Market Update - March 15, 2018

By charity.bohuslavizki@nafinc.com March 20, 2018

Market Update - March 15, 2018

Hello everyone and welcome back to the Mortgage Rundown. Today we are going to talk once again about what’s happening with interest rates. Recall from mid-December to mid-February, the 10yr Treasury rose from 2.35% all the way up to 2.95%. Now in the last month it’s down somewhat to around 2.85% while the market takes a little bit of a breather.

Next week on March 21st is the next FOMC meeting and the first chaired by Jerome Powell. The odds are by and large that the Fed will raise interest rates 25bps, but what’s interesting is that the market has priced in a 16% chance that the Fed raises interest rates 50bps. That is an overly optimistic view of the economy or overly pessimistic view of interest rates. A 50bps move could spook the already fragile Treasury market.

With that in mind there might be what’s called a relief rally on Treasury rates, and by extension, mortgage rates. A relief rally is when the market has priced in excessive fear and with a new Fed chair there definitely is a lot of uncertainty. If the FOMC raises rates 25bps and makes no major changes to guidance for the remainder of 2018 then we could see rates drop some on the relief that it wasn’t 50bps or no major changes to the forward guidance on rates.

If you need further evidence then take a look at the following graph. This shows the implied odds of a 50bps FOMC move at the March 21st meeting. Jerome Powell took over the Fed Chair role on February 5th and the odds were pegged at zero. As you can see since that day the odds of a 50bps move have gone up and up.

image: http://www.newamericanagent.com/uploads/images/MU3-15.png

With the Fed’s inflation measurement still running well below 2%, I think there is more fear than economic reality priced into rates.

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How the New Tax Law Affects You and Your HELOC

By charity.bohuslavizki@nafinc.com March 20, 2018

How the New Tax Law Affects You and Your HELOC

Whether you are already a homeowner or thinking about buying your first home, the new tax laws—officially known as the Tax Cuts and Jobs Act (TCJA)—will challenge how you think about your home loans, especially your Home Equity Line of Credit (HELOC).

What Changed

In addition to flatter tax brackets, TCJA eliminates many popular deductions for individual taxpayers, and puts new limits on those that remain. Whether you benefit from these changes. and to what degree, will be a function of where you live, how much debt you currently owe, who makes up your household, the type of debt you have, and how much you make.

To understand exactly how you will be impacted, you will need to work through a projection with a tax professional. Until you do, here is a summary of some of the key home-related changes.

Mortgage interest remains deductible for most homeowners. The deduction is available on acquisition indebtedness – debt incurred in acquiring, constructing, or substantially improving a qualified residence – that does not exceed a total of $750,000. The previous cap on total mortgage debt of $1 million remains in effect for existing mortgage holders.

Property, state income, and local taxes, which had been deductible on your federal return, are now limited to $10,000. This is especially significant for individuals living in states with high income taxes and those in areas with high property taxes.

Interest on home equity lines of credit, may no longer be tax deductible. This takes effect for tax years beginning after December 31, 2017, and the suspension remains in effect until 2025.

Offsetting the elimination of these deductions is a jump in the standard deduction. For 2018, the standard deduction will rise to $12,000 for individual filers and $24,000 for those who are married and filing jointly. For many households, this boost could more than offset the loss in their itemized deductions and lower their overall federal tax bill, even after their home-related deductions disappear.

But What About Those HELOCs?

Homeowners with home equity-based debt may want to meet with their Loan Officers, as soon as possible. With the Federal Reserve expected to raise the level of interest rates three times this coming year and most HELOCs priced to move up with them, the attractiveness of this type of loan would have diminished even without TCJA. Now without the deduction, HELOCs are likely to be even more expensive to use versus other alternatives.

Chief among the alternatives is a cash out refinance. With long-term mortgage rates still low, this type of borrowing enables HELOC users to retire their home equity loan product and combine the outstanding balance into a larger mortgage. Assuming the new mortgage does not exceed the $750,000 threshold, the interest paid would then qualify for the deduction for those still planning to itemize.

Given the degree to which the standard deduction rose, after meeting with your Loan Officer you should also discuss your circumstances with your tax professional to determine what course of action will lead to the best after-tax outcome for you.

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Market Update - Time to Push Debt Out

By charity.bohuslavizki@nafinc.com November 16, 2017

Market Update - Time to Push Debt Out

Without a doubt debt has been very cheap for the past several years. Not to mention record low interest rates and fiscal stimulus have pushed up asset prices following the financial crisis. The stock market has pushed higher and higher as have real estate prices. But so has the debt load of the US Government, the US homeowner as well as college students around the nation. In fact the total US Household Debt has reached $13 trillion, $280 billion higher than in 2008 as the financial crisis unfolded. We’ve been told that the loans made today are of much higher quality than loans made before the financial crisis. That’s certainly true with mortgages but what about other types of debt? Subprime auto is experiencing heavy losses nearing pre-crisis levels, student loan debt has reached $1.4 trillion with a 11.2% 90-day delinquency rate and credit card balances continued to rise. Mortgages have become the safe form of debt but other forms are becoming very risky. What’s the solution?

