Mortgage rates are highest in a year
By Les Christie @CNNMoney May 30, 2013: 11:20 AM ET
Mortgage rates have hit their highest level in more than a year, making homes more expensive for buyers who finance their purchases.
The rate on a 30-year fixed-rate mortgage jumped 0.22 percentage point to 3.81% this week, according to Freddie Mac. That’s up 15% from the record low of 3.31% set the week of November 21, 2012 and the highest rate since it hit 3.83% the week of May 10, 2012. The 30-year rate was as low as 3.35% in early May.
Home buyers can blame it on Bernanke, according to Keith Gumbinger, vice president of HSH.com, a mortgage information company.
“Comments he made … left the impression that the Fed’s [stimulus] policy might start to be pulled back soon, perhaps as early as September,” said Gumbinger. “That fostered a spike in interest rates as investors scrambled to adjust their positions.”
The stimulus program, in which the Fed buys up as much as $85 billion a month in mortgage backed securities, has kept interest rates low by providing a willing buyer for loans. If the Fed pulls back on purchases, ordinary buyers will probably demand higher yields to take up the slack, pushing rates up.
Bond yields, which track mortgage rates, have climbed even faster than mortgage rates. The 10-year Treasury closed at 2.12% on Wednesday, 0.45 percentage points above its late April level. That implies mortgage rates will have some catching up to do.
As rates go up, the number of loan refinancings has declined, since they’ll save less for homeowners. Refi applications fell 12% week over week, according to the Mortgage Bankers Association, the largest single-week drop this year.
But rates will probably have to rise much more to have much impact on buyers.
The rate increases over the past month have only added about $20 to monthly mortgage payments for every $100,000 borrowed, an increase most buyers will absorb. Eventually, though, the higher rates will limit how much buyers will bid on homes and dampen home price increases.
BREAKING NEWS: Market weighs in on Bernanke’s outlook
Industry professionals aren’t surprised by Federal Reserve Chairman Ben Bernanke’s comments on tight mortgage lending, “too big to fail” banks and Mortgage Backed Security sales in his testimony before a Joint Economic Committee of Congress this morning.
Bernanke pointed to excessive conservatism on the part of the banks, uncertainty about regulation and the need for GSE reform to explain the current lending market. He also mentioned the fear of put backs that the banks still have.
His speech is consistent with his past speeches and the administration position, said Independent Community Bankers of America (ICBA) Senior Vice President and Senior Regulator Counsel Chris Cole.
“I think that he is correct on conservatism, which is a result of put backs from Fannie and Freddie – they are having a tough time with that, they have to make sure that every mortgage loan is carefully underwritten and that it complies with guidelines,” Cole said.
Regulation is a problem, Cole said, and the QM rule will be a problem when it comes into play.
“As is usually the case, the pendulum has swung too far,” said Larry Muck, executive director of the American Association of Private Lenders. Muck attributes tight underwriting standards for the difficulty many self-employed individuals and those who were defaulted out of their homes face to be approved for loans.
Bernanke also addressed what the Federal Reserve is doing to move in the right direction in regards to big banks, through Dodd Frank, Basel III and orderly liquidation authority.
“And as I have said, if we don’t feel after some additional work here that we have addressed that problem, I would certainly be supportive of additional steps,” Bernanke said in his testimony. “I think the best direction is probably requiring the largest firms to hold more capital proportionally.”
Though Cole supports this direction, James Chessen, chief economist for the American Bankers Association (ABA) has already established his opinion on the matter, stating in a report that “more capital” shouldn’t be confused with “you can’t have too much capital,” because capital comes at a cost in the form of forgone lending as institutions shrink to meet extreme capital-to-asset ratios.
Bryan McNee, a senior bond analyst with Mortgage Backed Security Authority, reports that Bernanke’s statements on monthly Mortgage Backed Security purchases have also seen market reaction.
After Bernanke’s statement that it was too soon to consider pulling back on the amount of monthly Mortgage Backed Security purchases, Mortgage Backed Security rallied, causing mortgage rates to get better, McNee reports. But after a few moments, Mortgage Backed Security sold off dramatically, causing mortgage rates to rise as traders moved past the headlines and focused on the actual content of what Bernanke was saying, which is that the Fed was ready to alter their monthly bond purchase program if the labor market continued to improve.
When minutes from the last Federal Open Market Committee meeting were released, discussion about taking action on reducing bond purchase by as early as June has kept the pressure on Mortgage Backed Security pricing and on pushing up mortgage rates, according to Mcnee.
