Japan/World Events
Most of what is happening now in the world is supportive to US treasuries and therefore mortgage markets. Global events, such as the ongoing crisis in Japan, oil prices and unrest in the Middle East are all contributing factors to what now affects the US economy in a significant way. Generally, if the US Dow/Equities Markets suffer due to events, mortgage rates are lower.
From an economic perspective, world stock markets are hitting 2 1/2 month lows this week, and US Treasury/Mortgage yields have dropped due to the devastation.
Contrary to what some Wall Street analysts believe, one reader wrote, "What happened in Japan is a complete human and economic disaster, not an opportunity for economic growth. Rebuilding projects after a natural disaster are not stimulative whatsoever - the immediate economic effect of the quake/tsunami was that tons of capital and material wealth/assets were destroyed instantly (not to mention all the lives lost). Rebuilding the infrastructure returns that area to where they were before the quake/tsunami. That doesn't equal growth in an economic sense - you have to distinguish between the seen (so-called job creation of the quake/tsunami) and the unseen (economic growth potential of that same labor and capital had there been no quake/tsunami). If one quake/tsunami is 'supportive to economic growth', wouldn't that mean that 10 quake/tsunami's would be phenomenal for economic growth? That makes no sense whatsoever."
The Tokyo stock market improved in the last 2 days, up 6.5% after huge selling recently. However, the problems at the nuclear reactors in Japan are still a major concern. The number of deaths in the country are still undetermined, the impact on Japan's economy is still unquantified and its implications to other economies is presently unknown. Reports that many are leaving Tokyo continue to increase. It may be quite some time before Japan contributes in any positive way to the world economy. There are lots of discussions and opinions but nothing of substance that markets can get its arms around. It's likely going to be weeks and maybe months to assess the longer term consequences from the tragedy; in the meantime, US markets will continue to experience a high degree of volatility.
Whether or not there will be a serious meltdown is an obvious concern but markets are beginning to realize that Japan's economy will be impaired for years in the process of re-building. The impact of one of the largest economies in the world being dragged down is still not fully understood by markets or the Fed. That being said, the Japan crisis, combined with the Fed efforts, mean mortgage rates will likely stay in the current range as this plays out, subject to world reaction and other events that may occur.
April 1, 2011 changes
Over the past three months the mortgage industry has struggled greatly to interpret and implement loan originator compensation reform and new anti-steering regs.
The final rules are scheduled to go live on April 1 but the Federal Reserve still hasn't provided formal written guidance on the rule changes. This forced major mortgage banks and regional lenders to think up their own policies and procedures. Unfortunately there has been little to no uniformity in their individual translations. This lack of interpretative consistency has created confusion and further muddled the loan application process for consumers.
As a result, several lawsuits have been filed against the Fed to delay the rule change. Both the NAIHP (National Association of Independent Housing Professionals), and NAMB (National Association of Mortgage Brokers) filed suit to prevent the April 1st implementation of the LO compensation rule. The NAMB suit seeks temporary and preliminary restraints that would enjoin the implementation of a specific section of the Federal Reserve Board's Final Rule on loan originator compensation. Also, a letter co-authored by Senators David Vitter from Louisiana and Jon Tester from Montana (signed by 32 legislators) was recently sent to the Federal Reserve requesting a delay in the implementation of the Fed's loan originator compensation rules.
The likely outcome to consumers if the rule is implemented is two-fold, in my opinion. First, mortgage rates are likely going to go up, at least .250% across the board. Second, loan amounts below $100-$150K may be difficult to obtain as not enough income can be genrated by lenders to justify the expense of transacting the loan. We will have to see what market pricing is on/after 4-1-11 to be certain.
The rule as written provides that:
Compensation will be restricted under the TILA (Truth In Lending Act) Compensation Rule. In summary, the following rules apply under this new regulation effective April 1, 2011:
• Loan originator compensation cannot be based on the interest rate or loan terms and conditions.
• The loan originator can be compensated by the borrower or lender, but not both in a transaction.
• The loan originator cannot steer the borrower to a loan solely to increase originator compensation.
Personally, I support better control of the lending process and I am a proponent of rules, laws, and regulation the benefit the consumer. So far, I see little benefit for the consumer in what has become a more confusing process, and one that costs the consumer more money in increased fees, wait times, and what I believe will be higher rates; all resulting from the increased regulation in the appraisal process, new TIL/GFE process, compensation plans, and other changes we have seen occur.
