Alan's Blog

The New Loan Limit Changes Have Been Announced

In last weeks message "Losing The $729,750 Loan Limit" I noted that the maximum conventional conforming loan limits were being lowered to $625,500 in high cost areas. The new loan limits have been officially confirmed. The new limits are effective January 1, 2009.

Those who have been involved in the real estate and mortgage industry for years knew that the maximum mortgage limit for conforming loans was standard throughout the country. This year the rules have changed. Like FHA loans the maximum loan limits will vary throughout the country and will be based on the median sales price index. Although the new limits have been released, the HUD website which show the limits hasn't been updated yet. Call me if you have specific questions.

FHA loan limits are established by the Housing and Economic Recovery Act. The act  sets the national conforming mortgage loan limit to a house price index chosen by the new Federal Housing Finance Agency (FHFA). The 2009 national conforming limit will remain at $417,000. The FHFA Act sets the FHA loan limits at 115 percent of the median house price in a given area as determined by HUD. The loan limit can not be lower than 65 percent of the national conforming limit and the loan limit cannot exceed 150 percent of the national conforming limit.

A positive effect of this change is that loans locked on or after December 18, 2008 will have a higher loan limit before the "FHA Jumbo Loan Pricing" adjustments are applied. This raises the loan amount for "FHA Regular Loan Pricing" from $362,750 to $417,000. This will have the effect of lowering the FHA interest rates for thousands who were caught between the old FHA limit and the conforming loan limit.

The FHFA Act also benefits borrowers getting FHA-insured reverse mortgages. Under the act the FHA reverse mortgage known as the Home Equity Conversion Mortgage (HECM) has a national loan limit of $417,000. Unlike regular FHA loans this new limit is effective immediately. This loan limit is not effected by the median sales price index.

Reverse mortgages can be used to purchase homes as well as refinance current loans. Cash out can be used to pay bills, make improvements to the property or any other purpose the homeowner wants to use the money for. It is important to note that a payment is never required on reverse mortgages. Condominiums and Coops are eligible for reverse mortgages.

Income and credit are not factors used for the approval of a reverse mortgage. The loan amount is determined by the value of the property and the age of the borrowers. Many seniors have used reverse mortgages to prevent the foreclosure of their homes. The loans can be made even if the current mortgage payment is late.

Look for more positive changes in reverse mortgages in the coming months. Because of the financial crisis a lot of the conventional conforming and jumbo reverse mortgages were put on hold. It appears that these limitations will be removed.

Call me with any questions you have concerning the current market.

Alan Gross
Home Office: 301.353.9360
Email: mtginfo@aol.com
Web: www.mtg-info.net

Huge News For Mortgage Interest Rates

The real estate market and mortgage interest rates received a huge boost this morning. The Federal Reserve (Fed) announced this morning that it would be purchasing Mortgage-Backed Securities (MBS) backed by Fannie Mae, Freddie Mac, the Federal Home Loan Banks,  and Ginnie Mae. This new program will be known as the Term Asset-Backed Securities Loan Facility (TALF). The total funds allocated to purchase MBS's is $600 billion. Some have suggested that this is a brilliant move by the Fed to help increase the availability of credit while lowering fixed mortgage rates. The Fed has been trying since late last winter to lower mortgage rates to get the housing market moving forward.

The effect on mortgage interest rates was immediate. Mortgage backed securities are trading over 100 basis points higher based on the news. If this trend continues we may see interest rates move down to the low levels we saw during late January and early February earlier this year.

In addition to the $600 billion for MBS, the Fed announced it is setting up a program to $200 billion program to support consumer and small business loans. This plan will support and create liquidity for auto, student and small business loans.

Mortgage-Backed Securities have been under pressure since September when investors who normally purchase them have shied away due to the uncertain futures of mortgage finance giants Fannie Mae and Freddie Mac. The effort by the Fed complements the Treasury's effort to prop up the mortgage market. The Treasury took over Fannie Mae and Freddie Mac in September and has been buying MBS's since the takeover.

As I have said in the past, some of these interest rate movements are short-term in nature. Although the actions are designed to push rates down over a period of time, no one knows how the market will react. To keep up with the trends in interest rates you can visit my Daily Market Report at www.mtg-info.net/DailyMarketReport.

I am always available to answer any questions you have concerning interest rates or mortgage loans.

Alan Gross
Home Office: 301.353.9360
Email: mtginfo@aol.com
Web: www.mtg-info.net

The Myth - 10 Year Treasury Notes Set Mortgage Interest Rates

One of the questions I get most frequently is what is what are the current mortgage rates and if I watch the rate on the 10 Year Treasury Note will I know what is happening with mortgage rates. The answer is that although the rates on the 10 Year Treasury Note and mortgage rates tend to move is the same direction, the 10 Year Treasury Note does not directly affect mortgage rates.

So what makes mortgage rates rise and fall? The are a number of factors including but not limited to what the Federal Reserve is doing, the economy, inflation or fear of inflation, competing investments and foreign capital.

The greatest myth is that the Federal Reserve (the FED) controls mortgage interest rates. The truth is that the FED, through their most well-known policy tool, the Federal Funds rate, controls the overnight interest rate which banks charge each other when a bank needs to borrow money to meet end-of-day reserve requirements. Banks must have a certain amount of cash on hand when the books close at the end of the day. Those funds can be borrowed from another bank at the Federal Funds rate. The rate is actually the rate the FED suggests, the actual rate is negotiated between the borrowing and lending banks. The Federal Funds rate is the rate that makes the news every time it is moved. The movement of the Federal Funds rate does not directly affect the movement in mortgage interest rates. The have been many occasions when the mortgage interest rates have moved in the opposite direction of the Federal Funds rate.

So why do many people believe the 10 Year Treasury Note is a good way to track what is happening with mortgage interest rates. One reason may be that even though most fixed rate mortgages are written for 30 years, the majority of mortgage loans are paid off in less than 10 years  because the property is sold or the loan is refinanced. For this reason many people have believed that the 10 Year Treasury Note is guide to mortgage rates.

Recent events have debunked the myth that the 10 Year Treasury Note tells you what is happening with mortgage rates. Mortgage Backed Securties and Treasure Notes are traded in basis points. 100 basis points equals 1 percent. On the morning of October 14,2008 Mortgage Backed Securities had improved by 28 basis points while at the same time the 10 Year Treasury Note had declined by 106 basis points. The net difference was over 1.25%. And in the past 24 hours, the 10 Year Treasury Note has risen by 285 basis points while the Mortgage Backed Securities have risen by only 12 basis points. a difference of 273 basis points or almost 2.75%

Hopefully, with all the bad economic news that has been released recently, mortgage interest rates will respond by moving lower. If you are thinking about buying a home or refinancing your current loan you need to be aware of the movements in interest rates. Last January interest rates hit their lows for the year. The lowest rate was only available for about four hours before it moved back up. Although this was very unusual, it shows the importance of keeping current on what is happening with interest rates.

The Daily Market Report on my web site tracks the current trends for mortgage interest rates. You can find the Daily Market Report on my web site at www.Mtg-Info.net/DailyMarketReport.

Call me with any questions you have concerning the current market.

Alan Gross
Home Office: 301.353.9360
Email: mtginfo@aol.com
Web: www.mtg-info.net