Understanding Mortgage-Backed Securities and the 10-Year Yield

If you’re a real estate buyer, you’ve probably heard of mortgage-backed securities (MBS) and the 10-year yield. But do you know how they’re related? Don’t worry, we’ll explain it in plain English so that even a caveman can understand. Let’s start with understanding MBS.

Mortgage-Backed Securities Explained

Mortgage-backed securities are investments in which a group of mortgages are pooled together and then sold to investors. These securities are like bonds and investors receive income from the interest payments made by homebuyers on their mortgages. The income is paid out until all the mortgages in the pool have been paid off or until their term length expires.

The 10-Year Yield

The 10-year yield is an interest rate that measures the return an investor receives from investing in government bonds with ten-year maturities. This rate is closely followed as it is often used as a benchmark for other investments such as mortgage-backed securities. That’s because when yields increase, mortgage rates also tend to increase due to supply and demand dynamics, meaning buyers of MBS can get higher returns on their investment than if they were to invest in shorter maturity bonds with lower yields.

Relationship Between Mortgage-Backed Securities and the 10 Year Yield

So now you know what mortgage-backed securities are and what the 10 year yield means – but how exactly are they related? The relationship between MBS and the ten-year yield is important because it gives investors an idea of how much return they can expect to receive from investing in MBS over time. When yields rise, more people will be willing to buy mortgage-backed securities since they will be able to make more money off of them as compared to other investments like government bonds or stocks with similar maturity lengths. As a result, lenders can charge higher rates for mortgages, which leads to higher rates for homebuyers who take out loans backed by MBS.

Conclusion:

So, there you have it—the relationship between mortgage-backed securities and the ten year yield explained! In short, when yields go up, so do mortgage rates since lenders can charge more for loans backed by MBS due to increased demand from investors seeking higher returns on their investments. This means that if you’re looking into buying a home soon, keep an eye on current market conditions so that you’ll know if your loan cost may be affected by rising yields!

What’s the Latest on Mortgage LLPAs (loan-level price adjustments)

It seems like every day, the rules and regulations in the real estate world change. Whether it’s a new tax law or a new mortgage program, there’s always something new to learn. In this post, we’ll take a look at changes in mortgage loan-level price adjustments (LLPAs) over the past month. So, if you’re considering buying a home, here’s what you need to know about the latest mortgage LLPAs.

What is an LLPA?

It’s important to first understand what an LLPA is before diving into recent changes in this area. An LLPA is an additional cost that lenders may add to your loan amount when you apply for a loan. This fee covers certain costs associated with approving your loan and can vary depending on your credit score, down payment amount, and other factors. The good news is that unlike other fees that often accompany mortgages, LLPAs are not charged upfront; instead, they are added to your monthly mortgage payments over the life of the loan.

Recent Changes in Mortgage LLPAs

Over the past month, there have been some significant changes in mortgage LLPAs. First off, loans with credit scores below 740 now have significantly lower LLPAs than those with higher credit scores—down from 0.99% last month to 0.67% today! This means buyers who fit into this category will see their monthly payments decrease by about $25 per month! Additionally, low-down payment loans also saw decreases of up to 0.7%. For buyers looking for these types of loans, this could represent savings of up to $17 per month!

What Does This Mean for Buyers?

The takeaway from all this is that while buying a home can still be expensive (especially if you’re using FHA or VA financing), recent changes in LLPAs mean that buyers can save hundreds of dollars over the life of their loans—and potentially thousands if they qualify for low-down payment options! So, if you’re thinking about buying a home in the near future, now might be the perfect time!

Conclusion:

As we can see from recent changes in mortgage LLPAs over the past month, buyers are now able to save hundreds—or even thousands—of dollars over their lifetime due to reduced fees associated with their loans. If you’re considering purchasing a home soon, make sure you take advantage of these savings! After all, every penny counts when it comes to saving money on your dream home!

So, I was thinking about what to write this week, and I realized that there are people reading this that don’t really know how the mortgage industry works. I realize being in the throes of it day in and day out that we run the risk of assuming everyone knows what we’re talking about. That said, let’s cover the basics!

Residential Mortgage Market: A Comprehensive Overview

The residential mortgage market is the largest and most active market in the world. It is responsible for financing the purchase of homes, condos, and other real estate investments. It consists of lenders, investors, borrowers, brokers, and government entities that help to facilitate mortgage transactions. With so many players involved in the residential mortgage market, it can be complicated to understand how all these pieces fit together. In this post, let’s take an in-depth look at the components of the residential mortgage market and explain how they interact with one another.

