Money, Debt, Real Estate, and Credit talk with Jeff Underwood

The FHA is insuring a greater percentage of loans than during any time in recent history. In 2006, it insured roughly 5 percent of the purchase mortgage market. Today, it insures one-quarter. ”Going FHA” is more common than ever before — but is it better?

The answer — like most things in mortgage — depends on your circumstance.

Like its conforming counterpart, an FHA-insured mortgage is available as a fixed-rate loan and as an adjustable-rate one. Payments are made monthly and come without prepayment penalties.

That’s where the similarities end, however, and decision-making begins. For homeowners and buyers across Phoenix , FHA mortgages carry a different set rules as compared to conforming loans through Fannie Mae or Freddie Mac that can render them more — or less — attractive for financing.

For example:

• FHA mortgages can be assumed by a subsequent buyer. Conforming loans may not.
• FHA mortgages require mortgage insurance, regardless of downpayment. Conforming loans do not (depending on down payment).
• FHA mortgages do not have loan-level pricing adjustment. Conforming loans do.

FHA mortgages also require smaller downpayment requirements versus a comparable conforming mortgage. FHA calls for a minimum downpayment of 3.5%. Conforming mortgages often require 5 percent or more.

And, lastly, FHA mortgages are priced differently from conforming ones. Since 2005, the average FHA mortgage rate has been below the average conforming mortgage rate more than 50% of the time, meaning that an FHA mortgage’s principal + interest payment is lower than a comparable Fannie/Freddie loan.

Today, conforming mortgage rates are lower.

So, which is better — FHA loans or conforming ones? Like most things in mortgage, it depends. FHA-insured loans can be big money-savers or money-wasters. To find out which is best for you, ask your loan officer for today’s market interest rates and study the results.

With less than 20% equity, the answer is often clear.

Also, join me at Facebook.com/TheUglyTruthAboutMoney.

Jeff Underwood, The Street Economist
The Ugly Truth About Money

The Ugly Truth About Money

Mortgage markets worsened last week as the Greek sovereign debt situation came closer to final resolution, and as the U.S. housing market showed signs of life.

After many weeks, European leaders agreed on a financial package for Greece that featured favorable loan terms designed to slow Eurozone contagion, along with a built-in, 37 billion euro “haircut” for private-sector investors.

The accord pleased Wall Street. Equities rallied after the announcement. Mortgage bonds sank.

Bonds also sank after a strong home builder confidence report Monday.

Last week, conforming and FHA fixed mortgage rates increased in Arizona and for the first time in 3 weeks. Adjustable-rate mortgages slipped slightly.

The interest rate spread between the Freddie Mac 30-year fixed rate and 5-year ARM is back near its all-time high.

This week, mortgage rates will be guided by Congress’s on-going U.S. debt ceiling debate. The United States government is expected reach its legal $14.294 trillion debt limit August 2, 2011. Congress must either vote to raise the debt ceiling, or take steps to reduce debt prior to August 2.

The debt ceiling was last raised February 12, 2010.

It’s unclear in which direction Congress will vote. Therefore, mortgage rates may be erratic until a deal is reached. If the debt limit is raised, expect mortgage rates to rise. This is because carrying high levels of debt can devalue the U.S. dollar and mortgage bonds are less valuable as the dollar weakens.

On the other hand, if Congress votes to make cuts in the budget, mortgage rates should fall. This is because fewer treasury securities will be issued, creating fewer inflationary pressures on the U.S. economy. Inflation is linked to higher mortgage rates.

Also this week : New Home Sales (Tuesday), Pending Home Sales (Thursday), Consumer Sentiment (Friday), plus Treasury auctions of 2-year, 5-year and 7-year notes. Each event can move mortgage rates so be ready to lock at a moment’s notice.

Mortgage rates remain low. By August 2, they could be much higher.

Also, join me at Facebook.com/TheUglyTruthAboutMoney.

Jeff Underwood, The Street Economist
The Ugly Truth About Money

The Ugly Truth About Money

Mortgage markets worsened last week as concerns for the global economy drove new rounds of “safe haven” buying. Fear continues to dominate mortgage bond market movement and Arizona rate shoppers are benefiting.

Conforming and FHA mortgage rates fell for the second straight week last week, and closed out Friday with favorable momentum to the downside.

There were three main mortgage market drivers last week.

The first is tied to the Eurozone.

Although the Greek Parliament reached agreement on austerity measures for the nation-state two weeks ago, concerns that a debt crisis could spill into Italy, Portugal, Ireland, and/or Spain resurfaced last week. The debt of both Ireland and Portugal was downgraded to Junk status, and Italy and Spain may follow soon.

U.S. bond markets gained on the news.

The second story was the just-released Fed Minutes. Notes from the FOMC meeting showed that Ben Bernanke & Co. debated a slowing U.S. economy, the weakening domestic jobs market, and whether a third round of economic stimulus would be necessary. This, too, dragged mortgage rates lower.

The third story is one that’s still forming — the U.S. Debt Ceiling Debate. For now, the issue remains on the market periphery, but as the August 2 debt limit deadline nears, expect more influence over day-to-day mortgage rates.

Other factors in mortgage rates this week include the Existing Home Sales report; Housing Starts data; Homebuilder Confidence Survey; and, Jobless Claims.

