Woohoo!! The Fed cut rates by a .500% yesterday!!

But how does that affect those of you looking to refinance your mortgage in Northern Virginia, Washington DC or Maryland? Or purchase using LOW rates? At the moment, not that much- sorry :=(.

Let’s make sure that we’re on the same page here, and I’d like to start with explaining the Fed real quick…when the Fed is cutting rates, those cuts do not directly correlate to lower mortgage rates. For instance, mortgage rates didn’t go down by .50% yesterday because the Fed cut rates by .50%. What the Fed is in actuality cutting, is the rate that they lend money to banks.

For DC Metro area homeowners with a HELOC (Home Equity Line of Credit) I am happy to say that there is immediate gratification! You will have a lower rate/payment because what the Fed rate is tied directly to is the Prime Rate. The Prime Rate is tied to your HELOC rate, and thus what your payment is based on. The Prime Rate is always 3.0% over the Fed rate, so since the Fed cut another .50% yesterday (and .750% last week) to 3.0%, the Prime Rate is now 6.0%. In fact, immediately following the Fed announcement yesterday mortgage rates actually went up slightly. Having said that, it is true that historically the lower the Fed Rate the lower mortgage rates, but that is not guaranteed, but in this current cycle should be assumed, and that’s what we want to watch.

It’s sure to be a volatile-bumpy ride, as we saw last week with the most dramatic 36 hour swing in mortgage rates that we’ve seen in recent memory. But, if you’re stomach can handle it I am increasingly confident that you will see 30 year fixed rates at or below 5% again.

(Let’s just hope I’m right)

Todd Murdock | Senior Mortgage Advisor | HomeFirst Mortgage Corp | 703.549.3400

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Congress and the White House have come up with an economic stimulus package that would put $150 billion into the hands of consumers and businesses while seeking to reawaken the market for large mortgages.

One important provision temporarily raises the dollar limit on mortgages that can be bought or guaranteed by government-sponsored mortgage giants Fannie Mae and Freddie Mac. The current limit of $417,000 would rise above $600,000 and perhaps as high as $730,000 in the most expensive areas, congressional leaders said. The primary focus of the package is $100 billion in tax credits for an estimated 117 million families this spring. Most individuals who pay income taxes would get $600; working couples would receive $1,200. Workers who make at least $3,000 but don’t pay income taxes would get checks of $300 to $600. People in both groups would get $300 credits for each of their children.Top Democrats said they intend to send a bill to President Bush by Feb 15. If that happens, rebate checks or electronic transfers would probably arrive between May and July.

Businesses would be able to deduct an additional 50% of the cost of certain investments in 2008. In addition, small businesses would be able to write off more expenses from their taxes: $250,000, up from $125,000.

The checks would be gradually phased out for wealthier taxpayers. Couples with income of more than $174,000 would get nothing, unless they have children.In shaping the deal, leaders of both parties were forced to give ground. Democrats wanted new spending on food stamps and unemployment benefits, but didn’t get it. Republicans held their noses and agreed to $28 billion in credits for 35 million families who don’t pay income taxes. They also gave in to the cap that stops wealthier people from getting checks. Bush administration officials had earlier floated a plan to give $800 rebates to all income-tax payers.

The Internal Revenue Service expects to begin mailing out checks and making electronic transfers by May.

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As part of the Stimulus Bill that has passed the House, and will most likely get signed into law in the next few days, conforming loan limits for the next 12 months (most likely starting in February) will be raised up to $729,750! The new limits will be based on the area’s median home price, plus 25% or 50%. Since this language is yet to pass we can only speculate, but ‘people in the know’ seem to think that it will give us a max conforming limit of $625,000 for the DC Metro area, including real estate in Northern Virginia, Washington DC and Southern Maryland. The measure would also permit the Federal Housing Administration (FHA) to indefinitely insure loans up to that same level. Currently, FHA loans may not exceed $362,250.

The Bill helps us immensely with spurring buyers back in the market, and letting home owners in trouble refinance. As you’re probably aware, the current conforming Fannie Mae and Freddie Mac limit is capped at $417,000. Anything above that amount is considered a Jumbo loan and comes with a significantly higher interest rate. Northern Virginia and DC real estate has priced many first time home buyers out of the market in recent years. Once this new limit takes hold, buyers will be able to finance more expensive homes with a lower interest rate.

“In high-cost states, many home buyers with good credit could save $3,000 - $5,000 each year by not being forced into the current jumbo mortgage market”, said NAR president Richard Gaylord. “Currently, only families in lower cost areas are able to qualify for these types of affordable loans. Such a move would stimulate home sales and help stem the rise in foreclosures, reducing the number of foreclosure by as much as 210,000, and increase economic activity by $44 billion. What’s more, this will come at NO cost to taxpayers– it’s a policy change that could really boost the economy,” Gaylord says.