As it stands today tax reform likely won’t be passed in its current form. Certainly any type of stimulation to the economy could cure the current debt problems (and potential crisis for students). If nothing is done it’s going to be very difficult to continue to borrow our way into prosperity. And that’s where rates come into play…

If you’ve been watching the market you’ve seen short term rates via the Federal Reserve continue to rise while long term rates have remained relatively flat. See the chart below that represents the spread between the 2yr and 10yr Treasuries. As you can see over the last 8+ years the spread has nearly collapsed, meaning it’s becoming cheaper to borrow over the long term relative to the short term. This is often referred to as a flattening of the yield curve. It’s generally a result of the Federal Reserve raising interest rates and a low growth and inflation outlook for the longer term. Yes there are some supply and demand effects as well. So why care?

As a mortgage banker it certainly is an encouraging sign on the likely long term path of lower interest rates. It also serves as economic encouragement for borrowers to take debt over longer periods of time. If it costs the same to borrow for thirty years versus two years, why not borrow for thirty? And given the equity that has built up over the last several years in real estate, most homeowners have a very effective method to borrow debt versus other forms, especially considering the tax advantage of a home mortgage.

The 10yr is currently at 2.32% versus the average for all of 2017 at 2.32%. The entire range for 2017 has been very tight with it trading between 2.04% and 2.62%. 2018 however could be a very different year with a new Fed Chair (yes Janet Yellen is being replaced by President Trump). We will also see how inflation plays out now that the FOMC has raised twice in 2017 and possibly a third time will come in December. The current odds of a December hike are 92% and a 50% chance of two hikes in 2018. I’m going to call 2018 as a make or break year for the Federal Reserve. They are raising rates, so let’s sit back and see how this plays out. Not to mention a flattening yield curve. If it goes negative (2yr yield is higher than the 10yr yield) then hang onto your hat.

image: http://www.newamericanagent.com/uploads/images/Jason_11.16.17.png

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Refinance Mortgage 101

By charity.bohuslavizki@nafinc.com November 2, 2017

Why Refinance?

Have your neighbors been talking about refinancing, because of today's low rates and now it's got you thinking? Do you want to pay off your mortgage before your retirement years? Or do you need some extra cash to pay for your child's tuition? There are many reasons why a homeowner might want to refinance, or pay off an existing mortgage with the proceeds from a new mortgage, so it's in your best interest to understand the different types of refinance opportunities available.

Rate and Term Refinancing

Most often a homeowner will refinance to change the way they are currently paying off their mortgage, also called a rate and term refinance. In this case the homeowner doesn't want to change their loan amount, but rather lower their payment, build equity in their home faster, or switch from an Adjustable Rate Mortgage (ARM) to a Fixed Rate Mortgage.

1. Lower Your Payment

If you're a homeowner looking to lower your monthly mortgage payment, there are a few different ways you can go about achieving this.

One method would be to refinance to get a loan with a lower interest rate. You may be able to find a loan with a lower interest rate because of market conditions or a lender may offer you a better deal if your credit score or other financials have improved. For example, if you lower the interest rate on a $200,000, 30 year fixed rate mortgage from 7% to 5%, your monthly payment goes from $1330.60 to $1073.64.

Another method to lower your monthly payment would be to refinance to get a loan with a longer term, ie, the length of time for which you make mortgage payments. For example, if you refinance from a 15 year fixed rate mortgage to a 30 year fixed rate mortgage, your interest rate may increase, as longer-term mortgages generally have higher interest rates, but the result will be an overall decrease in your monthly payments. For example, if you increase the term from 15 years to 30 years on a $200,000 mortgage, and your interest rate goes from 5% to 7%, you still end up with a lower monthly payment, decreasing from $1581.59 to $1330.60. However keep in mind that you end up paying more interest on the life of the loan when you increase the loan term.

2. Build Equity in Your Home Faster/Pay Off Your Loan Sooner/Save Money on Interest Costs

All of these goals are grouped together because the method to go about achieving one goal - refinancing into a shorter-term mortgage, results in achieving these other goals as well. When you refinance into a shorter-term mortgage, for example from a 30 year fixed rate mortgage to a 15 year fixed rate mortgage, you reduce your total interest costs, because you are putting more of your monthly mortgage payment towards the principal. The resulting effect is that you build equity in your home faster, and pay off your loan sooner.

Although shorter-term mortgages generally have lower interest rates, because you are putting more towards your principal, the monthly mortgage payment tends to be higher.

It's important to note, that you do not necessarily need to refinance to achieve these goals. You could always just pay a little extra on principal each month. Check to make sure there are no pre-payment penalties before you start doing this.

3. Switch from an Adjustable Rate Mortgage to a Fixed Rate Mortgage

Adjustable Rate Mortgages (ARM) offer a very low initial interest rate that lasts for a fixed period of time, for example 5 years. After the fixed period expires, the interest rate will start to "adjust" to market interest rate changes. If you don't like the idea of a changing monthly mortgage payment, you may want to refinance into a fixed rate mortgage. Especially if you think rates will begin to increase in the future, this may be a good option for you.

