Mortgage Matters: Fast Loan Approvals Now Common

As the mortgage industry prepares for 2005, expanded technology is creating loan approvals in a matter of hours, not days.

Mortgage companies once boasted 24-hour approvals but today an even shorter approval of several hours is possible for buyers and homeowners who are refinancing.

The benefits of fast approvals are outstanding. A fast approval gives the buyer instant credibility in negotiating a purchase. The buyer's Realtor can negotiate confidently toward a successful purchase agreement with the seller with a completed loan approval.

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Fast loan approvals can only be accomplished with the aid of a knowledgeable mortgage company. Most mortgage companies can now open the Website at Freddie Mac (the Federal Home Loan Mortgage Corp.) or Fannie Mae (Federal National Mortgage Association) and directly input a buyer's loan information.

These direct programs go under names such as DO, DU and LP, which stand for "Direct Originator," "Direct Underwriter" and "Loan Prospector." By return e-mail your mortgage company receives an approval and a list of necessary items that must be verified prior to closing. Even though requirements may exist on the approval letter buyers, sellers and Realtors know the loan will be available at closing.

The accuracy of the loan application is paramount for a fast approval with Fannie Mae or Freddie Mac. The buyer must cooperate with the mortgage company in every detail of the application by presenting accurate pay stubs or tax returns to verify income and bank statements to verify assets. Without accurate data the loan approval would not be valid and would need to be submitted again.

Jumbo loans (those loans in excess of the $333,700 Fannie Mae and Freddie Mac loan limit) are also now approved through automation. Jumbo lenders either use the standard DO, DU or LP approvals or they have a similar approval system uniquely set up for jumbo loans.

With fast loan approvals Realtors and buyers will find that waiting on a survey, title commitment and an appraisal will determine the speed of the buyer's closing. Technologically adept mortgage companies find that with accurate buyer's income and asset data closing can occur within one and a half to two weeks after the purchase agreement is signed.

Fast approvals are now coupled with fast closings as lenders e- mail closing documentation directly to the buyer's title company for closing. No more lost overnight deliveries!

Jim Gay was a real-estate broker for 20 years and has been a financial consultant to Fortune 500 companies. He is president of American Mortgage Team (988-4422) in Santa Fe.

The Santa Fe New Mexican - 2004-12-05



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Mortgage Rates Creep Up Then Fall

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A big surge in consumer confidence in December spurred aggressive selling in U.S. Treasuries. Traders dumped 5-, 10- and 30-year issues on fear that an upbeat consumer will grow the economy at a faster-than-expected pace, thus causing the Fed to hike rates. Selling sent prices plunging and yields, which move in the opposite direction of prices, soaring, with the benchmark 10-year yield hitting 4.35 percent. This happened because the confidence index rose to a five-month high of 102.3, far exceeding forecasts. In addition, confidence made great leaps in both satisfaction with current conditions and future expectations. Over the past several months consumers have been weighed down by lack of jobs, the price of oil and disappointment in stock market performance. But during December all these factors improved and confidence improved with them. When the yield on the 10-year note shot up, mortgage rates followed, with the rate on the 30 year nearing 5.625 percent. After the initial bout of selling, however, a move back to the status quo prevailed. The yield on the 10-year headed back down near 5.5 percent, where it's been since September.
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The consumer confidence numbers were great for Wall Street and all the indices responded positively. In addition, the last week of the year and the first couple of days of the new year have been historically good ones for stocks. Portfolio managers are sprucing up their holdings and putting cash that was on the sidelines to work, and there is optimism for the coming months. The Dow Jones added 0.75 percent and closed with only Intel in negative territory. Caterpillar led the Dow with a 2.5 percent gain and six others added more than 1 percent -- but it was solid gains across the board that kept the Dow afloat. The Nasdaq rose close to 1 percent, with Oracle and Ericsson leading the tech bellwethers with 1 percent-plus gains. Sun Microsystems gave back yesterday's increase, losing 2.5 percent, but declines by Cisco Systems and Intel were small. 4:00 PM: The 30-year Treasury bond was trading even in price with the yield holding at 4.91 percent.

The 10-year Treasury note was trading even in price with the yield holding at 4.29 percent.

The 5-year Treasury note was trading even in price with the yield rising to 3.65 percent.

