Jim Pomposelli, Mortgage Banker

With all of the good news in the housing market, why is there not a surge of home purchases!?!?!

March 5, 2012 Leave a comment

According to the National Association of Home Builders, buying a home is now more affordable than it has been in the last twenty years. Because of decreases in home prices and historically low mortgage rates, the National Association of Home Builders Housing Opportunity Index hit a record level of affordability.

According to the index, nearly 76% of all new and existing homes sold during the 3-month period ending on December 31, 2011 could have been comfortably purchased by families earning the national median income of $64,200.

During the 20-year history of the index, that is the highest percentage recorded and a sharp increase from just three months earlier when nearly 73% of all homes sold were considered affordable.

As proof that people are beginning to react to the affordability of the housing marketing, the National Association of Realtors said its Pending Home Sales Index, based on sales contracts for new and existing homes signed in January, increased 2% percent to 97%. This is the highest reading since April 2010, a two-year high in the housing market. Although signed contracts are not the same as sales, this is a positive sign of where the housing market can go.

Although sales of new homes (those recently built), sales of of existing homes roles to a 1.5 year high in January according to the National Association of Realtors. The importance of this increase is that the supply of properties on the market has fallen to its the lowest level in almost seven years. With the supply of existing homes falling, the prices of these homes should increase and hopefully the demand for newly built homes will increase if home prices begin to increase.

With all of this good news, why is there not a surge of home purchases!!! Some folks say that it is a lack of access to mortgage financing. I have to disagree!!!

According to the Mortgage Bankers Association’s Weekly Applications Survey, the Purchase Index of mortgages for home purchases surged last week, gaining over 8% percent over the week before. People are getting more mortgages for purchasing a loan and here is why:

  • There continue to be a number of low down payment options for buyers where they need between a 3.5% down payment for an FHA loan to a 5% down payment for a conventional loan.
  • Required credit scores are not as high as people think. Although it takes a 700+ credit score to get that rock bottom rate, people with credit scores in the low 600s can still get access to a mortgage with a rate that is far below the historical average for mortgage rates.
  • Self-employed people, the ones who have had the most difficult time getting a home are in the process of filing their 2011 tax returns. With most folks having good years in 2010, self-employed folks should be able to qualify on the higher income of the last two years.
  • People are tapping into generational wealth for down payments and closing costs. Parents with assets are volunteering to help their children buy a home in this great market by offering to give money for a down payment or bring cash to pay off a loan that is underwater. The thought is that you can give the money to your kids now when they need it rather than from their estate.

If financing is not really the issue, what is keeping the purchase market from exploding.

First, there are some folks whose home is truly far too upside down to buy another home. However, life does take over and people are slowing finding ways because you can only put off a marriage or having kids so long.

Second, people are SHOPPING! Buyers are looking at hundreds of homes before purchasing one. The days of executing a contract on your first trip with a realtor are finished.

Finally, people who have experienced a job separation or other similar event due to the economic downturn are just not rushing out to buy. Folks are a bit scared and only a healthy economy with jobs will create more optimism among potential buyers.

That being said, I work with first time buyers constantly and there is real enthusiasm to enter the market. I also see the luxury market moving quite well. There is demand building out there and the supply of homes that fit these folks is limited. If you are prepared to take on the responsibility of a mortgage, it is a great time to buy and people are starting to take advantage of it. It might be the best time of our generation!

Categories: Uncategorized

The economy is gaining speed so why are mortgage rates SOOO low….blame it on the Fed

February 11, 2012 Leave a comment

I appears that the US economy is showing some REAL growth and it is not just in GDP or consumer confidence. We are talking about JOBS!!!! According to last Friday’s jobs report, the U.S. economy created jobs at the fastest pace in 9 months in January and the unemployment rate dropped to a near three-year low, giving the markets a hopeful indicator of hiring in the year ahead. Employers added a net 243,000 jobs last month, the Labor Department reported Friday — that’s the most since April and far better than economists’ expectations for a gain of only 150,000.

