By Dustin R. Burke, Adonai Financial
As recently as yesterday the Federal Reserve lowered the Fed Funds Rate another 75 basis points (or .75%) and the misconception from consumers is that mortgage rates will soon go down too. Unfortunately, it's not really that simple because the Fed does not raise or lower interest rates offered to individuals.
The Fed Funds Rate is the overnight target rate for the costs of bank to bank lending. And the rate is just that: a target rate that will wax and wane depending on demand.
Comments from HSN state: Mortgage borrowers need to be conscious of the fact that fixed mortgage interest rates often rise after the Fed has trimmed short-term interest rates. Why? If one of the tonics for a weak economy is lower short-term interest rates, and the Fed obliges, a growing economy becomes that much more likely to occur. A growing economy -- especially at a time of firm or rising inflation pressure -- will tend to press long-term interest rates upward.
So, what does that mean? It means long term rates will probably be on the rise. In addition to inflation working to keep long term mortgage rates higher, perhaps more important is that mortgages remain out of favor to investors. In order to persuade investors to buy mortgage back securities (with affect long term mortgages) higher yields, resulting in higher rates, are required.
Short term rates are likely to move lower depending on the index used to determine the rate. Lower overnight rates have served to move short term mortgage rates lower. Most notably, the LIBOR has benefited for the fresh cash injected into the markets. Treasury values also remain at multi year lows.
The Prime Rate will most likely move lower as a result of the most recent Fed action, however the banks may not pass the savings to the consumers right away. A report by CNN stated that many banks are using the money (and savings) from the Fed Funds Rate to purchase Treasuries, which have a higher yield. The banks are doing this to improve the appearance of the balance sheets after being hit hard by the mortgage crisis. So, the savings on the prime rate may not be felt right away.
As you can imagine there is way too much information to include here, but its easy to get more information. If you would like more information on mortgage rates, or how the Fed Funds Rate affect you please let me know. You can reach me at 863-680-2700 or by sending me an email to dustin.burke@adonaifinancial.com.
"Adonai Financial, your friends in the mortgage business!"
_________________________________________________________________
Copyright © 2008 Dustin R Burke | All Rights Reserved
Portions Copyright © 2008 Adonai Financial Corporation | All Rights Reserved
Adonai Financial Corporation
http://www.adonaifinancial.com/
---The content of this blog is my opinion---
By Dustin R Burke, Adonai Financial
The Real Estate Settlement Procedures Act, (also known as "RESPA"), was an Act passed by Congress in 1974.
RESPA was created because various companies associated with the buying and selling of real estate, such as lenders, real estate firms, appraisers, and title insurance companies, etc., were often engaging in providing undisclosed kickbacks to each other.
It is believed that these kickbacks inflated the costs of real estate transactions and obscured price competition by promoting bait and switch tactics.
For example, a lender advertising a home loan might have advertised the loan with a 5% interest rate, but then when one applies for the loan one is told that one must use the lender's affiliated title insurance company and pay $5,000 for the service (whereas the normal rate is $1,000). The title company would then have paid $4,000 to the lender. This was made illegal.
Section 8 of the Act forbids kickbacks between lenders and third-party settlement service agents in the real estate settlement process. The Act, among other things, requires lenders to provide a good faith estimate for all the approximate costs of a particular loan and finally a HUD-1 (for purchase real estate loans) or a HUD-1A (for refinances of real estate loans) at the closing of the real estate loan. The final HUD-1 or HUD-1A allows the borrower to know specifically the costs of the loan and to whom the fees are being allotted.
The acts full text can be viewed here:
http://www.law.cornell.edu/uscode/html/uscode12/usc_sup_01_12_10_27.html.
The Department of Housing and Urban Development has a RESPA FAQ site that can be viewed here:
http://www.hud.gov/offices/hsg/sfh/res/resconsu.cfm
If you have any general questions on what acts RESPA requires of mortgage business please feel free to send me an email to dustin.burke@adonaifinancial.com.
We are very excited and please to announce we are now able to offer STATED INCOME loans to Foreign National clients with a down payment of 30% in central Florida. This includes loans secured by condotels. This is an increase in loan to value of 10% over our previous product offering. Stated income loans to foreign nationals were previously restricted to 60% LTV in central Florida on most loan amounts.
