My New Blog

    Wow!  It's been a while since we've taken time to update you on what's happening in VA lending. Let's just say it's an extraordinary time for Veterans to purchase or refinance a home using your VA benefits.

    There are some real challenges in the real estate market now. Those of us who purchased homes in the 2003 to 2006 era are sometimes in a tough  spot. We may have a mortgage loan in the 6% range and would love to refinance in today's rates which are sometimes below 4%! But the market is taking it's toll. Many times we've seen that homes just won't appraise for the value needed to refinance with a new VA loan in Minnesota, Wisonsin or North Dakota (although North Dakota appears in the best shape in the upper midwest).

    Here's a good place for you to start just to get an idea if you're in that situation. First, how much do you owe on your current mortgage loan? Second, you need to get some idea as to the value of your home. A good place to start is with county tax records. What does the County Assessor say is the market value of your house? A word of caution here; many times we homeowners have "heard" that a neighbor not far away got his/her asking price when they were selling. Or a realtor wanted to list our house and the asking price was higher than we expected. In the first instance a homeowner who sold their house may not be honest about what they really got for their property. Maybe they sold it for $200,000 but they had to give back thousands for the buyer's closing costs. In the second instance perhaps that realtor was giving you an inflated value just because they wanted the listing. We've heard of those situations. List it for $200,000 but it won't sell so 30 days later that same agent comes back and says you need to drop your price by tens of thousands of dollars. 

    We mentioned rates earlier. The low rate environment seems almost unbelievable. The federal government has put hundreds of billions of dollars into the monetary system. Historically that has resulted in rising rates and price inflation. Not so this time. But we still believe that will come. If you're considering a purchase or refinance sooner may be better than later.

    Let us help you if we can. If we can't we'll tell you straight up. You need to know exactly where you stand. We serve you because you have already served us.

Minnesota and North Dakota Veterans, here we sit again. VA loan interest rates are at record lows. Should you be refinancing? Yes and probably not. Huh? Well, here’s the rub. If you could refinance from a mortgage loan carrying a rate of 5% or better you probably should, especially if you’re already in a VA loan.

The first week of August, 2011 the average for a 30-year fixed-rate mortgage was 4.54% according to the consumer information site Bankrate.com. (Incidentally, we were locking our VA loans below that rate this week). To put this in perspective just 6 months ago the average rate was almost 5 ¼%! On the surface it looks like a great time to refinance. But scratch that surface just a bit and you may be disappointed.

There isn’t a week that goes by that we don’t have a Minnesota or North Dakota veteran contact us about refinancing. On too many occasions the news we have for them is not good. Here’s what we’re finding; they have good credit, good income and no equity.

Many Minnesota and North Dakota veterans that come back to VALoansMN.com want to refinance the mortgage loan they used to purchase a home in recent years. Most are doing so with no down payment. It’s a beautiful feature reserved for VA loan clients. The downside is that the housing market has continued its slide. Prices are lower than they were just a year or two ago. In many cases these veterans owe more than their homes are worth. Don’t panic! This value is all paper value. What does it matter if your home is worth less than your mortgage amount if you have no plans to sell? If you are comfortable in your home, if you enjoy driving into your driveway and looking at your home, if it provides your family your housing needs then just sit tight and wait it out. This downturn won’t last forever.

We wish every one of our clients at VALoansMN.com could take advantage of today’s low rates but it just isn’t possible. We know that our clients were happy with what they got when they got it. Don’t be distracted by a rate lower than what you have now. Keep in mind there will likely come a time when your current mortgage loan rate will be well below what’s available in the market place and you’ll feel like the winner you are!

Let’s cut right to the chase concerning Minnesota VA loan rates; VA mortgage rates are lower now than they were one year ago! That’s right, even though we’ve seen some Minnesota VA home loan rate rises in recent months they are still lower than last year. Mortgage rates for our veterans are about a quarter point lower now than they were at this time in 2010. Frankly, our predictions of rate increases may have been premature.

The Minnesota housing market remains very fragile. The number of foreclosures is still extremely high here in Minnesota. According to California based Realty Trac the number of foreclosure filings in Minnesota in January was almost 2,600. This includes default notices, scheduled auctions and bank repossessions. That is a bit fewer than one year ago but the decline may be deceiving. The head of Realty Trac says it may not be a recovery in the housing market but a sign that lenders are bogged down by the number of foreclosures month after month. So what does this mean for VA loan rates?

