Your MN Mortgage Mom's Blog

If your clients are inquiring about the Federal Funds Rate cut on Tuesday here is some information that can help you explain what it is and how it does/doesn't affect mortgage rates.  

1.  When the Feds cut the Federal Funds Rate, it does not mean that they are cutting mortgage interest rates.  The Federal Funds Rate is the interest that banks charge each other, it has nothing to do with long term mortgage interest rates (however, it DOES affect short-term rates like those who have a home equity line of credit).  Can a change in the Fed Funds Rate affect mortgage interest rates?  Yes...indirectly.  I all depends on how Wall Street reacts and responds to the change.  If investors start buying up groves of stocks, mortgage interest rates will go up.  Conversely, if investors start dumping money into bonds, mortgage interest rates will go down.  Just as we have witnessed in the last 6 months, the Feds cuts have had both a negative and positive effect on mortgage rates.  

 2.  If you really want to get a "read" on mortgage interest rates, watch the 10 year treasury bond.  Mortgage rates are closely tied to this bond's performance.  When the price of the bond goes up (meaning investors are dumping money into bonds, thus driving the price up), mortgage rates will go down.  On the other hand, when the treasury bond's prices fall, mortgage rates will go up.   In the last 36 hours, the 10 year treasury bond price has TANKED and we saw the effect of that...mortgage rates sky rocketed.  Why?  Because investors were buying up stocks and the stock market regained strength, sending mortgage interest rates up. 

Keep in mind, that while the Fed determines the fate of short-term interest rates, they do not directly call the shots on long-term interest rates (what you might pay on a 30-year fixed loan). Instead, long-term rates are determined by investors who buy and sell bonds in the bond market, which changes daily. The Fed funds rate is an indirect factor in the big picture of determining long-term rates, but not as large a part as many people think.

On the flip-side, however, the Fed cut also means you're now making less on your savings. In other words, if you have a savings account, money market account or CD, you're earning less in interest on your money.

Hope this helps!

MN Mortgage Mom

Yesterday, Jon Zolsky asked me how he could find out if his area (Daytona Beach, FL) is also in a Declining Market.  On my previous post, Is Your City in a "Declining Market"??  I talked about the fact that Minnesota has just been added to that glorious roster.  Yes, I am being quite sarcastic, as this designation brings us tighter lending restrictions, per Fannie/Freddie guidelines, making it harder to offer mortgage products at maximum LTV and severe scrutinization of appraisals.

This is a Great question!  As agents and mortgage professionals, we should all be aware of how our local housing markets are performing.  You can use this information to better serve our buyers and counsel them on mortgage restrictions due solely out of the current, local market conditions. 

It can also serve to counsel your sellers on correct and intelligent pricing of their homes!  Recently, I spoke with an agent who was dealing with a seller who absolutely refused to lower their price.  The home has been on the market nearly 120 days.  I recommended doing another CMA.  Here was my point...even if the seller is LUCKY enough to find a buyer who is willing to pay the current price, the appraisal may not even support that price.  In a Declining Market, as we are in Minnesota, the appraisal will go under the microscope...underwriters are LOOKING to find things wrong with it...it will go to a Desk Review and it darn well better pass or the deal is killed.

So how do you find out if your state, county or city has been "labeled"?  Here is a good place to start:

Office of Federal Housing Enterprise Oversight

In addition, click on the link Black List.  This is a list that a prominent lender has regarded as the soft, getting bad and worst markets in the country.

To answer your question, Jon?  Yes, unfortunately your market has been "labeled", too.  Join the club of declination!

So what's the good news in all this doom and gloom?  Call your sellers with new ammo...get those prices reduced and get them sold...Also, if you have not reached out to the First-Time Homebuyer community, you're missing the boat.  No, you're missing the Titanic.  This is a wonderful opportunity for first timers to snatch up a great deal.  And from a mortgage standpoint, FHA, VA and Rural Housing is stronger than ever!

Happy Selling in this CRAZY, CRAZY Market!

There has been much disturbance currently about the consequences of the designation of Minnesota and the 11 county Twin Cities Metro area (as well as Pierce and St Croix counties in WI) as a "Declining Market".  Yes, our state recently "earned" that label.  Along with this designation comes more challenges for Loan Officers, Buyers and the entire Real Estate Community.

We are now faced with further guideline tightening and LTV restrictions.  Lenders are looking at us like we are the plague (okay, that is a bit of an exaggeration) and every appraisal is scrutinized under a microscope.

Is your state, county or community also falling into a declining trend?  This is going to become critical.  We may all need to address the potential anxiety out there and provide expertise to help our home buyers and educate them on what their local housing market is facing and the loan options that are available. 

With the additional attention and focus on the sub prime crisis and problems with Countrywide/BofA etc. there is a lot of emotional energy being churned up throughout the marketplace and RE industries.  The emotions are reacting to a situation that makes a difficult set of circumstances even a bit more challenging. 

However, there are clear opportunities right in front of us.  We can still get the job done with FHA, VA and Rural Housing and, in many cases, the FLEX conventional programs.  True ZERO down loans will be harder to do, but we can accomplish nearly the same thing with these other products.  Optimism and expertise will help our buyers get the job done. 

In a nutshell, here are the changes that are affecting markets that are declining:

• LOAN-TO-VALUE RESTRICTION: The basic change involves an increase in downpayments by 5% in declining areas.  Loan products, which typically allow for 100% financing, will now need 5% down (95% LTV).   Loan products now at 95% LTV will require 10% down and an LTV of 90%.  See this link, from Fannie's website, which explores these changes in more detail: https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/pdf/declmktsmaxfinfaq.pdf  

• APPRAISALS AND VALUATION: More detail on valuation and the nuts and bolts of this designation: https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2007/0722.pdf   

• MIDWEST BEING HIT HARD: This is a general information article about this issue: http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=AP&date=20071217&id=7951026   I wonder about the ranking of Minnesota in third place here, I think the losses in Florida and California far exceed ours, but Minnesota losses are more widespread... 

Where is the optimism?  Well, we are seeing more activity (Minneapolis and St. Paul) among borrowers seeking to get started in the home buying process.  That is good, very good.  Moreover, this whole environment means that Loan Officers who can sell, articulate, and close FHA loans will be much more valuable. Now is the time to ensure LO's are knowledgeable and experienced!  The landscape of mortgages is changing rapidly and there will be no room for those that do not educate themselves and become EXPERTS in the loan programs that will prevail in this market.  

FHA will be the best option very soon.  I am already seeing this in almost every pre-approval I do.  We need to emphasize how, with some family gift money and seller paid costs, buyers can get into their new homes with comparable financial impact and out of pocket funding as before.  

GET EDUCATED, STAY ON TOP OF YOUR MARKET AND MAKE SURE YOU HAVE PARTNERED WITH A GREAT FHA APPRAISER.   WE REALLY CAN SURVIVE THIS HOUSING MARKET STORM!

UPDATE...Be sure to check out more great information and the Black List in Is Your City in a "Declining Market" Part 2.  Want to check an area by zipcode lookup?  Check out Is Your City in a "Declining Market" Part 3.