Illinois Mortgage Rates and News

Welcome to Illinois Mortgage Rates and News week in review for the week ending July 4th, my take on the week’s financial news and how it affected Illinois mortgage rates.

First of all, happy 4^th of July to everyone. Independence Day is one of my favorite holidays. This is when summer really kicks in. I like the parades, festivals, barbeques and fireworks. And this holiday is all about freedom, something we take for granted but it is good to be reminded of what we have, and what we could lose if we don’t pay attention. That being said here is the breakdown of what happened to affect mortgage rates this week.

The key data this week was all about jobs. The ADP national employment report released Wednesday showed a loss of 79,000 jobs, many of them in the service sector which had been the one area that had been holding up the best. The jobs report yesterday showed the 6^th straight monthly decline with a loss of 60,000 jobs, right in line with expectations. It also showed a revision showing another 52,000 jobs lost over the previous 2 months. New claims for unemployment insurance moved up to 404,000 this week – the highest since the Katrina disaster. All these signs taken together show that the economy is muddling along at best. We may not officially be in a recession, but for most people it feels like one.

On the other side of the equation, oil prices moved up again closing at $146 per barrel. Gas prices at the pump here in Illinois (more specifically the Chicago area) are up past $4.00 per gallon. The news reports people are now driving less. It will take some time to see if the lower demand will be enough to drive prices lower. The European Bank hiked rates by a .25% on Friday to fight inflation, but the wording in their statement indicated this is probably going to be the only hike. German manufacturing was down sharply, so many analysts expect that the economy is slowing there, as it is here, and that on its own will bring inflation rates down.

The stock market finished its worst June since 1930. The Dow Jones decline has been just over 20%, the official mark of a Bear market. Losses from banks and big financial’s have led the way and the auto makers released awful sales reports this week and their stocks suffered. Even Starbucks, seemingly invincible, announced that they will be closing 600 of their lower producing stores. With these signs of the slowing economy, the sting of inflation is now looked at more as another factor crimping people’s spending than a reason we need to raise rates now. At least that’s the thinking for this week.

The mortgage bond market was holiday shortened and thinly traded this week. That doesn’t mean that the week wasn’t volatile. Mortgage bond prices moved up and down like a yo-yo this week as they tried without success to break through a key area of resistance. The week ended on a sour note with bonds worsening (rates moving higher) even as the jobs report showed softness. It is common for markets to sell off on long weekends as traders unwind positions beforehand.

Mortgage rates are just a little worse on the premium side than they were at the end of last week, but overall unchanged. We are still trading in a narrow pattern and mortgage rates are between 2 levels of resistance.

Here is what Illinois mortgage rates look like today for an A+, full doc purchase on a 30 day rate lock, with 0 points, and no origination fee.  The conventional loans are based on the highest conforming loan amounts, which give the best pricing. (Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or contact me and I’ll take the time to find the rate and program that is best for you.) :

Conventional loans up to $417,000

30 year fixed rate    6.375%   6.589% APR

15 year fixed rate    5.875%   6.124% APR

5-1 A.R.M.               5.625%   5.788% APR      

7-1 A.R.M.               5.875%   5.989% APR

For Jumbo loans over $417,000

30 year fixed rate*   6.875%    6.997% APR – Requires 20% down payment

7-1 A.R.M.*              6.125%    6.327% APR *there is a 1 year pre-payment penalty on this option.

FHA LOANS - 3% down payment

With 1 point origination fee – 60 day lock

30 year fixed rate    6.125%     7.048% APR

With no origination fee –        60 day lock

30 year fixed rate    6.375%     7.056%

FHA APR reflects 3% down payment and the effect of mortgage insurance on the loan.

These are just a few of the programs and mortgage rates available. Which option is best for you depends on your own specific goals and needs. If you have any questions or want to go over your situation in depth, let me know how I can help. Thanks and have a great Holiday weekend.

Illinois Mortgage Rates and News

Mortgage loans in Cook County just got a little more complicated. The new anti-predatory lending bill, SB1167, goes into affect today, July 1st. One of the provisions of the bill was to set up a database to keep track of all loans originated in Cook County. Borrowers who fall into certain risk categories will need to get counseling before they can close on their mortgage.

According to SB1167, all loans recorded in Cook County after 7/1/2008 are going to require either a Certificate of Exemption, or a Certificate of Compliance attached to the mortgage. The certificates will be printed from the Anti Predatory Lending Database web site set up by Cook County. Mortgage brokers and mortgage bankers who handle mortgages in Chicago and throughout Cook County are now required to enter the loan in the data base at the start of the transaction. This only applies to owner-occupied 1-4  unit residential properties.

Not every borrower needs the counseling though. The conditions that will trigger the counseling requirement are:

• Any purchase transaction where all borrowers are first time home buyers OR Any primary residence refinance where the loan has one of the features below.

