Charlotte Mortgages

Charlotte Mortgage Rates get worse today and investors lose PMI altogether!

The loss of PMI for investors mean that going forward buying an investment property will require a 20% minimum down payment.  90% financing was still available but without the mortgage insurance the loan doesn’t exist.

Mortgage rates worsened again today.  I think there are many buyers out there that think rates are dropping and they should wait… NOT TRUE.  Rates have been getting worse for over a week now, and show no signs of turning around.  I am puzzled at what is driving the bond market right now other than investors don’t want to touch anything with the word “mortgage” in it.

Normally a “flight to quality” would mean investors sell their stocks and buy bonds.  Right now investors don’t have any more confidence in mortgage bonds than they do in stocks.  I think it’s a little nuts because with Uncle Sam backing Fannie and Freddie, mortgage bonds offered by those two are almost risk free.

Good news for homeowners as Fannie-Freddie Bailout extends cheaper loans for buyers!

In my business you learn one thing fast, people don’t care nearly as much about the total price of a house as they do about the cash out of pocket and monthly payment.  Monthly payment is king, and that is one more reason the housing boom existed… aggressive financing sells houses!  Offer lower rates, and therefore lower payments to potential home buyers and you will sell more homes. 

Many arguments are coming about the bailout plan and whether it solves the long term problem… I don’t care right now.  It is the right thing to do right now and let me tell you why.  Let’s say a man has ruined his body with poor eating habits over many years and is now at the brink of death.  Changing his lifestyle is the long term solution but if you don’t get him to the emergency room immediately he will die!!!  Fannie and Freddie were taking to the emergency room and are now stable… the lifestyle change can be addressed a little later.

Now that Fannie and Freddie have been taken over by Uncle Sam, the bonds they sell are virtually risk-free.  Fannie-Freddie keep money available for home buyers by taking mortgage loans from lenders and giving them their money back to go lend out again.  Banks only have so much money to lend and Fannie-Freddie make sure they aren’t going to run out of new money to lend.  then they turn around and replenish their cash by selling mortgage bonds.  These bonds are guaranteed by Fannie-Freddie so that even if the actual mortgages they are based on do not perform, the bond holder still gets their money.  Fannie-Freddie were losing so much money there was going to be a point that they weren’t going to be able to honor all their obligations.

Now that problem is solved.  The U.S. Government has now stepped in and eliminated the risk of a Fannie-Freddie collapse.  That means the bonds they sell are virtually risk-free and what happens when an investment has lower risk?  It yeilds a lower rate!  The lower the risk the lower the rate. 

Monday mortgage rates dropped almost 1/2 point!   That is huge!  This buyer’s market in Charlotte, NC will NOT last much longer.  If you want to buy in the Charlotte market you need to act now and take advantage of these awesome rates.

In Charlotte Mortgage News the Senate votes to pass huge housing bill aimed at stabilizing the mortgage industry.

The Senate voted 72 to 13 today to pass the… get ready for it….. “House Amendment to Senate Amendment to the House Amendments to the Senate Amendment to HR 3221; Foreclosure Prevention Act of 2008.”  Now that’s a mouth full!  The bill is pretty long so I am going to summarize if that’s ok with everyone.

FIRST THE GOOD…
This bill will reassure mortgage bond investors about the stability of the mortgage giants Fannie Mae and Freddie Mac.  This ensures plenty of money for new home loans for years to come.  Many will say that it comes with a price, but my argument is that everything comes with a price.  The price to not support Fannie/Freddie would be greater.  Imagine a world without mortgage bankers/brokers… my credit union has like 3 loan program and you better have 20% down!  If I may speak frankly, I like my job and it probably wouldn’t exist anymore without a secondary market for mortgage bonds.

Conforming loan limits increase permanently from $417,000 to $625,500.  All I have to say is YAHOO!!!

FHA will be empowered to help troubled homeowners refinance their subprime loans to more affordable fixed rate loans.  Some legislators have estimated the bill could help as many as 400,000 Americans avoid foreclosure.  RealtyTrac said 740,000 properties received some form of foreclosure notice in the second quarter which is a 121% increase from the second quarter of 2007.  This new initiative could help homeowners escape risky adjustable loans before its too late.

First-time homebuyers also will receive a tax loan credit up to $7,500, but this part is only valid from April 2008 - June 2009.  The “credit” will be repaid over the next 15 years by the homeowner.

NOW THE BAD…
I am not happy about some of the changes being made to FHA.  They are raising the minimum cash investment required to buy a home from the 3% we have all come to knwo and love to 3.5%  This is not the end of the world, but grumpy old Olan doesn’t like it.  I think the 3% rule is one of the subtle beauties of FHA… a little moderation in a world of extremes.  I don’t think the answer to increasing homeownership is to lend everybody 100%  nor do I think the answer to increasing foreclosures is kill every potentially risky program over night.  I don’t think the 3% requirement is a problem, but I do like that fact that they didn’t go nuts and up it 5%.  Thank you Congress. (I guess)

Seller-funded down payment assistance programs will no longer be allowed.  I actually don’t hate this long-term, but in the immediate future it is going to slow down an already slowing market.  Timing could be better, but if you’re in a hole you gotta stop digging sooner or later.

