Its happening again.  Rates are tumbling and tumbling more.  I read recently that avoiding closing costs in a declining rate environment is a wise approach and I completely agree.  By avoiding closing costs two things happen:

1. The net benefit of the improved cash flow is immediately realized, and

2. You are in a position to refinance AGAIN as rates continue to slide.  Because you haven’t paid any of your equity there is not much downside.

I’ve been making loans since 2003, and rates have pretty much always been really attractive with a few exceptions (sorry purchasers of the summer of 2006!  I hope you’ve refinanced out of your 6.625% fixed).

Something else is brewing that I think bodes well for our real estate marketplace: the return of Private Mortgage insurance, aka PMI.  PMI has been on the sidelines in recent years.  This isn’t surprising because when homes default, the banks cash in their PMI policies.  You see — PMI is to protect the BANKS not the borrowers.  PMI is good for borrowers and home owners because it ALLOWS lenders to lend and borrowers to buy, which is obviously critical.

Since 2007, mortgage insurance has been deductible for families with annual incomes less than $105k (DEFINITELY consult a CPA to confirm this — I’m just some jerk mortgage blogger), so there are a lot of reasons why I am very happy that mortgage insurance exists.  Anyway — as property values declined in recent years, MI companies were requiring more equity and charging higher premiums.  That is all reversing now!

This is particularly good in light of the recent increases in FHA mortgage insurance (which is now 1.15% of loan amount annually for ALL FHA’s).  It appears that the PMI companies are jumping back into the market place to provide lower cost options for borrowers.  So even if you only have 5% down — a conforming loan with PMI will likely be a better loan for you than the FHA — but ONLY IF your credit score is high.

Thank god for the FHA loan too — It will ALWAYS be a great loan to consider for a variety of reasons… But now there are some very compelling alternatives that borrowers should be looking at.

1. Those who tried to refinance and couldn’t qualify due to an appraisal issue.
2. Those who currently have a Jumbo mortgage and think that Jumbo rates haven’t improved enough to warrant starting the process.

This second group has the potential to create the most savings BY FAR and here’s why: I have recently gained access to a low rate FIXED second mortgage that is creating a lot of added flexibility to what I have been able to offer.

There is a new regional lender that has aggressively entered the SECOND MORTGAGE market place, and is allowing a simultaneous close to a first loan, and they go to 90 LTV in many instances.  This means for those who tried to refinance but the appraisal didn’t quite work now have the ability to fund a low rate fixed first simultaneous to a low rate fixed second one.  This second mortgage has been locked by me as low as 4.99% (APR 5.251%), and this loan has NO Balloon Payment!  This means that it acts exactly like a 30 year fixed first mortgage.

What this also allows current Jumbo loan holders to do is break their mortgage into two, 30 year fixed loans, capping their first at $417,000 (the conforming maximum), and simultaneously closing this second loan to make up the difference.  This works extremely well for loans up to about $760k.

So, the best Jumbo Refinance in Portland is to get OUT of your Jumbo loan entirely.  Access the super low rates of current non-jumbo mortgages and close with this low rate fixed second.  My most recent client who qualified for this will save over $1200 per MONTH.

This works great with a refinance, but also works for a purchase, too.

Lets get started! Visit Portland Home Loan for more information.

*INCOME REQUIREMENTS TO QUALIFY:

- Families of 1-2 must make less than $71,200/year
- Families of 3 or more must make less than $81,880/year

Here is how it works:

If you are reading this and you didn’t already know — the interest paid on your primary residence is a tax deduction.  This means if you pay 10k in interest per year, the deduction would equal 10k of your income that you wouldn’t have to pay taxes on — it becomes TAX FREE INCOME.  If you are in a 25% marginal tax bracket, this translates into $2,500 in real dollars to you.  The MCC converts the first 20% of this deduction to a a tax credit. This means a dollar for dollar refund to you!  So for the same homeowner with 10k in interest to work with, the MCC would translate into $2k cash back PLUS the remaining 80% as a deduction, or $1600 totaling an annual refund of $3,600, an almost 50% increase in tax benefit.

This benefit lasts for the ENTIRE LIFE OF THE MORTGAGE.

