Mortgage Blog

So many changes in our market place over the last couple of months has made me announce a few changes coming our way. First, the biggest news as of today, is the Financial Accounting Standards Board (FASB) voted favorably to relax mark-to-market accounting principals to help financial institutions. This huge change will significantly reduce the "writedowns" banks have had to take on investments such as mortgage backed securities. This doesn’t help those who have already had to take the writedowns over the last 1 1/2, but it could improve earnings by 20% for banks into the near future. This change is effective starting in the 2nd quarter of this year.

Secondly, starting yesterday, FHA appraisers have to start addressing declining market conditions for subject properties. We have had to deal with this on our conventional appraisals for quite some time and now FHA has jumped on board to whereby we have to start meeting/addressing declining market conditions for properties that get FHA financing. This will affect appraised values and underwriting conditions on FHA transactions.

Thirdly, starting May 1st all of us lenders have to abide by HVCC rules which prevent anyone of us, in ordering appraisals or having communications directly with an appraiser. This will have a huge impact on how long it will take to get deals done, conditions on appraisals, potentially higher fees being charged, and lower valuations on homes in general. This is a big big thing people, and if you have any one on the “fence” on whether or not they should buy now vs later, more than EVER before, this is our last ditch effort in securing deals today! ACT NOW BEFORE ITS TO LATE and get appraisals done before the end of this month!!! This is only for Conventional mortgages but I wouldn’t be surprised if FHA jumps on board later on down the road.

For anyone who thinks rates are going down below 4.5% because this is what the media has brainwashed the public to think – its NOT HAPPENING!!! There are several reasons why this won’t happen but here is the evidence:

The 1.3 TRILLION dollars our Federal Government has and will be investing in mortgage back securities (MBS) is on the 5.0-5.5% coupon rates. They are NOT buying 4% MBS’s! The other reason why, is that investors themselves are not allowing rates to go down that low INTENTIALLY because we literally don’t have the man power to take on such a “flood” gate of applications PLUS if you think about it, they want to take as much profit as they possibly can today, given all the trillions they have lost over the last 1 ½ years. So, if you have people who say they are waiting for 4.5-4% rates to buy or refinance, tell them what you know (because you are the educated one) and the reasons why it won’t happen! Because, if they wait, the rates we have today, will be in their “rearview mirror”!!!

If you have questions, please feel free to call me at 303.524.9191

Randy Reed – CMPS, CML, Licensed Mortgage Broker (MBCO100015425)

FHA increases the loan limits for the Denver-metro area to $406,250! This is an incredible opportunity for all of us to increase sales activity by allowing those with a low down, better than conventional interest rates, and the lowest monthly mortgage insurance option for those who wish to become homeowners. Some investors are accepting FHA locks up to this new loan limit today and all others will follow in the coming weeks. If you wish to receive the latest City/County loan limits email me your request at randy.reed@mpspecialists.com

Speaking of homeowners, President Obama in part of his Stimulus plan, announces this past week his Homeowner Affordability and Stability Plan. The "Plan" calls for increasing subsidized loan modification programs to banks who participate in any TARP II monies. The objective is to encourage banks who have at risk or failing loans to modify existing terms for homeowners to lower their interest rates as well as to possibly lower their principals. Basically, if an investor does a loan modification, they can receive up to $1000 as an upfront fee and $1000 per year for 3 years if the loan stays current. A homeowner can receive up to $1000 per year in principal reduction for each year they stay current for the first 5 years. More details on this will come in the next week or two.

The other portion of President Obama's Homeowner Affordability and Stability Plan, is to offer homeowners who are current on their existing mortgages to refinance up to a 105% of the value of their home. Now, this is going to be a tad tricky because if a homeowner has a second mortgage; the second lien holder has to agree to the terms AND re-subordinate the existing lien. Again, more details to follow in the coming weeks.

Interest rates are awesome and are still at their 40 year lows. Tell everyone you know that they literally have a "once in a lifetime opportunity" with home prices being the way they are AND rates being lower than what we have seen in my 18 years in the business! Things are taking a bit longer to get loans through the system, so show some courtesy and be patient with those who are working harder than they have ever had to especially with all the restrictions we have going on in the mortgage industry.

Randy Reed - CMPS, CML, Licensed Mortgage Broker

303.524.9191

As we eagerly await the Senate’s vote on the stimulus package today, Secretary of Treasury, Tim Geithner, will reveal proposals for spending on the remaining TARP money. It will be interesting to watch as the financial sector reacts to these announcements. Meanwhile, Mortgage Bonds are higher this morning.

Also today, Federal Reserve Chairman Ben Bernanke will discuss the Fed’s liquidity efforts. Today the Treasury will auction $32B in 3 year T notes. The Feds also state that they are committed in buying $600B in mortgage backed securities. These events will have a major impact on stocks and bonds.

Trading this morning has been positive. Today’s recommendation is to float. However, watch closely as things can change very rapidly.

Randy Reed

(303) 524-9191

In industry fraught with fraud, loan modifier offers real help

By John Rebchook, Rocky Mountain News (Contact)

After Eric Quinn, 27, was late on a mortgage payment for his home in Broomfield, he was hounded by companies, many from California, which, for a large fee, said they would lower his monthly payment.

