Jumbo Loans getting cheaper

Lenders are now offering rates near & sometimes lower than interest rate for conforming loans.

With mortgage rates rising to levels not seen for two years. Its hard work finding a great deal on a home loan, unless you’re rich enough to need a jumbo mortgage. These loans on steroids certainly aren’t for everyone: Jumbos are defined as mortgages over $625,500 in much of California and more than $417,000 even in places where homes are cheap.  But if you can qualify Americas banks stand ready to reward you with a rate nearly as good or even better than what you can get for a normal loan. This is an unprecedented situation because jumbos historically have come at a premium price, said Brad Blackwell, executive Vice President of No. 1 mortgage lender Wells Fargo Home Mortgage.

“This is a new phenomenon– something we’ve never seen before,” Blackwell said in an interview.

Freddie Mac said Thursday that lenders were offering non-jumbo 30 year fixed rate loans to solid borrowers at an average of 4.57%, up from 4.51% last week and a recent low of 3.35% in May. The borrowers would have paid 0.7% of the mortgage amount in upfront lender fees to obtain the rates.

Rates for 15-year fixed mortgages and adjustable loans also rose, a trend attributed to stronger growth in the gross domestic product and positive surveys on manufacturing and home building. Additional encouraging reports Thursday on unemployment and hiring drove the yield on the 10-year Treasury note — a mortgage-rate benchmark  to nearly 3% its highest level since July 2011. Home lending rates were volatile but continuing to move higher, mortgage professionals said. But that same improving economy also has heated up competition among lenders to make jumbo mortgages, which are too big to be backed by Freddie Mac or Fannie Mae.

They are written mainly for affluent residents of the East and West coasts, where home prices have risen rapidly over the last year.

Jumbos, like all mortgages not backed with a government guarantee, nearly disappeared after the financial system cratered in 2008. Rates jumped nearly two percentage points above those for Fannie and Freddie loans, compared with a usual spread of one-eight to three-eighths of a percentage point higher, said Keith T. Gumbinger, Vice president of financial publisher HSH.com

HSH and fellow data tracker Bankrate.com calculate that lenders are now offering 30-year fixed-rate jumbo loans at the extreme low end of their normal range- an eighth of a percentage point or so above so called conforming rates.

But the Mortgage Bankers Assn. said loans actually made within the last few weeks showed average jumbo rates lower than those for the smaller conforming mortgages that can be sold to or guaranteed by Freddie and Fannie.

The trade group said the average contract rate for a conforming loan with a 20% down payment was 4.73% last week, compared with 4.71% for a similar jumbo loan. The difference was more pronounced in the “hybrid” loans, popular with affluent buyers, that have a fixed rate for five, seven or 10 years before becoming adjustable.

Wells Fargo’s Blackwell said his bank was making 30 years fixed jumbos with no upfront costs to borrowers at 4.75% on Thursday, compared with smaller conforming loans at 5%. For a loan with a rate fixed for the first 10 years , Wells was writing mortgages at 4.125% for jumbo borrowers compared with 4.875% for conforming loans, he said.

The reason for the difference is that Wells Fargo has been keeping low-risk jumbo loans on its books rather than selling them as fodder for mortgage-backed securities. That was a good deal for Wells because big banks are flooded to the gills with deposits that are costing them virtually nothing. Wells Fargo, for example, reported that as of the second quarter this year it was paying an average of 0.14% a year interest on its $1 trillion in deposits.

Over the last three years, Wells Fargo has added about $100 billion in home loans to its own portfolio. That’s not enough to pose a risk to a bank with $1.4 trillion in total assets, Blackwell said, but plenty to make a big return on the cheap deposits its lending out.

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30-year rate drops from 2-year high

Fixed mortgage rates backed off this week from a two-year high. Freddie Mac said, with lenders offering the 30-year home loan at an average of 4.51% compared with 4.58% a week ago.

The 15-year fixed-rate mortgage averaged 3.54%, down from 3.6% according to Freddie Mac. starting interest rates for popular typoes of variable-rate loans were up slightly, the McLean, Va., housing finance giant said.

Is It The Right Time For Me To Buy A Home?