On top of the good news on jobs, new claims for unemployment insurance fell 15,000 to 358,000 last week while the four-week moving average hit its lowest level since April 2008 . Economists and the stock market cheered last Friday’s news that employers stepped up hiring in January for the 3rd month in a row.

So what is the big deal for mortgage rates. Shouldn’t it be good for the mortgage market.

Well, more jobs in the economy is a good thing for most folks but normally not for mortgage rates. Usually, when the economy grows, investors sell bonds because they buy riskier assets like stocks that they think will take off with the economic growth.

Also, bond investors fear inflation which can eat away at their profits from bond purchases so they move out of bonds and into stocks which benefit from inflation. When investors sell bonds, rates on bonds like Treasuries and mortgage-backed securities go UP to make them more attractive investments.

So why are we seeing economic growth and low mortgage rates. Well, you could say that the economy has not grown that fast so investors are still skeptical. You could also argue that with Europe still a mess (see Greece) that investors are buying treasuries and mortgage-backed securities because they are safer investments.

Here is my opinion on the REAL deal. Folks are saying that rates will stay low because Federal Reserve Chairman Bernanke is so determined to keep rates low until we have real job growth and the housing market comes back. Although the Fed can only control short-term rates, investors believe that Bernanke will put the full force of the Fed to keep 10 year treasury and mortgage-backed securities rates low until he meets these goals. Bernanke is a student of the Great Depression and I am sure that the joblessness and depressed property values of that era will not mark his legacy as Fed Chairman.

One example of the Fed Chairman’s willingness to keep down rates is the effectiveness of his Operation TWIST program where the Fed buys long-term treasuries securities and sells short-term treasuries. Although many investors were skeptical that this would work, it has limited the amount of ten-year treasuries. Because there is less supply of ten-year treasuries, the rates go down. Because the rates on ten-year treasuries are directly tied to the rates on mortgage-backed securities, mortgage rates have stayed down. The Fed is also talking about more quantitative easing. This is just a fancy name for the Fed buying more ten-year treasuries. Once again, fewer ten-year treasuries equals lower mortgage rates.

The Bottom Line: The Fed wants mortgage rates lower. You cannot beat them, so you just have to join them and enjoy the low rates!!!!!!

Housing Market is Improving….Get on the Housing Train before it Leaves the Station!!

January 23, 2012 1 comment

Finally after years of uncertainty, the US housing market is showing strong signs of improvement. If you have been considering purchasing a home, now is the time to act. We may have reached the bottom of the market and home prices could bounce back if you wait too long.

According to an article in Reuters on January 18th, the National Association of Home Builders housing index in January rose for the fourth consecutive month and reached its highest level since June 2007. The latest improvements to builder confidence reached every component and region and comes on the heels of several months of gains in single-family housing starts and sales. A gradual but steady improvement is beginning to take hold in an increasing number of housing markets nationwide as measured by current sales conditions, expectations for the next six months, and traffic of prospective buyers which all improved in January.

According to new residential construction estimates from the U.S. Census Bureau and HUD as described in a article in msnbc.com news services on January 19th, single-family housing starts rose 4.4% in December. Building permits for single-family homes were also up for the month, rising 1.8%. Year-over-year, housing starts were 24.9% above December 2010 and building permits were 7.8% above the earlier year’s levels.

Finally, in an article on Housing Wire on January 13th, mortgage giant Fannie Mae released its economic outlook for 2012 which calls for the trend for housing growth to move higher through the second-half of the year. Fannie Mae indicated that home sales would be up 3.5 percent from 2011. Due to improving labor market conditions, attitudes toward employment/future income, consumer sentiment has begun to move in a positive direction. Doug Duncan, Fannie Mae’s chief economist, said we’re entering 2012 with momentum and expects a year of moderate growth edging away from the 2011 threat of a double-dip recession.

