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
Proposal to permanently end the current mortgage crisis by using the free market system aka “The RC Stabilization Act"
All Freddie Mac and Fanny Mae Mortgages originated between Jan 1, 2002 thru Dec. of 2007 that are interest only or arm loans will be placed into a separate category bundle.
1) Their original teaser rate will not change. It will last for the life of the note.
2) All these loans will be converted to 40 yr loans
3) All these loans will have a call feature at 30yrs by the US Government at current market value at the time of exercise of the call feature, but no greater than 100% of the balance of the loan on the note that is left.
4) At the end of 20 years the note may increase 1% point above the original teaser rate.
5)All of these loans will be fully assumable by any buyer based on the original loan requirements.
6) All the interest paid on these notes will be federal tax free to the note holder be it a private individual or any entity or any US Corp.
7) States that agree to making these notes state tax free by a simple majority of their legislator may participate in this program.
8) The interest on these note will also be state tax free to the holder of these notes.
9) All these notes can be bought and sold at any time by any Private individual or entity.
10) All these notes must be serviced by a note service co. on an approved list by the federal gov’t. no exception.
11) All participating states must approve their participation no longer than 45 days after this program is enacted by the federal gov’t.
12) All these Loans may be paid off at any time without any prepayment penalty.
13) The original sale of these notes must be done on an auction basis thru the top 40 stock and bond dealers on the US stock markets and by the top 40 US banks and The US Treasury in the US. Consequent trading may only be done thru all the same licensed and noted companies on the NYSE, NASD and US Chartered Banks . All Trades must be fully disclosed and reported to the NYSE, NASD within 20 minutes of a transaction.
14) The US gov’t must sell thru all the above entities at a minimum, increments of $25,000. Pieces of these bundles to private US Citizens, or individuals just like treasuries. No fee in excess of typical US Treasury fees may be charged to buyers at the initial auction of every bundle.
15) The US federal gov’t must guarantee the right by private individual public participation in the auction by individual US Citizens’ up to a 25 % priority on every bundle sold.
16)Existing note holders may hold on to their notes under all the above terms and must notify the payees of the change in the note rate back to its original rate within 30 days of the passing of the stabilization Act.
17) Existing note holders may transfer the ownership only under a sale thru the existing trading scenario as described above.
18) Mtortgage Service companies will manage, service and foreclose on properties that are in default should the mortgage payee still not be able to perform on the original teaser rate of each note. Starting 90 days after the Stabilization Act is implemented. The Mtge. Service Co.’s may appoint, and hire the necessary individuals to sell the properties as they always do. All mortgages on every property even in foreclosure can be assumed by any buyer under the original rates and terms and fees. A maximum transfer fee of 1% of the balance of mortgage will be allowed.
19) This proposal was originated in order to Stabilize the mortgage loan market. It is designed to encourage foreign and domestic investors to invest in mortgage backed securities by stopping all foreclosures in one move. All foreclosures will be halted for a 60 day time period to implement the above plan and notify all mortgage payees and all mortgage holders.
Proposal to permanently end the current mortgage crisis by using the free market system aka “The RC Stabilization Act"
All Freddie Mac and Fanny Mae Mortgages originated between Jan 1, 2002 thru Dec. of 2007 that are interest only or arm loans will be placed into a separate category bundle.
1) Their original teaser rate will not change. It will last for the life of the note.
2) All these loans will be converted to 40 yr loans
3) All these loans will have a call feature at 30yrs by the US Government at current market value at the time of exercise of the call feature, but no greater than 100% of the balance of the loan on the note that is left.
4) At the end of 20 years the note may increase 1% point above the original teaser rate.
5)All of these loans will be fully assumable by any buyer based on the original loan requirements.
6) All the interest paid on these notes will be federal tax free to the note holder be it a private individual or any entity or any US Corp.
7) States that agree to making these notes state tax free by a simple majority of their legislator may participate in this program.
8) The interest on these note will also be state tax free to the holder of these notes.
9) All these notes can be bought and sold at any time by any Private individual or entity.
10) All these notes must be serviced by a note service co. on an approved list by the federal gov’t. no exception.
11) All participating states must approve their participation no longer than 45 days after this program is enacted by the federal gov’t.
12) All these Loans may be paid off at any time without any prepayment penalty.
13) The original sale of these notes must be done on an auction basis thru the top 40 stock and bond dealers on the US stock markets and by the top 40 US banks and The US Treasury in the US. Consequent trading may only be done thru all the same licensed and noted companies on the NYSE, NASD and US Chartered Banks . All Trades must be fully disclosed and reported to the NYSE, NASD within 20 minutes of a transaction.