Other NAR projections show that raising the loan limit will reduce the supply of homes on the market by 1 - 1.5 months, and increase home prices by 2 to 3 percent. As many as 500,000 jumbo loans will refinance into lower interest rates according to the analysis.

If mortgage interest rates stay at the level they are now (or lower), the DC Metro area will have a VERY active Spring/Summer market!

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Refinance applications rose 16.9% during the week ended January 18, 2008 compared to the previous week, and are up 92% since November 2007. Purchase applications are up 7% during the same period. Also, the 4-week moving average for all loan applications increased 13.7% compared with the same period a year ago.

The average interest rate for the 15-year fixed-rate mortgage was 4.96%, down from 5.07%. The 30-year fixed-rate mortgage was 5.49%, down from 5.62%. The rate for a one-year ARM was 5.51%, down from 5.77%.

The cause for this is because interest rates are at an all time low right now. With so many houses available on the market right now, buying a home becomes a lot more comforting with these kinds of rates!

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The other day I received a call from a gentleman looking to refinance out of his 2-year adjustable rate home mortgage (2/28 ARM) that is now variable. These home loans are typically reserved for subprime borrowers due to a poor credit rating. Although this is not an ideal loan, he wasn’t in too bad of shape because he put a serious 20% down when he purchased the property. I couldn’t help but think that this guy took the 2-year ARM for a good reason (bad credit?). This wasn’t the case however. After running his credit and seeing that he had plenty of credit depth and an impeccable credit rating going back 12 years, I asked him why he took the 2-year ARM. Unfortunately this gentlemen had been duped!

He went into the story of how the original loan officer offered him an incredible rate for what he thought was for a 30-year fixed loan, and the closing costs he quoted him were half what he thought they would be, so all in all it seemed like an incredible deal at the time. The rest of the process went smoothly until the day of closing when he found out that the 30-year fixed rate was actually for a 2-year ARM with a 3-year hard prepayment penalty, and the closing costs ended up being twice what he imagined. None the less, the gentlemen went on to sign the closing documents because the loan officer said that he would refinance him out of this loan for free. He also had nothing in hand to call this loan officer out with since the loan officer never gave him three vital documents that could have avoided this serious train wreck… and he didn’t know to ask for them.

Here are the three documents you need to ask for when applying for a mortgage that will help keep your loan officer honest:

• Good Faith Estimate (GFE) - This will break down all of the closing costs of the loan. These numbers are very difficult to get exact but the loan officer should never be off more than a couple hundred dollars.
• Truth in Lending Statement (TIL) - This document will disclose several important numbers but most importantly the Annual Percentage Rate, and whether the loan has a prepayment penalty or not.
• Financing Agreement - This document right here is gold and you should have a financing agreement early on whether the rate is locked or floating. The loan officer should issue this to you not only for your protection, but also for his since it lays out whether the rate is locked or if it is floating, the loan type, rate and any points being charged. If you’ve locked your loan in, you should immediately request this document as it tells you when the rate was locked and for how long the rate lock is good for. A lot of people feel that with just a GFE they are covered, but really it’s the financing agreement that gives you the most assurance of the loan you are being offered and keeps the loan officer honest. This is your insurance should anything change at, or prior to closing.

With these three items in hand you are now empowered to call the loan officer the day of closing to ask why your financing agreement says you are locked at a rate of 6.5% but the rate on the final loan papers is 7%, or why he is charging 2 points instead of the 1 on the GFE. You actually have a signed financing agreement from both parties that states your loan program, rate and points being charged. So any deviation from this is a call for action! A GFE on it’s own does not have as much power because as the name of the document states, “Good Faith Estimate” so don’t think you’re ‘good to go’ without your financing agreement.

If you keep these three documents in mind when applying for a loan you are insuring a smooth process. Not all loan officers conduct business in this manner so please don’t feel that I am saying that all loan officers need to be kept within arms reach. Like in many professions, the bad loan officers ruin it for the good ones, but none-the-less all loan officer should be offering these documents to you. You shouldn’t have to ask for them… Oh, and in case you are wondering, the loan officer I mentioned previously was never to be found by the home buyer after the closing– so there goes the “free” refinance…

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This year, VHDA’s leading lender partners helped provide affordable housing to over 4,175 Virginians in every corner of the state.

Suntrust Mortgage Inc.

National City Mortgage

C&F Mortgage Corporation

TowneBank Mortgage

Prosperity Mortgage Company

BB&T

Wachovia Mortgage Corporation

Wells Fargo Home Mortgage

Resource Mortgage

Home Loan Corporation

Once you have been pre-approved by a lender in Northern Virginia, you can begin searching for new homes or MLS homes. When you are ready to take a look, contact us for the showing instructions and receive a Realtor rebate up to 2% cash back to home buyers for any real estate in Northern Virginia! Don’t miss out on this great first time home buyer incentive!

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