by Tim McLaughlin

Dear Mr. And Mrs. Homeowner: Your home is probably
brimming with tax advantages. Do you know about all the
breaks you are entitled to? Obviously, you should always
consult a professional tax advisor for details, but here’s a list
of the top 5 tax deductions for homeowners:
1. Mortgage Interest – Mortgage interest on a home is
usually fully tax deductible. You can deduct interest on
multiple mortgages, as long as they do not exceed $1
million. The purpose of the mortgage must specifically
be to buy, build or improve a home.
2. Points Paid on a Purchased/Refinanced Loan – If you
refinanced, you may be able to write off any points you
paid to buy down the mortgage rate. To do this, you
deduct the points proportionately over the life of the new
loan. For example, if you took out a 30 year loan, you
would deduct 1/30th of the points you paid each year.
Remember, if you’ve refinanced before, and you have
points from the previous refinance that you haven’t
finished deducting, you can write off the rest of those
points in the year you refinance. If you bought your
home last year, the points you paid at closing are
deductible on your income tax statement for that year. If
the seller paid some (or all) of your points for you, you
may be able to deduct those seller paid points too!
3. PMI – extended through 2010! Late in 2007, Congress
extended the tax deduction for homeowners paying
private mortgage insurance through 2010. This one has
some restrictions: for example, the borrowers must have
an adjusted gross income under $110,000.
4. Capital Gains with No Income Taxes – Thanks to the
1997 Tax Act, once every two years, single homeowners
can realize a tax-exempt profit of up to $250,000, as
long as the seller owned and occupied the home as a
principal residence during any two of the last five years.
Married homeowners who file jointly on their tax returns
do not have to pay taxes on up to $500,000 of gains
when they sell their primary residence.
5. Refinance – Well, sure, I guess this one isn’t really a
true “tax break”, but when you reduce your payment
and/or loan term at historically low interest rates, it will
feel like one. Need help refinancing? Ask us how!

by Tim McLaughlin

A question we received this week: Why aren’t we seeing
even lower rates available with higher point quotes? The
short answer is liquidity. In order to be able to offer lower
rate quotes with high point attributes, the corresponding
(lower rate) MBS securities that these loans would be
delivered into for investor delivery must be actively trading.
However, these lower rate coupons (3.5% for 30 years ->
which include 3.750% to 4.125% rates, and 3.0% for 15
years -> 3.250% to 3.625% rates) are trading on a very
limited basis, if at all. When they do trade (ex: FNMA 3.5%
30 year), we execute what we can, and offer corresponding
rates. However, until these coupons start trading on a daily,
liquid basis, it is difficult to offer high point/lower rate quotes
across the board.
================================
“What is a ‘short squeeze’?” With any security, where the
investor has purchased the security from a seller, but when it
comes time for the seller to deliver the loans that make up
the security, the seller doesn’t have the loans to deliver, that
results in a “short squeeze”. The event usually happens in
non-liquid instruments, which is why most pipeline hedging
takes place in very liquid, vanilla instruments (Fannie 4%
securities, for instance), rather than in securities where
liquidity may be an issue (Fannie 3.5% securities). In a short
squeeze, the price will often go up for no other reason than
the demand is much higher than the supply, if the investor
can even find the bonds to offer them back. I bring this up
because we are seeing a lot of short squeeze scenarios in
the marketplace right now, and that is causing potential price
volatility day to day, particularly when you analyze the lower
rate coupons or specified trades, such as high balance
(north of $417K) securities.
================================
The market seems very concerned with next week’s Fed
meeting, since the economic recovery seems to be faltering.
There is conjecture about what the Fed will say and do,
stimulus wise, if anything. Also up for debate is what the
government will do with all of the cash that is coming in from
maturing asset holdings (i.e. – the MBS Purchase Program),
or mortgages that are paying off early. Will they reallocate
the funds within the central government, or will they funnel
the proceeds back into the MBS market for more
purchases?

by  Tim McLaughlin

A 30 year Fixed Rate mortgage with a start rate in year
one of 2.875% – unheard of, right? Wrong! This is exactly
what we are offering to borrowers looking for the deal of a
lifetime this weekend. You can get a conventional 30 year
Fixed Rate mortgage with the following terms:
Year 1: 2.875% interest rate
Year 2: 3.875% interest rate
Years 3 thru 30: 4.875% interest rate
So a 2.875% interest rate year one, and a life of loan
maximum interest rate of 4.875%. Virtually unheard of until
now!
———————————
Also available: a 15 year Fixed Rate mortgage at 3.99%,
life of loan. Ask us how to capitalize on these fantastic deals.
———————————
Mortgage backed security prices continue to remain
historically low, in conjunction with Treasury prices (the 10
year hit 2.89% on Thursday – the lowest since April 2009).
Bonds rallied after Federal Reserve Chairman Ben
Bernanke’s “uncertain” economic outlook supported the
notion of low inflation and low interest rates for a long period
of time. The U.S. economy faces “unusually uncertain”
prospects, he stated, and, based on that, the central bank
was ready to take further steps to bolster growth if needed.
Bernanke said policymakers believe the U.S. economy is still
on a path to recovery, but for now, he said the Fed expects
economic conditions will warrant an exceptionally low
benchmark federal funds rate for an “extended period”.
Bernanke indicated inflation is not a concern. All this is good
news for mortgage interest rates.
———————————
For any Realtor or prospective buyer looking for statistical
information about an area, they may want to start with the
FDIC’s recently released stats:

http://www2.fdic.gov/recon/index.asp.

