financial

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The first-time homebuyer tax credit can now be used as a down payment, according to a mortgagee letter released by HUD today.

It can be used either as secondary financing (second mortgage) or as a short-term loan, otherwise known as a bridge loan, enabling homeowners to come in with little or zero down (it can also be used for closing costs and other prepaid expenses).

There are some rules and regulations tied to the so-called tax credit advance loans, like qualifying debt-to-income ratios and no cash in-hand, but it still seems like an irresponsible move given the financial climate.

“We all want to enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash can be used as a downpayment,” said HUD Secretary Shaun Donovan in prepared remarks.

“So FHA will permit trusted FHA-approved lenders and HUD-approved nonprofits, as well as state and local governmental entities to “monetize” the tax credit through short-term bridge loans.”

Unfortunately, this very practice led to billions in losses at the FHA; similar seller funded down payment assistance loans accounted for just 14 percent of all FHA loans outstanding, but accounted for 31 percent of all FHA foreclosures.

In fact, Donovan recently noted that the FHA would have needed appropriations of $2.5 billion to operate had the loans not been recently banned.

First-time homebuyers, defined as those who have not owned property in the three years preceding purchase, are entitled to receive up to $8,000 that doesn’t need to be paid back if the home is retained for three years.

It’s a dollar-for-dollar reduction and also refundable, meaning the tax credit may be claimed even if the homebuyer doesn’t have sufficient federal income tax to offset it.

It seems to be more of an incentive for homebuilders than homeowners, but that’s just one opinion.

Source: thetruthaboutmortgage.com

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Since the Making Home Affordable Program was launched in early March, more than one million borrowers have refinanced and 55,000 loan modification offers have been extended to qualifying borrowers.

Of course, most are simply refinancing due to the low mortgage rates on offer, helped on by Treasury buying of Fannie Mae and Freddie Mac mortgage-backed securities, which was part of the original Homeowner Affordability and Stability Plan.

Additionally, Fannie Mae has more than 233,000 eligible Home Affordable Refinance applications, with 51,000 having loan-to-value ratios between 80 percent and 105 percent.

“In just over two months, the Make Home Affordable program is up and running, helping our economy recover and making a difference in the lives and livelihoods of thousands of American homeowners,” said Treasury Secretary Tim Geithner, in a statement.

“Today we are announcing a new program component to help homeowners obtain modifications in areas suffering from home price declines.  If a modification is not possible, we are also announcing steps to encourage the quick private sale or voluntary transfer of property, which will save homeowners money and protect their financial future.”

In other words, qualifying borrowers unable to complete a MHA modification will be able to pursue a short sale or deed-in-lieu of foreclosure via a streamlined process.

Meanwhile, mortgage lenders will receive so-called “home price decline protection incentives,” compensation payments based on recent home price declines intended to facilitate more modifications in hard-hit areas of the country.

“Together the incentive payments on all modified homes will help cover the incremental collateral loss on those modifications that do not succeed.  HPD P payments will be linked to the rate of recent home price decline in a local housing market, as well as the average cost of a home in that market.”

The Home Affordable Refinance program ends in June 2010, while the loan modification program will run from now until December 31, 2012 (loans can only be modified once).

“Fourteen servicers, including the five largest, have now signed contracts and begun modifications under the program.  Between loans covered by these servicers and loans owned or securitized by Fannie Mae or Freddie Mac, Home Affordable Modification participants now account for more than 75 percent of all loans in the country.”

Source: thetruthaboutmortgage.com

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The typical options investor is trying to leverage options trading to speculate on directional moves in the prices of underlying assets. However, there are more sophisticated traders who would like to profit from other characteristics of options.

To pursue these trading strategies, investors need to minimize the effect of price changes and create portfolios that profit from and are more sensitive to these other factors. Delta neutral approaches allow investors to create these portfolios.

What Is Delta?

Delta is one of the Option Greeks and measures how much an option will change in price, given a $1 change in the price of the underlying asset. By definition, the delta of the underlying asset is always 1.

What Does Delta Neutral Mean?

Delta neutral means that a position’s value will not change when there are small market price changes. By holding a combination of assets and options, or combinations of various call and put options, a trader can create a portfolio with an overall delta of zero (in actual practice, very close to zero).

