Category: General Mortgage Info.

UPDATE: Eliminating mortgage insurance from a conventional loan

Posted on by Evan in Swanson Home Loans Blog - Mortgage Rate Updates and More

Video Transcript: 

Hey, I’m Evan Swanson of Swanson Home Loans, a division of Cherry Creek Mortgage Co. Inc. In today’s video, I’m going to talk to you about getting mortgage insurance eliminated from a conventional mortgage.

Back in February, I recorded a VIDEO which talks about the details of the Homeowner’s Protection Act, which is the federal statute which governs this topic. However, in my hand, I’m holding a Fannie Mae Mortgage letter, 2018-03, this document was released in mid-July and this changes the rules for Fannie Mae secured mortgages for consumers to get their mortgage insurance eliminated.

Now these particular rules only apply to Fannie Mae secured loans for now. If you have an FHA loan, a Jumbo mortgage, or loan which was secured by Freddie Mac, these rules may not apply. Also, in this video I’m only going talk about a primary residence one unit single family residence. I’m not going to talk about investment properties or two to four units. Those rules are slightly different.

The good news in this document is Fannie Mae is trying to make it easier for consumers to have their mortgage insurance eliminated. They talk about three different scenarios.

1) Getting the mortgage insurance eliminated based on the homes original value so a consumer has paid down the principal to have the mortgage insurance eliminated. Prior to these rules in order to have the mortgage insurance eliminated, a consumer would have to wait until the loan was scheduled to reach 80 percent of the original value of the home regardless of additional principal payments. What Fannie Mae is saying in this document is that they will now take into account the actual principal balance. So if you have made additional principal payments, then they will go off that without having to wait until the loan was originally scheduled to reach that point.

2) You want to take into account the home’s current value. In this scenario, the home value has gone up. It’s appreciated in value and you want the loan servicer to take that into account when determining the loan to value. Prior to these rules you’d have to pay for an appraisal or a broker price opinion and that particular document would create the value that the lender would use. What Fannie Mae is doing is they’re releasing an automated valuation system, it’s not going to be available until spring of 2019, but at that point, loan servicers will be able to cross check the current value of the property with the statistical model and if that valuation supports a loan to value of 80 percent or less, then the mortgage insurance would be eliminated assuming the loan is at least five years old.

If the loan is between two and five years old, Fannie Mae says the loan to value would have to be 75 percent. If the valuation in the statistical model does not support a proper value to have mortgage insurance eliminated, the consumer can still opt to get a broker price opinion or an appraisal to try to get the mortgage insurance eliminated.

3) If you’ve made improvements to your property that have increased the value, then you will have to provide the loan servicer with a detailed list of the improvements that have been made. Then they can go ahead and use that statistical model and if that doesn’t support a broker price opinion or an appraisal can substitute this. Basically the loan servicer can take into account additional improvements in value.

If you meet any of those guidelines, good news ahead. Starting January 1st of 2019, these new rules take effect and it should be easier for consumers to get mortgage insurance eliminated. If you have questions about your scenario, we’d love to be your resource for you. Thank you for the opportunity, we look forward to chatting with you soon.

Mortgage rates steady despite strong economic growth

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

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Mortgage Rates Steady

On Friday the Commerce Department reported the US economy grew by 4.1% during the second quarter.  This was the strongest growth since the third quarter of 2014.  

Normally good news for the economy is bad news for mortgage rates.  However, analysts had been expecting an even stronger number so home loan rates remained steady.  

Pending Home Sales

The National Association of Realtors released its monthly pending home sales report today.  It showed that the the number of homes currently in contract increased month-over-month (+.9%) but is still down year-over-year (-2.5%).  

If you’ll remember last week the existing home sales report showed a slight increase to the supply of homes which may explain why we see more pending sales.  The trends in the housing market continue to suggest a more balanced market ahead.  

The Fed

Fed officials will meet this week and make a decision about short-term interest rates.  The markets currently expect the Fed to hold steady at this meeting but hike short-term rates by .25% at the September meeting.

