Is Walking Away from your Mortgage Smart?

According to CNN Money, “Some homeowners, no doubt, believe that the credit score hit is worth getting out from a deeply underwater mortgage. They may owe, say, $500,000 when their house value is only valued at $350,000. And, they figure, there’s no way it will ever be worth what they owe so it’s better to get out from underneath the burden.

After default, they reason, they can raise their FICO scores by paying all their bills on time and eventually finance another home purchase.

Don’t count on it. While homeowners who default due to economic hardship, such as a job loss or divorce, normally must wait two to five years before buying a home again, walkaways may face double that time.

“It could be well over seven or eight years before [walkaways] are able to obtain a mortgage to buy a home again,” said Jay Brinkmann, chief economist for the Mortgage Bankers Association.

Strategic defaulters might also be charged higher interest rates, even above the levels other borrowers with similar credit scores would receive.”

Strategic Default Affects More than You Think

Clearly, there are cases where this strategic default scenario makes sense. I am not the type of real estate broker who is going to argue that homeownership is for everyone. Nor am I going to make a righteous or impassioned speech about your financial obligations or modern American contract law (admittedly, that dissertation would be fun to compose). I also understand the argument of those who choose strategic default can rent a replacement property for the next decade until they decide to reenter the real estate ownership arena. Honestly, those who argue for strategic default can make the whole scenario sound fiscally responsible and, sometimes, even a tad sexy. Like a renegade cowboy in Deadwood who frequents the ‘Storyville’ areas of town…until Wyatt Earp shoots me, er, him.

The truth is that your FICO score and creditworthiness are driving factors behind more than just real estate purchases. Unless you are flush with the green, this score will not only drive your ability to purchase automobiles, receive student loans and establish trade lines, but it will also aid in determining the interest rate. Obviously, the worse your credit scores are, the higher risk you present to a potential creditor, the higher your effective interest rates will be. This can make digging out of a hole infinitely more difficult should you ever need to lean on credit during any future time in your life.

Most people don’t even understand how their FICO score is calculated or even what it is. Learn about both, straight from the source: What’s in your FICO score

30 Year Mortgage Rates Under 5 Percent, Trouble

30 year mortgage rates are going up

nashville 30 year mortgage ratesAt the end of last week, Freddie Mac reported that mortgage rates remained under the 5 percent mark for the second consecutive week, with the average interest on a 30-year fixed loan coming in at 4.95 percent from 4.97 percent a week earlier. Meanwhile, interest on 15-year fixed loans averaged 4.32 percent versus 4.33 percent the previous week. Rates on five-year, adjustable-rate mortgages settled at 4.05 percent, a decline from 4.11 percent the previous week.

Rates dropped to a record low of 4.71 percent in December and have hovered around 5 percent ever since the Federal Reserve began a program to stabilize the housing market by lowering mortgage rates. The theory is that the reduced borrowing rate increases home affordability and thus, home sales. However, you must take into account that the vast majority of lenders have tightened their qualification standards as well as internally restricting total lending limits leading to a much slower housing recovery than initially expected.

30 Year Mortgage Rates Going Up in April?

The Federal Reserve has confirmed their position that it will most likely stop purchasing mortgage backed securities at the end of March. The FED has been collectively buying the securities since January 2009 which kept the housing market from sinking to lower levels. Because the FED has pumped nearly $1.25 trillion into the market, interest rates have held at historic lows during a very critical time for the housing industry. With the FED backing out of securities business there is no question that rates will begin to rise. But how far?

Most experts are undecided on how much rates will increase. Using the 30 year conforming rate as the guide we’re hearing the 30 year rate could land anywhere from 5.75% – 6.0% and fairly quickly. Most experts expect the rates to fluctuate in this range through the fall and then experience another potential increase during the winter months. Regardless of exactly when, mortgage rates will begin to go higher and soon. I am not an alarmist, but I do play the trends. It appears that unless the FED decides to extend their current MBS purchase program, your chance to secure record low interest rates may be drawing to an end.

Mortgage Rates Lower, Stable in Q1 2010

mortgage rates lower in 2010

The average interest on long-term mortgage rates fell this past week, after rising for four consecutive weeks. Freddie Mac reports that 30-year fixed mortgage rates averaged 5.09 percent, down from 5.14 percent a week ago and compared with 5.01 percent in 2009. Also, 15-year, fixed loans fell 0.4 percent to 4.5 percent; five-year adjustable-rate mortgages were unchanged; and one-year ARMs declined 0.03 percent to 4.31 percent.