Traders use delta neutral strategies to minimize the effect of price changes while aiming to profit from shifts in implied volatility, the time decay of options, or simply to hedge against price movements.

How Does Delta Neutral Function?

A portfolio’s overall delta is determined by the sum of the deltas of its individual positions. Let’s take a closer look at the delta in options and securities.

Basic Mechanics

A trader holding shares (“going long”) benefits one-for-one from increases in the stock price. The delta for long shares is 1.

Investors short a stock will experience losses one-for-one as the share price rises, but they will benefit in the same amount when it falls. The delta for short shares is -1.

In the options trading world, a long call option has a delta of 0 to 1, while a long put option has a delta of –1 to 0.

Deep in the money long call options are most likely to feature a delta near 1. Deep out of the money long call options will have a delta near 0. At the money long call options typically have a delta near 0.5.

Deep in the money long put options typically have deltas near -1. Deep out of the money long puts have deltas near 0 and at the money long puts have deltas near -0.5.

Deltas values are for each individual security held and need to be adjusted based on your actual holdings. If you own 200 shares of stock, the delta for this position is 200. If you own an at the money call options contract, the delta for this position would be 100 x 0.5 or 50 due to options representing 100 shares of the underlying asset.

If you are writing (“going short”) options, the deltas values are reversed. If you write a call option with a delta of 0.75, then the delta for the position would be -75. Similarly, the delta for shares sold short is -1 per share.

The investor must also be aware that any delta neutral portfolio will only be neutral over a range of asset prices. An option’s delta is always in flux as it moves in and out of the money. A portfolio must be constantly adjusted to maintain delta neutrality – many delta neutral trades must be executed.

An Example of Delta-Neutral in Use

A trader might employ a delta neutral trading strategy when they are long shares of stock but are concerned about a near-term pullback in its price. Assume the trader owns 100 shares of XYZ stock at $100 per share. A long stock position has a delta of 1. Multiplied by 100 shares, the position has a total delta of 100.

The goal of a delta neutral strategy is to use a combination of calls and puts to bring the portfolio’s net delta to 0. One possibility is to purchase at the money put options that have a delta of -0.5. Two of these put option contracts have a total delta of -100 (-0.5 multiplied by 200 options). Recall that an options contract represents 100 shares of stock.

Here, the $100 strike is the delta neutral strike. As the underlying price moves away from $100, the delta of the portfolio will move.

Combining the deltas of 100 shares together with 2 long put option contracts with a -0.5 delta yields a delta neutral portfolio.

Stock position delta = 100 shares x delta of 1 = 100

Long put position delta = 2 contracts x 100 shares/option x delta of -0.5 = -100

Portfolio delta = stock position delta + long put position delta

Portfolio delta = 100 + -100 = 0 or delta neutral

The net position is protected from losses by being long put options while still having exposure to upside from the long stock position. Of course, there is a cost to purchasing put options.

A diagram might help illustrate what is delta neutral.

Profit & Loss Diagram Using the Above Example (Not Including the Put Option Cost)

Profiting From Delta-Neutral Trading

It is possible to profit from changes other than price movements in the underlying stock. For example, an options trader can use delta neutral strategies to benefit from declining or rising volatility. Vega is the Options Greek that tells a trader how much the price of an option will move in response to changes in volatility.

Delta neutral strategies can also be used to profit from time decay or – as in the earlier example – to hedge an existing long stock position. Writing options allows you to benefit from the effect of time decay, but there is a risk of assignment. If the underlying stock price moves significantly, the contracts could be assigned to you.

Shorting Vega

Shorting vega is a more advanced options trading strategy. A delta neutral approach can be used to benefit from collapsing volatility.

You might look to short volatility after a period of extreme movements in the market or a single stock. The key is to short vega when implied volatility is still high and you expect it to come back down.

When implied volatility is high, you pay a significant premium to be long options. You can take advantage of expensive options when implied volatility is high by selling options while still being delta neutral. The risk is that implied volatility levels continue to jump, which can lead to losses on a short vega play.

