FHFA just announced the new (higher) loan limits for 2018. You can see each county's new loan limit here but this is the summary for Southern California:
San Diego County $649.750
Ventura County $672.750
Orange and Los Angeles Counties $679.850
Riverside, San Bernardino, and Imperial Counties $453,100
FHFA sets loan limits for Fannie and Freddie backed conventional loans but, over the past few years, FHA and VA has followed their lead. We expect the VA and FHA loan limits to be the same as the FHFA loan limits.
What does that mean?
It means more buyers can afford more homes and that's good news for you. If FHA and VA follows (we think they will), fundings could be tricky in the next 60 days. If you have clients who are banking on that higher loan limit, you should call us at 858-777-9751 before you enter escrow so we can determine a strategy so they can get a loan for the higher amount.
Non-farm payrolls reported today at 156K vs. the expected 178K; the unemployment rate ticked up to 4.7%. The mortgage bond market is DOWN a quarter point. That doesn't compute.
Today's released data also signaled an uptick in wage growth. Uh oh, that means we are seeing inflation, right?
Not so fast. As Debra points out, a lot of minimum wage laws were passed; 19 states raised the minimum wage effective Jan 1. Businesses often meet those laws prior to the effective date to be in compliance.
The wage growth is probably just a reaction to legislation rather than organic growth. It's a "false positive".
I still think we see lower mortgage rates at the end of January and higher mortgage rates at the end of the summer. If you want to know how this would affect you, call me at 858-777-9751. A real conversation, with someone who has worked in capital markets for three decades, will give you greater insight
We're right back where we started at the beginning of August. Last month, mortgage rates started just under 5% and spiked during the first week, as high as 5.5%. I thought that rise was short-lived:
If you're floating, lock the rate in today. If you're closing towards the end of August, there is a substantial opportunity for rates to dip to 5.0% in the next three weeks. I wouldn't rush to lock-in until you get close to that mark.
Mortgage-backed securities (MBS) have been on a 7-day tear. Higher MBS prices lead to lower mortgage rates. Today, we are right where we were on August first; mortgage rates at 5.0%. As bullish as I was about lower near-term rates last month, I'm am conversely bearish about mortgage rates at the beginning of this month. I think we'll see the same pattern of acceleration to the 5.5% range, for the next 21 days. I expect rates to retreat to the existing levels for 2-3 weeks thereafter.
I am still biased towards floating but my short-term bias is always to take advantage of market movements in our favor. If you look at the third chart here, you'll see that MBS prices rose from 99 5/8 to 100 5/8. fo the FNMA 4.5% coupon. A par (100) price looselytranslates to a retail mortgage rate of 5.25%. As MBS prices approach 101, we can expect retail mortgage rates of 5% or better. Consequently, MBS prices approaching 99 portend a 5.5% retail mortgage rate.
What would make MBS prices break through 101 and cause retail mortgage rates to stay below 5%? Devastatingly weak economic figures that suggest a DEEP "double-dip recession" is upon us.
What would cause MBS prices to collapse below 99 and send retail mortgage rates north of 5.5%? A REALLY hot economy that traders consider to be sustainable; losing 400,000 jobs monthly does not suggest that.
What should you do? If you're closing in September, lock your mortgage rate now. If you're closing in October, a 60-day lock at these levels would probably cost you about .5% discount fee. I think we'll see retail mortgage rates rise towards 5.5% and fall the first week in October. You're probably safe to wait but that .5% fee guaranteees it.
If you're closing later this Fall, the long-term locks cost closer to 1% discount fee. I think you'll have a chance to lock-in today's mortgage rates, once again before Halloweeen, after a spike upwards.
Military familes who are forced to make a local move due to
a foreclosure may find some relief from the Servicemembers Civil Relief
Act. Not many servicemembers know that under section 531 in the SCRAanyone
looking to evict an active duty servicemember from a rental property
that is their primary residence must have a court order. This
applies to rent that is less than $2831.113 per month. Servicemembers
can apply to the court to stay their eviction or reduce their rent
until their case works it's way through the legal process.
As of July 2008 servicemembers who are being forced to leave
their rental property due to foreclosure can apply to their base legal
services and transportation office to seek financial assistance with
their move. In addition to the assistance you may find
through your base you can also seek "cash for keys" from the lender who
is foreclosing on the property.
San Diego sailors and Marines are discovering that the base pay and BAH increase for 2009, combined with drastically reduced real estate prices has made home ownership a reality. If faced with such an eviction threat, we recommend you contact your base legal services office and read up about how VA home loans could help you get a home of your own.
US Treasury Department has been supporting the mortgage bonds market,
in order to keep mortgage rates under 5%. I cited two reasons why sub-5% rates
might not happen:
1- Capacity: Lenders don’t have the horses to ride since they laid off so many workers in 2008.
2- Greed: Lenders typically made a loan at a rate and sold it for
about a half a point profit. The improvement in mortgage bonds allowed
lenders to fatten up their margins and make as much as 3% of the loan
when they sold it.
I think the real reason was more in line with my first guess;
capacity. What I didn’t realize was that the mortgage lenders were out
of money. Well, sort of. To understand this concept you have to
understand the “flow” of mortgage loans. The big banks, like B of A,
Citi, and Wells, loan direct or buy loans from other lenders and
brokers. We “commit” those loans to them and they sell the loans off
to Wall Street. If my company loans you $300,000, we’ll sell it to a
bigger bank for $303,000, and they sell it to Wall Street for
They don’t really get paid but once a quarter. Loans made back in
October have been COMMITTED to Wall Street, by those big lenders, but
the transaction (sale of the loan) only happens every three months.
While they wait for that transaction day, their funding line gets
filled up. Imagine a funding line (sometimes called a warehouse line
of credit) like a big credit card, Normally, a big bank needs, say
$100 Billion for its line. The unexpected refinance volume filled up
that line quickly.
Those big lenders were “at their credit limit”…until today.
Today was this past quarter’s settlement day, which means, the big
lenders sold off all of the loans to Wall Street and paid off their
“super-sized credit card”. From Mortgage News Daily:
Tomorrow brings us the final day of Class A settlement, in which
sellers of MBS deliver the loans in pools to satisfy the executed sale
trades made over the last 3 months. When this occurs, sellers will
finally receive payment for the most action-packed month of
originations in recent memory. Up until now, the cost to originate
these loans has been borne by MBS sellers, aka originators. We have
surmised that one of the several components that is causing a
much-larger-than-welcome margin of MBS prices to lenders’ rate sheets
is the funding constraint created by the gradual exhaustion of money to
satisfy a rapidly increasing originationd demand. As this money has
dried up, it stands to reason that lenders must artificially raise
rates to deter incoming business in order to avoid exceeding their
Lenders havelots of cash to lend again.
NOW is when we should see the lenders start pricing in line with the
mortgage bonds market. Mortgage rates should drop to 4.5% …IF the
mortgage-backed securities market remains strong.
This is what the Treasury Department was waiting for. Expect the
Government to support mortgage bonds, so that lenders can lend out all
this cheap money they have and still make a healthy profit. It might
take a few days and I don’t expect mortgage rates to stay this low for too long.