MARKET UPDATE - DECEMBER 2009

Happy Holidays


THANKFULLY I HAVE AN ARM

Adjustable rate mortgages have gotten a bad rap over the last few years. Unfortunately for the mortgage industry, there were a handful of bad apples that sold certain types of adjustable rate mortgages to unsuspecting borrowers who trusted the loan officer enough not to read or question the loan documents that they were signing. There were also those that knowingly purchased “exotic” adjustable rate mortgage products that offered teaser rates which allowed them to purchase properties well outside their price range. Those to name a few are in trouble; loan officer and borrower.

For some reason the media has deemed all adjustable rate mortgages as bad, and of course the public as a whole believes that to be true. Prime adjustable rate mortgages are typically fixed for a term of 3 to 10 years at a rate 1% to 1.5% lower than a 30 year fixed rate mortgage. Prime refers to non subprime A paper mortgages. Today a 5 year ARM can go for as low as 3.5% (APR 3.545%). The first 5 years, the rate will be 3.5%. For individuals who will likely sell or refinance within 5 years, this loan product still makes the best financial sense. That being said, these loan products are rarely being originated due to fear; created by lack of understanding, media hype and misinformation.

For those that purchased an ARM during the boom and now find themselves upside down and unable to sell or refinance should now be thankful they have an ARM. Many “prime” ARM mortgages will adjust down once the fixed term is over; that is as long as short term rates stay low. Prime ARM mortgages will typically adjust to the current short term rate index (LIBOR, Treasury, etc.) plus a margin of 2.25% (can vary with lender). Most short term rates are trading from 1% to 1.5%. Add that to the margin and you have a low interest rate. For those that have an Option Arm mortgage, and have not been paying the negative amortization payment; your rate may currently be under 3%. To verify what your adjustable rate mortgage will do after the fixed term, review your adjustable rate rider in your loan documents, or contact your mortgage professional.

Short term rates will eventually rise. In the meantime, be thankful that you purchased an adjustable rate mortgage to help ride out the depressed housing market and economy. With any luck you will be able to refinance into another ARM or fixed rate mortgage once the market stabilizes.

EXTENDED TAX CREDIT

The first time homebuyer tax credit of $8,000 set to expire on November 30th, 2009 has officially been extended by President Obama. The extension allows homebuyers that qualify for the tax credit to be under contact by April 30th, 2010, and close before June 30th, 2010. The income levels have also been lifted to $125,000 for single buyers and $225,000 for married buyers.

The tax credit has also been expanded to homeowners that currently own a home or have owned a home as their primary residence five out of the last eight years. Those homebuyers may qualify for a $6,500 tax credit.

The extension and expansion of the tax credit will likely help the housing recovery by promoting new sales and stabilizing home prices; at least through June 2010. Eventually the Government will have to stop subsidizing the housing market through tax credits.

1ST TIME HOME BUYER CRAZE

A press release from the Nation Association of Realtors stated that first time homebuyers, or homebuyers that have not owned a home in the last three years, purchased 47% of all homes sold this year.

The $8,000 tax incentive and falling home prices has been credited with the first time home buyer craze.

"The credit is working better than first projected -- it now looks like we'll have 2.3 to 2.4 million first-time buyers this year," said Lawrence Yun, chief economist for NAR. "With expansion of the tax credit to additional buyers through the middle of next year, and no major unforeseen events impacting the economy, home prices should rise between 3% and 5% in 2010." NAR forecasts that existing-home sales will total slightly over 5 million in 2009, a 2% increase compared with 2008. Next year, they predict a gain of 13.6% to 5.69 million units. – cnnfn.coM

INTEREST RATE SPIKE IMMINENT

Mortgage interest rates are now nearly at a historic all time low. This is no accident and largely to do with the meddling of the Federal Reserve. Over the last year, the Federal Reserve, in an attempt to stabilize the housing crisis, has purchased or committed to purchase $1.25 trillion ($1,250,000,000,000) of mortgage backed securities.


To date, this has proved successful, artificially forcing down rates, and promoting home sales. Although the housing market continues to suffer, it would have likely been much worse had the Federal Reserve not been there to purchase mortgage back securities and drive rates down to historic lows.
The Federal Reserve has given notice that it intends to wind down its purchasing of mortgage back securities in late 2010. If another investor(s) does not step in to take the Federal Reserves place, interest rates will rise; potentially fast.

For the time being money is cheap. If you are one of the few that can refinance, now may be a great time. For homebuyers there likely no better time to take advantage of low prices, tax incentives, and cheap money. Our kids can pay for it later.

BEHIND ON YOUR MORTGAGE – YOU ARE NOT THE ONLY ONE

The Mortgage Bankers Association reported on 11/19 that in the third quarter of 2010, nearly 10% of all mortgages were delinquent. That is rapidly approaching five million borrowers, and is a 10% increase over the last two months.
“The delinquency rate includes all mortgage loans that are at least one payment past due but does not include loans in some stage of foreclosure.” – cnnfn.com
Arizona, California, Florida, and Nevada continue to have the highest level of delinquencies.

INTEREST RATE UPDATE

Mortgage Type Interest Rate APR

30 Year Fixed 4.375% 4.505%


15 Year Fixed 4.000% 4.226%


5/1 ARM 3.500% 3.464%

Call today for your individual scenario rate quote.

*Interest rates as of 12/01/09. Conforming interest rates. Not applicable for FHA and VA loans. Interest rates and APR based on loan amounts not to exceed $417,000. Loan to values not to exceed 80%. 740+ credit score. Owner occupied only. ARM Margin: 2.25% ARM Caps: 5/2/5 ARM Index: 1 Year LIBOR. Rates and payments on 5/1 ARM will adjust up or down after 60 months based on current index at that time. Purchase and rate in term refinances. Not all applicants will qualify.

For any additional information, call or email me at any time.

Sincerely,



Aaron VanTrojen



PRESIDENT

Geneva Financial, LLC

Mortgage banker / Broker licensed in:

AZ: BK-0910215, CA: 603G564, CO: LMB100021691, ID: MBL6976, MN: 40095265, NM: 3693, NV: 3195, OR: ML4799, WA: 510-MB-49323, WI: 700475

Geneva Financial,LLC NMLS License: 42056

Loan Officer NMLS License: 15420



PARTNER

Geneva Real Estate & Investments, LLC

Real estate brokerage licensed in AZ, CA, WA.

http://www.greiusa.com/
Office: 480-368-2000

Email: aaron@genevafi.com