Outer Banks Real Estate

Federal Mortgage Reform passes the House

The US House of Representatives passed the Mortgage Reform and Anti-Predatory Lending Act of 2007 with a vote of 291-127.  It is now headed to the Senate for approval.  There are many opinions on this new bill and how it will affect lenders and consumers.

If passed and approved by the President, the bill will create a national licensing system for all loan officers and mortgage lenders, end Yield Spread Premiums and ban loan officers from originating loans that borrowers don't have the ability to repay.  I am guessing that Stated Income, No Ratio and No Doc Loans will take a hit.  North Carolina recently passed the North Carolina Residential Mortgage Fraud Act that goes into effect on January 1, 2008.

Here is what others are saying about the proposed federal legislation:

• The Truth About Mortgages
• Appraisal Scoop
• Bankrate Mortgage Blog

For the times they are a-changin'

Insider's guide to Outer Banks Mortgage Rate Sheets - The great bait and switch

One of the "tools" in the mortgage business is the Mortgage Rate Sheet.  It shows the "current mortgage rates" so Realtors can provide this information to their clients.  The rate sheet is usually faxed or emailed weekly and I see many of them on the bulletin boards of Realtor's offices. 

Bottom line - I think the current rate sheet game is nothing more than a Bait and Switch and it hurts everyone.  Most lenders quote rates with one point origination fee (which is one percent of the loan amount) but those actual rates would cost the customer two to three times that amount.   They use the fine print at the bottom of the sheet as a get out of jail card - the "Rates are subject to change" card.  You might ask - Why would they offer something they can't deliver?  Because they think it will get them more business.  They think if they quote the lowest rates, Realtors will send them more business.  What is really does is set false expectations. 

The Mortgage Lender loses credibility - the customer is expecting a much lower rate than what they will get for a one point fee. 

The Realtor loses credibility - They pass along the rates to the buyers.

The buyer loses faith in the process.  Some don't find the truth until they show up to the closing table. 

I have decided to start sending rate sheets.  My rates come directly from my pricing engine so I know I can deliver what I am offering.  The rates won't be unbelievably low - but they will be accurate.  My rate sheets will also include some fine print:

These are the current rates for a single-family primary residence based on a 60-day lock. Your loan's final rate will also depend on specific characteristics of the loan transaction and your credit profile up to the time of closing. For more information, please refer to the Loan Pricing Disclosure.

If you are interested in receiving a weekly rate sheet or you have any questions, feel free to contact me.   

Dare County FHA Limits to increase to more reasonable levels

On November 13, 2007, Dare County will have a better option for primary residents to qualify for loans.  FHA is increasing their loan limits which had been at $200,160 for some time.  Now with the increased loan amounts, FHA offers a real alternative to those buying a home in Dare County. 

Some of the benefits of FHA:

• Not driven by Credit Score like most conventional programs - we have had scores in the mid 500's approved
• 97% financing with great rates
• 3% down payment can be gifted to buyer

This program is not for a second home or investment property.

If you are interested in learning more about this program - please feel free to contact me.

Effective on November 13, 2007 - FHA mortgage limits will increase in:

The KILL DEVIL HILLS, NC MICROPOLITAN Area affecting the North Carolina County of DARE

#Units: Current   -  Pending

1 Unit: $200,160  - $327,750

2 Unit: $256,248  - $369,150

3 Unit: $309,744  - $448,500

4 Unit: $384,936  - $517,500

 

The above limits will become effective on November 13, 2007 and may be subject to change. To view the new limits on November 13, 2007 please visit: https://entp.hud.gov/idapp/html/hicostlook.cfm 

 

Will the Fed cut the rate again in October?

The big question for many is - will the Federal Reserve cut rates on Halloween?  Based on the huge amount of recent write offs from some major players in the mortgage world - I think it will happen.  The folks at Wall Street believe that we could see a 1/4% reduction on Wednesday.  There are also predictions that a rate cut could have a negative impact on crude oil prices. 

On a less serious note, some people are searching for Vegas Odds for a fed rate cut.  Seems my earlier post came in pretty high in the search engines...  I was right about a cut but wrong on the amount.  They say you can be on anything in Vegas - I just can't find the odds online. 

I have a history of picking the underdog.  Mac instead of PC (Mac was and still is better) , Beta instead of VHS (beta was really better but still lost the war), Kiwis over the Swiss in Americas Cup (Swiss dominated).  The list could go on and on but I digress. 

Now for the important part - how will a fed rate cut affect the Outer Banks Real Estate Market Conditions?  Typically a reduction in the fed rate will trigger a small jump in 1st mortgage rates but the markets are not really following standard procedures lately.  My guess is that we will not see a big jump in mortgage rates.  The good news for those that have Home Equity Lines of credit - a rate cut will slightly lower monthly payments.  Even though it is a small break - any break is good in the off season on the Outer Banks.

Negativity in the Mortgage Market on the Outer Banks

There is a new Outer Banks Blog from Greg Cremia titled Outer Banks Community Forum.  Greg is an old school Active Rain blogger that has now switched to an independent platform.  Greg understands the technology and I think he will be a very active local blogger.

Greg has a guest author Bernie from Beach Mortgage.  Bernie is a good guy and a long time lender on the Outer Banks.  He posted an article about the negativity in our mortgage / real estate market.  I believe that Bernie is correct on a few fronts - there is a tremendous amount of negativity in the press about the current mortgage market. 

This is where I differ from Bernie. 

