Houston Real Estate and Mortgage Blog

Mortgage rates in Houston and throughout the country eased this week as the Freddie Mac benchmark 30-year fixed rate mortgage fell to 4.97% from 5.05%. The 15-year fixed rate fell to 4.33% from 4.40% last week. In our region, rates were even lower, averaging 4.90% and 4.30% respectively. Despite the recent easing in rates, there is reason for longer term concern.

First, even though mortgage rates have fallen, one-, two-, and three-year Treasury rates have risen. In addition, the Federal Reserve's program to buy back mortgage securities is coming to an end very soon. The Fed purchased $10 billion in mortgages over the past week. There are now only four weeks left in the program and $34 Billion left to purchase mortgages. Unless investors step up to the table, we will inevitably see rates rise. Even Fannie Mae's economists see rates moving up to at least 5.6% by the end of the year.

The chart below shows the prices of Fannie Mae 4.5% bonds and it is plain to see how rates dropped (bond prices rose) when the Fed's purchase program was implemented in the Fall of 2008. At that time, 30-year rates were around 6%. Therfore, there is no reason to expect why rates would not rise back to the 6% range without the Fed's subsidy.

As we have said many times before, there is nothing wrong with a 5% mortgage! Couple these low rates with government tax incentives and distressed home prices and you have a unique home purchase opportunity in the Houston market.

In 2009, almost 2 million people took advantage of the $8,000 First Time Homebuyer Tax Credit, which has helped to stabilize the housing market and provide attractive incentives to potential home buyers. The timing for buyers couldn't have been better with cheap home prices and record low mortgage rates combining to drive housing affordability to it's highest level since the mid-1970's. Unfortunately, many home buyers who did not qualify as first tim buyers, did not get to partake.

Fortunately, the expanded version of the tax credit now allows many more buyers to take advantage of these generous government tax incentives. In addition to increasing the income thresholds to $125,000 for individual taxpayers and $225,000 for joint filers, existing home owners can also now qualify for the credit. Previously, only buyers who had not had an ownership interest in a home for the previous three years qualified. The new credit allows "move up" or "repeat" home buyers to claim a credit up to $6,500 as long as they have lived in their home as a primary residence for five consecutive years out of the past eight.

Robert Dietz, economist for the National Association of Home Builders, estimates that up to 70 percent of American households may qualify for the expanded homebuyer tax credit, however, the National Association of Realtors expects that only an addiitonal 900,000 first-time homebuyers and 1.5 million repeat buyers will take advantage of the expanded tax credit in 2010. While those numbers are certainly not insignificant, they barely scratch the surface of the potential of this financial incentive.

Certainly, any buyer would need to have a reason to buy a new home, and a tax credit shouldn't be one of them. However, for buyers who plan to reside in the same area for a number of years, expect to have stable income and employment, have lifestyle needs that can be met through homeownership, the financial incentives both short- and long-term are extremely attractive.

To take advantage of the credit, home buyers must enter a purchase contract by April 30th 2010 on a home with a sales price of no more than $800,000, and close on that home by July 1st, 2010. The tax credit can be requested by filing IRS Form 5405.

The home buying process all starts with getting pre-approved for a mortgage. Credit terms today are likely different than they were when you received your current mortgage, so you want to make sure you can qualify before you go spending hours online and in the car looking at new homes. Once your lender approves you, you can then enlist the assistance of a local real estate agent to provide you with a listing of homes that meet your needs.

By now, you may have heard about the proposed changes to FHA policies that affect down payment requirements, up-front mortgage insurance premiums, allowable seller contributions, and stepped-up enforcement of FHA lenders. These policies are now set to go into effect fo borrowers making formal application April 5th and later. This means that if you are a first-time homebuyer who plans to take advantage of the $8,000 tax credit or even a moveup buyrer, you should't wait until the end of April to get a house under contract because it will likely cost you more.

What you may not have heard is that FHA just announced their proposal to increase the monthly mortgage insurance premium from .55% to .85%. This means a $37.50 higher payment on a $150,000 FHA loan. This can easily push a borrwer over the required debt ratios and cause a purchase to fall apart. It also means you likely won't qualify for as much home.The reduced allowable seller contributions could mean $4,500 in extra costs at closing that a seller might normally be willing to conribute. Needless to say, this is further motivation to act soon and avoid the higher premiums.

To avoid these added expenses, be sure you go under contract by April 5th and immediately make application with your mortgage lender. You can apply online at http://www.hlstx.com/PreQualification

In previous posts we have referenced the "existing" homebuyer tax credit that was created with the expansion of the First Time Homebuyer Tax Credit late in 2009. We thought we would provide some additional details on how move up buyers can properly utilize this credit when using mortgage loans for their home purchase.