Waiting for Collapse in Volatility

A short vega position relies on the implied volatility on the underlying security to drop in order to turn a profit. It might take patience for implied volatility to drop to historical norms. To remain delta neutral, other positions might have to be put on to mitigate the risk of a change in the underlying stock price.

Pros and Cons of Delta Neutral Positions

Some of the pros of crafting a delta neutral portfolio have been highlighted, but there are downsides as well. Having to closely monitor your portfolio can be a burden, while trading costs mount as you constantly layer on or reduce hedges to keep near delta neutral.

Pros Cons
Profit from variables other than the price movement of the underlying asset Requires frequent trades, which could be costly, to maintain a delta near 0
Traders hold stock for the long run while protecting against near-term declines Deltas are constantly changing resulting in being over- or under-hedged

Delta Neutral Straddle

A delta neutral straddle uses a combination of puts and calls to keep the position’s delta near zero while having exposure to volatility changes.

For example, if XYZ stock trades at $100, and it’s at the money call has a delta of 0.5 and it’s at the money put has a delta of -0.5, you can buy the put and call with the goal of selling them after implied volatility jumps. With this delta neutral long straddle strategy, your delta is effectively 0 but you are long volatility.

A delta neutral short straddle is an options trade that seeks to profit from minimal changes in the underlying stock price and a large drop in implied volatility. So, the reverse of a long straddle can be used when you believe implied volatility will drop.

Other options trading strategies used to profit from changes in volatility and time decay are calendar spreads, diagonal spreads, iron butterflies, iron condors, among others.

The Takeaway

Building and maintaining a delta neutral portfolio can be a challenging task, but profiting from time decay and changes in volatility can make it worthwhile and profitable.

Delta neutral trading can also hedge your portfolio from short-term declines while continuing to hold stock for the long-term.

Qualified investors who are ready to try their hand at options trading, despite the risks involved, might consider checking out SoFi’s options trading platform. The platform’s user-friendly design allows investors to trade through the mobile app or web platform, and get important metrics like breakeven percentage, maximum profit/loss, and more with the click of a button.

Plus, SoFi offers educational resources — including a step-by-step in-app guide — to help you learn more about options trading. Trading options involves high-risk strategies, and should be undertaken by experienced investors.

With SoFi, user-friendly options trading is finally here.

FAQ

How do you make money with a delta neutral strategy?

You profit from a delta neutral option strategy when there are changes in a stock’s variables other than its share price. Changes in implied volatility create opportunities to go long or short volatility while being agnostic to the stock price’s change. You can also benefit from time decay by selling options while being delta neutral.

What is a delta neutral strike?

A delta neutral strike marks the price at which a portfolio is precisely delta neutral. In practice, it is more of a theoretical price rather than an exact level. When the underlying asset price moves up or down from the delta neutral strike, its delta will stray from zero; it will take additional hedging trades to get back to delta neutral.

How can you calculate the value of your delta neutral position?

To calculate your position’s delta, simply multiply each security’s delta by your position size. For example, one call option contract with a delta of 0.75 has a delta of 75 (0.75 x 100 options per contract). While being long 100 shares of stock with a delta of 1 has a delta of 100 (1 x 100 shares).

You combine the deltas of all positions in your portfolio to determine your overall delta. At that point, you can trade options to make your portfolio delta neutral.

Photo credit: iStock/Delmaine Donson

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Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
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Source: sofi.com

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If you can make it anywhere, can you make it here?

When looking into the bustling metropolis of New York City, it’s easy to be swept up in the kaleidoscope of city lights, towering skyscrapers and the ceaseless symphony of life that dances through its streets. However, amidst the hypnotic allure of the city that never sleeps, practical considerations emerge. Considerations like the economics of living in this urban paradise. A particular question looms large: “What is the average salary in New York, and how far does a $100,000 salary stretch?”

The average salary in New York is a topic of interest for both locals and those considering a move to this vibrant city. While the average salary in NYC currently hovers just above $50,000, for many, $100,000 seems to be a gold standard, a signpost that one has ‘made it.’ However, the reality of living in New York with this salary can prove more challenging than you might think in a metro that has this much to offer.

