Mortgage market has gone crazy

[brewer12345]

I assume that this is driven by expectations of more central bank action, but mortgage rates have really crashed (again). On friday I was finally dragged off the fence to lock a 30 fixed at 3.5% with a quarter point credit. I had been wanting to swap my 5/5 ARM for a fixed note and although rates might drop further, I was finally willing to jump. Rates like this really boggle the mind.

 

[Lakewood90712]

Are the lenders trying to sneak in fees to get that kind of rate ?

 

[Semiretired2008]

Are the lenders trying to sneak in fees to get that kind of rate ?

Back in November I refinanced at 3.7% - no fees, no closing, no nothing. They even paid for the termite inspection, appraisal, etc.

I had to ask three times in different ways to make sure it was real... Some advertise it, but have hidden fees - others were for real... Have not seen this offered since then, but I have not been looking either - so shop around you may get lucky - it only cost me my time...

 

[RockyMtn]

I scored a 3% APR on a 5/1 Jumbo ARM two weeks ago. No points, no origination and credits which covered appraisal, credit score, etc. Went with ARM as I plan to have the house paid off in the five year guaranteed period. Truly amazing rates. My first house in early 80's I think I had an interest rate of like 15%!

 

[someguy]

mortgages

Brewer, what did you end up paying in terms of fees? Who did you use? We've got a fixed 30 @ 4.5 and I'm getting ready to refi it. I agree that these rates are insane!

I assume that this is driven by expectations of more central bank action, but mortgage rates have really crashed (again). On friday I was finally dragged off the fence to lock a 30 fixed at 3.5% with a quarter point credit. I had been wanting to swap my 5/5 ARM for a fixed note and although rates might drop further, I was finally willing to jump. Rates like this really boggle the mind.

 

[Texas Proud]

Who gave you this deal

When I look at my current mortgage company, they want close to $5K in closing costs.... I would refi at that rate... heck, it looks like 15 year is like 2.8%....

 

[Lsbcal]

Our credit union is offering: 3.5%, -0.5 points, only about $1400 to close on a refi assuming you have low loan to price ratio, excellent credit, good income sources or lots of money.

Am seriously reconsidering refinancing our 4 3/8% loan. Maybe it will drop another quarter point? The labor report was disappointing this Friday.

 

[brewer12345]

Since I have never dealt with these folks before I cannot vouch for them yet (i.e. consider yourself warned), but the lender is www.boxhomeloans.com. Thus far, things have been very straight forward, but I am early in the process. Box seems to specialize in squeaky clean conforming loans that are extremely plain vanilla and they market themselves on transparency of pricing. I actually locked my rate via my smart phone while I was travelling through the middle of nowhere (open plains of SD and NE) and when I told them that I would only be home between trips for about 48 hours and needed to know what documents they required in a hurry. They pushed me to the head of the line for the initial screening. I have already uploaded all the requested docs and signed everything (vast majority with elctronic signatures), easy as can be if you have a scanner and/or electronic account statements to show them. But be aware that I am a very plain vanilla borrower: conforming loan amount, <80% LTV in a market with rising real estate prices over the past year, employed with sufficient tenor and with more than ample W2 earnings to qualify, etc. I suspect that if you do not meet this profile this lender will probably encourage you to go elsewhere.

The terms of the deal are 3.5% on $205k for 30 years fixed, a quarter point credit toward closing costs, net estimated costs to close of just over $1k, and escrow account required (otherwise they charge more). I intend to request that the escrow account be dissolved after the dust settles on the loan.

I am refinancing a 3.5% Pen Fed 5/5 ARM I took out with zero closing costs almost exactly a year ago. I had to wait a year to avoid having to retroactively cover the closing costs on my existing mortgage and have been watching rates like a hawk waiting for a chance to term out my rate at a reasonable cost. At this point I would never say never, but if I never have the chance to refi again for a lower rate I will be very happy about it.

 

[Lsbcal]

Brewer, this sounds like a very good deal for you. Wise move.

