My New Blog

Many times I get questions as to "how large of a mortgage can I afford?" or "what about deductibility of interest and points paid?"

Many times you can find this information out right here on my website by clicking on "mortgage Calculators" found at the top of my home page.

http://www.jeffkornfeld.com/MortgageCalculators.

Of course, I am available anytime you need to talk something through.

jkornfeld@wcslending.com or, 212-949-5626 ext. 112

(877-536-3927 ext. 112)

September 25. 2007 2:28PM

The Federal Reserve cut interest rates this week. So naturally, mortgage rates went along for the ride, right?

Wrong.

The benchmark 30-year fixed-rate mortgage rose 4 basis points, to 6.32 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of one percentage point. The mortgages in this week's survey had an average total of 0.34 discount and origination points. One year ago, the mortgage index was 6.44 percent; four weeks ago, it was 6.58 percent.

The benchmark 15-year fixed-rate mortgage rose 4 basis points, to 6 percent. The benchmark 5/1 adjustable-rate mortgage rose 11 basis points, to 6.41 percent. On larger loans, the benchmark 30-year jumbo rose 3 basis points, to 7.23 percent.

On Tuesday, the Federal Reserve cut the overnight federal funds rate by half a percentage point. The central bank explained that "the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally."

The Fed's goal wasn't to send mortgage rates lower. Among other things, the central bank wanted to induce lenders to say yes more often -- especially to jumbo borrowers, who have applied for mortgages greater than the conforming limit of $417,000. In the past month, lenders have become more reluctant to extend jumbo mortgages, because investors are scared of buying packages of jumbo loans. Investors are not sure about the quality of the loans out there. That's what has frozen up the jumbo market, and observers believe the Fed was trying to thaw it out.

"I think the Fed took an aggressive stance here," says Bob Walters, chief economist for Quicken Loans. The central bank, Walters says, showed clear concern over what's happening in credit markets, the housing market and the overall economy.

So why did mortgage rates go up this week, instead of heading down? Mortgage rates got ahead of the Fed, that's all. Two months ago, the benchmark rate on the 30-year fixed was 6.82 percent. Not long after, investors started to get clued in that the Fed really might cut short-term rates -- and mortgage rates have fallen in six of the nine weeks since then.

How much did rates fall since that mid-July peak? Last week, they had fallen 54 basis points. This week, the Fed cut short-term rates by 50 basis points, and the 30-year fixed went up 4.

In other words, both the federal funds rate and the 30-year fixed have fallen by identical amounts in nine weeks. The Fed was just catching up.

Information from Bankrate.com - Posted September 20, 2007

Mortgage Hints

Don't build yourself a mortgage mountain. It's fine to want the best home you can afford, but be certain that it is comfortable affordability. Although you may find certain mortgage lenders who will stretch your qualification ratios (the ratio of your total mortgage payment to your total income), the traditional ratios--the mortgage payment as 28% of your income and the total of your mortgage payment plus your monthly debt payments as 36% of your income--are good basic guidelines.

Get your budget under control. Spending some time reviewing your budget (or developing one if you don't already have it) and sharpening your money saving skills can bring big rewards later. A coordinated budget allows you to get the most home for your money without strapping yourself while eliminating wasteful spending.

Prepare to pay off small debts. Having 3 credit card balances, for example, one with a $125 balance, a second with a $165 balance and a third with $275 balance will only cloud the picture. Even though the total is only $565, all 3 will have minimum payments, credit lines, etc. If possible, prepare to pay them down to $0 balances.

Begin to gather documentation. It is not necessary that you have all items on hand before you apply, but there are a number of documents you will need eventually and the approval process will go much smoother if you begin to gather them now. Examples: W-2's and income tax returns from the last few years (especially if you are self-employed), copies of pay stubs, a copy of your credit report (you can get a free copy of your credit report here), records of any child support or alimony (either going out or coming in) and bank statements for all accounts (checking and saving) for the last several months.

Don't forget about closing costs. In addition to your down payment, you will need to reserve funds for closing costs. Depending on the type of loan and your location, these costs can range from 2-5% of the mortgage amount, will be paid in cash at the closing and cannot be borrowed funds. The cost to close on a CO-OP is much lower then all other property types.

Consider points when comparing. Your total mortgage cost will be determined by 3 factors: The interest rate, the term and the amount of points. For information on points, please look at my home page at the top for Mortgage Calculators. Click on it and then look at "Mortgage Points". It can make a huge difference for you.

Jkornfeld@wcslending.com  if you have questions.

For those of you who don't know what an ARM is it is a type of mortgage where the interest rate is fixed for a certain period of time (ie, 3,5,7, or 10 years) and then when the rate lock period is up it adjusts based on a previously known index.

In October of 2007, we will see a record-breaking $50 billion in mortgages reset to a new rate. As you can imagine, the rates will be jumping substantially higher.

That's right, in the month of October alone, many homeowners will be forced to pay higher monthly mortgage payments than they can reasonably afford. And while this number is staggering, it's not exactly new information -- it's been known for two years that the crisis was coming.

The Associated Press reports that, in all, 2 million homeowners have adjustable rate mortgages scheduled to reset by the end of 2008. Of those, the Federal Housing Administration (FHA) estimates that 500,000 could experience foreclosure.

If you or anyone else you know has an ARM, let's start talking NOW so you know what your options are before you are forced into making a bad decision. Please feel free to contact me at: jkornfeld@wcslending.com or, 212-949-5626 ext. 112.

U.S. Treasury prices rose sharply Friday, sending yields lower, after an unexpected drop in U.S. nonfarm payrolls raised fears that the credit crisis has begun to take its toll on the broader economy and adding to evidence that an interest rate cut is on the way.

Yields on the extremely short end of the curve continued to drop, indicating investors are wary about credit conditions and concerned about meeting short-term funding demands. The Labor Department data showed non-farm payrolls fell by an estimated 4,000 in August, the first drop since August 2003, while the nation's unemployment rate held steady at 4.6%. The payroll decline was much weaker than the 115,000 increase that had been expected.

The payroll data support the growing consensus that the Federal Reserve will cut the federal funds target interest rate at -- or even before -- its next meeting on Sept. 18, and the only remaining questions are when and by how much.

"This is a very bad contraction and gives the Fed no choice but to cut interest rates on Sept. 18. The choice is now between 25 or 50 basis points," wrote Kathy Lien, chief strategist at Forex Capital Markets.

The payroll report "has raised the temperature sufficiently on recession risks to make the Fed look too aloof if it attempted to ride out the storm with no Fed funds response," wrote analysts at Action Economics.

"Our assumption is now that we will see 50 basis points in easing over the September-October period, with a quarter point assumed at each meeting, but with risk of quarter period inter-meeting moves, or a half-point leap in September," they said.

The benchmark 10-year Treasury note was up 31/32 at 102 29/32 with a yield ($TNX: CBOE 10-Year Treasury Yield Index Last: 43.64-1.36-3.02%

Thank you for visiting my site. I am quite excited about using a blog to share tips and strategies with you and I look forward to your comments and input.

For those of you who are a little shy and prefer to remain anonymous, please email me at: jkornfeld@wcslending.com and I will post your question and my reply to this site for you.

Together, it is my hope that we can make a bunch of web pages come alive and make you want to come back from time to time to read up on what is happening in the marketplace. Between the craziness in the mortgage market and a slow selling cycle, real estate is many things but no one ever called it boring. 

Once again, thanks for dropping in. Now, what's on your mind?