At 4:00 PM:

AVERAGE mortgage rates (zero discount points) based on rates collected nationwide were:

The 30-year Conventional Fixed-Rate Mortgage was at 5.552 percent from 5.497 percent.

The 15-year Conventional Fixed-Rate Mortgage was at 4.995 percent from 4.946 percent.

The only report scheduled for tomorrow is existing-home sales for November, but it is a big one. Existing homes account for approximately 85 percent of all home sales and impact a number of sectors, including financials, retail, construction and other trades -- the list goes on. Other housing numbers for last month were grim, but unlike the previous data, these are lagging numbers. The street is expecting just a slight decline, which would support stocks. If, however, existing home sales drop substantially, this could stir up buying in Treasuries. Overnight and into tomorrow, however, rates should hold firm due to what turned out to be unchanged yields today.



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Brown: It's a good time to be dis-ARMing

By Jeff Brown
Knight Ridder Newspapers columnist

Here's a frightening figure: Of all the mortgage applications Americans filed the first full week in December, just over a third were for loans with adjustable rates.

That's been the pattern this year, according to the Mortgage Bankers Association, whose polls cover about half the mortgages issued in the United States.

The allure of ARMs could turn out badly — not just for those borrowers, but also for everyone else.


When first issued, ARMs invariably charge lower rates than fixed-rate mortgages such as the standard 30-year loan. ARMs then change rates periodically as prevailing rates go up and down, while fixed mortgage rates stay the same.

The low initial ARM rate allows the borrower to qualify for a bigger loan, helping people buy in today's hot housing market. Hence ARMs' popularity.

Last year, ARMs accounted for just 19 percent of new mortgages — about half this year's rate. But for high-risk borrowers, ARMs comprise more than half of all loans, according to LoanPerformance, a San Francisco mortgage data provider.

And how will these borrowers cope if the Federal Reserve continues pushing interest rates up — as it did Dec. 14, for the fifth time this year?

Simple: Their monthly payments will go up — by a lot, in many cases. Those households will, thus, have less to spend on other things, or to save and invest. That's sure to hurt economic growth, affecting us all.

People who can't afford their new, higher payments may lose their homes in foreclosure or be pushed into bankruptcy.

It's impossible to say just how serious this could be because we don't know how high rates will go, and because there are so many different ARM products — from those that adjust every month to those that don't make the first adjustment for 10 years.

But it's clear that ARMs don't offer very good deals today.

The average one-year ARM, which changes its rate every 12 months, starts at 4.21 percent, according to HSH Associates, the Pompton Plains, N.J., tracking firm. Ordinary 30-year fixed-rate loans average 5.76 percent, with some charging as little as 5.30 percent.

This means the upfront saving you'd enjoy with an ARM is too small to offset the risk of higher rates later. Typically, ARMs can go up as much as 2 percentage points a year, to a maximum of 6 points over the life of the loan. So today's 4.21 percent ARM could go to 6.21 percent in 12 months, or 10.21 percent in as little as three years.

And rates are much more likely to go up than down.

The Federal Reserve has raised the federal funds rate to 2.25 percent, from 1 percent in June. Most experts expect the Fed to keep going until the rate is at 3, 3.5, even 4 percent.

The indexes used to figure ARM adjustments tend to follow the Fed moves. For example, the one-year London InterBank Offered Rate, or LIBOR, has gone from about 2 percent in May to 3 percent today.

An ARM typically adjusts to a rate 2.75 percentage points above the index. So an ARM keyed to the LIBOR rate would go to 5.75 percent were it to adjust today.

If the Fed raises rates another percentage point, the same ARM could go to nearly 7 percent a year from now — and you'd kick yourself for missing today's low fixed-rate deals.

What if you already have an ARM?

"It's time to get out'' and refinance with a fixed-rate mortgage, says HSH spokesman Keith Gumbinger.

Despite the Fed's moves, rates on fixed loans have "not gone up — yet. In fact, the 30-year fixed rate is about half a percentage point lower than it was when the Fed hikes began. This is because the long-term interest rates that guide fixed mortgages are governed by forces the Fed does not control, such as foreigners' hunger for U.S. Treasury bonds.

In other words, says Gumbinger, this is a sweet spot — a chance to get out of that risky ARM while the gettin's good.

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