The first component is the lender, who provides funding for a loan. Lenders include commercial banks, private institutions such as Fannie Mae or Freddie Mac (government sponsored entities), credit unions, savings and loans associations, insurance companies and more. These lenders offer various products such as conventional mortgages (which are not insured by any government entity), FHA (Federal Housing Administration) loans which are insured by HUD (Department of Housing Urban Development), VA (Veteran Affairs) loans which are guaranteed by VA, and USDA Rural Housing Loans which are provided through the United States Department of Agriculture. Each type of loan has its own set of requirements that borrowers must meet in order to qualify for a loan.

In addition to these direct lenders there are also brokers (us) who provide a service which matches potential borrowers with suitable lending institutions that meet their needs. These brokers can be independent or affiliated with specific lenders or groups of lenders; however, they do not actually lend money but instead act as an intermediary between borrowers and lenders to find appropriate loan products for each individual’s situation.

Another important player in the residential mortgage market is investors who buy mortgages from originators in order to create profits from interest payments made on those mortgages over time. They may also package mortgages into bond portfolios which can then be sold off on financial markets around the world providing both liquidity and risk diversification opportunities for investors large and small alike.

Finally, there are various government entities such as Fannie Mae and Freddie Mac that play an integral role in ensuring access to credit for potential home buyers through their involvement in structuring loan programs like HARP (Home Affordable Refinance Program). The Federal Reserve also plays an important role by setting interest rate policies through their control over monetary policy.

All these different components form what we know as the residential mortgage market today; a complex system that provides financing opportunities to millions around the country while facilitating wealth creation through homeownership at scale—a feat no other market can boast about! While getting involved in this industry is not without its risks–such as increasing defaults due to changing economic conditions–on balance it remains one of our nation’s most powerful economic forces helping shape our future landscape one house at a time!

So, we made it to 2023. YAY!! 2022 brought us inflation, higher interest rates and the relaxing of COVID 19 restrictions. Whew… what a year. In all honesty, 2023 looks like it will be pretty flat over last year. Probably not much economic growth for the country if any at all and looks like we might be headed into a recession.

There’s been quite a bit of lay-offs in the news, but really that has been centered around the tech industry which only makes up about 7-8% of our GDP; whereas the real estate sector makes up between 11-12%. That’s not to say that we won’t see lay-offs in our sector because well, there have been some. Probably will be a bit more…

From Coastal Mortgage Solutions’ perspective, we’ve still been busy. Working harder on the loans we are getting, and some cleaning up of our systems/processes. Doing everything we can to make sure we are ready for a market turn and make sure our clients have the best experience possible. That said, what are our lenders doing? Quite a bit!

A few of our lenders have decided to start offering Buydown options for clients. In a nutshell, you buy down the interest rate. So, you can do a 1, 2 or 3 year buy down. For instance, if you do a 3 year, you’ll have a lower interest rate for 3 years then it will go up after 3 years to whatever that rate may be. This is a good option especially if you are looking to be in a home for a short amount of time or hedging a bet that rates will go down and you can refi in 3 years or so! Aside from the buy down option which directly benefits our clients, there are also things lenders are doing for brokers like us to help pass on savings to our clients, which we are grateful for.

One thing is for sure that this year will be challenging, but at least we are in this together. I can guarantee we here at Coastal Mortgage Solutions are going to do everything we can to get the best rates and terms for our clients AND get those loans closed!

Well, we made it through Christmas and the New Year awaits! Can’t wait to see how 2023 unfolds. So, what can we expect for the Real Estate Industry this coming year?

First, there is still a supply shortage in the US. There simply is just not enough real estate inventory. In 2022 overall construction starts rose about 17% and are expected to remain flat in 2023. That’s a good thing relative to the current economic environment. There are a couple of (obvious) key factors that will affect us this coming year: Mortgage Rates and the Average Cost of a Home. Experts are estimating that there will be a rebalancing of the market. Rates should come down in 2023, as well as the average cost of a home. Potentially good news, right?!

The past two years we’ve seen unprecedented low interest rates. The housing sector has been red hot. Now even though the holiday season typically sees home sales slowdown, this current trend has more to do with rising interest rates versus seasonal shifts. Yes, mortgage rates are higher than before, but rate hikes from the Fed are really serving to position the housing market back to where it should be historically. Granted, consumers will need to adjust their expectations. Not an easy thing given those pandemic level interest rates!

