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News, trends and analysis of the mortgage and credit market

Tuesday, February 27, 2007

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Saturday, February 24, 2007

Interest Rate Roundup

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Interest Rate Roundup

By Holden Lewis, Ellen Cannon and Laura Bruce

Here's a look at the state of interest rates on five common consumer banking products and the latest rates from's weekly national survey of large banks and thrifts conducted Feb. 21, 2007.


Rate: 6.29 percent (30-year fixed) Average points: 0.3
Mortgage rates fell a small amount. Except for a brief upward blip at the end of January, the average rate on a 30-year mortgage has been locked in a narrow range of between 6.24 percent and 6.32 percent. The exception is Jan. 31 -- during the year's first meeting of the Federal Reserve's rate-setting committee -- when the average rate on a 30-year fixed spiked to 6.42 percent, then rapidly dropped. The average 30-year fixed rate fell to 6.29 percent this week from 6.32 percent. The average 15-year fixed, which is a popular option for refinancing, fell 5 basis points, to 6.04 percent. A basis point is one-hundredth of a percentage point. On bigger loans, the average jumbo 30-year fixed fell 1 basis point, to 6.47 percent. Adjustable-rate mortgages dropped by small amounts, too. The popular 5/1 ARM fell to 3 basis points, to 6.15 percent, while the 1-year ARM fell by 1 basis point, to 6.03 percent. Rates didn't rise in reaction to a report of higher-than-expected inflation in January, possibly because bond markets expect the cooling housing market to put a damper on price increases for the rest of the year.

Home equity Products

Rates: 8.13 percent (line of credit); 7.88 percent (loan)
Home equity products were essentially unchanged. The average home equity line of credit remained 8.13 percent, 12 basis points shy of the prime rate. Most HELOCs are indexed to the prime rate. Fixed-rate home equity loans fell 1 basis point, to 7.88 percent

Thursday, February 22, 2007

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Wednesday, February 21, 2007

Mortgage rates trend this week

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This week, half of the panelists believe mortgage rates will remain relatively unchanged (plus or minus 2 basis points) over the next 30 to 45 days. The rest are evenly split among those who believe rates will rise, and those who think rates will fall.

Monday, February 19, 2007

Housing market is stabilizing

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Federal Reserve Board Chairman Ben Bernanke says there are noticeable signs that the housing market is beginning to stabilize, but that it is too early to tell whether the downturn is over. He noted that the "ultimate extent of the housing market correction is difficult to forecast" because of large inventories of unsold homes and trends in house prices. "It is early to say this problem is over," the Fed chairman told the Senate Banking Committee, and he said he wants to wait until the spring selling season to gauge the demand for housing. In response to a question, the Fed chairman said distress in the subprime market is a concern. "I am following it very carefully," Mr. Bernanke said.

Sunday, February 18, 2007

Seven Mortgage Tips for 2007

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By Holden Lewis
Whether you already have a mortgage or you plan to buy a house in the next year, here are seven mortgage tips for 2007.

1. Review your mortgage -- does it still fit your circumstances?
2. Watch out for reset.
3. Don't pay the minimum on an option ARM.
4. When you get a mortgage, shop around.
5. Make an extra payment.
6. Think about getting mortgage insurance instead of a piggyback loan.
7. Be skeptical.

1. Review your mortgage -- does it still fit your circumstances? Homeowners with mortgages should assess their home loans annually, bankers say. Naturally, you would expect lenders to say that. It's a good idea anyway. Interest rates change, children are born and grow up, sometimes you need to fix up the house and sometimes you need to move on. Life events can trigger changes in the way you pay for your house.

"Every year," says Dan Hanson, who oversees the retail branches for Countrywide Home Loans," say, 'What's going to happen this year?' Do I have a child who, in a year, is going to college? Are we going to have a child, maybe add a bedroom or have to move?'" The answer might make you go mortgage shopping.

For example, let's say you plan to move in a couple of years because your family is going to grow. Consider getting an adjustable-rate mortgage with a low initial rate that lasts three years (a "3/1 hybrid ARM"). That initial rate probably is lower than the rate you're paying now and the same with the monthly payments.

Before refinancing to save money, make sure you won't get zapped with a prepayment penalty, either when you refinance or sell the house. Calculate the cumulative monthly savings to see if they decisively outweigh the closing costs. If not, keep the current loan.

Hanson believes that you should ask yourself periodically: "Is my interest rate higher than the market today? Would it make sense to refinance, to take cash out? Would it be a good idea to get a reverse mortgage?"

