Starting soon, nearly all home buyers and refinancing households throughout Georgia and nationwide will pay higher mortgage loan fees. Congress has made it law.

13 months ago, as part of the Tax Relief, Unemployment Insurance Re-authorization, and Job Creation Act of 2010, Congress enacted a one-year cut to FICA payroll taxes.

FICA stands for Federal Insurance Contributions Act. Taxes collected under FICA fund such programs as Social Security and Medicare.

The stimulus plan temporarily lowered tax rates for salaried workers from 6.2% to 4.2%; and for self-employed persons from 12.4% to 10.4%. Effective January 1, 2012, “regular” tax rates were to return.

That is, until late-December 2011. In one of its last moves of the year, Congress passed a temporary, two-month extension to the payroll tax cut, extending it through February 29, 2012. The expected cost to the U.S. Treasury is $33 billion.

To recoup those costs, Congress has turned to Fannie Mae, Freddie Mac and the FHA.

Each entity has been ordered to collect news fees on each new mortgage is backs, and has been told to forward said fees to U.S. Treasury directly. There’s no “workaround” allowed or forgiveness applied — each new loan is subject to the payment.

The rules are listed on page 17 of the law’s final draft, in a section unambiguously titled “Title IV — Mortgage Fees and Premiums”.

According to the law :

• Fannie Mae and Freddie Mac must collect an average fee of no less than 10 basis points (0.1%) per new loan
• The FHA must raise its monthly mortgage insurance premiums 10 basis points for all new loans

The expected cost to consumers is no less than $10 monthly per $100,000 borrowed. Some analysts, however, expect Fannie Mae and Freddie Mac to collect more than is minimally required. This could add an additional $30-50 to your monthly mortgage payment per $100,000 borrowed.

Therefore, if you’ve been shopping for a home or for mortgage rates in Blue Ridge or Blairsville, take advantage. Within days, lenders are expected to start collecting Payroll Tax Extension fees from mortgage applicants — a move that will cost you money.

Lock today to avoid the big fees. Save yourself money.

Tuesday, the Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent.

The vote was 7-3 — the first time in 5 meetings that the nation’s Central Bank was non-unanimous and the first time since 1992 that the FOMC adjourned with as many as three dissenters.

In its press release, the FOMC had little good to say about the U.S. economy, noting that since its last meeting in June:

1. Growth has been “considerably slower” than expected
2. Labor market conditions have deteriorated
3. Household spendng has “flattened”

The Fed also noted that the housing sector remains depressed.

On the positive side, the Fed said that business investment in equipment and software continues to expand, and that energy costs have dropped and no longer contribute to inflationary pressures on the economy.

In fact, the Fed worries that inflation may be running too low for the country’s good.

To that end, the Federal Reserve has pledged to keep the Fed Funds Rate in its current range near 0.000 percent “at least until mid-2013″. This is a departure from prior statements in which the Fed gave no such date.

Mortgage market reaction to the FOMC statement has been positive this afternoon. Mortgage rates in North Georgia are improving, but note that sentiment can shift quickly — especially in a market as uncertain as this one.

If today’s mortgage rates look good in your household budget, consider locking in a rate.

The FOMC’s next scheduled meeting is September 20, 2011.

Friday morning, at 8:30 AM ET, the Bureau of Labor Statistics releases its June Non-Farm Payrolls report. If you’re currently shopping for a mortgage, or floating a mortgage rate, be prepared. Mortgage rates can change following the monthly report’s release. Often, by a lot.

More commonly called “the jobs report“, Non-Farm Payrolls reports on the U.S. workforce by sector, summarizing its findings in terms of total workforce size, and as a national Unemployment Rate. Jobs are considered a keystone in the continuing U.S. economic recovery.

More working Americans means:

1. More consumer spending, a boost to businesses
2. More tax collection, a boost to governments
3. More personal savings, a boost to households

For June, analysts expect the government to report 80,000 net new jobs created, and no change in the 9.1% Unemployment Rate.

