The 30-year fixed rate rose to 4.57 percent in Freddie Mac’s weekly survey last week for borrowers paying 0.7 of a percentage point up front. That’s the second-highest rate in two years. The 15-year fixed also moved higher, rising to 3.59 percent from last week’s 3.54 percent. The 5/1 adjustable-rate mortgage (a hybrid ARM that’s fixed for five years and adjusts annually after that) also rose, going to 3.28 percent from last week’s 3.24 percent.
A well-qualified borrower getting a 30-year, conforming fixed-rate loan of $417,000 will pay $246 more per month than he or she would have a year ago, when the rate was 3.55 percent. Monthly payments on those types of loans at today’s rate of 4.57 percent would be $2,130, compared to $1,884 a year ago. The monthly payment for today’s 15-year fixed rate of 3.59 percent would total $2,999, $148 higher than last year’s payment of $2,851 on the old rate of 2.86 percent.
The Mortgage Bankers Association (MBA) weekly survey reports a 1.3 percent increase in loan application volume. Refinances represent 61 percent of applications. A separate MBA report disclosed a 2013 second quarter net cost to originate a loan is $4,207 and the net production income is 0.75 of a point for each loan. That amounts to an income of $2,625 for a $350,000 Orange County loan, not including servicing and secondary market value.
WHAT I SEE
Locally, well-qualified borrowers can get a 2.875 percent interest rate on a 5/1 ARM, pay just 1 point on the loan amount up to 1 million dollars for both purchase or refinance loans. And, there are no pricing deductions for cash-out to pay off bills or pay off a second mortgage. FHA buyers with a low FICO score of 580 can get a 4.25 percent rate on a 30-year fixed for 1 point.
WHAT I THINK
Turnabout is fair play. For the last year or more many sellers were in cahoots with their listing agents, demanding that buyers waive any appraisal contingency. In other words, if the property does not appraise at sales price or higher, you agree to buy it anyway. Now the steam is quickly coming out of the seller-centric market.
Just look around your neighborhood. More homes are on the market with fewer sold signs. Prices are up and mortgage rates are up more. The payment is $246 per month more on a $417,000 loan than it was a year ago — to say nothing of higher property taxes and more real dollars for a down payment.
Overpriced properties that get predictably low appraisals are a great opportunity for a buyer to ask the seller to cave-in by reducing the price to match the appraisal.
Or, another nifty idea is my version of rock, paper scissors. The buyer comes up with an offering price of $400,000 for example. The seller comes up with his or her value of $440,000. Then, an independent, unbiased appraiser comes up with the value of $415,000, for example. Whoever came closest to the actual appraisal value is awarded the default sales price. In this case the seller agrees to sell to the buyer for $415,000.
This model works particularly well in divorce settlements and estate battles but is rarely used in sales transactions. Ex-spouses and siblings in estate cases for example, become more reasonable and fairer to each other as there is really big financial risk for being unreasonable. The objective is really about compromising and finding a reasonable middle ground. And, it drives down the legal bill because there is less to fight about.
While this last idea is a long shot, it does work from time to time. Have your Realtor write 10 low-ball offers (15 percent or more under market value) on 10 different properties. One of the sellers is bound to accept.