My New Blog

The 'Father of Subprime Crisis" ???

New York Attorney General Andrew Cuomo is the "father of the subprime crisis" and his aggressive attacks on Wall Street could make him dangerous to the banking sector if he becomes the next governor of New York, well-known banking analyst Dick Bove told CNBC.

"One of the key reasons why Fannie Mae and Freddie Mac are bankrupt today, and why the government is spending hundreds of millions of dollars in supporting them, is because of the edicts pushed through by Mr. Cuomo," said Bove, of Rochdale Securities, in a live interview.

Cuomo, who was secretary of Housing and Urban Development from 1997 to 2001, has been blamed in some quarters for helping to trigger the financial crisis by pushing Fannie and Freddie to buy more subprime mortgages to increase home ownership among the poor. Many of those homeowners eventually defaulted, and the mortgage-backed securities market later collapsed.

I mention this because Cuomo is also the guy that forced Fannie Mae and Freddie Mac to accept his HVCC - Home Valuation Code of Conduct. This is the Regulation that we all love to hate which prohibits mortgage Lenders and Brokers form having any choice in the selection of an appraiser for a mortgage transaction that will be sold to Fannie Mae or Freddie Mac. It now applies to FHA mortgages too.

Update on the Home Affordable Refinance Program (HARP)

The Federal Housing Finance Agency (FHFA), overseer of Fannie and Freddie, announced the Home Affordable Refinance Program (HARP) will be extended a year to June 30, 2011. HARP is part of the Making Home Affordable Program, and "is designed to expand access to refinancing for otherwise qualified borrowers who cannot move into more affordable mortgages because of a lack of equity in their homes" and is for borrowers who are current on their mortgage.  The program (supposedly) allows borrowers to refinance up to 125% of the current value of their home. But, I can't find a single lender that will go above 105%. They should have made the 125% limit mandatory for lenders.

90% of agents down on HAMP

A mere 10 percent of real estate agents think the Obama administration's Home Affordable Modification Program (HAMP) is reducing foreclosures in their market, according to a recent survey.

The company's Market Pulse Survey Report asked more than 100,000 real estate agents nationwide to participate in a 10-question survey to gauge the state of housing in local markets. Nearly 5,800 agents responded; 51 percent had been a Realtor for more than 10 years. The company conducted the survey in February.

Freddie Mac Eliminates Interest-Only products

The announcement by Freddie that their IO product will be phased out in September due to higher delinquencies than their amortized loan products. No word from Fannie yet on their Interest-Only.

Look at the rates below on these ARM.s They are in the 3%'s!!!

Who' Is More Delinquent - 30-Year or 15-Year Fixed Rate Borrowers?

Borrowers in 15-year mortgages are less delinquent than 30-yr borrowers. Somewhat surprisingly, borrowers are about 30% less delinquent. Notice that 15-year rates are always lower than 30-year rates too.

Mortgage Rate Update

Mortgage rates continued to defy logic and gravity during the past week as they edged still a little lower. Probably the main catalyst is the anticipation that tomorrow's Employment Report will be a bad one. Investors in Mortgage-Backed Securities have factored in a rise in unemployment and therefore a run to the safe harbor of MBS's and Treasury's. If the report is in fact bad, I don't expect any more improvement in rates and in fact rates could pop up a little after the release of the report at 5:30am our time.

Regardless of the report, rates are still very low and nobody should be holding out for anything better.

Why Did Mortgage Rates Rise this Week?

I can't help writing about rates again this week. The anticipated rise in mortgage rates may have begun. Only time will tell whether it's a trend or an aberration but rates shot up by .125% - .25% over the past two days. I've been saying for months that mortgage rates have to rise as we near the expiration of the Government's Mortgage-Backed Security Purchase Program. But, that's not all that drove rates this week.

Here's a list of the contributing factors:

·         The Fed's surprise announcement today to raise the Discount Rate - the rate they charge banks. This announcement actually came after the markets closed but it must have leaked out earlier to professional traders because the MBS markets did nothing but get worse as the day went on.

·         Hotter than expected inflation news - The Producer Price Index (PPI) for January was released this morning. This report measures the cost of goods at the wholesale level. Tomorrow the CPI is released. This reports measures inflation at the retail level. If it's higher than expected, expect the Bond and equity markets to be worse tomorrow. Inflation is the arch-enemy of interest rates.

·         Record amounts announced for next week's Treasury auction and lower foreign demand for U.S Treasury's during the past week. China and other country's were less willing to buy our debt. To entice them back into buying, we must offer higher rates. If Treasury rates rise, mortgage rates must rise too in order to compensate or the higher risk associated with MBS's vs. the "safer" investment in Treasury's.

