Burt P. Augustensen Mortgages

Burt P. Augustensen Mortgages Burt P. Augustensen Mortgages has been originating all types of mortgage loans to meet our clients'

05/15/2023

Your down payment in this market

10/22/2022

Mortgage Rates and Home Prices

While most people following the mortgage markets probably knew that interest rates would not stay at historic lows forever, it is likely that few of us anticipated the speed and magnitude of the turnaround.

In less than nine months, mortgage rates have almost doubled. The most significant effect of this has been to increase monthly payments on home purchases, in some cases dramatically. Historically, declining interest rates have allowed for increases in home prices and rising rates have led to lower prices. So one would think that we will be seeing an across-the-board correction in home prices going forward and that will likely be true at least to some extent in many markets. However the correction is unlikely to be as dramatic as the correction (or crash) in home prices we saw during the mortgage crisis and economic decline beginning around 2009 for a number of reasons.

First, there is pent-up demand for homes in many markets and a continuing under-supply. If there are more buyers than sellers, that would tend to temper the magnitude of any price decline.

In addition, the dramatic tightening of mortgage underwriting guidelines which followed the mortgage industry collapse means that for the last 10 years, buying power has been reduced.

But perhaps the biggest factor which may prevent significant declines in housing prices is psychology and/or memory. When houses began to decline in 2009 and continued to decline, a panic set in. That self fulfilling prophecy ensured that house prices would continue to decline for years to come. But back in 2009, few potential buyers even remembered the 1987 correction cycle simply because it had been such a long time ago that point.

Today, on the other hand, most people in the market to buy a home probably remember how much prices have appreciated since the last decline and may not be as fearful of buying now or may in fact think of this as an opportunity.

The bottom line is that interest rates will certainly affect some peoples ability or desire to buy a home but that the across-the-board price declines expected over the short term may not be as dramatic as some fear.

Burt P. Augustensen Mortgages has been in business continuously since 1983 providing creative and, in many cases below market financing for our clients.

02/08/2022

Gob-smacked by the Boss

If you’ve been shopping for a vacation home for a while and you haven’t found one yet, get ready for the second half of the one-two punch.

In a periodic review of loan pricing, the Federal National Mortgage Association (known as Fannie Mae) has dramatically increased the price of loans on second homes by as much as 4.125 Points. A “point” or “discount point” is 1% of the loan amount and is charged at the closing. The alternative to paying these “points” is to “buy up” the rate which exchanges paying some or all of the points for a higher rate. The rate differential for 4 discount points is generally 1% to 2%, depending on a number of factors including projected future rates, hedging costs, and rate compression, to name a few.

And the Federal National Home Loan Mortgage Corporation (Freddie Mac) has made roughly the same adjustments so there is no safe quarter there either. Fannie Mae and Freddie Mac are collectively known as the “Government Sponsored Entitles” (or “GSE’s”).

This is not the first time the GSE’s have made loan level price adjustments (“LLPA’s”) in recent years. Several years ago, there was a half-point LLPA for over two years to pay for the unrelated payroll tax holiday in place during part of the Trump Administration. And more recently, Fannie Mae and Freddie Mac made less severe adjustments just over a year ago but pulled back after 6 months or so as a result of industry backlash. This time, however, we hear crickets as there does not seem to be an appetite for pushback or an expectation that the GSE’s will relent.

All this could be especially painful on top of the cyclical rate increases we have seen over the last several months. The effect on vacation home prices is yet to be seen.

Burt P. Augustensen Mortgages is a NJ licensed Mortgage Banker and has been in business since 1983.

12/23/2021

The New Year Looks Bright for Mortgage Applicants

As we move towards the new year, the lending world is looking forward to continued positive changes. As housing prices have appreciated dramatically, the Federal Housing Finance Agency has increased conforming loan limits, meaning that Fannie Mae and Freddie Mac (the government-sponsored enterprises or “GSEs”) can purchase much larger loans than previously. The new conforming limit for a single family home is $647,200 which is up from $417,000 just ten years ago. Multi-family conforming loan limits range up to over $1.2 million.

In most of New Jersey, loans of up to $970,800 (for single family homes) are considered high-balance conforming loans and are also purchased by the GSEs. While these loans have marginally different underwriting guidelines and sometimes slightly higher rates, this reduces the need for jumbo loans and their associated underwriting and appraisal restrictions to a much smaller group of borrowers.

For qualifying purposes, the GSEs’ underwriting software now uses the average of the median credit score from each loan applicant instead of the lowest median score. This is especially helpful when one applicant has a low score which is offset by another applicant’s higher score. This can mean the difference between an approval and a denial.

The options for self-employed borrowers have expanded as well. Many loan programs now allow the use of business bank statements to calculate business cash flow to qualify a self-employed applicant. Some programs accept unaudited income statements (P&Ls) for loan qualification.

As a result of careful underwriting over the last ten years with resulting lower mortgage defaults, the rates for private mortgage insurance (“PMI”) have plummeted as much as 75% in some cases. This softens the blow for homebuyers with less than 20% down payments.

2022 promises to see continued positive change involving technology and efficiency which can only benefit consumers.

05/11/2021

With Adjustable Rate Mortgages (“ARMs”) in the picture again, it’s time for a refresher on how to evaluate whether and when this product may be right for you.

When our company was founded in 1983, mortgage rates were astronomical… double digits or higher. ARMs became popular because of their low “teaser rates” for the first few years. We predicted that rates would more likely be declining over the longer term and therefore, ARMs presented less of a risk. It turned out to be a good bet and our clients did not get stung with big upward adjustments.

Beyond that, the typical 30 year mortgage loan is paid off (by way of sale or refinance) in under seven years so most borrowers never see a rate increase on a 10/1 ARM because the first adjustment is in the 11th year.

