Mortgage Broker

Without question, the number one topic misunderstood by mortgage shoppers is howMassachusetts mortgage rates are determined every day. Most consumers incorrectly believe that the Federal Reserve sets “rates” and base their decisions on this faulty assumption.

Even though the media has done a good job educatingMassachusetts mortgage shoppers on the importance of getting a pre-approval, it’s shocking the poor job they’ve done explaining how lenders set mortgage rates. Tragically most consumers end up making poorly informed decisions about when to float or lock their mortgage rate because their loan officer doesn’t have a clue either.

But it’s not your fault. In fact, the mainstream media and most loan officers incorrectly believe that mortgage rates track the 10-year Treasury note. Even well-respected news sources like CNN/Money Magazine routinely reinforce this bad information (see highlighted text in article to the right).

But let me make this absolutely clear – mortgage ratesdo not track the 10-year Treasury note and often times do not even move in the same direction.

In reality, mortgage rates are determined from the performance of mortgage-backed securities (MBS).

Mortgage-backed securities are asset-backed financial instruments whose value is backed by pools of mortgages. The overwhelming majority of MBS are issued by Fannie Mae, Freddie Mac and Ginnie Mae (FHA/VA) and traded every day on an exchange, similar to the stock market. It is from this daily trading of MBS that mortgage rates are determined.

Unlike stocks, mortgage-backed securities are bonds whose yield (rate) moves inversely to its value (price). So when the price of MBS are increasing, mortgage rates are falling. Conversely if the price of MBS are falling, mortgage rates are increasing.

Now that you understand how mortgage rates are determined, the question naturally turns to how do you follow the trading of mortgage-backed securities.

MBS data is not widely published other than through mortgage industry-specific resources and public real-time MBS information is not available at all. This is likely where the myth of mortgage rates following the 10-year Treasury note started.

Without easy access to MBS data, the media and average loan officer turned to the 10-year Treasury as a proxy for mortgage-back securities. But if you rely on the wrong information for your float or lock decisions, it can cost you…and cost you big time!

The problem with this is that your loan officer should know better. Your loan officer is supposed to be a mortgage expert and industry insider. That’s why it’s critical for those shopping forMassachusetts mortgage rates to select a mortgage professional who invests in the tools that allows them to offer rate lock advice based on real information, not some loan jockey who flies by the seat of their pants.

Fortunately there is a small group of mortgage professionals like myself throughout the country that make the (costly) investment necessary for real-time data on mortgage-backed securities (see chart above for an example). It’s simply your job to find us.

So the next time you are shopping for a Massachusetts mortgage, just ask the following two questions :

If you don’t get back the answers you should, then RUN – don’t walk – RUN to a mortgage professional that does!

Low interest rates this year have lulled many people into believing that Massachusetts mortgage rates in the 5.00% and lower range are “normal”. This is not the case and if you are in the position where you could refinance or are considering buying a home, complacency is not your friend.

Stimulus provided by the Obama administration has been instrumental in creating the environment that has lowered Massachusetts mortgage rates, increased home sales and assisted distressed homeowners.

Uncle Sam Lends a Temporary Hand

Tick tock, tick tock. As Spring approaches, deadlines await two programs that supplied the heat directed at the housing markets.

Government programs in the housing and interest rate arenas are slated to end in coming months. The time to take advantage of these programs is now. Stimulus programs from Washington have led to incentives for first time home buyers (FTHB) and move-up buyers, artificially low interest rates, and special programs that allow some homeowners with less than 20% equity to refinance and take advantage of lower Massachusetts mortgage rates without having to pay mortgage insurance on their new mortgage.

Infinite stimulus for the housing sector is not in the cards nor is it reasonable to expect. Deadlines are approaching on March 31st and April 30th. Whether you want to buy a home or need to refinance one, do not procrastinate. The best path is to investigate options now before you find that none are available to you.

First Time Home Buyer Alert

If you are a FTHB who wants to take advantage of the tax credit, think two words. GET BUSY. The tax credit of up to $8,000 is set to expire and Congress has made it clear that they will not extend this program again. Homes must be under contract by April 30th and the closing must occur on or before June 30th. With real estate closings taking as long as 60 days, according the National Association of Realtors, you need to get under contract shortly if you want to take advantage of the tax credit.

Home prices are down significantly across the country from their high points the past few years. However, median home prices have started to come up from their low point last year. If you have been waiting for home prices to decline further, perhaps you should not. Great opportunities are available but many real estate agents report multiple contracts being offered on hot properties. If you wait, you may be disappointed.

Massachusetts Mortgage Rates Are Great – NOW!

Interest rates dipped recently to near the lowest points ever recorded. As reported by Freddie Mac, Massachusetts mortgage rates for conforming loans approached 5.00% for a 30 year fixed rate and below 4.50% for a 15 year fixed rate with additional fees paid to obtain these rates. Rates for FHA, VA, and USDA Guaranteed loans typically offer slightly higher rates.

There is one reason that home loan rates are as low as they are. Last November the Federal Reserve announced a program to purchase up to $1.25 trillion in mortgage backed securities. This effort lowered rates to the lowest level of all time and has kept rates, according to Freddie Mac, below 5.50% last year compared to rates as high as 6.48% in 2008 for a 30 year fixed rate.

This program was slated to end December 31st of this year but in September’s Federal Open Market Committee meeting, it was announced that the program will be extended to the end of March 2010. However, the amount the Fed will purchase will not change.

