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Getting A Mortgage Just Got Easier

Former Fed Chairman Ben Bernanke lamented “I recently tried to refinance my mortgage and I was unsuccessful in doing so.” So how is it that someone of Mr. Bernanke’s wealth and position is not able to refinance his mortgage and how are the rest of us mere mortals expected to do so?  Well as you can see from the chart credit availability has been improving but remains way too tight in my opinion.

Credit Availability since 2011The good news is that federal regulators were overheard at last week’s MBA conference in Las Vegas in a far more conciliatory mood.  As it turns out Mr. Bernanke is not the only high level fed official that has met with resistance when trying to obtain a mortgage in the current environment.

We are seeing the lowering of down payment requirements and streamlining of documentation requirements everyday but there is still a ways to go before we can say that the mortgage market is normalized.  With the slow organic recovery of the domestic economy I believe that liquidity in the mortgage market will begin to contribute to the housing recovery in a meaningful way in 2015.  The advent of new loan offerings in the form of Alt-QM loans (more on that later) we should see home ownership levels on a national level stabilize along with home prices.

AHHHHH That Was Crazy! – Fed Speak Made Funny

Mortgage Backed Securities Prices 3-19-2014Release Date: March 19, 2014

Text in BOLD is the translation into plain English….

For immediate release

Now

Information received since the Federal Open Market Committee met in January indicates that growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated. Household spending and business fixed investment continued to advance, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.

The Fed says here that the economy has slowed down in the last two months.  They blame it somewhat on the weather.  Looks like the economy has Spring fever too…  The Fed continues to pile on saying that: unemployment is too high, spending is too low, and housing could be better.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace and labor market conditions will continue to improve gradually, moving toward those the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for the economy and the labor market as nearly balanced. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.

This is the paragraph where the Fed tells us what their job description is – push the economy so a lot of people are working but don’t push too hard and cause prices to go up too much.  The Fed also says here that they want prices of stuff to go up by about 2%  a year and they worry if it doesn’t.  Why? – the answer is long and boring – stop me in the hall sometime and I’ll explain it to you.

The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in April, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $25 billion per month rather than $30 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $30 billion per month rather than $35 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

This is the key paragraph.  The Fed is cutting back on its monthly purchases of bonds by $10 billion each month.  If someone says they are going to buy $10 billion less of something – what will happen to the price of that thing?  Yep – it would go down.  When bond prices go down – interest rates go up.  I snapped a little chart of mortgage bond prices today (see image above).  Can you tell when the Fed made their announcement?

The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

This is where the Fed tells us they will do their job.  They will do it by monitoring economic information and by reacting accordingly.  Gee – thanks Fed!

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.

In this paragraph, the Fed says they will keep short term interest rates where they have been since December of 2008 – at about 0% to 0.25%.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

The Fed says here that, when they do decide to start to raise interest rates they will do it cautiously and will try to take a balanced approach. Whew!  I was worried they were going to go nuts and take interest rates to 20% all at once!

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Richard W. Fisher; Sandra Pianalto; Charles I. Plosser; Jerome H. Powell; Jeremy C. Stein; and Daniel K. Tarullo.

Voting against the action was Narayana Kocherlakota, who supported the sixth paragraph, but believed the fifth paragraph weakens the credibility of the Committee’s commitment to return inflation to the 2 percent target from below and fosters policy uncertainty that hinders economic activity.

All the nerds did NOT agree.  Narayana Kocherlakota (best name ever) thought the paragraph above that starts with, “To support continued progress…” weakens the Committee’s street cred with the financial markets.  The word on the street is that after he said that in the committee room he stood up and dropped the mic and walked out – rapper style.  Janet Yellen apparently then said, “Oh no you didn’t…” and stormed out after him.  True story.

The content above and opinions expressed therein are those of the esteemed John McElhone and his “crack” team of econo-nerds.

The highest compliment I can receive is a referral.  As a senior loan officer and producing manager of the most aggressive residential mortgage lender in the South Florida market I look forward to working with you and your clients.  Feel free to call or write at anytime.

James R. Venney

305.389.5061 – JVenney@BankUnited.com

10% Down Up To $2.2 Million – Low Down Payment Jumbo

Low Down Payment Jumbo LoanIn the past week alone I have had three new applicants under our Recent Graduate / Young Professionals jumbo loan program.   The program is designed to address the needs of younger professionals who may be high income earners and have not had the time to accumulate a lot of liquid assets that would allow them to make a larger down payment on a home.  Most banks and lending institutions in the South Florida mortgage market that offer a lower down payment options on jumbo loan programs limit the loan amount to $650,000 and require mortgage insurance.  We have designed our low down payment jumbo program without mortgage insurance which is important in three key ways:

1)      No mortgage insurance means that our maximum loan amount is $2 million where mortgage insurance would limit that amount to $650,000.