Only if you sell or refinance, would this benefit end.

There are some things to consider as well:  There is a potential “recapture tax” for those who SELL the property in the first 9 years.  If your income exceeds the maximum threshold at the time of sale (during the first 9 years), you could be forced to repay the city for the benefits received from your home’s profit.  Please call me for details, and for more analysis about how this special first time home buyer program in Portland, OR could work for you.

Mortgage Trust, Inc. has been allowed to offer this MCC program in partnership with the city of Portland, and I have taken the class certifying me to consult with home buyers about it.

Also — Please refer to Portland Housing Bureau for more details about this program.  Please also note that there are two designated “target areas” in NE Portland that qualify home buyers for the MCC even if you ARE NOT a first time home buyer.

The Oregonian just published an article about this MCC first time home buyer program in Portland.

Read more about first time buyer programs in Oregon.

This Portland Home Loan website has been designed to make it as quick and easy as possible to engage with the process.  There are two big buttons in the upper right corner of the site — one is a Loan Application, and the other is a Rate Quote and super quick questionnaire.  Please fill out one of these forms and let me at least do some quick cost/benefit analysis for you.  I have many clients saving over $500 per month with absolutely no fees from the lender or title company.  Many more clients are switching to 15 year amortizations and saving hundreds of thousands of dollars in total interest cost.

Please take a minute and put me to work for you.  I have never seen anything like this, and although it appears that we will be living with low rates like this for some time to come, nobody can be certain that this will last.

I am doing my best to pick up the phone and reach out individually to you, but please know that I am open for business and we are closing most loans in about 30 days.

Borrowers with top credit will now have options to buy with only a 5% down payment, and private mortgage insurance. This has not really been an option in the last 18 months, and these borrowers were all being pointed to FHA loans. And come April 5th, FHA loans are about to get more expensive as that FHA mortgage insurance is scheduled to INCREASE.

Along with the PMI options is something really cool called LPMI (lender paid mortgage insurance) – where the full mortgage insurance premium is absorbed in the lender rebate, and the borrower never has to even mess with it.

Keep in mind that the risk based price adjustments for credit score are still in effect here, and basically if you are below 720 in the credit score department, you will likely find that FHA is where you’ll end up anyways.

Now, the FHA is not a bank, they are merely an insurance provider for banks. Other banks make the mortgage with knowledge that the FHA will cover a certain amount of possible loss incurred, thus alleviating a lot of the risk associated with making that loan to begin with. So, now that FHA loans make up over 30% of all mortgages being currently written, this pool of insurance is being massively stressed by all of the poor performance of mortgages of late.

This pool of insurance is being spent RAPIDLY! In order for the FHA to maintain the appropriate levels of capital needed to continue to exist, they are raising their fees essentially.

The existing amount of “up front mortgage insurance premium” paid to the FHA at close is 1.75% of the loan amount. The proposed increase is to make that upfront MI to be 2.25%… a full half point increase. This fee has never been one that has had to be collected from the buyer/borrower at close, but is customarily “financed” into the full loan amount, so it’s paid over the 30 year term of the mortgage. So the good news is that this fee increase won’t affect purchasers that dramatically at first, BUT- this will certainly increase the cost of borrowing reflected in that borrowers APR.

I’m not exactly certain when these fees take effect, but I expect them to happen sooner than later.

** Actual HUD press release about new FHA rules

What will be happening is, this website: Pdxhomeloan.com will be repurposed, and its blog functionality will be greatly reduced. I will be transferring all future blog posts to my new mortgage blog: www.oregonmortgageblog.com

Please get connected to me in this same way that you’ve come accustomed to by clicking this link to the networked blogs fan page, and following this rss feed.

I really value your willingness to communicate with me, and I’m always looking to deepen our conversation. Please give me any feedback good or bad, and I’ll do my best to make you guys the most informed real estate enthusiasts in Portland!

What I have come to understand is that mortgage rates are directly influenced by yields on Mortgage Bonds. When the economy is doing well, most investors want to buy stocks because they are going up. When the economy is doing poorly, most investors sell their stocks and wait for improvement. When these stock sales happen, it is VERY common for the proceeds of these sales to be “parked” (invested) into the bond market. Bonds have much less risk associated as the returns are kind of guaranteed by the backer of the bond.