·         Stabilizing Stock Market. As the stock market rises it pulls money out of bonds and into stocks. As money flows out of bonds, including MBS's, it drives the price down and rates up.

·         In the Minutes just released of the Fed's January meeting, some of the Fed Governors argued to change the Fed policy statement to suggest that they should to begin raising rates modestly. They didn't agree to do that which makes today's surprise announcement even more surprising.

·         In their last meeting, some Fed Governors said that the Fed should begin to sell off their stockpile of Mortgage Backed Securities as the recovery gains strength.  With the Fed buying program ending, and the Fed now potentially turning into a seller of MBS's.Bond prices will very likely come under more pressure.

It's not important that readers understand these points. But, what is important is to recognize how quickly the markets can and will turn on news - good or bad. And that is why it is so important to deal with a mortgage professional that understands the conditions that influence rates, watches how the markets react to the various stimuli, and acts to lock in his client's rates at the most advantageous time. We can't be perfect but we must do everything we can to provide the best terms possible to our clients.

I subscribe to four services that alert me to pending changes. As long as a client trusts me to work in their best interest I am almost always able to save them money. All lenders offer the same product at essentially the same rate. But that rate is continuously changing. And, as it changes, different lenders are faster or slower to adapt to those changes - creating an advantage or disadvantage between one lender and another. As a mortgage broker, I have choices and some lenders make better choices than others, particularly during volatile markets. A direct lender can't offer choices and therefore operates at a disadvantage. They offer their own rate and there's no flexibility to choose another.

Mortgage Rate Update:

Today was one of those days when most lenders re-priced for the worse 3 or 4 times during the day. I'm writing this at the end of the day and therefore the rates below are worse than they would have been first thing this morning. The release of tomorrow's CPI index for January will dictate the direction of tomorrow's rates. Let's hope it's a good report that suggests less inflationary pressure and contradicts today's PPI report. Please don't hesitate to contact me for an update.

BTW, Mortgage Rates are still very near historical 50-year lows. Don't get caught up in worrying about a .25% rise in rates. There are still lots of reasons to buy a house now while rates are low and home prices are low.

Jumbo lending ‘alive and well’ in Laguna

As we turn a more focused lens onto the Laguna Beach housing market, it’s important to explore the types of financing available in this market and the types of transactions being made.

This is a city where homes for sale soar to the tune of $30 million, and a city where the average active listing price is $3.8 million.

To help us better understand Laguna’s mortgage industry, Certified Mortgage Planning Specialist Richard Cirelli with Laguna Beach-based RTC Mortgage Corporation discusses jumbo loans:

“First of all, I would like to dispel the myth that there is no “Jumbo” financing”. Jumbo financing to $2 million or $3 million or more is available to qualified buyers with down payments of 20% to 30% in Laguna Beach and other high-priced markets. The definition of a “Jumbo” mortgage is one that exceeds the maximum loan limits for “conforming” loans that are saleable to Fannie Mae, Freddie Mac or insured by the Federal Housing Administration (FHA). The maximum conforming loan limit for a single family house in Orange County is $729,750. Accordingly, a “Jumbo” loan would be defined as loan that exceeds that amount.

A search of all sales transactions in Laguna Beach in 2009 reveals 91 homes that sold for more than $1 million and were either bought with cash or financed with Jumbo loans (this sample excludes properties that may have been bought for more than $1 million using conforming financing with loans less than $729,750). Of these 91 sales, 53 transactions (58%) were bought with cash and 38 (42%) were financed with Jumbo loans. Of the 38 Jumbo- financed transactions, only 5 appear to be financed by the seller or other private parties. Therefore, 33 transactions were financed with institutional loans. Fourteen different banks were responsible for those 33 financed transactions.

As previously mentioned, 14 different lenders provided Jumbo loans in Laguna Beach last year! As opposed to “conforming” loans where every lender offers the exact same product with no variation in underwriting guidelines, Jumbo lenders don’t all underwrite to the same criteria. Therefore, it’s important to work with a mortgage broker such as RTC Mortgage Corporation that has access to multiple lenders and knows the nuances of each lender and their guidelines. All lenders do require documentation of income to qualify but Jumbo lending is alive and well in Laguna Beach.”

The Cost of Regulation

Over the past year several new Regulations have been introduced by the Government in order to protect the Borrower from unscrupulous loan originators. While I'm sure our Government had good intentions, they result in considerable extra expense to the consumer.

