Interesting Post on Mortgage Trends

5 year-end mortgage trends to watch now

Low interest rates and long processing times likely will continue

through the new year. Other trends, such as zero-cost mortgages,

also could grow.

By Holden Lewis of

Article from:

Mortgage rates will remain low, getting a home loan will continue to take a long time and refinancers will be tempted by zero-closing-cost mortgages.

Those are some of the trends that mortgage industry insiders predict as the year ends. Bankrate asked a half-dozen mortgage professionals to weigh in on where housing is headed as a difficult 2010 comes to a close.

Here are their predictions.

1. Mortgage rates will stay low
Mortgage rates have dipped to modern record lows this fall. In the spring, economists had been warning that rates would be rising by now.

At the end of March, the Federal Reserve wrapped up an initiative to drive down mortgage rates by buying $1.25 trillion worth of mortgage-backed securities. The consensus throughout the mortgage industry was that rates would increase steadily through the end of this year.

Instead, mortgage rates fell steadily through the summer and into the fall. Now, with the Fed announcing it will buy $600 billion in Treasury securities through the second quarter of next year, speculation is that rates will remain low.

A.W. Pickel, CEO of LeaderOne Financial, a mortgage bank based in Overland Park, Kan., says he doesn’t see how 30-year fixed rates could go much lower.

“The mortgage interest rate should be inflation plus cost of funds,” he says. “That should put us in the fours, which is where it is.”

2. Foreclosure ‘overhang’ possible
Earlier this fall, some of the country’s largest mortgage servicers temporarily suspended foreclosure actions in states where courts oversee foreclosures. The reason: Flawed documents allegedly were filed in court.

As Congress looks into what happened, the issue stems from legal documents signed by people who swore that they had personal knowledge that the foreclosures were justified. Some signers have testified that they affixed their signatures assembly-line-style, without reading the underlying legal documents.

“I don’t know how they got those people to sign that,” says Matt Hackett, underwriting manager for Equity Now, a direct mortgage lender in New York. He says the issue never would have surfaced if people hadn’t signed foreclosure papers where “the numbers are wrong.”

As the scandal unfolded, observers wondered about the long-term effects. Will it cause an enormous overhang of unsellable houses? Will legal paralysis allow borrowers to remain in their foreclosed homes indefinitely?

“People are not paying and sitting,” says Michael Moskowitz, president of Equity Now. “We’re going to have foreclosure overhang.”

3. Processing times will remain long
With rates having reached record lows, borrower frustration is at record highs. It seemingly takes forever to get a home loan, especially a refinance.

“Underwriting turn times are absolutely awful across the board right now,” says Dan Green, loan officer for Waterstone Mortgage in Cincinnati. “Many lenders are recommending 60-day (rate) locks right now, just because of volume.

“It’s a tax, really. Everybody’s interest rates are a little bit higher, and fees are a little bit higher because of the inability for appraisers to get to homes quickly (and) for underwriters to get through files quickly. Everybody’s just overworked right now.”

The process is particularly brutal for homeowners who have home-equity loans or home-equity lines of credit. Before they can refinance, these borrowers must persuade their equity lenders to resubordinate, in which the lenders agree to keep the loan in second-banana status.

“People need to realize (that) if they have home-equity lines of credit, the subordination can take up to 30 days,” says Dick Lepre, senior loan consultant for Residential Pacific Mortgage in San Francisco.

Because of paperwork backups and subordinations, Paul Anastos of Mortgage Master, a lender based in Walpole, Mass., says his company recommends locking for 75 days, “which means we’re trying to close those loans in 65 days.

4. Temptation grows for zero-cost refinances
Mortgage rates have fallen so much since 2009 that it makes sense for many homeowners to apply for zero-cost refinances.

The term “zero cost” isn’t completely accurate because a refinance always carries fees. But with a zero-cost refi, the borrower accepts a rate that’s higher by a quarter percentage point or more in exchange for not having to pay fees out of pocket.

How do you know you got a good deal on a zero-cost refi? Comparison shop, Green says.

“Make sure, when you do your comparison, that you specifically ask for a no-closing-cost mortgage,” Green says. “It’s the only way to compare rates, if you’re comparing the same fees, too.”

When a mortgage broker or loan officer does it, this type of loan employs a controversial practice called a yield-spread premium. When a bank does it, it’s called a servicing-release premium.

Yield-spread premiums are restricted under recent financial-reform law, but no-cost mortgages likely will remain legal.

5. Jumbos look attractive, but buyers are scarce
In the past few months, rates on jumbo mortgages, which are home loans for more than $417,000 in most areas and $729,750 in “high-cost” areas, have been falling faster than rates on other mortgages. Now, rates on jumbos are downright attractive.

That’s quite a turnaround. Jumbo rates skyrocketed in the summer of 2007 amid the mortgage meltdown and remained high for a long time. A year ago, the benchmark jumbo rate was 1.2 percentage points more than 30-year fixed rate for conforming loans, or mortgages for less than the jumbo limit. Lately, the rate has been less than three-quarters of a percentage point higher.

Rates are low, but few people are refinancing their jumbo loans because underwriting is strict, Anastos says.

“Some of the refinancing on a jumbo loan takes so much longer than on a conforming loan,” he says.

Fannie Mae and Freddie Mac do not guarantee jumbo loans. Consequently, jumbo rates are higher because they pose more risk to the lender.

 **Be sure to discuss your lending needs and questions with a qualified professional**