Rent

In terms of housing, the median rent in New York as of July 2023 is $4,364, translating to over $52,000 annually. That’s more than half of a $100,000 salary spent on accommodation alone. Yet, New York’s diverse range of neighborhoods offers options for different lifestyles and budgets. While Manhattan may command sky-high prices, boroughs like Queens or the Bronx may offer more affordable rents without compromising the quintessential New York experience.

Transportation

Transportation, another major consideration, can be relatively affordable. Opting for public transport, the subway costs $2.75 per ride, with a monthly MetroCard costing $127. This equates to a yearly expense of $1,524 if one is commuting daily — a mere fraction of the $100,000 salary. Of course, for those desiring the convenience of a car, parking fees, insurance and fuel costs can add a significant amount to this figure.

Food

Food and entertainment are areas where New York truly shines. The city’s multicultural tapestry has created a food scene like no other. Eating out in New York can be an adventure, with price points to suit every pocket. For a foodie earning an average salary in New York, a mix of dining out and cooking at home can balance the budget nicely. Let’s say you spend about $400 per month on groceries and $200 on dining: That’s a total of $7,200 annually.

Entertainment

The city’s entertainment scene is equally diverse. A night out at a Broadway show, a visit to one of the city’s many world-class museums or a concert in Central Park could set you back, but it’s part of the allure that makes New York, New York. An allocation of $500 per month towards entertainment, while on the generous side, equals $6,000 per year.

Everything else

Add in additional expenses like utilities, health insurance and personal care, and you’re looking at another $10,000-$15,000 annually, depending on individual needs and choices. All these expenses combined, a $100,000 salary in New York can offer a comfortable lifestyle, though without much room for extravagant splurges.

New York job market at a glance

New York’s economic tapestry is just as dynamic as the city itself. The city is a magnet for talent, driven by a wide range of industries that form its thriving economic ecosystem. While it’s nearly impossible to encapsulate every facet of this ever-evolving landscape, a few industries and employers emerge as the city’s backbone.

Finance

New York’s Wall Street is globally synonymous with finance. It is the heart of the world’s financial markets, housing the New York Stock Exchange and NASDAQ, two of the largest stock exchanges worldwide. Major employers in this sector include Goldman Sachs, JPMorgan Chase and Morgan Stanley. Not only does the industry provide direct employment, but it also fuels ancillary services like law, consulting and real estate.

Healthcare

Healthcare is a top employer in New York, contributing significantly to the city’s employment landscape. The city boasts world-class hospitals and research institutions, including NewYork-Presbyterian Hospital, Mount Sinai Health System and Northwell Health. These organizations offer a wide range of roles, from clinicians to administrative staff, reflecting the sector’s diversity.

Tech

New York’s tech scene has experienced explosive growth over the past decade, earning the moniker ‘Silicon Alley.’ The city is home to tech giants like Google and Amazon, who’ve set up major outposts here. Additionally, it hosts a solid startup ecosystem, featuring companies like Etsy, MongoDB and Datadog, just to name a few.

Media and entertainment

New York’s media industry is renowned worldwide, with numerous media conglomerates calling the city home. These include Time Warner, ViacomCBS and The New York Times. The city’s thriving entertainment sector hosts Broadway, a global beacon for theatre and major television networks like NBC and ABC.

Retail and fashion

New York is a global fashion capital, playing host to renowned fashion houses and designers. Do Vera Wang, Michael Kors and Donna Karan sound familiar? It’s also home to retail giants like Macy’s and Bloomingdale’s. The fashion week in New York further bolsters the city’s reputation as a leader in fashion and retail.

Tourism and hospitality

New York’s iconic landmarks, from Times Square to Central Park, attract millions of tourists each year. This fuels a vibrant tourism and hospitality industry, with major employers including hotel chains like Marriott and Hilton, as well as tons of restaurants and service providers.

Education

With prestigious institutions like Columbia University and New York University, education is a major employer in New York. These institutions offer employment opportunities in teaching, research, administration and support roles.

Find a new apartment in New York

Given these numbers, it becomes clear that while a $100,000 salary is substantial, it’s also relative. What it offers depends on a variety of factors — lifestyle choices, neighborhood, family size and more. Overall, a prudent financial approach can help navigate the complexity and allow one to savor the flavors of the Big Apple without biting off more than they can chew.

Ready to find your New York home? Start here.

