Mortgage Forecast for the Week
This week, several scheduled items could cause some more manic movements in the markets…and the biggest of all could be the Fed Policy Statement and Rate Decision that will come on Wednesday, following the wrap of the Fed’s regularly scheduled Federal Open Market Committee meetings. Remember: The Fed joined with other central banks from around the world and cut their benchmark Fed Funds Rate earlier this month to help restore confidence to the financial markets. The Fed is widely expected to cut its benchmark rate again this week, and some people are wondering if the Fed could go where it has never gone before and bring the rate below 1%.
Other important reports to note this week include Wednesday’s Durable Goods Orders, which is a measure of how many “durable” or non-disposable goods have been purchased during the previous month, and Thursday’s Gross Domestic Product (GDP) Report, which is the broadest measure of economic activity. Also, on Friday we will get the details on the Fed’s favorite gauge of inflation, the Core PCE (Personal Consumption Expenditure) data, from the Personal Income report. Each of these reports will be telling, given the growing talk of recession.
Before all of this, there will also be housing news in store with Monday’ New Home Sales Report. Last week, we learned that Existing Home Sales jumped to a thirteen-month high as foreclosures continue to drive down home prices, and it will be important to see if a similar trend is occurring with New Home Sales.
If the economic news this week is dismal, Bonds and home loan rates may be the beneficiary and find some improvement…but the words and actions of the Fed are likely to be the primary driver for interest rate action this week. As always, I will be watching closely and would welcome your calls with any questions you may have on your own situation, and how the changes of the week may impact you.
Ernest Tepman
President
The OCD Group Inc.
Los Angeles: 800-963-4623
San Diego: 877-863-4623
E-Mail: marketupdate@theocdgroup.com
What the heck is going on?
My clients, co-workers, referral partners, family and friends are all asking “what the heck is going on?” And it’s truly a question I am getting hourly. Here’s an in-depth look at some of the cause of the current situation we are in so you have an overview understanding. We ALL are learning more and more about our economy and how it “really works” daily.
Whatever the political posturing, a plan needs to be passed – and passed soon. Credit markets are frozen and banks are going bust every day. This is not totally because of so-called “toxic” mortgages as the media has portrayed. This has a lot to do with new legislation and rules passed last year by the SEC (Securities and Exchange Commission) and the FASB (Financial Accounting Standards Board) with the SEC’s elimination of the uptick rule for Wall Street and the FASB’s 157 ruling, also known as “mark to market”.
Uptick rule: The uptick rule was a securities trading rule used to regulate short selling in financial markets. The SEC eliminated the uptick on July 6, 2007 causing short-selling to be at record levels by early 2008 and wild swings of the markets. The problem with the elimination of the uptick rule is that without it, short sellers were devaluing perfectly solid stocks. On September 19, 2008 the SCE halted short-sales temporarily of 799 financial stocks.
FASB 157: http://www.fasb.org/st/summary/stsum157.shtml Each day lenders must mark their assets to the marketplace. It’s like you having to appraise your home everyday and if your neighbor was under duress because they got very ill, divorced, lost their job and was forced to sell their home quickly they may have sold it super cheap. Now, does that mean your house is worth that super cheap price? Clearly not. Why? Because you are not under duress. You have the time to sell your home and get a more normal price, which more accurately reflects true market conditions. But “mark to market” does not allow for this, which creates a vicious cycle.
Why is this so bad? Because as lenders mark down their assets the amount that they have loaned previously becomes much riskier in relation to their assets. For example, say a bank has $1 million in assets and say they have $15 million in loans outstanding. Their ratio is an acceptable 15 to 1. But should they take a paper write down of $500 thousand due to “mark to market” requirements, their ratio suddenly changes to 30 to 1. This is because their assets are now only $500 thousand after taking the paper loss, while their loans outstanding are $15 million. And at 30 to 1 this bank is viewed as a risky investment. So the stock price starts to get hit, it becomes harder to borrow, and most importantly harder to make money. The bank is then forced to sell some of its loans to reduce its ratio…at cheap prices. And this makes the vicious cycle continue.
And a quick look at the holdings of these loans show that 95% are problem free. Additionally, the Credit Default Swaps (CDS) that are used with the pools of mortgages, are relatively safe. But this requires a bit of understanding. You see, when a pool of mortgage loans is put together it isn’t just A paper or B paper etc. it’s everything. Its got some A paper, B paper, C paper, and even what looks like toilet paper. An “A” investor buys the whole pool but because they are an “A” investor their safety is greater because they can avoid the first 20% (an example) of defaults. So they own the whole pool but are sheltered from the first batch of defaults, and for this they get the lowest rate of return. As you can figure from here the more risk investors want to take, the higher the return. So the investments are relatively safe, but the accounting rules currently place undue pressure on the banking institutions.
