Wednesday, August 24, 2011

Interest Rates Are Rising!

You may have read a Post that I created on 8/10/11 talking about the reason for the rapid improvement in the interest rates under the article, “Strike While The Iron Is Hot!”.  If you have not read it, then I’d highly recommend checking it out by clicking here and look under the Blog Archive. 

Well, this is a follow up post to show you what is currently happening and why.  Take a look at the Bond Chart below for better illustration.  The Bond Market has been steadily declining since last Thursday (8/18/11) and further eroded this week.  Why is the Bond Market tanking when we keep seeing negative economic reports (especially, when bonds normally thrive with negative news)?  Last Thursday, most of the investment dollars went into purchasing Treasuries (see the other Graph below), which is another reason to be careful dealing with a Loan Officer whom follows the wrong index (as you can see, they sometimes go the opposite direction).  On Friday, the Bond and Treasury Markets maintained themselves, while the DOW dropped.  Once Monday (8/22/11) came around, we continued the negative economic news.  But it was announced the World Economic leaders will be meeting this week in Jackson Hole, WY, which Fed Chairman, Ben Bernanke, is scheduled to make a statement on Friday (8/26/11).  This created a stir amongst the Traders that an announcement or hint of QE3 will be announced.  As you will see the decline in the Bond Market and the rise in the Stock Market (the DOW’s 5 day chart is below to view too).  As a result, interest rates have been rising this week because of the Trader’s bets that Mr. Bernanke will be announcing a QE3.  Again, if you read my article, “Strike While The Iron Is Hot!”, then you saw the repercussions of a QE3 will have on the Bond Market and Interest Rates.

For those of you whom took advantage of the low interest rates, then I’d like to congratulate you for taking action.  Interest Rates are still low, but we cannot say for certain that they will remain at these levels for very long.  Again, in the article, “Strike While the Iron Is Hot!”, then you read that interest rates have fluctuated between the low 4% range and the mid-5% range since 2008 when the Fed reduced the Fed Funds Rate to 0-.25%.  All great rates and low, but they are fairly wide in their spread.

Contact Mike Bjork, Sr. Mortgage Planner with First Cal Mortgage, via his website at, if you have any further questions; or need any assistance with your refinance and financing your home purchase.

Daily Market Report 8/24/11

Wednesday, August 17, 2011

Time Is Running Out For High Balance Loans On Conventional And FHA

Time is winding down for the Home Buyers in the High Cost Counties (Like Los Angeles), whom are expecting to qualify with a Conforming Loan above $625,500.  Many have been Pre-Approved with a loan amount to $729,750.  On the other hand, there are current homeowners, whom have not taken advantage of the lower rates by a refinance.

As you may or may not know, the higher limits ($729,750) will be reduced to the permanent level of $625,500* (some Counties will belower, review the County limit by clicking here) on October 1st, 2011.  That means any refinance or purchase transaction need to be closed by September 30th at the very latest.

Interest Rates have dropped, so Mortgage Applications increased.  This means that Lenders are very busy with their current business.  Because of the large influx of business, many Lenders are now turning away these types of transactions because they are quoting 90 day escrows for their current business.

If you are in California and fall into this category, then feel free to contact me for some assistance.  Anything after September 1st, will be almost impossible to complete on time.  If you don’t complete your transaction by then and carry a loan balance above $625,500 (or possibly lower, depending upon your County –again, clickhere to see what your County limits will be), then you will fall under the Jumbo loan programs.

Jumbo Loan Programs will require more down payment (minimum of 20%), higher fico score requirement, higher interest rates and lower ratios for your Debt-to-Income (compared to a Conforming loan program).  This will also affect those utilizing FHA loans, as they will be decreasing their limits (like Fannie Mae and Freddie Mac).

Contact Mike Bjork, whom is a Sr. Mortgage Planner with First Cal Mortgage.  He can be reached through his website at

Daily Market Report 8/17/11

Wednesday, August 10, 2011

Strike While The Iron Is Hot!

