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SPECIAL FREE REPORT
The Coming Refi Boom
Why banks and lending institutions are waiting to start lending 4% money Because of the number of home owners that can refinance at 5.5 and lower, banks are overwhelmed with volume. Remember that banks are still under staffed after the recent cost cutting in the finance industry. Although banks are staffing up and expanding capacity, rates are still higher than they could be. Lenders are just not ready yet for the kind of loan volume triggered by sub 5% rates. In the mean time the banks are using their rate sheets to manage the flow of volume, marking up the rate sheets to manage the number of locks they take. Banks can lose money if they take locks and are not able to fund them within the lock time frame. This explains why rates are about .50 to .750 higher than normal in relation to primary to secondary spreads of the past. Lenders are being bombarded with too many loans at once to underwrite and fund, plain and simple. At 15 to 30 days in underwriting there will be a long wait for homeowners looking to refinance. The usual work flow might be 3 to 4 days in underwriting. When banks get caught up in their work flows they will then become more aggressive and mark there rate sheets down to load up their pipeline.
Because of a lack of a secondary market and very little competition between banks there is little incentive for banks to mark down their rate sheets. Again Banks are not able to handle the volume and don't want to risk early pre-pay activity from the loans they just refinanced If you compare the relationship of primary to secondary spreads in 2003 & 2004 to current markets, (the way banks price rates based on the prices of mortgage backed securities) Mortgage rates should be lower than they are now.
Why the fed wants rates low and what they are doing about it
The Fed is purchasing mortgage backed securities for the first time in history. The Fed and the treasury know the best way to fix the banking crisis is to flood the economy with liquidity to restore confidence in the market. This quantitative easing is hosing the economy with badly needed credit and at least for now keeping rates stable. The fed has stated that they will continue this policy of purchasing mbs and treasury’s as needed for as long as it takes to get rates low enough to get borrowing going. Mortgage rates below 5% would spur a monthly payment savings on average of $100 to $200 per household that qualifies. That's like getting a 5 to 10% tax cut per household and a huge shot in the arm for the economy.
How low Can Rates Really Go And When will they?
The fed has said they want rates below 5% to stimulate the economy and to get money flowing. They have taken precedent steps towards this. How low rates really go depends on the market and liquidity. Secondary markets are still frozen because investors don’t want to take on risk right now especially when home market prices are still declining. If secondary markets can be revived and home prices stabilized lenders will be at a point were they can begin to take on more risk. Until then MBS markets and lender capacity will determine rates and how low they can go. MBS buyers are still waiting to buy mbs. They will start to buy when they know that banks will start to lend sub par 5% money and this is already begun to happen. It all depends on new capacity and how quickly banks can staff up and expand there operations, the sooner they can do this the sooner this will happen. (It takes more than just hiring new people, they have to be trained and bank employers have to expand their space and capacity to get new trainees a desk to work) We know that banks are getting ready for below 5% rates so getting rates in the low 4% range is entirely possible, of course markets are volatile, un certain and in this environment there absolutely no guarantees. (Note as of late 02-09..I have heard rumblings that the only major bank still in the wholesale business is reluctant to do to much new hiring for fear of having to lay those new employees off as soon as rates rise again in the near future)
When talking with a lender you really need to determine what rate will accomplish your goals. That means you really want to know what those goals are. A skilled consultant will ask you critical questions and help you to gain clarity on what’s really important to you about a new home loan. In this market a good rule of thumb is if you can save at least 150.00 per month and break even in 18 months or less..do it. The rate is important but ultimately what will that rate do for you. How will it help you with your long term financial goals? Will it save you money on your monthly payment? if so what will it cost you to save those dollars? Will you beak even in 18 months or less?... sO IS IT even WORTH IT TO REFINANCE? A great consultant will help you get clear on your true goals and steer you away from financial risk resulting from a un-informed poor decision.
Here are some tips to qualifying once you find a skilled consultant to work with.
