How will ARMs be calculated without LIBOR?

August 28, 2017

A common loan product is the Adjustable Rate Mortgage (ARM) which is a loan product with an interest rate that shifts depending upon what is happening in the broader market.  ARMs have been heavily tied to the LIBOR (London Interbank Offered Rate) which is slated to go away in 2021. Why you might ask? The LIBOR has been the center of a multi-year scandal tied to manipulating LIBOR rates back during the mortgage turmoil of 2007/2008. Since then, it’s been unable to successfully capture the costs of banks borrowing from one another which is how ARM rates are set. At this moment, we don’t know what it will be replaced with but know that we all want something a bit more stable.

Meanwhile, if you’re in an ARM product, you most likely have language in your loan documents saying that if LIBOR should be retired, they will substitute it with another comparable index. I think this would be a short-term answer, while the industry seeks a better indicator to link to ARM products.

Geoffrey Davis – Mortgage Loan Consultant 

NMLS #206192
First United Bank & Trust

D: 214-529-9622

F: 855-239-6079
6401 S. Custer Rd.

McKinney, TX 75070


Thoughts on RedFin

August 14, 2017

With the Redfin IPO, I’d love to get your feedback on how you view Redfin. Will they be a flop like ZipRealty?  Are they going to be able to become a real estate leader? Shoot me your thoughts for a chance to win a $100 Amazon card.

For me, I think they’re going to land somewhere in the middle, similar to what I experience with Quicken as a mortgage lender. There will always be folks who would like a shiny looking Rocket as their mortgage loan officer, but we’re talking about one of people’s most important assets. At the end of the day, you want someone who will get the deal done, a real person no less. Another possibility for Redfin would be to leverage their robust technology and data platform to help local real estate agents grow. They already have agents that stay at their existing brokerage and take their leads–so it’s not too much of a stretch. Only time will tell!

Geoffrey Davis – Mortgage Loan Consultant 

NMLS #206192
First United Bank & Trust

D: 214-529-9622

F: 855-239-6079
6401 S. Custer Rd.

McKinney, TX 75070


Do Loosening Guidelines Herald a Future Collapse?

July 31, 2017

In the lending world, the loosening of Fannie Mae’s underwriting guidelines have people talking as they think back to the 2008 credit/appraisal issues during the last mortgage downfall. The newly released guidelines from Fannie Mae do loosen their stance on certain credit elements including moving their max Debit-to-Income (DTI) ratio up to 50%, lessening income documentation requirements for self-employed and some smaller changes around how different kinds of debts and incomes are treated. Yet, they’re really not anything “new.”  Fannie Mae’s shifts just align its guidelines to that of its brother, Freddie Mac.

That being said, I do see small changes happening across the lending spectrum, that individually aren’t anything to worry about–but in aggregate could result in another mortgage situation if the trend continues. As new loan products are introduced, I would encourage all of us to advocate stable loan options with our clients that help them get into the properties they want without undue financial risk.

Waiting on Rate Shifts….Still Waiting!

There’s been noise for well over a year on bringing up interest rates but we’ve had pretty minimal movement so far. Honestly, with the domestic political environment it’s making it hard to predict what’s going to happen. While the economic data looks good, the markets don’t like it when they cannot make an educated guess around where to put their money. This makes the economic environment unsettled, which in turn makes the Fed hesitant to do anything too bold.  So…we’re still waiting!

Geoffrey Davis – Mortgage Loan Consultant 

NMLS #206192
First United Bank & Trust

D: 214-529-9622

F: 855-239-6079
6401 S. Custer Rd.

McKinney, TX 75070


VA Loan Misconceptions

July 3, 2017

As we near the 4th of July, I often think about our Veterans and their service to our country. Most of you are familiar with the VA Loan product that is available to active/retired military and to others who serve (e.g., Reserves). Many sellers avoid accepting real estate contracts from buyers with VA Loans because the belief it will take longer and the appraisal process will be tougher. Let’s explore that a bit more….

Belief #1: The Process Takes Longer

When I do VA Loans, the process takes the same amount of time as a conventional loan. National “Big Box” banks (e.g., Quicken) seem to take longer from what I hear…typically 45-60 days to close. I’m not sure why it takes them so long as the process is almost identical to conventional loans and VA guidelines are well defined. Long ago, before the days of credit modeling and data analysis, things might have taken longer but not in today’s data driven marketplace. Net-Net: The process doesn’t take any longer if you use the right lender. I close mine in 26-30 days.

Belief #2:  The Appraisal Process is Tougher

From an outsider view, the appraisal guidelines do feel more stringent but not unreasonably so. What I find to be more of an issue is that once someone is approved as a VA Appraiser–it’s feels like a lifetime membership. This is very different from a more traditional bank panel where lenders actively monitor the quality of appraisers and their work. Net-Net: The issues with the appraisals are more centered getting the right appraiser and less about the appraisal standards.

