What’s Going On With Rates? 04/19/2022

Dear Friends,  It’s been quite a whirlwind this year on the rate front.  Obviously we have all seen the drastic change in the mortgage rate marketplace since the first of the year and I wanted to give some account as to what is going on:

  • Over the past few years the Federal Reserve has had a very loose monetary policy that was in part implemented when COVID first became know to the world.  At that moment in time it was very unclear as to what the impact on the world economy would be.
  • To assist with keeping the markets orderly they continued to artificially keep the Fed funds rate at historic lows (which started over a decade ago during the great recession) AND they announced that they would become buyers of huge quantities of MBS (mortgage backed securities) to keep the mortgage market liquid and again to maintain very low rates so the economy would continue to function while COVID ran its course.
  • When a “new” huge buyer of these securities enters the market that increases the demand for mortgage bonds and had a very positive impact on the rates offered to consumers. They were not only purchasing about $45 BILLION a month in securities they were also reinvesting the proceeds from what they already owned to buy even more then that.
  • Downside of this policy is that they accrued multiple TRILLIONS of dollars of MBS on their balance sheet that at some point has to be unloaded and sold on to private investors (normalizing the market).
  • Last week the Fed announced that they would become SELLERS vs BUYERS in the mortgage market and has begun to sell off about $35-45 Billion per month in MBS securities from their balance sheet.  They are also no longer reinvesting those proceeds into additional securities so that in effect has left a $70-90 Billion void in buyers for new securities.
  • In a nutshell that turned the MBS market upside down and what we are seeing now is the market trying to figure out where the new “normal” should be in rates and the price they pay for those associated rates.

What does that mean for our rates to consumers? In short, chaos.  While the market attempts to correct to the “new normal” there will be a period of time where everyone is scrambling to not be the last person holding onto MBS paper that is declining in value daily.  That in-turn leads to note rates going up but the associated price (yield) not matching up as would be expected.  As a result, the rates not only spike in yield, but they come with corresponding higher prices (ie. “points”).

The market will eventually normalize, but currently the mortgage market is providing no appetite for note rates higher than what is already published.  Example: if we go to 5.125% note rate on a particular file there is No to Little Additional value paid by MBS buyers right now for say a 5.50% to 5.75% rate.  The reason is that as quickly as the market went up there is a possibility that it could snap back the other direction just as quickly. While the expectation amongst economists that follow our market is that this situation is unlikely to occur the possibility that it could means that these higher note rates pose very high risks for investors as you could have an entire pipeline locked at a higher rate today and if the market snaps the other way tomorrow that whole pool of loans is in jeopardy because borrowers would walk down the street to a different lender to lock in at a lower rate.  That means that the “hedge”  (consider it insurance) that was purchased to ensure those loans would not lose money are all out the window which is extremely expensive.  Again, in time, this will all settle and get back to normal.  When it does, there will be higher rates offered that will have lower costs, and even credits back to borrowers.

Eventually, the higher rates will serve their intended purposes. The higher rates will choke off inflation and help bring balance to the housing market which will help many first time home buyers in the long run.  For instance, instead of competing against 20-40 other offers on the same house, the competition might be reduced to a more normal 4-8 offers.  The only real questions are: how long will that take?  And, what will be the final cost in terms of the ceiling on mortgage rates normalizing?
Together Naomi and I have over 60 years of combined experience to assist you. Please let us know how we may help you, or your friends, family or co-workers this year. We <3 Referrals!

How to Use “Delayed Financing” to Be the Winning Offer

How to Use “Delayed Financing” to Be the Winning Offer

Including Other Methods Buyer’s are Using to get Their Offer Accepted

 

Dear Friends – to say that today’s housing market is competitive for buyers would be a huge understatement.  For the past 4-5 years now, we have seen homes in the first time homebuyer price points receive 20, 30 and upwards of 40 offers.  And there’s no end in sight.  Consequently, buyers have been getting creative in hopes of obtaining the upper hand and making the most attractive offer to the seller.

