attempt to update this consumer comment section regularlyshould news warrant.
But, there are times when we are on vacation or there is other interference and
an update is delayed. If you find that the comment is out dated, please check
back. We will do our best to remain as current as possible in helping you
determine the home loan market information. Thank you!)
We are experiencing very turbulent and confusing times. The
crises have resulted in decisions, often made quickly, to react to fast
changing developments. Although we think the requirements and regulations are
of a temporary nature, we are unsure how long this temporary situation will
exist. The best antidote for confusion is information Toward that end, we want
to try to make some sense of what is happening in the home loan financing
A quick comment: The
information expressed herein is our personal opinion and expectations.
We are regularly asked about whether the stock market is a
good way to determine the direction of interest rates? The stock market is a
barometer of how the business community interprets the financial picture.
Recently, the trend has been downward suggesting that the business community is
not optimistic or “bullish” on the economy. While the stock market
can seem to mirror interest rates (even in more normal times), it is not a reliable
indication of the direction of home mortgage rates.
Another confusion is the role of the Federal Reserve (the
FED) and how their decisions affect home mortgage rates. The FED adjusts
“short-term” rates. These mostly affect business loans, equity and auto
loans and other shorter- term indebtedness. When the FED lowered the rate to
nearly zero it was to alleviate fear among small businesses (and large) that
funds for needed loans would be available and affordable during this crises.
While lower short-term rates can eventually translate into lower long-term
mortgage rates, it does not always occur. We tend to follow the 10-year
bond/treasury note as an indication of the rate trend – up or down. This,
too, has proven a less reliable measurement during this particular period.
Perhaps the greatest impact upon long-term mortgage rates at
the present is the concept of “hedging”.
This is a complex and complicated system using formulas by
which a lender attempts to minimize risk when a loan is initiated and the
interest rate is “locked” – for perhaps 30, 45 or 60 days.
The short version is that when a lender locks a loan they are committed to
delivering that loan to the borrower at the agreed upon rate regardless of what
has occurred in the market during the locked period. Adverse market movement
could result in significant loss. This is especially so when the market is
It is easy to see that when the market environment becomes
unpredictable (as it is today) lenders are reluctant to lock loans for long
periods and/or, in some cases, to make loans until the market
“quiets” and is more predictable. If they are to make loans during
this unpredictable period they are likely to “hedge” their bet
– one method is by having what appear to be extraordinary high rates.
That accounts for rates having jumped dramatically and perhaps staying at
higher rates for at least the near future.
In addition to discouraging loans and lock-ins by increasing
the rates, lenders change qualifying requirements. Borrowers must have higher
credit scores, more down payment or cash reserves at close of escrow in order
to qualify. The result is that borrowers who were “qualified” only
days prior can often be deemed unqualified with the newly applied, more stringent
qualifying requirements. Frustrating, confusing and very, very annoying
especially if one was qualified and suddenly is not. But it is understandable
that lenders must protect themselves and if not by hedging rates alone, by
accompanied more conservative qualifying guidelines.
And so it is this predicament that we find ourselves in
today. The logical questions are what do sellers and buyers do today and what
can we expect in the future. Here is the tricky part. Regardless of the
unreliability of predicting the future we share our thoughts on what we might
expect going forward.
Although we don’t know exactly how long, we believe
the situation to be temporary. The economy will require re-igniting when the
crises passes and everyone will be eager to return to business as usual,
including the real estate finance community. So, if you are in a transaction
that is stalled, it may be wise to remain committed, at least for a while. If
qualifying requirements have adjusted, determine if the buyer can meet the more
stringent conditions? If not immediately, how long until the credit score could
be increased, the reserves be accumulated or the additional down payment be
acquired via savings and/or gift? Obviously, if there is not chance that a
borrower can meet the new guidelines the transaction may need to be cancelled.
But finding another qualified buyer in this atmosphere may not be easy?
