Mortgage Rates Hit Record Lows Amid Signs of Weakening Economy

MCLEAN, Va., -- Freddie Mac (OTC: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), showing mortgage rates dropping sharply amid falling bond yields and signs of a weaker than expected economy. The 30-year fixed averaged 4.39 percent, its lowest level for 2011. The 15-year fixed and 5-year ARM set new historical record lows averaging 3.54 percent and 3.18 percent, respectively.



30-year fixed-rate mortgage (FRM) averaged 4.39 percent with an average 0.8 point for the week ending August 4, 2011, down from last week when it averaged 4.55 percent. Last year at this time, the 30-year FRM averaged 4.49 percent.

15-year FRM this week averaged 3.54 percent with an average 0.7 point, down from last week when it also averaged 3.66 percent. A year ago at this time, the 15-year FRM averaged 3.95 percent.

5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.18 percent this week, with an average 0.6 point, down from last week when it averaged 3.25 percent. A year ago, the 5-year ARM averaged 3.63 percent.

1-year Treasury-indexed ARM averaged 3.02 percent this week with an average 0.5 point, up from last week when it averaged 2.95 percent. At this time last year, the 1-year ARM averaged 3.55 percent.

Frank Nothaft, vice president and chief economist at Freddie Mac, reports, "Treasury bond yields fell markedly after signs the economy was weaker than what markets had previously thought allowing fixed mortgage rates to follow this week with the 15-year fixed and 5-year ARM setting new historical lows. The economy grew 1.3 percent in the second quarter, which was below the market consensus forecast, and first quarter growth was cut to less than a quarter of what was originally reported. In fact, the first half of this year was the worst six-month period since the economic recovery began in June 2009. Moreover, consumer spending fell 0.2 percent in June, representing the first decline since September 2009."

"On a positive note, there were indications that the housing market is firming. Real residential fixed investments added growth to the economy in the second quarter after subtracting from growth over the first three months of the year. The CoreLogic® National House Price Index rose for the third straight month in June (not seasonally adjusted) and was the first three-month gain since June 2010. Finally, pending existing home sales rose for a second consecutive month in June and was up nearly 20 percent from June 2010 when the housing tax credits expired."

4 Insider Secrets for Avoiding Surprises at the Closing Table

I used to pass a mortgage company billboard on the freeway every day that read: “Surprises are for birthday parties.” (Implied: surprises are usually unpleasant when they arise in the context of real estate transactions.)  The worst case scenario that looms large in the minds of buyers, refinancers and sellers alike is that they’ll get to the close of escrow and some big glitch will arise, coming between you and your home – or your cash. 

Here are 4 key need-to-knows to help you avoid getting a nasty surprise at the closing table.

Read my lips: no new bills (or other financial blips). Most savvy buyers know better than to run out and buy a car while they’re trying to buy a home.  But you’d be surprised at how many don’t think twice before opening new credit accounts to buy appliances or finance the kitchen remodeling work they plan to have done as soon as they get the keys to the place.  Many a lender will run a quick credit check right before closing, mostly so they can detect whether your bills – your monthly obligations – have increased to a point that pushes your debt-to-income ratio too high to qualify for the home, or would make it tough for you to pay your new mortgage. 

If your escrow runs 45, 60 or 90 days (or longer) as they commonly do in short sales and sales of bank owned homes, new accounts can certainly show up on your credit report in that time frame, endangering the deal and generating a surprise “no deal” from your lender just when you thought you’d be getting a set of closing docs to sign.

Also, some lenders conduct a last-minute check of borrowers bank account statements. Of course they want to make sure that you have the cash you need to seal the deal. But you might be surprised to learn that lenders also want to be sure that there are no unexplained, major deposits to your account, as well. They know some borrowers are inclined to borrow fistfuls of dollars from family and friends just before closing in an effort to scrape together the cash they need to close their home purchase by any means necessary. 

And, unless the money is a lender-approved gift, that’s not allowed! (Why? The mortgage lender wants to avoid the friend or relative later saying they “own” part of the house, and also doesn’t want your obligation to repay a “friend-and-family” loan to interfere with your ability to repay your new home loan!)

If you have any large deposits (other than your normal income) come in just before or during escrow, be prepared to both explain them and document their source.