But he didn't trust them.

"There are a lot of scam artists out there," Quinn said.

Instead, on the recommendation of his father, who is involved in real estate, he turned to longtime mortgage broker Randy Reed.

Reed, for less than $2,000, worked with Quinn's lender to knock down the adjustable rate mortgage from almost 12 percent to slightly more than 6.5 percent, saving him almost $800 a month and his home.

"Honestly, if it wasn't for him, I'd probably be losing my home in the near future," Quinn said. " He said Reed was the only loan modifier who agreed to refund his money if he couldn't get him a better rate.

Reed thinks he is one of the few honest players in a rapidly growing business where many companies and individuals take money from desperate homeowners facing foreclosure, and do nothing for them, state regulators charge.

"There are a lot of bad companies out there," Reed said. "I got into it because people began calling for help."

The industry is so tainted that Reed, who has more than 16 years of experience working with well-known Denver mortgage companies such as Universal Lending and Clarion Mortgage, wonders if it is even worth staying in the business that he just launched.

"I don't know if I want to be associated with an industry that the state, and please pardon me, the media, is painting as nothing but a bunch of crooks."

Reed recently received a subpoena from the Colorado Division of Real Estate regarding his new company, Loan Modifications of Colorado, but believes he is doing everything according to regulations.

Zach Urban, spokesman for the division, said because "it is such a new business," the agency sent out the subpoenas to gather information about compliance, but a subpoena does not mean the state suspected the company or individual of wrongdoing.

Reed said he supports the crackdown of the industry by Erin Toll, director of the real estate division. While Urban emphasized the division does not endorse any specific company, he said Reed has had the "most positive reaction" so far.

"Looking into this industry, there seems to be an inordinate amount of scam artists," Urban said. "The approach that Randy took was 'What do I need to do to be compliant?' That was the appropriate response."

Reed charges a $350 consultation fee for an analysis, which spells out a homeown- er's options, and what the homeowner needs to do. Homeowners can deal with lenders themselves with this information.

If they hire Reed, his fee is $1,495, although he charged Quinn less. Reed puts the money into a trust account - similar to an escrow account - and returns it to the homeowner if he fails to lower the interest rate. If he gets an agreement, but the consumer rejects the lender's offer, Reed keeps $300 and returns the rest.

rebchookj@RockyMountainNews.com or 303-954-5207

Changing your loan? Check out these tips

* Call the company that is servicing your loan as soon as you suspect there will be trouble in making your payment. Do not hire an individual or company that does not want you to call the mortgage company.

* Before hiring a for-profit individual or company, call the Colorado Foreclosure Hotline, 1-877-601-HOPE. The hotline uses HUD-certified counselors. The service is free.

* If you hire a private company or individual, make sure the person is a licensed mortgage broker in Colorado, which is required by law.

* The company should be paid the full amount only if it is successful in lowering your loan payments. The money should be held in the equivalent of an escrow account until the process is complete.

* Check out the company at the Better Business Bureau and on the Internet to see whether consumers have complained.

* If the deal promised seems too good to be true, it probably is. Not every homeowner can be helped.

This week we saw the unemployment rate increase to 6.7% nationally with a monthly decline of 533,000 jobs for the month of November. This represents the single largest increase since December of 1974!! The Bureau of Statistics came out and said that our economy has been in a recession since December of last year and the FEDs announced that our economy is going to be very slow to recover. This news isn’t something that comes as a big surprise, if you have been following my updates and opinions.

In other news, some how our financial committee/government and Mr. Paulson think that they can mandate interest rates on mortgages to be at 4.5%!!! Honestly, so what! We are pretty close to that right now and the way things are going we WILL see rates below our 40 year lows without their so called “assistance”. I can’t even begin to think how in the world they plan on doing this when mortgage back securities are truly a free enterprise trading security that is influenced by foreign investors, the economy, and supply and demand which influence how high or low interest rates go. This can and will NEVER change!

Stop and think about this for a moment. If I am in investor in a mortgage back security and the government dictated what I have to pay in order to invest my money in something and limit what my return on my investment may be, why would I invest my dollar when the entity (government) who is slapping a “guarantee” on it, is so overleveraged that it has to borrow more money than it can produce, what happens when that entity (government) goes bankrupt? IE: If you have to borrow 1.4 trillion dollars to help a falling economy your so called “guarantee” on mortgage back securities becomes worthless in my mind because you owe more than what you are producing! Our government needs to let the free markets take care of themselves because they will find a way to survive. Additionally, it won’t matter how low rates go if you can’t get a loan anyway because of falling home prices and guideline changes we have ALREADY implement (those who have equity in their homes can refi those who mortgaged to the hilt – no way).

I wish our government will stop trying to “fix” everything because in reality they cant! What they can do is concentrate on bringing back jobs to America (over 1.9 million jobs have been lost this since 2002), cut our trade deficit, and STOP giving our money to countries who really don’t like us in the first place! I am sorry to be political here but enough is enough and we as Americans just need to worry about ourselves.

