The financial markets also appear to be a bit confused of late, with some mixed data on the health and future of the economy causing continued volatility in both Stocks and Bonds. While there was plenty of mid-week action, home loan rates ended just slightly higher for the week overall. For more about the market report for this week and last week, see below.
USDA Did You Know?
Did you know that you can roll in the closing cost into the loan of a USDA loan without increasing the sales price as long as the house appraises for the increased loan amount.
Example:
· Sales Price is $140,000
· Closing Cost are $7000
· Loan amount (without upfront MI) can be $147,000 (as long as the house appraises for $147,000) and still keep the sales price of the home at $140,000.
This is especially great for your buyers purchasing short sales or foreclosures in which the seller and /or bank is not willing to pay closing cost, but there is enough value in appraisal to roll in the closing cost and prepaids.
Other facts about USDA
No Down Payment to Qualified Borrowers
No Monthly Mortgage Insurance
Seller can pay UNLIMITED toward closing costs and prepaids (or roll into loan as long as house appraises)
$0 Move-In Possible for Qualified Borrowers
No Cash Reserve Requirements
Does NOT have to be a First Time Home Buyer
Must Purchase in an Eligible Rural Area*
If we can be of assistance to you or your buyers in this program, simply call us at 972-278-3400. I am one of the only two loan officers in North Texas on the USDA advisory board- we know this product well! Let us know when we can be of assistance.
See History of Mortgages-Part 2 and The Market Report below.
Linda Davidson, Senior Loan Officer, DE Underwriter
Service First Mortgage
972-278-3400 office
972-497-6452 fax
1-877-278-SFMC ext 253 toll free
www.davidsongroup.net
The Davidson Group- The Home Buying Experts!
Ranked #4th Nationally in FHA/VA Purchase Units Closed!
Ranked 68th Team in the Nation in Total Purchase Units Closed!
Voted #1 Area Mortgage Team For The Past 10 Years
Your Lender for Purchase, Refinances, Reverse Mortgages and Commercial Lending!!
History of Mortgages- Part 2
Last week we started the series- The History of Mortgages. If you missed Part I, email me and I will be glad to resend it. Below you will find Part 2. I find the history of mortgages extremely interesting- it is amazing to see how far we have gone, yet how history also keeps repeating itself. I hope that you are enjoying the series.
In 1938, the government chartered the National Mortgage Association to create the earliest secondary market, or purchaser of these loans, from banks, who were still not eager to hold this type of debt. Later that same year, the NMA became The Federal National Mortgage Association, or Fannie Mae. At this time, FNMA was wholly owned by the federal government.
By the end of the 1930’s, war was brewing in Europe. Hitler’s rise to power and the subsequent attack on Pearl Harbor by the Japanese embroiled America in war. A very traumatic period in the nation’s history ensued as most eligible American men went off to serve in the armed forces. Industry shifted all resources to the creation of goods needed to support the war machine. Huge numbers of women went to work in factories while men were off in Europe or the South Pacific fighting.
On June 6, 1944, the Allied forces launched an attack on the beaches of Normandy, France. The war in Europe ended 11 months later in May of 1945. After this turning point in the European theater of war, men started to return home. Four months after that, the Japanese surrendered.
Postponed marriages took place in record numbers as the men came home from the war. As the economy tried to adjust to the postwar changes, the Baby Boom began. In 1944, The Serviceman’s Readjustment Act had passed. The federal government again stepped in, and this time created the Veterans Administration’s program for home buyers, the zero-down-payment GI loan. This allowed returning servicemen to purchase a home, and it allowed them to do it without a down payment.
After the war, everything was in short supply including cash for a down payment. This program created a surge in home building which increased jobs and helped shift the nation from a wartime to a post war-economy. The federal government guaranteed mortgage loans made to veterans. Basically it worked like this: if the bank made the mortgage loan and the veteran didn’t make the payments, the VA stepped in and made up both the arrears payments and the costs to foreclose on the veteran.
Many of the suburbs across America with 3-bedroom ranch-style homes and 2-bedroom Cape Cod expansion attics were the result of the GI Bill.