Current homeowners who have lived in the same home for five of the past eight years may be able to claim the credit upon the purchase of another home to be used as a primary residence. The amount of the tax credit is equal to 10% of the purchase price of the new home, with a cap of $6,500. The purchase contract on the new home must be dated between November 7, 2009 and April 30, 2010, and you must close by June 30th.Here are some details you may not know about the new credit:

• Purchasers are not required to sell their existing home to qualify for the credit, though they must show that the new home will be their primary residence. Declaring this new property as their homestead should do the trick.
• The maximum purchase price on homes eligible for the credit is $800,000.
• To claim the credit, buyers should complete the revised IRS Form 5405 available on the IRS web site http://irs.gov. They should also be prepared to provide a signed copy of their HUD-1 Settlement Statement, evidence of ownership of their current home for the required five-year period.
• The tax credit can be maximized as long as your Modified Adjustable Gross Income is less than $125,000 if you are single, and $225,000 if you are married filing jointly. The tax credit is phased out completely at $145,000 and $245,000 respectively.
• If you sell the new property within 36 months of purchase, convert it to rental property, or lose the house to foreclosure, you will have to repay the tax credit received.

With low mortgage rates still hanging around, just 14 weeks left to sign a contract, and five months to close on the home, get your sneakers on and start searching!

Looks like CNN shares our views on the mortgage markets. On January 7th, they published an article that shared a mortgage rate outlook that was remarkably similar to the one we shared on December 31st.  

http://money.cnn.com/2010/01/07/real_estate/last_chance_refinance/index.htm

While we would love to take credit for our "unique" perspective, the truth is that many economists and mortgage professionals see the same troubles on the horizon that we do. Rates will rise due to a shortage of demand for mortgage backed securities and credit qualifying will continue to get more difficult, so refinance your mortgage now or get pre-qualified quickly before you become a victim of the invisible rising mortgage rate monster!

According to the FBI, there will be 60,000 reports related to home mortgage fraud filed this year. Most fraud cases are related to foreclosure prevention and mortgage modification scams. Here are a few tips to protect yourself or a loved one from becoming a victim:

1. Start with Your Lender - Before seeking assistance from an outside source, try reaching out to your current lender. Tell them about the problems you are having and ask them if they have a solution. Lenders are now more willing to help distressed homeowners than they were even a few months ago. Remember, however, that your lender represents their own interests, so there are times a third party can negotiate a more beneficial solution. 
2. Avoid Large Upfront Fees - If your lender appears indifferent, or offers a solution that does not benefit you. There are other options. No upfront fee modifications are available through a number of mortgage providers, Home Loan Specialists included. You should avoid any high upfront fees as this is a warning sign of a scam.
3. Don't Make Mortgage Payment to Anyone Except Your Lender - Most mortgage scams involve a third party collecting your payments with the promise to pay on your behalf, often with you unwillingly signing your house over to them. There's a good chance your payments will never make it to your lender.
4. Do Your Homework - When dealing with any financial provider, you should do research. You can check with the Better Business Bureau and the Texas Dept. of Savings and Mortgage Lending to check the service and regulatory track record of any lending entity in the state. If you can't find them, that should represent a warning sign.

Scam artists prey on good people when they are most vulnerable, so make sure you're not their next victim.

The long-awaited rate increases appear to have finally arrived as mortgage rates hit five month highs early today before retreating slightly. As we have been commenting for months, we believe this is the start of a gradual rate increase that extends well into 2010. We are currently quoting a rate of 5% on a 30-year fixed rate mortgage to a well-qualified borrower.

Here's the good news. The U.S. Treasury announced last week that it would provide an unlimited amount of assistance for the next three years to Fannie Mae and Freddie Mac. These are the embattled quasi-government mortgage agencies who own the majority of mortgage loans in the U.S. today and have been taking record losses. This is good news because the Federal Reserve (our central bank) has been artificially keeping rates down by buying mortgage backed securities (pools of mortgages made by lenders) since there have not been enough buyers in the market at current rates. Think of it this way. Too much supply and not enough demand for these mortgage securities means the prices fall, and rates go up. With Fannie Mae and Freddie Mac getting a longer leash from the Treasury, they might be able to step in and absorb some of the supply that will be abandoned when the Fed stops their buying at the end of the first quarter of 2010.

If the recent news of lower than expected jobless claims continues, we believe we will see higher rates next year, though we may see a stabilization in the 5.25% to 5.5% range if the government plans go as expected.

Stay tuned!