Make full disclosure when you first apply for your mortgage or short sale. Today’s loan underwriters are notorious for being sticklers about verifying and re-verifying the facts on your loan application.  And as mortgage guidelines have tightened, lenders have also tightened up the underwriting process, creating a virtual gauntlet of review after review, underwriter after underwriter that you have to get past in order to close your deal.  The most critical one?  The funder – it is this underwriter’s job to give the thumbs up (or down) on wiring your mortgage money into escrow.  

Funders are the toughest to get past, understandably, because the buck stops with them when it comes to their employer’s issuance of tens, even hundreds of millions of dollars of mortgage money every year.  So, they want to be sure every last one of your loan qualifying i’s are dotted and t’s crossed – up to the very last possible moment before they green-light the disbursement.  They have the right – scratch that – the responsibility to re-check your credit, assets, even your employment at the last minute, and they take this responsibility very seriously. 

And on a short sale, the pre-closing title check can reveal legal judgments and liens against the seller that have been placed on the property up to the day of closing.

I’ve seen deals fall apart or come to the brink of failure the day or so before they were supposed to close because a buyer had lost a job, turned out to actually be legally married (the divorce they’d put on the application was not yet final), or a new collection account had surfaced.  I recently saw a short sale nearly cancelled when a new collection account of the seller’s was filed as a lien on the house.  Once, I even saw a deal killed beyond salvation when a last minute credit re-check surfaced a social security number flag that revealed one buyer was not in the country legally!

To avoid these sorts of last minute surprises, be 100 percent honest with your real estate and mortgage agents at the beginning of your homebuying (or selling) process about any and every area of your life that corresponds to a mortgage or short sale application question, even before you complete the application – there’s almost no such thing as an overshare at that stage.  That puts them in a position to help you avoid closing table drama from the jump, even if it means they advise you to stay in your job, settle some bills or buy the home on your own, rather than with your spouse.

Watch the calendar closely. Buyers who originally were pre-approved for their mortgage many moons before they find the right property should obtain updated estimates of their mortgage payments and the cash they will need to close their purchase as their house hunting period goes on, and especially once they have a firm closing date estimate. Mortgage interest rates can change dramatically over a period of a few months, and closing costs vary widely based on things as seemingly minor as whether your transaction closes at the beginning or the end of the month.   

To avoid getting to closing and realizing that you have to come up with an extra few weeks’ worth of prepaid mortgage interest because your closing date changed, make sure your real estate and mortgage brokers are in close communication, and ask them to keep you apprised of how any closing date changes will impact the size of the check you’ll have to write to close the deal.  And if you’re buying a property that is a short sale or foreclosure, ask them to give you this briefing as soon as possible (and as frequently as possible!) in the transaction so that you can prepare a little cushion of extra cash in case closing is delayed for reasons beyond your control (which happens very frequently in these sorts of sales). 

Obtain and review your closing documents in advance.  I used to give this advice mostly to buyers, urging them to ask their agent and mortgage broker to provide them with their loan and title documents at least a day or so in advance – earlier, if possible.  If you have to sign 300 pages at the closing table and you know your keys and moving plans hang in the balance, the chances you’ll be scrutinizing every line are pretty slim – and if you do happen to catch an error, the time it will take the lender to revise and reissue a set of papers can throw your moving calendar entirely out of whack. 
The best practice is to get these documents in advance, so you can check on line items like the interest rate and monthly payment in the comfort of your own home or office, ask questions of your representatives and initiate any corrections that need to be made without disrupting the plans for signing and closing.

And this applies to sellers, too – even though buyers have a much higher volume of paperwork to get through at closing (and errors can be costly), closing doc errors occasionally arise that have a serious impact on sellers, as well.  I was once asked for advice in a situation where the seller owned two neighboring parcels of land, and the title paperwork for the sale of one erroneously included the other one, too!  It took a boatload of high-drama legal wrangling to get the mistake corrected, and get the sellers' other lot back.

Investing in real estate on the rise

Wayne Cummins’s stock portfolio took a huge hit during the financial crisis, so he has been hanging on to more cash than usual instead of investing it. But with the balance slowly building up and interest rates only going down, something had to change. 