“We are certainly in for a bumpy ride for the remainder of 2013,” McNee said. “Prior to May mortgage rates drifted sideways and were at fantastic levels. But that certainly hasn’t been the case since May 1st and won’t be the case for the rest of the year either.”
Reverse Mortgages: 10 Things You Need to Know
Editor’s note: This guest post was written by Matt Allen of North American Savings Bank.
Sometimes people reach retirement and discover that, for whatever reason, they just don’t have enough money put away. If you find yourself in a similar situation – and you’re a homeowner age 62 or older – a reverse mortgage may help you take advantage of the resources you already have in place. You may ask yourself, “What is a reverse mortgage?.” Reverse mortgages are FHA-insured loans that can help you maximize the equity in your home so you can live a more comfortable retirement.
Here are 10 things you need to know about reverse mortgages.
1. Reverse mortgages are approved by the FHA
Also known as Home Equity Conversion Mortgages (HECM), reverse mortgages are insured by the Federal Housing Administration (FHA). They are not a wildly inventive financial instrument, but rather a loan product designed specifically for older adults. Reverse mortgages are a federally-approved mortgage product, and as such have regulatory requirements and oversight to insure borrower safety and protection. Learn more.
2. A reverse mortgage eliminates your current mortgage and mortgage payment
If you currently have a mortgage on your home, a reverse mortgage can be used to pay off the remaining balance. A reverse mortgage has no monthly mortgage payment because the loan (both principal and interest) is paid in full once the home is sold. The amount you owe grows over time as the interest accrues based on the outstanding balance. There is no requirement to pay on the loan until you vacate the property. You can analyze your current scenario by using a reverse mortgage calculator.
3. You can use a reverse mortgage to purchase your primary residence
If you’re able to pay the difference between the reverse mortgage proceeds and the sales price of your new home, you can use a reverse mortgage to purchase a primary residence. This allows you to downsize your current home, move closer to your family or find a home that meets your physical needs. You won’t have a monthly mortgage payment as long as you remain in the home.
4. You retain title of your home
Not the bank, not the lender, no one but you. The house is yours and remains yours as long as it remains your principal residence for at least six months a year, and you continue to pay your real estate taxes, homeowner’s insurance and maintain upkeep on the property.
5. The loan isn’t due until you stop living in the home
A reverse mortgage isn’t due until the last surviving borrower passes away, sells the home, or fails to live in it for 12 consecutive months. (This assumes taxes and insurance are current, and the property is properly maintained.) A reverse mortgage loan must be paid off once the home is sold. Any excess balance from the sale of the house is yours (or your heirs) to keep.
6. You choose how the money is distributed
As a lump sum, as monthly payments, or as an ongoing line of credit, the choice is yours. Some folks can use the extra monthly income; some just prefer a line of credit to have accessible for emergencies. A reverse mortgage can be paid out in whatever way best suits your needs. Additionally, there are no restrictions on how you use your reverse loan proceeds: it’s your money, you can use it however you see fit. An online reverse mortgage calculator allows you to compare different scenarios.
7. The money you receive from a reverse mortgage is normally tax-free
Reverse mortgage loan proceeds are generally not considered taxable income and will not affect Social Security or Medicare benefits. However, your monthly reverse mortgage advances may affect your eligibility for some other programs. Consult either your tax professional to determine how, or if, monthly reverse mortgage payments might affect your eligibility for benefits to which you are entitled.
8. There are no mandatory repayments
A reverse mortgage doesn’t have to be repaid until you vacate the home; should you choose to repay early, there are no pre-payment penalties.
9. And what if your home appreciates in value?
Again, when you sell the house and the reverse mortgage is paid off, any excess balance is yours or your heirs to keep. A home that appreciates in value just gives you more money in the end.
10. But what if the value of your home depreciates?
As long as you continue to occupy the home as your primary residence, pay the appropriate taxes and insurance, and maintain upkeep, there shouldn’t be a concern. Should the home, when you decide to sell or leave it, be worth less than the outstanding loan amount, its sale fulfills the debt in whole; FHA mortgage insurance satisfies any difference.
So how do you qualify?
There are some basic requirements to obtaining a reverse mortgage.
- All individuals on the title must be at least 62 years old.
- The property must be your primary residence; you must live in the property at least six months or more every year.
- You must own your home free and clear, OR your current mortgage must be paid off with the proceeds from your reverse mortgage.
- Educational counseling with a HUD-approved counselor is required.
- You cannot be delinquent on any federally-insured debt.
- You are still responsible for property real estate taxes and homeowner’s insurance.
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