you are an investor looking to buy long term securities, you'll likely look at both the 10-Year Note, as well as Mortgage Bonds, or Mortgage Backed Securities.  If prices on the 10-Year Note rise like we are seeing today, investors will naturally start considering buying Mortgage Backed Securities instead…thus causing prices of Mortgage Bonds to move higher as well, via the higher demand for them.  But many experts believe this pop in the Bond market could very well be short lived and will be followed by even more volatility.

To that point, there are other concerns we must be aware of - like further devaluation of the US Dollar and rising Stock prices.  The US Dollar closed down just modestly yesterday, but it is getting killed this morning.  And as we've been sharing with you, this is exactly what the Fed wanted to see happen.  The weak US Dollar is helping Stocks trade sharply higher, as the weakened Dollar makes US exports stronger - via our goods and services costing "less" to foreign investors.  This is not only good for businesses, but consumers also feel more confident when the Stock market moves higher, and may be more inclined to spend, thereby helping to boost GDP.   

There is a old market saying - "Don't fight the Fed."  And this can be a great phrase to use when talking with clients and referral partners in the wake of the Fed announcement.  Yes, while Bonds are getting a government backed boost this morning…we need to be mindful that the Fed started QE2 for three reasons.  One, to spur spending which will create inflation; two, to help lower the unemployment rate via an economic boost; and three, to help push Stock prices higher.  And all three of these factors will cause headwinds for Bonds and home loan rates down the road.

In economic news today, Initial Jobless Claims in the latest week were 457,000 and above the 445,000 that was expected.  Continuing Claims fell 42,000 to 4.34M.   Additionally, there were 3.98M people claiming Emergency Unemployment Compensation (EUC) benefits, an increase of 199,000 from the prior week.  Not a great report and a reminder that Claims have been stuck to that 450,000 number like a magnet for a very long time.

Jobs Report Strategy

The Jobs Report almost seems anticlimactic after the week's historic events - but it is still very important, as maintaining full employment is part of the Fed's mandate.  Additionally, the Fed in their Statement yesterday said " The Committee will regularly review the pace of its securities purchases and the overall size of the asset purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment"  And some of that incoming information will be the Jobs Report each month.

Market expectations are currently for 60,000 jobs to be created, with the net gains coming from private sector growth, meaning that government job creation will be something close to nil.  Based on the recent ADP data and the modest improvement in Weekly Jobless Claims, we feel that the headline number will meet or potentially be a little higher than the 60,000 expected.

We also see that the Unemployment Rate could actually move higher to 9.7% from the present 9.6%, as more people fall off the extended unemployment benefits.  When they fall off the EUC benefit and re-enter the workforce seeking employment, they are once again "counted" as being unemployed, in terms of how the Unemployment Rate is tallied.

Although no one really knows what the report will unveil tomorrow - we feel a cautious and conservative bias towards locking and capturing today's improved price sheet is a prudent approach...particularly because most of your pipeline should be protected after the recent string of alerts.

Weekly Mortgage market update

Current Market conditions this week. this blog will hopefully help you understand what drives the mortgage market

Current Trend Direction:  Lower

Risks favor:  Very Carefully Floating

Current Price of FNMA 3.5% Bond: $100.53, -19bp

Mortgage Bonds are trading lower on what appears to be a changing sentiment towards the risk of deflation.

For months there has been an ever-growing fear that our economy is headed towards deflation…where prices on goods and services are falling lower, rather than climbing higher, which is of course, inflation.  These fears of deflation have helped Bond prices move sharply higher, as the fixed payment that a Bond provides to an investor goes further - or purchases more goods and services - in a deflationary environment. 

But just in the last 24 hours, future deflation/inflation expectations have changed…and investors in the Bond market are now betting that the Fed will be successful in "creating inflation" via their Quantitative Easing plans, and will thus avoid continuing down a deflationary road.  This was highly evidenced by the results of yesterday's 5-Year Treasury Inflation Protected Securities (TIPS) auction. 

For the first time in history, the TIPS were sold with a negative yield.  You read it right, a negative yield, specifically at -0.55% for yesterday's 5-Year TIPS.  This is a very important development, so let's break down how this works and what it means.  Investors pushed the price of the 5-Year TIPS to $105.50 for every $100 or "par value" of the securities, and this is what resulted in the -0.55% yield.  Now think about it…if inflation stays low for the next five years, the fixed interest rate payments of 0.5% that these TIPS would normally pay over the course of five years would not be enough to repay the principal of $105.50 that was paid yesterday at the auction.  So why would an investor in 5-Year TIPS bid up the price, and accept a negative yield? 

Because TIPS investors are compensated at a higher amount based on an increase in consumer prices - that is the whole point of buying "Inflation Protected Securities."  The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index.  And when a TIPS matures, the investor is paid the adjusted principal or the original principal, whichever is greater.  So the fact that buyers actually were willing to pay a premium means that they strongly feel that the Fed will be successful in sparking inflation.  For example, investors in yesterday's auction only need to see 1.5% inflation per year over the next five years to break even.  To put it in perspective, inflation has risen about 3% per year since 1926.  

