Current mortgage rates are really low right now. And home prices are really low right now. As I type this page, the Dow Jones numbers are up. The main stream media tells us that the housing bubble crisis has past. In fact the current chairman of the federal reserve system didn't even believe we had a housing bubble.
After the real estate bubble did come crashing down, the federal reserve decided to mop up most of the toxic mortgages with rounds one, two and three of quantitative easing. The president of the Dallas federal reserve branch is on record with his recent "mission accomplished" assessment of the FED effort to rebuild the housing market. Their asset buying for sure had some effect on the current mortgage rates. At what cost is still to be determined.
So if we add up those items, does that total indicate a good time to buy a new home? Is this a time to consider refinancing your home mortgage?
I'm not really confident in any numbers coming from the federal government. They are in the business of staying in power.
But if you decide to take advantage of current mortgage rates and move forward on a property purchase, here are some loan programs along with a little history on the best mortgage deals. And some of the worst.
The federal funds rate is expected to stay low for a while longer. This helps to keep current mortgage rates pretty low. As of today, April 21st 2013, a well qualified borrower can get below 4% all day long.
A major part of the Dodd-Frank Act was to add transparency to the mortgage originating process. The sub prime mortgage fiasco of course added billions of dollars of tainted "assets" into the market causing staggering investor losses.
It also created billions of dollars in profit for many banks and mortgage lenders. It is ironic that Barney Frank is given so much credit for this bill. He is listed as a co-author. Back in 2003 a member of the Bush White House team noted in a session of congress that there should be concern about sub prime mortgages.
Barney Frank shot down that idea. He said he thought sub prime mortgages were a good idea and provided equal lending opportunities to all Americans. Of course our two party system requires opposing sides to dispute anything offered by the other group. That is why our government operates so efficiently. Yes, that is sarcasm!
The Dodd-Frank Act may in fact be so cumbersome in over reach, that it could actually do more harm than good. Amazing to consider I know! Sort of like the speaker of the house at the time saying we needed to pass the proposed health care law, "so we could read it to see what is inside it." She wanted to read it after it gets passed? Huh?
But it does go part of the way toward requiring fees to be listed up front and not allowing big surprises at the closing table. Good business ethics would make this provision unnecessary, but those ethics are not in large supply.
I'm afraid sub prime loans may be coming back. They may re-name them and for a time, credit scores will need to be higher. I didn't like them during my decade as a mortgage broker. I thought they were way too dangerous.
Another program that got a bad rap was the "stated income loan." This one used to be reserved for actual self employed business owners. They had to have excellent credit scores and the loan package had to have a statement from a CPA verifying that the borrower actually made his income from his business.
Business owners get certain deductions for actual operating expenses. That is because they take extra risk, employee people and move the country forward. Private sector business does things better, faster and more effectively than any public entity. Many of the budget woes in our country could be solved by turning programs over to private entrepreneurs. But that is for another page.
The problem with stated loans came around when government and big banks worked together to lower the standards on this loan program. It got so bad that there were lenders who offered stated income loans to W2 employees with credit scores as low as 500. So you can compare, the self employed stated program required a score over 720.
When you read the page about volatile gold prices, you saw how Goldman Sachs dealings with certain lenders was detailed in Barry Ritholtz excellent book, "Bailout Nation." I remember reps from Long Beach, New Century and Fremont pitching their programs that provided financing to borrowers that most lenders would not even consider.
The pension funds and retirement accounts that lost money on those bundled up loans wish there was better regulation prior to buying those deals.
So all of this is meant to provide background on how we got to where we are now. It will require you to have your documents in order now. Be ready to prove your income. Be ready to provide two years full tax returns. And be ready to pay extra each month if you don't have 20% down payment.
Be ready to accept the fact that you may owe more for your house after two years of making payments than when you first purchased the house. I really believe the housing bubble has not burst.
Be sure to avoid any adjustable rate mortgage regardless of the hype. Understand that lenders get paid more to sell adjustable rate loans most of the time. The best fixed rate mortgage will have no pre-payment penalty. It is the smart choice. With the current mortgage rates being so low, even a good adjustable rate loan, if there were such a thing, would be unnecessary.
If you have very little outside debt, a fifteen year fixed would be better. But if there is any doubt, go with a thirty year fixed. You can always shorten the term by adding an additional $100.00 per month to principle.
As we opened this page we stated that current mortgage rates are very low. House prices are also very low. Even if we assume the federal reserve misses the mark again on the real estate bubble, if you plan to stay in the new house for a long time, it may work out fine for you.
After any big flush out that does occur, things will be much better on the other side. Eventually they will figure out that the talk means nothing. Action is required. Housing will come back when jobs come back. The unemployment rate is the best economic forecast measure for the housing industry. Commercial construction is the best indicator of job growth. If they are not building new office space, it is because there isn't a need for it yet.
Most assumptions would be that the current mortgage rates will not stay this low for too much longer. But the federal reserve will try to hold them down as long as they can. If Harry Dent is correct, a bigger problem may be the opposite of inflation.
Time will tell. Gather as much accurate information as you can. Feel free to use the contact form at the end of the blog page to ask any questions. I will give you the best advice I can.