• Loan requirements have tightened - higher credit scores are larger down payments are required today compared to July 2007. 
• It is reported that the mortgage industry has lost 27,000 jobs in the month of August. 
• North Carolina Legislature has passed a bill addressing Mortgage Fraud.  The new law goes into effect on January 1, 2008.   
• Most lenders do not have all of the products they had before the fall.  Just check out the Implode-O-Meter to see who is no longer in business or what products have been pulled from inventory. 
• Existing Home sales dropped to their lowest level since 2001. 
• The press moving onto another subject is not going to fix the problem.

Prices have dropped on most properties on the Outer Banks.  Rentals for most companies hit an all time high this year.  There are some good deals on the market today and there are some very motivated sellers. 

A favorite old boss of mine had a saying that he would share with us on an all too frequent basis - it is what it is - which was voted the #1 cliche of 2004.  Deal with the facts and move forward.  Find solutions for your customers when the rules change.   

Done for the night - time to watch the Rockies try to defy odds and beat those hairy Red Sox. 

Fed cutting interest rates today?

The Federal Open Market Committee meets this afternoon and we should know the results just after 2 p.m. eastern time.  Vegas odds are leaning towards a .25% cut but some are hoping for more.  The current rate is 5.25%.  Many analysts are concerned that if the rate is cut too much and/or too quickly, we will see inflation rise above acceptable levels. 

From the Mortgage Market Guide:

FOMC Meeting

The Federal Open Market Committee is a twelve-member committee made up of the seven members of the Board of Governors and five Federal Reserve Bank presidents. It meets eight times per year to determine the near-term direction of monetary policy, such as setting guidelines for the purchase and sale of government securities and setting policy relating to System operations in the foreign exchange markets. These changes in monetary policy are now announced immediately after FOMC meetings. Most importantly, the Fed determines interest rate policy at FOMC meetings. Market participants speculate about the possibility of an interest rate change at these meetings, and if the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching. The interest rate set by the Fed the federal funds rate serves as a benchmark for all other rates. A change in the fed funds rate, the lending rate banks charge each other for the use of overnight funds, translates directly through to all other interest rates from Treasury bonds to mortgage loans. It also changes the dynamics of competition for investor dollars: when bonds yield 10 percent, they will attract more money away from stocks then when they only yield 5 percent. The level of interest rates affects the economy­ higher rates tend to slow activity; lower rates stimulate activity, a ripple effect that expands into all sectors of the economy.

POTENTIAL IMPACT ON INTEREST RATES: HIGH

Update - the Fed cut both the discount rate and the fed fund rate by 1/2 %.  Markets went crazy - stock market went up by 200 points in minutes and the mortgage bonds went up by 44 basis points (bonds go up = rates go down). 

Alan Greenspan in the news

Alan Greenspan is on a book tour and is sharing some insight on his tenure as Federal Reserve Chairman.  He is also sharing his ideas on our current Real Estate and Mortgage market conditions. 

Financial Times published an article with some interesting quotes about where we stand and what he believes lies ahead. 

Mr Greenspan said he would expect “as a minimum, large single-digit” percentage declines in US house prices from peak to trough and added that he would not be surprised if the fall was “in double digits”.

Alan Greenspan, April 2005

                                                                                                                                                                                              

Photograph by: David Burnett

The Federal Reserve will meet on Tuesday and most analyst believe we are in for a .25 or .50 percent reduction in the fed rate.  The fed rate (currently at 5.25%) is the basis for the prime rate (typically fed rate + 3%) which most Home Equity Lines of Credit are based on. 

Mr. Greenspan could not have picked a better time to release his memoirs.

Fed Rate changes on the horizon?

To take borrow a play from Paula the Queen of the Surf Pirates and her google results.  Paula is a local blogger that publishes some of the search engine requests and then ponders how in the world she came up in the results. 

Today, someone found my site from searching for the following in Google:

Feds raise interest rate to 6.75%  june 2007

Whoa there man.  Is this person concerned that the Fed will raise their rate to 6.75% in June?  Not going to happen.  The Feds will release their decision on the Fed Rate (currently 5.25% and Prime which is used in most Home Equity Lines of Credit is 8.25%) on June 28th.  Based on recent inflation reports (another due on Friday at 8:30), the Feds will probably leave the rate steady at 5.25%.  The verbiage about reductions in the fall have diminished over the last few months so don't count on that equity line getting any less expensive this year.

Now the googler might have been confusing the Fed Rate with Mortgage Rates.  Mortgage Rates have climbed over the last six weeks and as of today, a 30 year fixed rate loan is around 6.75%.

See what happens when you say something nice...

New Zealand raised their equivalent of their federal fund rates today over concerns of rapid economic growth (a nice way of describing inflation).  The increase caught the market by surprise and it is affecting bonds across the world (including US mortgage bonds).  Initial Jobless Claims came in slightly under predictions so it looks like it will be a bumpy day today.  Bonds are currently down 41 basis points this morning so mortgage interest rates should continue their four week climb. 

I write something nice about the Kiwis last night and then they shock the world bond market.  On Friday the Balance of Trade will be released at 8:30 AM which should not have a major impact on the mortgage bonds.  Next week there are some key economic reports scheduled which could help reverse the steady climb in rates. 

Mortgage Trigger Leads under fire from lawmakers

So you decide to purchase a vacation home on the Outer Banks.  You apply for a mortgage and 2 days later your phone starts to ring.  Other lenders have purchased a "trigger lead" that ultimately comes from the credit reporting agencies.  The folks at Real Estate Bloggers wrote a very detailed description of the process (and added some colorful descriptions of those involved).  There is also an article in the Boston Herald which explains actions being taken by Congress to eliminate this practice.

We have taken steps to help protect the privacy of the borrower by not including the phone number when we request a credit report.  It will probably take legislation to stop this process.