Loan-to-value is a math formula that represents the relationship between how much a home is “worth” and how much money is borrowed against it.

Loan-to-value is often abbreviated as “LTV” and is one of the many factors that lenders consider when underwriting a mortgage application. 

The math formula is straightforward:

In the LTV equation, Loan Size is the amount of money borrowed from the bank and Home Value is the lower of the home’s purchase price or appraised value.

Home loans with low loan-to-value ratios are usually less risky for banks.  This is one reason why mortgage rates tend to be more favorable for home buyers and homeowners when their respective LTVs are low.

Typically, a “low” LTV loan is one in which the loan-to-value is 80 percent or less.  In some instances, however, 70 percent is considered “low”.  The cut-off point depends on the mortgage lender and the mortgage product.

On a home purchase, the one way to lower LTV is to make a larger downpayment, thereby reducing the LTV equation’s numerator.  Buying a home for below-market value would not reduce LTV, for example, because the purchase price would be used as the equation’s denominator.

On a home loan refinance, the denominator is always the home’s appraised value.

Jason A. Yasser

http://www.ncnocostmortgage.com/index.rad

 

Yesterday, several mortgage lenders issued three separate “rate sheets” in response to the changing mortgage market. 

It was the fourth time in the last 6 trading days that mortgage lenders issued multiple rate sheets in a day, and continued the trend that started in mid-January.

The yo-yo nature of mortgage rates underscores the importance of making mortgage rate comparisons within a limited time frame. 

Multiple quotes should be gathered with an hour of each other and, even then, it’s prudent to ask your lender: “Has there been a mortgage rate reprice in the last hour?”

The current market volatility is in contrast to the “normal” environment of one-rate-sheet-per-day to which mortgage rate shoppers have been accustomed.  But with the changing economy, we all have to adapt.

Mortgage rate quotes from this morning won’t necessarily be valid this afternoon so if you’re in the market for a home loan, be sure to do your shopping in a limited timeframe and don’t forget to ask about the reprice.

(Image courtesy: )

Jason A. Yasser

http://www.ncnocostmortgage.com/index.rad

Optimism ruled the markets last week — optimism about employment, optimism about housing, and optimism about inflation. 

Mortgage rates edged lower overall.

Despite the positive sentiment from Wall Street, consumer confidence in the economy reached a 28-year low. 

This is a normal divergence because investors live in the “future” of markets while Americans live in the “right now” of life where food prices are high, gas prices are still rising, and job prospects are somewhat weak.

Consumer confidence surveys have to be taken at face value, though.  Yes, Americans are nervous about the economy and their household budgets, but that rarely deters them from spending.

In April, for example, Retail Sales (excluded autos) were up 0.5 percent — more than double analyst expectations.  And this was before economic stimulus checks showed up in tax-filers’ mailboxes.

Perhaps this is one more reason why markets were so pleased last week.

This week, there isn’t much economic information to sway markets.  On Tuesday, we’ll see the Producer Price Index which is like a Cost of Living for Business measurement and on Friday we’ll see the Existing Home Sales report.

Strength in either will be good for economy and should benefit both stocks and bonds, and should lower mortgage rates.  Weakness will have the opposite impact.

(Image courtesy: The Wall Street Journal Online)

Jason A. Yasser

http://www.ncnocostmortgage.com/index.rad

 

Just like real estate markets differ from town to town, so does the Cost of Living.

Courtesy of CNNMoney, this helpful calculator measures the change in living expenses a person would face when moving between any two major cities in America.

The key expenses compared are:

• Groceries
• Housing
• Utilities
• Transportation
• Healthcare

The comparison data is provided by C2ER which, on its own Web site, charges $4.95 for each city-to-city comparison.

At CNNMoney.com, the exact same C2ER data is licensed and available for free.

Jason A Yasser

http://www.ncnocostmortgage.com

919-459-6543

With little economic news to influence trading and despite a late-Friday afternoon spike, mortgage rates edged lower last week.

Two weeks ago, when it lowered the Fed Funds Rate by a quarter-percent, the Federal Reserve noted two things:

1. The economy was stabilizing
2. High energy costs threatened inflation

In the days that followed, though, the U.S. dollar strengthened and crude oil prices fell. 

This positive reinforcement of the Fed’s outlook spurred the stock market at the expense of the bond market. 

Mortgage rates rose during that period.

But, starting last Monday, the dollar started to soften and oil touched another all-time high.  At $126 per barrel, crude oil is now close to double its May 12, 2007 price of $69.

High oil prices are inflationary and speak directly to the Federal Reserve’s concerns: Too much inflation can derail a fragile, recovering economy.

The stock market gave up its prior gains last week and that is why we saw mortgage rates improve — it was the unwinding of the economic optimism.

This week, optimism (or pessimism) about the economy will be swayed by a number of factors including Tuesday’s Retail Sales report and Friday’s Consumer Sentiment survey.

The most important data point to watch, though, will be Wednesday’s Consumer Price Index report.  We know we should watch it Ben Bernanke told us to watch it.  Keeping inflation in check, remember, is one of the Fed’s major focal points for the economy.

In addition, this week will feature 14 public speaking appearances by Federal Reserve members.  Expect each speaker to speak plainly about the economy, its future and the Fed’s current rate-cutting cycle.

When Fed speakers stump, markets listen closely so expect mortgage rates to be jumpy all week long.