Even if the Fed does not hike rates their comments can still impact mortgage rates.  

The Week Ahead

This week’s economic calendar is busy.  

On Tuesday we’ll get the latest Case-Shiller Home Price Index report and the Fed’s favorite gauge of inflation (Personal Consumption Expenditure price index).  On Wednesday we get the aforementioned Fed announcement and on Friday the all-important jobs report.

Current Outlook: locking

Applying for a home loan as a self-employed or an independent contractor

Posted on by Evan in General Mortgage Info.

Video Transcript:

I frequently get asked how applying for a loan as a self-employed borrower or an independent contractor is different than for a traditional full-time W2 employee.

First off, applying for a loan as a self-employed or independent contractor is not automatic, means to deny or not approve a loan application. We can do loans and frequently do for independent, self-employed borrowers.

However, applying for a loan and having an underwriter calculate income for a self-employed, independent contractor is different than a traditional W2 full time employee.

With a traditional W2 full time employee we collect pay stubs, W2 forms, and that typically spells out the income that the borrower makes. With an Independent or self-employed borrower, we collect tax returns as the primary documentation that we rely on to calculate qualifying income.

For most self-employed borrowers we collect two years of the most recent filed tax returns and look at those calculations to determine income. If a self-employed or independent contractor has been in business for five years or more then we may be able to get away with only providing the most recent year. Most independent contractors file a Schedule C and report all of the income and expenses for their independent contracting on that Schedule C.

Mortgage underwriters do not rely on the top line gross revenue, or gross receipts. They rely on the net income figure that’s reported on schedule C, with potentially a couple of modifications made depending on the type of expenses that are listed.

Are you self-employed or an independent contractor and want to explore your options?  Contact me today and we’ll take it from there. Have a great one, thank you.

Home loan rates move higher along with oil prices

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

Sometimes our best ideas are formed when we least expect it. This is true for the guitarist Slash who during a band warm up played a string skipping riff that he initially disdained.

However, the rest of the band asked him to play it again and later the riff formed the foundation of “Sweet Child of Mine” which entered the Billboard top 40 on this day in 1988. The hit would eventually climb all the way to #1 and ultimately help catapult Guns N’ Roses to become one of the most famous rock bands of all time.

Home Loan Rates
Mortgage rates are also climbing higher. Last week I warned that we may be in store for a “break-out” following three weeks in which home loan rates remained flat.

Unfortunately, rates decided to break higher instead of lower.

Oil prices
You may have noticed that US consumers are paying more at the pump. Oil prices have risen by ~20% in 2018. Prices spiked this morning after President Trump sent a threatening tweet directed at the president of Iran.

Nearly 40% of the global oil market flows through Iran so if there were a disruption it would certainly move prices higher. Higher prices for oil would be inflationary which would not be good for home loan rates.

Existing Home Sales
The National Association of Realtors released its monthly existing home sales report today. It showed that the number of sales declined modestly in June.

The median home price for the US reached an all-time high at $276,900.

The most interesting part of the report was that the total inventory of homes increased for the first time since June of 2015. Might this be a signal that a more balanced market is near?

The Week Ahead
This week’s economic calendar is relatively light. We’ll get new home sales on Wednesday and Q2 gross domestic product on Friday.

Momentum is not on our side. I recommend locking.

Current Outlook: locking.

Home loan rates remain flat, risk of break out build

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

It all started with $6,000 in February of 1940 when the US Government granted that sum to a group of researchers who were curious about the potential for fissionable materials to be used for military purposes.  The original $6,000 later ballooned to over $2 billion and on this day in 1945 the Manhattan Project first “successfully” tested the atom bomb.

Home Loan Rates

Mortgage rates have been anything but explosive over the past two weeks.  Home loan rates have remained flat over that timeline.

Inflation

Price pressure is the primary driver of long-term interest rates.  

Last week both the Producer Price Index and the Consumer Price Index showed price increases above the Fed’s target of 2.0%.  The reports lend credibility for the Fed to maintain its rate tightening policy. It also increases the probability that mortgage rates will increase and not decrease.