2)      With an AGI (adjusted gross income) over $100,000 mortgage insurance is not tax deductible which means that our loan program is potentially tax advantaged over programs that require mortgage insurance.  (please consult your CPA for specific tax advice)

3)      In most instances the total monthly payment on our loan program is less than that of our competitors because there is no monthly mortgage insurance payment.

If you or your client is seeking relief from other banks and lenders large down payment requirements for jumbo loans give me a call to discuss your options.

The highest compliment I can receive is a referral.  As a senior loan officer and producing manager of the most aggressive residential mortgage lender in the South Florida market I look forward to working with you and your clients.  Feel free to call or write at anytime.

James R. Venney

305.389.5061 – JVenney@BankUnited.com

Why Are Jumbo Rates Lower Than Conforming Rates

Jumbo Rates At New LowsThe answer to this question involves the mechanics of both the agency MBS (mortgage backed securities) market and the private MBS market.  If you are thinking to yourself “wow that sounds completely uninteresting” you’d be right unless that is you are a mortgage head or finance geek.  That small portion of the population (of which I am a proud member) aside, I think you will find this brief and not entirely comprehensive explanation useful in understanding and thus being able to explain to your buyers why the world has inverted itself.  Being able to concisely explain this phenomenon to your, clients and co-workers will either garner you increased respect or get you invited to parties, either way you win.

The explanation:

We have all heard of QE, versions 1, 2 and 3.  If you had forgotten this is the program in which the federal government is purchasing Fannie / Freddie mortgage bonds (agency MBS) among other things.  Recently the federal government started to curtail the amount of bonds it was purchasing each month which of course means lower demand.  As demand for these bonds goes down so does the price, as the price does down the yield the bond pays goes up and interest rates are a function of that yield.  Simultaneously the demand for privately securitized mortgage bonds has gone up.  The reason that the demand for non-agency MBS has gone up (and thus jumbo rates have gone down) is due to the fact that these loans will perform better than any other time in history given that we are in an increasing property value environment, the loans in those bonds are being originated and documented with larger down payments and more thorough vetting of the borrowers.    So in a nutshell greater demand for non-agency MBS and decreased demand for agency MBS is why we are currently offering jumbo mortgage interest rates that are as much as .25% below conforming interest rates.

The highest compliment I can receive is a referral.  As a senior loan office and producing manager of the most aggressive residential mortgage lender in the South Florida market I look forward to working with you and your clients.  Feel free to call or write anytime.

James R. Venney

305.389.5061 – Jvenney@BankUnited.com

No Down Payment Home Loans?!?

Miami Downpayment“What?!? 100% financing home loans, did we learn nothing from the mortgage crisis?”. These were the words one of my new clients as I explained to them what their options were regarding the amount of down payment required to purchase a new home.   Some of you will become giddy with excitement at the idea of 100% financing for home purchase while others will be offended and dismayed.   So before the barrage comments, emails and phone calls allow me to explain.  This particular client owns their current home free and clear, will retain ownership that home.  By accessing the equity in their current home we can provide 100% financing on their new home by “cross collateralizing”.  In short 100% financing without additional collateral in the form of other real estate is not currently available.  The one universally accepted thing that we as a society learned in the last mortgage crisis is that equity is the only true mitigant to default risk.  In English that means if there is equity in the property the home owner will either find a way to pay the mortgage or will sell before the loan goes into default.

So what are current down payment requirements you ask.  I think many of you will pleasantly surprised at the answer.

Conforming loans: As many of you are already aware conventional financing (loan amounts below $417,000) is available in the South Florida market with as little as 5% down and FHA with 3.5% down.  We, at BankUnited are current offering conventional financing with less than 20% down without mortgage insurance. This is a great tool as the primary objection to FHA financing is that it is punitive in that it carries both upfront mortgage insurance and monthly mortgage insurance both of which raise the buyers costs and monthly payment significantly.

Jumbo loans: One of our most popular loan programs requires only a 10% down payment with loan amounts up to $2 million with no mortgage insurance.  This program is designed to help emerging professionals who generate good incomes but have not had the time to accumulate significant liquid assets.  Our standard jumbo programs are among the most aggressive in the market and typically require only 20% down to a loan amount of $1 million, 25% down for loan amounts from $1 million to 2 million, 30% down for loans from $2 million to $2.5 million and 35% down beyond the $2.5 million dollar mark.  As a portfolio lender these down payment requirements are not set in stone and we can lower amount needed to put down in a variety of ways.

Foreign national loans: One of the benefits of being with BankUnited is that they are historically one of the largest foreign national lenders in the South Florida market.  As a result we offer single family home financing for foreign nationals with a 30% down payment to a loan amount of $2 million, condominium financing with a 35% down payment to a loan amount of $2 million and case by case for loans over the $2 million dollar mark.

The highest compliment I can receive is a referral.  As a senior loan officer and producing manager for the most aggressive residential lender in the South Florida market I look forward to working with you and your clients.  Feel free to call or write at anytime.