Now add to all this the opportunistic shorting that was done, while the uptick rule was eliminated, on the financial stocks, much of it illegal because those shorts did not legitimately borrow shares (called naked shorting), and you exacerbate this whole problem. Thank goodness for the recent temporary ban on shorting in the financial sector mentioned able.
As for the plan the government is the only one who can step in to do this. And they have to do this. And they will do this. The nauseating political posture from both sides is just part of the process – and it is never, ever pretty.
This is not easy to understand for the general public. In fact most politicians don’t get this either. That’s why it is a difficult yet critical bill for them to vote on.
Once this bill is done it will take some time but the markets will stabilize. Rates will remain attractive and the influx of credit availability will help the housing market gradually improve. This ultimately will be the medicine needed to fix our industry. We just need to be patient.
I hope that you found this ecomonic information helpful and informative – as it’s important to me that my clients, referral partners, family and friends are kept up-to-date and in-the-know! If you have any questions whatsoever, let me know.
Make it a great day!
Jeff Cook
Senior Loan Officer
Metro Sunset Mortgage
Phone: 310.623.1307
Fax: 866.445.7068
jwcook@metrocitiesmtg.com
www.MetroSunset.com
Mortgage Forecast for the Week
The ride isn’t over…the coming week may see more wild movement in the markets, as the financial sector responds to all the recent action, along with several reports due in the latter part of the week. We’ll get a read on the housing market with Wednesday’s Existing Home Sales Report and Thursday’s New Home Sales Report. And we will get a read on the economy with Friday’s Gross Domestic Product Report (GDP is the broadest measure of economic activity) and Thursday’s Durable Goods Report.
What are “durable goods”? Simply put, they are items that are durable (i.e. cars, furniture, appliances, games, cameras, business equipment, etc), and are made to last longer than three years. This report shows a good measure of consumer and business consumption and buying behavior, and depending on the health of the report, could add to the volatility we have seen.
Remember when Bond prices move higher, home loan rates move lower…and vice versa. Bonds and home loan rates are still much improved from several weeks ago, despite giving up some recent gains. This could be a great time to take a close look at your home loan financing needs, as rates remain at historic lows. As always, I will be watching closely to see how Bonds and home loan rates continue to respond in these volatile times.
Ernest Tepman
President
The OCD Group Inc.
Los Angeles: 800-963-4623
San Diego: 877-863-4623
E-Mail: mmg@theocdgroup.com
Stated Home Loan for 5.5% – 30 yrs FIXED – only for our valuable clients
BEST HOLLYWOOD HOMES TEAM WORKS WITH MORTGAGE BROKERS THAT CAN HELP YOU WITHOUT COMPROMISING THEIR INTEGRITY.
Call Best Hollywood Homes Team at 310-499-1305 to discuss your real estate needs first with our real estate consultants. After we mutually agree to work together on your next real estate purchase, we will put you in touch with a mortgage specialist for you to discuss your financial situation with them.
These are the best that I’ve seen rates in months. The market responded very favorably to the nationalization of Fannie and Freddie. These programs have barely been affected by the changes in the marketplace.
Here are some real loan options for “Stated” income borrowers:
–5.5% 30 year FIXED STATED!!
Available to $417,000 (small combo 2nds also available)
Will lend to 90% LTV (for employees, 80% for Self Employed) same rate up to 90%.
Owner Occupied and Second Home
PURCHASE, CASH OUT or REFI
Minimum 700 FICO
No reserve requirement
2.0 points + $995 broker fees (for 5.5%)
5.875% available at 1.0 point +$995
No points available at 6.25%
–INVESTOR 30 year fixed at 6.375% STATED!
Available to $417,000
Will lend up to 80% LTV
Maximum 4 financed properties, including primary
Purchase, Refi, and Cash Out
1 unit ONLY
2 months reserves
Seller can credit up to 2.0% towards closing costs
700 Minimum FICO, 720 preferred
6.375% Rate based on 75% LTV. At 80% it is 6.75%.
1.25 Point + $995 broker fees
–INVESTOR 30 year fixed at 6.375% STATED!
Available to 729,500 in high cost counties or county limit
Minimum 720 FICO required
will lend to 80% on Purchases and Rate and Term ONLY
–NO Cash out loans
1.0 point + $995
Only 2 months reserves
To qualify a buyer for a “Stated” loan a credit must be pulled and have a complete loan application.