HVCC: The Home Valuation Code of Conduct:

This Regulation prohibits mortgage originators from choosing the appraiser. Now, in order to request an appraisal, we must use an Appraisal Management Company (AMC). The AMC's randomly assign the appraisal to a "local" appraiser.

Since the AMC is a middle-man in the process, they keep a percentage of the appraisal fee charged to the borrower - typically 40%. The Appraiser then gets 60% of the fee which is much less than what he/she was paid prior to HVCC. In order for there to be enough money to pay the AMC and the Appraiser, the cost of the appraisal has increased from an average of $400 to an average of $550. Additionally, the randomly selected appraisers are often under-qualified and unfamiliar with the local market that can cause lower appraised values. Not including the cos t of low-appraised values and the impact they have on Buyers & Sellers:

ESTIMATED COST OF HVCC TO CONSUMER: $150

MDIA: Mortgage Disclosure Improvement ACT

This Regulation requires certain Disclosures to be made before any fees can be collected except for the cost of a Credit Report at the time of application. The collection of the Appraisal Fee and therefore the ordering of the Appraisal must be delayed until after Broker and the Lender have provided certain Disclosures to the Borrower. The Lender is allowed 3 days to send the Disclosures and must allow 3 additional days for the Borrower to receive the Disclosures if using the U.S. Mail. If the rate or other costs increase during the process, a new set of Disclosures must be re-ordered resulting in another waiting period before the loan can close.

The result of this Regulation is that loans now take longer to close. When a Broker or Lender locks in an interest rate they must lock it for a set period of time - 15, 30 45 days, etc. The longer the lender guarantees the interest rate, the higher the cost. If a loan typically took 30 days to close and now it takes 45 days due to the Disclosure regulation, the additional cost to extend the rate lock is .125 - .250 points. On a $400,000 loan that equates to $500 - $1000.

 ESTIMATED COST OF MDIA: $750

GOOD FAITH ESTIMATE/RESPA REFORM

Mortgage Originators are now required to provide a Good Faith Estimate (GFE) of Closing Costs at the time of Application and the Estimate for many of the costs can not vary from the final cost. If the final cost is more than the original estimate, the loan originator must pay the difference. Not only are the loan fees subject to $0 tolerance, but Title, Escrow and other fees are subject to just a 10% tolerance.

In order to protect themselves, Lenders, Title and Escrow Companies are "over-disclosing" their fees in order to provide a cushion for unexpected costs that were unknown at the time of application. I estimate the typical over-disclosure by Brokers & Lenders at $1000. Escrow and Title companies are over-estimating by about $250 each. Once the Borrower accepts the higher fee at time of application, it's unlikely that the Lender, Title or Escrow Company will voluntarily reduce it.

 ESTIMATED COST OF GFE: $1500

PROCESSING FEES:

The new Regulations require additional work by Brokers and Lenders. Accordingly, Lenders have increased their fees by $100 to $200 per loan. Additionally, Loan Processors are charging more to process a file due to the extra time involved - typically $100 per loan.

 ESTIMATED COST OF ADDITIONAL PROCESSING FEES: $250

ESTIMATED GRAND TOTAL OF ALL NEW REGULATION: $2650

The Importance of Yesterday's Fed Announcement

Yesterday the Fed announced that they will leave interest rates unchanged for the foreseeable future so mortgage rates should stay low, right? WRONG! How's that?

The Fed said they still plan to discontinue their program of buying Mortgage-Backed Securities by March 31^st. It is this plan, and nothing else, that is keeping mortgages rates artificially low by about 1%. In other words, if the Government stops buying MBS's at 4.5% - 5.%, then rates will rise to a rate that other investors will want to obtain if they are to buy MBS's instead of much safer Treasury Notes and Bills. We know from experience that investors in MBS's want a rate about 1.5% higher than 10-Year Treasury rates. Since Treasury Rates will rise along with the Fed Funds Rates, mortgae rates will rise too.

To illustrate the immediate impact on the Fed's statement yesterday, the Fed announcement was released at exactly 11:15 and within seconds MBS bond prices immediately nose-dived. And since rates move in the opposite direction of price, rates went up proportionately.  

It is important to note the speed at which the market reacts to the news. Fortunately in this case, the professional MBS's traders anticipated the Fed Announcement not to continue the MBS purchase plan so although yesterday's rise seemed dramatic, the actually impact on rates is less than 1/8%. But it is most likely the beginning of an upward trend in rates.

If it was me, I wouldn't hesitate to lock in at today's rates. The impetus for higher rates in the near future is much greater than the hope for lower rates.