Well, when you add it all up, there is a consensus that the US housing market will see some meaningful growth in 2012. If you have sat on the sidelines waiting for bottom of the housing market, experts are saying that we have already hit it and that the housing market should see positive grown in the future. You always have to make sure that you are choosing the right time to buy a home ensuring that you are comfortable with your current income, assets and the amount of debt you will be undertaking. But if everything is a GO and you are just waiting for the right time to enter the market, this could be IT!!

The housing train is leaving the station and you want to be on it!!!

Mortgage fraud – New laws and punishment to protect the industry

January 5, 2012 Leave a comment

Here is a great article from a fellow blogger on mortgage fraud. When you  read articles like this it only reinforces how important it is to (a) find a credible mortgage banker, (b) check that banker out through testimonials, references and her online presences and (c) meet with that banker. There is no better way to understand who you will be working with than to sit across a table from him and ask some good questions (how do you get paid, what are my costs, etc.). If a banker will not meet with you, then you have picked the wrong banker. The most amazing thing to me is that people will go online to find a mortgage banker to do the largest debt financing of their lives and work with someone who they have never met. You may save 0.125% buy you will likely lose that money, if not more, later on. I know someone who used an online banker to purchase an Illinois property and got an appraiser came from Michigan….needless to say the appraisal got messed up and could not be fixed. Real estate is still a local business and you should get a local banker.

Mortgage fraud – New laws and punishment to protect the industry

Written by Peter Harper  

Mortgage fraud has become a very common phenomenon especially in the states of Arizona and Florida where most of the property have been losing value and suffering from negative equity mortgages. Mortgage fraud is a term that is commonly used to connote deliberate misinterpretation in order to secure a loan and also an estimate of loan that is higher than what would have been suitable if not the facts were misinterpreted. Such fraud can come in the form of wire fraud, bank fraud, mail fraud and money laundering. Even though this kind of activity exists side by side with predatory mortgage lending, both are not similar. Cases of mortgage fraud have been seen committed by bankers, real estate agents and loan officers. The techniques used by such people are forging signatures, blowing up values of property and also manipulating qualification measures.

In U.S.A. most states punish mortgage fraud with serious punishment. New laws are coming up to deal with cases of mortgage fraud. Such cases can lead to a felony payment with a term in jail from one year to three years. Depending upon the seriousness of the case, if someone is convicted in such fraud, he can also face probation and forfeit of properties. The concerned individual has to make restitution and pay required estimate of fines and fees.

Mortgage fraud in Arizona:

The state of Arizona has taken a lead in dealing with cases of mortgage fraud from as early as 2007. Such acts in the state is condemned and prosecuted by enacting laws that makes the probability of a conviction higher. Apart from this, in the State of Arizona a criminal fraud which has been proven need to pay the State a civil penalty of up to a certain amount every time anyone commits a buyer Fraud Act violation. The individual would also be required to reimburse the attorney general’s office for costs that have been incurred during the investigation and legal performance. Complete compensation needs to be made to the home owners. Also if the individual committing the mortgage fraud holds any license in relationship with this line of work it can be suspended or revoked depending upon how grave the situation is. In the year 2011, the Senate has passed a federal bill named Senate Bill 386 which has added more serious obligation of penalties in cases of mortgage fraud, securities fraud and financial convention fraud amongst some others. Along with this federal fraud laws have been extended to meet the cases of mortgage lending.

Mortgage fraud in Michigan:

Legislation has been passed that provides tougher penalties to the people who knowingly engage in cases of mortgage fraud from 2011 onwards. This law has been recently signed and implemented by Governor Synder. These new Public Acts that have been passed strives to redress the increasing amount of mortgage fraud in Michigan. The Senate bills 249-252 make mortgage fraud specific felony by implementing fines and jail time depending upon the value of the property in question. The new law thus implemented also revises the sentencing guidelines by including new penalties especially for notaries who knowingly take part in schemes of mortgage fraud. The best thing about these laws is that along with punishing criminals of mortgage fraud, they protect the legitimate mortgage loan industry and help in preventing homeowners who are at no fault from losing their homes. Fighting against mortgage fraud benefits others as well including the ones who live in the neighborhood that contains abandoned homes and local units of government which are heavily dependent on property tax revenue.

