Yesterday 30 year mortgages had one of its best days in over a year. The Fed at one of their pre-scheduled FOMC meetings did what markets were expecting, plus more. The view prior to the FOMC policy statement at 2:22 yesterday was that the Fed would institute “Operation Twist” as it has been dubbed, selling shorter dated notes and replacing them with longer term notes and bonds to drive down long-term rates. The amount of shifting was expected to be about $300B, the Fed said it will be $400B. The Fed however surprised markets with the announcement it would turn back to buying Mortgage-Backed Securities (MBS’s) with principle pay downs on MBSs it now holds and instead of investing back into treasuries as it had been doing, investing in more MBSs. The reaction was swift in the mortgage market as MBSs soared in price and interest rates dropped.
The possibility of default by Greece and concern of an international recession have also helped to drive down rates this week in the MBS markets.
The Pre-Approval process is one of the most important but often neglected parts of the home buying process. A pre-approval should always be obtained before a buyer even begins to shop for a home, no matter how well-qualified he or she thinks they are. Today’s mortgage qualification guidelines are full of potential traps that can prevent even a seemingly well-qualified buyer from being approved. A qualified mortgage expert can help a buyer in many ways if the pre-approval process is started early.
Pre-Approval vs. Pre-Qualification
First, let’s define the difference between a Pre-Qualification and a Pre-Approval
A mortgage loan pre-qualification is simply an estimate of how much house you can afford and how much money a lender would be willing to loan you. This usually involves verbally providing information on your income, assets, debts, and a potential down payment amount to a lender. That lender would then provide you with an estimate of how much you could afford to pay for a monthly mortgage. There is no cost or commitment on either side. This estimate is just helpful in helping you figure out if buying a home is a viable option, and if so, what your price range would probably be. But, the lender did not verify your credit, income or assets, and it may not be worth the piece of paper that it is written on.
Getting pre-approved means that you have a tentative commitment from a specific lender for mortgage funding. In this case, you provide a qualified lender with actual documentation of your income, assets, and debts. This process requires an application and a credit report. Your loan application with credit information should be input into the Fannie Mae/Freddie Mac automated underwriting System to obtain an Approval. These Approvals are accepted by all lenders. If there is any doubt about your qualifications, the lender should also review it with an underwriter.
Once pre-approved, the lender will issue a letter of commitment, stating how much money they are able to lend for a home purchase. With a pre-approval in hand you can start your shopping. Real estate agents and sellers will take you much more seriously when they see you have your mortgage funding in place.
It is important to understand, however, that even a pre-approval is still not a guarantee that you will be approved for a mortgage loan. The funding will only be given when the property appraisal, title search, and other verifications check out on the home you have chosen to buy.
The pre-approval only takes a day or two once you provide the income and asset documentation.
What You Need for Pre-approval:
Most recent paystubs covering a 30-day period
W-2s for the two previous years
If self-employed, personal and business tax returns from the last two years
Two months of bank statements for each Bank, Investment & Retirement account
Loan documents on your current home (if applicable)
Benefits of Pre-Approval:
Allows time to improve credit scores and structure your financing to obtain a better rate. Sometimes just 1-point in your credit score can affect the rate or even disqualify a buyer
Strengthens your offer – particularly helpful when there are multiple offers
Sellers will be more likely to immediately accept your offer, because you are giving the seller peace of mind that their home is sold and it’s OK to take their home off the market
Enjoy a Faster Closing Period – The lender can speed up the entire processing procedure. Appraisals can be ordered immediately. The process that typically takes about 30-days can be shortened to just two or three weeks, which comes in handy if a seller needs to quickly move and can’t decide which offer to accept
Saves everyone time – the Buyer, Seller, Realtor and Mortgage Lender
As you can see, a pre-approved buyer has the advantage when shopping for a home. Just make sure that you are being pre-approved by a knowledgeable, reputable mortgage professional that has taken the time to review your documentation, run your credit and provide advice to structure your financing with the best possible terms for you.
The volatility and improvement in the financial markets this week makes me want to talk about Rate Locks today.
First of all, understand that mortgage rates change every day and throughout the day. Lenders allow us to lock in our borrowers interest rates in order to protect them from potential increases in rates between the time they make application and the time the loan closes. At the same time, a rate lock protects the Lender and allows them to manage their pipeline of pending loans to try to minimize losses from loans that don’t close. So, it’s a two-way street in that once a rate is locked the Lender can’t raise the rate before the loan closes or the lock expires and they also won’t lower it if rates eventually fall (see the paragraph about exceptions near the end of this article). It should be understood that a Lender will lose money when a rate lock is broken because they “hedge” their pipeline by buying securities that move in the opposite direction of interest rates. They also incur a cost when they substitute one loan for another in their pipeline.