Full documentation loans are still available at 75%. Condotel loans are not available on this program.
If you have any questions about the new loan guidelines please contact our office at 863-680-2700 or send me an email to dustin.burke@adonaifinancial.com.
***Disclaimer: this is not an offer or commitment to lend by Adonai Financial Corporation - the borrower must meet all underwriting conditions required prior to the issuance of a loan commitment.
I recently read a post by Christopher Hill titled “Do I pay a point or not?” I work with clients from all over the world and the American’s have been taught NOT to pay points, while the remainder of the clients I work with WANT to pay points. I posted a blog on “ARM or not to ARM?” where I also stated that Americans wanted a 30 year fixed and not an ARM while clients from abroad wanted the opposite.
Points, just like ARM loans, must be used correctly. Here are SIX real life examples - three on fixed rate mortgages / three on ARM mortgages.
***When a borrower chooses NOT to pay points then we will apply what he/she would have paid for the point(s) and place it toward the loan amount.
Fixed Rate Mortgage Examples: this real life example is based on a 30 year fixed.
Option 1 – In this option the borrower is paying 2 pts and getting the lowest rate.
Interest paid after:
Total Cost w/ points
Costs vs. Option 2
Costs vs. Option 3
Loan Amount:
$300,000
12 mo: $17,899
$23,899
+2094
+4150
Rate:
6%
24 mo: $35,572
$41,572
+1154
+2292
Points:
2 ($6000)
36 mo: $53,003
$59,003
+211
+425
Payment
$1,798
48 mo: $70,178
$76,178
-735
-1448
60 mo: $87,082
$93,082
-1683
-3325
Option 2 – In this option the borrower is paying 1 pt and taking a slightly higher rate.
Costs vs. Option 1
$297,000
12 mo: $18,835
$21,805
-2094
+2056
6.375%
24 mo: $37,448
$40,418
-1154
+1138
1 ($2970)
36 mo: $55,822
$58,792
-211
+214
$1,852
48 mo: $73,943
$76,913
+735
-713
60 mo: $91,795
$94,765
+1683
-1614
Option 3 – In this option the borrower is not paying points and will take the highest rate of the three Fixed Rate options.
$294,000
12 mo: $19,749
$19,749
-4150
-2056
6.750%
24 mo: $39,280
$39,280
-1138
0
36 mo: $58,578
$58,578
-425
-214
$1,906
48 mo: $77,626
$77,626
+1448
+713
60 mo: $96,407
$96,407
+3325
+1614
Fixed Rate Assessment: It appears that Option 1 is best if the borrower is going to keeping the loan for 3+ years. Option 3 appears best if the borrower is going to keep the loan for less than 3 years. And Option 2 will save the borrower on upfront expenses vs. Option 1 and give the borrower a lower monthly payment than Option 3.
From my vantage point, for an investment longer than 3 years Option 1 appears to be the best of the Fixed Rate Mortgage Options. For a short term investment Options 3 appears to be the best choice.
Adjustable Rate Mortgage Examples: this real life example is based on a 5/1 ARM.
Option 4 – In this option the borrower is paying 2 pts and getting the lowest rate.
Costs vs. Option 5
Costs vs. Option 6
12 mo: $13,775
$18,775
+313
-1601
4.625%
24 mo: $27,327
$32,327
+1403
+1798
36 mo: $40,654
$46,654
+2106
+4185
$1,542
48 mo: $53,727
$59,727
+3813
+7576
60 mo: $66,533
$72,533
+5523
+10968
Option 5 – In this option the borrower is paying 1 pt and taking a slightly higher rate.
Costs vs. Option 4
12 mo: $15,492
$18,462
-313
-1288
5.25%
24 mo: $30,760
$33,730
-1403
+395
36 mo: $45,790
$48,760
-2106
+2079
$1,640
48 mo: $60,570
$63,540
-3813
+3763
60 mo: $75,086
$78,056
-5523
+5445
Option 6 – In this option the borrower is not paying points and will take the highest rate of the three ARM options.