1. The loan has an interest only feature
2. The loan has a prepayment penalty
3. The loan has a negative amortization feature
4. Total points and fees exceed 5%.
5. The loan is an ARM with an interest rate adjustment within the first 3 years. (We’ve been informed by the IAMP that 3/1 ARMs WILL require counseling, even though you may think that the rate adjustments are not “within the first 3 years, but occur after 3 years.)

The following loans are exempt from the counseling requirement: Reverse mortgages, Non-owner occupied (investment), Commercial and multi-family over 4 units.

Predatory lending has been the cause of a lot of foreclosures and a lot of ruined lives. Anything that can put a stop to it is worth doing. But like so many laws this solution isn’t going to have the impact that it is hoping for. For one thing, the real estate market has slowed down and mortgage guidelines have tightened. It’s not as easy to commit fraud when people are paying attention so a lot of the quick-buck sharks and sleazy operators have moved on. The other factor is that the market is ahead of the curve on a lot of these provisions. The loan features that trigger counseling are all features of sub-prime loans, mortgages for borrowers who couldn’t fit into the normal conventional guidelines. Sub-prime loans were the first casualty in the mortgage melt down last year, and no one is making those loans anymore. There will be some sophisticated borrowers who may be forced into counseling because they chose to refinance with an interest only mortgage for the cash-flow benefits, but if first time home buyers are taking on loans with these features they need to know exactly what they are getting into. The law will mean some loans will take a little longer, and it will add an extra step to the process. But who knows, maybe it will even help some people.

Illinois Mortgage Rates and News

Welcome to Illinois Mortgage Rates and News week in review for the week ending June 27th, my take on the week’s financial news and how it affected Illinois mortgage rates.

The Fed took the spotlight this week, and as anticipated, they left interest rates the same but talked tough about the threat of inflation. Wall Street wasn’t happy with the decision. The Dow hit a low just ticks away from a 20% overall decline, the official mark of a Bear market. Not only did the Fed not raise rates, but their announcement balanced the threat of inflation with the threat of further slow downs in the general economy. This signaled that the Fed plans to stand pat, keeping rates the same until something forces their hand. The stock market dived and mortgage bonds benefited. Mortgage backed securities moved through an area of strong resistance Friday afternoon, ending the week at their best level in the last 3 weeks.

The question this week, as it has been over the last few months is which is worse, inflation or recession? This is much like saying which way would you rather be tortured? Water boarding? Or bamboo shoots under your fingernails? If it’s all the same to you, I’d rather do without either. But the Fed doesn’t have that choice. The case for raising rates is that the low Fed funds rate has killed the value of the dollar, and oil is denominated in dollars so its rise is a direct result of the weak dollar. The argument here is that raising the rates will add value to the dollar and oil will fall once the Fed acts. This may be true, but the global economy is much more complex than this, and a raise in rates might do more harm than good. The credit crunch is still in force, and hiking rates would mean that credit goes from tight to a stranglehold, smacking the real estate market and the business climate down further. This would surely lower gas prices; with lower demand prices would have to fall. But if the economy falls into a deep recession, it could make matters much worse and killing the patient doesn’t make for a successful operation.

The other school of thought is that inflation is a problem, but the oil shock we are experiencing isn’t the same as inflationary spirals we’ve seen in the past. For one thing, there is no wage inflation. Inflation can destroy an economy if everyone thinks that prices on everything are moving higher. But wages are stagnant and with global competition no one expects wages to move up much any time soon. Prices are moving up on food, fuel and anything that uses petroleum, but if you look at the value of your home or the balance on your 401K the values are down. The other thing is that the Fed might not be able to do anything to control the inflation, even if they raised rates sharply. In a global economy there are more moving parts than in a Rube Goldberg machine, and the United States doesn’t have the economic power it once did. The cost of oil has been moving up steadily for years now. China, India and much of the developing world have been booming, and their demand for oil has pushed the cost higher. We also aren’t finding new oil supplies fast enough to replace the wells that run out. Add in a good dose of fear and speculation and it’s no wonder the price runs up higher. As the global economy slows down, speculation should ease and oil prices may come down as a result. At least a little. But the world has changed and most experts don’t think we will ever see cheap oil again. So the real question is the run up in oil inflation, or the new fact of life?

