Twin Cities Market Activity June 2014

“The Skinny”

A Summary of Twin Cities Market Activity Narrated by David Arbit, Research Manager for the Minneapolis Area Association of REALTORS.

US Treasury to Sell off Mortgage Backed Securities

During the mortgage crisis, the US Department of the Treasury purchased approximately 144 billion dollars worth of mortgage backed securities to help stabalize the mortgage markets. Mortgage Backed Security prices dropped 50 basis points this morning on the news that the Treasury Department is going to systematically sell-off it’s holdings of MBS’s purchased in 2008 and 2009. It’s anticipated that the Treasury will sell approximately $10 billion per month, subject to market conditions. Stated reasons of why to sell now are due to the “stabilizing economy and market conditions”.

Traders are thinking that it could be due to US debt limit levels as well, but that has certainly not been a stated reason.
Just the anticipation of the added forthcoming supply pushed traders to a sell mode sending mortgage backed security pricing down & rates up and adds to the continued volatilty that we have seen over the past several weeks.

This will pressure mortgage rates up.  Why? because of supply and demand. Adding more securities to the market increases the supply an din order to “sell” the new mortgage backed securities they will need to offer a higher return to attract investors.

What does this mean for you? If you are considering a move, I would do it sooner than later. Rates are still below 5.0% and now is the time buy and to take advantage of these rates!

Mortgage Requirements

Several factors go into a mortgage companies determination as to whether they will lend you money, and how much.  As you begin the process of buying a home, it is imperative that you understand loan procedures and the factors that determine loan approval. This post gives you an overview of what lenders are looking for when reviewing your credit report and considering your for a mortgage.
What is your FICO?
A FICO score is a credit score developed by Fair Isaac & Company to help lenders determine the risk involved in lending money to any person applying for a loan. It is widely accepted by lenders as one of the most important components helping determine eligibility as well as specific amounts, rates and terms that can be offered. FICO scores range from 300-850. The higher your score, the less risk involved in lending to you. There are approximately 30 factors that influence your credit rating. Some of these factors, such as your payment history, weigh more heavily on eligibility than others. Every factor’s importance varies by person and can change individually as your credit history lengthens. Also, keep in mind your score can change daily as new credit is established or debt is paid off. All factors can be grouped into 5 main categories.
Payment History
Do you make your payments on time? Since this determines approximately 35% of your score, it is certainly in your best interest to make all payments on time! Your payment history includes credit cards, car payments, mortgages, student loans and other loan types. Other public records on file, such as a bankruptcy, will be calculated in this group as well. If you have been late on payments, information such as how recently these payments were made and how much time elapsed between the due date and pay date will also factor into your score.
Outstanding Debt
How much debt do you have? All outstanding balances for credit cards, car loans, mortgages, etc. will determine about 30% of your score. How many of these accounts have balances? For example, if you can possible pay down significantly or pay off credit card debt, you’ll be in much better shape during loan approval. Eliminating some avenues of credit can demonstrate your willingness and ability to responsibly pay back new loans.
Credit History
How long have you been establishing your credit? Specifically, how long have your current accounts been opened and how long as it been since you used each of them? This usually determines approximately 15% of your score. If no credit history exists, you should begin by establishing credit accounts and be sure to keep them spotless. The less history that exists, the less the loan amount you’ll likely be able to obtain.
Pursuit of New Credit
Each time you apply for credit, there is an inquiry into your current credit score. If you recently applied for a VISA card, Nordstrom account and car loan, you may want to hold off applying for a home loan for a few months. Each inquiry may slightly reduce your FICO score and may portray you as someone overindulging in credit. This usually accounts for approximately 10% of your total score.
Types of Credit in Use
The number of accounts (such as ATM cards, car loans, credit cards) you have determines approximately 10% of your final score.
Once your bank is aware of your FICO score they may or may not choose to share this information with you. Assuming they do share your score with you, it is important to remember the higher the score, the more likely you are to obtain a loan. Also, a higher score directly translates to lower interest rates. Over time with home loans, lower interest rates can play a significant role in the total amount you SAVE!
Other Factors That Determine Loan Approval
Now, a great FICO score will not be the only determining factor in loan approval. Some additional factors that figure into the approval process include the following:
Your current income will be a significant determining factor in loan approval. Pay stubs for the previous two months as well as W-2 forms for the previous year will be requested to help determine your ability to repay the loan amount.
Employment History
Your employment history can tell a lender much about your stability. If you’re constantly switching jobs, it could raise a red flag.
Down Payment
Being able to provide a down payment can be extremely useful in the loan approval process. It means the amount borrowed will be less than the total cost to purchase the home. In some cases, depending on the amount of the down payment, your monthly payments can significantly drop.
I know that sounds like a lot of information.  Please allow me to guide you through this process and make it easy for you.  I am here to help you.  Jon Perkins 763-591-6066