***These programs are designed to help those who normally would be well qualified borrowers who now have a difficult time meeting lender requirements. OUR MORTGAGE SPECIALISTS WILL NOT DO A LOAN that compromises their integrity and challenges a borrower’s ability to repay. 90% Stated loan will be only done for those borrowers who have another source of income that cannot documented.
Time to lock in your mortgage rate
Thursday, August 07, 2008
Brought to you by the CALIFORNIA ASSOCIATION OF REALTORS®
Although still historically low, mortgage rates are rising slightly. Some analysts predict that mortgage rates will continue to increase over the next six weeks, while some forecasters expect rates to reach 7 percent by year’s end. Experts recommend that consumers work with their mortgage servicer to lock in a low interest rate. A “locked” or fixed rate will provide consumers long-term savings, and allow home buyers to determine their monthly homeowner expenses several weeks before closing.
MAKING SENSE OF THE STORY FOR CONSUMERS
• With inflation rising and some investors in mortgage-backed securities demanding higher rates to purchase bonds, home buyers should work with their broker to lock in a low interest rate. For every half point interest rate increase, the monthly payment on a typical $294,600 mortgage increases by approximately $100. That adds up to a savings of roughly $1,200 annually and $36,000 over the life of a 30-year loan. The calculations are based on the median price of a single-family existing home in California in June of $368,250 and the borrower providing a 20 percent down payment.
• To lock in an interest rate, consumers should contact their broker and request the rate in writing. As long as the home buyer has a contract or a binder on the home, this should be a simple request. Rates can be locked in for up to 60 days, by only adding an extra eighth of a point to the rate. If a consumer would like the interest rate to be guaranteed for longer than 60 days, most lenders will request some payment up front.
• Locking in interest rates is not without risk. If prevailing interest rates decrease, consumers with a locked rate may have to pay the higher interest rate. Some lenders may offer consumers the lower rate plus an eighth of a point, if the rates drop substantially. That scenario does not seem likely though, based on current economic conditions.
Summary of Key Provisions of H.R. 3221 – The Housing Stimulus Bill (as of 7/30/08)
H.R. 3221, the “Housing and Economic Recovery Act of 2008,” passed the House on July 23, 2008, by a vote of 272-152. On Saturday, July 26, 2008, the Senate passed the bill by a vote of 72-13. The President signed the bill on July 30, 2008. The bill includes the following provisions:
- GSE Reform
- FHA Reform
- FHA foreclosure rescue
- Seller-funded downpayment assistance programs
- VA loan limits
- Risk-based pricing
- GSE Stabilization
- Mortgage Revenue Bond Authority
- National Affordable Housing Trust Fund
- CDBG Funding
- LIHTC
- Loan Originator Requirements
For more information, visit http://www.realtor.org/governmentaffairs
Congress Passes FHA/GSE
Dear Igor,
Thank you for taking action on the recent Call for Action on the FHA/GSE legislation. We are happy to report that the U.S. Senate today passed a final bill on FHA and GSE that NAR had long fought for, after deliberations and negotiations for the past few weeks. The House passed the identical bill on Wednesday, July 23. For more information, read the bill summary. The President has said he will sign the legislation into law.
This bi-partisan legislation, we believe, will aid in calming mortgage markets, strengthen housing markets, and stabilizing our economy. As a result of your efforts, the new loan limits are now set at $625,500 for the GSEs and FHA, as well as an $7,500 home ownership tax credit. The legislation also includes broad GSE Reform, FHA Reform, development of a National Affordable Housing Trust Fund, and creates a new FHA program to help homeowners at risk for foreclosure.
NAR thanks you for your support for this important legislation. It proves that when REALTORS® speak Congress must act.
Jerry Giovaniello
Senior Vice President, Government Affairs
& Chief Lobbyist
Home Ownership Preservation Loans
The FDIC is proposing that Congress authorize the Treasury Department to make loans to borrowers with unaffordable mortgages to pay down up to 20 percent of their principal. The repayment and financing costs for these Home Ownership Preservation (HOP) loans would be borne by mortgage investors and borrowers. This approach is scaleable, administratively simple, and will avoid unnecessary foreclosures to help stabilize mortgage and housing prices.
This proposal is designed to result in no cost to the government:
- Borrowers must repay their restructured mortgage and the HOP loan.
- To enter the program, mortgage investors pay Treasury’s financing costs and agree to concessions on the underlying mortgage to achieve an affordable payment.
