December, 2010 | Arizona Mortgage

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Archive for December, 2010

A Simple Explanation Of The Federal Reserve Statement (December 14, 2010 Edition)

Putting the FOMC statement in plain English Today, the Federal Open Market Committee voted 9-to-1 to leave the Fed Funds Rate unchanged within in its target range of 0.000-0.250 percent.

In its press release, the FOMC noted that since November’s meeting, the “economic recovery is continuing”, but at a pace deemed too slow to make a material impact on unemployment rates. It also said that household spending in increasing, but remains constrained by joblessness, tight credit and lower housing wealth.

In addition, the Fed used its press release to re-affirm its plan to keep the Fed Funds Rate near zero percent “for an extended period” while also opting to keep its $600 billion bond market support package in place.

And lastly, of particular interest to home buyers and mortgage rate shoppers, the FOMC statement devoted an entire paragraph to the Federal Reserve’s dual mandate of keeping inflation and employment at acceptable levels.

The Fed acknowledges making progress toward this goal, but calls it “disappointingly slow”. Currently, inflation is too low for what the Fed deems acceptable, and unemployment is too high.

Over time, the Fed expects both measurements to improve.

Mortgage market reaction to the FOMC statement has been negative thus far. Mortgage rates in Scottsdale are unchanged post-FOMC, but appear poised to worsen.

The FOMC’s next scheduled meeting is a 2-day affair, January 25-26, 2011. It’s the first scheduled meeting of 2011.

Make A Mortgage Rate Strategy Ahead Of Today’s Fed Meeting

Fed Funds Rate Dec 2007-Dec 2010 The Federal Open Market Committee holds a one-day meeting today, its 8th scheduled meeting of the year and 10th overall.

The FOMC is part of the Federal Reserve, the government group that sets U.S. monetary policy. The Fed’s primary policy-setting tool is an interest rate known as the Fed Funds Rate. The Fed Funds Rate is the interest rate at which banks borrow money from each other.

2 years ago Thursday, in an effort to jump-start the economy, the FOMC met and voted to lower the Fed Funds Rate to as close to zero percent as possible without actually going to zero percent; the benchmark rate was prescribed to a range of 0.000-0.250 percent.

The Fed Funds Rate had never been set so low before, but ever since, it’s been held to that range. It will likely be there until early-2011, too, but that doesn’t mean that mortgage rates won’t change today when the Fed adjourns today.

Because the Fed Funds Rate has been so low for so long, businesses and consumers have been able to borrow money cheaply. As a result, both capital and household spending have been on the rise lately, creating tailwinds for the economy.

The Fed is expected to acknowledge this today which, in turn, should lead mortgage rates higher. This is because, in the current recovery cycle and until markets find balance, what’s good for the economy tends to be bad for rates in Phoenix.

The Fed’s press release today will be a focal point for markets. Talk of higher-than-expected inflation or better-than-expected growth, and mortgage rates should rise. Talk of a slowdown should lead rates lower.

Either way, we can’t be certain what the Fed will say — or do — this afternoon. If you’re floating a mortgage rate, the safe move is to lock before 2:15 PM ET today.

What’s Ahead For Mortgage Rates This Week : December 13, 2010

Federal Reserve meets December 14 2010 Mortgage markets worsened last week as the U.S. economy showed additional signs of strength; and global demand for mortgage bonds slipped.

Conforming mortgage rates rose in AZ and around the country for the fifth straight week. It’s a streak that’s been marked by volatile pricing that’s rendered rate shopping difficult.

Last week, lenders published as many as 5 rate sheets per day where, by comparison, over the past 12 months, lenders have averaged closer to 2 rate sheets per day.

This week, with a bevy of data set for release and a Federal Open Market Committee meeting, expect volatility to remain high. Wall Street remains undecided on the future of the U.S. economy and there will be plenty on information on which to trade:

Tuesday : Producer Price Index, Retail Sales
Wednesday : Consumer Price Index, Housing Market Index
Thursday : Housing Starts, Initial and Continuing Jobless Claims

Despite the high impact of this week’s economic releases, though, it will be Tuesday’s FOMC meeting that sets the tone for the mortgage bond market and, consequently, for mortgage rates in Mesa.

The Fed’s last meeting in early-November provided the spark to the recent rise in mortgage rates. In the group’s post-meeting press release, it acknowledged growth while committing $600 billion to bond markets. The move triggered a massive bond sell-off that has since pushed conforming mortgage rates to a 5-month high.

The Fed adjourns at 2:15 PM ET Tuesday afternoon.

If you’re still floating a mortgage rate or have otherwise yet to lock, consider executing a rate lock agreement early in the week. Once the Federal Open Market Committee adjourns, mortgage rates could spike again. And, although rates are up since November, they remain historically low.

Fannie Mae Guidelines Change Monday. Apply Today To Lock In To “Old” Rules.

Fannie Mae changes mortgage guidelines Fannie Mae rolls out new mortgage guidelines Monday. Therefore, if you’re in the process of applying for a conforming home loan, consider giving your complete application by the close of business Friday.

All Fannie Mae applications taken on, or after, December 13, 2010, are subject to the changes.