 

[JOHNNIE36]

I know a few couples who have tried to refinance to fixed rate mortgages and get rid of their ARM's but the mortgage companies have warned them in advance. They all require 20% down and the appraisals have to be 80%loan to value ratio. They are all worried that their homes aren't worth what they owe on them much lessa appraise to requirements. How do you get around problems like that?

 

[someguy]

LTV issues

This is a real concern and IMO is one argument for paying a little extra to a mortgage and/or not withdrawing all equity when refinancing to use it to chase a higher return.

That aside, if a mortgage is currently owned by Fannie Mae or Freddie Mac, then there is a special program available that allows refi'ing to market rates or very near them. It requires a very solid payment history (I believe no late payments for past 2 years) but otherwise doesn't care about current income and I believe LTV can go up to 125%. I used this program successfully some years ago when I had dropped a massive W2 income to go it alone and therefore didn't have the standard two-year self-employment history most underwriting requires. My LTV was also hovering around 80% then so appraisal was also going to be a concern in a standard loan situation.

Fannie and Freddie end up owning a lot of loans, so make sure you check on this and don't assume. I believe https://ww3.freddiemac.com/corporate/ will let you look up your loan.

I know a few couples who have tried to refinance to fixed rate mortgages and get rid of their ARM's but the mortgage companies have warned them in advance. They all require 20% down and the appraisals have to be 80%loan to value ratio. They are all worried that their homes aren't worth what they owe on them much lessa appraise to requirements. How do you get around problems like that?

 

[Lsbcal]

Did a short calculation and if the rates drop another quarter point I'd only get another $25 off the monthly payments.

So this thread makes me think maybe I should pull the trigger.

BTW, if you like Excel spreadsheets there is a fantastic Loan Amortization template at: Using the Loan amortization and Loan analysis templates - Excel - Office.com . This is what I use to check out the deals.

 

[Gotadimple]

I know a few couples who have tried to refinance to fixed rate mortgages and get rid of their ARM's but the mortgage companies have warned them in advance. They all require 20% down and the appraisals have to be 80%loan to value ratio. They are all worried that their homes aren't worth what they owe on them much lessa appraise to requirements. How do you get around problems like that?

You can't do much in this situation.

 

[brewer12345]

I know a few couples who have tried to refinance to fixed rate mortgages and get rid of their ARM's but the mortgage companies have warned them in advance. They all require 20% down and the appraisals have to be 80%loan to value ratio. They are all worried that their homes aren't worth what they owe on them much lessa appraise to requirements. How do you get around problems like that?

Personally, I bought the house a year ago with 20% cash down and my local market has been on a modest upswing since then, so I doubt I will have issues. However, if you do have LTV issues there are a few ways to cure the problem:

- Bring cash to the table and pay the loan down to bring it in line with the 80% max LTV limit
- Pay for mortgage insurance or a higher rate (this may negate the refi savings)
- Pursue a HARP refinance under which your excess LTV does not matter. My sister did this earlier this year and it was a royal PITA and the rate and costs were higher than would be typical in a straight conforming refi, but it was worth it for her to escape her 6.XX% old rate.

 

[Nords]

... and escrow account required (otherwise they charge more). I intend to request that the escrow account be dissolved after the dust settles on the loan.

Escrow accounts made sense for the lenders back when interest rates were higher, but today it's hard to see how an escrow account earns more interest than it costs the company to maintain it.

Every year BofA sends me a four-page analysis of how they tracked my escrow account, paid my insurance & property taxes, and determined that my future monthly payment needs to drop by some precise figure like $4.37. All this for pennies of interest.

I never thought I'd see rates this low, and this time I really mean it...

 

[tmm99]

I don't know if it's because of the low mortgage rate or the low housing prices, but I read somewhere that many of the property puchases are by investors and they are not flipping the properties this time around - they are renting them out.

I don't know how much shadow inventories are there, but the inventory of houses on sale are very low in my area and things are being sold left and right.

Some of us predicted that there will be another wave of foreclosures with Option ARMs resetting in 2011


http://www.early-retirement.org/for...res-to-be-worse-than-subprime-wave-37704.html

I don't know what happened to all these Option ARM'd folks...

Anyway, I imagine having such a low ARM rate will entice a lot of buyers..