Source: rent.com

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When it comes to purchasing a home in Michigan, buyers may have difficulty finding financing beyond the conforming loan limit. If this is the case, you may need a jumbo loan. Whether your sights are set on a home in Grand Rapids or a condo in Detroit, let’s break down what a jumbo loan is in Ohio, the 2023 conforming loan limits, and what’s needed to qualify for this type of loan.

What is a jumbo loan?

A jumbo loan is a type of mortgage that’s designed to help you finance the purchase of a home that exceeds the limits set by the Federal Housing Finance Agency. In Michigan, this type of loan is often needed for high-end homes or properties located in expensive housing markets. With a jumbo loan, you can get the financing you need to buy your dream home, even if it’s more expensive than what a standard mortgage can cover.

If the home you’re purchasing will require you to borrow more than the conforming loan limit (CLL), you’ll need to apply for a jumbo loan. However, because of the larger loan amounts and the risk involved, jumbo loans often come with stricter requirements and higher interest rates than conventional loans. Lenders typically require a larger down payment, higher credit score, and more assets on hand to qualify for a jumbo loan in Michigan.

What is the jumbo loan limit in Michigan?

In Michigan, the conforming loan limit is $726,200 across all counties. For example, the conforming loan limit in Wayne County is $726,200, so any mortgage that surpasses the loan limit designated for your county by even one dollar is classified as a jumbo loan.

Keep in mind that the loan amount is what determines whether or not you’ll need a jumbo loan, not the home price. In this case, your loan wouldn’t be considered a jumbo loan. So, if you were to put $100,000 down on a $780,000 home in Detroit, the loan would be $680,000, which is under the conforming loan limit for this area. In this case, your loan wouldn’t be considered a jumbo loan.

This FHFA map will give you more specific information related to the conforming loan limits in your county.

What are the requirements for a jumbo loan in Michigan?

As previously mentioned, the requirements for a jumbo loan are much more stringent than the requirements for a conforming loan. The specific requirements can vary from lender to lender, but below are the typical requirements for borrowers seeking a jumbo loan.

Higher credit score: In order to be eligible for a jumbo mortgage, lenders generally expect borrowers to have a credit score of at least 720. While some lenders may consider a score as low as 660, a credit score of less than that is typically not accepted.

Larger down payment: Obtaining a jumbo mortgage typically requires a larger down payment compared to a conforming loan. Lenders may require a down payment of 10% to 20% or more, depending on the specific loan program and the borrower’s financial situation. If you’re approved with a down payment less than 20%, keep in mind you’ll most likely be required to purchase private mortgage insurance (PMI).

More assets: Jumbo loan borrowers are typically required to have additional assets. In particular, lenders may require borrowers to demonstrate sufficient liquid assets or savings to cover one year’s worth of loan payments.

Lower debt-to-income ratio (DTI): To qualify for a jumbo loan in Michigan, lenders typically look for a debt-to-income ratio (DTI) of no higher than 43%, and ideally closer to 36%. The DTI is calculated by dividing the sum of all monthly debt payments by the borrower’s gross monthly income. This requirement ensures that borrowers have a strong ability to repay their loan and manage their debt.

Additional home appraisals: When you buy a home in Michigan, your mortgage lender will require a home appraisal to confirm that the property’s value is equal to or higher than the loan amount. In some cases, a lender may require an additional appraisal for a jumbo loan. In regions with very few comparable property sales, the cost of the appraisal may be higher than in places with more frequent sales.

Source: redfin.com

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Real estate teams of all sizes continue to perform, according the Streamlined Quarterly Team Benchmarking Report, which looked at the financial performance of more than 200 teams across the nation.

Steamlined, based in Arizona, has a roster of hundreds of U.S. real estate teams and individual agents as clients for their accounting and bookkeeping services. The firm confirms actual financial and operational details of these businesses and assemble the data in useful benchmark studies to help their clients assess how effectively they are operating. 

This is extremely valuable information, not only for teams but also for the brokerage firms with whom they are affiliated. A clearer understanding of the performance of teams helps everyone understand the impact of the growth of the organization and performance of teams and confirms the importance of LG in the industry.