It is a compilation of key economic data in graphic format for
the United States as a whole and for each state, county and
certain metropolitan statistical areas.

by Tim McLaughlin

Given economic question marks around the globe, most
economists don’t believe that our economy can handle higher
rates until 2011. In fact, the bond market has priced in slower
growth and lower inflation over the next 12 to 18 months, and
some believe that the Fed’s first overnight rate hike won’t be
until the 2nd half of 2011. And if you like the yield on the 10 yr
near 3%, you should be in luck since smarter minds than mine
think that we may sit here until the fall, and mortgage rates may
trend right along with it (77% of the economists polled by
Bloomberg project no change in the Fed Funds rate through the
remainder of 2010). And given the recent trend down in interest
rates, it is no surprise that refinances are up about 33% from
their low May levels, with the majority of those refinancing doing
so to reduce their payment and/or reduce their term structure.
=====================================
Congress appears to be tied up in knots and compromises
lately, so Federal Reserve officials may be taking matters into
their own hands towards improving the economy. The Fed has
a limited set of tools with which to work, especially with its
overnight Fed Funds target rate already near 0%. It would seem
unlikely that a massive infusion of cash is in the cards, and
there are risks of the recovery losing steam and possibly
reversing. There is little chance of the Fed selling off its
massive holdings of MBS anytime soon (much of which has
been going away with lower rates leading to some loans
refinancing) and there are rumors that discussions have
actually begun about the chances of the Fed buying more
MBS’s (believe it or not). Some other tools: The Fed could
change the wording of its statements to make sure that the
market knows that rates will stay low for a long period of time
(but I think we already get that). It could also cut the interest
rate paid to banks for extra money they keep on reserve at the
Fed from 0.25% to 0%, which would give banks more incentive
to lend money to customers rather than leave it with the Fed
(where it would make nada at 0%).
All are interesting points, but from the mortgage industry’s
view point, the Fed buying mortgage backed securities certainly
helped push home loan rates down, but few people at this point
seem to believe that rates are the big issue with housing. Just
ask anyone who has had a loan fall through due to the property
not qualifying, the borrower’s credit being an issue, or the
borrower’s debt loan being too great.
=====================================
Saw someone in a 25 year mortgage (23.5 years remaining)
refinance into a 10 year mortgage at the same payment this
week. True story. Could this be you? Ask us to research how.

by Tim McLaughlin

Getting a low down payment mortgage can provide you with a means to purchase a home without coming up with a large amount of money upfront. While this type of mortgage can be beneficial, there are a few potential drawbacks that you will need to know about to analyze if putting more money down is right for you. Here are a few things to consider about low down payment mortgages.

Low Down Payment

With a standard mortgage without mortgage insurance, you are going to have to come up with at least 20% of the purchase price out of your pocket. This can be a very significant investment for first time homebuyers or when you get into more expensive homes. When you opt to go with a low down payment mortgage, you will be able to invest a lot less of your own money. For example, with an FHA loan, you can put down as little as 3.5% of the purchase price.

Keep Reserves

The biggest benefit of getting this type of mortgage is that you are going to be able to hold onto your cash reserves. When you put a substantial amount of money down, this is going to cut into the amount of savings that you have. Being able to have a large amount of money in savings is going to be beneficial in a number of different ways. You will have capital available to invest, to furnish your home, for emergencies, and with higher reserves, that will also help in the qualification process.

Private Mortgage Insurance

One of the drawbacks of getting a low down payment mortgage is that you are going to have to obtain private mortgage insurance. Private mortgage insurance is a type of insurance that you must pay in lieu of putting 20% down. The investor is going to require this in order to insure themselves against the possibility of you defaulting on the mortgage. If you default on the mortgage, the private mortgage insurance company is going to pay the lender a part of the balance that is owed. Private mortgage insurance is going to add money to your monthly payment, however, once your loan to value reduces to 77.5%, via appreciation or via principal reduction, the mortgage insurance may be removed.

Interest Rate

Something else that you will want to take into consideration is the interest rate. Many times, lenders are going to give you a lower interest rate when you make a larger down payment. Therefore, you are going to have to decide whether putting a small amount of money down is going to be in your best interest in the long run. If your interest rate is higher, your monthly payment may increase.