We think that rates will readjust and remain in the low
range because there will be a need to stimulate home buying and boost the
economy. We think that the qualifying guidelines are likely to readjust but, to
be honest, these are often slower to readjust than interest rates. We feel that
home values might adjust downward slightly, especially for those who feel that
they must sell, but overall, if demand stays high and inventory remains low,
values will stabilize.
It is likely that some potential buyers may be reluctant to
purchase and some may have had financial adjustments that delay a home
purchase. But, home ownership still represents the most effective way for
persons to build wealth (over time) and makes for a good investment.
There are likely to be some transformative changes but they
are mostly of a longer-term variety. For instance, there may be more reliance
on e-commerce, digital documentation and social media for business use. Whether
these are good or bad for the consumer is another topic for another time.
As indicated initially, this is a confusing, frustrating and
annoying time. We cannot control much of what is happening but we can control
ourselves. Some form of “normalcy” will occur. In the meantime, we
are challenged to function from our best selves. Stay safe, stay healthy and be
kind to one another.
WHAT WILL THE NEW NORMAL BE LIKE?
We long for when sheltering in place will eventually end and
we get back to normal activity. Some project that we have undergone a
transformation and that we will encounter a “new normal” that
adopts many of the adjustments we have lived with during our isolation period.
It can be both fun and harrowing to imagine how various
aspects of our society will have been transformed. While we dwell mostly on how
real estate housing and financing might be changed, many cultural aspects of
our lives may be altered.
The simple act of shaking hands is an example. This form of
greeting is typically recognized as an easy way to suggest “I accept you
into my space” or a sort of welcoming gesture. If some are reluctant to
re-embrace this gesture, will awkwardness occur when determining what is
acceptable? Do we adopt a replacement form of greeting – the fist bump,
hands held in a prayerful pose with slight bow or some greeting arrangement yet
to be determined? Kind of crazy to even think about, huh?
If we expand our vision it can become nearly overwhelming to
consider the future of distance learning, adjustments to food distribution,
upgrades to our health systems in preparation for future pandemics, and many
meetings and communications via future computerized arrangements.
Teleconferencing, for example, has become an accepted way to
conduct meetings. Doctors have used this form of communication with patients.
Schools, from kindergarten through college, have adopted this method of staying
in touch with students. Will this less personal approach continue when we are
able to go back to our offices, doctor offices and schools? Patients,
especially in more rural areas, might benefit from an enhanced teleconferencing
ability. In-person business meetings where body language of all participants
can be viewed and where comments made are not protected by distance may provide
better outcomes? School, especially at young ages, is a social event as well as
a learning environment. Easy conversation with instructors and peers can be
critical at the higher learning levels.
On the other hand, maybe enhanced telecommunication capacity at the
university level would enable more adults to re-enter or continue educational
pursuits? Maybe control educational costs? Lots to think about with good and
But, let’s confine our thoughts now to the real estate
environment. With every change, many of which we might view as good and even
necessary, could have unintended consequences that need to be considered.
E-signing Documents: In
the interest of speed and simplicity, e-signing was becoming more widely used.
But, some critics were noting that more and more buyers and sellers were
questioning the lack of knowledge of signed documents accompanying this method
of confirmation. Real estate can be complicated requiring the explanation of
forms and documents, full discussion of rates and terms with would-be buyers
and a bit of in-person hand-holding in difficult transactions. A personal
connection may avoid future confusion, disappointment or misunderstandings?
Virtual Home Tours: Will the physical showing of homes
be mostly replaced by virtual tours? Not everyone will have access to the media
tools for virtual home viewing. While perhaps used for narrowing the number of
homes to see in person, it is likely that few sales will be made without
prospect buyers personally viewing a home prior to purchase? Are there safety
issues related to having all aspects of a home shown on-line? Could a possible
question arise of “what does my agent do to earn a commission if I view
homes on line and (as noted above) I sign everything via my smart phone”?