In other economic news, consumer confidence this week came in at the third lowest reading ever, and the lowest since 1980. Oil prices surged again, now up to $142 per barrel. Personal spending for last month was the best reading in the last 5 months, but if the stimulus checks are gone this is probably not a trend. New and existing homes both came in a touch better than expected, but still at low levels. Sales of homes in the Chicago area were down 29% from last year, but up from the previous month. Prices here seem to be stabilizing. The core inflation rate showed we are just over the target zone, giving the Fed some cover for their decision not to raise rates. Here in Illinois, Attorney General Lisa Madigan sued Countrywide Mortgage for abusive loan practices. I have mixed feelings on this one. I’m not a fan of Countrywide. As a company they have been arrogant and they were the leaders in some of the bad practices that got us into this whole mortgage mess. I also like Lisa Madigan. She’s done a good job as Attorney General, and I expect that she will be our next Governor. But that’s the point of this, it’s all political. Countrywide is a big target and an easy way to score political points, but unless they can show it was a corporate decision to defraud customers, I don’t see this going anywhere.

Mortgage rates are moving in the right direction, but the real improvement in mortgage bonds came at the end of the session on Friday afternoon, and most of the lenders didn’t re-price to show the improvement (it’s funny how quickly they re-price when rates are heading up, but are slower on the trigger when mortgage rates are moving down). The area of resistance that was keeping rates from improving may now act as resistance and a stopping point when rates are getting worse. It’s amazing how often points on a graph that acted as a ceiling become a floor when the market breaks through.

Here is what Illinois mortgage rates look like today for an A+, full doc purchase on a 30 day rate lock, with 0 points, and no origination fee.  The conventional loans are based on the highest conforming loan amounts, which give the best pricing. (Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or contact me and I’ll take the time to find the rate and program that is best for you.) :

Conventional loans up to $417,000

30 year fixed rate    6.375%   6.589% APR

15 year fixed rate    5.875%   6.124% APR

5-1 A.R.M.               5.625%   5.788% APR      

7-1 A.R.M.               5.875%   5.989% APR

For Jumbo loans over $417,000

30 year fixed rate*   6.875%    6.997% APR – Requires 20% down payment

7-1 A.R.M.*              6.125%    6.327% APR *there is a 1 year pre-payment penalty on this option.

FHA LOANS - 3% down payment

With 1 point origination fee – 60 day lock

30 year fixed rate    6.125%     7.048% APR

With no origination fee –        60 day lock

30 year fixed rate    6.375%     7.056%

FHA APR reflects 3% down payment and the effect of mortgage insurance on the loan.

These are just a few of the programs and mortgage rates available. Which option is best for you depends on your own specific goals and needs. If you have any questions or want to go over your situation in depth, let me know how I can help.

Illinois Mortgage Rates and News

Over the last months conventional mortgage guidelines have tightened, and with risk based pricing mortgage financing has gotten more expensive for most borrowers. Conventional mortgage insurance has pulled back on what they will cover, and the cost of mortgage insurance has gone up (more increases are coming in August). This combination has made it harder to qualify for a conventional loan, and more expensive for those who have lower down payments and good but not great credit scores. The one bright spot in the real estate financing market has been FHA. Earlier this year FHA raised their maximum loan limit (up to $410,000 for a single family home here in the Chicago area, lower in other parts of Illinois) making FHA a great option for many borrowers who would have once been conventional borrowers. But FHA is feeling the pinch of the market, too. Effective July 14^th FHA is changing to risk based mortgage insurance.

FHA is a government backed loan which is designed to help more people buy homes. FHA doesn’t loan the money themselves, they set up the guidelines and insure the lenders against loss through their mortgage insurance premiums. The goal of FHA isn’t to make a profit, like the private mortgage insurance companies, but to encourage more home ownership which makes a more stable society. This means they are willing to take on borrowers who are considered higher risk due to low down payments, lower credit scores, and those who haven’t built up traditional credit. This is still their mission, but now the riskier borrowers will end up paying a little more to make sure the program stays solvent.

FHA breaks their mortgage insurance premium down into 2 parts: an up-front portion that is added to the loan amount and financed over the life of the loan, and a monthly insurance premium which is part of your normal payment. This used to be a one size fits all solution, as long as you qualified for FHA financing you paid the same premium. They are now basing the premium on borrower’s down payment and credit scores. This means the borrower’s with the lowest risk will get the best pricing, and those who are higher risk will have to pay a little more. The current cost of FHA is a 1.5% up-front mortgage insurance premium and .50% yearly premium which is paid monthly. The new schedule will lower the up-front premium for most borrowers who invest at least 5% for their down payment. The monthly premium is going up for all minimum down payment buyers (3% cash investment) and the up-front portion changes based on their credit score.

FHA is still the best choice for many borrowers and the only choice for home buyers with little or no money for a down payment and closing costs. Here is some more information on some of the advantages of FHA financing.

This is what the premiums will be after July 14^th.

Illinois Mortgage Rates and News

In the first installment of this series we looked at some of the things to look out for when shopping for your mortgage . In the second part we talked about hidden fees and pre-payment penalties.  The third installment covered APRs and how important it is to know how to read a Good Faith Estimate of closing costs.. In this, our last installment, I’ll go over what may be the most important factor in choosing where you will get your mortgage, reputation and integrity.