And one other question: "How much is my house worth?" Ask a real estate agent who is active in your neighborhood. It's a good way to introduce yourself to the person who might someday help you sell the house. For a quicker, but less-accurate estimate, consult

2. Watch out for reset. Have you ever seen a cartoon where Bugs Bunny stands at the base of a cliff and he yells at someone standing on the cliff's edge, "Watch that foist step. It's a doozy!" Same thing with a lot of adjustable-rate mortgages: The first step is a doozy -- but up instead of down.

The rate adjustment is called the "reset," and on hybrids such as 3/1 and 5/1 ARMs, the rate can jump as much as 5 percentage points. More realistically, a lot of borrowers face jumps of 3 percent to 3.5 percent in 2007. For interest-only borrowers, that might mean a doubling of the monthly payment.

This is why Hanson suggests reviewing your mortgage annually. Don't get caught by surprise by a rate reset. Refinance the loan if it makes sense to do that.

3. Don't pay the minimum on an option ARM. An option ARM is an adjustable-rate mortgage that lets you decide how much you pay each month. You can make a payment that's big enough to pay off the mortgage in 15 years or in 30 years, or you can pay only the interest, or you can make a minimum payment that doesn't necessarily even cover that month's interest. That's right. In many cases, when you make the minimum payment on an option ARM, you owe more on your house the next month. "You don't want to end up owing more than what you started out with," says Jim Bradley, owner of American Residential Lending Corp., a mortgage brokerage in Atlanta.

4. When you get a mortgage, shop around. If you're smart, you'll start your mortgage search by looking at's mortgage rate tables. Don't stop there, says Steve Habetz, owner of Threshold Mortgage in Westport, Conn. "First, shop the Internet for rates, but look for a local lender to apply for your loan," he says. If you have questions or problems, either before or after getting the loan, "you can get in your car and meet someone to talk to."

And for Pete's sake, don't just talk to the lender with a desk inside the office of your real estate agent or builder. Sure, talk to that lender just to mollify everyone, but you won't get the best possible deal if you don't shop around.

It's illegal for a builder to require you to use the builder's in-house lender. If the builder tries to pull this trick on you, document everything and report it to the state attorney general.

5. Make an extra payment. If you make 13 mortgage payments every year, you will pay off a 30-year, fixed-rate mortgage in less than 25 years. Bankrate's mortgage calculator lets you find out how extra payments affect your payoff date, whether you make them monthly, annually or just once.

6. Think about getting mortgage insurance instead of a piggyback loan. If you buy a house in 2007, and you make a down payment of less than 20 percent, you'll either have to buy mortgage insurance or get a piggyback loan -- a primary mortgage for 80 percent of the home's value and a second mortgage for the rest that you owe.

For a long time, piggyback loans were almost always a better deal because the interest on both loans was tax-deductible and mortgage insurance wasn't deductible. But that changed on the last night of the 109th Congress, when both houses passed a tax law. For loans originated in 2007, the mortgage insurance premiums will be deductible from federal income tax.

This is an important change because it means that mortgage insurance will be cheaper in the long run for a lot of home buyers, especially those who live in their homes for five or more years and keep the same mortgage.

7. Be skeptical. "If it sounds too good to be true, it probably is," Habetz says. He sees plenty of customers who got mortgages (usually option ARMs) at 11/4 percent from other lenders and who were surprised when the rates started rising abruptly just a year later. "Now they find out there is no such thing as one-and-a-quarter percent, they're facing huge prepayment penalties to get out of these loans or they're facing a rate that's well above the market at this point," Habetz says.

But you wouldn't make the mistake of getting a loan for hundreds of thousands of dollars without fully understanding it and reading all the paperwork, right?

Mortgage rates inch upwards

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By Greg McBride, CFA

In a week devoid of any significant economic news, mortgage rates did a whole lot of ... well, nothing. - advertisement -

The benchmark 30-year, fixed-rate mortgage rose a whole 0.01 percent to 6.32 percent, according to the national survey of large lenders. The mortgages in this week's survey had an average total of 0.33 discount and origination points. One year ago, the mortgage index was 6.37 percent; four weeks ago, it was 6.26 percent.

The 15-year, fixed-rate mortgage also rose 0.01 percent to 6.09 percent. The 5/1 adjustable-rate mortgage did the same, rising 0.01 percent to 6.18 percent.

The mortgage waters were calm as there wasn't much in the way of market moving economic reports on tap. The past week was one of anticipation for Federal Reserve Chairman Ben Bernanke to make his semiannual appearance before Congress to testify on the economy and monetary policy.