As long as the housing market remains in such a slow state the demand for VA mortgage loans is lower. When demand remains low, prices (rates) can remain low. The experts are saying they don’t see interest rates rising anytime soon. Some say it may be the end of 2012, others say it could happen this year.

If you are considering refinancing your VA loan, refinancing from a conventional loan to a VA loan (this is a very, very smart idea by the way!), or purchasing a home with a VA loan we recommend you do it sooner rather than later. In previous blogs posted here I relate the story of refinancing my own home loan when rates dropped to 10% because it was such a good deal! Keep that in perspective. We’re now in the 5% range. Remember, these are 100% financing with a VA mortgage loan. No monthly mortgage insurance premiums that plague conventional lending.

While we write about Minnesota VA loans because that’s where our family based business is headquartered this information on VA mortgage rates applies nationwide. VALoansMN.com focuses on Minnesota because we have become this state’s number one VA lender.

Realtors and Mortgage Brokers alike are digging in their heels over a congressional fight to halt the mortgage interest deduction. What would happen to our housing market if they were to take away that long standing tax incentive to buy a home?  Perhaps not much. Consider what's happening elsewhere.

Homeownership actually increased in the U.K. following the elimination of the mortgage interest deduction in 2000. It went from 70% to 72%. Homeownership rates in Canada and Australia are almost identical to U.S. rates and niether country allows the deduction of mortgage interest. Perhaps my industry, the real estate industry and politicians aren't looking at the facts. There may be little correlation between the ability to deduct mortgage interest and homeownership rates. But there's even more to this story.

Those who benefit most from the mortgage interest deduction are the top earners. According to the Tax Policy Center only about 1 in 5 middle class taxpayers would see their income taxes increase if the deduction were taken away. The TPC says it would raise income tax liability on these middle class tax payers only about $215 a year. A majority of Americans don't even take the deduction according to government data. About a third of American taxpayers take the deduction and they are primarily the top 10% of earners. Don't get me wrong here, I'm not one of these "soak the rich" types at all. I'm just saying that if your mortgage interest tax deduction is taken away by Washington it may not be all that bad. It might even strengthen our economy and help pay off some of this massive debt that's accumulated in the last several years.

Now it's your turn. What do you think? This may be something we should be talking about and communicating to our elected representatives. Let's not leave this up to special interests such as the mortgage and real estate lobby.

October 25, 2010

An open letter to Minnesota’s Congressional Delegation

Dear Members of Congress:

The recent and ongoing housing loan crisis begs for a true reform of the way our market works. There is ample evidence that much of the crises are the result of well intentioned government efforts to make homes affordable for all. As you are aware Massachusetts Representative Barney Frank, once a champion of Fannie Mae and Freddie Mac, is now calling for their abolition. The reason can be simply stated: Subsidizing risk for lenders using government guaranteed loans put the American taxpayer on the hook for substandard lending practices. Let our housing market operate and be as healthy as those markets in Canada and Europe who have no government guaranties. These markets have not suffered the real estate crises we currently experience and homeownership as a percentage of population is as high, in some cases higher, than ours. It is time to abolish all but one of our government loan guaranty programs.

Most citizens of our great nation have agreed that those who serve should have exclusive benefits earned through this service. It is the men and women who wear the uniform of the United States Military that have earned such privilege. The Veterans Administration program of making affordable and well regulated home loans to this special class of citizens should continue. It should also be exclusive to them. As you and other Minnesota elected representatives consider true remedies to our housing and loan crises we pray you will carve out what should be very special recognition for our military veterans. No other group of citizens in this country is as deserving.

Sincerely,

Joan Rusco

VALoansMN

PO Box 304

Rosemount, MN 55068

Veterans please excuse us from our usual posts on VA mortgage loans for just a moment while we shout out to Minnesota residents carrying Jumbo mortgages (over $417,000). Minnesota jumbo mortgage rates have plunged! Really, we’re seeing in Minnesota the same that’s happening nationwide. Our Jumbo mortgage rates are the lowest they’ve been in 7 years. In many cases you can refinance to below 6%. While we’ve been refinancing and doing purchase mortgages for Minnesota Veterans using their VA benefits we just couldn’t stand by and not say something to all Minnesota residents who are sitting on higher interest jumbo loans.