There were drawbacks to either of the above types of mortgages. Both FHA and VA placed limits on the price of home that could be purchased with these mortgages. Additionally, if you weren’t a veteran, you couldn’t use a VA-guaranteed mortgage. Banks and savings-and-loan associations filled the void and continued to lend mortgage money to individuals who were not in a position to take advantage of FHA or VA loans.
Banks were limited to lending money from depositors’ funds. The banks had a responsibility to create a return for their depositors. Since funds were limited, the interest rate charged on loans had to be enough to pay interest to depositors and also to pay for the day-to-day operations of the banks. Other types of loans often yielded higher rates of return. Additionally, mortgages were for much longer duration than other types of loans. Banks had to consider the long-term outlook. If rates of return to depositors increased and all of their money was tied up in mortgage loans at lower rates, there would be insufficient cash flow to the bank.
A new source of money had to be found to offer people affordable mortgages. The answer came from the securitization of loans, transforming them into bonds that could be sold on the bond market. In 1968, the Federal National Mortgage Association, “Fannie Mae,” was partitioned into two entities. A new entity, the Government National Mortgage Association, “Ginnie Mae,” was created and continued to be wholly owned by the government, while Fannie Mae became a private corporation.
Fannie Mae’s charter was amended to allow it to purchase private conventional mortgages and to create mortgage-backed securities, or MBS, which could be sold to investors on Wall Street. Fannie Mae continues to be known as a GSE, or government-sponsored enterprise, and it sets the (underwriting) guidelines that loans must meet in order for them to be pooled into mortgage-backed securities or bonds and sold on Wall Street.
Fannie Mae is an investor that buys loans individually or in pools, from bankers and mortgage bankers. The monies to buy the loans come from private investors who are interested in a secure, long-term investment. Mortgages, as an investment, have historically had a low rate of risk. Pension funds, looking for a long-term safe rate of return, often invest in mortgage-backed securities as part of their portfolio. Insurance companies also invest in mortgage-backed securities so that they have money to pay claims. By setting underwriting guidelines that are consistent for all of the loans in the pools, Fannie Mae is able to assure investors that their risk has been minimized. The securitization of loans opened up an endless source of money or cash flow and completely transformed the lending landscape from what it had previously been. Money was now available all across America and in seemingly limitless amounts.
Stay tuned next week for Part 3 as we talk about the changes that happened in 1960s.
Market Report
Last Week in Review
"WHO ARE YOU? WHO, WHO, WHO, WHO?" When Pete Townshend and The Who penned this song back in 1978, they probably never imagined that it would come to mind during a Fed Chairman's testimony to the House Budget Committee. But sure enough - one of the Representatives questioning Fed Chair Ben Bernanke actually mistook him for Treasury Secretary Paulson...and apologized by telling Bernanke that she got him "confused with the other one." Great reminder to keep an eye on what our elected officials are telling us during this particularly important year, as they might just have their facts a bit confused.
The financial markets also appear to be a bit confused of late, with some mixed data on the health and future of the economy causing continued volatility in both Stocks and Bonds. While there was plenty of mid-week action, home loan rates ended just slightly higher for the week overall.
The Stock market has gotten hammered lower since the beginning of the year, and last week was no exception. But when Stocks move lower, money can flow over into Bonds, helping home loan rates improve. What caused last week's action was a combination of terrible earnings reports from Citigroup and Merrill Lynch; higher inflation numbers indicated in the Consumer Price Index; lower than anticipated Retail Sales; a weak report from the Philadelphia Fed showing a sharp contraction in manufacturing activity; and a Housing Starts and Building Permits report showing the worst levels of starts and permits in about 16 years.
But bear this in mind...the slowdown in new home construction is actually not bad news, as overbuilding has helped to create a glut of inventory in the real estate market. Less inventory coming on the market is actually a real positive as the housing market continues to settle. And with home loan rates at multi-year lows, now may be the time to act on that home purchase or refinance.
