Mortgage Rates Fall = Second Chance for Procrastinators

Falling mortgage rates are opening a new window for some borrowers, including those who missed their opportunity to refinance last year when rates hit similar lows.

Thirty-year fixed-rate mortgages averaged 4.39% for the week ending Aug. 4, the lowest level for the mortgage in 2011, according to the latest survey from Freddie Mac, released Thursday.

Looking for a 15-year fixed-rate mortgage? Those averaged 3.54% in the latest survey – the lowest they’ve been in the history of Freddie Mac’s survey. Five-year Treasury-indexed hybrid adjustable-rate mortgages also hit a record low, averaging 3.18%.

The rate drops came courtesy of glum economic reports as well as continued concerns about economies abroad. A sharp drop in the stock market also may have sent more investors toward bonds and mortgage-backed securities – which brings mortgage rates down.

History suggests that rates won’t go much lower, and it’s also anyone’s guess as to when rates will begin an upward trend once more. While the economy looks grim right now, a dose of optimism from some report or another could turn things around. Expectations are so low now that even slight surprises could cause rates to rise. Should the Federal Reserve adopt additional “quantitative easing” to stimulate the economy, that also could affect mortgage rates for the worse.

All of which is to say that if you’re in the market to refinance, get moving now. Below are some points to keep in mind before you start shopping.

What’s your home worth?

One of the biggest hurdles to refinancing today is a drop in house prices: If your home’s value has dropped since the origination of your last mortgage, refinancing might not be quite as appealing as you thought.

If your home value has fallen, you might need to pay down your principal in addition to whatever closing costs you’ve agreed to pay, in order to get the best rates. According to Freddie Mac, 26% of people who refinanced in the second quarter of 2011 brought cash to the closing table.  The whole concept of cash-in refi isn’t unheard of, but you’re taking money out of savings and plunking it into an equity situation. And with falling home prices, there’s the fear of “I’m going to put 10 grand in and it could be gone tomorrow.”

Others simply aren’t able to pay down principal for a refi. We’ve got a generation of borrowers out there who have been paying on their mortgages and carrying an above-market rate, but can’t refinance because the appraisal won’t allow them to do so.  At least have a ballpark idea of what your home is worth before calling a lender – and before wasting $400 or so for an appraisal that tells you your home value has drastically fallen.  To protect our clients, we regularly pull property profiles to make sure the expected and/or needed value is likely.

Make sure it makes sense.

An old rule of thumb is that refinancing makes sense if you’re able to get a rate that shaves a percentage point off your mortgage. For instance, on a $200,000, 30-year fixed-rate mortgage, the monthly payment is $1,136 per month if you have a 5.5% rate and $1,013 if you have a 4.5% rate.  That kind of savings probably makes a refinance worthwhile.

Another way to look at it is the client’s “break-even point.”  At TNG Mortgage, we typically like to see our clients be able to break even on the cost of the refinance in 36 months. Every situation is unique, and clients have wide-ranging goals.  In some cases, for instance, longer break-even periods could make more sense, if the homeowner plans on living in the home for a long amount of time to come.

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Mortgage servicers bypass foreclosure delays with more short sales


Mortgage servicers contending with attorney general investigations and extended foreclosure delays turned more to short sales in the past year.

In August 2009, short sales accounted for 8% of all liquidations of distressed properties. That number grew to 25% by the middle of 2011, according to research from Moody’s Investors Service.

Meanwhile, the time it took from a borrower default to eventual REO liquidation grew from an average 14 months in early 2009 to 24 months by the summer of 2011.

The delays pushed the timelines out and as a result, losses on the eventual sale of those properties higher. Servicers had to halt the foreclosure process in October 2010 to correct forged documents and mishandled foreclosures as part of the robo-signing scandal. Since then, new regulations from federal agencies and still ongoing negotiations between the state AGs left servicers turning toward an early sale of the property before a filing a foreclosure.

“To reduce their expenses and mitigate the high loss severity on liquidated loans, servicers are increasingly opting to bypass the foreclosure process and liquidate properties more quickly through a short sale,” Moody’s analysts said.

Researchers at Deutsche Bank said servicers are using the transactions to also cut into the shadow inventory of properties stuck somewhere in the foreclosure process.Standard & Poor’s said the market actually cut into the shadow inventory during the second quarter for the first time since 2009.

Deutsche Bank found short sales actually take less time to complete than REO sales because of the documentation problems.

The average REO took 17 months to sell in the middle of 2011, compared to just under 12 months for short sales completed in that time, according to Deutsche Bank.

Loss severities dropped as well. Servicers experienced a 70% loss rate on REOs sold in the middle of 2011, compared to less than 60% for short sales.

These transactions also do less damage to a borrower’s credit score, dropping it between 50 and 200 points compared to an REO sale, which can slash the FICO score for the borrower as much as 400 points.

Borrowers who manage a short sale can buy a new home between one and two years as well, according to researchers. Those whose homes sell through REO must wait between five and seven.

However, short sales continue to be a struggle as investors often squabble over whether or not to approve the transaction.

“Short sales, like other servicer loss mitigation strategies, may stir a fierce ‘class warfare’ between investors in different parts of the deal capital structure,” Deutsche Bank researchers said.

Moody’s analysts said short sales steadied loss severities over the past year, as foreclosure problems continue to plague the recovery.

“We can attribute the stabilization of average loss severities in part to a rising number of liquidations through short sale, which by reducing liquidation timelines, foreclosure expenses, and legal costs, can reduce the losses incurred on defaulted loans,” Moody’s said.

O.C. property index up again

August 11th, 2011, 1:00 am · 29 Comments · posted by Jon Lansner

By The Big Orange Index’s math for the second quarter, local real estate enjoyed its sixth consecutive advance — but the smallest gain in the streak. Homebuying and lending is down, but hiring and construction are up.

That’s the springtime read of my Big Orange Index, a compilation of three dozen measures of local economic patterns. Overall, Big Orange Property Owner index was 124 for last quarter. That’s up 0.38% vs. the previous three months and up 9.84% vs. a year earlier.


Here’s benchmarks that comprise the Big Orange Property Index and how they’re doing:

  • People working in real estate and finance jobs averaged 157,700 in past year. That’s up 0.21% vs. the previous three months and down 0.19% vs. a year earlier. Employment Development Dept. is the source.
  • Homes sold ran 29,426 in past year. That’s down 4.08% vs. the previous three months and down 10.32% vs. a year earlier. DataQuick is the source.
  • Local home value ran at an estimated 453,108 in past year. That’s down 0.24% vs. the previous three months and up 1.63% vs. a year earlier. Compilation of data from Real Estate Research Council and Federal Hosuing Finance Agency is the source.
  • Residential building permitting pace was $1.16 billion in past year. That’s up 3.90% vs. the previous three months and up 30.29% vs. a year earlier. Chapman U. estimate is the source.
  • Mortgage making of all sorts in Orange equals $62.68 billion in past year. That’s up 0.85% vs. the previous three months and up 43.07% vs. a year earlier. DataQuick is the source.
  • Large-complex rents in O.C. averaged 1,425 in past year. That’s up 1.33% vs. the previous three months and up 1.82% vs. a year earlier. RealFacts is the source.