I expect that conforming interest rates will only rise .125 to .375% in the coming weeks which is certainly nothing to panic about.   Does anyone remember where conforming 30 year fixed rates were in 2007….about 6.5% or more than 1.5% over their current levels.

Rates are (and will remain) low through the end of 2010, prices are down and we have an excessive amount of money to lend.  Mortgages, especially jumbo mortgages are easier to get today than at anytime in the past 3 years.

It’s a great time to buy and it’s a great time to be in the real estate business.

The Business Week article also mentions that some luxury home buyers have run into difficulty with appraisals.  In most cases in the South Florida market issues with properties not appraising are due to the fact that the appraisal is ordered through an appraisal management company and an out of area appraiser is given the assignment.  Under current market conditions it is imperative that the appraiser on any assignment have an intimate knowledge of the market in which the subject property is located.

Oh and the good news……..we are HVCC compliant but we don’t order our appraisals through a management company.  We use local seasoned appraisers with years of experience appraising Luxury homes in the South Florida market.

REG Z Changes

As a result of the Fed’s manipulation of the mortgage backed securities market coupled with international appetite for U.S. Treasury obligations conforming 30 year fixed rates have fallen below 5% again.

My fear is that both the public and real estate professionals across the nation have become accustom to conforming interest rates in the 4% range.  When the government stops buying mortgage backed securities in an aggressive manner rates will return to levels not seen since early 2008 and many buyers will have missed a great opportunity.

Jumbo rates have also fallen and with just a 20% down payment rates are now in the high 5% range.  This biggest challenge I see for those buyers of luxury properties in South Florida are down payment and reserves  requirements both of which have been relaxed in recent weeks.

The planets are aligned but they won’t stay that way for ever.

As the housing market and economy recover expect mortgage rates to move up.  If buying or refinancing are in your future then perhaps sooner is better than later.

See the full story from Bloomberg here.

On Friday June 5^th Early Bird News included a link to a short article indicating that move up and luxury home buyers were holding off on purchasing homes “because they don’t want to pay jumbo mortgage rates“. If any buyer is not taking advantage of the incredible deals in Miami and Florida housing markets because they think jumbo rates are high then they are talking to the wrong mortgage banker.

Jumbo mortgage money is readily available and at rates that are below historic lows and in some instances even below conforming rates.

Here is a brief indication of current jumbo rates assuming loan amount greater than $1,000,000 with no points.

*10% Down – 5/1 ARM 6.5%   7/1 ARM – 6.75% 10/1 ARM – 6.875%

20% Down – 5/1 ARM 6.125% 7/1 ARM – 6.375% 10/1 ARM – 6.625%

35% Down – 5/1 ARM 4.75% 7/1 ARM – 5.125% 10/1 ARM – 6.00%

As you can see the amount of the down payment being made can have a significant impact on the rates that are available for qualified luxury home buyers but with credit score requirements as low as 680 and debt to income ratios as high as 50% many are finding it very easy to purchase a new home using a jumbo mortgage.

Why no fixed rates you ask…most buyers of luxury homes tend to be more financially savvy and typically don’t use fixed rate mortgages do to the significant interest rate premium one has to pay to get a fixed rate. That being said fixed rate jumbos are available however, taking into consideration the average lifespan of a mortgage and the cost versus benefit of fixed rates one can see that fixed rate jumbos are not beneficial.

*10% down jumbo financing is available through cross collateralization and/or pledged assets.

This melt down may adversely effect the Fed’s effort to stabilize the housing market by artificially keep mortgage rates low but we need to let the dust settle before panic sets in.  The Fed has at it’s disposal several tools which it can employ to keep mortgage rates at current levels.

By the end of the day 30 year fixed rates for well qualified buyers were at about 5.25% with no points.  To keep things in perspective prior to the Fed’s buying program the historic low for 30 year fixed rates was 5.125% so we are still in very good shape. 

If you or one of your clients is buying or refinancing a home it will be very important to contact your mortgage banker who should  proactively be managing your rate lock.

“I look for the upward pressure on mortgage interest rates to be a bit more intense during the coming week given this morning’s news of a sharp rise in Chinese gold reserves.  The big “so what” factor here is that swelling Chinese gold reserves probably represent a new strategy of diversification by China – which by extension could logically mean the Chinese will be buying relatively less in the form of  US Treasuries obligations in the future.  Granted the Fed currently has the financial firepower to take up some of the slack caused by the potential of reduced Treasury auction participation by the Chinese – but only for a limited amount of time.  You can be this event will be closely monitored for further developments by mortgage investors.  You can also bet mortgage investors will likely be very hesitant to push mortgage interest rates sharply lower until the Treasury auctions of the next two weeks are complete — and the participation levels of foreign investors can be clearly assessed.”

The week ahead is pack full of economic data and coupled with Larry’s analysis above should prove to be critical for those managing rates locks.