Rate locks are always for a finite period of time. Most lenders will offer a rate lock in 15-day increments, i.e., 15, 30, 45 & 60 days. The longer the lock-in period the higher the cost because the lender is at risk for a longer time period when guaranteeing a rate.
When Can the Rate Be Locked?
A rate can be locked anytime during the process. In a “purchase” transaction it can be locked in once the buyer and Seller have a signed purchase agreement and escrow is opened. On a “refinance” transaction it can be locked in once the borrower has me an application and signed an “intent to proceed” with a Lender or mortgage broker.
Since rates can change daily, timing is all-important. It’s not always best to lock in the rate at the time of loan application. An experienced mortgage broker has resources that track the movement of Mortgage-Backed Securities and receives “alerts” when the time is best to lock in. It’s not a perfect indicator of when to lock but an experienced mortgage broker will manage his pipeline according to closing dates, the lenders he has chosen to work with the best interest of the client always in mind. The big banks on the other hand tend to lock all loans at time of application which is not often the best time to lock.
Can a Rate Lock Be Broken?
As a general rule, a rate lock is a commitment for both the Borrower and the Lender. But, sometimes there are extenuating circumstances such as the substantial decrease in interest rates such as we just experienced. When that happens, Lenders may allow us to “negotiate” the rate to the market-rate or somewhere between the market rate and the locked rate. The lender has to evaluate how much it will lose if it negotiates the rate and the borrower has to evaluate whether it’s worth the hassle of starting over with another lender. Each lender has the ability to set its own policy for rate negotiations and most lenders won’t negotiate the rate until the loan is ready to close. You can’t expect them to negotiate every day as the markets change. A rate negotiation is usually a one-time opportunity.
Mortgage Rate Update: Rates are at an All-Time Low!
In all my years I don’t think I’ve ever seen such volatility and swift movement in the mortgage market. There are so many factors at play – a weakening U.S. economy; multiple European countries in financial trouble and then the down-grade of U.S. debt by S&P.
The Fed met this week and promised to keep rates lower for the next two years. The Fed is essentially out of bullets that they believe will help revive the economy and lower unemployment. There are a number of analysts believing the Fed will do another round of quantitative easing later this year. I believe what Bernanke did is to assure investors rates will stay low and that putting money in treasuries won’t provide much, if any, return on parking money. Investors will continue to look for any potential to earn some profits and that makes stocks more attractive. Bernanke’s decision will keep interest rates low and likely keep the stock market from collapsing. I think it was an excellent strategic decision by Bernanke and the Fed.
Important Note:The Fed does not control mortgage rates. Most mortgages are sold to Fannie Mae and Freddie Mac and then bundled with other mortgages and re-sold as Mortgage-Backed Securities. These securities are traded in the financial markets just like stocks and bonds. Volatility will continue as the price of these securities goes up and down in reaction to the day-to-day political and economic events.
The Roof Top bar and restaurant is the only place in Laguna that you can get a 360 degree view of Laguna Beach Real Estate along the coastline and hillsides.
While I recommend you to visit the Roof Top, and see the view, as well as, the great bartenders and beautiful cliental, I’ll show you in this video what to expect.
1) North Laguna
North Laguna -We start our tour by looking up the north coast of Laguna. At the far end we have three luxury gated communities; Irvine Cove, Emerald Bay and Smithcliffs. Here Laguna Beach real estate for sale can range from $3m to $30m.
The rest of North Laguna is made up of a series of communities, such as Emerald Ridge and the Tree Streets, which have a wide array of different architectures, views and ocean coves.
North Laguna is very popular since it provides a quick access out of town since you don’t have to drive through the village of Laguna.
As we move south we have one of the original hill side communities of Temple Hills. Since it splits Laguna in down the middle it has all sorts of magnificent ocean and Catalina views.
Below Temple Hills there is the popular southern part of the Laguna Village which includes the Roof Top and the Casa del Camino hotel. This is quite popular since people who live here don’t have to drive to get around town and the awesome beaches at the end of each road.
Here the Laguna Beach Real Estate for sale can range from $1m to $6m.
6) As we move south past Blue Bird Canyon we come to Summit Ridge and Arch Beach Heights. Arch Beach Heights is a unique community and is one of the more affordable areas in Laguna with a huge panoramic ocean views.