Small teams lead in retained gross margin

The smaller the team; the higher the retained Gross Margin (GM) — what the team had after paying their internal agents. For teams under $300,000 in gross commission income (GCI), gross margin was 79.5%. while for the largest segment — those teams having over $3 million in GCI, the GM was 45.7%.

“Our view is that smaller teams generally have a closer-knit cultural fabric,” said Steve Murray, senior advisor to HW Media and a partner with RTC Consulting. “The relationships between the leader of the team and the agents of the team are necessarily tighter than larger teams with dozens or more agents.  The value provided is more frequently reinforced.  Some of these same trends have been noted among larger versus small brokerage firms for years based on data from RealTrends + Tom Ferry The Thousand and America’s Best agent and team rankings,” he adds.

How are teams spending money?

The largest expense for teams was employment cost — salaries, wages, employment taxes and contract labor. As a percent of GCI, the smallest teams had employment expenses of 11.2% of GCI, while the largest teams experienced costs of 17.4% of GCI. Much like any business, scale brings the need for higher personal costs.

“Larger teams have more personnel as the division of labor gets expanded as a firm gets larger. This is true not just for teams but for businesses of all shapes and sizes (outside of a few giant technology firms.),” says Murray. “The tasks handled by the leader of a small team are far more numerous and it is only when a team grows that these duties are dispersed to others in the organization.  This factor enables a team to grow beyond the expertise of the owner of the team.”

Lead generation costs

What we found highly interesting is that lead generation expenses did not vary nearly as much as we would have thought between the smaller and larger teams. The percentage spent on lead generation by the smallest team category was 9.7% of GCI. The largest teams spent 10.2%. It makes sense that larger teams spend more absolute dollars on leads, but here scale does benefit larger teams.

Say Murray, “Lead generation is, of course, at the heart of a successful team regardless of its size. RealTrends has noted that as teams grow, they don’t require proportionately more spending as a percentage of gross revenues on lead generation for a few reasons. First, the cost per lead decreases as a team buys more of them.”

Second, generally larger teams have developed processes that enable them to process and capture more transactions per dollar spent on lead generation, “thus lowering the need to ramp up exponentially as they grow,” he says.

Operating expenses

In total operating expenses, when expressed as a percentage of GCI, the larger teams had the lowest number at 30.8% of total GCI spent on operations (these are costs not associated with the team’s agents.) The smallest teams spent 42.6%.

“There were no surprises in this category of expenses,” says Murray. “Larger teams are more efficient in operating overhead the same way larger brokerage firms have the same experience. Whether it be in accounting, marketing, occupancy, insurance, etc., larger firms will spend less per dollar of revenues than small entities.”

Extrapolating actual dollars is a bit imprecise but helpful. Taking the minimum of the smallest team and the maximum for the largest teams and the midpoint for the four categories in between, it indicates that actual dollar profits are $110,700 for the smallest teams and $444,000 for the largest teams. 

In the middle, for example, teams producing between $550,000 and $800,000 in GCI showed a dollar profit on average of $226,800. It appears that while the largest teams, on average, are 275% larger in terms of GCI, they are only 96% larger in terms of their average profit.

Streamlined, RTC Consulting and HWMedia are teaming up to share this data with our readers to help create transparency in the results of over 200 teams. We will publish these results on a quarterly basis roughly 45 days after the end of each calendar quarter.

David Pittiglio is the CEO of Streamlined Business Solutions.

Source: housingwire.com

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SmartAsset Advisors, LLC (“SmartAsset”), a wholly owned subsidiary of Financial Insight Technology, is registered with the U.S. Securities and Exchange Commission as an investment adviser. SmartAsset’s services are limited to referring users to third party registered investment advisers and/or investment adviser representatives (“RIA/IARs”) that have elected to participate in our matching platform based on information … [Read more…]

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If you’re a U.S. homebuyer waiting for a return to super-low mortgage rates, don’t hold your breath.

The short-lived era of 3% interest rates for 30-year fixed mortgages is over, and unlikely to return anytime soon — perhaps for decades — says Lawrence Yun, chief economist at the National Association of Realtors.

“One can never truly predict the future, but I don’t see mortgage rates returning back to the 3% range in the remainder of my lifetime,” he says.

