Justin: We are on. Hey, Brian. This is Justin and we’re here with the Mortgage Market Minute. What do you have for me today?
Brian Martucci: Well, I think the topic of the day is probably going to be interest rates and the odd thing to me is that a lot of people do not realize that interest rates are up a little bit, not a lot, but people, when the media starts to hammer the public with the fact that rates are down, rates are down and they repeat it all the time.
Brian Martucci: – people just think, well, it’s just on autopilot. That thought, the rates are down, that’s it. But rates are up a little bit, about a quarter percent. I’m not sure if that means they’re going to continue to go up, but rates are up a little bit and there’s been some talk about the federal reserve, the next program, to bring them back down a little bit. But rates are still –
Justin: Why are they up immediately now? What is the reason?
Brian Martucci: I think it’s tied mostly to the stock market. The bond market, which is what drives interest rates, and the stock market are kind of tied together and the stock market has been rallying nicely for the past couple of weeks. So people pull money out of the debt market, out of the bond market, put it into risk, into equities. Then the reverse happens. When stocks get hammered and get pushed down a lot, people run for safety and they put money into the bond market and as a debt issuer, if you’re issuing debt, i.e. bonds, and people are rushing to buy your product, you can offer a lesser return and still sell your products. So that’s when rates go down.
Justin: Okay. Well, cool. I know we talked briefly about conforming loans, the limit that has gone from $729,000 down to another number and now it may go back up again. What’s that about?
Brian Martucci: Right. So, it was $729,750 to be exact starting back in 2008. It was supposed to be a temporary program. They renewed it every year and then this year, starting October 1, they dropped it to $625,500 which is part of this whole thing, getting the government out of the mortgage business thing. Some senators have come through and passed a bill, there are both Democrat and Republican sponsors, to push it back to $729,750. So I believe it has to pass the house. Nobody’s really quite sure of the odds yet, but that’s kind of in a state of flux right now.
Justin: What’s the immediate impact if that should get passed? What does that mean to the borrower that’s out on the street right now?
Brian Martucci: Well, I can give you one anecdotal piece of data. There are some clients that I have that were looking to buy an $800,000 place. They only had a 10% down payment. They were going to borrow $720,000. So under the old rules, they could get a conforming loan. Well, now that it’s been dropped to $625,000, they have to put down over 20%. They don’t have it, so they’ve been cut out of that market for the $800,000 house that they want that they can qualify for income-wise, but they don’t have the down payment for 20% down. So now they have to look at houses that are about $695,000 and under because their 10% down payment will get them to $625,000. So they’re, of course, really rooting for this new legislation to pass.
Justin: So that may not put them in the areas they want to be in and therefore.
Brian Martucci: Right.
Justin: Maybe even at some point consider, well, maybe we’re not going to buy at this point.
Brian Martucci: And they may not. I mean, they had a certain – they made good money. They have good credit. They have a certain neighborhood they feel they deserve to be in and I concur. I mean, they’re qualified buyers and to go from an $800,000 home to $695,000, that’s a different neighborhood. That’s a different amount of square footage and they’re not going to take that step down, so I think they’re going to wait and I’m not sure how long it would take for them to get back into the market.
Justin: Well, so real quickly. Apart from it being a political football, what does it even matter to the government that there’s a limit of $625,000 or $729,000?
Brian Martucci: Well, it is all politics and it’s all about should the government be in this sector or not? And as they start to find a way to combat the deficit, you’re going to see them and it’s already on the table and they’ve not done anything about it, but the tax deduction, for example. It’s all tied into the same thing. What should the government be involved in or not? What should they subsidize or not? Government picking winners and losers and certain parameters of certain sectors of certain markets.
Justin: Right. Okay, well cool. You have anything else this week?
Brian Martucci: No. I think those are the two big topics of the day and the next time you and I chat, we’ll give you an update on those and anything else that’s important.
Justin: Excellent. Cool. Thanks, Brian.
Brian Martucci: Okay, thank you.
Justin: Talk to you next week.
Brian Martucci: All right. You too.
Brian Martucci: Bye-bye.