The Laguna Beach real estate for sale in Arch Beach Heights ranges from $700k to $3m
Below, is the Woods Cove community that cozies up to the ocean and its spectacular coves. Again this is popular since you can walk everywhere. Real Estate Laguna Beach in Woods Cove ranges from $1m to $4m
As we look further south there is the hillside community of Alta Vista. It is unique since the hillside goes steeply down into the water offering beautiful white water coves below. The road is a little crazy to drive but the ocean and coastal views are incredible.
Laguna Beach Real Estate for sale here ranges from $1.5m to $5m
8) And lastly we look past the Surf and Sand Hotel to South Laguna Beach and its beautiful beaches. Besides the world famous Montage Resort there are some great communities like the gated Three Arch Bay and Crown Royal. These are true gems of Laguna Beach Real Estate.
But it’s all about the water and art in Laguna. With all sorts of water sports like surfing, stand up paddling, skimming and diving you can keep yourself busy during the day and it the galleries and restaurants like the Roof Top at night.
So come on down to the Roof Top, have a maito, and meet the locals and out of towners and check out these views.
And don’t hesitate to give me a call when you’re in town. You have to admit it’s one of the best places in the world.
Folks like North Laguna and will pay a premium for living here since, not only does it have the Laguna charm and views, it is situated so that you don’t have to go through the village and its traffic in order to commute out of town.
This issue will look at North North Laguna, Emerald Terrace, Crown Point and The Coves. To view more pictures these area’s homes, shops, streets, landmarks, parks and views click on this link North Laguna Beach
This community is between the Pavilion shopping center and Emerald Bay. The Coast Hwy and High Drive are its other boundries.
Unlike the tree streets community in South North Laguna , which is relatively homogenous with single family residences North North Laguna is made up a everything from condos, apartments, and single family residences of every shape and size. It attracts many of the town’s renters as well as long time residents.
The streets are typically on steeper hill sides and have more ocean views.
Emerald Terrace borders Emerald Bay and goes from the Coast Hwy to way up on the hillside. The custom homes in this area are breath taking in size, architecture and views. The view of the bay in Emerald Bay is extraordinary and reminds you of the coves along the Italian Riveria.
The homes are priced at a premium but not at the premium level of Emerald Bay. Then again they don’t have access to the Bay’s beach.
Crown Point is on the ocean side of the Coast Hwy between Emerald Bay/Smithcliffs and Crescent Bay. This is an unusual area with condos/ apartments, older single family homes and historical beauties.
Did you know there used to be an airport landing strip located here until someone crashed into Crescent Bay. If there is anything you should read in this newsletter is the story of one of Laguna’s most colorful lady character that used to live there, Pancho Barnes. From a 3 day Hollywood party host in Laguna, to the first female stunt pilot to the lady who owned the bar/brothel outside Edwards Air force Base featured in The Right Stuff movie, she has an incredible story and movie. You got to read this http://legendofpanchobarnes.com/film/
The Coves in North Laguna are on the ocean side of the Coast Hwy and runs from Cresent Bay along the coast past Shaw’s Cove and Hiesler Park. You have everything here from $10m Oceanside homes, to Laguna classic cottages, condos and apartments.
Watch this video that goes along Cliff St along The Cove community all the way to Las Brisas and onto the Coast Hwy with its shops, restaurants and art galleries.
With all the changes since the mortgage crisis began about three years ago, how does a home buyer or homeowner shop for the best interest rates in today’s new world?
My answer is that it’s nearly impossible for anyone to shop accurately. Let me explain.
Where Does Mortgage Money Come From?
First of all, let’s understand where the money comes from. Fannie Mae and Freddie Mac, the two-Government-owned agencies are responsible for most of the underwriting guidelines and are the basis for how rates are determined. These agencies account for about two-thirds of the mortgages originated in the U.S with the Federal Housing Administration (FHA) accounting for most of the rest. Their loan programs are offered through hundreds of Banks and Non-Bank Lenders throughout the U.S. In simple terms, loans are made by various lenders and immediately sold to these agencies that bundle them with other loans and re-sell them in the form of a Mortgage-Backed Security (MBS). The MBS’s are then bought and sold by institutional and governmental investors throughout the world. These MBS’s trade in the global financial markets just like stocks and bonds. And, their “price” can be just a volatile as those of stocks and bonds, changing each day and throughout the day.
So the first challenge in shopping for a loan has to do with timing. With the price of a loan changing all the time, you would almost have to get your information from every lender simultaneously – an impossible task.