- Treasury would have a super-priority interest — superior to mortgage investors’ interest — to guarantee repayment. If the borrower defaulted, refinanced or sold the property,
- Treasury would have a priority recovery for the amount of its loan from any proceeds.
- The government has no continued obligation and the loans are repaid in full.
Mortgage Restructuring:
- Eligible, unaffordable mortgages would be paid down by up to 20 percent and restructured into fully-amortized, fixed rate loans for the balance of the original loan term at the lower balance. New interest rate capped at Freddie Mac 30-year fixed rate.
- Restructured mortgages cannot exceed a debt-to-income ratio for all housing-related expenses greater than 35 percent of the borrower’s verified current gross income (‘front-end DTI’). Prepayment penalties, deferred interest, or negative amortization are barred.
- Mortgage investors would pay the first five years of interest due to Treasury on the HOP loans when they enter the program. After 5 years, borrowers would begin repaying the HOP loan at fixed Treasury rates.
- Servicers would agree to periodic special audits by a federal banking agency.
Process:
- Mortgage investors would apply to Treasury for funds and would be responsible for complying with the terms for the HOP loans, restructuring mortgages, and subordinating their interest to Treasury.
- Administratively simple. Eligibility is determined by origination documentation and restructuring is based on verified current income and restructured mortgage payments.
Funding:
- A Treasury public debt offering of $50 billion would be sufficient to fund modifications of approximately 1 million loans that were “unsustainable at origination.” Principal and interest costs are fully repaid.
Eligible Mortgages:
Applies only to mortgages for owner-occupied residences that are:
- Unaffordable – defined by front-end DTIs exceeding 40 percent at origination.
- Below the FHA conforming loan limit.
- Originated between January 1, 2003 and June 30, 2007.
- Home Ownership Preservation Loans: Questions and Answers
- Home Ownership Preservation Loans: Examples
- Related Link: Financial Times, April 29, 2008 – Op Ed: How the State can Stabilise Housing Market
- FDIC Chairman Sheila Bair at the Brookings Institution Forum, The Great Credit Squeeze: How it Happened, How to Prevent Another; Washington, DC – May 16, 2008
- FDIC Chairman Sheila Bair at the Brookings Institution Forum, The Great Credit Squeeze: How it Happened, How to Prevent Another; Washington, DC – May 16, 2008 – Video (Courtesy of C-SPAN – www.c-span.org)
The Truth about Making Money in Today’s Real Estate Market
We would like to offer a complimentary real estate seminar (a $99 value) as a benefit to the employees at your company.
We would like to share our experience and knowledge to teach people how to make educated decisions about buying, selling and investing in today’s real estate market.
There is no obligation to buy anything. We are not selling products or services. Our mission is to educate and provide guidance with honesty and integrity for people who may be overwhelmed, doubtful or indecisive due to misleading messages in the media about local real estate. For example, did you know there are areas in Los Angeles county that have appreciated over the last year?
As realtors and members of the California Association of Realtors (CAR) and National Association of Realtors (NAR) we will discuss the facts not the hype. Topics will include:
• Last Market Crash
• Best Buying Opportunity in 35 years
• Where are the Deals?
• Why Should You Buy in Today’s Market?
• Why Should You Sell in Today’s Market?
• What You Should Know Before Buying?
• Incentives, Discounts, Promotions
• Ideas to Get a Down Payment
• How Does the Process Work?
Call us now!
Best Hollywood Homes Team & Promenade Realtors
http://www.BestHollywoodHomes.com
Email Igor Korosec
Gayle Barnes
Keller Williams Realty Sunset
2 charged on Wall Street in mortgage meltdown
By TOM HAYS, Associated Press Writer Thu Jun 19, 7:13 PM ET
Yahoo News
NEW YORK – Two former Bear Stearns hedge fund managers were hauled into jail Thursday and charged with lying to investors about the collapse of the subprime mortgage market, perhaps signaling the start of a wave of prosecutions arising from the housing meltdown.
Ralph Cioffi and Matthew Tannin were accused of encouraging investors to stay in their hedge funds, heavily exposed to subprime mortgages, even as they knew the credit market was in serious trouble.
They were indicted on conspiracy and fraud counts, the first criminal charges to hit Wall Street in the housing market meltdown.
The eventual implosion of their two hedge funds cost investors $1.8 billion and started the domino effect that led the demise of Bear Stearns itself, which barely avoided bankruptcy in a rescue buyout by JP Morgan Chase & Co. Click Here to Read Full Story