Thus it can be seen that the new mortgage laws give tools to the prosecutors which they require to fight mortgage fraud.

I was SOOO wrong about rates…. BUT it is such good news for home purchases and refinances.

December 7, 2011 Leave a comment

In both my blogging and personal conversations with borrowers, realtors and other business partners, I have been very measured in my comments on where rates could be in the future. Because rates spiked last year just before the holiday season and took eight months to grind down to the same levels again, I was very hesitant to say that I thought rates would stay low as we came to into November. I was SOOOO wrong about that view on rates. Not only have we had record rates as we throughout the Fall, but rates have actually stayed low as Thanksgiving has passed on by.

As you can see from the graph below, rates (as measured by the Weekly Primary Mortgage Market Survey done by Freddie Mac) were very attractive throughout the summer of 2010 but spiked up the week before Thanksgiving. In my opinion, this was largely due to mortgage-backed investors and therefore banks raising rates so that investors could clean-up their balance sheets before year-end and banks could close the loans in their pipeline by December 31. Folks who had an opportunity at a 4.125% rate but wanted to wait until rates were at 4.000%. By December, 30 Year Fixed Rates were at  4.860%.

I thought that the same thing would happen this year…..It is obvious that I was completely wrong!!! If you look where rates are today hovering around 4.000% two weeks after Turkey Day, it makes you wonder if there will be an uptick of rates by year-end. Why are we so fortunate? We should send a special thanks to the European Union. From the Greek (or was it Italian) debt crisis to the threatened down grade of fifteen (15) European countries by Standard & Poor’s today, there has been nothing but bad news about European sovereign debt and banks. Because Europe has not found a solution to its debt problems, investors have continued to take a flight to quality by buying treasury bonds and mortgage-backed securities. That has kept mortgage rates low up until now and will likely keep rates low into the New Year as it seems unlikely that Europe will solve its problems before then.

So I was SOOOO wrong about rates going up in November, but it is SOOO good for people looking to buy a home or refinance their mortgage.
Freddie Mac Weekly Primary Mortgage Market Survey

30 Year Fixed Rate Mortgage Rates

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See video of Steven Calk CEO of Chicago Bancorp advocate for less regulation to attract home buyers

October 17, 2011 1 comment

Steve Calk, Chairman and CEO of Chicago Bancorp was interviewed by Fox Business about the current state of the mortgage and housing markets. Please click link below to see full video.


Some of the highlights of Steve’s interview include:

  • Low rates will not be around forever
  • Now is a good time to purchase a home for the first time home buyer
  • Regulation is putting at risk the 30 Year Fixed Rate mortgage
    • Lenders such as Bank of America and MetLife have left the wholesale mortgage market due to the cost of excessive regulation
    • If the secondary market for mortgages, now run by Freddie and Fannie, are not protected, the mortgage market will become dominated by portfolio lenders and community banks
    • These lenders have no interest in providing thirty year fixed rate mortgages and the only product offerings could be Adjustable Rate Mortgages
  • Regulators have now begun auditing the mortgages of homeowners who are paying their bills on time
  • Rather than auditing good borrowers, the government should be directly using these funds toward supporting the housing market, which will put more money into the economy
  • If you are on the fence about buying a home, now is the time to act
  • You have an opportunity to lock in the best rate of your life and rates will not stay this low forever
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Let’s Twist Again!!!……Mortgage Rates Are At All Time Lows!!…But Will It Last??

September 27, 2011 Leave a comment

The Fed released its statement Wednesday afternoon, and mortgage rates dropped to historical lows soon afterwards.