So what does this mean to a homeowner? It means saving hundreds of dollars a month on your mortgage payment. A homeowner with a $600,000 mortgage at 7.5% has a payment of about $4195. If the homeowner refinances that jumbo mortgage down to 5.5% the payment would be about $3407. That means saving about $788 every month or almost $9500 a year in mortgage payments. You can see why we’re very excited about this prospect for the jumbo mortgage holders in Minnesota!

Now here’s the rub; many homeowners who just purchased their large luxury homes may not have sufficient equity. The upper end of the real estate market has really taken a hit in recent years and in some areas of Minnesota luxury home prices have fallen 40%. Nationally the news is improving with prices starting to recover somewhat. Sales of multi-million dollar homes are up over 30% from the previous year. Some of this increase is due to the availability of jumbo mortgages. There are other factors on your ability to refinance or get a purchase money jumbo mortgage. Chief among them is the amount of other debt you’re carrying and your credit score.

Before you decide you can’t save yourself hundreds of dollars a month by refinancing your Minnesota jumbo mortgage you should let us take a look at your possibilities. While we love working with our Veterans who have served us so well, we also want to reach out to all Minnesota residents who deserve a break in these tough economic times. Don’t let these historic low mortgage rates (Jumbo or not) pass you by!

Here's something those of us in the VA Mortgage business deal with all too often: having to tell a client they don't qualify for a loan. Case in point: a Minnesota National Guard member wants  to buy his first home using  his VA Loan benefits. This guy is  great, he's  saved  several thousand dollars, his credit score is  in the upper 700's, yet he's turned down because his debt to income ratio is too high. Never mind that he is handling the debt to such a degree that his FICO is in the clouds. The ever tightening underwriting guidelines exclude him from a first time home purchase. Never mind that he works a regular  job, goes  to school and serves his state in the National Guard. The rules are the rules and lenders can't see outside this box. We've worked with him  for  weeks as he paid off one debt and then another. Finally he's willing to pull more savings and refinance student loans. All in an effort to get his debt to income ratio down to please the rules.

Why have lenders tightened the rules? It doesn't take much effort  to see the answer. The mortgage community made loans available to people who couldn't afford them. Or the loans were made  to people ill-prepared for adverse situations such as losing a job or medical emergencies. The mortgage loan still had to be paid. Character didn't count.  Because of these tough times our client, the one with the great credit score, work ethic and ability to save, was denied. He is paying the price for  bad decisions made by others. And who made these bad decisions? I point to two major  players in the  mortgage meltdown who are thus far excused from any responsibility. People who made more money last year than you and your family will make in a lifetime. 

We can make a very strong case that our housing and mortgage problems  of recent years were brought about not just by consumers making bad choices, but by policy makers who were convinced that everyone should have a home of their own whether or not they could afford it. Thus was born the so-called sub prime mortgage, loans made  to people who  had never before been able to qualify for much of anything. Buy a house with bad credit or no credit? Sure. Buy a  house with no provable income? Sure,why not? What's the  risk to a bank that lends the money? Not much. Here comes Fannie and Freddie ready to buy these loans from the banks, bundle them and then sell them as securities. This leads me to my point about major players in the  mortgage  melt-down being  paid despite their  leading us to the situation we're in today.

The CEO of  Freddie Mac made almost $6,700,000 last year!  Not bad, eh? Kind of makes one feel sorry for the other major player, the  CEO of Fannie  Mae. He only made about$2,100,000 for his efforts. So while  all the policy makers  on Capitol  Hill are dragging overpaid  CEO's in front of committees, while they are blaming the banks and trading houses, we wonder; why aren't they also willing  to look at the  roll these CEOs from Fannie and Freddie had in the housing mess we're in today? For that matter, why is Fannie and Freddie exempted from the financial market overhaul?

We think had all of this not happened our stellar client, the working, going to school, saving guy who can't qualify for his VA home loan, would be moving into his  own place today and all of us in the mortgage business would be a lot better off serving those who deserve homes  of their own.

Minnesota and North Dakota Veterans your house may be increasing in value. For those of you still  sitting on  the sidelines and waiting to use your VA Home Loan benefits to buy that house, you may want to make  a move soon. We at VALoansAmerica (formerly VALoansMN) have some  interesting statistics for you if you live in Nevada, California or certainly Minnesota. Let's talk about what your VA Loan will buy in Minnesota first.