Although these figures are slightly below than what can be considered “strong growth”, that’s not what should concern North Georgia Mountain rate shoppers. Mortgage markets react to a deviation from estimates more than to the actual results themselves.

This is because Wall Street placed bets in advance of the jobs report’s release. If jobs growth tallies more than 80,000, therefore, it signals better news for the economy than what was expected. This will push banks and investors towards equities, and away from bonds — including the mortgage-backed kind.

With less demand for mortgage bonds, mortgage rates will rise.

Conversely, if jobs growth is less than 80,000, mortgage rates should fall.

Mortgage rates remain near their lows for the year, but if the June Non-Farm Payrolls report beats estimates of 80,000 jobs made in June, look for mortgage rates to spike. The safe move is to lock today.

Related articles

• 5-Year ARM Falls To Historic Lows (thefrontporchview.com)
• Making A Rate-Lock Soon Maybe Wise (thefrontporchview.com)

A mortgage comes with many moving pieces and understanding them is the key getting a great deal. Unfortunately, studies show that few Americans have a firm grasp of how mortgages work — from mortgage types to mortgage fees.

In this back-to-basics interview on NBC’s The Today Show, you’ll learn some mortgage planning basics to help you get smarter with your next home loan in Blue Ridge, Hiawassee, or anywhere else — purchase or refinance.

Some of the topics covered include:

• The mortgage applicants for whom adjustable-rate mortgages are a better choice than fixed-rate mortgages
• Why you should include “How Good Is This Lender?”-type questions in the rate shopping process
• What a pre-approval letter is good for, and what it is not good for

There is also one of the most simple explanations of “discount points” ever offered on network television.

The video runs 4-and-a-half minutes. For first-time buyers and experienced ones, it’s worth a watch. You’ll pick up some tips to use on your next mortgage.

The Federal Reserve released its April 2011 Federal Open Market Committee meeting minutes Wednesday. In the hours since, mortgage markets have worsened; rates in North Georgia are higher by 1/8 percent this morning, at least.

The “Fed Minutes” is published 8 times annually, three week after each scheduled FOMC meeting. The minutes are the Federal Reserve’s official recap of the conversations and debates that shaped the prior FOMC session.

Another way to consider the Fed Minutes is as the companion piece to the more well-known FOMC press release. The press release is issued on the day of adjournment, and is brief, narrow, and high-level. The statement makes broad comments on the economy and outlines new monetary policy.

By contrast, the Fed Minutes is delayed, lengthy, and rife with details. The minutes highlights arguments and discussion points between Fed members, and digs deep into underlying economic issues.

The FOMC press release is measured in paragraphs. The Fed Minutes is measured in pages.

Here is some of what the Fed discussed last month:

• On inflation : Higher levels are “transitory”; will level-off with commodity prices
• On housing : The market remains depressed. “Vacant properties” are harming construction.
• On stimulus : The Fed will stick to its $600 billion support plan

In addition, at its meeting, the Federal Reserve discussed an exit strategy for its market support. The details are undecided, but the debate shows that the Fed is anticipated a change in policy sometime soon.

Wall Street estimates that a gradual economic tightening will begin within 12 months.

Mortgage rates have been fading since mid-April. The Fed Minutes may be the catalyst of a reversal. The Federal Reserve expects growth in the U.S. economy and growth tends to boost stock markets at the expense of bonds.

As bond markets fall, mortgage rates in Hiawassee and Ellijay rise.

Currently, Freddie Mac reports the average 30-year fixed mortgage rate as 4.63% — the lowest of the year.

Among the most challenging aspects of shopping for a mortgage is how rates change constantly. It’s hard to pin them down.

For example, in 2011, mortgage rates have expired every 3-and-a-half hours, on average. That’s fast.

There’s two main catalysts for changing mortgage rates.