A fixed rate mortgage offers a monthly payment that will never change. However, if your monthly payment includes escrow amounts for taxes and insurance, your payments may fluctuate due to changes in property taxes, insurance, etc. They also tend to have higher rates than ARMs, because with an ARM comes the age-old adage, high risk, high reward. High reward equals a lower initial interest rate, high risk equals the interest rate fluctuating after the initial fixed rate period is over.

Cash-Out Refinancing

Sometimes a homeowner will want to take out a new mortgage with a larger principal than what they are currently carrying, and receive the difference in a cash payment. This is termed cash-out refinancing. It's basically taking the equity out of your home and turning it into cash.

So why might a homeowner need cash? Obviously there are many reasons, but here are the most common instances:

To pay for a major expense such as a child's tuition, a new car, or to make home improvements.
To consolidate debt, i.e. pay off your credit card that has a high interest rate and consolidate it with your mortgage that hopefully has a lower, more stable rate.
To combine first and second mortgages

It's important to understand that when you take equity out of your home for cash, the loan is secured by your home. You also technically own less of your home than before. Be sure that you can afford the payments from your new loan, as you would not want to take the risk of losing your home should anything happen.

So there you have it, an overview of the different refinance opportunities out there, as well as why a homeowner might refinance. Please feel free to share with others that may be interested in refinancing and make your thoughts/opinions known by commenting below.

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Online Services Play a Major Role in Home Buying Process

By charity.bohuslavizki@nafinc.com January 29, 2016

A report from the National Association of Realtors has taken a close look at how homebuyers look for their homes and how real estate agents communicate with their clients.

The study found almost half of buyers began the home buying process online. Throughout the entire process, 88 percent used online sources to find information. More than half used an iPhone and more than a quarter found their future home using a mobile app.

A study by Redfin and Survey Monkey also found that 21 percent of people made an offer on a house without seeing it in person. The majority of people also said they were confident that real estate websites would be updated with housing options in a timely manner.

These statistics show that having a website in today's real estate world is important. As the home buying market becomes more populated by millennials, real estate websites and apps are becoming even more relevant.

Building a Good Website

According to Realtor Magazine, there are several key features every good real estate website should have. The most important is a comprehensive IDX search function, which will allow prospective homebuyers to search for properties in the area. Consumers can use the IDX to find listings from the company whose website they are searching, but also from other companies as well.

Offering advanced search options, such as information on school districts or foreclosures, will also be helpful to consumers. Smashing Magazine suggests having this feature located on the left hand side and include a map app, such as Google Maps, to give consumers a better idea of where the home is.

Both Realtor Mag and Smashing Magazine stress the importance of having a clean layout. A website that is cluttered or hard to navigate is one that will be clicked away from. Smashing Magazine suggests using a traditional or classic theme to convey dependability and being well-established.

NAR's report found that the website features people found most helpful were photos, details about the listing, interactive maps, virtual tours and neighborhood information.

Real Estate Agents Are Still Needed

Even though homebuyers have been moving their home searches online, 87 percent of homebuyers still worked with a real estate agent, according to the NAR's report.

"Consumers have the ability to do more home buying research online and be more connected during the home search process than ever before, but research proves they are still seeing the value a Realtor brings to the transaction, from the initial search to well after the closing," NAR President Chris Polychron said in a press release.

The report showed people still have a need for real estate agents. More than half of respondents reported that finding the right property was the hardest part of home buying. The two hardest parts for millennials were paperwork and understanding the home buying process. With the help of a real estate agent, these aspects of home buying are made easier.

According to Forbes, working with a real estate agent makes the buying or selling process much easier. For instance, real estate agents will be the ones to negotiate prices and communicate with other agents and sellers. These parts can be tricky for someone who isn't familiar with the process or who doesn't have the same access real estate agents do. According to the Redfin survey, 62 percent of respondents said they felt their agent had done their best to get a good deal on their home.

Some people believe that, since real estate agents get a commission on a house that is bought or sold, avoiding working with one will save them money. However, chances are, without the real estate agent, a buyer won't price the house correctly and end up overpaying. The seller might save some money by not working with an agent, but the buyer is usually better off working with a professional.

Communication Is Key

Though homebuyers still need real estate agents when shopping for a new home, it's important that agents are accommodating to their clients. In the changing media landscape of today, people have new ways to communicate with each other. This is as true for real estate agents and their clients as it is for anyone else.

The NAR's report found that more than 90 percent of real estate agents use their computers and smartphones daily. Most agents communicate with their clients through emails and text messages. Two-thirds of agents use social media for networking and relationship building. Being available to clients in the way they prefer is important to building trust and a good relationship.

"Realtors constantly strive to find ways to make the home buying and selling process easier for and more accessible to their clients," Polychron explained in a press release. "There is nothing more important than helping people find and land their dream home, and since technology helps Realtors do that, it will continue to be a priority."

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Market Update - March 15, 2018