So many people focus on getting the lowest mortgage rate, but the lowest quoted mortgage rate isn’t always the best deal. I’ve heard too many horror stories over the years of buyers who were promised one rate, but when they got to closing they found the rate was higher, the costs were considerably more, or the program was different than what they were promised. If you got the bait and switch at closing (it’s illegal, but it does happen) you have two choices. One, you can walk away from the closing, possibly losing your earnest money, or two, you swallow your anger and go through with the deal. The problem is that the loan officer knows much more about how the system works than the consumer does. The mortgage application process can be intimidating, and you are signing a stack of disclosures, most of which no one reads. What your lender told you may be different from the documentation you signed. Mortgage lenders who are behaving in this manner are obviously not looking for repeat business. The companies that play these games are looking for the fast buck and don’t care about your long term value as a satisfied customer.

The reputation of the company, and loan officer you are dealing with, will go a long way toward predicting what kind of experience you will have. How did you get the lender’s name in the first place? Where they recommended to you by someone you trust? Word of mouth referrals can be a great way to choose your lender, especially if they were recommended by a Realtor or real estate attorney who has lots of contact with different mortgage brokers and mortgage bankers. Ask your attorney what he knows about the company or loan officer you are dealing with. If the company is active in his market area, he will know the reputation of the company and how reputable they are.

You can also check with the better business bureau and the appropriate regulatory agency (As an Illinois based mortgage banker I am regulated by the Illinois Department of Financial and Professional Regulation. Mortgage brokers and federally chartered banks are regulated by different regulatory bodies) to see if they have had complaints lodged against them. Here is a link to sites and phone numbers where you can check for complaints. Also, run the company’s name and the loan officer’s name through a Google search. In some cases you will come back with a lot of information, in other cases it will show nothing but the company web site. Some other things to watch for when choosing your mortgage banker or broker are:

Does the company have a reputation for meeting its commitments and closing on time?

Is the loan officer experienced and able to answer your questions?

Does the company have the financial stability to stand behind its commitment?

Do they have the resources to meet the deadlines in the contract?

Do you feel comfortable with your loan officer?

Does he get back to you quickly, and does he (or she) follow through when he says he will do something?

These are all questions that should be part of your decision. Until you close, you will rely heavily on your loan officer. If you have a loan officer who doesn’t return phone calls, or one who doesn’t provide information, or doesn’t communicate well with you, getting your loan will be a frustrating experience. If someone is not responding during the process, can you be confident that you will close on time and with the right terms? Keep this in mind when choosing who you want to work with. The rate quoted is only as good as the integrity of the person quoting it.

Illinois Mortgage Rates and News

Welcome to Illinois Mortgage Rates and News week in review for the week ending June 20th, my take on the week’s financial news and how it affected Illinois mortgage rates.

Is it over yet? Not so long ago the big worry was that our economy was on the brink. Bad mortgages and the lack of credit were choking the system. Big banks and financial powerhouses were on the edge of failure and our whole economy was in the danger zone. The Fed moved decisively to inject credit into the financial markets and stem the panic. Wall Street breathed a sigh of relief, but the easier credit didn’t trickle down to the small business or home mortgage markets. On Main Street the stranglehold still seems pretty tight. The economy hasn’t been growing, but with the rate cuts and stimulus checks there have been some signs of activity. And now with gas and food prices spiking up, the worry has turned from the softness in the economy to the threat of inflation. Over the last few weeks mortgage rates headed higher as the financial community, in mass, called for higher rates to stop the inflationary spiral that was about to hit us. Last week it became official that the economy was on the road to recovery when former Fed Chairman Alan Greenspan announced that the credit crunch was over, or would be soon. This week a new message is coming through – not so fast, we might not be out of the woods yet.

The news and reports released this week were once again mixed. Oil prices headed higher again, but the producer price index showed that inflation, outside of the fuel and food costs, was within the expected range. New housing starts are at their lowest pace since 1991, confirming the softness in the housing market. The Empire State and Philly Fed indexes came in lower than expected, again showing softness, but new job claims came in slightly better than expected. The biggest market movers this week came from the stock market. Earlier in the week Fed Ex announced that their business is under pressure. This is partly because with a slowing economy fewer packages are being shipped, and with high gas prices their cost of doing business is much higher. On Thursday Citigroup announced that they would be writing off more substantial losses due to their mortgage portfolio. Merrill Lynch is rumored to be in the same boat. This throws water at all the pronouncements that the worst of the credit situation is over. Food and fuel prices are rising way too fast (speculation?) but the higher prices aren’t translated into higher wages and most companies are being forced to absorb the extra costs rather than pass them along to the consumer. If inflation is a major problem, the only way to get rid of it is an economic slowdown. This is why so many have called for the Fed to raise rates again. But if a new round of write offs are in the works from the major financial companies, this means we still don’t know how bad the situation is and how much more bad debt is still out there. It’s hard to see the Fed raising rates any time soon if the economy is still contracting.