That’s because average 30-year fixed mortgage rates of 3% or less were an anomaly related to the pandemic, lasting from about July 2020 to Nov. 2022. Historically, the rates have been closer to an average of 7% over the past 50 years, according to Freddie Mac data.

Why super-low mortgage rates won’t return any time soon

Historically low mortgage rates during the pandemic were “an exceptional measure, during exceptionally uncertain times,” says Yun.

With the pandemic came economic uncertainty not seen since the 2008 financial crisis. Fearing a prolonged recession, the Federal Reserve followed the same playbook it used in 2008, pumping money into the economy to stimulate growth.

As was the case in 2008, the Fed slashed interest rates to nearly 0%, created emergency lending programs and bought government bonds and mortgage-backed securities, otherwise known as quantitative easing.

Since mortgage rates are closely linked to the Fed’s benchmark interest rate and can be driven further down by quantitative easing, the interest on mortgages subsequently hit rock bottom at 2.67% in January 2021.

Congress also passed trillions of dollars in Covid-19 relief and stimulus spending, which helped increase U.S. national debt by roughly 30% between 2020 and 2022, according to Treasury Department data.

However, unlike 2008, the economy recovered quickly and rising inflation soon became a problem. By spring 2021, the year-over-year inflation rate had accelerated beyond the Fed’s benchmark of 2%, forcing the central bank to start raising interest rates again. And with that, mortgage rates rose too.

I don’t see mortgage rates returning back to the 3% range in the remainder of my lifetime.

Lawrence Yun

Chief economist at the National Association of Realtors

As a result of inflation and current federal spending deficits, Yun doesn’t think the Fed is likely to drop interest rates down to nearly 0% again, even in the event of another financial market panic or pandemic.

Other economists who spoke to CNBC Make It agree that homebuyers shouldn’t expect a return to record-low mortgage rates in the near term.

“It’s unlikely that the Federal Reserve will respond with the same breadth and aggressiveness like it did in 2020, as the very low mortgage rates in 2020 were caused by very unique circumstances” related to the pandemic, says Abbey Omodunbi, senior economist at PNC Financial Services.

“I haven’t seen mortgages that low in over 30 years in the business,” says Dottie Herman, vice chair at Douglas Elliman. “It’s highly unlikely we’ll see rates that low anytime soon.”

Where mortgage rates are headed

The current average mortgage rate for a 30-year fixed-rate mortgage is 6.81% as of July 6, slightly lower than its November peak of 7.08%, per Freddie Mac data. (Check out this list of the best mortgage lenders here, from CNBC Select.)

However, many projections are expecting a steady decline over the next year or so.

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Source: cnbc.com

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You may remember GMAC Bank, which was taken down by its fateful mortgage arm Residential Capital (ResCap) before eventually requiring a government bailout.

It wasn’t an uncommon story at the time; many other mega mortgage companies took a fall too, including the likes of Countrywide and IndyMac, to name but two.

Anyway, ResCap was a big mortgage player back in the day, originating billions of residential home loans in the lead up to the housing bubble. Then it all came crashing down…

Once the company recovered from the financial crisis, it rebranded itself as Ally Financial, offering auto loans and high-yield savings accounts. Those businesses seemed like a safe way to dip their toes back in the lending waters.

The auto loan portion of the business actually runs deep in its history seeing that GMAC stood for General Motors Acceptance Corporation. So you knew they were going to get back into that business, but the mortgage business was still a big question mark.

They’re Back…with a Brand New Name

  • After the Great Recession it became common to rebrand if you made it through
  • Seeing that many companies faced lawsuits and bad PR
  • That explains why ResCap is now known as Ally Home
  • It gives them a fresh start and lets them forget all those painful memories

Somehow these large companies have a way of reinventing themselves, with fresh new names and logos that can make us all forget the ugly past very quickly.

And so without further ado, say hello to “Ally Home,” which is the company’s new direct-to-consumer mortgage offering.

It’s yet another home loan option available to borrowers in the post-crisis mortgage world.

In line with the name change, they seem to want to be your buddy in the financial world, hence the word ally. And they deploy a so-called “Home Team” to help you get your mortgage.

What Does Ally Home Offer?

