Mortgage News from Prime Lenders

WHAT DOES THE FEDERAL RESERVE'S EMERGENCY WEEKEND RATE CUT MEAN TO ANYONE CONSIDERING REFINANCING OR BUYING A HOME?

This should hasten the return of the historically low interest rates which we saw just a week ago!

I don’t want to get ahead of myself. Let’s talk first about; what the Fed did, why they did it, what this means for mortgage interest rates in the coming weeks & months & what you should do?

What the FED did?

• Dropped Interest Rates 1% in Emergency Weekend Meeting.  (This was such a grave emergency that they couldn’t wait a mere 48 hrs for their regularly  scheduled meeting)! This was the 2^nd  surprise rate cut in as many weeks. The Fed cut rates by .50% on March 3^rd which was the first cut between policy meetings since the great recession. 
• Lowered target Federal Rate to between 0% - .25%.
• Largest single rate cut in nearly 35 years (On May 21^st, 1985 when rates were cut 1.25% from 9.0% to 7.75% during the 2^nd term of the Reagan Administration). 
• Return of QE – Quantitative Easing (similar to a tactic the Fed took during & after the Great Recession to prop up our weakened Financial system & economy). The Fed plans on:
1. Buying at least $500 billion of Treasury Securities
2. Buying at least $200 billion of mortgage back securities (MBS)
• The Fed will provide $1.5 trillion in short term loans to banks – who will be allowed to use Treasuries as collateral on these 1 – 3 months loans. 
• Suspended the 10% Reserve rule required under the Dodd Frank Law meant to protect our financial system. The rule is currently having the unintended consequence of decreasing liquidity & raising the costs of borrowing between banks. 

Why they did it?

The Fed hopes that by making such a strong move upfront that they may get ahead of the expected devastating economic impact from the Coronavirus & hopefully prevent lasting economic damage to our economy. 

Specifically with the hopes of…

• Keeping longer term interest rates down. 
• Adding liquidity to the financial markets.
• Keeping businesses open & workers employed as revenues dry up for countless small businesses whose customers are increasingly more concerned about their health & safety then risking going out into the world & spending money.

What this means for Mortgage Rates in the coming days, weeks & months?

Bad news has almost always been good news for Mortgage Rates. Expect rates to revisit and possibly surpass their recent record lows. However, you may need to show some patience since lenders are over capacity on the number of loans they are able to process & close. As a result, expect lenders to either be slower then expected in lowering rates or increase their turn times for loan approvals & closings while increasing the length of time that borrowers will be required to lock-in rates. 

What you should do?

Really bad news should be really good news for those looking to buy a home, lower their mortgage payment, consolidate debts & take equity out of their homes. This may be a good opportunity for homeowners fearful of employment interruptions or hard hit by the swift & considerable decline in their investments. Refinancing & taking extra cash out of their homes could offer them an opportunity to double down & mitigate their market losses or even grow their wealth once normalcy returns to the world & the markets recover!

The clock is ticking for homeowners with previous short sales to get back in the game

If you have had a short sale during our recent economic downturn, you will be able to buy a house again. You just might have to wait a little longer.

The previous waiting period for a Fannie Mae-backed loan was two years, but beginning on August 18, 2014, that guideline will change to a four-year waiting period. This will apply to homeowners who had a recent short sale or deed-in-lieu of foreclosure.

Other changes and restrictions to Fannie Mae’s guidelines include the removal of the loan-to-value ratio and a required 20% down payment on the loan in order to qualify for a Fannie Mae-backed loan.

However, there are some ways you can still qualify:

If it has been at least two years, you can still get your loan application in by Friday, August 15^th and be grandfathered in to the existing program.

1. If you can prove extenuating circumstances, you may still have to wait only two years.

2. You can try to qualify through other loan programs, but may pay a little higher interest rate.

3. You can apply for a FHA-backed loan after three years, or only one year proving extenuating circumstances caused the short sale.

What qualifies as “Extenuating Circumstances”?

Thousands of people bought homes during the housing boom using creative financing options, but when the market crashed, they found themselves extremely underwater and unable to pay their mortgage. Many of these homeowners opted for a short sale to avoid having a foreclosure.

However, some homeowners lost their homes as a result of a job loss, illness, divorce or other significant event. If these homeowners can prove that these circumstances were beyond their control, have re-established their credit and have gotten back on their feet, they may be an exception to these rules.

If you are ready to buy again after your recent short sale, call us right away to see if you will qualify. We can get the application process started by Friday, August 15^th and lock you in to the existing guidelines. After that period, you may still qualify. We will look for options that will work for you.  Because we don’t just sell mortgages...We provide mortgage solutions.