 

[MooreBonds]

I am refinancing a 3.5% Pen Fed 5/5 ARM I took out with zero closing costs almost exactly a year ago. I had to wait a year to avoid having to retroactively cover the closing costs on my existing mortgage and have been watching rates like a hawk waiting for a chance to term out my rate at a reasonable cost.

I also have a PenFed 5/5 ARM that I took out in March 2011 w/ zero closing costs, with a 3 3/8% rate. The 'bad' thing is that my plans were to wait until around 2022, then (with a future wife) sell the house or tear it down and build a new one...so a 30 year fixed with the average [-]loaded down with various fees [/-] closing costs isn't the best idea. Have some cash coming free in the form of maturing savings bonds that will pay down about 2/3 of the mortgage. Would rather invest that money and take advantage of impossibly low 30 year mortgage rates...but I'm assuming my plans will come to fruition. If not, and I stay in the house long-term, at least I have a paid off house in a few years.

I don't know what happened to all these Option ARM'd folks...

What were you expecting to happen? Remember that rates have dropped from 2006/2007/2008/2009 - so all those ARMs that reset every 1/2/5 years are likely resetting to lower rates - which means their monthly payments should probably be dropping. If there were any foreclosures from these ARMs, it would be because they lost their job or encountered some other fiscal disaster that prevented them from paying their mortgage, most likely not from a rising interest rate on their ARM, and thus higher monthly mortgage payments.

 

[tmm99]

I also have a PenFed 5/5 ARM that I took out in March 2011 w/ zero closing costs, with a 3 3/8% rate. The 'bad' thing is that my plans were to wait until around 2022, then (with a future wife) sell the house or tear it down and build a new one...so a 30 year fixed with the average [-]loaded down with various fees [/-] closing costs isn't the best idea. Have some cash coming free in the form of maturing savings bonds that will pay down about 2/3 of the mortgage. Would rather invest that money and take advantage of impossibly low 30 year mortgage rates...but I'm assuming my plans will come to fruition. If not, and I stay in the house long-term, at least I have a paid off house in a few years.




What were you expecting to happen? Remember that rates have dropped from 2006/2007/2008/2009 - so all those ARMs that reset every 1/2/5 years are likely resetting to lower rates - which means their monthly payments should probably be dropping. If there were any foreclosures from these ARMs, it would be because they lost their job or encountered some other fiscal disaster that prevented them from paying their mortgage, most likely not from a rising interest rate on their ARM, and thus higher monthly mortgage payments.

MooreBonds,

I thought these Option ARM borrowers will have to come up with the difference between how much the house is worth now (which is less than what their loan is for) and their loan amount (minus the principal they might have accumulated) when it resets (recasts)? So I am guessing many of them won't be able to come up with the difference (especially in places like CA, NV, FL where the price drop has been significant - I believe most of Option ARMs are however originated in CA by investors).

 

[Nords]

What were you expecting to happen? Remember that rates have dropped from 2006/2007/2008/2009 - so all those ARMs that reset every 1/2/5 years are likely resetting to lower rates - which means their monthly payments should probably be dropping.

I think we're all surprised that the Fed has managed to maintain low interest rates (however you feel about the contortions, that's the end result) to (among other things) avoid a gazillion more defaults & foreclosures.

 

[PawPrint53]

I have tried unsuccessfully to refinance the $50K I owe on a rental house because even the investor rate is low. However, according to several mortgage brokers, the market for smaller loans dried up about 18 months ago. My original loan was sold to BofA, and the rate they offered me with the closing costs didn't make sense. (We have excellent credit, great income, no debt, etc. so it's not that lenders see us as a risk) I'll have to try some of the financial institutions mentioned here, but now that my DH is taking an early retirement package effective 8/31, I'm thinking even if we could hurdle the small loan amount barrier, lenders would be less enthusiastic about offering to refinance someone no longer working??

 

[MooreBonds]

I thought these Option ARM borrowers will have to come up with the difference between how much the house is worth now (which is less than what their loan is for) and their loan amount (minus the principal they might have accumulated) when it resets (recasts)?