So think about it - the media has been chattering about how the Fed has to be careful not to let inflation get "out of control" in the coming months and years.  In fact, just this morning, there was a headline talking about how another round of Quantitative Easing (QE2) brings the risk of "unleashing 1970s inflation genie".  Boy, has the outlook on inflation changed dramatically in the past 24 hours!  So if inflation is expected, the unusual TIPS auction makes sense…and so does the decline we are seeing in Mortgage Bonds, which hate inflation.

There has been a lot of concern expressed about inflation over the past year, because many realize that inflation can grow very quickly, even from low inflation levels like we have presently, and is very hard to control once the inflation genie is indeed "out of the bottle."  It seems like the media has finally woken up to the fact that inflation is a real concern…just as the Fed is getting the money printing presses warmed up, and will likely turn the switch on following their meeting on November 3rd. 

Use this as an opportunity - talk to your prospects, clients and referral partners, and let them know what has happened over the past 24 hours.  Those who are thinking that home loan rates will be moving significantly lower following the November 3rd Fed announcement may be deeply disappointed.

And if inflation weren't enough to beat up the Bond market, a report from Merrill Lynch said that the firm is trimming some of their MBS holdings, believing the current strength in Mortgage Bonds is "overdone."  

In other news,  the Treasury will sell $35B in 2-Year Notes today with the results to be released at 1:00pm ET.  It will be interesting to see how this auction fares given yesterday's TIPS results, and the sharp decline in the rest of the Bond market over the past 24 hours.  

The lagging Case Shiller Index showed that home prices for 20 metropolitan areas fell 0.3% month over month from July to August.  This follows a 0.6% gain in July.  The Index rose 1.7% year over year in August, down from the 3.2% year over year reading in July.  This was not a great report, but even the negative news was unable to help Bonds, which are responding to the more important inflation story.

Consumer Confidence was reported at 50.2, which was better than expectations of 49.0.  This helped Stocks and kept the selling pressure on Bonds.

This morning's "gap lower" or lower opening from the previous day's close shows the increased selling pressure on Mortgage Bonds before the opening of trading, meaning Bond sellers outnumbered Bond buyers in pre-market action, and prices had to be lowered just to attract new buyers at the open.  This is not a good technical signal and may suggest further weakness. 

Hopefully yesterdays Alert to Lock helped you avoid the sharp price erosion of the past 24 hours.  However, with the pricing damage already done, on new transactions we can start the day floating, but very carefully.  Today's auction results at 1pm ET could cause Bonds to move another leg lower.  

Paul Bresee's Mortgage Market News

I hope this will help some of you understand what drives the mortgage rates daily. This report is telling us that it is a good idea to not lock your loan today. there may be changes that could force Mortgage rates lower.

Current Trend Direction: Sideways

Risks favor: Floating

Current Price of FNMA 3.5% Bond: $100.84, +19bp

The recent spike in Bond market volatility continues today.  Mortgage Bonds are trading higher on the day, but are already well below the best levels of the session.

Third Quarter earnings season continues for Stocks, and banking giant Citigroup reported this morning, posting slightly better than expected earnings. There will be 11 Dow components reporting this week, along with 109 S&P 500 companies.  Tech bellwethers Apple and IBM are set to report after the close of trading today.  The results and future guidance reported by these corporations could have an impact on the direction of both Stocks and Bonds.

The economic report calendar is light this week, however, there are plenty of Fed Members hitting the podium, including  Atlanta Fed President Dennis Lockhart later today, followed by tomorrow's hit parade of Chicago Fed President Charles Evans,  New York Fed President William Dudley,  Fed Reserve Governor Elizabeth Duke and, Fed Chairman Ben Bernanke.  Philadelphia Fed President Charles Plosser and Richmond Fed President Jeffrey Lacker will take the stage on Wednesday, and St. Louis Fed President James Bullard along with KC Fed President Thomas Hoenig will speak on Thursday.   

That's the biggest line up of Fed commentary in one week than has been seen in a very long time, and after Friday's speech by Ben Bernanke, the market is primed to expect more Quantitative Easing (QE2).  But what the market doesn't know, and could be looking for clues from the panel of speakers this week, is how much money is the Fed going to commit, what exactly they will be buying, and when the spending spree might start.  These speeches have the potential to add to the already incredible market volatility.

In economic news, manufacturing sector data arrived, with Industrial Production coming in at - 0.2%, a bit below expectations of 0.2%.  This was a poor number and the first negative reading on Industrial Production in seven months.  This weak number, along with the recent string of not-so-good economic readings, further support the Fed's position of QE2.  Capacity Utilization - which measures how much of  the total production capacity is being used in a manufacturing setting - was reported at 74.7%, meeting expectations, but remaining well below the 81% average seen in the 37 years prior to 2010.  This highlights the overall continued lackluster consumer demand in the economy…and consumer demand won't pick up significantly until we see meaningful improvement in the labor market.

Bond prices remain above a dual layer of support at the 25 and 50-day Moving Averages, and we will start the day by Floating.