Kenny Leather, Princeton Capital loan consultant extraordinaire, explains the mysteries of the mortgage universe and sets the record straight on the current climate for buyers and sellers. As always, he is happy to answer your questions if you contact him independently.
Bobbie:
So, we spoke a few weeks ago as the media was reporting a frenzy of changes in the mortgage industry. We all wondered how the tightening of guidelines for borrowers would affect the buyer's ability to get loans and the seller's ability to sell to qualified buyers (see previous interview). What has changed in the past few weeks now that the dust has settled? What is the current situation?
Kenny:
"Alot has changed since we talked last. The restriction of guidelines has stabilized (that sounds like "fedspeak") and in fact, rates have even come down. Next year we'll see 1.7 million homeowners who have the 5 year or 3 year fixed rate loans adjust for the first time to a higher interest rate. The good news is that rates have come down, so people who have these riskier loans can refinance into a more stable 30 year fixed. In fact, 30 year fixed conforming loans ($417k or lower) are in the low 6% range."
Bobbie:
The feds just lowered interest rates yesterday; how will this impact the situation?
Kenny:
"They lowered the federal funds rate by .5% which translates into lower credit cards, car loans, and home equity lines of credit. If on Monday your equity line interest rate was 9%, today it’ll be 8.5%."
Bobbie:
Does this affect buyers?
Kenny:
"Yes, for two reasons: the first is obvious: equity lines of credit have lower interest rates so buyers can possibly qualify for a higher loan amount. Second, a half point drop in the federal funds rate and the discount rate shows that the federal reserve is serious about getting the economy moving forward, which is very positive for mortgage interest rates. I personally think that this is a great time to buy because not only do we have lower interest rates, but it’s a buyer’s market."
Bobbie:
A good combination!
Kenny:
"That’s my point!"
Bobbie:
How does the lowering of the rate affect sellers?
Kenny:
“Lower interest rates means buyers will qualify for more”
We hear PMI is going to make a comeback and that it will soon be common again as it was years ago.
Kenny:
“PMI is mortgage insurance that is required on loans with less than 20% down payment. Typically it is a benefit to the lender but is paid by the buyer, and if you make more than $110K there is absolutely no interest deduction for these payments. With that said, the industry has utilized a second mortgage in place of mortgage insurance to make up the difference between the down payment and the 80% first mortgage.”
Bobbie:
And that’s no longer the case?
Kenny:
"One of the biggest changes in the past two months is mortgage banks’ willingness to lend on a second mortgage -which means the only thing left is PMI for people who are putting no money down, to less than 10% down in most cases."
Bobbie:
Any last thoughts?
Kenny:
"Absolutely. Things in this industry are not really as grim as people think. Our guidelines are back to where they were five years ago, and rates are still historically low. Not only is it a good time to buy, but it’s also a great time to refinance, especially if you have a five year or three year fixed that’s about to change in the next several months."
