Mortgage Market Update

You know the old saying, "What goes up must come down", well, this is also true in the financial markets and with interest rates. As far as mortgage rates go an increase in the price of Mortgage Backed Securities (MBS) causes a decline in current mortgage rates. So, when MBS are in high demand from investors that causes mortgage rates to fall and vice versa. Also, heavily influencing rates is current economic activity. Interest rates generally move lower in a weak economic environment and go higher as the economy improves. The weak economic conditions in the US over the past 5 years has been the single biggest factor in causing the low mortgage rates we have been enjoying for a long long time.

The Federal Reserve Bank has also had a significant impact on mortgage rates as they have been actively buying MBS by the billions in an effort to keep mortgage rates down and improve the housing market. That has all clearly worked well as we are enjoying the best housing market in 5 years!

Over the past 10 days mortgage rates have moved steadily higher. Last week consumer confidence was reported significantly improved and the governments index of leading economic indicators was also quite positive. Both of these factors caused mortgage rates to start trending higher. Then, yesterday, Ben Bernanke, Chairman of the Federal Reserve Bank was testifying before congress about the state of the US economy. Investors are focused on if and when the Fed may curtail their massive bond buying program which has been the main factor keeping rates low. The Fed's focus has been to push interest rates lower to spur new economic growth. Once the Federal Reserve tapers off on it's accommodative monetary policy then interest rates will rise.

The comments made by Bernanke yesterday now make it appear that the Fed may taper off on it's aggressive program to keep rates low as early as next month. The market reacted to these comments and sent mortgage rates higher by .25%. Overall, mortgage rates have risen in the past 2 weeks from 3.5% to 3.875% today.

Although mortgage rates have moved up a bit they are still very attractive. For the balance of the year we could see them move higher but should still stay under 4.5%.

Ken Mascia, Licensed Loan Officer NMLS 135323

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Turf War! Conventional vs. FHA Financing

Mortgage finance has gone through some significant changes over the past 5 years. Underwriting standards have gotten more strict and differing mortgage programs have emerged as the best way for buyers to finance a house. In 2009, 2010 and 2011 FHA was practically the only way to get a low down payment loan to buy a house and so FHA was dominating the first time home buyer market. Over the past 18 months that has changed as FHA has more than doubled the cost of monthly mortgage insurance and Conventional financing has once again become easily possible with only a 5% down payment.

So, the question is, which is the better way for a person to buy a house with a low down payment - FHA or Conventional financing?

Well, right now if a buyer has 5% available to put down and has good credit then a Conventional loan is going to serve them a lot better than FHA. Take a look at this comparison of a $200,000 purchase price:

	Conventional 5% Down	FHA 3.5% Down	Monthly Savings
Base Loan Amount	$190,000	$193,000
Upfront Mortgage Insurance Premium (financed)	$4,085	$3,377
Total Amount Borrowed	$194,000	$196,377
Principal & Interest Payment	$898	$909
Monthly Mortgage Insurance Premium	$0	$201
Total Monthly Loan Payment	$898	$1,110	$212

Basically, by making an additional $3,000 down payment the home buyer saves $212 per month in their house payment and has no monthly mortgage insurance premium (MMIP). Like FHA, we would do a single upfront mortgage insurance premium (UFMIP) and then would pay nothing monthly (FHA charges both upfront AND monthly PMI). The payment savings adds up to over $2,500 per year as long as they own the house!

As you can see in this example, the Conventional financing saves the homebuyer a significant amount monthly. As long as the home buyer has a little more money available to put down then it looks like the Conventional financing is the winner!



