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Mortgage Interest Rates Report for the 1st Quarter

When the month began, the rates remained the same as that of March end. For a 30-year fixed mortgage rate, the rate increased a bit to 4.87%. This rate does not include points and is compared to the 4.86 percent rate of the prior week. On a 15-year FRM, the median rate is at 4.10%. This is only a slight change from 4.09 percent. Moreover, a one year adjustable mortgage rate declined to 3.22% from its 3.26% performance compared to the previous week.

According to Freddie Mac, the 30 year fixed mortgage rate decreased to 4.63% by the end of the May 12 week. This is below the 4.71% of the previous week and 4.93% of the prior year. Moreover, the 15 year FRM is at 3.82%. This is a decline from the 3.89% of the previous week and 4.30% of the prior year. The average adjustable rate mortgage of the 5 year treasury index hybrid is at 3.41%. This is a decline from 3.47% from last week and 3.95% from the year earlier. In addition, the 1 year Treasury indexed ARM is at the average of 3.11%. Similarly, it shows a decline compared to the 3.14% of last week and 4.02% of last year.

Since the year 2009, Freddie Mac finally made a profit while Fannie Mae kept on sinking with losses amounting to about $6.5 billion in the first quarter of the year. Freddie can go on even without the assistance of the government. On the contrary, Fannie Mae will need around $8.5 billion to be able to keep itself in business. Fannie Mae is down and many homebuyers are avoiding ARMs because of the risks involved. It has potentially higher payments with the possible interest rates in the future according to the chief economist of Freddie Mac Mr. Frank Nothaft.

In the year 2004, the share of adjustable for all loans reached up to 36%. The lowest point is at 2009 when around 2% of the mortgages were ARMs. It is Nothaft’s belief that the increase in shares would reach about 9% this year. An adjustable rate mortgage rate is basically a type of loan with changing interest rates. ARMs usually begin with small monthly payments compared to mortgages of fixed-rates.

Implication of Reduced Mortgage Payments by Americans

Records show that Americans are cutting their mortgage payments to use cash in consumer spending and savings.

The low rates of interest, defaults and refinancing have removed at least $100 billion from the yearly mortgage bill of the nation. This amount is comparable to one year’s worth of unemployment benefits or the Social Security tax cut on payroll for this year.

According to the Bureau of Economic Analysis (BEA), homeowners have reduced their interest payments by 11% or $67 billion worth in one year. The savings come from low interest rates. Furthermore, people save by cutting down debts through making payments of the principal amount and loan defaults. BEA further added that the total mortgage debt of the nation has been slashed from about $11 trillion in the middle of 2008 to $10.3 trillion in the first quarter of 2011.

Homeowners are cutting mortgages more slowly than adding to it during the challenges in the housing market. In 2006 alone, the borrowers took about $ 1 trillion in total principal and only $90 billion in excess interest, according to a BEA data. Decreasing mortgage payments show an economy’s reset after a housing trouble.

Savings, interest and rates are some of the economic effects of reduced mortgage debts. In terms of savings, households are able to keep more money than spend on mortgage interest since the year 1998. As for mortgage interest, it consumes about 5.27% of the after tax income of the entire nation.

This is the lowest since the year 2004 and is similar to its state in the 1980’s and early 90’s. Finally, the rates of interest on all mortgages have dropped for the past 16 quarters to about 5.96%. This is the lowest since the record of the government in 1977. This declining rate shows how borrowers restructure their loans to be able to manage credit risks better and shorten their 30 year mortgage to 15 year loans.

Question: Does it make sense to short sell my home or should I let it go into foreclosure?

Answer: Many homeowners who are having delays in their mortgage payments are worried of its impact on their credit score. But what is the difference in the impact on credit score between short selling and foreclosing a home?

FICO, the producer of the widely used credit score says that many regulators, lenders, loan servicers and consumer advisers working with mortgage related issues are always asking this question.
To be able to answer these questions and get rid of known myths, the company examined the impact of foreclosing and short selling mortgage scenarios on individuals with poor, good and excellent credit standing.