How Do Lenders and Their Rates Differ?
In addition to the “timing” of when lenders set their rates, there are other factors that can influence your rate. There are various factors that also affect a Borrower’s rate. Near the time that the Government was forced to take over Fannie Mae and Freddie Mac, they introduced various “risk factors” that apply to most loans. These factors are known as Loan Level Price Adjustments. Lenders must add these price adjustments according to factors that are standard among all lenders. The most common factors FICO Score and Equity or Down Payment. Other adjustments may apply for such things as intended Occupancy use of the property, Loan Amount, Type of Property condo vs. detached) , number of units (1-unit vs. 2-4 units, and others.
And, while lenders are all given the same basic guidelines to follow, they can impose their own guidelines and pricing adjustments that are stricter than those of Fannie Mae and Freddie Mac. In the industry, these lender-imposed adjustments are called “overlays”.
So, the second challenge in shopping for a loan is that the loan officer must have enough knowledge of all the factors that apply to your particular situation. And, it would take a nearly complete loan application plus a credit report to have that information.
Other Factors that Affect Rates:
Experience: There is no substitute for “Experience”. A loan officer must have experience to know how the markets adjust to the daily economic changes that affect MBS pricing and must also know the various pricing adjustments and overlays. The experience level of the loan processors, underwriters, and closers are just as critical. And, along with experience should come honesty and integrity.
Service: Service levels vary greatly among lenders. For example, the big banks and internet lenders tend to centralize their processing functions in distant locations. And offer no interest rate advantage. Local mortgage brokers and lenders are in your marketplace, understand the local market and are more apt to provide a more personal level of service.
Rate Locks: Once a rate is locked in by your lender, it is considered a two-way commitment. The lender commits to that rate in the event that rates rise after locking and the borrower also commits to that rate in the event that rates decline. A rate lock is always for a finite period of time – typically 15, 30, 45 or 60 days. The longer the lock period the higher the cost. It should be the lenders obligation to complete the process during that rate lock period and the it’s also the borrower’s obligation to provide the requested documents in time to enable the lender to complete their process.
Not knowing the experience level of the loan officer and their staff or the service levels that they offer can also contribute to the impossible task of shopping accurately.
My best advice is to shop not for rate but to shop for the best local mortgage broker or lender. A personal referral from a friend, relative co-worker, or neighbor is much safer than just trusting your local bank or an unknown internet lender. Trust the rate-shopping to a local mortgage lender that understands and follows the financial markets, has access to multiple sources to navigate through the maze of lenders and overlays, and one that provides personal service by looking out for your best interests. It has become much to complicated for a typical borrower to accurately shop on their own.
Mortgage Rates This Week:
Yesterday Ben Bernanke and the Federal Open Market Committee meeting confirmed what most had known for two months – the US economy isn’t growing much. The Fed lowered its outlook for Gross Domestic Product for the rest of this year. Confirmed weakness in the economy was mostly already factored into interest rates but we are getting a positive reaction this morning in rates.
For more information and my Daily Rate Lock Advice, please visit my website: www.RTCmortgage.com
Mortgage Interest Rates for Fixed and Variable Rate Mortgages*
It’s common for the tax assessor’s office to continue charging the higher amount until the owner goes through the process of contesting the bill. Fortunately, it’s relatively easy to have your property tax assessment lowered…here’s how:
To get your property taxes reduced on the basis of the recent decline in market value:
1. Click below for a Request for Informal Assessment Review from the OC County Tax Assessor’s Office:
2. Choose the form for your property type. Be sure to provide accurate and complete information. Usually the request will ask you for (a) an estimate of the current market value of your home, and (b) a list of recent, comparable sales in your neighborhood supporting that estimate of value.
4. Alternatively, find a trustworthy online comparables site, like CyberHomes.com, where you can get both an estimated value and a list of the comparable sales on which it was based.
5. Keep in mind that you are trying to make the case that your property value is significantly lower now than when you bought it, so list legitimate comparable sales which support that argument or you are wasting your time! And keep in mind that if you bought your home 10 or 20 years ago, your property’s assessed value might not be out of whack with current market values, even though your home’s market value may have declined from the peak of the market.
6. Sign it and mail it! Allow several weeks, then call and check on the progress of your request. If it’s accepted, you’re golden — for this year. Most areas require you to revisit the reassessment issue every year. If it’s denied, there will be a more formal application and appeals process available to you and you can decide at that time whether it makes sense to undertake that.