(Image courtesy: The New York Times)

Jason A Yasser

http://www.ncnocostmortgage.com

http://www.jasonyasser.com

When the everyday “Cost of Living” increases, our dollars don’t go as far as they used to.  Economists call this inflation.

One popular method of measuring inflation is to track prices for 84,000 individual items and lump them together into a “basket”.  If the overall price is higher, then the economy is experiencing inflation.

If a picture is worth a thousand words, this one from The New York Times is worth at least 84,000. 

Broken down item-by-item, life is more expensive in some places you expected, and some places you didn’t.  For example, over the past year:

• Gasoline: +26%
• Milk: +13.3%
• Children’s Shoes: +4.6%
• Pet Supplies: +6.8%

Aside from damaging household budgets, inflation can be especially rough on both active home buyers and homeowners looking to refinance.  Inflation is linked to high mortgage rates. 

This is one reason why mortgage rates have fallen since the Federal Reserve’s hints last week that its rate-cutting cycle may be over; many believed that additional Fed Funds Rate cuts would stoke inflation later this year.

In the absence of inflation, mortgage rates tend to improve (all things equal).

Source
All of inflation’s little parts
Matthew Bloch, Shan Carter and Amanda Cox
The New York Times, May 3, 2008

Jason A Yasser

DNJ Mortgage

http://www.ncnocostmortgage.com

When real estate news is reported on television or in the papers, it’s usually told as a national story.  Unfortunately, stories like these aren’t helpful for everyday Americans because real estate is not a national market. 

Real estate is local.

The graph above was used by Fed Chairman Ben Bernanke in a speech to Columbia Business School earlier this week.  Using data from conforming mortgage fundings, it shows the change in home prices from year-to-year on a county level.

Any county not in red increased in value. 

In other words, contrary to what reporters tell us, real estate is retaining its value just fine nationwide.  Aside from a few counties and states, most areas appreciated.

Graphics like this put important real estate issues in perspective.  Home values may falling precipitously in some areas, but those neighborhoods represent just a fraction of the country overall.

In most regions, home values are up.

Jason A. Yasser

DNJ Mortgage

http://www.ncnocostmortgage.com

 

Four times annually, the Federal Reserve surveys 84 different banks about general banking conditions.

One of the survey questions asks about current mortgage lending standards and whether they are loosening or tightening.

The chart at right is from the April 2008 survey and it illustrates what we already know: It’s getting tougher and tougher to get approved for a home loan.

Some of the areas in which mortgage guidelines are tightening are well-known:

• More thorough income documentation
• Higher credit score requirements
• More “money in the bank” post-closing

Some areas are less well-known:

• More scrutiny of prior delinquencies
• Strict review of appraised values

Overall, getting a mortgage approval from a bank is more difficult than in months past and the tightening trend is expected to continue throughout the rest of the credit cycle.

No “class” of buyers is immune, either — not even the “prime” ones.

Home prices may fall going forward but stricter mortgage guidelines means that fewer home buyers will be able to take advantage.  If you’re unsure about your credit profile, check with your loan officer to see how additional restrictions could impact your ability to purchase (and finance!) a home.

(Image courtesy: Federal Reserve)

Jason A. Yasser

http://www.ncnocostmortgage.com

 

Mortgage rates ended higher last week on stronger-than-expected jobs data, strong consumer spending, and an appetite for riskier investments.

But, investors were most excited about the Federal Reserve’s hint that its rate-cutting cycle may be over.

The week was quiet until Wednesday when the Federal Reserve voted to lower the Fed Funds Rate by a quarter-percent. 

The rate cut wasn’t the big news, however. 

Market players were most interested in Fed’s press release in which it confirmed that the economy is struggling, but improving.  The remarks were both soothing and a strong contrast to the Alarmist Analysts — the ones that make for better television than analysis sometimes.

The Fed’s statement also forced investors to rethink their economic outlook for the short- and long-term and when investors change their outlook, markets can be volatile.

One of the more important shifts in thinking now is the attitude towards the U.S. Dollar.  An improving economy tends to be good for the dollar and that can help lead to lower mortgage rates.

The dollar’s gains last week, incidentally, helped lower gas prices nationwide for the first time in almost 3 weeks.  In the 18 days leading up to Friday, gas prices had made 18 consecutive record-highs.

This week, with very little new data and with few companies reporting earnings, expect market momentum to determine in which direction mortgage rates will go. 

Because momentum can change quickly, be prepared to lock your mortgage rate if you see one that fits your budget — it may not last long.

The ubiquity of “free” credit reporting services like FreeCreditReport.com, TrueCredit.com, and AnnualCreditReport.com have helped breed a new generation of credit-aware Americans.

Because credit ratings have more importance to everyday life than in years past, this is a welcome development.  For example:

• Lenders use credit ratings to determine borrowing rates
• Insurers use credit ratings to determine premiums
• Employers use credit ratings to make hiring decision

Unfortunately for Americans, though, not all credit reports are created equal.  And when it comes to actually applying for credit in the form of a new credit card or mortgage, the free reports are worth precisely what they cost.

This is one reason why home buyers should have their credit reviewed by a mortgage lender as soon as possible in the home buying process — the free reports offered by the major credit bureaus may be misleading and incomplete.

Free credit reports are useful for identifying identity theft and reviewing active accounts but do very little to help a potential creditor gauge your creditworthiness. 

As the chart shows us, each industry’s creditors has a way they like to do business and that way is the “standard” way.

(Image courtesy: The Wall Street Journal)

Jason A. Yasser

DNJ Mortgage

http://www.ncnocostmortgage.com