Some of these methods are, but not limited to: 

  • Waiving Inspections

  • Escalation Clauses

  • Appraisal Gap guarantees

  • Paying for some of the Seller’s closing fees

  • Committing to an Exceptionally fast closing date, such as 2-3 weeks from offer

  • Allowing for a Longer closing date, such as up to 60 days from offer

  • Allowing the Seller a longer possession after closing, such as up to 60 days after closing

  • Having your pre-approval issued by a Local, Experienced & Trusted mortgage lender

  • Offering “CASH” (or, the equivalent to “Cash” which can be “Delayed Financing”).

As a Loan Officer, I am not recommending any of the above to a potential buyer.  A buyer should rely on their Realtor’s guidance on how to structure the most competitive offer given their personal situation, the specific property, as well as the desires of the Seller.  Most buyers can work with most of the first 8 methods described above, but how do you compete with “Cash?”  Let’s face it, most buyers cannot compete with cash.  But … could you compete with being a cash buyer if the outlay of cash to purchase a new home were only temporary?  Temporary as in a very short term, as in a few weeks?  This is where “Delayed Financing” comes in. 

Traditionally, a buyer would have to be in title for 6 months to get “Cash-Out” or “Cash-Back” mortgage financing.

Delayed Financing is the exception that Fannie Mae allows for a borrower to get a “Cash-Out” mortgage on their home prior to having to be in title for 6 months. Thus, if the buyer did have temporary resources to purchase a home for cash, they could immediately apply for a refinance that could get them 80% of the purchase price back in cash. Realistically, they could have 80% of their money used to purchase the home reimbursed within a few weeks. In some cases, when the money is provided by another party for the buyer to purchase the home (ie., parent or grandparent), a private purchase money mortgage and note can be executed and recorded at the initial purchase which may allow the buyer to finance more than 80% of the original purchase price.

It is imperative that if a Buyer plans to take advantage of Delayed Financing, that they speak with a mortgage loan officer in advance.  Especially before any large sums of money are moved.  The Fannie Mae exceptions for Delayed Financing require that the source of the money for the initial purchase be documented.  Therefore, whether the money is coming from a HELOC, a short term loan against a retirement account, a gift from a relative, whatever … the buyer should know in advance how to document the source of money so that a potential mistake on how it is moved isn’t difficult or impossible to reverse at a later date.

Here are Fannie Mae’s guidelines on Delayed Financing:
  1. The property must be owned free & clear of any liens.

  2. The initial purchase must be an “Arm’s-Length” transaction. In other words, it cannot be a sale from one family member to another.

  3. The source of funds for the initial purchase must be documented.  This is the important part to discuss with an experience Loan Officer before any money is moved.

  4. If gift funds are used for the initial purchase, a Gift Letter must be executed.  Since the funds are considered to be a “Gift,” the money is not to be repaid to the donor (see 3rd party exception below #6).

  5. The Refinance Cash-Out mortgage is restricted to 80% of the purchase price or appraised value (whichever is less).

  6. In cases where the funds come from a 3rd party such as a parent, grandparent or other, the 3rd party can execute a purchase money mortgage and note to be recorded at the initial closing.  In some cases, this would allow the buyer to finance more than 80% of the initial sales price while repaying the initial investor (or family member) who fronted the upfront money to purchase the home.

Obviously, Delayed Financing will not be an option for the majority of buyers; but for some, it’s just another way that you may get an upper hand in negotiating the most attractive offer to the seller.

Of course, where you get your financing will have a big impact on how strong your offer is viewed by a listing Realtor.   Despite the expensive and repetitive ads by the mega non-local internet based lenders, many if not most experienced Realtors might want to steer clear of some lenders in order to protect their client if they feel much more secure and timely financing alternatives are available.  Together Naomi and I have 60 years of combined lending experience in our local market.  Our pre-approval letters mean (1) No surprises, and (2) Fast closings.  Our pre-approval letter stands out and this has proven to be a huge advantage and deciding factor for so many of our clients getting their offers accepted over the years.

We are blessed to have so many loyal repeat customers and long term clients and we look forward to continued working relationships with all of you.  Many of you are more than customers or clients, but have also become friends.  We can’t thank you enough for your business, your referrals, your support and your friendship.

By Referral 
Bob Hein, Mortgage Lender
Phone:
616-292-6703
Email:
bob@prioritymortgagecorp.com
Website:
www.bobheinmortgage.com
NMLS 162989

Where to go When You Need Speed to Get your Offer Accepted?