Mortgage bonds improved some this week, bouncing off of their worst showing in 6 months. Mortgage rates are better this week, but still facing resistance. We will see if they are able to break through this resistance over the next few weeks, in the mean time any news of higher inflation could send rates higher. If you are applying for a mortgage don’t roll the dice, lock in your rate at application.

Here is what Illinois mortgage rates look like today for an A+, full doc purchase on a 30 day rate lock, with 0 points, and no origination fee.  The conventional loans are based on the highest conforming loan amounts, which give the best pricing. (Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or contact me and I’ll take the time to find the rate and program that is best for you.) :

Conventional loans up to $417,000

30 year fixed rate    6.375%   6.589% APR

15 year fixed rate    6.00%     6.175% APR

5-1 A.R.M.               5.625%   5.788% APR      

7-1 A.R.M.               5.875%   5.989% APR

For Jumbo loans over $417,000

30 year fixed rate*   6.875%    6.997% APR – Requires 20% down payment

7-1 A.R.M.*              6.125%    6.327% APR *there is a 1 year pre-payment penalty on this option.

FHA LOANS - 3% down payment

With 1 point origination fee – 60 day lock

30 year fixed rate   6.25%     7.190% APR

With no origination fee –        60 day lock

30 year fixed rate   6.50%     7.238%

FHA APR reflects 3% down payment and the effect of mortgage insurance on the loan.

These are just a few of the programs and mortgage rates available. Which option is best for you depends on your own specific goals and needs. If you have any questions or want to go over your situation in depth. let me know how I can help. A lot of information will hit the mortgage markets next week, not the least of which is the Fed meeting on Wednesday. Expect another volatile week for mortgage rates.

Illinois Mortgage Rates and News

In the first installment of this series we looked at some of the things to look out for when shopping for your mortgage . In the second part we talked about hidden fees and pre-payment penalties.  In this installment I’ll talk about some of the ways to compare mortgage offers and what you can do to protect yourself when shopping for a loan. Knowing what to look for, and what questions to ask, puts you in a position where you can make an informed decision.

APR - The APR, or Annual Percentage Rate, is a measure used to compare different loan options. The rate on the APR is always higher than the note rate, the actual rate you will pay for your loan. As part of the Truth in lending Act, the government requires that any time a rate is advertised, the APR also has to be shown. This is an attempt at transparency and the goal is to express the total cost of credit over the life of the loan, taking into account how much it costs you to take out the loan so you could tell which offer was better, a loan with a higher rate and lower fees, or mortgage with a lower rate but higher fees.

This concept is a step in the right direction, but it really doesn’t work as well as it could, and the result for most people it to leave them Dazed and Confused. There are a couple of problems with it. First, there is no one precise formula for determining the APR. Some costs are included in the calculation, and others aren’t, and there are some costs, such as application fees and mortgage insurance, that can be considered a cost under some circumstances, but not under others. And other costs, like pre-paid interest which can be manipulated to change your APR for the better. This means that the same loan, with the same closing costs, can show different APRs with different lenders.

Another problem with the APR is that it balances the cost over the entire loan period. For example, the closing costs on a 30 year loan would be averaged over the entire 30 year period, even though all the costs are paid up front. In the real world, very few people stay in a loan for the entire time. Let’s say you were comparing loans between two lenders and the closing cost on one was two thousand dollars higher than the other. Because you are averaging the costs over a 30 year period, the APRs would be very similar. But if you only stayed with that loan for seven years (with moving and refinancing so common the average time in a mortgage is closer to 5 years), it would turn out to be much more expensive than the lower cost loan.

Also, if you are going to compare APRs you need to compare with the same loan product. Comparing a 30 year fixed rate to a 15 year fixed won’t give you a true comparison, and comparing a fixed rate to an ARM will be of no use at all. Loan size matters too. The cost of fees on a large loan will have less of an impact than higher fees on a smaller loan.

The Good Faith Estimate: Many people focus on the loan’s APR, but the best way to shop is to directly compare the costs of one loan against another. To do this we use a form called The Good Faith Estimate of Closing Costs. This needs to be sent out to you after you’ve applied for a loan, but you should ask for it before you have committed to a lender. This form will show you the interest rate and program you are considering, a breakdown of your payment, a list of all the closing costs and pre-paids associated with the loan and a tally sheet showing the amount you will need to bring to closing. A lot of information is listed on the Good Faith, but when comparing loan offers the numbers you need to compare are the companies bank fees. Title charges, escrows and pre-paid interest can be changed around to show a lower bottom line, but the bank fees are the items that they can control. 

