Weekly Market Update - $8,000 tax credit extension, FHA changes, and where are interest rates headed

Weekly Market Update from Waterstone Mortgage 

Where are interest rates headed?

2009 will go down as the year of the lowest average 30 year fixed rate mortgage in history.  So will 2010 be more of the same?  The answer is it depends.

Interest rates have remained low because the Federal Reserve has allocated 1.25 trillion dollars to purchase Mortgage Backed Securities (MBS), in an effort to drive down interest rates and stimulate the housing market.  To date the Fed has spent $870 billion, or about 70% of the allocated amount.  By purchasing MBS, the Fed is causing MBS prices to rise, and MBS yields (see Interest Rates) to fall.

So what will happen if the Fed stops buying MBS on December 31^st as planned?  Rates will rise, and they will rise quickly.  Absent the Fed buying MBS, the impact of record government spending and deficits will lead to rapidly rising inflation and interest rates.  It is not unrealistic to think rates could reach 7% in 2010.  This week alone the government is auctioning $112 billion in US Treasury debt to pay for budget deficits and spending programs.  That’s right, the government is borrowing $112 billion dollars this week…..talk about fiscal responsibility!

The good news is the Fed has mentioned the possibility of extending the MBS purchase program into 2010.  If this happens, and I put the likelihood at greater than 50%, rates should remain low.

Tune to CNBC tomorrow at 2:15 to hear the Federal Reserve’s policy announcement live.

First Time Buyer Tax Credit Being Extended?  Expanded?

There is a lot of buzz about the $8,000 tax credit being extended, and possibly expanded.  I’ve seen proposals to extend it another 6 months, 12 months, and one proposal to let it expire in November and renew it from March – December 2010.  Of all the proposals, I think the likelihood is that it will be extended 6 months, and any future extensions after that will depend upon economic factors at that time.  Look for the tax credit to be extended just before the November 30^th expiration, causing some panic, then relief when it does get extended.

As for talk of expanding the credit to $15,000 and even opening it up to all home buyers, I do not expect that to pass.  The extra money is not necessary and not fiscally intelligent.  I will also be very surprised if it is expanded beyond just first time buyers.

Here is a great article to summarize what is being discussed - http://www.usnews.com/money/blogs/the-home-front/2009/09/18/will-the-8000-first-time-home-buyer-tax-credit-be-extended.html

FHA Lending Facing a Major Overhaul in 2010

This week HUD announced major overhauls to the FHA mortgage program.  Among them are changes in the appraisal ordering process and in what lenders are able to be FHA approved.

The most damaging change is the requirement that all FHA approved lenders must have a net worth of $1,000,000.  This will effectively eliminate the FHA approvals of almost all mortgage brokers and small correspondent lenders.  Mortgage brokers will be forced to be sponsored by a lender in order to do FHA loans.  While more mortgage brokers will have access to FHA, many lenders will not take on the new risk associated with sponsoring the mortgage broker.  The end result might be a much more difficult market for brokers trying to do FHA loans.

Small correspondents will have an even larger adjustment.  Many of them have been underwriting and approving FHA loans for years, but without the net worth requirement, they will be forced back into the broker world.

This is another reason being owned by a bank gives Waterstone strength as a company and significant competitive advantages. 

Underwriting

Our underwriting turn times are 2-3 days for purchases, refinances, condos, FHA, VA, and Jumbos.  We can easily close within 30 days, so don’t let anyone tell you closing an FHA loan takes 45 days….it doesn’t.

We will also be approved to underwrite USDA loans in house with 60 days.

Interest Rate Update

Interest rates have remained flat this week.  Conventional and FHA rates are in the 5.125% range.  5/1 ARM rates have dropped considerably in recent weeks, into the low 4’s, and can be a good alternative for someone looking to own a home for 4-6 years. 

September’s Seminar

Topic: Polybutylene Plumbing and Chinese Drywall

Speakers: Brad Clark of Florida Insurance Specialists and Jim Murphy of HomePro Inspections

Date: Thursday, September 24^th

Time: 9:00 Registration, 9:30 – 10:30 speaker

Location: Winter Park Civic Center

To RSVP, e-mail mpischke@waterstonemortgage.com

2010 Business Plan Seminar

Mark your calendar for Tuesday, December 1^st!  We will be hosting our very popular Business Plan seminar, and this year we have an incredible lineup of speakers and topics ready to help you write a business plan to make 2010 your best year ever in Real Estate.  In the two years since I created this seminar, the reviews have been fantastic.  It has been so popular that I have been invited to present it to Realtors in Boise, Idaho and Milwaukee, Wisconsin later this year.  I also have been invited so speak in front of 1,500 fellow mortgage professionals as one of the keynote speakers at the Mortgage Revolution Conference in Atlanta in January.

Have a great week!