The first can be grouped as ”scheduled events”; the planned release of market data which includes the Existing Home Sales report, or a scheduled government statement such as when the Federal Open Market Committee meets. When the outcomes of these event-types either exceed, or fall short, of Wall Street’s expectations, mortgage markets react.

Home buyers and rate shoppers in Blairsville, GA. realize this as higher (or lower) mortgage rates.

Then there’s the other type of catalyst — the “unscheduled event”.

Unscheduled events take many forms and are often called “surprise developments”. The Federal Reserve’s plan to inject $750 billion into mortgage markets in 2009 was one such surprise. Most geopolitical events fall into this category, too.

Unscheduled events are often unsettling to Wall Street because investors don’t have specific contingency plans for them like they would if, say, this month’s jobs report comes back exceedingly strong. For example, investors didn’t expect North Korea to fire missiles over Japan in 2008, nor did they expect a volcano to erupt in Iceland last spring.

When unscheduled, unexpected events occur, the market’s first — and natural — reaction is to scramble to make sense of it. Mortgage rates get jostled as a result and can take days to settle back to normal.

We’re experiencing an “unexpected event” right now.

In response to Sunday’s evening’s presidential address, markets are now upended. The dollar is strengthening, oil prices are falling, and stock markets are rising. Each of these items are altering mortgage rates all across the North Georgia Mountains.

Even today, markets remain unsettled.

Therefore, if you’re shopping for a mortgage rate, keep one eye on the news and the other on the rate-lock trigger. During periods of unexpected activity, mortgage rates can change quickly so be ready to shop, and be ready to lock.

Mortgage markets wait for no one.

Mortgage markets worsened for the 7th straight day Tuesday, equaling the longest losing streak of the last 5 years.

Conventional, 30-year fixed mortgage rates are now scratching 5 percent, with FHA mortgage rates running roughly the same.

This is a huge increase from just 11 weeks ago when mortgage rates were riding an 8-month-long hot streak, and appeared headed into the 3s. Then the Federal Reserve intervened.

On November 3, as additional support for markets, the Fed announced its second round of bond buys, a $600 billion program dubbed QEII — short for Quantitative Easing, Round II. Wall Street got spooked on the news; investors feared runaway inflation.

That’s when low rates ended. Here’s why:

(A) Inflation makes the U.S. dollar lose its value,

And, (B) U.S. mortgage bond payments are paid in U.S. dollars.

Therefore, (C) Inflation makes mortgage bond repayments lose their value.

When mortgage bond repayments are worth less, bond demand falls among the global investor set and that causes bond prices to fall along with it. When bond prices fall, mortgage rates rise and that’s exactly what we’re seeing right now.

Since the Fed’s QEII announcement, mortgage rates have soared and home affordability is taking a hit.

Given recent trends, it’s probably safe to declare the Refi Boom is “officially over” and the era of low mortgage rates may be over, too.  Prices on Homes in Georgia continue to decline, but rising mortgage rates could render the point moot. If you’re looking for a great “deal” with low, long-term payments, the time to get in contract may be now.

Because of rising rates, homeowners have lost roughly 10% of their purchasing power since November.

Image Copyright (c) 123RF Stock Photos

Today, the Federal Open Market Committee voted 10-to-0 to leave the Fed Funds Rate unchanged within its target range of 0.000-0.250 percent.

In its press release, the FOMC noted that since December’s meeting, economic growth is ongoing, but at a pace deemed “insufficient” to make a material impact on the jobs market. In addition, the Fed said household spending “picked up” late last year, although it continues to be held back by joblessness, tight credit and lower housing wealth.

This is similar to the language used in the FOMC’s November and December 2010 statements.

Also like its last two statements, the Fed used this month’s press release to re-affirm its plan to keep the Fed Funds Rate near zero percent “for an extended period”, and to keep its $600 billion bond market support package in place.