Short selling a home occurs when a homeowner finds a home buyer to purchase the property at a lesser price compared to what it owes. On the other hand, foreclosure involves surrendering the house in an attempt to get one’s money back.

In cases of short selling a home, a common misconception is that this is a better option compared to a foreclosure. However, the truth is, both situations impact the credit score equally. The reason for this is that, in both cases, the lender receives a lesser amount compared to the loan that is owed. Thus, both are considered as default.

Short selling and foreclosures may not differ in terms of the decline it can cause to the credit score. However, the absolute value of the score reduction may vary depending on the original score of the individual. FICO scores have values of 350 to 850; the higher the credit score, the better. Specifically, 680 is low, 720 is satisfactory and 780 is good.

If an individual’s score is higher before short selling or foreclosing a property, the decline in score is bigger than individuals with low scores to begin with. Poor credit scores may be further reduced to 85 to 105 points. Mid scores can decline by 130 to 150 points. High credit scoring individuals may end up with a minus 140 to 160 credit score mark.

Aside from differences in the effect of foreclosure and short selling in the absolute value of a credit score, there are cases when short selling may lead to less damaging effects compared to foreclosures. This happens when lenders do not report the specific amount of unpaid debt by the borrower. It is the role of the lenders to send all the possible information to credit agencies before a credit score of an individual is made. Missing out some information can result to a plus 35 points in the score after a short sale than after a foreclosure according to FICO.

Both short sale and foreclosure of a home negatively impacts the credit score. The only difference is that their absolute effect on the value of the score differs. However, whichever option is taken, it is worthy to take note that none of the two can do the credit score any good. Hence, if both can be avoided, then do so.

Reston-based Merscorp tapped a former executive of Citigroup to head its parent company. This company maintains a clearinghouse of electronic mortgage that is faced with a series of lawsuits regarding foreclosure documentation.

The new president and chief executive of Mortgage Electronic Registrations Systems Inc and its subsidiary is Bill Beckmann. He comes in to replace R.K. Arnold, a recently resigned veteran associate of the company. It was Paul Bognanno, interim chief of the company, who organized and searched for the person to fill the position. Beckmann became the top candidate who eventually got the position. Aside from being president and chief executive, he will function as consultant during the transition period.

Merscorp publicized the expertise of Beckmann in the mortgage industry. Before leaving the company in 2008, Beckmann worked for Citigroup for about 2 decades as chairman and chief executive. Recently, he had been running his own consulting firm.

Beckmann is joining a company that is important in the operations of the mortgage industry. However, the company is also bombarded by critics for its errors and gaps in the private electronic database that caused a mortgage mess.

The database registers around 68 million of mortgages or 60 percent of the loans of residents. This database helps brokers collect mortgages to sell to investors without the need to deal with slow processing of documents in the courthouses of many counties. Aside from mortgage tracking, MERS functions as proxy for mortgage owners in foreclosures.

According to Mersorp chairman Kurt Pfotenhauer, the knowledge of Beckmann and his experience will greatly help in the implementation of the company’s initiatives for the improvement and strengthening of the MERS brand. As a response, Beckmann said that he is enthusiastic to provide a one of a kind and important service to the housing finance system of the nation.

During his stint at CitiMortgage, Beckmann was in charge of strategy, sales, capital markets, operations and regulatory issues. The company during that time had around 4 million residential mortgage customers. Beckmann has an M.S. in management from Stanford Sloan Program and a Mathematical Economics Bachelor’s Degree from Brown University.

The Real Deal with HARP

Attracted by the chance to decrease mortgage payments, plenty of homeowners take their chance in refinancing through HARP or Home Affordable Refinance Program. This program is created to make the refinancing process easier for homeowners who are experiencing financial challenges and do not have much equity for their homes. This federal program seems to be a wonderful opportunity, but all things considered, is it worth it?

Most borrowers who refinanced in the first half of 2010 saved around $125 to $150 on monthly mortgage payments says Freddie Mac. However, this is not a big amount in comparison to the thousands they spend on closing costs. The borrowers who greatly benefit from the HARP are those that acquired a large loan during the time when interest rates were at 6 to 8 percent. On the other hand, homeowners from the less expensive area may not get the same benefit.