Mortgage rates are low but remain volatile. If you’re wondering whether now is a good time to lock your rate, consider that it’s better to be safe than sorry. If mortgage rates rise this week, the rise may be permanent.

Rates can only stay low for so long.

Also, join me at Facebook.com/TheUglyTruthAboutMoney.

Jeff Underwood, The Street Economist
The Ugly Truth About Money

The Ugly Truth About Money

The Federal Reserve released its June 2011 Federal Open Market Committee meeting minutes Tuesday. It contained no surprises and, as such, mortgage rates in Arizona have idled in the hours since.

The Fed Minutes is published 8 times annually, three weeks after each scheduled Federal Open Market Committee meeting. It’s the official log of the meeting’s conversations and debates.

The Fed Minutes is the lengthier companion piece to the FOMC’s more well-known, post-meeting press release. As compared to the brief-and-focused press release,by comparison, the Fed Minutes are long and detailed.

June’s press release was 458 words long. Its minutes totaled 6,889 words.

The June minutes reveal some interesting perspectives from within the Federal Reserve, too.

• On growth : Economic recovery had been slower than the committee expected
• On housing : The market remains depressed. Foreclosures are “holding back” construction.
• On rates : The Fed Funds Rate should remain low for an “extended” period

In addition, the Federal Reserve discussed whether a new round of economic stimulus was necessary. Committee members agreed that a poor outlook for employment in the medium-term would make this move more likely.

There was little that surprised Wall Street in the June Fed Minutes. This is why market reaction has been muted since its release.

The FOMC meets next August 9. If jobs data continues to weaken between now and then, expect the stimulus chatter to continue. It’s unclear, however, how this would impact mortgage rates.

For now, mortgage rates remain near their all-time lows, and they have much more room to rise than to fall. If you’re shopping for a loan, therefore, the timing is right for a lock.

Also, join me at Facebook.com/TheUglyTruthAboutMoney.

Jeff Underwood, The Street Economist
The Ugly Truth About Money

The Ugly Truth About Money

Mortgage markets improved in roller coaster-like trading last week. And, not surprisingly, the week’s two big stories were the same two stories roiling mortgage markets since March — Greece and Jobs.

In both instances, rate shoppers won. Conforming mortgage rates in Arizona improved for the first time in 3 weeks last week.

Early in the week, mortgage rates fell as doubts resurfaced on the just-completed Greece aid package. Although an agreement had been reached by the Greek Parliament, investors are wondering if it’s a bona fide solution, or delaying an inevitable default.

Talk like this triggers a flight-to-quality, and last week, it led mortgage rates lower.

Then, mid-week, a strong preview of the Friday jobs report led to a reversal. Mortgage markets sold off sharply with the prospect of a blow-out Non-Farm Payrolls number. Analysts upped their estimates 50% — from 80,000 net new jobs created in June to 120,000 — and mortgage rates spiked in anticipation.

The rate rise was short-lived, however, because when the actual jobs report was released, it showed just 14,000 jobs added in June. Mortgage markets reversed and mortgage rates sunk to their best levels in 2 weeks.

This week, Greece should remain in the headlines, but there’s other rate-changing news, too:

• Tuesday : FOMC Minutes
• Wednesday : 10-Year Treasury Auction
• Thursday : PPI; 30-Year Treasury Auction; Jobless Claims
• Friday : CPI; Consumer Sentiment

If you’re still floating a mortgage rate, today marks a good week to lock. Mortgage rates could fall this week and next, but there’s more room for rates to rise than to fall.

Lock up today’s low rates while they’re still available.

Also, join me at Facebook.com/TheUglyTruthAboutMoney.

Jeff Underwood, The Street Economist
The Ugly Truth About Money

The Ugly Truth About Money

Mortgage markets worsened last week as Wall Street’s renewed optimism pushed equities to their best one-week gain in 2 years. The change in  sentiment was bad news for rate shoppers, however, as investors pored into stocks at the expense of bonds.

Last week, for the first time since February, mortgage rates rose 5 days in a row. By the time bond markets closed for the 3-day weekend, conforming fixed mortgage rates in Arizona had climbed to their worst levels since mid-May.

Mortgage rates are now at 7-week highs.

The biggest reason for last week’s mortgage rate turnaround is that lawmakers in Greece approved a national austerity plan. Reaching an accord on spending cuts and tax increases was a necessary step for the nation-state to avoid defaulting on its debt and falling into bankruptcy.

Until last week, it wasn’t clear whether the Greek Parliament would reach this agreement, and this fear is why mortgage rates were down through May and June. Faloout from a default would have created global economic uncertainty and uncertainty tends to be good for mortgage rates.

With agreement reached, though, that uncertainty is minimized. Mortgage rates are reversing.

This week, the big news will be June’s Non-Farm Payroll report, set for release Friday morning. If jobs growth is stronger-than-expected, stock markets should continue to post gains and mortgage rates should continue to rise.

The jobs report is a market-mover. If you’re floating a mortgage rate and wondering whether to lock, it may be prudent to lock ahead of Friday’s release.

Also, join me at Facebook.com/TheUglyTruthAboutMoney.

Jeff Underwood, The Street Economist
The Ugly Truth About Money

The Ugly Truth About Money