The Bond Market is Hot, Hot, Hot!!!!!! What does this Mean? It means that Interest Rates are becoming Lower, Lower, Lower!!!! The Fed made a Statement on Tuesday, August 9th, that they will keep interest rates low to mid- 2013. Three Members of FOMC dissented from the change of the statement from “extended period” to specifying mid-2013. This may have been the first time that the Fed has actually specified a timeframe!

Last Friday, August 5th, the S&P downgraded the U.S. Credit Rating from AAA rating to AA+. First time in history, the U.S. dropped below a AAA rating. As we found out on the following Monday, the Bond Market shrugged it off, and the Bond Market rallied about 40 points, while the Equity Markets tanked (over 600 points on the DOW).

Take a look at the Bond (based on the Fannie Mae 4.0% Coupon) on Wednesday’s (8/10/11) and you’ll notice the Rollercoaster ride:

What is reason for all of the sudden changes? Well, think of water being heated to a boil, then creating a combustion, if you will. The European Debt Crisis started last year (around May of 2010) when Greece needed a Bail out, then Ireland. Afterwards, more countries became targets for a Bailout, like Spain and Portugal. This year, Greece needed a second Bailout, and they settled with a “strategic default”. Also, Spain (again) and Italy started to become targets of a Bailout (this is still ongoing, as this is being written). After the U.S.’ Credit Downgrade, now there’s speculation that France will be following those same measures. Also, you have people looting and rioting in London because of their unhappiness with the economic pressures.

On the other side, you have China, whose economy has been flourishing over the past few years, and has been trying to rein in their growing inflationary problem by tightening their lending by raising interest rates at an alarming rate. Just this past Monday, Consumer prices jumped up 6.5%, which will (most likely) lead to more tightening by the Chinese Central Bank. There have been some reports lately, that some of the current global issues, may be about to affect China. They are just noticing a decline in home values (which many believe may create toxic loans in their system) and thoughts about an increase in Bankruptcies, as a result of the credit tightening. On a more local level, I speak with a lot of Longshoremen whom work at the docks in the Los Angeles Harbor. This is the time which China is sending shipments to the U.S. to meet the Holiday shopping, so they (the Longshoremen) typically are very busy unloading the extra cargo. Not this year! Most Longshoremen are concerned about having work and keeping their hours; so we are seeing a drop in the economy firsthand here!

As the Fed mentioned (in their statement), they are seeing the economy slow down more than they previously thought. This is on top of an economy that has not fully recovered from the last recession. Couple that with the uncertainty in the Euro Zone, then you have investors stashing their money into the U.S.’ Treasuries and MBS (Mortgage Backed Securities; also, considered Bonds). There is a lot of concern with Europe right now, that there is talk (don’t know if it will happen) that the EU may need to revert back to their own respective currencies. This is because the less performing countries are pulling the better performing countries much more than they can handle. The reason for the influx of money going into the U.S.’ debt, even though their Credit Rating dipped, is due to the U.S. is still (by far, about 3x larger than China) the largest economy in the world; so you cannot really (or fairly) compare the U.S. to the rest of the other AAA rated countries. The investors view the act by S&P to be more of a “political” motive vs. a “financial” motive. As a result, we’re currently experiencing a dramatic improvement in our interest rates (as you noticed by the graph above, which green means an increase in Bond prices and translates to lower interest rates).

Now, take a look at the graph below. You will see the height (Oct/Nov 2010) of the Bond Market (again, based on the Fannie Mae 4% Coupon) and we’ve exceed it. Interest rates are at an alarming new level.

Now, notice what happened in November (2010) when the Fed announced the Bond Purchase Program (otherwise known as Quantitative Easing 2, or QE2). The Equity Market artificially went up, while the Bond Market declined (interest rates rose). There were some assumptions made in the FOMC Statement that more will be done (most likely, QE3).