Even after Bernanke appeared before the Senate Committee on Banking, Housing and Urban Affairs on Wednesday morning, he did little to rock the boat. The past two months have seen plenty of indicators that the economy is performing well, so well that any need for a Fed rate cut is out the window. While faster economic growth raises the prospects for a Fed rate hike to slow inflation, that possibility has been kept at bay by evidence of moderating inflation.

In his Senate testimony, Bernanke said the recent economic data indicates that current interest rates are "likely to foster sustainable economic growth and a gradual ebbing of inflation." Mortgage rates are closely related to yields on government and mortgage-backed bonds. For investors in those bonds, inflation is public enemy No. 1.

Bernanke's comments could foretell good news for mortgage rates in coming weeks if investors see further evidence that inflation is cooperating. Such news usually corresponds with falling mortgage rates. However, Bernanke's words were too little too late to affect the mortgage rates in this week's survey.

Saturday, February 17, 2007

50-year mortgage

50-year mortgage
Home buyers shopping for a loan may notice a new kid on the block: the 50-year mortgage.

Some mortgage lenders see the idea as an alternative to "interest only" loans and a tool to shrink those monthly obligations -- especially in high-ticket areas such as California.

"It's hard for some people to conceive this is happening," says John Marcell, immediate past president of the California Association of Mortgage Brokers. "But it makes a lot of sense. You'll be able to buy a more expensive home than you could qualify for otherwise."

But some consumer advocates and financial professionals worry that buyers who need to stretch payments over 20 more years are coveting too much house.

"It's definitely a bad idea," says Dave Ramsey, author of "The Total Money Makeover," and host of a nationally syndicated radio show on finances. "The family is still not building net worth," he says. "It's still just keeping the family in debt."

50-year mortgage better than interest-only?
Alex Diaz Jr., vice president of Statewide Bancorp of Rancho Cucamonga. Calif., says the 50-year plan is better for the borrower than an interest-only or payment-option adjustable-rate mortgage. In an interest-only mortgage, the minimum monthly payment means zero is being applied to the outstanding balance.

A payment-option ARM can be worse -- sometimes the minimum monthly payment doesn't even cover the interest accrued that month. You could make a minimum payment one month and find the next month that the outstanding balance grew.

While the 50-year fully amortized mortgage certainly means a slower rate of repaying the balance, at least the balance is being reduced, not remaining stagnant or increasing.

But Allen Fishbein, director of housing and credit policy for the Consumer Federation of America, disagrees. "Some might say it's more akin to leasing than buying," he says, because the percentage of the payment applied to principal is very low. It's probably not the product for someone who wants a home for more traditional reasons, such as creating a nest egg, he says.

Currently, you're not likely to find 50-year home loans at your bank or credit union. Most of the loans are coming from mortgage brokers, says Marcell. "We're starting to see several of the wholesale companies offering that now," he says.

Fishbein agrees.

"I'm hearing about it more from reporters or industry people than consumers and consumer organizations," he says.

"A lot of lenders aren't offering them," says George Hanzimanolis, president-elect of the National Association of Mortgage Brokers. "They are relatively new," he says.

50 years of interest payments, too
And while they can fit certain buyers in special circumstances, "I don't think the average consumer will benefit from a 50-year mortgage, because of all the interest over the long term," Hanzimanolis says.

Rates for 50-year mortgages tend to be about 25 to 50 basis points higher than the rates on 30-year fixed-rate mortgages, Marcell says. A basis point is one-hundredth of a percent.

Critics contend that, for all practical purposes, a 50-year mortgage isn't much different from an interest-only loan.

"It's basically another way of saying 'an interest-only mortgage,'" says Ramsey. "You're going to be stuck forever in that thing -- it's quicksand."

While the monthly payment is lower, you'll also pay more interest.

Friday, February 16, 2007

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Mortgage rate roundup

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Interest Rate Roundup

By Daniel P. Ray, Ellen Cannon and Laura Bruce
Rate: 6.31 percent (30-year fixed) Average points: 0.31

After rising for seven of the past eight weeks, rates fell precipitously. The Federal Reserve started the downdraft Jan. 31, when its rate-setting committee kept short-term interest rates unchanged and issued a benign assessment of the economy. "Readings on core inflation have improved modestly in recent months, and inflation pressures seem likely to moderate over time," the central bank said. Investors paid attention to the prospect of falling inflation, which caused bond yields and long-term mortgage rates to drop. The average 30-year fixed rate fell 0.11 percent to 6.31 percent. The average 15-year fixed, which is a popular option for refinancing, tumbled by the same amount to 6.08 percent. The jumbo fell even more by 0.15 percent to 6.48 percent. Adjustable-rate mortgages followed suit. The popular 5/1 ARM fell 0.13 percent to 6.17 percent, while the one-year ARM barely joined the party, falling just 2 basis points, to 6.04 percent.

