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
We are not exaggerating one bit! Margie has been in the mortgage business for over 35 years, and she has never seen rates as low as they are today. Various economic factors have pushed the yield on the 10-year Treasury bill to about 1.00%, the lowest in many years. Since mortgage rates track the movement of the 10-year bill fairly closely, the result is nothing less than an unprecedented opportunity for homeowners to refinance their mortgage and potentially save hundreds of dollars each month.
Or, consider the option of refinancing to a 15-year mortgage, and reduce the total amount of interest paid and the number of years left on your mortgage without substantially increasing your monthly payment.
Whatever your situation, now is the time to contact Margie and have her review the numbers with you. She will be happy to show you how you can benefit from some of the lowest rates in memory.Steven H Hofberg, Operations Manager
Sometimes news creates an opportunity for us to explain to our readers various parts of the mortgage process. That happened this week when business media highlighted the fact that a significant rule may expire this year. The rule involves one of the most important metrics for evaluating a mortgage application, the Debt-to-Income ratio (DTI). Your DTI is calculated by taking your monthly housing expenses (including insurance, taxes, and HOA/condo fee) and adding to it your other fixed monthly expenses such as auto loans and the minimum payment on any credit card debt. Divide that total by your monthly income. That is your DTI. Besides your credit score, it is the most important number in qualifying you for a mortgage.
For example, your housing expense is $2200 per month. Your car loan is $350 per month. Perhaps you also have a small credit card balance which has a minimum monthly payment of $20. Your monthly gross income is $7000. Therefore, your DTI is approximately 38%. That is a number that will get you easily approved for a mortgage, all other things being equal.
The rule that may be allowed to expire is one that allows your DTI to exceed 43%. That max DTI was established in the wake of the 2009 financial crisis, but Congress and our regulators made a rule that allowed the DTI limit to exceed 43%, and in fact up to 50%, if your loan application is approved under rules established by Fannie Mae and Freddie Mac. These exceptions make sense because Fannie and Freddie approve mortgage applications based on a totality of factors, as opposed to just one single factor. However, if not extended, the maximum DTI for what are considered “Qualified Mortgages” will be 43%, regardless of any compensating factors.
We have always found that having extra flexibility regarding DTI has helped many of our clients, particularly when there is income that cannot be counted for qualifying purposes such as irregular bonuses or room rents. We will keep an eye on whether this flexibility will continue, and keep you posted.
Mortgage rates are at their lowest level in more than three years. The average rate on a 30-year fixed rate mortgage dropped to about 3.50%, according to figures released last week by Freddie Mac. Not surprisingly, as a result of such low rates we are seeing a very early start to the Spring home buying season. Sellers want to take advantage of the increased buying power of potential buyers that comes with lower rates.
The increased buying power is a direct result of lower interest rates. In just the last 12 months, rates on a 30-year fixed rate loan have dropped a full percentage point. That translates to a mortgage $70,000 larger with the same monthly payment. For potential homebuyers now looking for a home, that additional buying power will come in very handy in a very competitive market. Last year’s purchaser could today make an offer almost $90,000 higher, assuming 20% down. It’s nice to have that in your back pocket when home shopping.
If you are looking for a home, or planning to look, do yourself a favor and contact Margie for more information. She will be happy discuss your personal situation and run some numbers for you. Knowledge is power.
Most homeowners shopping for a mortgage loan are aware of just how important their credit score is in determining the rate and terms that they will be offered. Practically all lenders use a “tri-merged” credit report, which is one that combines the data and the scores from the three major credit bureaus: Equifax, Experian, and TransUnion. The middle score is used to underwrite the mortgage.
Fair Isaac, the company that created the FICO score, announced that it will soon implement changes to the FICO model. According to a recent article in the Wall Street Journal, those changes are expected to boost those with excellent scores and hurt those with lesser scores, thus widening the gap between consumers who are considered good credit risks and those that are not.
Among the changes are harsher treatment of late payments and rising debt levels and penalizing consumers who obtain personal unsecured loans, such as those offered by many credit card issuers. It is believed that millions of consumers could see their scores rise or fall as a result of the changes.
As to what this means for each individual looking for a mortgage, best practices for credit use have not changed much. On-time payments are the single most important factor in your score. However, these changes to the FICO model will increase the importance of other factors such as the amount of credit outstanding compared with your total available credit and, in the case of personal loans, the type and purpose of the credit obtained. Apparently there are good loans and not so good loans.
As always, the simplest advice is the best. Use your credit wisely and your score will help rather than hurt you.
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
A recent Wall Street Journal article was a
reminder to us that not everyone is aware that you can get a home mortgage at
virtually any age, even one that amortizes on your 120th (or later) birthday.
Entitled “You’re Never Too Old to Apply for a Mortgage,” the Journal article
makes two important points. One, the Equal Credit Opportunity Act forbids age
discrimination in mortgage lending, and two, there are mortgage products now
available which are tailored to those at or near retirement age. This means
that if you qualify for a mortgage, you can get one even if you are in your 80s
or older. In other words, your mortgage can be designed to outlive you.
Qualifying for the mortgage can be done the traditional way, with
income from employment or a business, Social Security, monthly pension
benefits, or regular distributions from an IRA or 401k. If income from those
sources add up to an amount sufficient to meet the lender’s criteria, then it
But what about those that don’t have fixed regular income, and
instead take distributions from retirement investments as needed for expenses,
or those whose Social Security and other monthly income is insufficient to
qualify? You now have more options, as lenders have recently created mortgages
that rely on your retirement assets, even if you are not taking regular
distributions. These programs go by various names; asset depletion, asset
annuitization, etc., but their main feature is that the lender will consider
“imputed” income for qualifying purposes. Imputed simply means that the borrower
need not take actual distributions, but instead the lender calculates what the
borrower could reasonably withdraw on a monthly basis.
Both Fannie Mae and Freddie Mac allow lenders to make such loans
to borrowers age 59.5 and older, but they use different formulas. With Fannie,
the total value of retirement assets is first reduced by 30% (to allow for down
markets), then the resulting amount is divided by 360 to get the monthly
imputed income. For example, if your retirement investments are valued at $1,000,000,
that would be 1,000,000 x 70% = 700,000 / 360 = $1944 in imputed monthly
income. Freddie uses 240 months instead of 360, so in this example the imputed
income would be $2917. Freddie also allows the use of non-retirement investment
portfolios, for borrowers ages 62 and older.
Asset based mortgage loans can be a big help for those planning
their finances ahead of retirement – it is one more tool for your financial
toolbox. If you would like additional information on these programs, or if you
wish to discuss how they might fit into your particular financial situation,
please contact Margie. She would be happy to discuss the details with
Today I had a 30-minute informational call with a woman in the
early stages of a marital separation. We went over the basics, equity
buyouts, mortgage payments, and the qualifying process. At the end of the
call she told me that she felt so much better knowing not only what her future
mortgage payments could look like, but also that she could afford to keep the
house if that is what they decide. Then she asked me how much she owed me for
the call. Of course the answer was nothing at all.
As a mortgage originator, I am not permitted to collect an hourly
fee. I only get paid if and when someone does their mortgage with
me. A simple fact, but the conversation reminded me that not everyone
knows that! So, I am reminding you today that I am here to help your
clients with mortgage solutions for FREE, and without any obligation.
Considering the fact that getting a divorce is very often an
expensive process, I find that my clients appreciate that I can offer them
advice based on my years of experience without charge, and that I am always
happy to help.
Margie Hofberg, President
Residential Mortgage Center