From Julian Hebron, Residential Pacific Mortgage

All About FHA by Julian Hebron

Following two months of declining rates that took us back to all-time rate lows not seen since May, rates climbed about .25% in the past two weeks. There are three main reasons for this: (1) the Fed has trimmed its weekly buying of mortgage bonds from about $25b per week to $20b per week. Less buying means lower bond prices, which means higher yields—or rates. (2) Positive earnings perception has caused migration from bonds to stocks. Forty percent of S&P 500 companies have reported earnings so far and 80% have beat estimates. I say perception because earnings gains appear to be from cost cutting rather than actual revenue growth. (3) Continued record Treasury security issuance continues to dilute bond markets, including the mortgage bonds that rates are tied to.


Next week, rate markets have to absorb $123 billion in new Treasury auctions: $31b 7yr notes, $41b 5yr notes, $44b 2yr notes, and $7b TIPS (Treasury Inflation Protected Securities). We’ll see Tuesday if the S&P Case Shiller Home Price Index can post a seventh month of improvement. And Thursday we’ll see if 3Q2009 GDP will show a fifth consecutive quarter of decline, or if the shrinking economy streak is broken. Consensus estimates call for +3.1% GDP growth. Rates would likely rise on this news.

GOOD FHA CONDO NEWS: Unit-specific ‘Spot Approvals’ for FHA loans are now available until December 7 (extended this week from a previous November 1 deadline). This is big news especially in a market like San Francisco where the list of fully approved FHA condo projects is so small.

It’s absolutely critical for any homebuyer or Realtor dealing with condos up to a price point of $850k and considering down payments less than 20% down to understand what these FHA condo rules mean. FHA loans are the most viable way to get a loan (on any property including condos) with less than 20% down right now. Attached is a full Q&A on FHA loans which includes a detailed section on these new condo rules. Note that an entire building has to be approved to get a condo FHA loan after December 7 and HUD is taking about eight weeks to approve projects—this wait time is will grow after December 7.

CONFORMING RATES ($200,000 – $417,000) – 1 POINT

30 Year: 4.875% (5.02% APR)

FHA 30 Year: 5% (5.23% APR)

5/1 ARM: 3.625% (3.765% APR)

SUPER-CONFORMING RATES ($417,001 to $729,750 cap by county) – 1 POINT

30 Year: 5.25% (5.39% APR)

FHA 30 Year: 5.25% (5.48% APR)

5/1 ARM: 4.0% (4.16% APR)

JUMBO RATES ($625,500 – $3,500,000) – 1 POINT

30 Year: 5.625% to 6.0% (5.78% to 6.275% APR)

10/1 ARM: 6.25% (6.39% APR)

5/1 ARM: 5.25% (5.43% APR)

Scenarios assume full doc pricing on purchase or rate/term refi (but not cash-out refi) loans for borrower with 720 FICO score or greater, at least 20% equity (unless FHA), and 6-12 months reserves left over after close (retirement assets counted at 70% of value for reserves). Better or worse rates apply to specific client profiles. Better rates are available using tax deductible points. ARM rates adjust the first month after initial fixed period shown, and once per year thereafter until year 30. Adjusted rate calculated by adding 2.25% margin to 1yr LIBOR index at time of adjustment. At first adjustment LIBOR+margin cannot exceed start rate+5%, subsequent yearly adjustments can never be greater than 2% per year, total of all adjustments for 30yr life of loan can never exceed start rate+5%. This is not a loan commitment nor a loan guarantee, rates based on loan amount ranges shown and rates available at the time of production. Rates subject to change without notice. California Department of Real Estate license #01376428. Equal Housing Lender.