Archive for June, 2010

P.M.I Days are back

Thursday, June 10th, 2010

With the housing market sliding down, people losing their jobs as well as credit ratings, it was a bit difficult to get private mortgage insurance last year. This led people to flock at the Federal Housing Administration.

They had no other option. PMI was not an easy task, and lenders were not offering mortgages to borrowers with down payments below 20 percent, except for those who had insurance. At that crucial time, FHA was the only body willing to back borrowers with credit scores below 680 or down payments under 5 percent. However, some mortgage companies today have loosened their standards and are willing to insure borrowers with down payments as low as 5 percent.

P.M.I Days are back

Although the PMI availability improves, premiums haven’t slid down from their ‘year 2008’ level. They remain at a comparative higher level. Today, a loan of $500,000 requires a borrower to pay $258.33 every month, which is 0.62 percent. Before 2008, the rate would have been 0.52 percent that makes $216.66 per month.

Coming to the conclusion – No doubt FHAs are popular among borrowers these days, but PMIs have certain beneficial characteristics as well. Individuals going for PMI directly save $11,250 on a $500,000 loan, which they would have been paying for the one-time FHA fee of 2.25 percent.

Many mortgage companies have already eased their PMI policy, how long will it take other market players to revise their policies too? Is it enough to improve the housing market or to pull down the premium rates to the ‘year 2008’ level?

Reference Link: http://www.nytimes.com/2010/05/30/realestate/30mort.html?scp=4&sq=mortgage&st=cse

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Posted in FHA Loans, Mortgage Industry, Mortgage Loan Applications, housing market, interest rates | 56 Comments »

Will the Employment Report affect Mortgage Rates?

Monday, June 7th, 2010

The consumer spending pattern is based on a simple equation:

Increase in earnings = increase in disposable income = increase in spending.

However, the ‘increase in earnings’ part is largely driven by the job market. As the job market gains health, it triggers new opportunities, investments and businesses. Individuals will return home with higher paychecks. They would be willing to spend more on goods and services, or their mortgage.

The Bureau of Labor Statistics recently released the Official Employment Situation Report. It summarized all the ups and downs of the job market, its influences on the economy and overall well-being of individuals.

  • Will the Employment Report affect Mortgage Rates?Nonfarm Payrolls– Employment grew by 431,000 jobs, not even somewhere near a forecasted figure of 531,000. However, the worst part is: out of these 431,000 jobs, 411,000 were the temporary census taker positions. So actually, there were only 20,000 jobs created in May.
  • Unemployment Rate–The unemployment rate stood at 9.7%, slightly lower than the forecasted 9.8%.
  • Average Hourly Earnings – 0.3% Higher as compared to the predicted 0.1%-0.0%. Those with jobs are earning more out of their time. This gives them more disposable income or in other words; the ability to stay away from mortgage delinquencies.
  • Average Work Week – 34.2 hours as compared to the estimated 34.1 hours. People working more hours per week with increased average hourly earnings would have higher take-home salaries to spend on goods and services.

The points somehow are giving out a positive impact, but there are still some specks of ambiguity and uncertainty that are making investors to keep their hands off risky assets and turn towards US treasury debt. As the treasury yields fall, prices of mortgage backed securities rise, leading to a lower mortgage rate.  What is your opinion – Will the wellbeing of the job market help strengthen investor’s confidence in stocks? Is this increase in disposable income enough for individuals to avoid missing mortgage payments, and to stop mortgage delinquencies from ‘break records’?

Reference Link: http://www.mortgagenewsdaily.com/consumer_rates/155978.aspx

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Posted in Mortgage Industry, housing market | 4 Comments »