Ah, we say, we could use Skype or Zoom to insert the personal touch! But will
have encountered not only delays but reluctance from some appraisers to enter
homes during this virus crises. Previously, there had been promotion of
internet appraisals – use of sites like ------------------- and --------------------. While criticized
for inaccuracies and often low-ball values, this method of home valuation is
easy and quick. The loss of eyes-on valuation of unique features, upgrades and
personal comments and price reconciliation among comparison properties could
result in lower overall values. We don’t know the consequence of losing
the professionalism of on-site appraisers?
Document Notarization: Questions
have been raised before about the efficacy of the notarization process. There
were attempts at virtual notarization during the shelter-in-place regulations.
There were questions of validity, assurance of valid verification, etc. Perhaps we will have a review of the
process and its actual contribution to the loan process?
Credit Reporting: The
reliance on credit scores to determine a borrower’s priding has increased
in recent years. High credit scores result in mor competitive interest rates
and pricing terms. Changes were touted that included greater information
– rental payments, additional information related to accounts, job loss
data, etc. Critics raised questions of both too much and too little
information. As we emerge from the economic shutdown, it is likely that many
will have suffered some credit delinquencies that were beyond their personal
control. How will lenders view these temporary credit difficulties when
qualifying a potential home buyer? Will the buyer be penalized for a lower
score that could impact his/her ability to purchase a home? Will an alternative
method of “trended data” showing a more complete picture of past
and current credit usage and payments emerge?
The Federal Reserve (The FED) has lowered its interest rate several
times in recent months, usually a quarter percent at a time. There is general
confusion regarding what this FED action means to the typical consumer. The
article following these comments provides an explanation regarding the role of
the Federal Reserve in “controlling” the economy generally. In the
meantime, while it seems logical that a reduction in the interest rate is a
good thing, ther can b unintended consequences.
Real Estate Mortgages: Usually,
FED rate changes are anticipated well in advance during which time the markets
adjust resulting in little actual change in market rates at the time of the
FED’s announcement. It is important also to recognize that the FED
actions impact short-term rates only. While long-term mortgage rates may eventually
follow suit, there is often no immediate similar reduction in home mortgage
Other rate related instruments: The FED
action more directly impacts rates related to auto loans, home equity lines of
credit and credit card rates. These financial instruments typically are
variable rate loans and are affected more immediately. Even here, a quarter
percent reduction can be a bit disappointing, especially with credit cared
debt. With a average consumer debt of $8,000 and an interest rate in the 15 to
18 percent level, a quarter percent adjustment is likely to represent less than
a $3.00 a month adjustment in payments.
Savings Rates: While
the cost of borrowing money is reduced, the rate on savings accounts are
likewise reduced. Persons relying upon interest returns as their prime source
of income can be significantly impacted.
Finally, we should consider a major reason that the FED
might lower rates. Rising FED rates are typically to combat inflationary
economic affects while reductions are made to stimulate an economy that might
be sliding into recession. The recent slowing of the global economy impacts our
domestic economy and the recent FED rate reductions have been made to promote
continued growth and to assure us that the economy is strong, vital and
As you read the next article, note that the increase and
reduction in the FED rate is done purposefully and is an important element in
our economic stability.
What Role does the
Federal Reserve Play in the Economy?
Federal Reserve (The FED) is tasked to maintain stability that, in turn, will
shepherd the economy through ups and downs. The FED sometimes walks a fine line
between raising interest rates to combat potential inflation and rate reduction
without tipping the economy into deflation.
in the year the economy seemed to be humming and the FED moved to combat
excessive growth by raising rates. A reminder is necessary – The FED
impacts short term interest rates which affect equity line, auto and business
loans. Long term mortgage rates, while move somewhat in accordance with the FED
changes, are not necessarily primarily affected. The increased short-term rates
have the affect of slowing the economy from inflationary impact. More
importantly, the increase was to provide the FED room to lower the rate if a
long overdue recession actually developed.
mid-year, as if on cue, the economy somewhat unexpectedly showed signs of
global and domestic slowing (a potential sign of a coming recession). Potential
inflation was no longer the concern and the FED lowered the short-term rate a
quarter percent in September (without noticeable impact on the already low
long-term mortgage rates). As the global and domestic economies both continue
to slow, the FED’s challenge is to lower rates (to stimulate the economy)
without promoting deflation.