“I’m just looking for a better return . . . than .0003 percent on a savings account,” Cummins said. But he wasn’t yet ready to jump back into the stock market, which this week posted some of the worst returns since the financial crisis. And with gold near record highs and a U.S. credit downgrade still threatening the bond market, there seemed no safe place to go. 

Except next door. 

In July, the Arlington resident put some of that spare cash toward the purchase of a $490,000 townhouse across from his own. Now, he hopes to rent out the home and watch its value appreciate as the years pass. 

With mortgage rates at their lowest level of the year and home affordability at a 40-year high, the idea of investing in real estate is appealing to a growing number of people. Investors have purchased about 20 percent of the existing homes sold this year, up from 17 percent last year and the highest level since 2008, according to the National Association of Realtors. While many are probably seasoned investors chasing after cheap foreclosures, some are people like Cummins who are dabbling in real estate because they think it makes good financial sense. 

Chris Cormack, a Keller Williams real estate agent in Ashburn, said many of her clients have recently expressed interest in buying for investment purposes. “We’re seeing regular people, customers, saying, ‘I want to buy a townhouse,’ ” Cormack said. “And they’re not professional companies. They’re not looking to own 10. They just want one.” 

Cummins certainly doesn’t consider himself a professional investor. He describes himself as a small-business owner who figured he had a good shot at finding reliable tenants and collecting a decent return on rental income. “The idea is to rent the thing out, take care of our tenants and they take care of us,” he said. 

A recent survey by Fannie Mae suggests that Cummins is not alone. The poll found that Americans expect home rental prices to rise 3.9 percent on average over the next year, the highest level since the company started tracking the monthly data in June 2010. This phenomenon is already playing out in the Washington region. The latest inflation-adjusted census figures show that area rents soared to the highest level measured in at least 20 years, with rental prices surging 22 percent in 2009 from a decade earlier. The rates jumped in part because 10,000 single-family houses that were occupied by their owners two years ago are now rental properties; those houses tend to be larger and have higher rents than apartments. 

Later in life, Cummins may consider selling the townhouse (hopefully at a huge profit) and using the cash to invest in more properties or to help pay for his three kids’ college tuition. If the kids, now in middle school and high school, choose to go to college locally, maybe he can rent the townhouse to them. 

Buying a gold bar, he said, certainly doesn’t offer this array of options. 

So far, Cummins has reason to expect that his home’s value will appreciate. The Washington area was not as badly hit by the foreclosure crisis as many other parts of the country, and therefore the region’s home values have held up relatively well. This region is the only one of the nation’s 20 major metropolitan areas to consistently post price gains this year, according to the closely-watched Standard & Poor’s Case-Shiller index. 

Market experts credit the fundamentals to the region’s ample supply of jobs, which in turn fuels demand for homes. Government spending has kept those jobs going during the past few years, lessening the impact of the nation’s dismal unemployment trends and enabling people to buy homes, lock in low rates and have strong pricing power if they decided to rent them out. 

This week, the average rate on a 30-year fixed rate mortgage dropped to 4.39 percent, the lowest level in more than eight months, according to Freddie Mac. The average for the 15-year fixed-rate loan fell to 3.54 percent — the lowest level since Freddie began tracking those rates in 1991. 

“The investor picture is really phenomenal,” said John Heithaus, chief marketing officer of Metropolitan Regional Information Systems, the local multiple listing service. Heightened investor activity is one of the reasons area homes are getting snapped up more quickly, he said. The average time on market is 68 days, down 5 percent from a year ago. 

Investors might be playing an even larger role in the market if not for the tough standards imposed on investment properties, said Frank Donnelly, a board member of the Mortgage Bankers Association of Metropolitan Washington. 

It used to be that investors could put down 20 percent on a home they were buying, but lenders are more likely to require 25 percent these days, Donnelly said. Lenders are likely to tack on 1.25 percent to the closing costs for those with only a 20 percent down payment. Banks are also more conservative about counting rental income from an investment property when documenting a loan and more insistent that investors have at least six months’ worth of mortgage payments in reserve before they buy. 

Cummins, who put down 25 percent when he bought the neighboring townhouse, said negotiating with the banks for a loan on that home was an “eye-opener.” 