Ken Mascia, Licensed Loan Officer NMLS 135323(248) 644-1200, kmascia@primecapitalmortgage.com

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My Crystal Ball Predictions for Real Estate & Mortgages in 2013

What My Crystal Ball Says About 2013

Well, another year has come and gone. Where does the time go? The good news is it was a great year for the Real Estate Market in Metro Detroit and a pretty good economic year for the entire State of Michigan. Michigan's unemployment level reached a peak of 14.2% back in August of 2009 in the midst of the financial crisis and I'm happy to report that unemployment has dropped to 8.9% since! Still a touch higher than the national average but what an improvement. This marked improvement in the State economy has led to a 180 degree turnaround in the real estate market. In Oakland county the number of homes sold in 2012, through November, was up 6% over 2011 and average sales price was up over 14%! Yes, that's right, home prices are rising! In Macomb County the number of homes sold was up over 13% and the average sales price was up over 11%. The supply of homes on the market has dropped considerably and now properly priced homes are selling in a matter of days, and sometimes with multiple offers. Now is really a great time for people to take advantage of the market and upgrade their home as values have gone up, making it easier to sell an existing house, but you can still buy your dream house for a good price. Plus, interest rates remain near all-time lows.

A great 2012 but what's in store for 2013? Well, I decided to consult my trusty crystal ball and see what it had to say (the thing does lie to me a lot but usually some of what comes out of it actually comes to pass). First - What is the next PowerBall winning number?. . . . . . nothing. Ahh who cares. I think $200 million would probably ruin my life anyway. Right?

The crystal ball says In the year 2013 interest rates will rise a bit. An overall improving U.S. economy is going to put upward pressure on rates. I expect by year end that mortgage rates will be 1/2 to 3/4% higher than they are currently. That would put the 30 Year Fixed rate somewhere in the 4.0 to 4.25% range - overall still very low from a historical perspective and should not be enough of an increase to hamper home sales.

I see Real Estate sales accelerating causing further increases in prices. A continued low supply of homes on the market combined with the current fervor of buyers will push home prices up 8 to 10% in Southeast Michigan over the course of the year. Cool!

The crystal ball is really positive about the new year and so am I. It seems the storm has passed. 2013 is shaping up to be a GREAT Year for Real Estate and for Michigan in general! Here's to a successful and Happy New Year for us all!

Ken Mascia, Licensed Loan Officer NMLS 135323



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Three Tips for A Successful Appraisal

The appraisal process has been a source of frustration for everyone involved in a real estate transaction over the past 3 years.  We get appraisers from Novi appraising a property in Sterling Heights or someone from Davisburg doing an appraisal in Birmingham.  Some specific appraisers and appraisal companies (who I will not mention) seem to just do a poor job every time.  How do you exercise some control over these issues?

We would prefer an appraiser that has some solid experience – someone who has only been licensed for a year or two may not have the same competence level as a seasoned professional

An appraiser should have geographic competence – this means they should have a strong knowledge base of the market the subject property is in.  I have found we get the best results when the appraiser lives in the same area as the subject home is located

If you feel a specific appraiser has done a poor job in the past don’t use them again – you should keep track of the appraisers and appraisal companies that handle each transaction and note if the work was good or not.  Sometimes an appraisal will come in low but it’s well thought out and documented.  In that case there isn’t much to complain about.  However, if the appraiser makes bad comp choices or adjustments you don’t agree with then you don’t want them working for you

Here are my three tips to a more successful appraisal:

1)      Ask the appraiser about their experience – when the appraiser contacts you to schedule an appointment to see the home ask them how long they have been licensed.  You want someone with adequate experience and a track record

2)      Ask the appraiser about their knowledge of your market – if the appraiser lives in the same general area as the property it’s more likely that they have the knowledge of the area that’s required to properly value the house

3)      Don’t allow too much time to elapse between contact and appointment date – OK, this is just my own opinion, but, if the appraiser calls you on a Monday and you schedule the appointment for the following Saturday then the appraiser has a lot of time to come up with a pre-conceived notion of how much the home is worth before they even see it.  They may have the report pretty much done and comps selected before you have a chance to meet them and provide your own sales data

Please be gentle with these questions!  We don’t want to set a sour tone with this person.  Start by saying that you just want to make sure the person doing the job knows the market and is experienced.  “Where are you from and how long have you been doing appraisals?”

