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550 South Dixie Highway
Coral Gables, FL 33146
If you have been on the fence as to whether this is the time to make that move you have been thinking about or not, let me tell you interest rates are lower than ever! I am continually hearing about outrageous mortgage rates that people are able to secure. Currently, the rates quoted are 3.95% for a 30-year fixed and 3.06% for a 15-year fixed, and a jumbo 30-year fixed is 4.24%. Read the rest of this entry »
I know I’ve ranted in the past about low appraisals and the difficulty of getting loans, and I’m back at it. With interest rates as low as they are and all the upside down loans banks are holding, banks are risk adverse. As such, they have a lack of incentive to lend, making it very difficult to get a mortgage. Furthermore, it seems things may get worse before they get better! An article was published in the Herald in April (full article here) about how legislature is trying to pass new guidelines on mortgages – for example, only giving the best interest rates to people with perfect credit and low debt to income ratios. If this passes it won’t be until 2012 so if you have any credit issues, now is the time to secure a loan. For the near future, it seems our struggles with banks will continue!
This article ran in the Miami Herald on April 10, 2011. I thought it was worth sharing with you on this blog as it will affect the real estate industry if these new mortgage requirements are passed!
Posted on Sun, Apr. 10, 2011
QRM may spell mortgage trouble
By Kenneth Harney
You may have seen reports that the federal government is proposing new mortgage finance rules under which only home purchasers who can afford a minimum 20 percent down payment on a conventional loan would get a shot at the best available interest rates and terms.That is correct, and it’s deeply sobering news for large numbers of first-time and moderate-income buyers who can’t come up with that much cash or afford to pay higher rates.
But some of the other requirements that federal agencies and the Obama administration are proposing in the same plan have gotten much less attention, yet could prove just as troublesome for consumers:
• Strict mandatory debt-to-income limits. Under the proposal, to get the best mortgage rates, you’d need to spend no more than 28 percent of your gross monthly income on housing-related expenses, and you couldn’t have total monthly household debt that exceeds 36 percent of your income.
There would be no flexibility to go beyond these ceilings, unlike in today’s marketplace where Fannie Mae and Freddie Mac consider debt-to-income ratios along with other factors through their electronic underwriting systems. Freddie Mac, for example, has an overall debt-ratio limit of 45 percent of an applicant’s stable monthly income.
• To refinance your existing mortgage and replace it with one carrying the best available interest rate, you’d need no less than a 25 percent equity stake in your house to qualify. If you sought to take any additional cash out through a refi, you’d need 30 percent equity. Today’s typical requirements for a conventional refi are nowhere near as strict.
• Pristine credit standards. For example, if you were 60 days late on any credit account during the previous 24 months, you’d be ineligible for a mortgage at the best available terms.
These are all core features of what may be the most sweeping and controversial set of changes in decades for the housing and mortgage markets. The so-called “qualified residential mortgage” (QRM) proposals were released at the end of March by banking, securities and housing regulators, along with the Department of Housing and Urban Development. The agencies were required by the 2010 financial reform legislation to come up with new standards for low-risk conventional mortgages.
Congress did not specify precisely what a “safe” mortgage should look like, but directed the agencies to consider such factors as full documentation of borrower income and assets plus avoidance of toxic features such as negative amortization and balloon payments. Congress was silent on the subject of minimum down payments.
Under the law, loans that do not meet the strict QRM tests will be pushed into a less-favored, higher cost category: Banks and Wall Street securitizers will need to set aside 5 percent of loan balances into reserves to handle possible losses from defaults. This extra capital cost inevitably will be passed on to consumers.
Mortgage industry estimates of the interest rate differential between ultra-safe, QRM-qualifying loans and all others range from three-quarters of 1 percent to three percentage points. In today’s market, this would mean that mortgages that meet the federal agencies’ stringent new standards might go for 5 percent. But all others — the vast majority of today’s conventional loans — could cost anywhere from just under 6 percent to 7 percent and higher.
You can only muster a 10 percent down payment? Tough. You can’t quite fit into the tight confines of the QRM’s debt-to-income ratio rule? Pay up.
Where and when will this all start hitting the marketplace? It won’t change anything much for a while. The proposals are out for public comment through June 10 and won’t likely be put into effect until mid-2012. The agencies’ proposal, though not the legislation, exempts mortgages sold to Fannie Mae and Freddie Mac from the rule as long as both remain under federal conservatorship — a date uncertain. FHA and VA mortgages will not be subject to QRM either.
Meanwhile, builders, consumer groups, banks, realty agents and others are readying campaigns to convince the regulators and the Obama administration to back off some of their harshest provisions. Michael Calhoun, president of the Center for Responsible Lending, argues that if adopted in its current form, the proposal will make it much tougher for modest-income and minority consumers to ever afford a first home.
Jerry Howard, CEO of the National Association of Home Builders, says the agencies and the administration have strayed far beyond Congress’ intent, and their proposals threaten to wreck any recovery in housing and force millions of Americans to rent rather than to own.
“I think we’re in for a hell of a fight,” he says
Kenneth Harney is executive director of the National Real Estate Development Center.
I read an article recently in BusinessWeek by Marc Roth titled “If You Don’t Buy A House Now, You’re Stupid or Broke”. He raises a very good point about why now is a great time to buy a house, and I thought I’d share some of his key points with you. For those of you who would like to read the full story, please email me (firstname.lastname@example.org) and I will send you a copy.
Interest rates are at an all time low. As of today, the average 30-year fixed-rate loan with no points or fees is around 5%. This is the lowest interest rate we have seen in almost 40 years! These rates have been all over the charts in the past several years, soaring as high as 18% in 1981, and just in the past few years, they have fluctuated anywhere from 5% to 7%.
But history has proven that rates are changing all the time, and based on where they are right now, we are much more likely to move farther upward than downward. And historically, once rates get high, it takes a long time to get them back down to where they were.
Consider this. Many people are holding off on buying homes today because they think prices are still coming down. While that might be true, you aren’t necessarily helping yourself because interest rates will be going up. And here’s the truth: if house prices drop 10% more but interest rates rise just 1%, your monthly mortgage payments stay the same! And we know that interest rates are going to go up. But we don’t know that prices still have 10% more to come down.
So the message is this – there is no better time than RIGHT NOW to buy a home. If you are even contemplating becoming a home-owner or buying a bigger home, now is the time to do it, while interest rates are LOW. We may never see these interest rates again!
There is no denying – I am a realist. I’ll be the first to admit that we are in a terrible market right now. It’s likely that prices will continue to decline throughout this year. But here is the reality. We won’t know when the bottom has hit until we’ve already started to come out of it. So in actuality, there was never a better time than right now to buy a house, if you are planning to buy and live in it for at least two years. For the next two years, you can live in a new house, take advantage of the tax breaks that we receive as homeowners, receive an incredible interest rate on your mortgage (they are as low as 4.75%!) and be poised to take the rise in values that we will undoubtedly begin to see in the next few years. There has never been a better time to buy!
Also, keep this in mind. If prices go down by 10% but interest rates rise by 1%, the monthly payment stays the same. So any advantage you might receive by the loss in purchase price was just negated by the rise in interest rates.