Belief #3: VA Loans have more Seller Fees

There are a couple of specific things that pop up (e.g., pest inspection for things like termites, notary & recording fees) that are VA loan related but these tend to fairly small (Total of $100-300) in the scheme of things. All closing costs are buyer/seller negotiated just like in a conventional loan. Net-Net: The fees are slightly more than conventional loans, but we’re talking about a couple hundred dollars…not a couple thousand.

Have a safe and joyous 4th of July!!

Geoffrey Davis – Mortgage Loan Consultant 

NMLS #206192
First United Bank & Trust

D: 214-529-9622

F: 855-239-6079
6401 S. Custer Rd.

McKinney, TX 75070


Housing Leads Markets

June 27, 2017

With all the talk about the economy, and waiting to see how Trump policy plays out, it’s nice to see the housing market delivering strong numbers. Across the U.S., May became the 63rd straight month of yearly housing prices increases, with the median price of $252.8k, up 5.8% over a year ago. The median number of days a property was on the market also dropped to a new low of 27 days. On the Mortgage side, rates continue to stay low with seasonally adjusted application volume rising 0.6%. Lenders are still seeing good application volume, but the “affordability” factor is at play as buyers’ personal income growth (e.g., 2-4% annually) is typically not moving forward at the same pace as housing prices. At some point, the tension between rising prices and upward rates will cause the market to naturally settle back into a more typical level of price increases/appreciation.

Geoffrey Davis – Mortgage Loan Consultant 

NMLS #206192
First United Bank & Trust

D: 214-529-9622

F: 855-239-6079
6401 S. Custer Rd.

McKinney, TX 75070


Fed Seeks to Up Rates, Invest $ Outside of Bonds

June 19, 2017

If you missed my Wednesday note last week you may have heard noise about the Fed making some moves that will affect interest rates long-term. During their meeting last week, the Fed felt two things needed to happen next: SLOWLY raise rates and to stop reinvesting their bonds’ profits back into the bond market. What does this mean? Since 2008 the Fed has been investing in the bond market to drive the economy forward and while keeping rates low. Whenever those bonds “matured”, or came to the end of their term, the Fed has been reinvesting the profits back into the bond market. The Fed wants to redirect these profits back into other areas they believe will be more productive for the economy given its current strength.

This announcement received almost no reaction from the markets as this is exactly what investors expected. As a consumer, buyers should have felt little to zero impact because the markets had already adjusted rates in anticipation of this move. Given the strength U.S. Economy, the Fed is managing the natural tug-of-war between rates, battling inflation and economic growth. This is a much better position than having to pump Trillions of dollars in the economy to pull it out of a recession. The important take-away here is that this is going to be an extremely gradual shift and this move is an indicator of our economy’s health.

Geoffrey Davis – Mortgage Loan Consultant 

NMLS #206192

First United Bank & Trust

D: 214-529-9622

F: 855-239-6079

6401 S. Custer Rd.

McKinney, TX 75070


UPDATE; Fed Raised Overnight Fund Rate

June 14, 2017

Fed Bond Reinvestment: What does it mean?

Since November 2008 the Fed (aka Federal Reserve) has been investing monthly into the bond markets to drive forward the economy while keeping rates low. When those bonds mature (e.g., 15-, 30-year) the Fed has been reinvesting their profits back into bonds. At this week’s Fed meeting, the committee felt that economy was at the point that two things were ready to happen: bring rates up a .25 point and stop reinvesting the profits back into the bonds markets. I think this raises a couple of questions for most folks:

Q: Why would rates go up?

A: Rates would increase because our economy is healthy and that there is a natural tug-of-war between rates, our economy’s strength and battling inflation. Rates moving upwards is a natural progression when the economy is strong and I view it as a good sign that they feel that we’ve come to this place.

Q: Why are they going to stop reinvesting the profits back into Bonds?

A: They are changing their investment approach because the Fed balance sheet is heavier on bonds than it probably should be. We all know that being too heavily invested in one thing is not the best long term strategy and that it makese sense to diversify. If the economy no longer needs us to invest in bonds, let’s put our money in places that will further support and provide stability for the U.S. economy.

Q: When do you think this would happen?

A: The next Fed meeting is in September and I think their decisions will be based upon how the economy is performing at that time. I do believe they would like to bump rates another .25 point and begin unraveling their bond investments. This means that eventually rates will slowly move up but it will be gradual–not a painful rate hike that will shut down the housing market and make buyers cringe.

Geoffrey Davis – Mortgage Loan Consultant 

NMLS #206192
First United Bank & Trust

D: 214-529-9622

F: 855-239-6079
6401 S. Custer Rd.

McKinney, TX 75070