Know the value of your house Lenders today are placing emphasis on the value of your home and your credit score. Your loan BAL relative to what your home is worth as a percentage is important. If the loan BAL is 380 for example the value of your home should at least be around 475k (80%) of the value) to get the best rate however if your house is worth less you can still refinance but you may to pay mortgage insurance.
No cost loans are when the lender pays a percentage (YSP) to the broker for a slightly higher rate than if a point is paid. New Loan Example with New Payments 350k loan amount assumes 30 year fixed New Pymt Cost New Rate New Loan Bal $1858.00 1pt 4.75% 356500 w/fees
$1924.00 0 pts 5.125% 353500 w/fees
$1959.00 no-cost 5.375% 350000 w/fees
Your New PAYMENT SAVINGS Compared to the current loan payment of $2248.00 6.00% 375000 original loan balance
Paying one point save 390.00
Paying no points save 324.00
No-Cost 289.00 (assuming enough rebate is available) No-Cost vs Paying a point So to pay a point you will save at least 100.00 more than if you choose a no cost option. You will want to consider your time frame in the home if you think you will be in the home for more than 7 years and most likely will never refinance during that time frame paying the point makes sense especially if the rate is at historic lows under 5%. Another way to look at this is to consider the no cost strategy. If rates will continue to go lower it makes sense to refinance more than once chasing the market down. Consider this angle. Save $100 extra but the cost of that extra 100 dollars is 6500. 6500/100=65 months or a little over 5 years. That means you will want to make sure you keep the loan for at least 5 years. If you are not sure if you will be in the home or may refinance with in 5 years, it may be a good idea to consider one of the other options.
Good Strategy For The Market Ahead
Get with your lender or Mortgage consultant to get your loan application ready NOW This means getting you loan application ready, pay stubs, w2s, and bank statements. Make sure your appraisal is at least ordered and you know the realistic value. When rates dip and the rate you desire becomes reasonably available take the lock Ideally you want to have your loan in underwriting and in line so when you do take your lock you will be well positioned to close in a timely manner not putting your lock at risk. Remember chances are likely that you are not alone in your endeavor. There are literally thousands of homeowners just like you who are trying to do the same thing....so the sooner you get in line the better
Qualifying if your home is worth less than 80% of the loan balance and or your scores are lower than 700
If your home is worth less than 80% of the loan balance you can still qualify for a refinance. You may have to pay mortgage insurance. FHA is a good option if your ltv is more than 80% and if your credit scores are lower than 700 Find A Skilled Well Qualified Lender or Mortgage Consultant to help you A skilled consultant can ask you thoughtful insightful questions most transactional banks, credit unions and other lending institutions will not risk to ask. Asking these kinds of questions is important because the financial decisions you make now will affect you in the future.
Consulting vs. Selling Rates
It’s important to get the best rate but it is also important to understand what that rate will do for you. Ask your self this question, what will happen for me if I get this rate on a refinance. Or you can ask a even better question what won’t happen for me if I don’t get the rate I want ( or close to what you want). It’s important to understand what you are really trying to do. What’s most important to you about a new refinance? The answer will go much deeper than to save $150.00. You will discover much by asking your self such a question. Ask it and answer I several times to yourself. In going through this process you will discover that saving money and increasing cash flow achieves such things as being able to spend more time with family members, financing education for a change in career, saving for retirement or purchasing a second home as a place for your family as you think about retirement. Many times you will find the decision will be emotional and you will have peace of mind knowing your on track to meet your goals.
Qualifications to look for in a mortgage professional
Look for someone who has a referral based business. You will find that this type of consultant will go the extra mile to make sure you are satisfied as a client. If you are you send REFERRALS.
Certifications. Some loan consultants are certified as Certified Mortgage Planners. The benefit there is if the consultant is unethical or does not have your best interest in heart..they could lose their certification
For a referral to someone who is certified and well qualified to work with or to work with myself please feel free to contact me
Bill Larson CMPS Consultation and Planning 925-216-9735
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