Speaking of expectations, what should we expect in the housing market this coming year? First, we have to keep in mind that mortgage interest rates do not move in lockstep with the Fed’s actions; however, they do respond to inflation. Therefore, lower inflation news and positive signals from the Fed will influence mortgage rate movement more than the most recent 50 basis point rate hike. Quite frankly, we don’t know, right? No one has a crystal ball, but that being said, if the Fed sees inflation coming down cumulatively over each passing month, we should see mortgage rates begin to stabilize and even trend down.

Let’s look at home prices for 2023. Yes, even though demand has cratered, we still have low inventory. More demand than supply, yet we are seeing areas that saw rapid price increases during the pandemic now experiencing dramatic slowdown in market activity. Homebuyers have been sidelined due to affordability issues.

All that said, we’ll see. Overall, I expect to see a slowdown year over year, but that being the case, sales and inventory will have to slow down significantly before we see a big drop in values.  

So what’s the news we have for you this week? A couple of things I’d like to point out in the industry that can help us.

First, The Federal Housing Finance Agency (FHFA) announced the conforming loan limit values (CLLs) for mortgages to be acquired by Fannie Mae and Freddie Mac (the Enterprises) in 2023. In most of the United States, the 2023 CLL value for one-unit properties will be $726,200, an increase of $79,000 from $647,200 in 2022.

The Housing and Economic Recovery Act (HERA) requires that the baseline CLL for the Enterprises be adjusted each year to reflect the change in the average U.S. home price. Earlier today, FHFA published its third quarter 2022 FHFA House Price Index® (FHFA HPI®) report, which includes statistics for the increase in the average U.S. home value over the last four quarters. According to the nominal, seasonally adjusted, expanded-data FHFA HPI, house prices increased 12.21 percent, on average, between the third quarters of 2021 and 2022. Therefore, the baseline CLL in 2023 will increase by the same percentage.

The next thing is understanding the correlation between Inflation and Interest Rates. Understanding that Fed Interest Rates do affect Mortgage Interest Rates, but not nearly as much as inflation. So watching inflation rates is a better predictor of whether Mortgage Interest Rates will go up or down. For example, the Consumer Price Index (CPI) went up 0.4% on November 10^th. It was less than expected. So what happened to Mortgage Interest Rates? They went down significantly!

Next CPI report (which is a good indicator of inflation) is on December 13^th at 8:30am eastern time. If it’s less than expected, rates will go down. If it’s more, rates will go up. That’s a better more tied-in indicator of inflation versus the Fed rates.

Hope this all makes sense. If you have any questions, we’re always happy to answer them here at Coastal Mortgage Solutions.

Well, we have great news… We have officially opened our new office in Camden!!!! YAY!!! We are located at 102 Marsh Harbour Parkway, Suite 102, Kingsland, GA 31548. There was a lot of work to be done, and we’re finally done. Granted we need to put some pictures on the walls and things like that, but we’ve got furniture, computers, and all our other necessities taken care of. If you are in the area, please stop in. Robyn Baily one of our LO’s is working out of that office for sure. She’s from Camden and lives there. We will also be rotating other people out of that office as well.

Speaking of Robyn, she’s been doing a great job! She reached over a million in sales last month and is on the way to do the same for the month of November. If you see her, congratulate her.

Now down to the market.

We all know that we’ve been dealing with some challenges in the current housing market. Everything from supply chain issues to higher interest rates. Obviously, we don’t have much control over the supply chain problems especially given that we deal with the finance side of a real estate transaction. That being said, we do have some really cool new “buydown” products that are designed to help our clients.

A buydown is a mortgage financing technique with which the buyer attempts to obtain a lower interest rate for at least the first few years of the mortgage or possibly its entire life. A 2-1 buydown, for example, is a specific type of mortgage buydown that allows homebuyers to save on their interest rate for the first two years of the loan. Buydowns can also use a 3-2-1 structure as well.

KEY TAKEAWAYS

• A buydown allows homebuyers to obtain a lower interest rate when taking out a mortgage loan.
• Buydowns can save homeowners money on interest over the life of the loan.
• A buydown can involve purchasing discount points against the mortgage loan, which may require payment of an up-front fee.
• Whether it makes sense to choose a buydown when buying a home can depend on the interest rate for which you qualify and how long you plan to remain in the home.

