Great Loan Advice

I've received many calls recently from clients wondering what is going on with the mortgage market and where I think interest rates are headed.  These are difficult questions to answer because the mortgage market is not exhibiting the typical responses we would expect to see, such as:

• When the U.S. dollar gets stronger, mortgage rates tend to fall 
• When the stock market plummets, mortgage rates also tend to fall

Lately, neither of these driving forces have had their typical impact because the markets have been turned upside down by the global credit crisis, which was caused by the downturn in the housing market.  We are seeing the dollar strengthen and the stock markets sell off, yet mortgage rates are rising.

Mortgage rates are continuing to rise against expectation because hedge funds and other institutional investors have been forced to sell their positions, including mortgage backed securities, in order to raise capital.  As these investors sell their holdings, there has been an increase in supply of mortgage-backed securities.  This excess supply is decreasing the price of these securities, forcing mortgage interest rates higher.

Until the housing market recovers and the credit markets stabilize, there can be large fluctuations in interest rates daily, making it difficult to predict what rates will do in the near future.  My advice is to lock in an interest rate that you can comfortably afford instead of operating under the assumption that rates will drop.  No one can accurately predict that rates will go lower, especially in these volatile times. 

by Robert Sinohue

The Economic Stimulus Act of 2008 created a new, short-term loan product referred to as the conforming jumbo loan.  This new product was designed to temporarily help bridge the gap between conforming loans (mortgages up to $417,000) and jumbo loans (mortgages over $729,750 in the Bay Area) to encourage the purchase of new homes and to make existing loans more affordable.   

The Conforming Jumbo loan product is officially expiring on 12/31/08.  However, in order to meet the deadline, most lenders are requiring that any transaction under this product close by 12/01/08.  So, if you are currently considering a refinance or purchase transaction within the Conforming Jumbo loan limit ($417,000 up to $729,750 in the Bay Area), I would highly recommend that you start the process as soon as possible. 

When the government initially enacted this program, it was unclear whether it would have any permanent impact on loan limits.  But fortunately for homeowners, as of January 1st 2009, the conforming loan limit will be raised from $417,000 to $625,500.  Given these changes, it may be especially important for individuals with loan amounts from $625,500 to $729,750 to take act now before time runs out.   

Questions?  Need a rate quote? Contact me at via email at rsinohue@calmtg.com.