SO – when money enters the bond market, the yields associated with the bonds can be lowered. Because you don’t need to offer a big yield to investors when the alternative (stocks) is so horrible.

ERGO – when the economy is poor- Bond yields go down (Mortgage Backed security bond yields included). Thus – when the economy is poor, mortgage rates tend to be favorable.

So rates have been AMAZING for much of 2009, this is an exact reflection of just how pathetic our overall economy has been. My first prediction is that the economy will stabilize in 2010, but ultimately remain fairly weak/flat…. this is already happening, so to call it a prediction is pretty soft.

Another factor that is a major influence on the Mortgage Backed Security (MBS) market is that the US Treasury has been purchasing MBS’s all year long at a fairly shocking rate. Starting in March of 2009 the government announced they would purhcase 1.25 TRILLION dollars worth of MBS’s over the remainder of the calendar year. This purchase program was extended around October to last though Q1 of 2010. So when there are big purchasers of MBS bonds, rates are low…. So I’m saying the biggest single buyer of bonds has already announced that they will cease their purchasing. This is a force against good mortgage rates starting in April of 2010.

Another thing that I know that greatly influences the bond market is inflation. Anytime there is a whiff of inflation in the marketplace, investors shed bonds like crazy. ERGO – When inflation happens, mortgage rates get worse. And many economists agree that all of the “printing of cash” by the US Government will result in higher inflation at some point in the future TBD.

So if you are keeping score at home we now have:

1. Crappy economy – this is GOOD for mortgage rates
2. Biggest bond purchaser discontinuing their buying – this is BAD for rates
3. Inflationary factors in our future – this is BAD for rates

I recently sat in on a lecture with economist John Mitchell (former head economist for US Bancorp). In his prediction for 2010, he sees inflation increases being VERY slight. (presently we are at 1.8% inflation, and he predicts we will end the year with 2% inflation). I will throw my hat into the ring and base my predictions on his prediction being accurate …

<drum roll>

I predict that 30 year fixed mortgage rates will be very favorable for 2010. We have been below 5.5% for most of 2009, and I believe we will hover around 5.5% for most of 2010.

Because inflation will be monitored very closely by the Fed, and held down… the overall crappyness of our economy will counterbalance the removal of the Fed MBS purchasing program for the most part, with the scales tipping slightly upwards.

We may have episodes where rates crack above 5.75%, but I believe that these episodes will be short lived, and our economy will demand that mortgage rates remain low and steady.

I invite your commentary, and will be updating this prediction for better or worse throughout the year.

I wanted to take a moment to highlight a couple of my Portland mortgage clients whom I am particularly proud of. To share how powerful their real estate mortgage management is and will be for their lives, one purchase, and one refinance story.

First the purchase: I have a great client who is a nurse with a local Portland hospital. She is a first time buyer and qualifies for a VA mortgage. She was nervous about the jump from her low rent payment to the higher mortgage payment, so she decided to buy a duplex to have some rental income to offset that payment.

She was able to find a super clean duplex close to her work for $271,000, and finance it with no money down. Her total payment will be about $1650 per month, and the rental income from her non-occupied unit will be close to $1,000. She also qualifies for the $8,000.00 first time buyer tax credit! If she applies that credit to her payments she will literally live COMPLETELY PAYMENT FREE for her first year, followed by a tax adjusted monthly payment of around $300 per month!! Unbelivable!!!

My second success story is about a guy who has been in his Beaverton area home for about 7 years. He was in a first and a second mortgage with an average/blended rate of around 6.9%. We were able to get him qualified for a cash-out refinance, pay off both mortgages and roll in about $35,000.00 of additional consumer debt that reduces his total monthly obligations by over $900 per month.

He is in his late 50′s and also starting to think about retirement. If he applies this additional $900 to his principal balance he will be COMPLETELY DEBT FREE in less than 13 years.

So if you are a first time buyer reading this, understand that you have 30 days to find and make an offer on your house. The sooner you do this the better off you’ll be.