Deflation is described as the general decline in the prices of goods and
services in an economy, which in turn increase the purchasing power of money.
On the surface, this seems like a good thing for the buying public. But what
often occurs is that as prices fall, consumers wait to see if they will reduce
even more. As consumers stop spending a cycle can be initiated wherein
inventories increase, business profits decline, unemployment occurs and an economy
can descend into recession.
is the FED’s affect on real estate? Deflation can increase the purchasing
power of would-be home buyers but is likely to also result in reduced home
values. An area where we would like balance where home values are not run-away
inflationary but are also not declining in value.
FED’s difficult job is to foster a balance between inflation and
deflation. Hence 2019 saw rates increase before declining again as the global
and domestic economies changed. While the FED can be easily criticized, its
independence serves us well as they focus, not on politics, but on maintaining
as robust an economy as possible for all of us. A very difficult task, indeed
but one we should all appreciate.
DOES ANYONE REALLY
GET THE PUBLICIZED LOW INEREST RATE?
“Lowest interest rates in the past two years”.
“Fixed rates as low as 3.5%”. These and other ads like them are
seen every day and would-be borrowers easily believe that they are being
disadvantaged when they are told that these rates are very seldom actually
The “pricing” for a home loan is based upon a
combination of the borrower’s credit score, the amount of down payment
(Loan-to-Value), whether the property is to be used for personal residency or
investment purposes and several other criteria. The lender views this analysis
as assessing their risk.
A borrower’s total loan profile determines the
ultimate interest rate s/he is “offered” by a lender. The various
risk elements are “adjustments” to the base rate. So, while the
base rate might be 3.5%, the borrower must check each box in order to actually
receive that rate.
Let’s note the boxes:
The borrower has a credit score of over 740
(less than 740 results in adjustments)
The property being purchased is a single family
residence (additional units mean adjustments – including sometimes
The down payment is 20% or more (adjustments
decline as the down payment increases
from 5%, 15% and finally 20% or more after which the adjustments end)
The purchased home does not have acreage
attached (usually 5+ acres can result in varying adjustments up to 20 acres
– the land value vs the home (improved) value is also considered
What kind of loan is being acquired
(Conventional, FHA, VA, USDA) – the initial starting rate varies
depending upon the type of financing).
Will the rate provide a “rebate”
with which to pay loan fees or closing costs – if so, the rate will likely
How long will the “lock in” extend
– the longer the lock timing the more the adjustment
The temptation for prospective buyers is to call lenders and
ask “what is your current interest rate”? Some are annoyed when the
legitimate lender responds with “I can’t price a loan for you until
I have your loan profile” - (based upon the list above). Or the borrower
contacts the internet lender and is given that low rate which s/he is unlikely
to actually qualify for upon loan submission.
Ironically, the same phenomena occurs with estimated closing
costs. Some quotes conveniently disregard the additional title fees, the
impound fees (when taxes and insurance must accompany the monthly mortgage
payment) or the myriad of small fees (which all add up) that accompany every
loan. Every borrower should know what to expect in the way of closing cost on
the day the loan closes.
Final word: Information
is powerful and allows you to make you best decisions. Rates are not going to
be significantly different between lenders. Closing costs (when clearly
identified) will likely be higher than expected. It will
depend upon who is sharing ALL of the information with you up front. When you
find the mortgage originator that instills confidence, trust your instincts
(gut) and stop shopping.
LACK OF CREDIT RISK
continuing low home mortgage rates why are more people not purchasing homes?
That is a question concerning both mortgage professionals and real estate
culprit may be two-fold, a lack of affordable inventory and lenders’
unwillingness to take credit risk. The latter situation impacts potential
borrowers who simply cannot meet all of the criteria imposed by today’s
inventory has plagued the market for several years. Seniors are electing to
remain in their homes and families are renovating rather than selling and
moving up. Having to compete to purchase fewer available homes keeps home
values artificially elevated to the point that affordability fazes some prospective
buyers out of the market. New home construction has been impacted by higher
land prices, lack of available labor and increased building supply costs.