The Good Faith is an estimate, but it should be very close to the final numbers. Comparing offers takes more time, but it gives you a truer picture of what each lender is proposing. If a lender will not put his offer in writing, that should be a red flag that something may be wrong. In order to know what to compare, you need to understand what closing costs are spent on, and what to expect.

This still brings up the question of how you compare two offers if one has a lower rate but higher fees. To do this takes one more step, you need to figure your payback period. To do this you need to know how much the difference will be in your payments, and how long you plan on staying in the home. For example, say you are borrowing $200,000 and you have one offer of 6.25% with $1,000 in bank charges and another offer at 6.00% with $3,000 in bank charges. The payment at 6.0% is $1,199 for principal and interest. The payment at 6.25% is $1,231 - a difference of $32 per month. Now you take that $2,000 difference in up-front costs and divide it by the $32 difference in payments. This comes out to 62, which is the number of months before the lower payment will payback the higher fees you paid at closing. In this case it will be over 5 years before you break even - longer than that if you factor in the effect of inflation on your mortgage payments. If you are planning on being in your home for a long time and you don’t expect rates to drop at any time, this could make sense, but it shows that the lower rate isn’t always the best deal.

This approach takes a little more work on your part, but it gives a better picture of what option is best for your needs. In the next part of the series I’ll go over the one thing that may be the most important factor when shopping for a mortgage.

Illinois Mortgage Rates and News

In the first installment of this series we looked at some of the things to look out for when shopping for your mortgage. Here are some more things to be aware of:

Hidden Fees – As I said before, most lenders are borrowing money from the same sources and their cost of business is similar. So if one company’s rates are unnaturally low, it mans they are making up the money in other ways. There is a relationship between the rate that is quoted, and the amount of fees that are charged. The lower the rate is, the more money you will have to pay to get it.

It costs a certain amount of money to process and fund a mortgage. Mortgage companies are in business to make a profit, so they know that they need to bring in enough income to pay all their expenses and earn a reasonable profit. There are two ways to do this. First through the rates – the investors, mostly big banks and financial companies, pay lenders for bringing them loans (this is called a yield service premium. I’ll go into this more in a later post.) The second way is through fees that are charged to you, the borrower. Either way is fine, as long as you know exactly what you are getting. Where it gets tricky is when the lender hides fees in order to make the rate seem better than it is.

There are a number of fees that are normally paid as part of getting a mortgage (I’ll go into more on this in another post). But sometimes the fees can get excessive. In many parts of the country origination fees are standard. Here in the Chicago area it is more common not to charge an origination fee. Rates should be lower if the mortgage company is charging an origination fee. Look for things like discount point, warehouse fees, document preparation, administrative fees and the like. Ask what each of the fees goes for and if the fee is negotiable. I’ve seen lender charges of several thousand dollars plus the origination fees. At my company, Professional Mortgage Partners, the normal bank fees are under $1,000. Again, there’s always a trade off between rates and fees. But if you are paying thousands of dollars in fees up-front, it will take you years before you’ve broken even by getting the lower rate.

Pre Payment penalties: Another thing to watch out for is a pre-payment penalty. This is when the mortgage contains a clause that states that you will have to pay an extra penalty if you get out of the mortgage within a certain period of time, either through selling the home or refinancing. Some mortgages have pre-payment penalties built in, but many more conventional loans offer the penalties as an option - that is, you can get a lower rate if you agree to take a pre-payment penalty. If you know that you won’t be moving, and you’re convinced that rates won’t drop and give you an opportunity to refinance at a lower rate, this can be a fine decision. Where it becomes a problem is when you are quoted with a built-in pre-payment penalty in order to show the lower rate, but the terms are not disclosed to you. This can cut off your options, and cost you thousands of dollars in the long run if you need to get out of the mortgage earlier or can’t refinance because you are locked into a higher rate mortgage.

In the next installment of this series I will show you what you can do to protect yourself when shopping for a loan.

Illinois Mortgage Rates and News

Welcome to Illinois Mortgage Rates and News week in review for the week ending June 13th, my take on the week’s financial news and how it affected Illinois mortgage rates.

Over the last few weeks there has been a true change of direction in the mortgage bond markets. Mortgage rates have gone up and down as the bond market battled over what was happening with the economy. Are we in a severe recession where jobs and spending are our biggest concern? When this is the biggest fear mortgage rates go down. Is inflation heating up and will it take hold and destroy confidence along with our purchasing power? This fear leads to higher mortgage rates. Up until now there have been arguments on both sides. The economy is a mess, and which mess was worse seemed more academic than practical. Whichever factor was worse the Fed was still on their tightrope. They couldn’t loosen up anymore for fear of sparking more inflation, but how could they tighten when the housing sector was still under water and consumer confidence was so fragile? My take was that we would keep on our present course and just hope for the best. If you take the Fed at their word, inflation is now the most pressing problem.

