Mortgage Blog

As much as I don’t like saying this, it is a blood bath out there. The stock market looses 2,000 points this week while mortgage back securities have lost about 1.7 bps which equates to .25% higher in mortgage rates! This even comes AFTER the Feds joined European banks to lower short-term rates on a global basis by a ½ pt. The intent of the Feds in this unprecedented move was to combat the fear of inflationary pressures in the US because typically when the Feds lower short-term rates it is an inflationary and Bonds hate inflationary pressures and they thought doing it with European Banks would eliminate that concern. The other reason was to make it cheaper for institutions to borrow money for their daily credit needs AND for the Global Economies to create some liquidity. The problem we are seeing today is that because banks are not lending to one another, it doesn’t really matter how cheap in may be for an institution to borrower money if they can get any money from a bank because that bank isn’t able to borrow money themselves. This vicious cycle continues and is growing like a weed!!!

As far as our mortgage bonds are concerned, here is my personal theory on what is happening. Under normal conditions and we are by far out of anything being “normal” right now, typically when the stock market crashes investors will put money into bonds as a safe haven. But because foreign investors, who probably make up at least 40% of our economy (some people say it is upwards close to 60%) don’t believe in our credit markets and have publically said that the 700 Billion relief money isn’t enough to make a difference, are pulling out completely in our market. They (foreign investors) need cash to survive because they haven’t been able to borrower money from their banks for about 1 ½ months now and are just selling everything to be as liquid as possible just to survive. This is why I think our bond market has also tanked along with our stock market because there is no other “traceable” indication as to where the money is going!

So, were do we go from here? It is a day-to-day thing quite frankly. On Monday, of this week, I was able to take advantage of mortgage improvements and lock in all my customers – thank goodness. Today, if you have a short term lock situation, you should just lock what you can. The damage has been done and it could get worse before it gets better for those clients who are closing soon.

There are only a few things we can control in our world and I am so sick and tired of all the bad news/trends that I have come to the conclusion we can only control those things we do on a daily basis. So, get out there and produce! Develop stronger relationships in every facet of your business. Get back to the very basics of our business and do what our mentors did a long time ago – become the ambassador of our community in Real Estate!

Randy Reed

The passage of the $700 Billion rescue plan has stalled today and everyone will be watching this weekend to see what the initial vote is from Congress to pass the proposed bill. We will know more on Sunday night and Monday morning what will happen, but my guess is that if they do pass something, we should see additional confidence put back in our financials, and mortgage will rally.

Neither of today's economic releases are considered to be of high importance, but both gave us results that were favorable to bonds. The first was the final revision to the 2nd Quarter Gross Domestic Product (GDP) that showed a revised rate of growth of 2.8%. This was a sizable downward revision to the previous estimate of a 3.3% annual rate and lower than analysts had expected for this revision. This means that the economy grew at a slower rate than many had thought during the 2nd quarter of the year.

The second report of the day and the final report of the week was the revised reading of the University of Michigan's Index of Consumer Sentiment. The preliminary reading that was released earlier this month revealed a 73.1 reading, but today's update showed a 70.3 reading. This was also lower than forecasts and hints that consumers are less optimistic about their own financial situations than thought, which usually means they are less likely to make large purchases in the near future.

Next week is packed with economic news for the markets to digest. There is relevant data scheduled for release every day of the week, beginning with August's Personal Income and Spending data Monday morning. Look for details on next week's events in Sunday's weekly preview.

If I were considering financing/refinancing a home, I would.... Float to see what happens on Capital Hill. This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

Randy Reed

303.524.9191

This week we saw interest rates continue their rally over last so right now I recommending to “LOCK” because more than likely rates will go back up next week. The thinking behind this is that Gross Domestic Product numbers came out today at a reading of 3%. Optimally, we want to see 2-2.5% and anything above this mark means that inflation is in an accelerated mode. Also, consumer confidence once again came in higher than expected. I still don’t understand this maybe it's because the Democratic Convention has sparked a lot of excitement this past week!

In other news, existing home sales are up - not a big surprise because activity levels are definitely better today than what they were 2 mos ago. New home sales were down and honestly will continue as buyers are going after the deals which basically are your resells.

There are only 4 weeks left to close on the down payment assistance programs. We had yet another investor this week saying they will not take any more applications for these transactions. So, our portfolio of who to choose is getting more narrow - day by day. Get those contracts in NOW because we are closing them in less than 2 weeks!

