Las Vegas Mortgage Rates Continue to Rise

Las Vegas mortgage rates have continued to trend higher recently with a big down week of 182 basis points last week.  With existing home sales coming in at 5.39 million units vs. expected of 5.1, we are seeing strong housing numbers in the face of rising interest rates which is bearish on bonds meaning that investors / traders will continue to sell off in anticipation of the Fed beginning their tapering process of the Quantitative Easing program.  Of course as the economy shows more signs of recovery, investors will increasingly choose stocks over bonds as their investment of choice since they offer a better return.  My recommendation is to lock rates on any loans that are closing within the next 30 days and to take advantage of our Lock and Look program for loans that will likely close beyond 60 days.

Here's a look at the mortgage bond chart from this morning:

There is some good news and the theme for the good news is ONE YEAR.  With las vegas mortgage rates on the rise, there are two pieces of good news to help offset this not-so-pleasant news.  The Lock and Look program allows buyers to lock in a rate today while they shop for their home.  With this program, the rate is locked for ONE YEAR and the buyer doesn't need a property address.  This is also great for buyers who have a home under contract awaiting short sale approval or for buyers who are buying a new home and they are more than a month out from completion of construction.

The second piece of good news is that FHA has relaxed their guidelines regarding borrowers who have had a short sale, bankruptcy or foreclosure.  Buyers who have had any one of these or all three can now use an FHA loan to finance the purchase of a home ONE YEAR after the event if certain hardship parameters are met that led to these events.

Please like, comment and share and subscribe to my blog.  I would love to help you are someone you know who needs a mortgage so feel free to contact me at 702-812-1214 if I can help you with that (I'm also licensed in California).

Mortgage Rates - What Really Drives Them, Part 2

In yesterdays post I wrote about what drives mortgage rates from the technical and fundamental side of things.  What I didn't tell you about is the third thing that drives interest rates - the lenders themselves.

All lenders sell mortgages in the secondary market; there are some lenders who offer portfolio products and those are held in the lenders portfolio, at least for a short time and sometimes for the life of the loan.  The regular loans that can be securitized like FHA, VA, conventional and jumbo all get sold off.  The lenders may or may not keep the servicing rights but they sell off the interest rate rights which frees up more capital to write more mortgages.

Big lenders have targets as to how much penetration they want to have in any given market.  If they are considerably under that target, they may offer rates that are below the market for a short time in order to "buy" more mortgages.  This entices borrowers to go with them or mortgage bankers and mortgage brokers to send more loans their way until they have the level of business they want at which point their rates will revert to market rates.

Conversely, if a lender decides that it has all of the exposure it wants in a given market, it will raise rates such that it won't be attractive for a borrower to choose that lender.  This happened at Bank of America when I worked there in 2009.  In a sales meeting our sales manager told us that the bank had all the exposure it wanted in Southern Nevada and so they were going to raise interest rates to a point such that borrowers probably wouldn't choose to do business with them but if they did, the reward for Bank of America would be good enough to offset the additional risk of another loan in the saturated market.

Herein lies one of the advantages that a mortgage banker who sells to a number of lenders has over the big banks.  When a big bank raises their rates, they don't have an alternative to offer their clients to keep the business coming in.  When one source of a mortgage bankers list of lenders raises its rates, the mortgage banker still has a number of other options to choose from.  With the lenders we sell to, it is usually the same three or four who always have the best terms.  It varies as to which one of those lenders has the best rate on any given day but having these options is a great thing for the clients.  Another added benefit is the fact that some lenders interpret guidelines a little more liberally than others but that's a topic for a whole different post.

It's important to remember that for the most part, mortgage rates are driven by technical analysis, fundamentals (economic data) and the secret sauce - the lenders themselves.  Feel free to comment and share your thoughts and ideas.  Here's a snapshot of the mortgage bond market currently:

The mortgage bond market, mortgage interest rates and how to avoid mortgage insurance

What's happening in the mortgage bond market:
For the 3rd day in a row the mortgage bond market is down. It climbed 28 basis points from its low yesterday but still finished down 53 basis points or about a .125% increase in rate. One thing we saw was a reminder of the impact Europe has had on the mortgage bond market and the bond market in general. When Europe was reporting bad news, there was a flight to safety by investors to bonds in the US. Europe reported a PMI of 50.4 which shows the economy is expanding - this is the first such report in 18 months. Part of the sell-off in the bond market is due to this report. 

Initial jobless claims came in higher than expected which is good for rates - last month's was 336K, expected was 340K and actual was 343K. Durable goods orders (ex-transportation) also came in lower than expected at 0. The market is shrugging this news off and is currently down 29 basis points. The advice is to lock on any loan closing within 30 days if you are able. 

Why are conventional mortgage rates higher than FHA and VA?
One question that I get asked a lot is why are conventional rates higher than FHA and VA rates.  The answer is that FNMA / FHLMC have guarantee fees which were instituted a few years ago with all of the new legislation that we've seen.  These fees have increased a number of times since they were instituted and I've heard rumblings of another impending increase.  The guarantee fees are why the interest rates are typically about .375% - .5% higher for a conventional loan than for an FHA or VA loan.  On a case by case basis, conventional loans are much more credit score-driven than FHA or VA so a person with a credit score between 680 and 720 may see an even bigger disparity in rate relative to an FHA or VA loan than someone with a score over 720.

General mortgage recommendation:
If you served our country in the armed forces, you may qualify for a VA loan.  If you do, my recommendation is to use that to finance the purchase of your home.  With a VA loan, you don't need to put any money down - you do need money to pay for closing costs but this money can come from a gift.  As mentioned above, VA loans have interest rates close to what FHA rates are and better (in most cases) than rates on conventional loans.  The best thing about a VA loan is that it allows you to put nothing down and you still don't have to pay mortgage insurance.  Mortgage insurance can be a big part of a monthly mortgage payment so having a loan without it means you can qualify for a bigger loan / house or just have a smaller payment which means more cash for savings - we all need to put more money away for retirement.  

An FHA loan, for example has a mortgage insurance payment of $225 on a $200,000 loan and it doesn't offer an option without mortgage insurance.  Conventional loans typically have better mortgage insurance rates than FHA but it's very dependent on your credit score and the best rates (mortgage insurance and interest rates) require a score of 720 or higher.  Conventional loans do have two options that don't require mortgage insurance:  1) a down payment of 20% or more or 2) lender paid mortgage insurance in the form of a higher interest rate - typically about .375%. 

Please feel free to comment or contact me if I can help in any way:  702-812-1214 or jed.wunderli@noblehomeloans.com.