The economic reports this week were still mixed. The Fed Beige Book, a survey of current economic conditions, showed that economic activity remained weak in April and May. Retail sales came in at 1.0% increase which was higher than expected. But this doesn’t give the full story. Much of this increase was due to stimulus buying as the wave of tax refunds and government stimulus checks hit the street. In the coming months we will have a better idea if this is a true trend, or just a one time hit. Also, retail numbers are up, but so are retail prices. Some of this increase has to be a result of inflation in the pricing. New jobless claims continued to mount, showing the job market is still unstable, and the consumer sentiment index came in worse than expected again. The most anticipated number this week was the Consumer Price Index (CPI), a measure of inflation in the economy. We’ve all seen the effect of high gas and fuel prices on our wallets. This number quantifies the effect with a number. CPI came in with a scorching .6% increase for the month, but when the more volatile food and fuel sectors are taken out, it came in at a .2% increase, much more manageable.

Several Fed Governors gave speeches this week, and all of them warned of the threat of unchecked inflation. Today Alan Greenspan, the ex Fed Chair once known as God, said in a speech that “The worst is over for the credit crisis, or will be soon, and there’s a reduced possibility of a deep recession.” The markets have always reacted to Greenspan’s pronouncements, and even though he is no longer in office, he still has a lot of persuasion power. The conventional wisdom now holds that the Fed will need to hike rates to slow down inflation, possibly before the end of the summer.

I do drive and I do eat, so I can see the inflation first hand. But my bet is that the Fed is giving a head fake to raising rates and will try and keep their tightrope walk going as long as they can. The credit crisis may be over on Wall Street, but it is alive and well on Main Street. Mortgage lending is still tightening and the housing sector is still a long ways away from recovery. Higher rates will cut down on inflation at the expense of the overall economy. This means more bankruptcies, more foreclosures, more pain. I don’t see this happening - especially not in an election year - unless the readings are so dire that there is no choice. Besides, give it some time and there is a good chance that the inflation will come down on its own.

Much of the inflation is due to the high demand for commodities in developing countries overseas. India and China have been booming and they are growing a huge middle class. This brings a desire to increase their standard of living, which means more cars on the road and an improved diet, so food and fuel prices go up. This trend will be with us for a while, but there are signs pointing to a slowdown in Asia, and if there is this will reduce inflation by itself. The other thing that makes me think this will come down on its own is the trading activity. I have a friend who is a trader at the Chicago Mercantile Exchange where he trades contracts for cattle futures. Futures contracts are traditionally used as a hedging device. So if McDonalds wants to lock in the price of their hamburgers 9 months from now, they buy contracts on the exchange and they know what their costs will be going forward. This exchange has traditionally been used by farmers and food producers to take some of the ups and downs out of the market and measure their risk. So who are the big buyers of cattle futures today? They’re not food producers; they are financial companies, some of the same big players who created the bubble in the mortgage market. They are buying futures in all the commodities from grains to oil. The reasoning is sound. Prices are going up, so they need to buy the futures and take advantage of the rising prices. Only their buying divorces the price from any fundamentals of supply and demand. Food and fuel prices are in a bubble now, and at some point this bubble will pop and prices will go down. The question is when, and it could get much worse before it gets better.

Mortgage bonds got whacked this week, resulting in the highest mortgage rates we’ve seen in the last 6 months. Today the market was up much of the day, but the rally fizzled and the bonds ended with another bad day. Rates have moved up over the last few weeks, but if you have a contract, unless you are a real gambler, this is a market to lock your rate in at application. Rates very well could improve in the weeks ahead, but when a trend is underway it is a real risk to buck the trend.

Here is what Illinois mortgage rates look like today for an A+, full doc purchase on a 30 day rate lock, with 0 points, and no origination fee.  The conventional loans are based on the highest conforming loan amounts, which give the best pricing. (Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or contact me and I’ll take the time to find the rate and program that is best for you.) :

Conventional loans up to $417,000

30 year fixed rate    6.50%     6.664% APR

15 year fixed rate    6.00%     6.175% APR

5-1 A.R.M.               5.625%   5.788% APR      

7-1 A.R.M.               5.875%   5.989% APR

For Jumbo loans over $417,000

30 year fixed rate*   6.875%    6.997% APR – Requires 20% down payment

7-1 A.R.M.*              6.125%    6.327% APR *there is a 1 year pre-payment penalty on this option.

