Ask the Mortgage Banker

What-the-heck-is-going-on-newsletter!

2008-11-07T14:49:00.001-06:00

Provided by Michael Sluis
Michael SluisHome Mortgage ConsultantWells Fargo Home Mortgage5120 CO RD 101Minnetonka, MN 55345Phone: (612)667-3743Fax: (612)667-3722Cell Phone: (612)599-3819E-Mail: michael.a.sluis@wellsfargocomWebsite: http://www.ReadyToOwn.net

Market Comment:Mortgage bond prices rose last week pushing mortgage interest rates lower. Trading the beginning of the week focused on the election and we saw equities rally in anticipation of the result. The latter portion of the week resumed focus on economic turmoil tied to rising unemployment, tight credit markets, continued housing market concerns, and global economic uncertainty. Trading was choppy with almost a full discount point up and down swing on Thursday alone. For the week, interest rates on government and conventional loans fell by about 3/4 of a discount point.

The retail sales data Friday will be the most important event this week. The additional debt supply that continues to hit the market along with the shortened trading week may also lead to mortgage interest rate volatility.

Auctions: US Treasury bonds do not directly dictate fixed mortgage interest rate pricing however they do have an indirect impact. Both Treasuries and mortgage bonds often track in the same direction but this is not always the case. There are many times that Treasuries and mortgage bonds move inversely.

Despite the overwhelming size of the US economy, foreign investors can still have an effect on moving the financial markets. When foreign economies struggle foreign investors often purchase US based investments including mortgage bonds. This demand usually causes mortgage bond prices to rise and interest rates to fall. This flight to quality buying was one of the factors that helped mortgage interest rates to remain historically low in years past.

There is a real threat that continued global economic turmoil may keep foreign investors from purchasing mortgage bonds in the future. The Treasury auctions this week will be important in determining the current appetite of foreign investors for dollar denominated securities. If this week’s auctions are poorly bid mortgage bond prices could fall pressuring mortgage interest rates higher

AGING HOUSING STOCK AND RISING ENERGY COSTS EXPECTED TO HELP FUTURE GROWTH OF HOME IMPROVEMENT PROJECTS

2008-10-30T13:26:00.002-05:00

This is an article my mortgage contact, Michael Sluis wrote for my blog.

AGING HOUSING STOCK AND RISING ENERGY COSTS EXPECTED TO HELP FUTURE GROWTH OF HOME IMPROVEMENT PROJECTS

By Michael Sluis
Wells Fargo Home Mortgage

Spending on home improvements and repairs is expected to increase 44 percent over the next seven years, according to information from the Remodeling Futures Program of the Joint Center for Housing Studies. After strong growth earlier in the decade when low financing costs and strong house values encouraged upper-end remodeling projects, spending reached an all-time high of $280 billion in 2005.
“The current slowdown in home sales means many owners are now planning to stay in their homes longer,” said John Sway, vice president and program manager of National Renovation Lending for Wells Fargo. “This is expected to change the makeup of home improvement projects. Recent buyers tend to focus on updating kitchens and bathrooms, while established owners do projects to maintain the condition and economic life of a house.”
With the majority of U.S. homes now at least 25 years old, there is demand for mortgage products that address the needs of older houses that need TLC.
“Renovation loans give owners options when it comes to fixing a house that isn't perfect," Sway said. “In the past, financing options were limited, especially if the owner didn't have
sufficient equity. These days, however, owners have choices developed specifically to help them finance a home improvement project.”
The Federal Housing Administration’s (FHA) Streamlined (k) Limited Repair Program is one of the more popular renovation loans. It is generally used to update or improve a house or condominium needing essential repairs such as new wiring, plumbing and roof repair or replacement. The program is intended for uncomplicated rehabilitation or improvements to a home for which plans, consultants, and architects are not required. Homeowners can borrow up to $35,000.
Other renovation loan programs offer higher loan limits, allowing owners to obtain more financing toward the refinancing and improvement of property. In addition to essential repairs, these loan programs sometimes can allow financing for luxury items such as swimming pools, hot tubs and sun rooms.
“These mortgage products are great tools for homeowners and important for community revitalization,” Sway said. “Homeowners and their neighborhoods benefit from the improvements these loan programs make. Investing in a home contributes to the financial well-being of the owners, and it certainly contributes to the financial well-being of a community because the owners are preventing these older homes from deteriorating.”
Rising energy costs have also put energy efficiency improvements at the top of the list for many homeowners. “The end result of an energy-efficient house is that is also provides the highest level of comfort available. When one considers the utility savings, often times is it less expensive over the long-term for a homeowner to go with an energy-efficient remodeling project," Sway said