We are seeing ourselves in what I call a, “Modern Great Depression” and if we don’t start focusing on what we can control vs. what we have NO control over, this economy is going to last for a long, long time and there will be even greater repercussions than what we are experiencing today.

Tip for the Week: Concentrate on first time home buyers. They are continually making up the majority of transactions. I have come across an amazing Down Payment Assistance Program that even after 18 years in the business I didn’t even know about. It is totally better than any CHFA deal our there! Call me for more information.

Randy Reed

303.524.9191

This past week we continue to see some market fluctuations which seem to be rather par for the course – up one day down the next. The credit markets are still seeing some rather unusual reactions to the economic data that has been released and it is of my opinion that you can no longer predict what the market has in store for us as the opposite affect tends to be results of what they should be. Hang in there everyone as things can only get better from here on out.

This week we saw Consumer Sentiment increase??? Huh, I have seen this one before and don’t believe it. It must be the “hang-over” affect of the election. The other data released this week which makes me a skeptic on consumer confidence are the new unemployment filings were reported as increasing by 516,000 applicants last month – that’s half MILILION families who are with out jobs!!! Why oh why is consumer confidence up, when more and more Americans are loosing their jobs? That saga still continues.

Retail Sales for October came in at a negative 2.8% which is a sign that this Xmas season could become the toughest since the early 1990’s for retailers. This is pretty bad news for the economy which you would think would be an amazing boost towards mortgage bonds but in all reality rates went up slightly the day that news was released. This is part of what I am saying that the mortgage markets are not reacting in the traditional manner we were accustomed to so it has become harder to determine where things will be from one day to the next.

Because of the “unknown” and the influx of rates going up then slightly down then back up again, my recommendation for the week is to “Lock”. We do see small windows of opportunity now and then, but in general over the last couple of weeks, I have been recommending people to just take what we can get.

In my last blog, I had mentioned Loan Modifications and how more and more it is becoming a “hot” button in the industry. I recently started a new service offering the analysis and recommendations for those in need and can now offer a full service of true Loan Modifications to the market place. Call me for more information.

Randy Reed

303.524.9191

This week was packed full of economic news which has sent our mortgage markets off to a whole new set of volatility. To start the week off we saw consumer confidence slide to it’s 40 yr low – well duh! You and I have known this to be true for months and I have been saying all along the prior numbers were no way accurate but I guess they finally got it right for a change.

The best news we have seen in a long time is that new home sales saw an increase of about 464,000 new homes sold. This is mostly due in part of the smoking hot deals out there and builders trying to dump their inventories to create some liquidity on their part. This honestly in a misleading indicator knowing what is really happening in our market because these smoking deals actually drive down the values in neighborhoods.

The FEDs decided to lower the Fed Funds rate by .50 basis points this week which will eventually trickle down to Prime but as you know from my prior announcements and education that this does NOT have a direct correlation to mortgage backed securities. It actually has the opposite affect to mortgage rates. A Fed movement downward is construed as an inflationary fighting move which mortgage bonds hate. So, yes we moved up in rates this week and hopefully you told you clients from my last report to lock in then.

The GDP (gross domestic product) which is what determines if we are in a recession or not showed a decrease of .3%. There needs to be 2 consecutive quarters of negative GDP growth to be officially in a recession and here we are! I have been saying this for 6 months our economy is in a recession but the proof is finally in the pudding!

For now, again I am recommending to Lock in those interest rates today as the volatility continues and the bond market is actually reacting opposite to what it should. As an example the bonds should have rallied big time on the consumer confidence numbers this week but actually fell due to the Feds anticipation of the announced rate reduction.

Tip for the week. If any of your clients need help doing loan modifications there are a ton of unscrupulous companies popping up daily offering outrageous fees to the consumer. Most of these companies originate out of California and haven’t we’ve seen enough or learned from California’s mistakes in the past? Call me instead, because I have a much better solution that I have spent weeks preparing and will provide a much higher/honest service for homeowners who want to save their homes!

Randy Reed

303.524.9191

This week brought on more pullout from investors in both the stock market and bonds as both financial segments loss ground this week. As previously mentioned from my last report, the departure from the normal see-saw trading between stocks into bonds, were money flowing out of stocks would find its way into bonds and vice versa, is occurring because securities must be liquidated to raise capital. Because investors are trying to offset margin calls, all securities are being cashed in. This is slightly different from what we saw 2 weeks ago were foreign investors pulled money out to raise cash; we are seeing the same thing happen in our own homeland. There is now the fear from individual investors, were people are just giving up and cashing in just to get out of the market!

The brightest news out there were existing home sales were up to their highest levels in the last 13 months! And oil prices are down to $64 per barrel due in part by the weakening global economy and the rally in the greenback.

Technically, bond prices have moved below the 25 day moving averages, so I am recommending to Lock for those short term transactions. Otherwise, I do believe that the economic data will eventually move our interest rates lower over time – because the economy isn’t going strong we should see lower rates into the future.

If you have any questions, please feel free to call me.

Randy Reed

303.524.9191

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