In order to fully benefit from HARP, upfront costs must be reduced. But, this is not easy with expensive title fees in most states. Moreover, there is little chance to find a lender who can offer a refinance through HARP without collecting other fees. In fact, if ever lenders will waive upfront fees, they will most likely compensate for this by charging higher interest rates. In addition, they can include closing costs in the total payment of the refinanced loan. The problem with this is that it can affect a borrower’s eligibility for the program. This can influence the loan to value ratio of the mortgage.

HARP permits borrowers to refinance up to a maximum of 125% of the value of their homes. But, borrowers on borderline may be affected with the addition of closing costs in one’s loan amount. Despite the stipulated guidelines of the program, almost all lenders are not willing to offer refinancing for those borrowers with loans of more than 105% of their property’s value.

Fannie Mae and Freddie Mac are trying a new approach for companies that provide home loans. This is for the purpose of controlling the inefficiencies in the home finance system.

The Federal Housing Agency gave Freddie Mac and Fannie Mae directions to make guidelines for firms providing mortgage services. This is to control the blame to the servicers for their lack of effort to let the borrowers stay in their home and prevent foreclosures.

A lot of these mortgage services are being investigated by attorney general of the state for their participation in the failures and foreclosures in various mortgages.

These aligned approaches to servicing are aimed at helping reduce tax expenses of individuals who are suffering from billions of losses from the companies at the presently struggling housing market. Fannie Mae and Freddie Mac have been complaining about some delays and problems in their services that resulted to increased costs.

Some inclusions in the guidelines are incentives for services that will perform modifications for delinquent borrowers and sanctions for failure to meet specific goals. Moreover, the guideline prevents the servicers from considering foreclosures while the borrower can have the option of loan modification.

These changes can be used as a basis of regulators and lawmakers for the standards in nationwide servicing. These guidelines will be put to effect at the third or fourth quarter of the year said the FHFA.

Making these guidelines will be a huge task for Freddie Mac and Fannie Mae. The reason for this is that it will need a big amount from investors to finance 90 percent of loans and at least $5 trillion in mortgages. Fannie and Freddie works with at least 1,400 to 2,000 mortgage servicers said the spokesman of each of the two companies.

Freddie Mac further added that operational differences will show in the implementation of the guidelines. Bank of America Corp. JPMorgan Chase & Co, Citigroup Inc and Wells Fargo & Co, the major banks in the US are the biggest mortgage servicers today.

A jumbo mortgage loan is a type of home loan that is beyond the average loan amount set by Fannie Mae and Freddie Mac. This type of loan is rarely available that is why it is charged a higher interest rate. The limit of the loan amount is based on the original cost of the principal instead of the resale value of the property. The Federal National Mortgage Association sets a higher limit for a jumbo loan.

The current average limit for a mortgage in the US amounts to $417,000. However, the Housing and Economic recovery Act of 2008 enhanced the definition of loan by raising the limits for high-cost areas in the country. These areas are given a limit of $625,500. Alaska, Guam, Hawaii and U.S Virgin Island properties are considered high-cost. The limit in these U.S territories has been raised up to $938,250. To qualify for this loan, borrowers must make a down payment of at least 20 percent. Moreover, before loan approval, an extensive underwriting process must be undergone by borrowers and the lenders validate their monthly incomes.

Jumbo loans are similar to confirmation loans. Their only difference is that jumbo loans have higher interest rates. Because of this, jumbo home loans are considered riskier than confirming loans. Most jumbo loans are set up for luxury properties. Lenders usually charge higher interest and require higher down payments for this loan. Jumbo loans are charged an extra 0.25 to 0.50 percent compared to rates of confirming loans. The rate is based on the pricing of risk in the current market.

The advantage of jumbo loans is that it is easy to refinance and make changes in the loan. Loan modifications are especially done if it is obtained from a single financial institution. Each bank has different rules and policies that customers respond to in various ways. Another advantage of jumbo loans if obtained from a single bank is that the short sale process is easier. This has been the widely used process in selling houses in most communities.

Because of the current economic challenges, many families today are opting for home refinancing. Otherwise, they will be losing their homes. Home refinancing lowers your monthly mortgage payments and extends your payment terms.

