What Is APR?, State of Jumbo Mortgages, Updates On $8000 Tax Credit For Down Payments, Rates Down Since June 11

I tried to find some jokes about state budgets, but was unsuccessful. They are simply not a laughing matter. Perhaps even as large a problem as credit card defaults, or commercial loans, both of which may require government bail outs, by the end of this month 19 states have to approve their fiscal 2010 budgets, which are included in the 46 states that end their fiscal year on June 30th. According to figures compiled by Cantor Fitzgerald, all but one requires balanced budgets. Here in California, which has the 8th largest economy in the world, “trying to balance their budget has been nothing short of a circus.” Is the Federal government going to let them hang out to dry? Doubtful.

What Is APR?
Every once in awhile folks in the business need a brushing up on the Annual Percentage Rate. The APR is the yearly cost of a loan, including interest, insurance, and origination points expressed as a percentage. Under the new HERA rules, an increase in the APR of more than 0.125% from the initial TIL disclosure requires the TIL to be revised and reissued to the borrower. If changes are submitted after we have re-disclosed the TIL, and the APR increases by more than the 0.125% tolerance, lenders will re-disclose the TIL again and the wait period begins again.

State of Jumbo Mortgages
Remember jumbo loans, the kind that local retail branches have been originating? According to a story in Bloomberg, Chase and Citi (when they start locking loans again!) are expanding their “jumbo” mortgage business to credit-worthy borrowers. My gardener’s assistant was considered a credit-worthy borrower for a jumbo loan – in “the old days”. No more, as underwriting as become tougher, In 2007, according to the story, jumbo loan volume hit $348 billion in 2007, and then sank to $98 billion last year, with jumbo loans accounting for only 4% of the mortgage market in the last quarter of 2008. And in the first quarter of 2009, BofA Home Loans originated $9 billion of jumbo product.

US Bank Revises Mortgage Insurance Requirements
U.S. Bank Home Mortgage Wholesale Division (which is who mortgage banks sell their closed loans to) revised their contract underwriting arrangements with MI companies for conventional loans sold by third party clients to USBHM. Starting next Monday, loans with LTV’s < 80% US Bank is “requiring that all loans that do not need MI coverage be sent to your USBHM Underwriting Center and not sent to an MI for contract underwriting. USBHM will no longer be purchasing loans that the MI Companies contract underwrite that do not have mortgage insurance coverage unless that loan was sent to them directly from a USBHM Underwriting Center. For loans with LTVs > 80% where mortgage insurance is required, we will continue to request that these loans be sent to MI Companies for both contract underwriting and Mortgage Insurance.” Correspondent lenders, who are delegated, are basically left to their own devices – their own discretion.

GMAC’s Position on $8000 Homebuyer Tax Credit
GMAC Bank Correspondent Funding group (for mortgage banks) came out with their stance on the $8,000 first-time homebuyer tax credit.

“The tax credit available for use with an FHA loan may be provided in the form of a second lien or in the form of a purchase of the anticipated amount of tax credit. The proceeds of the sale of the tax credit to FHA approved mortgagees, the seller, or any other person or entity that financially benefits from the transaction (or any third party or entity that is reimbursed, directly or indirectly, by the financing benefiting person or entity), may not be used to meet the 3.5% minimum down payment, but may be used as additional down payment, buying down of interest rate, or other closing costs.”

It may not result in cash back to the borrower, and the second lien may not exceed the total amount needed for the down payment, closing costs, and prepaid expenses.” GMAC’s announcement is fairly lengthy so it best for their clients to read it themselves.

New Consumer Sites has been created to create instant closing-cost estimates as would-be borrowers search for the best or least expensive real estate service providers. has dozens of lending organizations that promise to offer safe mortgages at fair prices. is free, both to consumers and vendors, and apparently derives its income by charging providers for “enhancing” their appearance on the site., funded by the Ford Foundation, lists only those lenders that promise to adhere to a set of core standards established by the Fair Mortgage Collaborative, a collection of advocacy organizations, consumer-protection groups, loan-counseling and lending networks, and secondary-market intermediaries.

Rates Down Since June 11
So, on to the interest rates… last week the auctions went pretty well, which is a good thing for the bond market and interest rates in general. The 7-yr note on Thursday came at 3.33%, capping off $104 billion of supply last week. There are no scheduled auctions for a few weeks, which, if one adheres to a strict supply/demand model, is a good thing. Rates have moved down since June 11th due to a slight change in sentiment and strong buying, along with a “technical” bounce and mixed economic news. The Michigan Consumer Sentiment Survey on Friday hit its highest level since February of 2008, and Personal Income and Consumption were up 1.4% and .3% respectively, which help our savings rate. (Read: if income is up more than spending, the money is being saved somehow.)

Market Preview
It is a newsy, shortened week. The Chicago PMI and ISM national manufacturing indices will come out on tomorrow and Wednesday respectively along with Pending Home Sales, a leading indicator for the housing market. Consumer Confidence, Construction Spending, and Factory Orders are later in the week, and then on the 2nd (Thursday) we have the unemployment data – more on that tomorrow. It could be a quiet day for rates, and here early on the 10-yr is at 3.55% and mortgage prices are roughly unchanged.

Daily Humor
A mother is driving her little girl to her friend’s house for a play date. “Mommy,” the little girl asks,”’How old are you?”
“’Honey, you are not supposed to ask a lady her age,” the mother replies. “It’s not polite.”
“OK”, the little girl says, “How much do you weigh?”
“Now really,” the mother says, “those are personal questions and are really none of your business.”
Undaunted, the little girl asks, “Why did you and Daddy get a divorce?”
“That’s enough questions, young lady! Honestly!”
The exasperated mother walks away as the two friends begin to play.
“My Mom won’t tell me anything about her,” the little girl says to her friend.
“Well”’ says the friend, “All you need to do is look at her driver’s license. It’s like a report card, it has everything on it.”
Later that night the little girl says to her mother, “I know how old you are. You are 32.”
The mother is surprised and asks, “How did you find that out?”
“I also know that you weigh 130 pounds.”
The mother is past surprised and shocked now. “How in Heaven’s name did you find that out?”
“And,” the little girl says triumphantly, “I know why you and daddy got a divorce.”
“Oh really?” the mother asks. “Why?”

The daughter says, “It says on your driver’s license that you got an ‘F” in ‘sex’.”

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