As compared to mortgage guidelines updates of the last 3 years, Monday’s roll-out is relatively small. There is no change to the maximum debt-to-income ratio, for example; nor is there an increase in the minimum FICO score requirement.

Most mortgage applicants in Scottsdale and nationwide will be unaffected.

Others, however, will find getting approved to be more difficult.

The most major change is with respect to revolving and installment debt. This category includes credit cards, charge cards, and student loans, among others. Going forward:

Debt with fewer than 10 payments remaining must now be included in an applicant’s monthly obligations.
Debt not reporting a monthly payment must be assigned a payment equal to 5% of the outstanding credit balance.

These edits will raise applicants’ debt-to-income ratios, and may push some of them beyond the maximum allowable limits, resulting in a denial. People with relatively large car payments are especially susceptible.

Another change relates to receiving gift funds for a purchase. Unlike debt calculations, though, the “gifting” process is getting easier.

Under the new Fannie Mae guidelines, buyers of owner-occupied, 1-unit properties (i.e. single-family homes, condos, townhomes) can forgo Fannie Mae’s customary, minimum 5% downpayment contribution from personal funds. Downpayments can be comprised 100 percent of gifted and/or granted monies.

Buyers of second or investment homes, or multi-unit properties must still make a 5% downpayment from their own funds.

And, lastly, Fannie Mae is easing some of its documentation requirements. Salaried applicants from whom commissions and/or bonuses paid account for less than 25% of annual income will have fewer paystubs to produce for underwriting.

Fannie Mae’s complete guideline changes are available online at http://efanniemae.com.

Home Affordability Reaches Record-Levels… Last Quarter.

Home Affordability - Top and Bottom 5 markets 2010 Q3

Last quarter, with home prices still relatively low and mortgage rates making new, all-time lows almost weekly, the cost of home ownership was extraordinarily low in Arizona and most U.S. markets.

According to the National Association of Home Builders’ quarterly Home Opportunity Index, 72.5 percent of all new and existing homes sold between June-September 2010 were affordable to families earning the national median income. This ties the all-time high for home affordability, set in the first quarter of 2009.

The data also underscores that, when compared to historical norms, it’s a fantastic time to be a Phoenix home buyer.

Prior to 2009, the Home Opportunity Index rarely topped 65. The index has remained above 70 ever since.

All real estate is local, though, and on a city-by-city basis, home affordability varied last quarter.

For example, 96% of homes sold in Kokomo, IN are affordable for families earning the area’s median income. This handily beat the average figure and led the nation. Looking at major cities, Indianapolis led the pack.

93% of homes in Indianapolis are affordable to families earning the area’s median income. This ranks #9 nationwide.

On the opposite end of the affordability scale is the New York-White Plains, NY-Wayne, NJ region. For the 10th consecutive quarter, the New York Metro region ranks last in U.S. home affordability. Just 23% of homes are affordable to families earning the local median income, although this is 3 points higher versus Q1 2010.

The rankings for all 225 metro areas are available online.

Regardless of where your hometown ranks relative to its neighbors, home affordability remains high as compared to historical values. That said, with mortgage rates rising and home sales expected to climb this winter, it’s unlikely that the Home Opportunity Index will improve.

Buying a home may never be this inexpensive again. If you planned to buy in mid-2011, consider moving up your time frame.

Boost Your 2010 Tax Deductions By Making Your January Mortgage Payment A Little Bit Early

Tax deductions Looking for an extra 2010 tax deduction? Consider making your January mortgage payment a few days early.

It’s a simple strategy that works because of how mortgage interest works.

Unlike rent which is paid in advance at the start of a month, mortgage interest is only paid after it’s been borrowed. Your January mortgage payment, therefore, accounts for the interest that accrued in December.

And for a lot of Scottsdale homeowners, that mortgage interest is tax-deductible.

By making January’s mortgage payment in December, eligible homeowners can apply the interest paid to 2010’s tax returns instead of waiting to claim the same deduction against 2011. Don’t cut it close, though. It’s best to remit payment prior to the last week of the month, leaving your servicer ample time to receive and process your paperwork.

Most importantly, though, before prepaying on your mortgage, talk to your tax professional.

Not every homeowner is eligible for mortgage interest tax deductions, nor should every homeowner itemize their respective tax deductions. The “pay early” plan could be a wasted effort for you, ultimately, depending on your taxpayer profile.

If you don’t have an accountant that you trust, call or email me anytime; I’m happy to make a recommendation to you.

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Archive for December, 2010

A Simple Explanation Of The Federal Reserve Statement (December 14, 2010 Edition)

Related Articles:

Make A Mortgage Rate Strategy Ahead Of Today’s Fed Meeting

Related Articles:

What’s Ahead For Mortgage Rates This Week : December 13, 2010

Related Articles:

Fannie Mae Guidelines Change Monday. Apply Today To Lock In To “Old” Rules.

Related Articles:

Home Affordability Reaches Record-Levels… Last Quarter.

Related Articles:

Boost Your 2010 Tax Deductions By Making Your January Mortgage Payment A Little Bit Early

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