HOME RENOVATION COSTS CAN BE ROLLED INTO MORTGAGE

2008-10-30T13:25:00.000-05:00

Home remodeling projects come in all shapes and sizes: from updating a kitchen to give it a fresh look to an extensive gut and rebuild of an entire house.
The nationwide housing boom of the past few years has extended beyond the initial purchase of a house. People are putting money into their homes to improve comfort, safety and protect their initial investment.
Michael Sluis, a branch sales manager for Wells Fargo Home Mortgage in Minnetonka, Minnesota, said there's always a need for basic home improvements because of the aging U.S. housing stock.
“And, when it comes to purchasing a home, renovation loans give buyers options when it comes to considering houses that aren't perfect,” he said. “At an average age of more than 35 years, the nation's housing stock is in need of improvements and repair, so there is demand for mortgage products that address the needs of buyers who are looking at homes that need TLC.”
The Federal Housing Administration's (FHA) Streamlined 203(k) is one of the more popular renovation loan programs. The loan is generally used to update or improve a house or condominium needing essential repairs such as new wiring, plumbing, or roof replacement.
Other renovation programs can offer higher loan limits, and the loans would allow for financing luxury items such as swimming pools and sun rooms.
“Renovation loans are great tools for homeowners and important for community revitalization,” Sluis said. “Investing in a home contributes to the financial well-being of a community because the homeowners are preventing older homes from deteriorating and falling out of the housing stock.

Aging Housing Stock and Energy Costs Expected to Help Future Growth of Home Improvement Projects

2008-10-30T13:24:00.000-05:00

I received this article from my mortgage contact. Check it out.

Wells Fargo retained its top spot as the nation's No. 1 originator of renovation financing. Based on data provided by the Department of Housing and Urban Development (HUD), Wells Fargo had 2007 endorsements and 34.81 percent market share in fiscal year 2008.
While spending on home repairs has been down in recent years, this is expected to change as renovation spending is projected to increase at a nearly 4 percent inflation-adjusted compound annual rate over the next decade according to a recent report by the Remodeling Futures Program of the Joint Center for Housing Studies.
“The current slowdown in home sales means owners are staying in their homes longer, so this will change trends for home improvement projects,” said John Sway, vice president and national program manager of National Renovation Lending for Wells Fargo. “Recent buyers focus on kitchen and bath updates; established owners take on repair projects that extend the life of their home, such as replacing a roof.”
The nation's aging housing supply and strengthening rental demand are also expected to contribute to future growth in the remodeling sector. Sway said about one-third of U.S. homes are at least 45 years old and another third are between 25 and 45 years old.
“Owners with older houses will be making improvements that can help them save money on their utility bills,” Sway said. “Energy efficiency is at the top of the list.”
A renovation loan allows consumers to borrow against the future value of the home. Other benefits of a renovation loan can include lower monthly payments, tax deductibility and simplicity in obtaining a renovation loan.
The Federal Housing Administration's 203(k) loan – a popular renovation loan program – is generally used to update or improve homes that need essential repairs, such as new wiring, plumbing, roof replacement/repair or structural repairs.
Home remodeling spending reached a peak in 2005 at $280 billion. The slumping economy and struggling housing sector have been a drag on home-improvement spending over the last few years with the industry expected to hit $126 billion in spending by the end of the year.

Federal Reserve Rate cuts don't mean lower mortgage rates all the time

2008-10-09T16:52:00.002-05:00

Yesterday, when the Chairman Ben Bernake and the Federal Reserve lowered rates by .5% in conjunction with the rest of the world, my phone was off the hook with people who thought they should re-lock their rate on their refinances and purchases. I had two people in closings who didn't want to sign documents because the Fed Rate cut meant to them that their mortgage rate also went down .5%.

This is a common mistake in thinking. When the Fed cuts rates it affects the following: variable or floating rate 2nd mortgages aka Home Equity Lines of Credit, Student Loans, and credit cards tied to the prime rate. The prime rate is now 4.5%, which if you have a 2nd mortgage aka Home Equity Line of Credit, you could be cheering this move. However, don't go calling your mortgage broker saying that you need to get the lower rate. The last years worth of Fed Rate cuts have led to higher mortgage rates in the short term and that is what exactly happenned today. The stock market fell 6.7% again today and rates are high up to 6.0% now. My clients are very happy to say the least.

What do you think the fed should do next?

Non-Warrantable condos-- What does it mean and how does it impact you?

2008-09-27T20:54:00.005-05:00

Non-warrantable condominiums is a phrase used in the mortgage industry by stating that the condominium project does not conform to financing rules set by Fannie Mae and Freddie Mac.