But now we are much nearer the bottom of the interest rate cycle so there are different considerations. If you are planning on selling your home within the next decade, a 10/1 ARM might make sense for you. But if you are buying a home to raise your family for the long term, ARMs may not be the best solution. We are happy to assist in evaluating what mortgage products make the most sense for you.

04/26/2021

What about adjustable rate mortgages (ARMs)? We haven’t heard about adjustable rate mortgages for several years because we have had a “flat yield curve.” But since adjustable rate mortgages are making a comeback, we might ask: What is a flat yield curve and how does that affect the desirability of ARMs?

Very simply, the yield curve is a line graph plotting interest rate versus length of maturity. Normally, the line graph trends higher (up and to the right) as maturity increases because the seller of the bond or investment is committing for a longer period of time and will miss out on receiving more income if rates go up over time.

For the past several years, we have had a flat yield which means that the rates on short term investments are the same as on long term investments. In that environment, ARMs have the same rates as fixed rate mortgages and therefore do not offer any advantages.

But now, the yield curve is trending towards its more normal shape where long term rates are higher than short term rates. So adjustable rate mortgages may now be attractive options.

But you need to know what the risks are and when adjustable rate loans make sense. In the next installment, we will show you how to evaluate ARMs with lower rates vs. fixed rate loans with higher rates.

03/17/2021

If you're buying a vacation home or investment property and getting ready to apply for financing, you are about to be surprised by dramatically higher rates. As a result of amendments to the Senior Preferred Stock Purchase Agreement between the Federal Housing Finance Agency and the Department of the Treasury, there is now a limitation on the percentage of investment property and second/vacation home loans which can be delivered to Fannie Mae which is 7% of the total loan pool. Lenders have generally advised that this will add approximately 2.00% in “points” in costs to vacation homes and 1.25% to investment properties. This means that you get the same rate as for a primary home by paying that amount of points. In practice however, most people will “buy up” the rate to reduce the points. On any given day, the rate for second homes and investment properties might be .5% higher and .375% higher, respectively. Rates for second homes have historically been the same as for primary homes but rates for investment properties have always been at least .5% higher.

03/10/2021

We are singing a different tune for the first time in a long time. For as long as I can remember, we have been recommending the 10/1 adjustable rate mortgage (ARM) as the better option when the rate is materially lower than that of the bellwether 30 year fixed rate loan. For one thing, according to the National Association of Realtors, the average tenure of a home seller has been less than 10 years since at least the 1990’s. Consequently, the average 30 year mortgage loan is paid off well before the 10th year. That being said, why would you need a loan with a rate that was fixed for longer than 10 years? Of course there are some people who have stayed in their homes for decades and they have done well with adjustable rate loans because of the secular decline in mortgage rates we have seen over at least the last 35 years.

But thinking ahead, it is likely that the generational decline in interest rates has reached a conclusion… or at least we are near there. If the next move in rates is the beginning of a long term rise, then it may be time to be more cautious about the 10/1 ARM or indeed any adjustable rate loan, unless you know you will be selling the home before the fixed rate period ends.

11/02/2020

Insane interest rates

With interest rates at all time low‘s, everyone is competing to tell you they can get you the best deal. It is a fight to get the lowest rate. Or is it? People who don’t know you but want your business advertise rates which seem to be too good to be true. So what is the truth?

The truth is that we are enjoying the lowest rates in most of our lifetimes. But to win your business, some lenders are advertising rates which come with “catches,” or points and fees to lock in those rates. What good is an Insanely low rate if it comes with $10,000 in closing costs?

These lenders are counting on the fact that you do this once every 10 years and you don’t understand the documents you are signing. We don’t buy this for a minute. None of our clients go to closing without a complete understanding of all the numbers.

If interest rates were at all time highs, it might make sense to pay points to buy down the rate but when interest rates are at all time low’s, what possible reason is there to pay points? Except to brag to your neighbors that you have the lowest rate on the street.

Call us to get an honest assessment of what your best options are.

05/04/2020

Mortgage Forbearance is a hot topic now and hundreds of thousands of mortgage borrower have applied for it. But before you do, we recommend that you make sure that you need it because what comes down the road may not be what you expect.

To begin with, you should know that forbearance is not the same as forgiveness and you will be asked to repay the missed payments at some point in the future... perhaps before you are financially ready. And will they ask for all the money in a lump sum? Probably not but those decisions have not necessarily been made.

What about your credit score? And what about your credit in general? While mortgage forbearance will keep you out of a foreclosure situation during the forbearance period, you may still be subject to foreclosure if you default on the repayment payments. And will you be marked delinquent or "late" on your credit report? It's impossible to say with certainty right now. Here is something from Experian from April 15, 2020:

"[M]ortgage payments missed or underpaid as part of a deferral or forbearance arrangement are technically delinquencies, since they don't conform to the repayment terms spelled out in your original loan agreement. Mortgage lenders have the right to report them as such to the credit bureaus, but they're not required to do so. Ask your lender about their policy before accepting a forbearance agreement so you know what to expect."

Ask your lender? Over the phone? Can you rely on what you are told? The point is that is no way to be sure about what will happen and you don't want to be in a position of "well, if I knew that..." down the road.

If you have no choice, the forbearance programs may be a lifeline but if you have a rainy day fund, now might be the time to use it.

Good luck and stay safe.

Address

142 NJ-23
Pompton Plains, NJ
07444

Opening Hours

Monday 9am - 5pm
Tuesday 9am - 5pm
Wednesday 9am - 5pm
Thursday 9am - 5pm
Friday 9am - 5pm

Telephone

+12018432626

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