And finally, of particular interest to North Georgia Mountain home buyers and mortgage rate shoppers, for the second straight month, the Federal Open Market Committee’s statement contained an entire paragraph detailing the Federal Reserve’s dual mandate of managing inflation levels, while fostering maximum employment.

The Fed acknowledges progress toward this goal, but calls that progress “disappointingly slow”. Inflation is too low right now, and joblessness too high.

Over time, the Fed expects both measurements to improve.

Mortgage market reaction to the FOMC has been positive since the statement’s release. Mortgage rates in The North Georgia Mountains are unchanged, but poised to improve.

The FOMC’s next scheduled meeting is a 1-day event, March 15, 2011.

For some homeowners, electing to take an adjustable rate mortgage over a fixed rate one can be matter of budgeting. ARMs tend to carry lower mortgage rates and, therefore, lower monthly mortgage payment as compared to a comparable fixed rate loan.

Relative to fixed rate mortgages, current ARM pricing is excellent. Freddie Mac’s weekly Primary Mortgage Market Survey puts the 5-year ARM mortgage rate lower than the 30-year fixed rate mortgage rate by 1.02 percent.

On a $250,000 home loan, a 1.02 differential yields a payment savings of $149 per month.

ARMs are not for everyone, of course. Over time their rates can change and that can frighten people. An ARM can finish its respective 30-year lifespan with a mortgage rate as much as 6 percentage points higher from where it started. Some homeowners won’t like this.

Other homeowners, however, won’t mind it. For this group,  the ARM can be a terrific fit. Especially with the huge, relative discount in today’s pricing.

A few scenarios that should warrant consideration of a 5-year ARM include homeowners that are:

1. Buying a new home with the intent to sell within 5 years
2. Currently financed with a 30-year fixed mortgage with plans to sell within 5 years
3. Interested in low payments; comfortable with longer-term rate and payment uncertainty

In addition, homeowners with existing ARMs due for adjustment may want to refinance into a new ARM, if only to push the first adjustment date farther into the future.

Before choosing to go with an ARM, speak with your loan officer about how adjustable rate mortgages work, and their near- and long-term risks. Payment savings may be tempting, but with an ARM, payments are permanent.

Starting April 1, 2011, loan-level pricing adjustments are increasing. Most conforming mortgage applicants will face higher loan costs.

Loan-level pricing adjustments are mandatory closing costs. They’re assigned by Fannie Mae and Freddie Mac, and based on a loan’s specific risk to Wall Street investors.

First constructed in April 2009, loan-level pricing adjustment are a means to help Fannie Mae and Freddie Mac compensate for “riskier loans” by bolstering their respective balance sheets.

Since the initial roll-out, Fannie and Freddie have amended adjustments five times. The pending April adjustment will be the 6th revision in two years.

No class of conforming borrower is exempt from LLPAs. Each loan delivered to Fannie Mae is subject to a quarter-percent “Adverse Market Delivery Charge”. That cost is often absorbed by the lender.

The remaining adjustments are grouped by category:

1. Credit Score : Lower FICO scores carry bigger adjustments
2. Property Type : Multi-unit homes carry bigger adjustments
3. Occupancy : Investment properties carry bigger adjustments
4. Structure : Loans with subordinate financing may carry bigger adjustments
5. Equity : Loans will less than 25% equity carry bigger adjustments

LLPAs are cumulative. A borrower that triggers 4 different categories of risk must pay the costs associated with all four traits.

Loan-level pricing adjustments can be expensive — as much as 3 percent of your loan size in dollar terms.  As an applicant, you can opt to pay these costs as a one-time cash payment at closing, or you can to pay them over time in the form of a higher mortgage rate.

The loan-level pricing adjustment schedule is public. You can research your personal scenario at the Fannie Mae website. However, you may find the charts confusing. Especially with respect to which route makes the most sense for you — paying the adjustments as cash, or paying them “in your mortgage rate”.

If you have any questions or concerns, please Contact Me and I will get you in touch with a Mortgage Broker from My Team.