12 mo: $17,174
$17,174
+1601
+1288
5.875
24 mo: $34,125
$34,125
-1798
-395
36 mo: $50,839
$50,839
-4185
-2079
$1,739
48 mo: $67,303
$67,303
-7576
-3763
60 mo: $83,501
$83,501
-10968
-5445
ARM Assessment: It appears that Option 4 is best if the borrower is going to keeping the loan for 1+ year(s). Option 6 appears best if you are going to keep the loan for less than 1 year. And Option 4 has not real substantive advantage over Option 4 or 6.
From my vantage point Option 4 appears to be the best of the ARM Options. For a very short term investment Options 6 appears to be the best choice.
Best overall: Given that most mortgage loans are paid off every 3 – 5 years either by refinances or the sale of the property Option 1 and Option 4 seems to be the best. Both options also pay the most points.
And, after further evaluation Option 4 offers savings over Option 1 of $12,349 after 36 months, $16,451 after 48 months, and $20,549 after 60 months. So, if a borrower can risk the rate adjustment I would typically recommend Option 6 – an ARM with points.
What are you thoughts on points? Do you agree or disagree? Let me know by sending me an email to dustin.burke@adonaifinancial.com.
Foreign Nationals are individuals from other countries who purchase or refinance property in the United States. The property can be a commercial property or a residential property. Domestically the foreign national market has grown due to the weakened US dollar. The cheaper dollar makes US property very attractive to individuals from abroad.
Can a foreign national still get a dollar mortgage for a property the desire to purchase or refinance in the US? Yes, and it is easier than one may think.
Residential mortgages for foreign nationals are available on terms similar to the terms available to those with legal status in the US. Both fixed rate mortgages and adjustable rate (variable rate) mortgages are offered to citizens abroad. Interest rates are competitive starting as low as the high 5’s on some programs.
The documentation required on residential mortgages will very from bank to bank and bank program to bank program. The larger the down payment the less documentation that may be required. The minimum down payment required is typically 20 – 25% and requires proof of employment, income, assets, etc.
If an individual prefers they may choose a program that does not require documentation of employment, income, assets or even a credit report. These loans are called state, limited, reduced, or no documentation loans. These loans facilities typically require a down payment of 30% or more (rarely more than 40%). Down payment and documentation requirements can even depend on the type of property (house, condo, etc.) and even the specific neighborhood. An area that is considered a “soft market” may require a higher down payment.
As you can imagine there is a lot more information available than can be placed here. If you would like to get more information or have any specific questions on loans for foreign nationals, or any residential mortgage loan, please feel free to contact me -- I’d be glad to answer any questions you have.
Contact our office at 863-680-2700 or send me an email to dustin.burke@adonaifinancial.com.
Since the real estate boom went bust a new term has reared its head into the real estate professional’s vernacular. It’s the term soft market. Soft markets are often the result of having too many sellers and not enough buyers in real estate market which often drives home prices lower. When prices drop from one calendar quarter over another the market is defined by banks as a depreciating market or a soft market.
When a specific MSA or even ZIP code is labeled with the stigma of being soft banks and mortgage typically implement lending policies that are more restrictive such as requiring a higher down payment on a house, etc.
From my observation soft market policies typically impact the less affluent first. A potential buyer in an economically distressed area typically has less liquidity proportional to their income than a potential buyer purchasing a home in a more affluent area. Therefore the buyers with lesser means are often pushed out of the market whereas a buyer with greater means isn’t so drastically affected by the soft market policies. The end result is the markets with less means are often hurt more.
We already know that soft markets are a direct result of too many sellers and not enough buyers. When banks and mortgage lenders implement soft market policies that restrict the number of potential buyers it further accelerates the problem with declining values.
These soft market policies act as a double edged sword. They are put in place to curb the banks and mortgage lenders exposures to potential risks but they also hasten the problem of declining values. So, what to do? Well, we’ve all heard of these huge write downs that major banks have taken as losses on mortgages. Since the banks have already written down the “bad debt” and I think they should take action that would work to stabilize the market rather than destabilize it.
Mortgage companies and banks made billions during the boom and have suffered severe losses because of the bust. I’m not sure exactly what to do about the declining values in certain areas, but don’t think that restricting liquidity further is the answer. If anything, easier money would start to curb the problem.
What do you think should be done to help curb the problem in declining markets? Do you think soft market policies are the answer? Feel free to let me know by sending me an email to dustin.burke@adonaifinancial.com.
