Almost nothing in our lives is the same as it was just one month
ago. And every day brings new and more difficult challenges. The most important
thing, however, is that you and your families stay safe and healthy. Practice
social distancing and follow every recommendation of the CDC and the orders of
our Governors and Mayor.
Under Governor Hogan’s order, financial services firms such as RMC
are deemed essential. We are open for business and operating each day. We are
using every means at our disposal to eliminate face to face contact, such
as e-signature, video conferencing, secure document uploads, and good old
email and phone calls. Fannie and Freddie are assisting by offering more
opportunities to use “exterior only” appraisals, which eliminate the need for
the appraiser to enter your home. Closings are still a challenge, but the
closing agents we work with are using best practices such as gloves, masks,
separating parties, not trading pens and other precautions.
The bottom line is that we are here for you every day. We
sometimes work from our homes but come to the office regularly. If any of you
have a need for mortgage financing, you can rest assured that we can help.
Contact Margie for more information on our Covid-19 precautions or if you just
want to ask about rates.
We wish all of you good health, now and for the future.
Margie, Steve and Troy
Last week we reported on the financial upheaval in the mortgage
market as a result of the coronavirus pandemic. The market remains extremely
volatile, with rates changing daily, even hourly at times. But we are very
encouraged by the fact that homes are being purchased and refinance mortgages
are closing, even under these extraordinary conditions. Everyone is taking
proper precautions, and avoiding face-to-face meetings.
Almost all parts of the mortgage lending process can be done
electronically. An interior appraisal inspection, however, is not one of them.
We have heard from our clients their very valid concerns about allowing the
appraiser to tour their homes. So, I am happy to give you some good news.
Fannie and Freddie have instituted temporary appraisal requirement
flexibilities that allow many mortgages to qualify for an appraisal waiver, or
an exterior only inspection. This includes purchases, which sometimes can
qualify for a desktop appraisal, for which the appraiser need not even visit
We expect more announcements regarding temporary accommodations
during the crisis, and we will report those to you as they happen. Also, please
keep in mind that rates are changing so often that locking a loan now requires
patience and close attention. Please contact
see what is being offered.
We want all of you and your families to stay healthy and safe.
While all of us are self-quarantining and keeping adequate social distance, we thought our readers would like to know how the mortgage market has been affected by the economic upheaval caused by the coronavirus pandemic. A very respected analyst, Matthew Graham of Mortgage News Daily, said in his column on March 19, 2020, that “Today (3/19) was the most volatile day in the history of the mortgage market in many regards.” Graham bases his analysis on that day’s mortgage bond market, which pin-balled through a huge range of prices during the day, and actually changed direction massively (up to down or down to up) five separate times. In other words, your available rate went up or down massively five times during a single trading day.
Just two weeks ago we reported that mortgage rates were at 30+ year lows. And they were for a few days. Then they shot up as the markets turned chaotic. The Fed recently cut short-term rates to near zero, but more importantly for rates they also started buying mortgage bonds, some $52 billion worth on Thursday and Friday in order to inject liquidity and stability into the market. When you add the fact that the stock market was tanking, everything pointed to lower rates. Instead, mortgage rates moved significantly higher!
In the simplest of terms, the market is experiencing a flight to cash. Typically, investors react to bad economic news by moving from stocks to bonds, thus pushing rates down. Not now. Investors are moving to cash. That means there are many more sellers of mortgage bonds than there are buyers, which depresses bond prices. Lower bond prices = higher rates.
On the plus side, the mortgage market is still functioning, and transactions are proceeding (with appropriate health safeguards). With the Fed doubling down on its bond buying efforts, rates have come back down substantially as I write this on Monday. Tomorrow may be another story. Margie and Troy are still working and so RMC continues to serve our clients every day. Of course, we are not meeting clients face to face, but we have a number of resources available such as e-signature, video conferencing, secure document uploads, and good old email and phone calls.
Steven H Hofberg, Operations Manager
Refinancing the balance of your 30-year mortgage to a 15-year offers tremendous benefits, including:
Let’s look at how a 15-year refinance would benefit a typical homeowner.
Our borrower obtained a 30-year mortgage for $400,000 at a fixed rate of 4.50% two years ago, with a monthly payment (principal and interest) of $2027. After 24 months the remaining principal balance is $387,000. Continuing to pay the 30-year loan to maturity will cost $330,000 in total interest. But instead, they choose to refinance into a 15-year mortgage at 3.00%. The total interest to maturity is now only $98,000. Compared to sticking with the 30-year loan, our borrower will save more than $280,000!
Of course, switching to a 15-year mortgage will result in a higher monthly payment, but that increase goes towards principal, which builds equity much faster.
Remember, rates are subject to change, so contact Margie soon if you would like to hear more of the details. She would be happy to show you just how much you can save.
Have a great week!
Steven H Hofberg, Operations Manager
Adjustable Rate Mortgages (ARMs) are in the news these days. Not
so much about their rates and market share, but on the issue of how the annual
adjustments to the interest rate are calculated. Almost all residential ARMs
use an index called LIBOR, which is based on a survey of rates major
global banks are charging other banks for short-term loans. At adjustment time
on your Note, the lender checks LIBOR and adds the margin specified to
calculate the new rate that you will pay on the principal balance for the next
12 months. The issue in the news is that the entity that administers LIBOR has,
for a variety of reasons, announced that publication of LIBOR is not guaranteed
Many financial analysts believe LIBOR will be around longer, but
for now the search is on for a successor. Fannie and Freddie are interested
in SOFR, a measure of the cost of overnight financing between institutions
secured by US Treasury securities. There are other indexes whose sponsors are
hoping to replace LIBOR as well. The issue for those homeowners that currently
have an ARM is that when it comes time for the interest rate to adjust, the new
index may not behave in the same way as LIBOR has historically. This would be
especially noticeable in periods of economic volatility.