Forecasting Nashville Mortgage Rates

It appears that mortgage rates will remain quite stable in the first quarter of 2010, hovering just above 5 percent. The second quarter of 2010 also looks quite stable with mortgage rates predicted to only rise 0.15 points to around 5.17 percent.

However, the second half of the year appears to be a time when either inflation begins to affect the rate or the Treasury Department purposefully raises the lending rates. Nashville Mortgage rates are predicted to rise another 0.20 percent in Q3 and another 0.20 percent in Q4 leaving the mortgage rate close to 5.57 by the end of 2010.

2010 Mortgage Rate Predictions

Nashville mortgage rates ended 2009 above 5 percent, with Freddie Mac reporting 30-year fixed rates at an average 5.14 percent, still very affordable by historical standards. Although higher long-term borrowing costs late in the year could signal further increases for 2010, new data from Wells Fargo, JPMorgan Chase, and the Mortgage Bankers Association indicates more borrowers are refinancing into 15-year loans in hopes of paying off home debt faster. According to the Mortgage Bankers Association, 15-year fixed loans accounted for nearly 20 percent of applications in October 2009 – up from 9.1 percent in October 2008 and 7.5 percent in October 2007.

The jumbo mortgage market in Nashville will probably see some programs re-introduced, but underwritten more conservatively with larger down payment requirements. No income verification programs may return at premium rates, but from sources other than conventional lenders. No asset verification programs are unlikely in 2010.

Here are a couple mortgage predictions that I agree with from Boston.com’s Sam Schneiderman:

  • Mortgage guidelines will tighten then relax. Some may become specific to certain types of markets.
  • Mortgage workouts will be practiced by attorneys that master them. Most lenders will modify only as a last ditch effort to save money.
  • Interest rates will go up, but probably not as high as many are predicting, possibly due to government intervention.
  • Financing will be available to those that meet traditional “pre-boom” underwriting guidelines and have the credit score, down payment and job security lenders want to see.
  • Some seller financing is likely to become more prevalent, especially toward the higher end of the market and in the small multi-family and investment property market.
  • Residential buyers will buy because they need a long-term place to live and want to control their own environment and costs. Investors will buy for the long term to lock in today’s rates.

Nashville Mortgage Rates Begin to Rise

nashville mortgage ratesNashville long-term mortgages moved closer to 5 percent this week, with interest on 30-year, fixed loans averaging 4.94 percent compared to 4.81 percent last week and 5.19 percent a year ago. Freddie Mac also reports hikes for 15-year, fixed mortgages, five-year adjustable-rate mortgages, and one-year adjustable rate mortgages. The 15-year, fixed rate rose to 4.38 percent from 4.32 percent; the five-year adjustable rate mortgage climbed to 4.37 percent from 4.26 percent; and the one-year ARM jumped to 4.34 percent from 4.24 percent.

Most professionals in the mortgage industry agree that Nashville mortgage rates will begin a slow, but steady rise to the 6 percent range within the next 18 months as the Treasury begins to hedge against inflation. Mortgage professionals also predict a loosening in mortgage qualification over the same period.

For questions about mortgage rates or your current mortgage, email mortgages@RemarkableHomes.com to get expert advice from Wells Fargo Nashville.

Mortgage Interest Rates Move Higher

Mortgage interest rates on 30-year fixed mortgages rose to 4.81 percent last week, after the prior week’s fall to a record low of 4.71 percent, reports Freddie Mac.

While the Federal Reserve’s effort to purchase $1.25 trillion in mortgage-backed securities issued by Fannie, Freddie, and Ginnie Mae has helped keep rates attractive, Freddie Mac chief economist Frank Nothaft says interest rates rose because a favorable unemployment report pushed long-term bond yields up slightly.

With the Fed program projected to end in March, the Mortgage Bankers Association forecast in October that 30-year fixed mortgages will rise to 5.4 percent next year, increase to 6 percent in 2011, and hit 6.3 percent in 2012. Clearly, this would be a great time to refinance your mortgage, if your lender will let you.

mortgage interest rates projections

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