Buydowns Explained

Buydowns are easy to understand if you think of them as a mortgage subsidy offered by the seller on behalf of the homebuyer. Typically, the seller contributes funds to an escrow account that subsidizes the loan during the first years, resulting in a lower monthly payment on the mortgage. This lower payment allows the homebuyer to qualify more easily for the mortgage. Builders or sellers may offer a buydown option to help increase the chances of selling the property, by making it more affordable.

The builder or seller of the property usually provides payments to the mortgage-lending institution, which, in turn, lowers the buyer’s monthly interest rate and, therefore, monthly payment. The home seller, however, usually will increase the purchase price of the home to compensate for the costs of the buydown agreement.

Hope this helps you all. Give us a call at Coastal Mortgage Solutions for any questions you may have.

Given the current climate conditions we could wallow in the negativity of inflation, recession, increasing mortgage rates, increasing FED rates, 10 year yield… The list goes on; however, we must remember that the mortgage industry comes in cycles like the waves of an ocean. We have to keep our heads up and work much harder for our clients not just now, but in the future!

Since the MBS (mortgage- backed securities) and home mortgage markets cycle, we have the opportunity to offer refinance options for our clients down the road. Especially given the fact that right now clients are locking in at interest rates above 7%!!!

With market volatility the way it is, it makes sense to lock any willing client as soon as possible. Don’t take the risk of rates possibly dropping. Trends show all too well that rates are rising, but this too shall pass!

So, what are our options if we can’t do a cash-out refi for say home repairs or betterments and improvements? There is the HELOC or Home Equity Line of Credit.

What is a HELOC? It is a line of credit borrowed against the available equity of your home which is the difference between the appraised value of your home and your current mortgage balance. It gives you a revolving credit line. HELOC’s often have a lower interest rate than most other personal lines of credit and is tax deductible. HELOC’s are typically variable, but principle fluctuates depending on how much you draw.

As a mortgage broker, Coastal Mortgage Solutions is able to offer quite a few mortgage loan products for our clients. Please don’t hesitate to reach out to us to discuss the many options we have available.

Well… WE MADE IT!!! Hurricane Ian came and went, and luckily the Golden Isles were not severely impacted. Yes there were some tidal surges, but for the most part we made out well. Hope you and all your friends and families faired well too.

Speaking of tides, looks like the tides are changing for the real estate market as well. Things have been trending to a buyer’s market from a seller’s market. Of course, we all know the woes of clients for both sides of the transaction when trends change. It takes a while for sellers to get onboard with potential concessions, and buyers to know what to ask for. Thank goodness for Realtors and Real Estate Agents to advise their clients accordingly. Us on the lending side… more challenges or “opportunities” present themselves as we find the right mortgage product to help our clients.

One such product we offer is a Temporary Rate Buydown. We can help clients lower their interest rate by up to 2% at the start of the loan. It gives buyers some extra flexibility with lower monthly payments at the beginning of the loan. So, it’s a great option for borrowers who are upwardly mobile and expect their incomes to increase over the next couple of years. We also expect the market to turn and rates will eventually start to decrease which will offer opportunities in the future to refi at lower rates. The program is available for conventional primary and second home purchases, FHA and VA primary home purchases.

Give us a call for more information on not only this loan program but other mortgage products available. When times get tight, we have to get creative. We look forward to working with you. We are here for you!

Well, here we are again! It’s been a couple of weeks, but we’ve been busy here at Coastal Mortgage Solutions.

I think first I’d like to thank everyone for the 5 star reviews. We can’t express enough how excited we are about your feedback. Everyone has been so kind with their words and sharing of their experiences with us. We pride ourselves on our work, and especially on our interactions with you, our clients. We are almost at 200 total google reviews! A milestone we’re ecstatic to meet. 😊 So, all that to say… Thank you. We want to be the number one Mortgage Broker at least in the Golden Isles and surrounding counties, and we have our sights on growing our business and with all those communities.

Being a mortgage broker has its advantages. We can shop your loan with multiple lenders to find the best rate and product for you. A lot of banks and other firms only have one lender they are able to offer mortgage products from.

A cool tool we are able to use right now given the current climate to help our clients is a product called Lock and Shop. We can lock in a rate even without an address (commonly know as a TBD address) so you can rest assured that your rate won’t go up while you shop for a property. Rates have been trending up so this totally gives you peace of mind while you look for that new home.

Stay tuned for more mortgage industry news from us. We keep our finger on the pulse of the real estate market and financial industry to offer you the best mortgage loan for your needs. I plan on sharing more about mortgage products and the advantages of using a mortgage brokerage firm (a.k.a. Coastal Mortgage Solutions).