I track the movement of MBS prices and rates every day, all day long, to try to obtain the best moment in time to lock my clients in. Most lenders and loan officers take your application, lock it in and move on. I always strive to get the best for my clients.

What's Up With Rates This Week?

Condo Pitfalls! What You Need to Know When Buying or Selling a Condo:

The condo market is hot right now and the reason is simple - they cost less than a detached home. First-time homebuyers and investors alike are gobbling them up. My pipeline is full of pre-approvals for buyers looking for the right condo to buy. 

Buyers, Sellers and Realtors should be aware of certain lender guidelines when it comes to buying a condo. These guidelines are set forth by Fannie Mae and Freddie Mac, the two government-owned agencies responsible for providing mortgage money to all lenders. Therefore their rules apply to all lenders. Be aware of these conditions so you’ll have no surprises.

Here’s what you need to know:

·         For existing condominium projects, at least 51% of the units must presently be owner-occupied. If more than 50% of the units are owned by investors, the unit you want to buy may be unfinanceable.

·         No more than 10% of the units in a project can be owned by a single entity.

·         No more than 20% of a project can consist of non-residential space (such as commercial space).

·         No more than 15% of a condo project’s units can be more than 30 days delinquent on HOA dues. 

·         The homeowners association must have at least 10% of its budgeted income designated for replacement reserves and adequate funds budgeted for the insurance deductible.

·         Fannie Mae and Freddie Mac require a .75% add-on fee (this is to points, not rate) unless the buyer makes a down payment of at least 25 percent. Investors will pay an additional 1.75% in points. 

·         Pending litigation by a homeowner against the HOA or litigation by the HOA against the developer is almost always a deal-killer so be sure to ask if there is any pending litigation. 

·         Fidelity insurance will be required for condos with 20 or more units, ensuring that homeowner association funds are protected. 

·         Borrowers must obtain a condo-owners insurance policy unless the master policy provides interior unit coverage; coverage may not be less than 20% of the assessed value. A condo-owners policy, known as an HO-6 policy, covers personal property, personal liability, and the physical unit from the studs and in. Many policies also include special assessment coverage or the option to include a special assessment coverage rider.

·         For new construction and newly converted condo developments, 70% of the units must be pre-sold (closed or under contract).

·         New projects where the seller (builder or developer) is offering sale/financing structures in excess of Fannie Mae’s eligibility policies for individual mortgage loans. This varies according to the amount financed as a percentage of the purchase price.

How Do We Find Out If a Project Meets the Guidelines?

Lenders and Mortgage Brokers are required to obtain an HOA Certification form from the HOA or Property Management Company. Each lender has their own form but the questions are the same. Some HOA’s make the information available on a website called CondoCerts.com to which we subscribe. There is almost always a cost for obtaining the HOA Certification Form and supporting documents – usually $100 - $200.

In addition to the HOA Certification Form, the lender or broker will often need the projects Covenants, Codes & Restrictions (CC&R’s) Articles of Incorporation, By-Laws, the Budget, and Evidence of Insurance/Master Insurance Policy.

Awareness of these requirements will help to ensure a smooth closing. I encourage Realtors to obtain this information when listing a condominium and for buyers to ask for this information early in their shopping process. I’m always available to help too. Don’t be afraid to buy a condo. Just do your homework. A condo can be a great investment!

What’s Up With Rates This Week?

Mortgage Rates improved a bit more from last week driven by weak inflation data and rising unemployment claims today. Remember, bad news for the economy is good news for rates. In the meantime the debate continues over whether the Government will continue their program to purchase Mortgage-Backed Securities (MBS’s) beyond the deadline of March 31^st. It is estimated that the MBS purchase program is responsible for keeping mortgage rates artificially low by about 1%.

Please feel welcome to forward this information on to your clients, colleagues and friends. I value your feedback too.

What's Ahead for Home Loans in 2010?

This year could bring significant changes from 2009 for those seeking home loans. Over the last year, home prices fell to 2003 and earlier levels in many parts of the country. In addition, home loan rates declined to the lowest levels on record and this combination led to the highest home affordability levels ever recorded. Here's a recap of what happened in 2009 and what you need to know for the year ahead.

Would You Like a Sweetener with that Rate?

Interest rates throughout 2009 were artificially low. That's because in late 2008, the Federal Reserve put into place a program for purchasing Mortgage Backed Securities with the intention of lowering mortgage rates. They were successful with reported rates by Freddie Mac falling below 5.00% several times in 2009.

Without this program mortgage rates would have been at least 1.00% higher, and potentially even higher than that. Did you know that a change of 1% in a home loan rate impacts the amount someone can borrow by roughly 10%? For example, if rates are in the low 5.00% range today and they shoot up to the low 6.00% range, $250,000 home buyers may become $225,000 home buyers. 