Ah...well, it appears we may have been both somewhat correct (I never fully researched Option ARMs before-just thought they had a 'pay as much as you want' feature).

It appears Option AMRs may have had both a super-low teaser intro rate (even below current benchmarks), as well as having the "pay however much principal you want" feature. However, from what I can tell, they don't usually seem to require a balloon readjustment if your house value drops after the opening term.

I have tried unsuccessfully to refinance the $50K I owe on a rental house because even the investor rate is low. However, according to several mortgage brokers, the market for smaller loans dried up about 18 months ago.

What if you tried this: PenFed is offering up to a 5 year, 1.99% home equity loan, opened on-line only, no fees. Just take out this loan on your primary residence, and use it to pay off that rental $50k balance. I imagine your rental rate is at least, what, 5%? Maybe more? Instant huge savings on your interest costs. Could possibly still deduct the interest off your taxes.

 

[brewer12345]

What if you tried this: PenFed is offering up to a 5 year, 1.99% home equity loan, opened on-line only, no fees. Just take out this loan on your primary residence, and use it to pay off that rental $50k balance. I imagine your rental rate is at least, what, 5%? Maybe more? Instant huge savings on your interest costs. Could possibly still deduct the interest off your taxes.

They also offer HELOCs on rentals, including a 5/5 product that offers a fixed rate for the first 5 years. Or you could lump sum pay it off and be done with it.

 

[brewer12345]

MooreBonds,

I thought these Option ARM borrowers will have to come up with the difference between how much the house is worth now (which is less than what their loan is for) and their loan amount (minus the principal they might have accumulated) when it resets (recasts)? So I am guessing many of them won't be able to come up with the difference (especially in places like CA, NV, FL where the price drop has been significant - I believe most of Option ARMs are however originated in CA by investors).

That isn't how the recast works, but its almost certainly a moot point by now. Default experience in Option ARMs has been off the charts so I think they have mosly already blown up.

 

[harley]

I recently tried to get a refi with similar terms as Brewer's, but I didn't qualify because of high income to debt ratio. I've been doing the FIRE finance thing, living off cash, small amounts of dividends and cap gains, and a small ($20K-ish) side business. Balanced against that is my current mortgage, many years worth of carryover cap losses, etc, which has combined to keep me in the 10-15% tax brackets. It's been great for selling high gain stocks at 0% cap gains levels and doing Roth conversions at low rates, but now it's tripping me up.

I only see two options. First would be to pay off my current mortgage of $380K at $4.75%, and hope I could qualify for a new one at ~3.5%. But I'm not sure how long it would need to be on the books as paid off before it would be reflected on my financials so I could qualify for a new one. Anybody got any knowledge about that?

Second would be to get more of an income. I'm not sure how to do that. I don't have (or want) a job other than the easy money side gig I've got going now, which I can't really manipulate to produce more income. I could put all my cash into high dividend producing stocks, but that would take a couple of years before it produced the ongoing income I need, plus I don't want to increase my equity holdings that much. I could do a big Roth conversion this year to increase my taxable income and push myself into a higher tax bracket, but does that kind of thing count as income for a mortgage? And again, it could take so long I could miss out on the low rates and be stuck with no mortgage. Let it be said here that I'm one of the carry a mortgage types, so no need to lecture me on the joys of being paid off. I'm very willing to bet that in 10 years or so I will consider a $380K mortgage at 3.5% to be practically free money.

So, does anybody have any knowledge or ideas? Does the Roth conversion kick to my income count as far as mortgage income calculations go? I'd love to be able to take advantage of this. I never considered that having enough money to pay off the mortgage many times over wouldn't count towards my loan eligibility. Also the fact that I currently pay a higher payment without any problem, and a lower payment would only make paying the loan easier. Damn banking industry. Anyway, any help would be appreciated.

 

[brewer12345]

Harley, I think you are stuck. The agencies are pretty much the entire mortgage market now so nobody does any real credit-based underwriting on mortgages any more. Everything is based on agency requirements and those are focused solely on income. Unless you are willing to get a day job that would allow you to qualify for a mortgage, you are stuck with what you have.