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The Mortgage Insider - With Joe Parsons ≡ Menu Home Homebuying 101 Introduction Part 1: Getting Your Ducks in a Row Part 2: Avoiding Pitfalls with Your Loan Application Part 3: Getting Preapproved Part 4: How Your Loan Gets Approved Part 5: Points Rebates and Fees Part 6: Pricing Adjustments Part 7: Moving Rates Part 8: How to Shop for Your Loan Part 9: Closing Costs Part 10: What is an Escrow, Anyway? Part 11: Your Appraisal Part 12: How Long Does It Take? Part 13: Locking Your Rate Part 14: When Your Cash Is Limited Part 15: Solving the FICO Score Mystery Part 16: Solving the Mystery of the APR Part 17: Beating the Tax Man Part 18: Goodbye PFS Funding in the News About Us Contact Us “Brexit”–and what it means to mortgage rates today by Joe Parsons on June 24, 2016 in FHA mortgages, First Time Home Buyers, Inside mortgages, Mortgage Rates You have probably heard about the important vote in the United Kingdom: Britain will leave the European Union. What you may not know is the effect an event in Europe could have on you here in California. How “Brexit” affects you The results of Thursday’s election in the UK has roiled financial markets all over the globe. The U.S. stock market reacted with heavy selling: the Dow Jones Industrial Average was down more than 500 points at times. This volatility causes “flight-to-safety” buying—investors sell stocks, but move their cash into safer investments, such as U.S. Treasury bonds, which are viewed as having nearly zero risk. They also pour money into Mortgage Backed Securities, which are also very safe, but with a much higher yield than Treasuries. All this buying of bonds means that their prices are moving higher. This is welcome news for anyone in search of a new mortgage to buy or refinance a home in the San Francisco Bay Area. Mortgage lenders sell most of their loans to investors. Fannie Mae and Freddie Mac top the list of these investors. These two mortgage giants pool the loans they have bought into a type of bond called Mortgage Backed Securities (MBS). When the demand for MBS is higher, their price increases. This higher price means that the lenders can sell their loans for a higher price, so they lower the interest rates on the mortgages they offer. The news of Britain’s exit from the European Union (“Brexit”) has sparked furious activity in the financial markets worldwide. This morning’s chart for the MBS looks like this: The mortgage market at the open on Friday 6/23/16 Each green bar means that the price of the MBS increased from the day before. A long bar means a large change in price. The MBS market normally moves 10-25 points from one day to the next. Today, however, the market opened with a 75-point gain from yesterday’s close. This is an unusually large increase. What this means for you Lenders look at the MBS market each day as they prepare their rate sheets. Because of today’s sharp gain, rates are lower—nearly .25% lower than yesterday’s pricing. What you should do now If you are thinking about buying soon anywhere in the San Francisco Bay Area, now is a good time to act; today’s lower rates mean a lower payment for the home you want—or more home for the payment you can afford. If you are considering a refinance, you should lock a rate as soon as possible; your potential savings are higher today than ever before. Keep in mind that it is highly unlikely that rates will move any lower than they are today—but very likely that they will “bounce” higher in the very near future. Be careful! Any time the market makes big moves like this one, there is increased volatility—prices make wide swings in both directions. Holding out for further improvement could lead to disaster: you could miss the boat entirely. We are here to help you take advantage of this opportunity. You can call us anytime at 925-383-2846. The Truth About Mortgages by Joe Parsons on June 16, 2016 in Credit, FHA mortgages, First Time Home Buyers, Homebuying 101, Inside mortgages, Refinance It’s not that hard to get a mortgage The Narrative If you pay attention to print and broadcast media, you’ve seen stories—lots of them—about how hard getting a mortgage is today. Banks have been upping their standards, they say, cherry picking only the very best applicants with flawless credit scores, lots of money in the bank for large down payments and long tenure at the same job. Are banks being super picky? The Chief Economist for Realtor.com, Jonathan Smoke, says that banks are being so picky because today’s low interest rates, combined with suffocating regulations, mean that they don’t make enough money on each loan to justify accepting anyone other than near-perfect borrowers. Some researchers point to very high average credit scores (754 last year) as evidence that the banks have raised their standards high enough to exclude many or most applicants. This narrative is utterly false. What’s the REAL story? The truth is this: the vast majority of people with a credit score of 620 or higher and an ability to document their income and assets will be able to get a conventional mortgage for as much as 97% of the property’s purchase price. If a borrower’s low score is the result of current collection accounts or judgments, they’ll have to deal with them in some way; but their loan will be approved. Borrowers with scores as low as 580 can get an FHA loan with as little as 3.5% down. Most loan applications today are processed using an Automated Underwriting System, or AUS. Mortgage giants Fannie Mae and Freddie Mac provide the two most commonly used. If an applicant’s loan is approved through the AUS and the loan officer has correctly input the borrower’s income and assets, most lenders will approve the loan. Do lenders drag their feet? Some journalists have claimed in widely circulated articles that lenders are reluctant to make loans to less-than-perfect borrowers because with today’s low rates, they don’t make enough money. Those who make these claims clearly do not understand how lenders originate and fund mortgages. How mortgage lending really works The lender, a mortgage bank, takes a loan application. Once they have approved the loan, they give the borrower the money. These funds come from a specialized line of credit called a “warehouse line.” After close of escrow, the bank sells the loan to an investor. The investor (e.g. Fannie Mae or Freddie Mac) pays a premium for the loan—in other words, they pay more than the face amount of the loan. The bank uses part of the proceeds to pay off the warehouse line to free it up for funding another loan. The rest goes to pay salaries and overhead and make a small profit. Do low rates put a lid on lending? The bank does not care what the mortgage rates are—not one bit. The bank sets its rates based on the prices the investor (Fannie Mae or Freddie Mac) pays for the loan. The margin—the “markup” on each loan they sell—remains essentially constant regardless of the rates in the marketplace. How about the high credit standar...