First, quite simply, the Fed confirmed that there are “significant downside risks” to the US economic outlook. Slower economic growth reduces the chances of inflation, which is good for mortgage-backed securities and Treasury bonds. Also, when economic growth is slow, investors tend to sell growth driven investments like stocks and buy safer investments like mortgaged-backed securities and Treasury bonds. When people buy more bonds, the price of the bonds goes up and the rates go down (Trust me, its bond math!). Because almost all mortgages are funded by mortgage-backed securities, lower rates on mortgage-backed securities lead to lower mortgage rates.

Second, the Fed announced the widely expected Operation Twist program. This program will extend the average maturity of the Fed’s portfolio by purchasing $400 billion of longer-term Treasury securities and selling an equal amount of shorter-term Treasuries. What this does is create extra demand for longer-term Treasury bonds. More demand equals prices going up for Treasury bonds which means that the rates on Treasury bonds goes down. Because mortgage-backed securities are priced from Treasury securities, if Treasury rates go down, the rates on mortgage-backed securities goes down. Because mortgages are funded by mortgage-backed securities, when the rates on the bonds go down, the rates on mortgages go down.

This all sounds great but will it work? The Fed tried this measure in the 1960s with any great success. Economists are predicting that Operation Twist will have little impact on the economy. It may lower rates by 0.1% to 0.2%, but that is unlikely to help economic growth. On the other hand, this benefit was immediately priced into the market and rates dove on Thursday and Friday. In addition, this will help to keep rates low as the Fed begins to carry out this policy.

The third major element from the statement by the Fed was a surprise to investors and will actually have a wider impact on mortgage rates. The Federal Reserve owns a massive amount of mortgage-backed securities. These bonds are backed by thousands of mortgages that have monthly principal payments and prepay when there is a refinance of a mortgage. All these payments of principal by the mortgages underlying the mortgage-backed securities means that there are billions of dollars of principal coming from the mortgage-backed securities that will come back as cash to the Federal Reserve. The big news is that the Fed will begin to reinvest principal payments from its mortgage-backed securities holdings in more mortgage-backed securities. Until now, the Fed has been reinvesting the principal payments in Treasury securities.

With roughly $885 billion in mortgage-backed securities holdings in the Fed’s portfolio, these principal payments will be re-invested into a significant sum of mortgage-backed securities. Along with Operation Twist, this program will create a significant source of more demand for mortgage-backed securities. Just as I said before, more demand for mortgage-backed securities leads to higher prices and ultimately lower mortgage rates. The impact of the announcement was priced in very quickly in the mortgage-backed securities markets and ultimately into lower mortgage rates. Although the Fed has not yet begun to purchase securities under the new programs, investors have already factored in the expected impact of the added demand on mortgage-backed securities prices. Following prior Fed announcements about purchasing mortgage-backed securities, nearly all the benefit took place right away.

This is GREAT! We should see mortgage rates stay low for  some time!!! Now is a great time to refinance or get mortgage financing to buy a home. Rates should stay low for the rest of the year and into next year….MAYBE.

All of these factors are great for mortgage rates on a go forward basis. That being said, there is one reason that we cannot forget. By mid-November, banks and investors begin to look toward the end of the year. Investors want to clean up their books for the end of the year and will stop buying new securities. The people at investment firms start to enjoy the holidays and there are fewer people. This all leads to less buying of mortgage-backed securities. Likewise, banks do not want to lend much more money because they want to close all the loans in their pipeline by the end of the year. With missing staff on holiday, they need to close these loans with fewer people. How do banks limit the volumne of business that they have? They do not shut their doors, they just raise mortgage rates to drive new customers away!! This all leads to less demand for mortgage-backed securities and mortgages. Less demand means that prices fall and rates go up (bond math again!!).

We saw this happen last year when by the end of November rates had gone from record lows to up by 1%. People who were waiting to save 0.125% on a refinance, could not refinance at all. I cannot predict the future of rates (or I would not be here writing this!), but you cannot ignore the impact of the holidays on the mortgage market. If a refinance or home purchase is in your plans for 2011, now is the time to act so you do not miss out.

Source: http://money.cnn.com/2011/09/21/news/economy/federal_reserve_operation_twist/?cnn=yes

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