But, it is charged a high interest rate. It also entails an application for a secured loan that uses you home as collateral. Thus, if you cannot pay your loan, the lending agency has the right to pull out your home. Despite the disadvantages of home refinancing, it is still the friendliest deal that people can get to save their homes.

One way to refinance is by converting an ARM to a fixed rate loan. This is used in investment properties especially homes that are taken from a portfolio lender or someone who does not sell the mortgage. Lenders allow ARMs to finance the entire amount of the property’s improved value. People who go for this type of refinancing usually get a 5 year ARM and convert it to a 30 year ARM before the five years expire.

Rate reduction in refinancing helps lower mortgage payments. The only doubt on refinancing is whether the cost is worth the reduced amounts of payment. A borrower must think about the time it will take for the mortgage to recover its costs. Different advice has been offered about the estimated recovery period.

However, this is a case to case basis. A homeowner should think about the length of time he or she plans to keep their house. Some borrowers want a longer recovery period if they do not plan to sell the house soon. A long term borrower who thinks that the low levels at the moment will not stay may consider refinancing at the soonest possible time even if this means that the savings are not as big as expected.

The current economic situation resulted to a bad credit standing for most Americans. Despite the poor credit rating, there are many companies who specialize in providing bad creditors with the chance to refinance their mortgage through affordable home refinancing programs.

These programs lower the mortgage payments and extend the loan term of homeowners so that they can still afford to pay their mortgages. Aside from lower mortgage payments, the home refinancing program also helps individuals avoid bad credit score. Unpaid mortgage and high interest rates play a big role in bringing down an individual’s credit rating. Moreover, the home mortgage refinance program benefits many by giving borrowers a fixed interest rate. Before applying for a home refinance mortgage program, here are some refinancing guidelines to follow.

First, choose a lender who specializes in bad credit mortgage refinancing. These lenders are highly experienced in handling cases of bad credit. Hence, they can easily find the best deal for people with bad credit. If you have a bad credit, do not spend your time applying for a loan from traditional lenders.

Second, it is best to try applying to different lenders to get the best and most affordable home refinancing rates. Try researching online. This is easier and less time consuming. If you can apply online, do so. This is more convenient and the quotes are usually released a little less than one hour. Even if you have bad credit, remember that you can always negotiate to get the best loan terms.

The economic crisis of today has led to many people losing their jobs and consequently losing their homes. However, this can be prevented by applying for a home refinancing loan. Home refinancing loan lower interest rates, extend payment terms and make mortgage payments more affordable. In addition, it is made available to people even with bad credit.

The dollar exchange rate for pound is higher by 0.215% with 1 GBP being equivalent to 1.6288 USD. Similarly, the Australian dollar exchange rate for pound is higher by 0.368% with 1 GBP equal to 1.552 AUD. On the contrary, the euro exchange rate for pound is 0.216% lower with 1 GBP equals 1.6288 USD.

According to exchange rate analyst Adam Solomon at Tor FX, the British pound is rallying towards 1.63 versus the American Dollar despite the rumors that interest rates will increase quicker than FOMC.

Ahead of the minutes of the BoE that was recently released stated that the investors are predicting the MPC to increase the borrowing amount by 75 basis points in the next 12 months. Together with this, the Fed will continue to be unwilling to give extra-lenient policy measures.

Even though the inflation in UK has declined in the recently reported monthly figures, the prices of consumer products are still twice as much as the 2% target. Most of the attention will be focused on the GDP data of the first quarter. This data will be released in the coming weeks.

A positive comeback to the growth after the reduction in the fourth quarter will signal a returning speculation about rate increases in the month of May. When this increase happens, the Pound will be affected positively. As the pound increases, its impact to other currencies is not yet determined.

The currency in UK stays unchanged versus the Euro in the latest report. This occurred after reports came out that the manufacturing in Germany unexpectedly became better last month and resulted to more rate increases in the European Central Bank.

The single currency also showed gains against currencies that yield higher like Australian Dollar and New Zealand Dollar while Asian stocks declined and lowered the demand for assets that are riskier.

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