ARMs already have uncertainty built in relative to fixed rate
mortgages. The potential change to a new index within the next few years adds
one more uncertainty, although as with any unknown the results could be good or
bad. Incidentally, if you want to see how this change will take place, check
your ARM note under “The Index” where you will see this language: “If the Index
[LIBOR] is no longer available, the Note Holder will choose a new index that is
based upon comparable information.” That is very wide latitude for the lender,
I would say.
Perhaps it is time to evaluate whether a switch to a fixed rate
mortgage is the right choice for your circumstances. Contact Margie to discuss your ARM and she will be happy to
run some numbers and help you decide your best option.
The Federal Reserve cut short-term interest rates last week by
0.25%, to approximately 2.00%. As regular readers of our newsletter have
learned, short-term rates (in this case the federal funds rate) do not
necessarily affect longer term rates such as mortgages. This holds true of the
past week; mortgage rates, which have risen slightly in the past couple of
weeks, looked at the Fed’s move and just shrugged. Not much movement at all.
Factors having a greater effect on mortgage rates include trade
tensions, slowing global growth and, currently, some recent positive housing
data. This week’s recommendation is simple; it’s not wise to extrapolate from
the Fed to the mortgage market. The better strategy is to check with Margie to see where rates stand. She will be happy to
run the numbers for you.
Wow, lots of news over the past few days. And as we always
mention in our newsletters, much of that news does affect mortgage rates. As
you probably know, rates have gone down recently to a rather stable range in
the high 3s. But on Thursday and Friday we had several big shocks to the
market, and rates jumped up about a quarter of a percent. That’s a big jump!
What happened? Many financial analysts are pointing to two
events. First, optimism on future trade talks between the US and China, as both
countries delayed tariffs and gave indications of their interest in further
negotiations. That helps the stock market, but hurts the bond market. Second -
a really huge one - the attack on Saudi oilfields. The attack reduced their
production by half, which amounts to 5% of the world’s oil production. This one
has caused great uncertainty, to which markets always react badly. Oil prices
did spike up on Monday, but most think there is sufficient world supply at
least for now. That may change at any time.
The moral of this story is that you shouldn’t be complacent
about mortgage rates. They are historically volatile. Rates are still very good
right now, but there is lots of uncertainty in the market. So, if you are
looking to buy or refinance your existing mortgage but haven’t started the
process, give serious consideration to moving forward soon.
This month's question is one I hear often. If you have a client
facing a similar scenario as part of their separation agreement, I would be
happy to speak to you or your client. Please feel free to contact me.
Margie Hofberg, President
I am refinancing to take
my spouse off the deed and mortgage. Per our agreement, I have to give her
$60,000 for her share of the equity in the marital home. My parents have
offered to give me the $60,000 so that I don’t have to increase my loan amount
to cover it. Can I do that and, if yes, how would it need to be structured
to ensure that I can get my refinance approved?
Yes! If the
separation agreement specifies that you need to give your spouse $60,000 as
part of the refinance/equity buyout, we have to verify the source of funds for
the buyout. If the funds are coming from your parents as a gift, they
would have to sign a gift letter stating that there is no expectation of
repayment. In other words, that it is not a loan. We would also verify that
they have the money to give you, and document the transfer of the funds them to
either you or the settlement agent.
Some of you have been asking “what is an ‘inverted yield curve’
and how does it affect me personally?” The news cycle has been filled with
commentary about it lately. Economists generally agree that an inverted yield
curve can signal a coming recession, but not always. All recessions have been
preceded by an inverted yield curve, but not all inverted yield curves have led
A yield curve shows the relationship bonds with different terms
have regarding their yield. Ordinarily, you want a higher rate of return for
buying a bond (or a CD) with a longer term. Two benchmark bonds are the US
2-year bond and the US 10-year bond. The 10-year bond will almost always offer
a higher rate of return than the 2-year bond, due to the increased interest rate
risk over a much longer period. However, last week the yield on the 10-year
bond fell below that of the 2-year bond. Needless to say, people became
This is the “safe haven” reaction to uncertain times. Staying with
economics, many analysts are looking at continuing trade wars and the looming
mess of a Brexit (among other global tensions) for creating worry in the
investment community and board rooms of major corporations. Consequently, there
is a move from stocks to bonds, which drives down interest rates.
The silver lining: mortgage rates tend to track the 10-year bond
pretty closely. Right now, those rates are really good. If you have been
considering buying a home or refinancing, it’s time to take advantage of this
Remember when refinancing your
mortgage was an endless mass of documents and closing packages that were
sometimes north of 100 pages? Not so much anymore. With document imaging and
digital signatures, the mortgage process is now more streamlined than ever. RMC
is constantly increasing our use of technology and our clients are enjoying the
At a recent closing, a client told
Margie that she was so happy with the ease and lack of stress throughout the
entire process. In her situation, she had recently gone through a separation
and equity buyout, so having that part of her life in decent shape certainly
took away a great deal of stress. She said the last thing she wanted to go
through now was endless paperwork for a refinance. But there was substantial
money to be saved—about $300 per month. So she took the plunge and to her surprise
and delight, the process was smooth and not at all stressful.
If refinancing seems like a steep
climb to you, give us a chance to show you the most efficient and low-stress
process, allowing you to focus on the financial benefits that will be the
Residential Mortgage Center Inc