James R. Venney

305.389.5061 – JVenney@BankUnited.com

Don’t Fear The QM (Qualified Mortgage) Rules

QM RulesAs with every regulatory change that affects the residential mortgage market there is a lot of misinformation and unfounded fear circulating in the Realtor and home owner communities.  Sometimes referred to as QRM the QM rules go into effect today and without boring you with the mind numbing details of the sometimes strange and seemingly punitive rules there are just a few facts that you need to know.

1)      QM rules have to be followed for those loans being sold to one of the GSE’s.  To translate that into English it means jumbo loans and non-conforming loans are not directly affected.  Only those loans being sold to Fannie Mae, Freddie Mac, etc (conforming mortgages). must comply with all aspects of the QM rules.

2)      Conforming loans will be available with less than a 20% down payment

3)      A maximum debt to income ratio of 43% is being implemented for conforming loans

4)      It will be more difficult for some to qualify for conforming mortgages however many low interest rate alternatives remain.

The good news is that there is a greater availability of mortgage money today than at any time in the past 6 years.  For example, 10% down jumbo loans up to $2 million, foreign national loans for condominiums and single family homes with rates in the 4% range and 30 year fixed rate jumbo loans in the 4% range.

If you have any questions about QM rules or the availability of mortgages in the South Florida market don’t hesitate to give me a call, 305.389.5061.

Where Are The Jobs??

JobsFor more than a year I have been trying to communicate that the unemployment rate is not the only direct indicator of the soundness of the economic recovery.  If fact many of the jobs that were lost in the financial crisis of 2008 are not coming back as companies have learned how to do more with less by utilizing new technologies and creating greater organizational efficiency.   That does not mean that the jobs were shipped overseas.  While some jobs were in the fact shipped over seas we can not ignore the new reality and the fact that manufacturing in places like China is on a downward trajectory given the increase costs due to demands by workers in that country.

My colleague Michael Schnabel of EWM Realtors who has an extensive background in the financial markets was kind enough to bring this article to my attention “Heading Toward A Cliff” in which the author Barry Ritholtz drafts the single most succinct line on the topic that I have been exposed to.  Barry write “ the linkage between monetary policy and employment is very weak in the era of globalization.”  There in lies the rub my friends.  Globalization changes everything and we need to go back and reexamine the old conventions regarding economic policy and their effect on the economic future….this is not your grandfathers economy.

Where Are Mortgage Rates?

Mortgage-RATEMortgage interest rates for the South Florida market dropped below 4.25% again for 30 year fixed rate conforming mortgages.  Conforming mortgages are those offered via Fannie Mae and Freddie Mac with loans amounts below $417,000.  For a comprehensive survey of rates on all available mortgage loan programs for Miami and surrounding areas send me a quick email at James@ECFLion.com

Your Closing & The IRS Form 4506

Miami Mortgage - 4506As I wrote in my blog of June 10th “ Victory Over The Dred 4506” this seemingly innocuous IRS form has caused many home buyers and home owners’ in the South Florida real estate market great pain and in some instances has delayed or even prevented closings.   Well to add to the drama when congress couldn’t get out of its own way and the government was shut down the IRS stopped processing the 4506 requests.  This as it turns out was actually good news.  The fact that the IRS was not processing the 4506 requests essentially forced lenders to close without receiving successful results which sets a precedent.

While we fully expect lenders to return to their former stance of requiring all domestic borrowers to sign a 4506 and that it be successfully executed prior to closing there is a little wiggle room now that may help us continue to accommodate those borrowers with extenuating circumstances.

As of today if you are a W2’d employee the successful execution of a 4506 is not required for those of you that are “self-employed” it is required but the good news is the back-log of request with the IRS is only a couple of weeks.

Victory Over The Dread 4506!

victory23We are declaring VICTORY over the dread 4506!  For those of you that are not familiar form 4506 and/or the form 4506T is a request for tax returns or tax transcripts that mortgage lenders require from potential borrowers to confirm that the copy of tax returns that they provide are the same as those on file with the IRS.  Sounds simple enough however by some estimates as many as 300,000 Floridians have recently had false tax returns filed under their names.  This causes big problems when applying for a mortgages as the lender can not close the loan until they can successfully exercise a form 4506 or 4506T via a third party provider.  Many home buyers and home owners have experienced significant delays in their closings when it is discovered that they can not successfully fulfill this underwriting requirement.

We are please to be able to announce that we have developed a full proof way to address this issue when it arises and have now successfully completed more than 15 transactions in the past 60 days for buyers and borrowers that were victims of tax identity theft and were told by other lenders that they could not close.  Elements Capital Funding is regularly closing purchases transactions in 15 business days and refinance transactions within 20 business days.  The identification of fraudulent tax return filing, if discovered within the first week of application will only extend these time frames by 5 to 7 business days.

“This proprietary process is being utilized to complete sales and refinances in a timely manner despite the fact that FNMA has not addressed the issue directly”.

If you or your client is experiencing the pain of not being able to close as a result of having their income tax identity stolen give us a call and we will move quickly to get the issue resolved.

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