If the answers you get to these questions make you nervous then you have the right to tell the appraiser that you want someone else assigned.  Yes, that’s right!  You can decide if you are happy with the person assigned and if not get someone else.  The appraiser will have to report back to the management company and they will assign the job to a different appraiser. 

Take control of the appraisal process and you’ll get better results!

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Tax Cut Extension Raises Mortgage Rates

Your Federal Government is at it again, robbing Peter to pay Paul.  On December 23^rd Congress and President Obama gave the housing market a black eye when they decided they could raise mortgage rates to pay for a two month extension to the payroll tax cut that has been in place for the past year.  How did they do that?

Well, as you all know, the government is acting as conservator to Fannie Mae and Freddie Mac (commonly known as the GSE’s) in the wake of the housing meltdown and so they can make up the rules as they go.

What they did was to increase the guarantee fees the GSE’s charge to lenders on loans they make.  The increase amounts to .1%.  This increase stays in place until October 2021 – 10 years. It doesn’t sound like much but that increase will translate to a .125% to .25% increase in the rate of every new conventional mortgage taken out over the next 10 years! 

Extending a payroll tax cut for 2 months increases mortgage rates for 10 years?  I don’t know about you, but that doesn’t sound like a good trade off to me.  A .25% increase in your $200,000 mortgage over 30 years amounts to extra interest costs of $7,615!!  Sounds like a small change but it ends up costing everybody who gets a home loan over the next 10 years a lot of money.  Ouch . . .

The real issue here is that the Federal Government has decided it can use money made on new mortgage originations to pay for general government spending.  That is just wrong.  If they said they were going to increase mortgage guarantee fees to pay for a homebuyer tax credit I’d be all for it because the extra mortgage cost is being used to help bolster the housing market and that would make sense.  Paying for a 2 month tax cut with 10 years of higher mortgage rates does not make sense!

Another reason to contact your local congress people.

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FHA Loan Limit Change Reversed / Great New Jumbo Loan Program 10% Down

FHA Increases Mortgage Loan Limit!


Last Month FHA announced a reduction in the mortgage loan limits on FHA mortgages around the country. The loan limit for Oakland, Macomb and Wayne County, Michigan were reduced from $297,500 to $271,050. That was just reversed and the limits will remain at the old levels of $297,500 effective immediately!


New Jumbo Loan Program Available with 10% Down!

Jumbo mortgage loans (those mortgages that exceed the conventional loan limit of $417,000) had really dried up over the past 4 years but just recently we’ve seen new interest in making these loans. Existing loan programs have been requiring a 20% down payment.


This exciting new program will make a Jumbo Loan with just 10% down and no Private Mortgage Insurance (PMI)! Here are the details:

- Max loan amount of $850,000 with 15% down

- Max loan amount of $750,000 with 10% Down

- Minimum 740 credit score

- No monthly PMI paid by borrower

- 30 Year Fixed and 15 Year Fixed loans available

- No First Time Homebuyers (must have had a previous mortgage)
This type of financing is exactly what we need to jump start the higher end home market! Please contact me for more information on how this new loan program can help your clients buy the house of their dreams!

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Urgent News! FHA Reduces Maximum Loan Limits!

FHA Loan Limits Reduced!

I thought that you would be interested to know that FHA recently announced a reduction in loan limits for FHA insured mortgages. FHA loan limits are impacted by median home prices and even as home prices have fallen FHA has maintained the loan limits at the higher level over the past 3 years.

FHA Loan limit in Oakland, Macomb and Wayne Counties has been at $297,500 over the past couple of years. That limit is being reduced to $271,050 as of October 1st!

What does this mean to you? If you are a Realtor working with a FHA pre-approved buyer then the maximum amount they can borrow has just gone down by over $26,000 and so has the max purchase price of the homes they should be looking at. If you’re a homebuyer using an FHA loan then you’ll need to keep the price range of home you are looking at around $280,000 in order to get maximum financing.

Any loan in process that has a base loan amount over $271,050 must close prior to September 30, 2011 or it will be subject to the new loan limits!

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