ARM or not to ARM? I work with clients from all over the world, from New York to London to Tampa to Dubai. And, there are basically two contrasting views on ARM loans: the “middle class” American view and then everybody else.
It’s my observation that overwhelming middle class American clients prefer, if not demand, a fixed rate mortgage for the entire term of their loan. Contrast this with international clients, who prefer, if not demand, a variable rate mortgage (as they call it), or adjustable rate mortgage (ARM, as we call it).
Why is there a difference? Douglas Duncan, chief economist at the Mortgage Bankers Association of America stated that the average mortgage life is three to five years, but 83% of mortgages are taken out for 15 years or more. Adjustable-rate mortgages have lower start rates than fixed rate loans, but most American borrowers remain skeptical. Why? I believe it is overwhelmingly because the loan facility options have not been properly explained to them.
When is an ARM right for me? If this is your first home with expectations of building additions or future upgrades an ARM may make more economic sense. If you’re an investor who only plans to hold a property for a couple years, then consider an ARM.
You also need to be willing to stomach the risk. The risk protection isn’t free on fixed rate loans, but you might be better off without, unless you absolutely cannot handle an increase in future payments.
An ARM loan worked for me. I’m in mortgage business and I don’t have a fixed rate loan. Why? Because, I know the statistics that I will either sell my home or refinance within 5 years. Currently, I am two years into a five year fixed and I am very glad I did. I saved over $100/mo in payment verses a fixed rate loan and as expected my wife and I will be ready to upgrade in a year or so.
The ARM worked for me, and used properly it may be a better option for you.
What do you think about adjustable rate mortgages? Send me an email at dustin.burke@adonaifinancial.com.
© 2008 Dustin R Burke & Adonai Financial Corporation
The buzz is all about the new FNMA loan limits. Yes, the new limits will be $729,750, but is not a carte blanche solution for all markets – not everyone will benefit. To find out what the changes mean to you check out FNMA New Loan Limits – What does it mean.
SunTrust Bank put out a statement today detailing who will benefit from the recent announcement.
Who will see an increase in limits?
The new FNMA loan limits are restricted to 125% of the area’s median home prices. SunTrust estimates that only 20 of the larger MSA counties will see an increase in loan limits and only six will see the limits reach the maximum of $729,750 -- of those six counties five are in California and one in Hawaii.
If is also estimated that 15% of all non-conforming loan will be affected.
What do you think about the new conforming loan guidelines? Do you think it will help? Send me an email to dustin.burke@adonaifinancial.com.
The Associated Press announced that federal regulators will allow Fannie Mae and Freddie Mac to raise loan limits on conforming loans to $729,750. Is this something we should be excited about? It sounds great, but there are several things we don’t know yet.
SunTrust Bank put out a statement today about what we know and who will see the increase:
What we know today (expect to see changes)
• The bill sets the FHA and conforming (FNMA/FHLMC) loan limits to the lesser of $729,750 or 125% of an area’s median home sales price. If 125% of an area’s median home sales price is below the current conforming loan limit of $417,000 the $417,000 still applies. You may not feel the benefits, but you will not be any worse off than you are today.
• The FHA and conforming limit changes are meant to be temporary and are set to expire on Dec 31, 2008 (unless extended – which is doubtful).
• The new limits will apply to 30 year and 15 year fixed rate, fully amortizing, and owner occupied.
• ARMs are being considered, but if allowed, the increase will likely apply to one ARM type (forexample, 5/1s).
• FNMA will have other credit overlays including LTV limitations (probably 90% or less).
• The limits will be effective as soon as the bill is signed, FNMA determines pricing.
This is the first blog on Lakeland and is being put out there as an “icebreaker”.
Lakeland is a city in Polk County, Florida with an estimated population of 89,108 (according to the 2006 Census Bureau). Lakeland is the spring home to the Detroit, Tigers, headquarters for Publix Supermarkets, and the first Red Lobster Restaurant.
Lakeland has one local newspaper, the Ledger (owed by the New York Times), and five local radio stations.
The median family income is $40,468 with $19,760 per capita. Lakeland was recently rated in CNN Moneyline for one of the best real estate markets in the US. The expected population at 2020 is 115,000.
Please share information you have on local business, real estate, events or anything else relative to the City of Lakeland. Or, send me an email to dustin.burke@adonaifinancial.com.
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