“I’m shaking my head at these guys, I’m going, ‘You guys really, really don’t want to loan money, do you?’ ” he said. 

For those who don’t want to deal with banks, there are other, less labor-intensive ways to get exposure to the market. Stocks like real estate investment trusts buy properties, rent them out and pay dividends to their shareholders. And there are also real-estate focused exchange-traded funds, which track the performance of REITs and sell shares on major stock markets such as the New York Stock Exchange. 

Of course, that strategy could prove risky given the stock market’s volatility, as witnessed this week. 

But “REITs and ETFs are a good way to get exposure for people who don’t want to take on the responsibility of being a landlord,” said David Weliver, author of Money Under 30, a personal finance blog. “A lot of people who want to invest in real estate don’t realize it means waking up at 2 a.m. to fix a leaky toilet.’’ 

But REITs tend to focus on the commercial property sector, rather than the residential market, where investors sense the big opportunity. That may soon change: Greg Rand, chief executive of New York-based real estate advisory firm OwnAmerica, said the market will soon see the first generation of REITs focused on buying homes across America. He’s currently working with institutional investors and private equity firms to form such a REIT. 

“The idea is that you have a sizable portfolio and are able to generate cash flow from rent and also cash flow from sales,” Rand said, adding that, due to its “blue-chip” status, Washington would probably form a part of such a portfolio. 

That blue-chip status is convincing other investors to make creative bets on the District’s housing market. In July, Bob Pinkard, a 40-year veteran of the D.C. real estate industry, launched a new venture, Buchanan Pinkard Residential Development, to invest in residential land. 

“What we’re doing is looking for land opportunities where we can get in and buy the land that’s master-planned for residential development and do all the entitlement work and sell lots,” Pinkard said. That means looking at communities outside the Capital Beltway, near major transportation hubs and highways that are poised to see their values soar as people move there. 

He readily acknowledges that he may have to wait three to four years to find out whether his bet will pan out. But that doesn’t faze him. 

“That’s the great thing about real estate,” he said. “You have certain theses, but you’re never 100 percent sure that you’re right.” 

Foreclosures fall in most U.S. cities

NEW YORK (CNNMoney) -- Foreclosures declined in more than 84% of U.S. metro areas during the first half of the year, according to the latest report from RealtyTrac, an online marketer of foreclosed properties. But that doesn't mean these markets are staging a turnaround.

"These dramatic decreases indicate the foreclosure pipeline continues to be clogged in many local markets across the country," said RealtyTrac CEO, James Saccacio, whose firm reported earlier this month that the national foreclosure rate fell 29% over the past 12 months.

Much of that backlog, he explained, is due to a glut of already-foreclosed properties that the banks are having a hard time selling and to the slowdown in the processing of foreclosures following the "robo-signing scandal" of 2010.

As a result of the scandal, in which the banks were accused of mishandling paperwork and failing to follow proper protocols, banks are being much more careful and many filings have been delayed.

The biggest decline in the number of foreclosures have come in judicial foreclosure states where defaults go through the courts and paperwork is scrutinized by judges.

The RealtyTrac metro area report, according to RealtyTrac spokesman Rick Sharga, shows -- on a localized level -- just how significant the declines have been in some judicial states.

Obama's housing scorecard

Before the scandal, Florida claimed nine of the top 20 metro areas with the highest foreclosure rates during the first half of 2010. This year, there's only one, Cape Coral, which recorded 52% fewer foreclosures compared with the same period in 2010.

Las Vegas -- ground zero for mortgage defaults the past few years -- continues to get bombarded with the highest rate of foreclosure filings in the land.

One in every 19 homes in Sin City and the surrounding area got plastered with a foreclosure filing -- either a notice of default, a notice of sale or bank repossession -- during the first half of 2011. That was six times the national rate, according to RealtyTrac.

Foreclosures and home prices

According to recent analysis by Standard and Poor's, the financial services company, which examined RealtyTrac's metro area foreclosure data against price changes for the 20 cities in the S&P/Case-Shiller home price index, trends in home prices and foreclosures are closely tied.

10 Dirt cheap housing markets

"When compared to the peak-to-trough price declines for each of the 20 cities, prices drops and foreclosure events are correlated at 87%," said David Blitzer, S&P's chairman of index committees.