The Fed did state it will keep interest rates low until mid- 2013, which they are referencing to the Feds Fund Rate (money charged to Banks) to remain at the 0-.25%. We’ve been at this rate since end of 2008. Mortgage Interest rates have fluctuated during this time from the low- 4% range to the mid-5% range on average. This is a fairly wide spread.

“Strike while the Iron’s Hot!” We are currently at a very low interest rate level and many people are sitting on the fence, whether they are buying a home or looking to refinance. There may be many reasons to refinance:

1. To lower your interest rate
2. Remove yourself from monthly Mortgage Insurance on an FHA loan to a Conventional Loan (possibly at a lower interest rate)
3. Improve Cashflow for Real Estate Investors
4. Pull out some of your money from your Investment Properties, which you paid fully in cash to Purchase more Investment Properties (No Seasoning required, as of 6/28/11)

Those are just to name a few. The consequences may be another possible QE3, which will raise interest rates because money will flow from the Bond Market to the Equities Market; or possibly inflation starts to peak it’s ugly head sooner than people expect. In case you didn’t know, inflation is the Bonds’ worst enemy, as it erodes the value of the
Bond over time. This may be a possibility, as we rely on China for many of our goods, which their costs are increasing; and of course, that can be more costly to the U.S. Consumer. Why do you think Gold is still going up? It’s used by investors as a hedge against inflation, so many economists believe we’ll experience an inflationary problem in the near future.

For those whom are in the High Cost Counties, there will be a change coming in the maximum loan limits for Conventional and FHA loan programs effective October 1st, 2011. Let’s take Los Angeles County for an example. Currently, Los Angeles has a maximum limit of $729,750. Effective October 1st, it will drop to $625,500 (about $100,000 drop). This means that you have to have your loan closed by September 30th to qualify for this maximum loan amount; otherwise, you will become classified as a Jumbo loan (far more difficult to attain, especially, if you don’t have at least 20% equity or down payment). Mortgage Applications are on the rise, so that means Lenders are going to become busier and will need more time to close a loan (than the typical 30 day close). Currently, we’re about 45 days left to this deadline, so timing is critical, if you want/need to be in this range of borrowing money on a home.

For those of you whom are considering to buy a home, this is critical for many of the similar reasons as a refinance, as this will greatly increase the Affordability factor for many borrowers. As more borrowers qualify to buy, then it creates more competition on the available homes on the Market and the Affordability will shrink (possibly pricing you out of the Market). Now, if you’re concerned about your job (which many are justifiably are), then it’s definitely a valid reason to sit still, as you don’t want to jeopardize your financial well being.

Take a look at this short video/scenario, if you’re a Renter on why it may make sense for you to buy vs. renting (click here)

Here’s a short video/scenario, if you’re a current homeowner considering to sell and buy a larger home (click here)

The point to this post is to let you know that you may have an opportunity here to really improve your lives and to make the most out of it while it’s available. A lot of variables can change at any given moment, so don’t miss out on YOUR OPPORTUNITY here! Interest rates are relative, which the Lenders are all competitively priced. My best suggestion to you is to make sure you’re able to get your loan done, the Lender won’t treat you like a number and the Loan Officer will communicate with you throughout the process. The Market is very volatile, as you saw on the first graph, so it is imperative to make it less stressful on yourself to work with somebody, whom can accomplish those objectives.

Mike Bjork is a Sr. Mortgage Planner with First Cal Mortgage and assists Home Buyers with purchasing their homes, provide financing to Real Estate Investors and refinancing current homeowners to lower payments or pull money out of their equity (through a cashout refinance). He can be reached through his website at and originates mortgages only in the state of California.

Daily Market Report 8/10/11

*Sorry for the long video today, as there is a lot to discuss today. Stay tuned, as I'll be posting another Blog post discussing some of the thoughts with these ultra low interest rates.