  • They other both home purchase and refinance loans
  • Including the ability to get cash out if you need it
  • Ally accepts conforming and jumbo loan amounts
  • And has a variety of home loan products including fixed mortgages and ARMs

Like other mortgage lenders, Ally offers both purchase and refinance mortgages, including rate and term and cash-out refis.

So whether you’re buying a home or simply looking to improve your existing interest rate/tap equity, they’ve got you covered.

Additionally, Ally Home offers both conventional and jumbo mortgages, the latter of which are above the conforming loan limit of $417,000 (soon to be $424,100). And now $453,100!

In terms of mortgage choice, you’re able to get a 30-year or 15-year fixed, along with less common varieties such as the 25-year, 20-year, and 10-year fixed.

The company also offers a typical selection of hybrid ARMs, including the 10/1, 7/1, and 5/1 ARM. The only obvious absence if the 3/1 ARM.

So they’ve basically got you covered when it comes to home loan options unless you’re looking for something super unique.

Ally Mortgage Rates Are Very Competitive on Jumbo

  • First things first, they actually advertise their rates on their website
  • Which is a nice sign of transparency
  • Their rates seem to be fairly middle-of-the-road for conforming loans
  • But really competitive when it comes to high-cost/jumbo loans so definitely check them out if you’ve got a big loan

One thing I appreciate about Ally is the fact that they openly advertise their mortgage interest rates, unlike a lot of other lenders.

So they win on transparency right off the bat. Now let’s determine if the advertised rates are any good.

As of the time of this writing (August 1st, 2018), Ally Home Loans was offering a rate of 4.75% on a 30-yr fixed with -0.22 mortgage points, with lots of assumptions like excellent credit, a $300,000 loan amount, and a minimum 20% down payment for a single-family home.

That negative amount of points means you get a credit toward closing costs, which is a good thing since a lot rates often require that you pay points out of your pocket at closing.

Interestingly, their jumbo mortgage rates seem to be significantly cheaper than their conforming ones, so it might be a good place to send a larger loan if you’ve got your eye on a particularly expensive property (or already happen to own one).

For example, they were offering a rate of 4.375% on a 30-year fixed for the same assumptions above, except for a loan amount of $650,000. Technically that’s just a high-cost conforming loan amount, but I won’t get into all that.

The point is they seem to specialize in larger loan amounts and offer really competitive rates on that front.

But even if their rate isn’t the lowest, they offer a so-called Price Match Guarantee where they’ll lower their rate/points to match those of a competitor. Oddly, they won’t go the extra step and beat them…hmm.

Ally Home Wants to Deliver a High-Touch Experience

  • As noted Ally wants to be your friend and more specifically your ally
  • That means you should get a lot of contact and guidance along the way
  • With a loan advisor, loan coordinator and closing coordinator there to assist
  • You can choose to receive updates via email or phone and dedicated support is available from application to close

Unlike a lot of mortgage newcomers, Ally Home wants to be super involved with you throughout the underwriting process.

They refer to it as a “high-touch experience” in which customers are guided through the entire home loan journey with a knowledgeable stable of so-called “dedicated loan experts.”

This runs counter to some of the fintech startups that cater to Millennials who apparently don’t ever want to speak to another human, ever.

That’s totally fine, but it appears Ally wants to bring back the human element and focus heavily on customer service with its group of loan advisors, loan coordinators, and closing coordinators known as the Ally Home Team.

This will include dedicated support, frequent loan updates, online access to all loan-related documents from any device, and a variety of communication options like text, phone, or e-mail.

Ally Home has also partnered with LenderLive to handle mortgage fulfillment, settlement and document services in an expeditious and compliant manner.

And most recently invested in Better Mortgage, another so-called “digital mortgage disruptor” in the space, to take advantage of their tech-heavy mortgage origination platform.

The hope is to provide the best possible mortgage experience by combining the best people with the best technology in the industry.

If you’re keeping track, three of the largest mortgage lenders during the prior boom have now risen from the ashes.

Former Countrywide execs successfully launched PennyMac, IndyMac transformed into OneWest Bank, and ResCap’s parent company has now introduced Ally Home.

It has been a pretty wild decade.

Source: thetruthaboutmortgage.com