YOU'VE HEARD OF SOCIAL NETWORKING SITES...BUT HAVE YOU HEARD OF SOCIAL LENDING SITES? INSTEAD OF JUST DONATING MONEY, LEARN HOW YOU CAN HELP INDIVIDUALS AND SMALL ENTREPRENEURS ACROSS THE GLOBE...AND MAYBE EVEN TEACH YOUR KIDS A VALUABLE LESSON ALONG THE WAY.
Forecast for the Week
After a jam packed economic news calendar last week, the week ahead has very little scheduled economic reports in store, with only Existing Home Sales and Initial Jobless Claims coming on Thursday.
But when the economic calendar slows down, the technical signals can take center stage. Remembering that as Bond prices move higher, home loan rates move lower, the chart below shows how Bond prices have moved higher for the last several months, causing home loan rates to move lower.
Yet notice how Bond prices are hitting an overhead "ceiling"...which may just drive them back lower. Unless other financial news arrives for the week that helps Bonds move higher - it appears that Bonds may just make a turn lower, causing home loan rates to worsen.
The Mortgage Market View...
You've heard of social networking sites like MySpace and FaceBook...but have you heard of social lending sites?
Over the past few years, several websites have sprung up that combine features of the omnipresent social networking sites, and commerce sites like eBay. These sites allow individuals to become either a borrower from or a lender to the online community. The website collects basic financial information from would be borrowers, as well as the intended purpose for the money. The site then posts a short profile of the borrower, so that other members of the community can choose to lend money to them or not.
The very first created was www.Prosper.com, which allows individuals to borrow and lend small amounts of money, for any variety of purposes. Recent posts include families wanting to start a small business and a father seeking to pay off his son's medical bills...you can see their pictures and read their stories. The maximum loan amount is $25,000 - and lenders can borrow as little as $50 towards someone's total desired loan amount, and determine what rate they are willing to lend at based on the individuals credit standing and risk profile. Prosper encourages lenders to fund small amounts towards many individuals loans, to help minimize risk of default. Why consider it? Although risk of default is certainly a potential - because these are generally individuals unable to borrow via more traditional methods - it is quite a learning experience, and the rate of return will be higher than via a traditional savings account.
Another similar site is www.Zopa.com - also a social lending site, but with a few key differences. If a borrower request is approved, Zopa funds it directly, raising funds by offering Certificates of Deposit (CD) to be purchased with attractive rates of return. If you purchase a CD, you are required to choose at least one borrower request to sponsor. By sponsoring a borrower you marginally reduce the interest rate earned on your CD, which in turn is used to reduce the rate that the borrower is paying. Best of all, your money and your rate of return is guaranteed and insured.
Perhaps the most intriguing of the social lending sites, www.Kiva.org is a blend of charitable giving and online lending. This site specializes in very small loans made to individuals in third world countries. The loans requests and photos are fascinating...who knew that a cow could be purchased for only $500, or that you could literally purchase tons of coffee and cocoa for $1000? The downside to Kiva is that the loan is not repaid with interest, and because it is a loan and not a charitable contribution, it is not tax deductible. But the upside - helping those in developing countries create and expand their businesses, provide for their families and improve their countries economy as a whole - well, this offers a substantial rate of return, just of a different type.
And consider getting your kids involved. Parents can use sites like these to help instill a sense of giving back, as well as a broader view of the economic world. Start with a small amount of money, and let them decide who to lend it to and why. When the loan is repaid, turn around and lend it again. It's never too early to get kids involved in the process of understanding money, lending, and the world around them as a whole.
Let us know when we can be of assistance to your clients. To call us, simply dial 972-278-3400. Have a blessed week! Linda
Linda Davidson, Senior Loan Officer, DE Underwriter
Service First Mortgage
972-278-3400 office
972-497-6452 fax
1-877-278-SFMC ext 253 toll free
www.davidsongroup.net
The Davidson Group- The Home Buying Experts!
Ranked #4th Nationally in FHA/VA Purchase Units Closed!
Ranked 68th Team in the Nation in Total Purchase Units Closed!
Voted #1 Area Mortgage Team For The Past 10 Years
Your Lender for Purchase, Refinances, Reverse Mortgages and Commercial Lending!!
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