 We have Minnesota clients  using 100% VA financing and buying a 4 bedroom, 2 bath home with 5 acres of land for  under $200,000. And  that may be a real  buy. According  to the latest housing  price report coming from S&P/Case-Shiller the Minneapolis  area is one  of the leading  markets  in the nation. According  to their report the Metro Area of Minnesota has seen housing prices increase over 6% in the past year. Granted, we've not recovered the loss received in the past 3 years, but things are improving.

Now about  California:  holy cow, look at that price recovery!  The Case-Shiller index shows prices in San  Francisco up over 16%, San Diego up almost 11% and Los Angeles up 6%. Hey Vets, did you get your VA Loan  in California and take advantage of this in the past year? If not, perhaps Nevada may be on your radar. We've not seen a recovery there, yet. The report shows Nevada housing prices still slumping.

According  to the S&P/Case-Shiller report Las  Vegas home prices are down another 12% this past year. Is anyone  else tempted to take advantage of  100% VA financing, lowest mortgage rates we've witnessed in decades and these depressed home prices and move to Nevada?  This is the reason our business expanded from Minnesota and North Dakota and started serving veterans nationwide including  Nevada.

We think there's still a real opportunity for  Veterans to get a great home buying deal in Minnesota, North Dakota, Nevada and California! You see, even though the housing market may have been  torn apart in recent years, we at VALoansAmerica are optimists. Maybe it's our Midwestern  roots. We still take time at our offices to sit around and talk to each other and our clients about  the good things that can happen in this nation.  We are still believers in this  country, this economy and most of  all the change that will inevitably come.

We have been urging our Minnesota and North Dakota Veterans to make a decision soon about buying or refinancing a home with a VA Loan. For severa l weeks we've been writing about the probability of VA loan and other mortgage rate increases: here they come. The headline screams Debt Fears Send Rates Up. What's happening in Washington will make VA loan rate increases impossible to avoid. The reason is the spending spree our federal government has taken on. Add to that the unfunded Medicare and Social Security entitlements of over 100-trillion dollars and you start to get the picture of why international investors are having serious second thoughts about this nation's economy and our ability to ever pay down debt.

This week foreign investors turned their backs on a treasury auction which resulted in bond prices  going down and rates moving up (remember anytime bond prices move down rates go up). This could spell serious trouble for the US housing market as mortgage rates have also started going up. This, coupled with the ending of the Federal Reserve's program of buying mortgage backed securities, will likely continue pushing VA and other loan rates upward.

We at VALoansND and VALoansMN have begun a serious campaign urging our clients to reach out to other Veterans, their families and friends, advising them that a mortgage refinance, a chance to buy a home, at these historic low rates is passing. Yes, we want the business but even moreso, we want any qualifed person to not miss this fading opportunity to save tens of thousands of dollars.

Excuse me home builders, but your bad news may be good news for Minnesota homeowners and VA loan seekers. This week the Fed held their meeting to discuss inflation and rates and the outcome was good for consumers, for now. The Fed left their Federal Funds Rate unchanged (we discussed this rate in greater detail at www.myfhablog.com ). It is likely that investors in mortgage backed securities (MBS) will read the language from the Fed as indicating that inflation is not a problem and there’s no reason for mortgage rates to rise. This even though the year old program of the Fed buying these MBS and keeping rates down comes to an end this month. So, rates are apparently going to stay somewhere in the 5% range for a VA loan, but what’s good about the bad news for builders?

The U.S. Commerce Department reported that new housing starts fell .6% from a month earlier. Apartment construction also fell to its lowest level since the mid 1990’s. That means our construction workers are hurting. But the benefits of this bad news may be homeowners. As the supply of homes for sale decreases there is more of a chance of prices for existing homes to stabilize from their 4 year slide. The supply of homes for sale is bloated way out of proportion and it may even get worse. We’re advising our clients that now is a great time to get a VA loan in Minnesota and buy a house. We at VALoansMN believe this bloated supply of homes for sale and our historic low VA loan rates is presenting an opportunity that could be characterized as “once in a lifetime”.

We fully expect this opportunity to remain for the short term. There are over 3 million existing homes for sale nationwide. There are another 5 million properties estimated to be in mortgage delinquency or foreclosure. We see the homes for sale number to consistently rise through much of this year keeping home prices down. So when we hear housing starts are sliding, we’re not surprised. What is not known is what may happen to mortgage rates. We still believe there could be considerable upward pressure in the not too distant future.