Are you going to rent or buy, that is the question. Many people struggle with this question each and every day. It is a hard one but there are ways to determine if now is the right time to buy. Here are just a few facts that will help you make an educated decision about your home buying quandary.

Fact #1 – Mortgage Rates Can Go Up In A New York Minute. If you keep telling yourself that you are going to wait until the rates go a little lower then you may be in for a rude awakening. Interest rates can and do go up at a moment’s notice and if you have not committed to your decision to buy a home now, it could ultimately cost you thousands of dollars in interest over the next 30 years!

Fact #2 – Rental Prices Keep Rising. The longer the housing market is in a slump the higher it drives prices on all rental properties. No matter whether it is a rental home or an apartment you are going to pay dearly for that rental that you don’t really like all that much. Talk about throwing your money away each month. Wouldn’t you rather put all of that money into your home (and pocket) instead of someone else’s?

Fact #3 – You Have A Stable Career. Buying a home is a long term endeavor and you should estimate that you will be staying in the same geographic location for the next seven to ten years before deciding if now is the right time for you to buy a home.

Fact #4 – Do You Have Enough Time At Your Current Job? Most lenders will require that you have been at your current job for two years or at least in the same industry. However, that is the bare minimum of what you will need.

Fact #5 – Plan Ahead. You should look to the future when buying your next home. Since you will be in that home for approximately seven to ten years you will need to think about what your needs will be in the future. How much space will you need? Leave yourself enough room to grow. Can you afford to buy a home that will suit your needs now and in the foreseeable future?

Buying a new home is a huge decision that will require you to really think about your long term financial and lifestyle future. When you get to the place in your life where you can realistically project your financial goals and personal needs seven to ten years out then this might be the perfect time for you to buy your dream home.

Real Estate benefits eyed amid tax reform

The home-mortgage interest deduction is among the possible targets for cuts. Since Congress has taken off on its annual summer recess, you might assume that nothing is happening on Capitol Hill that could affect the taxes you pay on your home. Quite the reverse.

Staff members of the house and Senate tax-writing committees are busy putting together legislative drafts that may determine the fate of real estates most prized tax benefits –first and second home mortgage interest deductions, property tax write-offs, capital gains, exclusions and others.

Both committees chairmen have promised major tax reform proposals this fall. They’ve been evaluating deductions, credits, and loopholes in terms of revenue costs and economic benefits, including the $70-billion+ yearly expense of the mortgage interest write off. The process that underway represents the most serious effort to simplify and reorganize federal tax law since the Tax Reform Act of 1986.

On the Senate side, Finance Committee Chairman Max Baucus (D-Mont.) asked colleagues in both parties to submit recommendations on which tax preferences should be preserved, starting from a “blank slate” where all current benefits are eliminated. To provide senators political cover and deniability, the committee put all recommendations under a 50-year top-secret classification, and restricted access to them to just 10 staff members.

On the House side, Ways and Means Committee Chairman Dave Camp (R-Mich.) instructed staff to move ahead with drafts during the recess, allowing the committee to consider a final tax reform bill in October. That would tee up the legislation for a possible full House floor vote.

So what’s really on the chopping block? Is there a possibility that as part of a comprehensive tax reform bill, preferences for homeownership could be reduced or phased out?

Here’s a quick overview: The House bill under construction seeks to reduce individual and corporate marginal tax rates across the board. Camp has said he wants to clear out deductions, exclusions and other longtime tax code subsidies enough to lower individual taxes to a top marginal rate of 25%, down from the current 39.6%. He also wants to eliminate the alternative minimum tax and slash corporate tax rates.

The problem, though, is that lowering tax rates to these levels would cost trillions of dollars in lost revenue over the coming decade and would only be partially paid for by eliminating or cutting the vast majority of current tax preferences, including for homeowners. Lowering the top marginal rate for individuals to 28% — instead of the proposed 25% — would help, some analysts say, but still might not close the lost-revenue gap.

Another complication: Major tax benefits that have been in existence for decades, such as the mortgage interest and property tax deductions, are so welded into the system that eliminating them, or sharply reducing them, would send shock waves throughout the national economy.