Typically, that would mean a drop in foreclosures would have a positive impact on home prices, explained Sharga. But not this time.

"There is enough of a backlog of distressed inventory that there will be little or no short-term benefit," he said.

Even if the banks repossess fewer homes, they already own so many they're trying to sell, that supplies will not tighten appreciably.

The slowdown in foreclosure processing could help some borrowers buy extra time to regain their financial footing and coax a mortgage modification out of their bank. Also, said Sharga, more short sales could be approved, which can help preserve home values better than foreclosures.

"In the long term, though," said Sharga, "delaying foreclosures will just prolong the problem."

If that happens, home values could bounce around the bottom for years, contributing little to the faltering national economic recovery. 

Why you should lock in a mortgage rate now

If you're considering buying a home or planning to refinance, here's some advice: lock in a mortgage rate. Now.

• 
  By Pat Wellenbach, AP
  The threat of a government default or debt downgrade could cause mortgage rates to spike. Experts advise lock your rate now.

Enlarge

By Pat Wellenbach, AP

The threat of a government default or debt downgrade could cause mortgage rates to spike. Experts advise lock your rate now.

Mortgage rates, which have been at historic lows for months, could shoot higher if lawmakers fail to reach an agreement to raise the debt ceiling by Tuesday, says Greg McBride, senior financial analyst for Bankrate.com.

A government default would cause Treasury bond prices to plummet, and yields would rise. "Uncle Sam's borrowing rate is the baseline from which all consumer and business borrowing rates are determined," McBride says. "If Uncle Sam's costs go up, borrowing costs go up for everybody."

Even if the default is short-lived, the ratings agencies have signaled they'll downgrade U.S. debt. That would also drive up consumer rates, because the government would be forced to pay higher rates to bond investors.

"Consumers might look back on this period six months from now and regret it if they don't take action," says Mona Marimow, senior vice president for LendingTree, a loan comparison website.

So far, the debt-ceiling fracas hasn't affected mortgage rates. The average rate for a 30-year fixed-rate mortgage for the week ended July 28 was 4.55%, only slightly higher than a week earlier, according to Freddie Mac. Rates slipped on Friday after the Commerce Department reported that the economy grew at a lower-than-expected 1.3% in the second quarter.

Borrowers who want to lock in low rates will need to act fast, says Keith Gumbinger, vice president of HSH, a publisher of mortgage data. "If the government does default, it's going to be hard to lock in an interest rate," he says.

•Credit cards. Interest rates would likely rise, although not right away, McBride says. Credit card issuers are required to give you 45 days notice before they raise your interest rate.How the debt-ceiling crisis could affect other consumer rates:

Most credit-card interest rates are tied to the prime rate, which wouldn't be affected by an increase in Treasury rates, he says. However, card issuers would likely increase the margin they add to the prime to calculate the rate they charge consumers, he says.

You can protect yourself from a rate hike from paying off your balance--which makes sense even if the government doesn't default, McBride says. "I don't think there's ever a good reason to keep a high credit card balance," he says. "Let this add more urgency to your payment efforts."

•Certificates of deposit: Savers who hope that higher Treasury rates will boost low CD rates will be disappointed, McBride says. Those rates won't improve until banks increase lending, and that's not going to happen if there's a downgrade or default, he says. And if a default causes safety-seeking investors flood banks with cash, McBride adds, rates could fall even more.

June Pending Home Sales Rise

For the second consecutive month, pending home sales figures have increased. According to the National Association of Realtors® (NAR) all regions are showing "strong double-digit" gains over last June and the index itself was up 2.4 percent for the month.



Pending sales are a healthy 19.8 percent above June 2010's numbers. The Midwest has seen the largest rebound from 2010, increase 26.4 percent from last June. The Northeast followed at a 19.4 percent increase and the South gained 19.1 percent. The West was up 16.4 percent.

According to the NAR, "Existing-home sales this year are expected to total 5.0 million, slightly higher than 2010. Similarly, little change is forecast for aggregate home prices with several indicators, including NAR's median prices, showing recent signs of stabilization."

The largest regional increase month-to-month was seen in the West, which rose 6.4 percent, while the Northeast and Midwest both posted monthly declines.