14) The US gov’t must sell thru all the above entities at a minimum, increments of $25,000. Pieces of these bundles to private US Citizens, or individuals just like treasuries. No fee in excess of typical US Treasury fees may be charged to buyers at the initial auction of every bundle.
15) The US federal gov’t must guarantee the right by private individual public participation in the auction by individual US Citizens’ up to a 25 % priority on every bundle sold.
16)Existing note holders may hold on to their notes under all the above terms and must notify the payees of the change in the note rate back to its original rate within 30 days of the passing of the stabilization Act.
17) Existing note holders may transfer the ownership only under a sale thru the existing trading scenario as described above.
18) Mtortgage Service companies will manage, service and foreclose on properties that are in default should the mortgage payee still not be able to perform on the original teaser rate of each note. Starting 90 days after the Stabilization Act is implemented. The Mtge. Service Co.’s may appoint, and hire the necessary individuals to sell the properties as they always do. All mortgages on every property even in foreclosure can be assumed by any buyer under the original rates and terms and fees. A maximum transfer fee of 1% of the balance of mortgage will be allowed.
19) This proposal was originated in order to Stabilize the mortgage loan market. It is designed to encourage foreign and domestic investors to invest in mortgage backed securities by stopping all foreclosures in one move. All foreclosures will be halted for a 60 day time period to implement the above plan and notify all mortgage payees and all mortgage holders.
Are you a State of California Employee?
Are you a State of California Employee (example: Cal Highway Patrol, CalTrans, State Prisons, State Hospitals, DMV, Franchise Tax Board), County Employees (examples: City Parks & Recreation, City Mayors Office, City Fire Department, City Libraries, City Clerk Office), Municipal Employees (examples: City Utilities workers, LA DWP, Calif Legislature Employees, including Judges, Court reporters, School Employees, Cafeteria, Administration, Custodians Yard Maintenance, California State University System Employees
Rates for conforming loans up to $417,000
and JUMBO loans up to $1,668,000.00 !!!!!!.
Check out these benefits for CalPERS Members:
• Competitive Interest Rates on Purchases & Refinances
• 100% Financing Options*
• Controlled Closing Costs
• 30, 60 or 90-Day Rate Lock with 2 float down Opportunities*
• Reduced Mortgage Insurance Rates*
• Reduced Escrow & Title Fees*
• Closing Cost Assistance*
• Real Estate Assistance with Cash Rebate*
• Program Available Nationwide!
Please call me if you have any questions regarding this program!
Todd DwyerLet me be the Mortgage Professional you Deservetodd@todddwyer.comwww.USFHMTG.com
Direct 310-500-7801* subject to approval
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
Response to Igor Korosec regarding his support for permanently increasing the conforming loan limit
Dear Mr. Korosec:
Thank you for contacting me to express your support for permanently increasing the conforming loan limit. I appreciate the time you took to write and agree with you.
The Federal Housing Administration (FHA) plays an important role in insuring home mortgages for those in underserved communities. It is critical that FHA programs be modernized to provide more homebuyers and borrowers looking to refinance with the opportunity to obtain an FHA loan. This remains especially important in California where the cost of housing remains high. For homebuyers faced with so-called “jumbo loans” subject to higher interest rates, raising the government-sponsored enterprise (GSE) conforming loan limit will bring more liquidity to the market and lower interest rates.
On February 13, 2008, the President signed the Economic Stimulus Act of 2008 (H.R. 5140) into law. As the bill was being developed, I sent a letter to Senator Majority Leader Harry Reid (D-NV) expressing strong support for increasing the previous GSE conforming loan limit of $417,000 and the FHA loan limit of $362,790 to $729,750. While I am pleased that a temporary increase was included in the bill, the new loan limits will expire on December 31, 2008.
On July 11, 2008, the Senate passed the “Foreclosure Prevention Act of 2008,” (H.R. 3221) introduced by Senators Christopher J. Dodd (D-CT) and Richard C. Shelby (R-AL). Prior to Senate consideration of the bill, I urged Senators Dodd and Shelby to keep the FHA loan limit and GSE conforming loan limits at the current level of $729,750. The Senate passed its version of H.R. 3221 on July 11, 2008. While the Senate-passed version of the bill would only raise the loan limits to $625,500, the House-passed version would keep them at their current level. On July 11, 2008, I joined 52 members of the California Congressional delegation in sending a letter to leaders of the Senate and House leadership urging them to retain the $729,750 limits in the final version of this important bill.
I fully support the higher limit and will continue to push to make it permanent.
Thanks for writing.
Sincerely yours,
Dianne Feinstein
United States Senator