For the Home Buyers that May Need a Little Extra Boost in Getting your Offer Accepted, this is for you.

If speed is what you need to get the edge on the competition, look no further than Priority Mortgage.   Case in point, January is always a down month for us as far as number of purchase closings; but regardless of the season, we keep moving ALL Loan types through quickly to close.  In addition to our refinance closings, here is a complete, all-inclusive list of the purchase mortgages Naomi and I have closed in January 2022.  The number of days to close indicates time elapsed from our receipt of purchase agreement to Closing Date:

  • 20 calendar days to close VA Purchase from purchase agreement received Sunday, December 12, 2021 to closing the first day after the New Year on January 3, 2022.
  • 28 calendar days to close FHA Purchase from purchase agreement received Friday, December 10, 2021 to closing on Friday, January 7, 2022.
  • 19 calendar days to close Conventional Condo from receipt of purchase agreement received, Sunday, January 2, 2022 to closing on Friday, January 21, 2022.
  • 21 calendar days to close FHA Purchase from receipt of purchase agreement received, Monday, January 3, 2022 to closing on Monday, January 24, 2022.
  • 21 calendar days to close rural property from receipt of purchase agreement received, Monday January 10, 2022 to closing on Monday, January 31, 2022.
  • Realtor references available for these transactions
  • Our all time fastest record in closing a purchase loan was a VA Loan which was 8 Calendar days from first being introduced to the Veteran and receipt of purchase agreement to closing.

The average time for our entire purchase pipeline for January 2022 closings including:  1 VA, 2 FHA’s, 1 condo, and 1 Rural Home, was 15.8 business days from receipt of purchase agreement to closing date.  Admittedly, these sales were in January which is typically a slower month for home purchases, but those who work with us on a regular basis know that we close loans just as consistently fast even in the height of brisk spring market such as June and July.  For our Buyer’s who have fully processed pre-approvals prior to making an offer, we have routinely been able to close loans within 12-13 business days or less from receipt of purchase agreement if that is what it takes for our customer to win their bid.

When looking for speed in closing, it is important to note that a lender’s ability to get a fast so called “Clear-to-Close” is not the same as getting the loan “closed” quickly.  In fact, a lender’s self-proclaimed “Clear-to-Close” can occur in only 1-3 days depending on their underwriter’s turn times, and when the loan officer deems the clock starts.  Is it the application date?  Is it when they get all docs from the buyer??  Is it when they submit the loan to underwriting???  The true test of speed can only really be judged from the lender’s receipt of the purchase agreement to closing day.  Any other measure of a lender’s speed might be hyperbole.

What’s even better when working with Priority Mortgage is that our exceptionally fast closings combined with unparalleled communication doesn’t come at a premium.  Our rates and closing fees will beat the other mortgage companies and banks while being in line with the credit unions.  Find out what a combined 50+ years in a Loan Officer/Processing team that doesn’t have the heavy overhead of layers of management and marketing costs can do you for you.  Having decades of experience, we won’t ever over promise when we can’t close a loan within 3 weeks, but we will process your loan much faster than any other lender given the same exact file and set of circumstances.  At Priority Mortgage, we do this month after month, year after year after year.  We are also always there for our past customer’s questions and needs, years after their loan has closed.  Try getting that type of service from the big online mega lenders, banks and credit unions.  Our customers are clients are for life.  By Referral, we hope to help even more of our clients and customers and their referrals in 2022!

Congratulations to Sparty, and this year’s winners in the 2021 In State Show Down, FREE Michigan vs. Michigan State football contest.

Congratulations to Sparty, and this year’s winners in the 2021 In State Show Down, FREE Michigan vs. Michigan State football contest.

And the winnings go to…

1st Place tie goes to Westly Pyper and Maria Didion
– both whom will be sent a $150 Applebees Gift card

2nd Place goes to Adam Jarchow
– who will receive a $100 Applebees Gift card

3rd Place goes to Dave Dubiel
 who will receive a $50 Applebees Gift card

Thank you to everyone who participated. Thank you for reading for my emails and for your past business and your referrals.
And oh yeah … there’s still a lot of football left.
May your team continue to have success this year. Even as a Michigan fan, I can say it’s been a really fun college football season so far, that’s for sure. And it think we’re in for a lot more fun.  😊