Retail Sales

Although consumers may be paying higher prices for goods it does not seem to be slowing sales.  This morning the retail sales report showed better than expected activity.  Many analysts are pointing to federal income tax cuts as the primary reason why.  

Good news for the economy tends to be bad news for mortgage rates.

The Week Ahead

The economic calendar is fairly light this week.  Fed Chairman Jay Powell will be speaking on Tuesday.  On Wednesday we’ll get a look at housing starts and building permits.  On Thursday we’ll get leading economic indicators.

Technical signals

Mortgage rates have remained relatively flat for almost three weeks.  Any time rates remain flat for extended periods of time it increases the chances of a “break-out” which is when they move sharply higher or lower.  There is no telling when they will “break” and if they will break in our favor. The safe play is to lock in but ultimately it is a coin flip.

Current Outlook: neutral

Mortgage rates at best level since April, time to lock

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

On this day in 1846 the United States captured a small settlement called Yerba Buena located in a bay.  This site is now home to one of the most expensive housing markets in the world. SEE HERE for a parody on some of the rental offerings in this city which was later named San Francisco.  

Home Loan Rates

Mortgage note rates remained unchanged last week although the underlying closing costs improved modestly.  Pricing on mortgage rates are at the best levels since April.

Jobs

Last Friday’s all-important jobs report is being referred to as “goldilocks”, not too hot and not too cold.  It showed 213,000 new jobs created during the month of June and the US unemployment rate at 4.0%.  Wages increased moderately.

Overall, it was a healthy report but not too healthy to stoke inflation fears and push mortgage rates higher. 

 

The Week Ahead

There are not a lot of economic releases scheduled for this week but there will be some key events.  On Wednesday we’ll get the Producer Price Index, which reports on prices at the wholesale level of our economy, and on Thursday we’ll get the Consumer Price Index, which reports on prices at the retail level.  

Inflation is the primary driver of long-term interest rates including mortgages.  Inflation has been ticking higher but not enough to pressure rates too badly.  Any signal that inflation is accelerating would be bad for home loan rates.

The US Treasury is set to deliver $69 billion in fresh debt supply this week.  This is 23% more than was offered last year at this time.  The extra debt is being issued to fund the federal income tax cuts.  The additional debt supply will make it harder for mortgage rates to improve.  

After improving over the past couple weeks I think interest rates are ripe for reversal.  I am going to recommend a locking position.

Current Outlook: locking

Holiday shortened week could cause volatility

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

If we celebrated the day that the Continental Congress voted on the Declaration of Independence from Great Britain then we wouldn’t be in the office today. It was actually on July 2, 1776 that the colonies voted to approve the Declaration of Independence. However, following the nearly unanimous vote Thomas Jefferson took the document, made a few edits, and it was adopted on July 4, 1776. Happy 4th!

Mortgage rates adopted modest improvements last week.

The Week Ahead
It is a holiday week and the financial markets will close early on Tuesday and remain closed until Thursday. During holiday weeks trading desks tend to be lightly staffed. With fewer buyers and sellers in the marketplace we have to be on guard for volatility.

Jobs
The economic calendar this week is compressed with the highlights coming Thursday and Friday. On Thursday we’ll get minutes from the last Fed meeting at which they hiked short-term rates.

On Friday we get the all-important jobs report. Analysts are expecting ~190,000 new jobs created. A number north of that estimate would likely pressure rates higher and vice versa.

US Stocks
US stocks continue to slide on fears of trade tensions. Since the middle of July the S&P 500 is off about 3% and mortgage rates have improved by ~.125%.

Technical Trading Patterns
The yield on the US 10-year treasury note continues to trade below 2.90%. As long as we remain at or below 2.90% I will continue to recommend a floating position.

Current Outlook: floating

Stocks slide on trade fears helping mortgage rates

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

How does a team go undefeated in the World Cup and not win the whole thing?  Easy, not qualify. For those US soccer fans there is reason to celebrate today.  On this day in 1950 the US men’s soccer team beat England in a major upset.  