Home equity products
Rates: 8.13 percent (line of credit); 7.9 percent (loan)

It's an oddity: The variable-rate product is stuck in place, while the fixed product is moving. How can that be? Home equity lines of credit are variable-rate loans. Although these rates can move, they won't do more than wobble a bit as long as the Federal Reserve leaves the federal funds rate alone. Lines of credit are pegged to the prime rate, which is tied to the federal funds rate set by the Fed. With the Fed inactive since June 2006, and looking like it's unlikely to take any rate action soon, don't look for line-of-credit rates to budge much in coming months. So it was this week: The average line of credit remained at 8.13 percent. It hasn't been below 8.13 percent or above 8.22 percent since July 2006. Home equity loans -- which are a fixed-rate product -- can have longer repayment terms, and they can be pegged to different long-term rates other than the Fed, so they may show more movement. So it was this week: The average home equity loan fell 0.03 percent to 7.9 percent.
The time is: 5:59:35 AM on Friday, February 16, 2007Next

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Home equity for refinancing

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Home Equity Still Fueling Refinancing


Americans are continuing to treat their homes as cash cows according to a report released this week by Freddie Mac.

During the fourth quarter of 2006, 84 percent of new mortgages that were the result of refinancing were "cash out" loans. Cash out is defined as a new mortgage that has a contract amount at least five percent higher than the balance of the mortgage it replaced.

While the rate of "cash out" refinancings was down slightly from the 87 percent level reported in revised figures for the third quarter it still resulted in $70.7 billion in equity pulled out of American homes in a three month period. In the third quarter, refinancing "liberated" $80.2 billion in cash.

Refinancing itself accounted for 46 percent of all mortgage loans during the fourth quarter, up from 41 percent during the previous period.

Frank Nothaft, Freddie Mac vice president and chief economists said, "The share of mortgages that were for refinance rose in the fourth quarter as 30-year fixed mortgage rates came down to where they started the year. Falling mortgage rates encouraged some people to refinance to lower their payments for example if they had an adjustable-rate mortgage that was scheduled to reset soon, but the primary driver of refinance continues to be equity extraction."

That is demonstrated by another piece of information contained in the report. The median ratio of new-to-old interest rates was 1.06, that is, one half of borrowers who refinanced took out a loan that increased their contract rate by 6 percent or about three-eights of a percentage point.

Another Freddie Mac economist, Amy Crews Cutts, speculated that "many families found it cost effective to cash-out equity through a new first mortgage even though it raised their rate. With the prime rate at 8.25 percent, a home equity loan or line of credit based on that rate may not make sense if the financing need is large, like a major home improvement or college tuition payments and will be paid back over several years."

(Part of the willingness to accept a higher rate also may reflect a pre-emptive strategy; refinance that 5.2 percent three-year ARM with a 6.15 percent fixed rate mortgage before the ARM adjusts to 7 percent.)

Properties refinanced during the fourth quarter of 2006 had enjoyed a median house-price appreciation of 28 percent over the term of the original mortgage, down from 33 percent in the previous quarter. The median age of the old loan was 3.4 years, about one month older than in the third quarter.

Cash-out loans have consistently represented at least 80 percent of refinanced mortgages since the fourth quarter of 2005 and mortgagors have accepted larger interest rates on their replacement loans for the last four quarters. Both of these factors were last present in 2000 and 2001. In the intervening time cash-out loans represented as little as 33 percent of refinancing and the median ratio of new to old mortgages was more likely to be in the 85 to 95 percent range.

Tuesday, February 13, 2007

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Thursday, February 1, 2007

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Mortgage rates go high. Act now before it's too late!

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Mortgage rates are rising. Act now before it's too late.

Longer term mortgage rates were up again, albeit only slightly, during the week ending January 18 according to Freddie Mac's Primary Mortgage Market Survey. Despite the tiny increments the market has seen over the last four or five weeks, each of the mortgage products tracked by Freddie Mac has reached the highest levels seen since early to mid-November.

The 30-year fixed-rate mortgage (FRM) averaged 6.23 last week, compared to the week ending January 11 when it averaged 6.21 percent. The most recent rate is 13 basis points higher than it was one year ago.

Lock in your rate now before it goes too high.