Lawrence Yun, NAR chief economist, said there may be some increase in closed existing-home sales. “For the majority of transactions, the lag time between pending contacts to actual closings is one to two months. Therefore, the two consecutive months of rising activity should lead to overall improvement in closed sales in upcoming months,” he said. “Though a higher than normal cancellation rate can hold back final closing figures, it could well be that some past cancellations are nothing more than delayed buying decisions rather than outright cancellations.”

The NAR also reports that credit could be a deciding factor in whether or not housing experiencing a solid recovery sooner than later. Yun noted, "The best way to ensure a more solid recovery in housing is to simply return to normal, sound credit standards so more creditworthy home buyers can get a mortgage."

June's rise in pending home sales was unexpected, as economist polled by Reuters were looking for a 2 percent decline. Sales went in the opposite direction, however. The number of cancelled contracts will give a more complete picture of whether or not housing is on the mend.

Developers alter plans in North Myrtle Beach

Developers in North Myrtle Beach, after looking at the market, have decided to or are considering making changes to their plans - altering the types of properties they will build, according to city officials.

Builders and developers often make changes throughout the building process, but the types and number of requests is unusual, said Dan Hatley, the principal planner for the City of North Myrtle Beach.

"This time it's just extraordinary because of theeconomy," he said.

Hatley said several developers have come in to discuss potential changes.

Most are looking to build a smaller type of property than they had planned, and some are turning from townhomes to single-family homes, Hatley said.

Smaller homes, lower in price, are where the bulk of sales have been in recent years, and developers whose plans or building have stalled are trying to find ways to get projects going, he said.

Last year, 66 percent of condos were sold for  less than $150,000 and about 76 percent of single-family homes sold for less than $250,000, according to Site Tech Systems.

One example of the changes is Grande Harbour, off of Kingsport Road in North Myrtle Beach.

The first set of three upscale townhomes were built in 2009, but the $400,000 multistory units with elevators didn't sell. While potential buyers liked the units, few could get a loan to buy them or could sell a house elsewhere to make the purchase, said Kyle Davis, the manager of Coastal Sunset Properties, which owns Grande Harbour.

"You've got to be able to adjust to the market and we've been looking for a product that would keep the theme of a beach-type, weekender boating community," he said. "The units start at $100,000 and go up to $150,000 depending on amenities, which puts us right in the market niche with what people can afford and what banks will lend on."

The new houses will be like single-family homes but attached on the first floor through a common wall in a storage unit, which allows the development to be built within the zoning rules, Davis said.

There will be a total of 77 homes in the first phase and an additional 77 in the second phase, he said.

Coastal Sunset Properties will sell some of the lots to Hunter Brown Development, which will build the new properties, Davis said. The attached raised beach houses are similar to those Hunter Brown built at Magnolia Beach West, a Litchfield Beach development that underwent an overhaul in type of properties and was able to sell them quickly.

Construction should start within three months and the first houses should be finished by the end of the year, Davis said. The finishes on the new homes will be basic, which will allow them to be built for less money, Davis said.

"It's something that I think you're going to see more of because for builder, developers to exist in the economy we've got to adjust to what banks are willing to lend money for," he said.

Dany Drouin, a Realtor with Century 21 The Harrelson Group, who is selling the existing townhomes at Grande Harbour, said that in this market buyers are looking for quality properties at a good discount.

"You have to be building the right product," he said. "Builders have to develop a product at a price that buyers will buy. I think they're going in the right direction."

Rising gas prices. Increasing costs for food. Skyrocketing jobless rates amid an anemic economic recovery - if you can still call it that.

Can consumers ever catch a break these days? Next weekend they can.

Shoppers can skip paying the state's 6 percent sales tax and other local sales taxes on a range of items during South Carolina's annual tax-free holiday, which kicks off at 12:01 a.m. Friday and runs through midnight Sunday.

The three-day spree always is big for retailers, and they're expecting it to be even bigger this year as economically battered consumers cling to any discounts they can get.

"We expect it to be a solid weekend of shopping," said Matt Morris, spokesman for Myrtle Beach Mall. "Anything off, consumers are taking advantage of. ... Consumers will start opening their wallets during that three-day period."

Shoppers are expected to save $3 million in taxes during the tax-free holiday this year, in line with the $2.