Making the Decision

If you can get a low interest rate and the private mortgage insurance is not too unbearable for you, getting a low down payment mortgage can be beneficial. Just make sure that you are not going to be paying too much money overall so you can avoid paying extra upfront. Need help analyzing? Ask us how!

by Tim McLaughlin

Over the past couple of years, we are seen a drastic shift in the amount of loans being originated to FHA guidelines vs. Fannie/Freddie guidelines. To the average borrower, they may not even know what program they are being originated into, much less care…they are just looking for the best structure in terms of qualification and cost. Two of the main drivers (out of many) pushing the business toward FHA vs. conventional (Fannie/Freddie) are rules around down payment and the ultimate cost of the mortgage insurance.

All loans with a down payment of less than 20% require mortgage insurance, although the cost and provider of the mortgage insurance is driven by different sources. On Fannie/Freddie loans, they do not self insure the loans. Instead, they defer the insurance (risk) to private mortgage insurance companies like United Guaranty or Radian to provide the required insurance, for an insurance fee. On FHA loans, the insurance is provided from within, so they in effect self-insure the loans, again, for an insurance fee. The cost of this insurance fee is one of the attributes that makes up the all in price of your loan payment.

Related to the cost of mortgage insurance, the House of Representatives voted last Thursday to approve, by a 406-4 vote, the Federal Housing Administration Reform Act, designed to add more financial strength to the FHA. Within this reform, the FHA now has the authority to raise the ceiling on the annual premiums it charges borrowers for the FHA guarantee and raises the limits on multifamily housing in certain high cost communities, among a few other things.  In early April the upfront premiums went from 1.75 percent to 2.25 percent, but the annual premium remained unchanged at that point. Now, with this new measure, the FHA has the ability to increase its annual premium to 1.50 percent of the unpaid balance of the loan. This shift will allow for the capital reserves to increase because the annual MIP is paid over the life of the loan instead of at the time of closing. The net effect of this change will be determined over time.

One thing this does do, however, is give us an opportunity to reexamine the Fannie/Freddie vs. FHA best execution for loans with a down payment of less than 20%. With FHA MIC (insurance) premiums going up, this is a direct inverse relationship to the Fannie/Freddie MI premiums, which have been coming downward. Regardless if you are paying a monthly premium, or if you opt for our MI Advantage program where we pay the whole premium upfront for you, now there are potential costs saving options available. Ask us to help you work the numbers today!

Secondary Marketing Takeaways: As we enter the summer months, we are seeing trading volumes and activity slow down (as it usually does), which is not necessarily bad news for interest rates, as we are still at historic lows. Global economic events, like the situation in Greece, the BP scenario, and other TBD events will probably drive the market more than economic data.

by Tim McLaughlin,VP Weichert Financial Services

Over the past couple of years, we are seen a drastic shift in the amount of loans being originated to FHA guidelines vs. Fannie/Freddie guidelines. To the average borrower, they may not even know what program they are being originated into, much less care…they are just looking for the best structure in terms of qualification and cost. Two of the main drivers (out of many) pushing the business toward FHA vs. conventional (Fannie/Freddie) are rules around down payment and the ultimate cost of the mortgage insurance.

All loans with a down payment of less than 20% require mortgage insurance, although the cost and provider of the mortgage insurance is driven by different sources. On Fannie/Freddie loans, they do not self insure the loans. Instead, they defer the insurance (risk) to private mortgage insurance companies like United Guaranty or Radian to provide the required insurance, for an insurance fee. On FHA loans, the insurance is provided from within, so they in effect self-insure the loans, again, for an insurance fee. The cost of this insurance fee is one of the attributes that makes up the all in price of your loan payment.

Related to the cost of mortgage insurance, the House of Representatives voted last Thursday to approve, by a 406-4 vote, the Federal Housing Administration Reform Act, designed to add more financial strength to the FHA. Within this reform, the FHA now has the authority to raise the ceiling on the annual premiums it charges borrowers for the FHA guarantee and raises the limits on multifamily housing in certain high cost communities, among a few other things. In early April the upfront premiums went from 1.75 percent to 2.25 percent, but the annual premium remained unchanged at that point. Now, with this new measure, the FHA has the ability to increase its annual premium to 1.50 percent of the unpaid balance of the loan. This shift will allow for the capital reserves to increase because the annual MIP is paid over the life of the loan instead of at the time of closing. The net effect of this change will be determined over time.

One thing this does do, however, is give us an opportunity to reexamine the Fannie/Freddie vs. FHA best execution for loans with a down payment of less than 20%. With FHA MIC (insurance) premiums going up, this is a direct inverse relationship to the Fannie/Freddie MI premiums, which have been coming downward. Regardless if you are paying a monthly premium, or if you opt for our MI Advantage program where we pay the whole premium upfront for you, now there are potential costs saving options available. Ask us to help you work the numbers today!

Secondary Marketing Takeaways: As we enter the summer months, we are seeing trading volumes and activity slow down (as it usually does), which is not necessarily bad news for interest rates, as we are still at historic lows. Global economic events, like the situation in Greece, the BP scenario, and other TBD events will probably drive the market more than economic data.