The Tax Foundation, a Washington think tank that describes itself as nonpartisan, released a study at the end of July projecting that an elimination of the mortgage interest write-off would cut the gross domestic product by $254 billion based on incomes in 2012, and would result in the loss of 659,000 jobs. In a separate study, the Tax Foundation projected that elimination of homeowner property tax deductions would lower GDP by $94 billion and trigger the loss of 216,000 jobs.

Findings such as these lead housing proponents to believe that neither the House nor the Senate bill can afford to make drastic reductions to long-standing homeowner tax benefits. Jerry Howard, chief executive of the National Assn. of Home Builders, said in an interview that the Tax Foundation’s study “helps drive home the points we’ve been making [on Capitol Hill] about the value and importance of housing incentives” to the entire economy.

Other industry analysts aren’t so sure. Not only did the Ways and Means Committee hear a panel of prominent economists slam the housing write-offs as inefficient and heavily tilted to benefit higher-income taxpayers, they note, but Camp’s own make-or-break income tax cut targets could take precedence over retaining current deductions. On top of that, Democrats in the Senate want to raise revenue through tax reform, not cut it.

If that’s the case, something’s got to give. And that might require lower write-offs for housing — unpalatable politically as they may be a year before congressional elections. Whether tax reform legislation that does that could pass either house, however — in a year where Republicans and Democrats can’t even pass a budget to fund the government — is much in doubt.

LA Times- Kenneth R. Harney

Why You Shouldn’t Put Off Buying A New Home Any Longer

As you know the real estate market has been in shambles for about six or seven  years.  But you may have noticed that times are changing.  There is an upward trend in the housing market that should make you stand up and pay attention.

Here are a few reasons you shouldn’t put off buying a new home any longer.

1.  Although interest rates have been at historic lows, there have been some small, but rather insignificant, increases over recent months.  However, the interest rates are still very low – but they won’t stay that way for long.

2.  Some of the debt buyback programs the Federal Reserve has in place will be ending soon.

3.  Because of the interest rates being so low  and the number of below market value  homes on the market,  a buying frenzy has been created.   As these homes are purchased and the inventory  dwindles, the price of homes will go up and the interest rates will go up with it.

4.  HARP 2.0 is about to expire at the end of 2013.

5.  Rental rates continue to rise.   Therefore it is to your benefit to take advance of the below market housing prices and the low interest rates now before they increase any further.

6.  Home mortgage delinquencies are declining resulting in fewer foreclosures.  With fewer foreclosures on the market, the value of available homes will climb.  Meaning the price of homes currently on the market will rise.

7.  People are starting to get excited about buying homes again.  Over the past few years, due to  the downward economy and the rise in unemployment,  many people were not buying homes.  However, now that the economy appears to be stabilizing, many people are beginning to spend money again.  This includes buying a home.  An instant demand is being created because of the sheer number of people who were not spending money are now going out in droves to purchase a home.

Housing is in Bloom

The nation’s housing sector is buzzing like bees in springtime. And indeed, housing has historically boosted the U.S. Gross Domestic Product (GDP) and job creation, which are key stimulators and indicators of economic health.

When GDP is referenced in news media, it means the total goods and services produced by labor and property in the U.S. This figure is measured quarterly, and recent figures show that GDP increased impressively at 3.1 percent in the 1st quarter of 2013, up from 0.4 percent in the last quarter of 2012.

Sales of previously-owned houses increased three straight months in March, rising 0.4 percent to a 5 million annualized rate, its highest level since late 2009, then took a small dip in late April by 0.6 percent to 4.92 million units. During this time, new home sales maintained an upward climb by 1.5 percent within expectations to 416,000. Analysts say housing could provide tailwinds strong enough to realize the improvement to the labor market for which the folks at the Fed are hoping. The Fed (which sets the U.S. monetary policy by monitoring national employment, prices and interest rates) recently noted that inflation also remains in check.

Homebuilders across the nation have contributed to the increase in Housing Starts, up a whopping 47 percent over the same period last year. At their highest since June 2008, Housing Starts spiked by 7 percent this March to 1.036 million units on an annualized basis, well above the 930,000 expected, though they did decline in April. Gains in home prices and construction will put more Americans to work this year, and that’s good news overall for the health of the U.S. economy.