Norada Real Estate Investments

New Record Low for Mortgage Loans (Again!)

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Long-term mortgage rates continued to move lower this week, with a 15-year fixed-rate mortgage falling to a record low for the second consecutive week.

The weekly rate report from Freddie Mac says 30-year fixed-rate mortgages averaged 3.35 percent in the week ending May 2, down from 3.4 percent last week. The average rate on a 30-year fixed rate loan is just above its all-time low of 3.31 percent set in November.

A 15-year fixed rate loan fell to an average of 2.56 percent, on par with average rates for both one-year and five-year adjustable-rate mortgages.

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Why It's Still Hard To Get A Mortgage

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The housing market may be coming back, but a growing number of policy makers have expressed concerns recently that it’s still too hard to get a mortgage.

Federal Reserve governor Elizabeth Duke outlined some of these concerns and their causes in a speech last month. She was quick to note — as is anyone else who has sounded similar alarms — that she doesn’t want the market to return to the go-go days of 2005 or 2006 when anyone who could fog a mirror could get a loan. “But I also don’t think it would be a good idea to go back to the quite restrictive credit conditions of the early 1980s,” she said in the speech to mortgage bankers.

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10 Questions on the New Mortgage Rules

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Regulators issued new mortgage rules last week designed to prevent a return to lending practices that helped crater the housing market and brought the financial system to its knees during the past decade.

Here’s a look at some frequently asked questions:

What is a qualified mortgage? Congress amended federal lending laws in 2010 to give greater legal rights to borrowers who get mortgages they can’t afford. The new law, part of the Dodd-Frank financial-regulation overhaul, said if banks made a qualified mortgage — one that meets certain easy-to-identify criteria — regulators and courts would presume lenders had reason to assume a borrower could repay.

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The Real Estate Indicator Screaming "Buy"

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Buy Real Estate NowI just locked down a 2.875% interest rate, fixed for the 15-year term of the mortgage. No points. With rates like these, I find myself rethinking the idea that I want to pay off my mortgage.

I can do a lot better than 2.875% investing the money. If I just sock it away in gold, I bet I’ll come out way ahead. Finding investments that clear such a low hurdle is not that difficult.

Right now is a great time to do this, if looked at from a historical perspective. The 10-year Treasury rate is 1.64% as I write. That is what investors are willing to accept to lend money to the US Treasury for a 10-year term. It seems absolutely crazy. But the Treasury rate we see is something of a forced smile.

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Bad Debt vs. Good Debt

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This is an investing concept that’s not often thought about within the context of real estate, but it’s vital for you to understand the differences between these two types of debt.

Bad debt is typically referred to as consumer debt. What makes bad debt “bad” is the fact that it’s not being used on anything that produces cash flow or appreciates over time. Vacations, clothing, iPads, and anything else that doesn’t work for you in generating a return on that debt is considered bad debt.

Bad debt sources usually come from credit cards, but they can also include car loans, store credit, and personal lines of credit. Interest rates are usually high and are generally higher than most good debt sources.

If that isn’t bad enough, the interest you pay is almost never tax deductible. The only exception to this rule might be a qualifying business expense if you can deduct such an expense.

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FHA's Gone Nuts!

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The FHA has gone crazy, making sweeping new changes in several policies. You've got to keep these in mind when clients consider FHA loans.  Here are some of the most extreme changes:

  • Raised up-front costs for insurance
  • TRIPLE down-payment requirements
  • Cut seller concessions by HALF!

The government hopes the new policies will help the organization better handle risk. And they've got every reason to be nervous. 9% of all loans that the FHA insures are past due. FHA claims have been skyrocketing with the organization paying out of its capital reserves.

30% of all new loans (and 20% of refinances) are backed by the FHA. This is a 1,000 percent
increase over 2006. This seems like shaky ground for the company. The FHA is hoping to scale back to pre-crisis times and minimize their exposure.

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Fed Slashes Key Interest Rate to 1 Percent

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In an effort to revive the economy the Federal Reserve cut the federal funds rate today but a half-point (0.5%). This lowers the rate to 1 percent – the lowest rate since 2003-2004. The last time the federal funds rate was lower than 1 percent was during the Eisenhower administration in 1958.

Today’s interest rate cut was the second half-point cut this month. The last one on October 8, 2008 was in a coordinated move with foreign central banks.

This year’s economic weakness has created huge declines in the price of oil and other commodities. While many economists believe the country is in a recession, they also believe the recent rate cuts and other aggressive actions by the Fed will help prevent a prolonged downturn and help unfreeze the credit markets.

If these aggressive moves by the federal government are successful in thawing the credit markets, it will be great news for real estate investors who are having difficulty financing their real estate investments.

Bailout Voted Down – Money Stays Tight

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The bill designed to rescue the nation's troubled financial system was voted down today in a stunning vote of 228 to 205.

The rejected bailout shocked the capital and worldwide markets even after warnings from President Bush and congressional leaders that the economy could continue to suffer and possibly nosedive if not passed soon.

The stock market plunged even before the vote to reject the bill was officially announced on the House floor.  The decline for the day surpassed the 721-point previous record on the day after the September 11, 2001 terror attacks.  In percentage terms it was well short of the drops on Black Monday in October 1987 and at the start of the Great Depression.

Although we as a country will work our way out of this financial mess, credit will continue to stay tight in the meantime.  Conventional and “A” paper loans are still available to borrowers with good credit, but don’t expect to find many options if you are looking for a sub-prime loan or have poor credit.

Let’s continue to stay glued to our TV’s and radios and watch the drama unfold…

History Repeats Itself

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Back in 1999, Fannie Mae introduced a pilot program that lowered the credit requirements on loans that it would purchase from banks and lending institutions.  The program was is intended, in part, to increase the number of minority and low income home owners who tend to have lower credit ratings than non-Hispanic whites.

The pilot program started with 24 banks in 15 markets and expanded nationwide in less than one year.  However, even back in September 1999 there was concern that Fannie Mae, a government-subsidized corporation, could run into trouble in an economic downturn.  And if that happened it would prompt a government rescue similar to that of the savings and loan industry in the 1980's.

With the recent problems in the financial markets and the government’s proposed $700 Billion bailout package, it looks like history may be repeating itself like it did with the savings and loan crisis of the 80's.

What can you do as a real estate investor today?  Well, if you have good credit and the funds to invest, now is a good time to find all kinds of great real estate deals coupled with low interest rate financing.  If you’ve been sitting on the fence then take action today.

Your Next Mortgage May Be Risk Adjusted

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Your next mortgage may be risk adjusted!

Up until now your mortgage rate was based on the type of mortgage you chose and your credit profile.  But lenders have already started to assess up-front fees based on an individual’s credit score, and in the future this change may begin to resemble pricing similar to homeowners insurance factoring in many more variables.

If your credit score is under 720, you may be paying anywhere from a half point (0.5%) to as much as 2.75% in extra fees as your score gets lower according to Freddie Mac.  While some lenders assess a higher interest rate on your mortgage instead of charging you upfront fees.

The good news for those with exceptional credit may be lower than average rates and better loan terms.  The bad news is that those with below average credit score will be paying more for their loans than previously before.

In addition, shopping for a loan may become more time consuming because these risk adjusting fees may vary widely among lenders and mortgage brokers.

In the future, spending more time shopping for your mortgage loan will be time well spent.

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Norada Real Estate Investments 30251 Golden Lantern, Suite E-261 Laguna Niguel, CA 92677

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