The Shutdown: How Much Damage? 
Well, the Federal Government is shutdown, except for essential employees, like some TSA people. I'm happy that our politicians are smart enough to keep protecting the airways, even if they aren't smart enough to figure out a sound solution.

The problem with the shutdown is that the housing industry, which has been one of the few bright spots in the economy, will be negatively impacted greatly. This is because mortgages can be processed, but they won't be allowed to go to closing due to the inability to process flood insurance and the IRS 4506T form (see yestereday's post), among other items.

The worst part for borrowers is that they may lose their interest rate locks if they can't close. Some lenders may extend these rate locks free of charge, but many will impose their normal extension fees because the need for the extension wasn't caused by the lender.

I'm frustrated with the shutdown because, as with many government situations, it's the person that they are supposedly protecting that loses. That person is the American citizen, the consumer.

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How a Federal Government Shutdown will Impact the Mortgage Industry 
If lawmakers don't reach an agreement on the budget, the Federal Government will shutdown and there will be a tremendously negative affect on the mortgage industry. In today's mortgage world, we depend on the the folks inside the beltway to do a number of tasks which allow us to take mortgage applications to settlement.

We verify every borrower's tax return transcripts by processing an IRS 4506T form through the IRS, which can't be done if the IRS is closed. This alone will prevent most, if not all, loans from closing. If a property is in a flood zone, we can't close the loan because flood insurance, which is obtained through FEMA, won't be available either.

The good news is if you want an FHA loan, we can obtain an FHA case #, which will allow us to process your FHA loan, but we still probably can't close your loan due to the above reasons.

Hopefully the bi-partisan fighting over the budget will get resolved enough so a shutdown is averted, but I'm not so sure it will happen.

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Mortgage Rates End The Week Lower 
It was another good week overall for mortgage rates with the FHA 30 year fixed rate ranging between 3.75% and 4.00%, depending on the borrower's credit scores.

Credit scores actually impact Conventional (Fannie Mae and freddie Mac) rates more than they do FHA rates. Assuming your credit scores are above 720, 30 year fixed rates on Friday ranged from 4.375% to 4.50%, depending on the down payment. For those of you looking for a shorter amortization, the 15 year fixed rate was between 3.375% to 3.50%, based on the same criteria.

Unless you are going to closing and yo have to lock your rate, I feel that it is safe to float your rate. There will be some volatility so don't put your blinders on and ignore the market, but overall the risk should be outwieghed by the reward. Let it ride!

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Another Mortgage Meltdown? Not What You Think. 
I just read an article on CNBC.com from Monday titled, "Long-feared Mortgage Meltdown is Here." You can guess that I was a little concerned and surprised, especially since there are so many new regulations and many more coming. How could there be another Meltdown? The author was not talking about a meltdown as we might think. He was talking about the drop in mortgage applications and losses that the major banks are facing.

JPMorgan Chase said they expect to post a net operating loss for the lst half of the year. Wells Fargo has reduced it's workforce by 4,800 this quarter, mostly from the mortgage division. Cardinal Financial, McLean Va., said that it's 3rd quarter originations declined by 40% from it's 2nd quarter production. Those are certainly some scary figures, but there is some good news too.

The good news is that the Meltdown isn't in the form of bad, or toxic (the buzzword used during the mortgage market crash)loans, but in the form of financial losses to the big banks due to a reduction in mortgage applications. That is certainly bad news for shareholders of the major players. The bad news for the consumer is that these losses are being created by the increase in mortgage rates.

Some think the economy was being driven, albeit somewhat slowly, by the houseing sector. If the FOMC agrees, might we see a significant drop in rates?

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100% Financing with USDA 
USDA, the United States Department of Agriculture, has a wonderful loan product which allows 100% financing on primary home purchase transactions. There are some pros and cons, as you might have guessed.

The Pros are many, so here are a few. 100% financing is permitted. Closing costs can be included in the loan amount if the property appraises above the sales price. Gift funds are allowed to pay for closing costs. Seller contributions are allowed to pay closing costs. The Guarantee Fee can be financed in the loan amount. The monthly Mortgage Insurance is much less than FHA, only 0.40% annually. Typically you only need a 620 credit score.

There are fewer Cons, but here are the 3 biggest. There is an income limitation/ceiling, based on the property's county. The property must be in an eligible area. A borrower is ineligible if they have enough cash to qualify for a 20% down payment conventional loan.

Most of our Lenders are quoting a 30 year fixed rate of 4.0%, or better, with no points, so the rate is great. If you or someone you know is thinking of purchasing a primary home, please call me to discuss the possibilty of putting this amazing loan program to work for you.

Brett Wolf

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