In other words, you won't be able to go to your neighborhood corner bank to get a loan for these units. There are very few institutions left that will originate loans for these types of units due to the risk of these projects. Most often, these condos are found tied to hotel projects like Westin, the Ivy, Starwood, The Plaza in New York, and such. They offer shared recreation facilities and all of the amenities a five star hotel would offer, but you can own one.

Many banks are are shying away from these types of projects because Fannie Mae and Freddie Mac won't buy them. The quasi-government agencies won't buy them because it may be an unstable property. Questions arise like -- "What happens if the hotel goes out of business?" Are the units still valuable with a mortgage in place? A lot of the market value is built in with the association of a five star hotel providing luxury service to owners. Where are other comparable condos to compare to in the market you want to buy?

This has been a recent pull back buy Fannie and Freddie and it is paralyzing the condominium industry nationwide. Developers love the idea of shared hotel/condo because the hotel business defrays the costs of developing an entire condo building in a sinking and saturated condo market.

If there is continued pull back by the remaining small banks or larger banks in these markets, it could be disaster for projects that are waiting to close as their buyers will be pulling out at the last minute.

Ask a me question about whether you have a project that may fit this category or where to go to find financing.

The Bail Out -- What will it do to mortgages.

2008-09-23T09:19:00.000-05:00

Over the weekend, the government announced the plan for a $700 billion bailout plan to save the banking system in this country. The politics behind it are being discussed as I type this new post, but the politics to me don't really matter. How will this impact daily loan origination, costs, and the decisions home owners and future home owners of the 21st century? This is the real question we should all be considering.

The mortgage industry has already seen a large pull back in what is offered for loan products. There have been limitations to credit score, down payment, and government and non-profit backed assistance already. What is next? Are we back to 20% down payment minimums as we were 20 years ago?

In order for the economy to continue to grow and dig itself out of this mess, further restrictions on loan making, which further inhibits the ability for home owners to buy new homes and renters to purchase their first homes, would be a mistake and should be avoided at all cost. Why? I believe home ownership is the first step in creating savings and wealth. There is a sense of pride to home ownership. In addition, owning a home is the tip of the iceberg for future spending and an increase in our savings rate as a country.

I can tell you one thing, if you have bad credit it is going to be very hard to get a loan. This mistake won't be made twice so I believe that sub-prime loans are extinct unless one has created a large base of savings for a down payment and just has bad credit. Typically though if people are missing their bills, which makes them a sub-prime candidate, they probably don't have the cash for a down payment. These loans were created because the negative power of greed is so great. Companies could make big bucks from this new group of home owners that had suddenly became available to them.

In terms of interest rates, the rates have been pushed artificially low last week because of the market reaction to the bail out plans. Rates are still at the historically low levels and all people should seek to take advantage of them through refinances or the purchase of new homes. The government will do all of the things they can to keep rates low because a sharp increase in rates would further shut the door on the housing market.

Bottom line- if you have been on the fence about a refinance, debt consolidation, or the purchase of a new home, the time is now to get it done.

The Mortgage Banker.

What to do in swirling financial mess?

2008-09-16T10:11:00.000-05:00

Count your lucky stars that you are not invovled in it. Here is the scoop. Rates this week are at an all time low, so action item number one should be to give a hard look at locking your rate. I would be much more unhappy if I missed out on a low rate because I was gambling on a historically low rate becoming more historic. Take what you can get and get out.

Merril Lynch bought by Bank of America

2008-09-14T22:01:00.004-05:00

Is Bank of America becoming a power house or what? Will this pass the Department of Justice's anti-trust test? I don't know.

The combination of the Lehman Bros filing for bankruptcy and Bank of America buying Merrill Lynch my cancel each other out, leaving the market a little confused on how to react. Be assured though that mortgage rates will be fluctuating as the day progresses while traders try to digest to what has become the biggest day on Wall St and a Sunday to boot.

If you have a loan that is floating with the market right now, lock that rate in!

LEHMAN BROS SET TO FAIL ++++TONIGHT++++

2008-09-14T18:10:00.003-05:00

Fox News reporting that employees are leaving the NYC offices of Lehman
Bros with boxes containing their personal belongings. When asked what
they were doing,employees stated they have received word from management of Lehman's imminent bankruptcy filing.

The results of this action in the financial market will add to the already
shaky capital market. Mortgage will be very volatile tomorrow morning
and this could further tighten credit policies across the lending
spectrum.

Stay tuned for more.

FLASH-- Lehman Bros sale or failure coming soon

2008-09-11T16:19:00.000-05:00

Lehman Bros sale or failure is coming soon to a newsroom near you. CNBC reporting that Lehman Bros is activily shopping their entire firm and not just divisions any more. This failure would continue the trend of big banks failing as a result of bad decisions and lost bets in the mortgage securities market. Looks like corporate greed has gotten the better of these management teams.