The loans FHA makes to troubled homeowners to help them out of risky mortgages will also come with a future penalty.  FHA will recapture some cash from the profits when these homes are sold.  This will lower the potential cash available for reinvestment into future real estate.  I am not sure how they are going to collect, but I am sure we will hear more soon.  

A COUPLE SIDE NOTES…
Both Presidential Canidates are on record in support of the bill. 

The CBO estimates the actual cost to taxpayers to be right at $25 Billion.

There are more changes coming to FHA through this bill.  I will write more on the subject once I have time to read the entire bill… its only 700 pages so it shouldn’t take long!

Myers Park Mortgage is a HUD approved lender that offers FHA and VA (Veteran) loans, conventional and Jumbo loans for Charlotte area real estate.  We lend in NC, SC, TN, VA, GA, and IN, but specialize in the Charlotte Metro. (Lake Norman, Concord, Harrisburg, Matthews, Mint Hill, Pineville, Monroe, Fort Mill, Lake Wylie, Gastonia)

Call today to apply at 980-721-7478 or APPLY ONLINE.

Could Charlotte North Carolina be immune to the housing crisis?  Maybe Affordability will be the key!

I just read an amazing post by Terry McDonald of Wilkinson and Associates Realty, and he gave some fascinating statistics that show the overall health of the Charlotte housing market.  He also points out very clearly the so-called “National Housing Market” does not exist because real estate is local and therefore there is not one big market.  Every individual market can be very different and although many reporters and economists like to average numbers together, sometimes that hides from very important facts… like the fact that the Charlotte Housing Market is at very low risk.

One idea that has been festering in my head is that the cause of the housing woes we are in can be closely related to affordability and the ill-fated attempts by many to avoid it.  You would think that one of the most fundamental elements of mortgage lending is making sure a home buyer can AFFORD the house they are buying!  That would seem to be common sense, but with changes in the mortgage market that actually became an after thought.

Back in the 80’s and 90’s the mortgage industry shifted from banks and S&L’s that held mortgages they made to a market that securitized the loans into bonds and sold them.  Freddie Mac invented the first MBS (mortgage backed security) and everyone was off to the races!  Instead of banks making you a mortgage loan, keeping that loan and collecting your payments; they began to outsource the originating and servicing of the loans to other companies… enter mortgage brokers.  While servicers consolidated rather quickly, origination companies fragmented and splintered into hundreds of smaller shops with some being one person working out of their home office. 

With “one-man shop” brokers selling loans made by lenders who never intended to keep the loan to begin with… well it doesn’t take a rocket scientist to figure this out.   Would you be more likely to lend my money or your money?  Somewhere the greed factor kicked in and people stopped caring if the people buying the houses could actually afford to make the payments long-term.  Once Wall Street saw all the cash changing hands and figured out mortgage lending was becoming an investment business, they had to jump on board… enter subprime lending.  From 2003 - 2006 the Fannie/Freddie/HUD share of the MBS (mortgage back security) market shrunk from 70% to 30%.  During this period a majority of new mortgages were being written by people that had been in the room for like 10 mintues.  Fannie/Freddie/HUD have been at this a long time and had seen the ups and downs, but when Wall Street gets excited about something new… watch out!  Typically there is a lot of enthusiasm and not much caution.

How does this affect Charlotte home buyers?  Simple.   Houses here are affordable.   There are plenty of people either in Charlotte or moving here that don’t need a crazy loan program to buy house… they can afford a nice house with a traditional mortgage program!  PMI’s proprietary Affordability Index measures how affordable homes are today relative to 1995.  A score of above 100 means homes are more affordable, Charlotte scored a 114!  So home prices have to drop in some cities so people can afford to buy them with traditional mortgages, but in Charlotte home prices are stable because they are affordable. 

Check out PMI’s report yourself and you can see the tremendous stability in the Charlotte housing market. 

Read more…

 What effect will the Fannie Mae / Freddie Mac issue have on the Charlotte mortgage market? 

First lets take a look at what has happened.  Fannie Mae and Freddie Mac are private companies that turn mortgage loans into bonds that are sold to investors.  Just like you can buy a U.S. Treasury Bond that is backed by the U.S. government, you can buy a mortgage-backed bond that is guaranteed by Fannie Mae or Freddie Mac.  They make money by charging for that guarantee.  Needless to say, the rapid increase in foreclsoures has cost them both big… billions big!

In steps Uncle Sam.  Over the weekend the U.S. Treausry and the Federal Reserve stepped up to help out.   They extended Fannie and Freddie to option of borrowing more money “if needed” at a very low rate, and even said the treasury would buy stock if required.  In effect, we now have 2 private companies that guarantee mortgage bonds that are now backed themselves by the United States of America. 

This new backing had immediate effects.  This morning there was an auction held for $3 Billion of Freddie Mac Bonds… they sold like hot cakes!  Having Uncle Sam’s backing means these bonds are almost risk free and investors like low risk! 

There are 2 primary issues at play here:

#1.  Is there enough confidence in Fannie and Freddie for them to conduct business.

#2.  Can they make a profit doing it?

Well, the government backing has solved problem #1.  People now feel more confident than ever to invest their money in Fannie or Freddie guaranteed bonds. 

The stock prices are probably going to be a little shaky for sometime, but the impact for charlotte mortgage consumers is good.  This should be good for rates in the short term because it helps the market bond market which is what determines our interest rates.  It also means that conventional loans aren’t going anywhere for the moment.  Read more…