FHA LOANS

With 1 point origination fee – 60 day lock

30 year fixed rate   6.25%     6.587% APR

With no origination fee –        60 day lock

30 year fixed rate   6.50%     6.788%

These are just a few of the programs and mortgage rates available. Which option is best for you depends on your own specific goals and needs. If you have any questions or want to go over your situation in depth. let me know how I can help. In the meantime, check back for more mortgage and real estate news.

Illinois Mortgage Rates and News

Chicago, IL.  - Are you in the market for a mortgage? If so you are ready to compare rates and prices to make sure you are getting the deal that is right for you. Mortgage ads are everywhere. My spam folder fills up with mortgage offers I never requested, and I cringe when I hear the mortgage ads on the radio. The approach irritates me on these ads because they distort the facts and play on people’s fears. The focus of most of these ads is that they (and only they) can get you the lowest rate for your mortgage. Many people think of loans as a commodity, and that one lender is the same as another, so the decision should be made strictly based on who has the best rate. This can be a big mistake. It is true that most lenders have the same loan programs, but there are other factors you need to compare to make sure you are getting exactly what you think you are. Besides the rate, you need to compare a company’s fees, the terms, the quality of their service, and the company’s reputation. Getting a good rate is important. But if the company you choose is not able to close on time, or doesn’t deliver at the terms you expected, a low rate is no bargain.

In order to know how to compare loan offers, it helps to understand how the mortgage market operates. The truth is, nearly everyone borrows money from the same sources. Whether you are looking at a government loan (FHA and VA), a Jumbo loan for higher priced homes (currently loans of more than $417,000), or a conventional mortgage, most of the loans will be sold off to a small group of end investors. The majority of conventional loans end up in the portfolio of one of two organizations, FNMA or FHLMC, often called Fanny Mae and Freddy Mac. These organizations are government sponsored corporations that are charged with buying up mortgages in the aftermarket, packaging them into investments that are sold on Wall Street, and making sure there is always money available to lend for mortgages.

These companies set the standards for mortgage qualifying, and their purchases set a base for the prices that all of the other lenders charge. Lenders price their loans with the expectation that they will be selling their loan, and eventually delivering it to one of these organizations. What all this means to you is that the true rates on mortgages are usually going to be close to the same from one lender to the next. The range in rates for the same product is typically going to be only 1/8 to ¼ point difference among most lenders. But if you are looking at the newspapers, or searching the internet, you may see advertised rates that are much lower. These low rates look tempting, but you need to know exactly what you are getting. What makes this complicated is the way that lenders show their prices to their customers. Because most consumers are looking for the lowest rate, it’s easy for unscrupulous companies to manipulate the fees and the terms in order to appear to offer a rate lower than it actually is. When comparing mortgages, you need to compare apples to apples and that is not always an easy thing to do.

Borrower Beware! What to watch out for - The number one complaint regulatory agencies receive regarding mortgages, is that the terms they ended up with weren’t what they were promised. There are lenders who will promise whatever it takes to get the customer in the door, but don’t deliver on that promise. Here are some of the areas you need to watch to make sure you are not being quoted an artificially low rate.

Locking In – When you find a property and apply for a mortgage, you have a choice between locking in or floating the rate. Locking in means that you are guaranteed that the rate you choose will be good for a certain period of time. If you choose this option, make sure that the period you lock in for is long enough to approve the loan, and that it extends through the closing date in your contract. Floating means that you are taking a chance. If the rates go down, you will get the lower rate; if rates go up, you will end up with a higher rate than you planned on. Interest rates go up and down based on what’s happening in the mortgage backed securities markets. The markets tend to overreact to both good and bad news, so lenders try to price according to the market, which means they can change every day – lately it’s been common to see rate changes more than once a day. Because the market is so volatile, rates are priced based on how long they are guaranteed for – the shorter the time period, the lower the rate.

Some lenders take advantage of this system in several ways. One way is to quote a very short-term lock period, which means a lower interest rate. But it doesn’t help you to lock into a 15-day rate guarantee if you aren’t closing for 45 days. Another twist on this is to quote you based on the short-term rate but then to encourage you to float. Or they claim that you can’t lock in until after you have been fully approved, or right before closing. These techniques are unfair because all the risk is put on you. If rates go up, you are stuck with the higher rate. Floating is always an option, but it should be your decision, not something that is forced on you.

A darker version of this is when the lender tells you that you are locked into a rate, but doesn’t lock you in with an investor. If rates stay the same or go down, you will close at the rate that was quoted and never know that you hadn’t been locked in. If rates go up, however, you may find that you are rejected for a mortgage at the last minute, or are forced to take a higher rate in order to close your loan. This is not only unethical, it’s illegal. But it happens. Every time that interest rates move up sharply, there are businesses that close their doors for good because they couldn’t honor their lock commitments, leaving their customers without the financing they had relied on.

Mortgage rate shopping is a big topic. I’ll have more on this in my next post.

Illinois Mortgage Rates and News