Still to see... Will the Fed offer terms to potential take overs like the terms we saw with Bear Stearns and JP Morgan.

Bank of America, HSBC, and Wells Fargo seem to be likely candidates to purchase Lehman Bros. Without a Fed brokered deal, will the market let the bank fail?

Impact to rates: Continued volatility equals uncertainty and makes nervous nellies out of investors. Lock in while you have the record low rates again.

Foreclosure Properties -- How to get a loan for them.

2008-09-11T13:44:00.000-05:00

Foreclosure properties seem to be where the real estate market is turning these days. Investors who want to increase their rental property pools are busy buying and rehabing these properties. First-time buyers are finding foreclosures cheaper to buy than they were two years ago as a regular sale. However, there are pitfalls that you should be aware of when thinking of buying a foreclosure property.

More often than not, the condition of these properties are pretty bad. Appliances are missing, holes in the wall, water leaks from pipes, mold, and other potential issues are out there. If you find a home that does not have the above issues, it will be sold very quickly as they are a diamond in the ruff. Also, if you are not paying cash, the appraisal of these homes will be tough because the properties will be considered un livable, un safe, which makes value hard to assertain.

If a person doesn't have the cash to pay for the entire thing and a bank won't give me a basic loan for the property because of its condition, how am I supposed to buy it? Good question and it comes accross my e-mail a lot. The loan product is called FHA 203k or conventioal Purchase and Rehab. These products allow you to finance the cost of remodeling a home in dire straits while enjoying the benefits of a normal 30yr loan. The catch is that the banks will want the work done right, so you will have to hire a contractor for everything besides paint and appliances.

This product is changing the finance landscape dramatically. Also, not all banks are allowed to have this product through FHA (Federal Housing Agency). Wells Fargo is one of them and you can talk to my guy Michael Sluis at 888-210-6036. Or you can reply to my post through the comments and I can answer the basic questions.

This product is perfect for simple to major renovations, and by default, it is become a perfect first-time buyer product through FHA. 3% down and you can remodel the house the way you like without draining your savings.

Have a good Thursday.

Arm Chair Economist from Minneapolis

2008-09-10T19:49:00.004-05:00

You don't have to be Greenspan or Bernake to predict with reasonable assumption what mortgage rates are going to do.

The basic rule of thumb is that mortgage rates improve when there is bad economic news accept for inflation news. If jobs are down, GDP is down, etc investors flee the stock market and buy in the bond market. This causes rates to go down because bonds are increasing. It is an inverse relationship.

However, if the stock market does well during the day, you can bet investors are pulling money out of bonds and back into the stock market. This means rates can go up because bonds are decreasing.

The big trump card is if you throw in a failing bank like Lehman Brothers, Countrywide or quasi government institutions like Fannie Mae and Freddie Mac. Lehman Brothers looks like they will fail. They have reported in the news today management has changed and they are spinning off big chunks of their core business to raise capital to stay afloat. This wouldn't be good news for mortgage rates because it could send shivers down the spine of investors and money will be witheld from the bond markets.

Folks it is a great time to seriously think about refinancing while the rates are in the low to mid 5s. Take a look at www.MichaelSluis.com for more answers at that too.

Be prepared when you apply

2008-09-10T11:17:00.000-05:00

The days of getting an easy mortgage are over. The process can be still be friendly and a non-event if you are prepared. Be prepared to document. Locate government ids, paperwork, employment info, and bank statements. This will all save time when you come to meet with the mortgage banker. Big banks are being overloaded with business because of the fall out of the smaller brokers and bankers. Every bit of preparation is the good.

Mortgage Rate Alert

2008-09-10T07:59:00.002-05:00

Watch out!!

OPEC has decided to cut production by 500,000 barrells per day. This move will increase the price of oil and create more inflation fears. Inflation fears, in turn, generally have negative impacts on fixed income securities like mortgage bonds. What does this mean for you? LOCK IN YOUR RATE or brave a bumpy ride.

What a week so far?

2008-09-10T07:23:00.001-05:00

Wow. What a week so far.

Lets recap. The Feds take over Fannie Mae and Freddie Mac putting a once uncertain of those two quasi government agencies on a more solid footing. What was the impact of this move? The DOW rallied close to 300 points and interest rates dropped down close to 40 years lows: 30 yr fixed in the mid 5s and 15 yr fixed in the low 5s.

What does this mean for you, the consumer? It means if you have have equity in your home, a refinance might be a serious money saving option again. If you are looking to purchase, this should get you over the hump and jump on that next house with the new low price.