Compounding the issue is that home prices have been adjusting upward in many
areas faster than wages and inflation. And while in some areas, smaller,
starter homes are starting to be constructed, affordability and inventory are
likely to remain a borrower concern.
spite of the relaxation of some home loan qualifying guidelines, borrower
concerns over the documentation process continue. Critics suggest that only the
most pristine borrowers are able to easily acquire home financing. With current
low loan default records, these same critics want lenders to relax credit
criteria and allow more capable borrowers to purchase homes. Others harken back
to when easy credit standards resulted in some persons buying homes that likely
should not have and persons buying
beyond what they could actually afford.
the qualifying rules are somewhat daunting for some borrowers, prospective
buyers are encouraged to seek pre-qualification early. Identify their loan
profile and exactly what they need to do to prepare for to purchase. In other
words, get all of the required documentation in order.
neither the low inventory issue or the tight credit risk environment is likely
to evaporate soon. It doesn’t mean that one cannot buy a home. But it
does suggest that one become informed and educated in preparation for future
home purchasing. Humboldt Home Loans can help you do just that.
Why You Should
Buy Your Home Soon!
the risk of sounding like just so much real estate hype, there are some good
reasons to consider purchasing a home soon. Home ownership still represents the
typical path for middle class wealth building. While un-even across the state,
2018 did continue the signs of a continuation in real estate appreciation that
many expect to continue into 2019 and beyond.
Home prices: increased, albeit only slightly and not everywhere.
Predictions are that home values will continue to grow slowly., thanks to a
likely continued shortage in home for sale inventory.
Consumer Confidence Improving: this drives the market and as people seem
to be a bit more confident about the future it is expected that we could see
inflation continue. Buying now allow new home owners to acquire the
appreciation that we expect to accompany home ownership. occur.
Low Interest Rates: home mortgage interest rates, while
edging upward, remain at historic lows. Mortgage rates are going to increase
but the FED seems focused on controlling inflation.
Unemployment Dropping: skepticism over how the numbers are
calculated and the types of jobs being created doesn’t detract from the
fact that more people are working and feeling a bit more optimistic about the
HOME LOANS COMMERCIAL
real estate is local! That statement is true as every area is unique as to its
home values, loan options available and its future growth. Regardless of the
future changes in real estate financing ahead, the need for competent,
knowledgeable loan originators will not change. Humboldt Home Loans’
emphasis remains on education and counseling – the two parts of the home
buying process that most empowers consumers. Every potential buyer requires
good information with which to make good decisions. Our promise remains the
same – our focus is always based on what is best for our client. One may
not always like what we say (sometimes having to tell one that they are not yet
ready to buy) but we guarantee that the information will be accurate and in
one’s best interest. And if you are not ready to buy now, we will provide
a road map to home ownership in the future.
low rates and moderate home price appreciation makes this still a good time to
purchase a home. We urge that you become pre-approved for a loan before
initiating your home buying search. There is a variety of loan options and you
want to identify the one that is best for your circumstances. Call us today to
schedule your FREE qualification meeting.
information regarding all of your real estate financing questions and concerns
you are invited to call us at Humboldt Home Loans:
Fesler 707-269-2318 Jody
the “tip sheet” section of this web site for answers to many of the
most often asked questions – see below.
We follow the market every day, all day. We will attempt to keep you updated
on what we think is happening and what you can expect regarding long term
mortgage rates. We wish we could be clearer with our suggestions of what you
should do in these market times. Remember, real estate is almost always a good
long term investment. Discuss your situation with your Realtor and Mortgage
Broker and then move ahead accordingly.
You may find several tip sheets (found in our "tip sheet" section
of this web site) interesting as you determine if you should proceed with
either a purchase or refinance transaction . . . check out "Never Been a Better Time
to Buy", "Refinancing" and "Locking the Interest Rate"..
Here are a few additional tip sheets of particular interest. You may view
our complete tip sheet table of contents by clicking below.