Mortgage rates traded sideways last week.

US Stocks

The US stock market is not celebrating the trade threats that continue to escalate between the US and China.  Over the weekend the Trump Administration announced rules which will limit Chinese companies from investing in US technology companies.  

US stocks opened sharply lower this morning. Bad news for the economy tends to be good news for home loan rates.

Housing

Last week the National Association of Realtors announced that the pace of existing home sales had slowed in May.  However, the median home price continued to climb on tight supply.  The median home price in the US has increased for 75 straight months.

Earlier today the Commerce Department announced that the number of contracts for the purchase of newly constructed homes increases substantially year-over-year.  This is welcome news given that there continues to be a shortage of housing.

Technical Trading Patterns

The yield on the US 10-year treasury note has broken below an important technical layer.  If it can close below 2.88% then it may be a signal of lower rates on the horizon.  Fingers crossed.

The Week Ahead

This week’s economic calendar kicks off tomorrow with the Case-Shiller Home Price Index.  On Wednesday we’ll see durable goods and pending home sales. On Friday we’ll get personal income and the Fed’s favorite gauge of inflation.  

I recommend floating as long as the US 10-year treasury note is at or below 2.90%.  If it reverses higher then we’ll need to lock in.

Current Outlook: floating

Fed flattens yield curve

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

On this day in 2006 the Oregon State Beavers baseball team lost its opening game in the College World Series.  They would come back to win five of its next six games to claim the national championship. We’ll see if the 2018 team can follow the same pattern!  

Mortgage rates improved modestly last week.

The Fed

As expected the Fed did hike short-term interest rates on Wednesday of last week.  As a reminder the Fed does not directly set mortgage rates.  They also set the expectation that they would hike two more times in 2018 and two to three more times in 2019.  

Yield Curve

The yield curve has flattened over the past three years with rates at the short-end of the curve increasing by ~1.5% while rates at the long-end have increased less.  

Some economists believe that a flat yield curve is an indicator for a recession.  This coupled with low unemployment (see HERE) have me feeling more and more like we will see an economic slowdown in the next 12-24 months.

US Stocks

The US stock market was trading lower on Monday in response to tariff threats between the US and China.  Late last week President Trump approved 25% tariffs on approximately $50 billion of Chinese exports.  China countered over the weekend with penalties on US products sold in China. Although tariffs will help some industries most economists agree it will not be favorable for the economy as a whole.

Bad news for the economy tends to be good news for home loan rates.

The Week Ahead

This week’s economic calendar is relatively light.  There are significant housing related reports such as housing starts & building permits (Tuesday), existing home sales (Wednesday), and leading economic indicators (Thursday).  

Current Outlook: cautiously floating

How the Fed does and does not influence mortgage rates

Posted on by Evan in Swanson Home Loans Blog - Mortgage Rate Updates and More

Video Transcript:

The Federal Open Market Committee led by current Chairperson, Jay Powell, is scheduled to meet this week as they do every six weeks. What makes this week unique is the Fed is expected to hike short-term interest rates by one quarter of one percent (.25%).

The Fed controls an interest rate called the Federal Funds Rate, and pragmatically speaking, it actually plays a very obscure role in our economy. The Federal Funds Rate dictates the rate of interest at which banks charge each other when they lend money to each other to meet overnight reserve requirements.

I won’t bore you with those details, but the bottom line is, the Fed does not directly control mortgage rates. When you see that the Fed hikes rates this Wednesday by one quarter of one percent, don’t worry that if you call us the next day that your mortgage rate on a 30 year fixed rate loan will automatically be one quarter of one point higher.

The Feds comments and actions can certainly influence mortgage rates for better or worse, but just because the Fed hikes short term interest rates doesn’t mean that mortgage rates will automatically go higher.

Are you looking for a mortgage professional that is competent and is going to help you navigate this complicated landscape? We’d love to be a resource. Contact us today. Thanks for watching.