Heads up! Mortgage rates rise nearly .500%

Since last Thursday mortgage rates have climbed nearly .500% with the majority of the upward trend occurring between Tuesday and today.

So why are rates climbing while the Federal Reserve is actively buying mortgage bonds in an effort to keep mortgage rates low??

The driving influence of this change is the US Treasury who began selling mass amounts of new Treasury Notes this week. On Tuesday, they auctioned 40 Billion in 2 Yr notes, on Wednesday, 35 Billion in 5 year notes, and today 26 Billion in 7 year notes…..all to finance the government spending needed for the stimulus packages.

While the Federal Reserve was buying 1-2 Billion per day in mortgage backed securities in an attempt to raise demand (higher demand and prices for bonds drives mortgage rates down), the Treasury auctioned 101 billion in notes in over a 3 day period, weakening the demand for Mortgage bonds.

For any of you who are familiar with my updates, you know that mortgage rates will change whenever the price of mortgage bonds changes more than 16 basis points up or down on any given day. The market has changed over 360 basis points since last Thursday….hence the .500% jump in rates.

We may see rates settle back down after the auctions end this week. Whether we regain the entire .500% we lost will remain to be seen given that this is just the first in a series of Treasury note auctions with the next one upcoming the 2nd week in June.

So….what do we need to do for buyers who needed a rate in 4’s. Remember that on most loan programs 1 discount point will buy the interest rate down .250% for the life of the loan.


Call me for details.

Can the $8000 tax credit be used as a down payment????

Can the $8,000 tax credit to be used as a down payment???

Early last week Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development said that FHA is going to permit its lenders to allow homebuyers to use the $8,000 tax credit as a down payment. FHA also issued Mortgagee letter 2009-15 regarding this subject.
But not so fast…..shortly thereafter Mortgagee Letter 2009-15 was removed from HUD’s website.

There are two key questions surrounding this issue. First, will HUD re-post the 2009-15 Mortgagee letter outlining the guidelines for this, and second will lenders accept loans under these new guidelines. Both of these questions remain unanswered at this time.

We have seen several cases where lenders adopt underwriting guidelines that are more conservative than what HUD allows. For example HUD allows credit scores as low as 580 while most lenders now have a 620 minimum score. We also know that HUD used to allow sellers to pay the buyers down payment via the Nehemiah or AmeriDream programs and these loans had nearly three times the default rates as compared with loans where the buyer paid their own down payment. For these reasons there is much uncertainty as to when or if both HUD and the lenders will allow the tax credit to be used for a down payment.

What is certain is that we’ll keep you up to date as more facts are known.