The Federal Housing Administration (FHA) announced a plan to cut the ongoing FHA Mortgage Insurance Premium (MIP) for FHA mortgages with mortgage terms greater than 15 years.  The cut in MIP varies depending on the loan amount and loan-to-value (LTV) ratio with the ongoing FHA MIP for a 30 year mortgage with a loan amount of less than or equal to $625,000 and an LTV of greater than 95.00% being cut from 1.35% of the loan amount to .85% of the loan amount.  The reduction in ongoing FHA MIP represents for a significant savings for borrowers seeking to buy a home through the FHA Home Loan Program.  It is important to highlight that participants in the FHA program are still required to pay a one-time, up-front FHA MIP equal to 1.75% of the loan amount in addition to the now-reduced ongoing monthly FHA MIP, which is an extra cost on top of your mortgage payment.  The changes to the ongoing FHA MIP go into effect January 26, 2015.

What it Means for Mortgage Borrowers

The move by the FHA is designed to help individuals with moderate incomes and individuals with limited funds buy homes by making the ongoing cost of an FHA mortgage more affordable.  The FHA home loan program allows individuals to buy a home with a down payment as low as 3.5% of the property purchase price, making the program a potentially attractive alternative for first-time home buyers.  The cost of the up-front and ongoing FHA MIP, however, made the program too expensive for many borrowers so reducing the ongoing MIP is a highly welcome development for prospective home buyers.  The FHA’s decision to lower the ongoing FHA MIP makes the FHA Home Loan Program more affordable to borrowers and more competitive with the Fannie Mae MyCommunityMortgage Program which allows first-time home buyers to purchase homes with a down payment as low as 3.0% of the property purchase price.  The Fannie Mae MyCommunityMortgage Program does not require an up-front MIP but does require the borrower to pay Private Mortgage Insurance (PMI) on a monthly basis, which is an extra cost on top of your mortgage payment.

FREEandCLEAR offers an extensive discussion of the FHA Home Loan Program including borrower qualification, the FHA Mortgage Insurance Premium (MIP) and FHA Mortgage Limits.  Additionally, use our FHA Mortgage Qualification Calculator to determine what size FHA loan you may qualify for as well as the up-front and ongoing FHA MIP.  FREEandCLEAR also offers a comprehensive review of the Fannie Mae MyCommunityMortgage Program.  You can use the INTEREST RATES function on FREEandCLEAR to find lenders that offer the FHA Home Loan Program as well as the Fannie Mae MyCommunityMortgage Program.

The FREEandCLEAR Mortgage Expert

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At FREEandCLEAR, we follow the Mortgage Bankers’ Association (MBA) mortgage applications index which measures both purchase and refinance applications for mortgage lenders across the country.  An increase in the MBA applications index reflects an increase in mortgage applications while a decrease in the index reflects a decline in mortgage applications.

For the two weeks ended January 2nd, the composite mortgage application index, which includes both home purchase mortgages and refinancings, slumped 9.1%, reflecting the seasonal holiday slowdown.  The decline in the composite application index was driven by a 5.0% decrease in purchase applications, as compared to the prior two weeks. The refinance component of the index was down 12.0% as compared to the prior two weeks. Although the decline in application activity was attention-grabbing the drop-off was not unexpected as both home purchase mortgage and mortgage refinance application activity slows down significantly between Christmas and New Years.  Perhaps more notable is that interest rates continued to creep downward to start 2015.  The average interest rate for a 30 year fixed rate conforming mortgage decreased to 4.01% as compared to 4.06% for the prior MBA mortgage application index report.  (Source: Econoday)

What it Means for Mortgage Borrowers

The dip in mortgage application activity was significant but not unexpected and FREEandCLEAR expects mortgage applications to rebound over the course of January as home buyers enter the market and existing home owners seek to refinance their mortgages at some of the lowest interest rates we have seen over the past two years.  If you are thinking about buying a home, use the FREEandCLEAR Mortgage Selector calculator to determine what size mortgage you qualify for and what mortgage program best meets your financial and risk profile.  If you are thinking about refinancing your mortgage use our Mortgage Refinance Calculator to determine how much money you can save.  And as always, use the INTEREST RATES feature on FREEandCLEAR to keep tabs on mortgage rates for lenders in your area.