If you have any questions, need a quick turn around. Please call me at 303.524.9191

Randy Reed

This week mortgage backed securities continued their volatility as we saw some nice improvements on Wednesday but gave back some of that over the last couple of days due to Producer Price Index numbers coming in higher than expected. PPI is what it costs manufacturer to produce their goods which means inflation is still a concern. However, Fed Chairman Ben Bernanke did talk today that inflation overall should be relatively calm throughout the rest of the year and into 2009. This is great news for the bond market has we saw a sell-off on stocks whereby investors started to buy more mortgage securities. We are at our 50 day moving average on rates so my personal recommendation is to Lock in right now.

We had another investor this week get out of the DPA program (they are not taking any more applications) and I noticed that one DPA company actually raise their processing fee to sellers. So, it is getting more expensive to do DPA and investors are being limited. Get those deals under contract ASAP and closed quickly because you just never know what could happened once we get closer to that Sept 30th deadline.

Feel free to call me at 303.524.9191 or 303.809-LOAN(5626) if you have any questions or scenarios.

Randy

This week we saw Consumer Price Index hit its 17 year high which is bad on the inflation side of things but the results have been offset by lower oil prices and a stronger dollar. Mortgage back securities have seen some improvement this week but we haven’t noticed that much of an improvement on rates. Float for now but very cautiously as next week will probably be the week to lock in those rates.

I did find out this week that if you have a full blown approval on Down Payment Assistance programs prior to October 1, 2008 you can close that transaction after that deadline date which eliminates further DPA purchases. Get in those contracts now before it’s to late!!!!

If you need help getting your transactions put together or just good old professionalism to your transactions, call me at 303.524.9191 or 303.809.5626

This week we seem to have got through the Mercury Title fiasco that created havoc for a couple of days this past week to our already sensitive financial industry. Good news that it looks title companies are now back in good graces with mortgage lenders!!!

This week we saw productivity increase even thought job losses are still relatively high. This is great news for bonds because it shows how important personal production is to our economy even though we have seen some of our largest job losses in years.

The greenback has improved this week and because of that oil is way off its highs from last month. Oil is now at $116 per barrel vs. $147 from last month.

If you have any customers who are wondering if now is a good to lock in, I personally would advise to “Float” for right now but with extreme caution.

Marketing tip for the week: Get your down payment assistance people moving quickly as the clock is ticking – 45 days left until DPA goes away. Call you past first time buyers from April 8^th, 2008 and let them know about the $7500 tax credit. Suggestion is to have them increase their W4 exemptions to get some of that money in their pockets today!!! Call for me details if interested. 303.809.5626

Housing and Economic Recovery Act HR Bill 3221 becomes law on October 1, 2008.

President Bush signs into law this week the HR Bill 3221 which is going to change our landscape on housing and mortgages. There are a few good things about this law but in my opinion this it will NOT have nearly the impact what the Federal Government thinks it will and quite the opposite is going to occur! They (the Government) do NOT realize that as an industry we have made self corrections and have put into place things that are unprecedented in the mortgage world. It is so much harder to get a deal approved and the checks and balances we have in place today virtually make the paper we are selling so much better and stronger it is off the charts in regard to the quality of mortgage back security - it is better than A+ paper and investors are enjoying that kind of quality more today than they have in years past. Unfortunately, I don't see a sweeping change for the better and see more potential risks than benefits.

Here are the changes:

• Down Payment Assistance goes away on October 1^st, 2008. Become accustom to your local Housing Authority programs because they will survive and be the only options for consumers who have can afford housing but just don't have the available funds for down payment requirements. This can be good and bad but it will eliminate a huge portion of FHA's business and the investors who buy these mortgage backed securities which by the way is EVERYONE will increase prices in other areas from the reduced income/profit that they will see. IE: Interest rates are going Up, Up, Up in the coming months and this time next year I wouldn't be surprised if we see 7-8% rates!!!
• FHA down payment Requirements goes up to 3.5% currently it is 2.85%, just another stab in the back for those who really deserve financing.
• Risk base pricing reform - Lower FICO scores equal higher rates, not a bad thing.
• Renegotiating Mortgages - People who are in foreclosure or about to be can renegotiate their current mortgage into a new loan for 30 years. The original loan had to be originate prior to January 1^st, 2008. The loan must be your primary residence. Vacation homes and investment properties are ineligible. This is a full documentation loan. Also, as of March 1, 2008, your monthly housing payment (including the principal on all your various mortgage payments, interest, taxes and insurance) has to have been at least 31 percent of your monthly household income.  So those with less than 31% housing expense vs their monthly income will not qualify. Lenders, however, are not required to give you a better deal under the new law and may not be willing to negotiate unless they think you are truly on the verge of foreclosure. You cannot take out a home equity loan for at least five years after you get the new mortgage. You will also have to pay a 1.5 percent fee each year on the remaining balance. Here is the kicker, you will have to hand over no less than 50 percent of any appreciation on the home to the government once you sell. Sell the house in less than five years, and you will have to give all of the gain. This program ends on Sept. 30, 2011. While it does not officially take effect until Oct. 1, lenders may be willing to start their negotiations with borrowers now.
• Tax Break for first time homeowners -  If you are buying a home for the first time, and it is your primary residence, you are eligible for a federal tax credit of $7,500 or 10 percent of the purchase price, whichever is smaller. Here is the deal: if you earn a modified adjusted gross income of more than $75,000, or $150,000 if you are married and filing your tax return jointly, the credit starts to phase out. For single people, it phases out completely at $95,000 of annual income, while for married people filing jointly, it phases out at $170,000.  Guess what? You have to pay back the credit over the next 15 years, in equal amounts each year when you pay your federal taxes. That makes this more like an interest-free loan than a true credit. The tax credit is retroactive to home purchases on April 9, 2008, and expires on July 1, 2009. If you purchase a home from Jan. 1, 2009 to June 30, 2009, you can claim the tax credit on your 2008 tax return.
• Additional Deduction - If you are a homeowner who takes the standard deduction on your federal income taxes and does not itemize you can now take an additional federal tax deduction of $500, or $1,000 if you are married and filing your tax returns jointly.
• Reverse Mortgages -The problem with these loans, however, is that they often come with high fees. Moreover, some salespeople pressure borrowers who are applying for the loan to purchase annuities, long-term care insurance or other financial products that are not necessarily in the borrower's best interest. The bill tries to address both issues. First, it limits origination fees on reverse mortgages at 2 percent of any loan up to $200,000 and 1 percent beyond that, up to a maximum of $6,000. The bill also states explicitly that borrowers cannot be forced to purchase an annuity or other financial or insurance product as a condition of qualifying for a reverse mortgage. Finally, the bill raises the maximum amount that people can borrow. The biggest allowable mortgage available anywhere was just over $400,000. Now, there is a nationwide cap of $625,500.
• GSE Reform -  Under the new bill, Fannie and Freddie have permanent authority to buy bigger loans in areas with high housing costs. (Temporary measures allow them to buy bigger loans, but those expire on Dec. 31.) They can buy loans up to 115 percent of the local median home price, though they cannot buy any loans larger than $625,500. Any larger loan will generally be a jumbo loan, which will cost more in interest.
• Veterans -  Lenders will have to wait nine months, instead of 90 days, before beginning foreclosure proceedings on homes owned by someone returning from the military. Lenders must also wait a year before raising interest rates on a mortgage held by someone returning from military service.
• National Database on Mortgage Brokers. This is a good thing! Mortgage brokers will now be tracked in a national database system which will help detour the unscrupulous people in the industry.

In today's news, consumer confidence is higher (no idea were that information came from) which totally baffles me. New home sales were up 530k units from June higher by market predications of 503k. Durable goods are up. The dollar is improving and oil is down today.

The biggest news is the Housing and Economic Act which is going to change the landscape of business for a lot of us. Check out  my blog from Thursday July 24th for more infomation.

Locking in an interest rate is my recommendation for the week.

The House and Senate have reached agreement on the omnibus Housing bill this week. The House yesterday passed H.R. Bill 3221 also known as the Housing and Economic Recovery Act and it is completely expected the Senate will do the same very soon. President Bush is expected to sign as soon as it hits his desk early next week.

Here is what we are expecting to see:

* Seller participation in downpayment assistance loans is being terminated. Must have obtained credit approval prior to October 1^st.

* Risk-based pricing moratorium is effective October 1^st.

* FHA Downpayment Requirments going up to 3.5%

* FHA Rescue (Foreclosure relief) this is basically a modification of what is currently in place but it adds to the mix allowing a conventional borrower to refinance into a FHA as long as the lien holders accept a 85% LTV payoff.

* GSE Reform which will increase loan limits for all governmental and conventional mortgages.

* Tax provisions (Maximum tax credit was lowered to $7,500 for first-time homebuyers.)

* Secure and Fair Enforcement for Mortgage Licensing Act of 2008 or “S.A.F.E. Mortgage Licensing Act of 2008

All of this will be effective on October 1, 2008 so this is our last chance to do any type of down payment assistance and start looking more closely to our local Housing Authority Programs that will survive and fit with in the new guidelines.