Peter Hooper, chief economist at Deutsche Bank, told Bloomberg that a sudden end to the Fed purchases could cause rates to rise by a half to one percentage point. If you delay your financing, you could well see rates that are significantly higher than what is available today.

Upside Down – Refinance to 125% of Value

Even if you owe up to 125% more on your mortgage than your home is worth, you may be able to refinance. For example, if your home is worth $200,000 but you owe more than that, qualifying homeowners can now refinance up to $250,000.

The Making Home Affordable program was initially structured to accommodate homeowners with a new loan to 105% of their home’s value. This has recently been increased to 125%. There are requirements to qualify including whether your loan is currently owned by either Fannie Mae or Freddie Mac. You can find out if your loan is held by either agency by going to the Loan Lookup section of the Making Home Affordable web site.

According to First American Core Logic, more than 15.2 million homes had negative equity as of June of last year. This represents nearly 33% of all mortgaged properties across the country. Where in the past, being upside down on your loan would have precluded your ability to seek relief, you now may have an opportunity.

What Now?

With incredibly low interest rates and current stimulus programs available to help many, explore the options that may best suit you but do so quickly. However, options that exist today may not be available to you should you wait.

Geof McLaughlin, better known as The Massachusetts Mortgage Broker, is a nationally acclaimed mortgage professional committed to educating and empowering consumers about all things mortgage through his popular Massachusetts Mortgage Broker blog.

It is no secret that the First Time Home Buyer Tax Credit has been great at helping new buyers purchase a home (with great Massachusetts mortgage rates to boot!), but there are some little-known facts to claiming the First Time Home Buyer Tax Credit that have virtually been kept a secret.

Due to an influx of fraudulent tax credit refund claims, the Internal Revenue Service has been providing behind-the-scenes tax instructions to Certified Public Accountants and tax advisors on how to file for the extended First Time Home Buyer Tax Credit after November 6, 2009. And some of this guidance is catching Massachusetts first time home buyers unaware.

First, Massachusetts first time home buyers cannot file a 1040-EZ to claim the First Time Home Buyer Tax Credit nor can they file electronically. The IRS instituted this measure to halt fraudulent tax credit claims. As ridiculous as it may seem, the IRS never had a way to determine if someone purchasing a home was a first time home buyer or not and is in the process of creating auditing software to catch both previous and future tax filers who fraudulently try to claim the First Time Home Buyer Tax Credit.

Second, the IRS now requires that a signed copy of the HUD-1 Settlement Statement be attached toIRS Form 5405 which cannot be attached electronically (hence, no electronic filing allowed to claim the First Time Home Buyer Tax Credit).

Finally, the IRS is advising CPAs and tax advisors to expect an average 16-week turnaround timebefore their clients receive their tax refund. The IRS needs that time to audit the documents and may even issue a notice requesting further evidence to support their claim of the First Time Home Buyer Tax Credit. And yes, this new law allows the IRS to request further documentation for amended returns as well.

For some additional useful guidance from the IRS about the First Time Home Buyer Tax Credit, check out 10 Important Facts about the Extended First-Time Home Buyer Tax Credit and First Time Home Buyer Tax Credit.

The basic tenents of mortgage lending are founded upon the four C’s of credit worthiness…character, capacity,collateral and credit.

Lenders examine these characteristics to determine whether a mortgage applicant has shown evidence of their ability and willingness to pay back a debt and is likely to do so in the future. To facilitate this review, lenders require those who submit a Massachusetts mortgage application to provide documentation which leads to one of the most popular questions by consumers…what do I need for a mortgage?

As you might suspect, today’s documentation requirements are considerably higher than years past due to the subprime mortgage crisis and subsequent problems in the mortgage market. As a result, lenders are now extremely risk-adverse requiring even more documentation for loan approval.  So if you have applied in the past for a mortgage, even as recent as a couple of years ago, you still will want to get acquainted with the following list of what documents you need to get a mortgage.

List of Documents You Need to Get a Mortgage

• Copy of driver’s license (required by Patriot Act)
• Copy of most recent 2 years of Federal tax returns (including ALL schedules and supporting worksheets filed with the IRS)
• Most recent 2 months of bank statements (include ALL numbered pages, even blank)
• Copy of most recent statement (include ALL numbered pages, even blank) for all other asset accounts (stocks, mutual funds, etc.)
• Most recent retirement statement (include ALL numbered pages, even blank)

If regular employee,

• Copy of most recent paystub showing a minimum 30 days of year-to-date earnings
• Copy of most recent 2 years of W2s
• Contact name and phone number of supervisor/manager

If self-employed,

• Copy of most recent 2 years of business Federal tax returns (including ALL schedules and supporting worksheets filed with the IRS) if filing other than sole proprietor
• Copy of most recent 2 years of Schedule K-1s if filing as partnership or S-corp
• Letter from accountant on letterhead stating how long you have been in business

If purchasing a home,

• Copy of the fully signed Purchase & Sale agreement
• Copy of the deposit checks for the offer and Purchase & Sale agreement as well as a bank statement or printout showing these checks clearing your bank account

If receiving a gift,

• Fully completed and signed gift letter
• Copy of the check from the donor as well as a bank statement or printout showing withdrawal from the donor’s account and subsequent deposit into account of person receiving gift

Please note that the above list is fairly comprehensive, but does not cover absolutely everyone applying for a mortgage.

If your employment or financial situation differs from the ordinary and you are wondering…What do I need for a mortgage?, please feel free to leave a comment or contact me and I’ll be happy to let you know exactly what you need for a mortgage.