The FREEandCLEAR Mortgage Expert

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The National Association of Realtors pending home sales index tracks the number of existing homes that went into contract to be sold.  When a home seller and buyer agree to the price and terms of a home sale, they sign a contract that outlines the transaction details and the property is said to be “under contract.”  The home sale process is typically completed four-to-six weeks after the property goes under contract so the pending homes sales index is a leading indicator, or predictor, for the real estate and mortgage markets.  An increase in the index reflects an increase in existing home sales while a decrease in the index reflects a decrease in existing home sales.  It is important to point out that the index tracks existing home sales as opposed to new home sales, or homes that are recently constructed that have not been lived in previously.  When people purchase a home they typically get a mortgage so the index also forecasts future activity in the mortgage market. The pending home sales index is released on a monthly basis and provides figures for the prior month.

The pending home sales index report for December 2014 showed that pending home sales in November increased 0.8%, above analyst expectations for an increase of 0.5%.  The November pending home sales figure rebounded as compared to the October pending home sales index report which showed a 1.2% decline on a month-over-month basis (as compared to September 2014).  Although relatively small, the improvement in the pending home sales market is a positive sign for home purchase mortgage application activity in the coming months.  Against the backdrop of a sluggish national real estate market, the increase in the pending home sales index can be attributed to lower interest rates and stabilizing housing prices.  (Source: Econoday)

What it Means for Mortgage Borrowers

The uptick in the pending home sales market is a positive sign for the mortgage market although the relatively small magnitude of the increase suggests there is plenty of room for improvement.  Low interest rates, stabilizing home prices and a gradually improving economy should boost the real estate and mortgage markets as we head into 2015 although increased participation from first-time home buyers will be a key factor in determining if these markets really take-off.  First-time home buyers should review our First-Time Home Buyer Cheat Sheet to prepare for the mortgage process and use our Mortgage Selector calculator to determine what size mortgage they can afford and what mortgage program is right for them.

The FREEandCLEAR Mortgage Expert

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There are two primary measures of housing prices that we track at FREEandCLEAR: the Federal Housing Finance Agency (FHFA) House Price Index, which uses certain nationwide mortgage activity to track home prices and the S&P / Case-Shiller Home Price Index, which tracks home prices in 20 U.S. metropolitan markets.  Both indices are reported on a monthly basis and include information for the month that is two months prior to the reporting date.

The FHFA House Price Index for December 2014 showed that October housing prices increased 0.6% as compared to September and increased 4.5% on a year-over-year basis (so as compared to October 2013).  The FHFA House Price Index for October came in above analyst projections for a 0.2% increase on a month-over-month basis and the annual change increased slightly as compared to the 4.4% annual increase in September.  The S&P / Case-Shiller Home Price Index for December 2014 showed that housing prices increased 0.8% in October as compared to September and increased 4.5% on a year-over-year basis, although this represented the smallest year-over-year increase in approximately two years.  The S&P / Case-Shiller Home Price Index figures slightly exceeded analyst expectations with the monthly figure improving and the annual figure declining.  The strength of both indices comes as somewhat of a surprise given the relative sluggish performance of the national real estate market over the second half of 2014.  It is important to highlight that these indices reflect the trend in nationwide housing prices and housing prices for a specific region or city can vary significantly.  For example, the S&P / Case-Shiller Home Price Index which tracks individual cities showed significant price increases in Atlanta, Tampa Bay, Denver and San Francisco. (Source: Econoday)

What it Means for Mortgage Borrowers

The latest figures from the FHFA Housing Price Index and S&P / Case-Shiller Home Price Index suggest that housing prices remain relatively strong despite the overall sluggish state of the real estate market. FREEandCLEAR will continue to keep an eye on both indices as rising home prices make home ownership less attainable for prospective home buyers.  It is important to highlight that the FHFA Housing Price Index and S&P / Case-Shiller Home Price Index reports present data for October and more recent reports on new and existing home sales suggest that housing prices are steady on a national basis.  If you are thinking about buying a home, use the FREEandCLEAR Mortgage Qualification Calculator to determine what size mortgage you can afford and use the INTEREST RATES feature on FREEandCLEAR to review interest rates for lenders in your area.