Look for rates to return to 2008 and previous levels as the Fed ends the program on March 31, 2010. While rates will not immediately increase to 6.00% or higher, know that without additional intervention, rising rates are inevitable. Expect that under worst case scenarios, rates could dance around the 7.00% range.

Show Me Your Docs

Contrary to what you may see or hear in the media, money is widely available for people who want to finance their homes. There is one caveat, though. People need to be able to demonstrate that they qualify for the loan amount they are pursuing and that they have been willing to repay debt they have accepted in the past.

To obtain financing today, a borrower needs to supply the lender with all documentation pertaining to their income, liquid assets and potentially items related to their credit reporting. The best preparation path to follow is to gather most recent paystubs for 30 days of earnings, two years W-2s with complete tax returns and three months statements, all pages, for any liquid assets used for qualifying.

The free-wheeling days of borrowing whatever people thought they could repay are gone. While some exceptions may be granted for strong compensating factors, total debt to income level will be capped at 45%.

Have We Hit a Bottom in Housing?

If you simply look at the data that is reported, one could surmise that the bottom in U.S. home prices was hit in 2009. One nationally respected index for home price reporting, the S&P/Case-Shiller Home Price Indices, indicates that home prices turned for the better around mid-year in 2009.

While all markets are different and some may continue to show signs of weakness, most communities have demonstrated strength and should continue to do so. However, some potential headwinds do exist for the second and third quarter of 2010, following the expressed expiration dates of several stimulus programs: The Mortgage Backed Securities purchase program and home buyer tax credits, both of which are directed at the housing and the mortgage markets.

Foreclosures and short sales will also continue to influence many of the hardest hit markets as unemployment and resetting adjustable rate mortgages weigh on distressed homeowners.

Dates to Remember

Two dates lie on the horizon that will impact interest rates and potentially home prices. The first program scheduled to end is the Federal Reserve's program for purchasing Mortgage Backed Securities. Announced in November of 2008, the Fed began purchasing $1.25 trillion in mortgage bonds in 2009 which will culminate at the end of March. As the intention and result of this program was to lower rates, mortgage rates will likely begin to rise after the program concludes.

In addition, April 30, 2010 is the last day to enter into a home purchase contract and still potentially qualify for a federal income tax credit of up to $8,000 for first-time home buyers and up to $6,500 for repeat home buyers. The credit can be claimed only on contracts that close by June 30, 2010.

Act Now...Not Later

While no one knows for certain what the future holds, one thing does appear clear. Home loan rates and home prices both will be higher in the future. If you or anyone you know is looking to purchase or refinance a home, waiting could be costly!

What's Up With Mortgage Rates This Week?

Rates have shown a little more volatility this week. First they improved early in the week and then reversed course and rose yesterday afternoon. I was able to lock in my pipeline yesterday morning just before lenders started re-pricing for the worse. Uncertainly over the 3/31/10 deadline for the Government's program of buying Mortgage-Backed Securities (MBS's) fueled the rise. On the other hand, good demand for yesterday and today's Treasury auctions helped improve pricing. Today we had a weaker than expected Retail Sales report and slightly higher unemployment claims influencing the pricing of MBS's. Te net result compared to last week is about 1/8% improvement in rates.

How The Fed's Official Statement Yesterday Could Move Mortgage Rates In April By 1 Percent Or More

The Federal Open market Committee (The Fed) met yesterday for one of their regularly scheduled meetings to set monetary policy. Their statement at the end of the meeting had little news in it. I suppose no news is good news as it was more of what the Fed has been saying for weeks --- 'the economy is slowly improving, the housing sector a little better and labor markets weak. Small businesses are still not hiring, the inventory levels are returning to normal matching demand"..

The Fed does not set mortgage rates but their policy and their statements have a lot to do with mortgage rates. That's because the Government owns Fannie Mae and Freddie Mac and the Government has been the major buyer of Mortgage-Backed Securities (MBS) issued by Fannie Mae and Freddie Mac for the past year. These MBS are then sold to investors and they trade every day just like stocks and bonds are traded. It's not the banks and the mortgage bankers that set mortgage rates - it's the supply and demand for MBS's that all mortgage lenders sell their loans into that dictates the rate or cost of a mortgage.

The Fed reiterated that it will end its purchases of MBS's at the end of Q1 due to the improvement in the financial markets. The Fed believes there is little to fear on the inflation front. The statement further said the Fed would leave the Fed Feds rate at zero to +0.25% for that "extended period of time".