The FREEandCLEAR Mortgage Expert

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At FREEandCLEAR, we follow the Mortgage Bankers’ Association (MBA) mortgage applications index which measures both purchase and refinance applications for mortgage lenders across the country.  An increase in the MBA applications index reflects an increase in mortgage applications while a decrease in the index reflects a decline in mortgage applications.

For the week ended December 19th, the composite mortgage application index, which includes both home purchase mortgages and refinancings, increased 1.0%, reversing a 3.3% decrease for the prior week.  The increase in the composite application index was balanced as both the purchase and refinance mortgage application indices increased 1.0% for the week as compared to the prior week which saw a 7.0% decline in purchase applications and flat refinance applications.  Interest rates remained attractive with the average mortgage rate for a 30 year fixed rate conforming loan decreasing slightly from 4.06% to 4.02%.  (Source: Bloomberg)

What it Means for Mortgage Borrowers

Although the increase in the application index was relatively small, it represents a positive sign for the mortgage market as 2014 comes to a close. Additionally, continued low interest rates, which hit their lowest point in a year-and-a-half, bode well for both the home purchase and refinance markets heading into 2015. In addition to tracking Santa Claus this holiday season you should keep track of mortgage rates using the INTEREST RATES feature on FREEandCLEAR to determine if now is the right time for you to buy a home or refinance your mortgage.

The FREEandCLEAR Mortgage Expert

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In our effort to cover important trends that affect the mortgage market, FREEandCLEAR keeps a close eye on new home sales, which is the number of newly constructed housing units that are sold in a month.  The new home sales figure is reported separately from the existing home sales figure, which is the number of previously constructed homes that are sold in a month.  The new home sales market is smaller than the existing home sales market but it is still an important indicator for the real estate and mortgage markets.  In addition to reporting the number of housing units sold, the new home sales report also includes information on the supply of units for sale as wells as the median and average new home sales price.

The new home sales report, issued on a monthly basis, includes statistics for the prior month.  The report for December 2014 showed that new home sales in November declined 1.6% to an annualized 438,000 units as compared to the revised 445,000 units figure for October.  The November figure came in below estimates as analysts had projected approximately 460,000 annualized units.  The November median home sales price declined 3.2% to $280,000 reversing a significant increase in the median new home sales price in October and continuing a trend of stabilizing new home prices over the course of 2014.  The number of new homes available for sale, known as supply, increased slightly from 210,000 units in October to 232,000 units in November.  The disappointing New Home Sales report comes a day after the Existing Home Sales report which also failed to meet analyst expectations. (Source: Econoday)

What it Means for Mortgage Borrowers

The disappointing one-two punch for both new and existing home sales in November underscores the sluggish nature of the housing and mortgage markets.  The one positive note for mortgage borrowers from the November New Home Sales report is that the median new home sales price declined after an unusually sharp increase in October.  An unsteady housing market benefits from moderating home prices and a continued increase in prices could have pushed more prospective buyers out of the home purchase market.  Moderating home prices and continued low interest rates are both positives for home buyers who may look to enter the market in early 2015.  Use the INTEREST RATES feature on FREEandCLEAR to monitor mortgage rates for lenders in your area and check out our Home Purchase Mortgage Process Guide which offers money and time-saving tools, resources and information to prospective home buyers.

The FREEandCLEAR Mortgage Expert

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In our effort to cover important trends that affect the mortgage market, FREEandCLEAR keeps a close eye on existing home sales, which is the number of previously constructed housing units that are sold in a month. The existing home sales figure is reported separately from the new home sales figure, which is the number of newly constructed homes that are sold in a month. An increase in existing home sales reflects improvement in the housing market while a decrease in existing home sales reflects a weakening of the housing market. In addition to reporting the number of housing units sold, the existing home sales report also includes information on the supply of units for sale as wells as the median and average existing home sales price.

The existing home sales report, issued on a monthly basis, includes statistics for the prior month. The report for December 2014 showed that existing home sales in November decreased 6.1% on a month-over-month basis and increased 2.1% on a year-over-year basis to an annualized 4.93 million units (so if you take the home sales figure for November and multiplied it by twelve), which fell short of industry analyst expectations. The monthly decline in existing home sales was experienced nationwide as all four regions reported declines. The number of existing homes available for sale, known as supply, decreased by 15,000 units to 2.09 million units as compared to 2.24 million units in October. The median existing home sales price decreased 1.1% to $205,300 from $208,300 in October. After two months of positive results, the November existing home sales figure fell short of industry expectations as favorable weather, low interest rates and relatively steady home prices failed to stimulate a significant increase in purchase activity. (Source: Econoday)

What it Means for Mortgage Borrowers
The decline in existing home sales after two consecutive months of increases indicates that the mortgage and real estate markets continue to lack sustained momentum. First-time home buyers remain reluctant market participants which is a key factor holding back the overall market. On the positive side, home prices continue to moderate on a nationwide basis which when combined with low interest rates as well as a gradually improving economy and employment market may eventually pull first-time home buyers into the market. Potential first-time home buyers thinking about making a move in the next six months should check out the FREEandCLEAR First-Time Home Buyer Mortgage Cheat Sheet to get organized and informed before they embark on the home buying and mortgage processes.

The FREEandCLEAR Mortgage Expert
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The Federal Reserve determines monetary policy in the United States, and monetary policy, in turn, is one of the most important factors in determining mortgage interest rates.  So when the Federal Reserve speaks, FREEandCLEAR listens closely and passes along our insights to the the FREEandCLEAR community.  One of the key tools that the Federal Reserve uses to control monetary policy is the Federal Funds Rate.  In short, the Federal Funds Rate is the interest rate that banks pay when they borrow money from each other overnight to make sure they have enough money in reserve.  The Federal Reserve sets a target for the Federal Funds Rate which influences other interest rates, including mortgage interest rates.  Although there are other factors involved, the lower the Federal Funds Rate, the lower mortgage interest rates and the higher the Federal Funds Rate, the higher mortgage interest rates.  The Federal Open Market Committee (FOMC) is the policy-making unit of the Federal Reserve that is responsible for determining the Federal Funds Rate and meets eight times a year to discuss what the target rate should be.  After every meeting, the FOMC releases a policy statement that discusses the target Federal Funds Rate as well as other monetary policy and economic issues.  The FOMC announcement can have a significant impact on mortgage rates depending on if the FOMC changes the target Federal Funds Rate and the language the statement uses to discuss monetary policy and the economy.

In its most recent FOMC announcement released on December 17th, the Federal Reserve left the target Federal Funds Rate unchanged at 0 to .25%.  The FOMC also reiterated that the Federal Reserve will likely maintain the current low target Federal Funds Rate for “a considerable time” and indicated it will exercise “patience” before increasing the target Federal Funds Rate, which means that the target rate is likely to remain at its current level for several for the near future unless there are any significant economic developments.  The FOMC’s decision to maintain the current Federal Funds Rate did not come as a surprise to industry analysts although three members of the FOMC voted against the action, which is an unusually high number of dissenting votes.  The three FOMC members that voted against the action expressed concern that the economy is improving faster than anticipated which could require the FOMC to increase the target Federal Funds Rate sooner than expected.  Despite the dissenting votes, mortgage rates remained flat-to-slightly down after the announcement.

What it Means for Borrowers

The FOMC’s decision to hold the target Federal Funds Rate constant and reiterating its relatively cautious language about not raising interest rates for “a considerable time” had a steadying effect on mortgage interest rates.  As we head into 2015, mortgage rates remain at historical lows and the FOMC announcement suggests that interest rates will remain relatively flat for the near future although the increase in dissenting FOMC member votes suggests that 2015 could see a change in the time frame of when the FOMC could consider raising the target rate.  The first quarter of 2015 should continue to be a good time to purchase a home or refinance your mortgage and check out the INTEREST RATES feature on FREEandCLEAR to review interest rates from lenders in your areas.

The FREEandCLEAR Mortgage Expert

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