Now is the time to pull the refi trigger if you can...
Today's action by the Fed has caused downward movement to mortgage rates.
Markets had been expecting the Fed to commit to shifting their TREASURY holdings to longer maturities (like selling 2-3yr notes and buying 10's), and indeed, that was announced today. 10 and 30yr Treasuries rallied from already impressively low levels on the news.
But the Fed included a somewhat surprising nod to the Secondary Mortgage Market in committing to reinvest the income it receives from monthly payments and periodic pay-offs in its MBS portfolio BACK INTO MBS (aka "mortgage-backed-securities," the bonds that govern mortgage rates). This caused a
massive break of recent highs and pushed MBS well into all time highs. Remember that the higher the MBS PRICE, the lower interest rates can potentially go. Although MBS are the most direct driver of mortgage rates, there are other factors at play.
Today's Rates: The current market is in a state of flux at the moment and mortgage rates either already have or are likely in the process of moving to ALL TIME LOWS. From 4.125% yesterday, Best Execution on a 30yr Fixed is closest to 3.875% this afternoon depending on the lender. In some cases it's 4.0%.
FHA/VA deals are in a bit of a predicament that's keeping them blocked off below 3.75% (there's no secondary market for rates any lower than that right now!). For similar reasons, 15 year fixed conventional loans may be stuck at 3.25%, though that's still an improvement from yesterday.
The secondary market factors driving adjustable rate loans are in a massive state of flux, but one that is mixed between positive and negative. Shorter ARMS are generally the same to slightly better whereas longer ARMS could actually be worse.
Please note there can be a fair amount of variety between lenders and that this has been exaggerated by recent market volatility.
Wednesday, September 21, 2011
Tuesday, September 20, 2011
The Fed Meeting and Follow Up Comment
I received quite a bit of feedback regarding yesterday's posting and thought it might be helpful (cathartic?) to follow up with some news about the Fed meeting today/tomorrow and the think tank reaction. We all have our ideas and some of them might actually be effective....
The FOMC meeting gets started today, a two day affair leading to tomorrow's policy statement and belief the Fed will officially announce "Operation Twist" as it is being dubbed. Many now are confident the Fed will act; if it doesn't, the long end of the yield curve (10 and 30 yr bonds, as well as mortgage markets) will likely be hit hard. The Fed will decide to replace short-term treasuries in its $1.65 trillion portfolio with long- term bonds, according to 71% of 42 surveyed economists. The move, likely to try and bend the yield curve, will probably fail to reduce the 9.1% unemployment rate, 61% of the economists said. Among those, 15% predict it will be “somewhat harmful.”
Looking over the wires this morning, it appears there is little in the way of understanding what "Operation Twist" will do for the economy. Stories are lining up that the stock indexes are better this morning on belief the Fed's expected move will help the economy. I don't subscribe to that thinking; lower long term interest rates that are supposed to go lower on the Fed move will have little if any impact on unemployment, will not likely motivate small businesses to spend or hire, and won't do much for the housing sector.
To reiterate the point, Banks are scared to death to lend. Regulators continue to step on them with more red tape and regulations that simply do not make sense. Then we have the FHFA launching law suits against the large mortgage lenders demanding re-payment of as much as $800B for what FHFA is saying were faulty loans; and telling Fannie and Freddie to increase fees by as much as 10 basis points.
Washington continues to be unable to get out of its own way; suing banks so late in the game is counter-productive and sends a message that lenders are at risk for anything they do. Will the new norm be that bureaucrats/banks operate with one foot on the throttle, one foot on the brake, and only act when no one is in the rear view mirror? Is it any wonder banks won't lend?
Until next time...
The FOMC meeting gets started today, a two day affair leading to tomorrow's policy statement and belief the Fed will officially announce "Operation Twist" as it is being dubbed. Many now are confident the Fed will act; if it doesn't, the long end of the yield curve (10 and 30 yr bonds, as well as mortgage markets) will likely be hit hard. The Fed will decide to replace short-term treasuries in its $1.65 trillion portfolio with long- term bonds, according to 71% of 42 surveyed economists. The move, likely to try and bend the yield curve, will probably fail to reduce the 9.1% unemployment rate, 61% of the economists said. Among those, 15% predict it will be “somewhat harmful.”
Looking over the wires this morning, it appears there is little in the way of understanding what "Operation Twist" will do for the economy. Stories are lining up that the stock indexes are better this morning on belief the Fed's expected move will help the economy. I don't subscribe to that thinking; lower long term interest rates that are supposed to go lower on the Fed move will have little if any impact on unemployment, will not likely motivate small businesses to spend or hire, and won't do much for the housing sector.
To reiterate the point, Banks are scared to death to lend. Regulators continue to step on them with more red tape and regulations that simply do not make sense. Then we have the FHFA launching law suits against the large mortgage lenders demanding re-payment of as much as $800B for what FHFA is saying were faulty loans; and telling Fannie and Freddie to increase fees by as much as 10 basis points.
Washington continues to be unable to get out of its own way; suing banks so late in the game is counter-productive and sends a message that lenders are at risk for anything they do. Will the new norm be that bureaucrats/banks operate with one foot on the throttle, one foot on the brake, and only act when no one is in the rear view mirror? Is it any wonder banks won't lend?
Until next time...
Monday, September 19, 2011
Can you Refi? It’s time to repeal Dodd/Frank, and other ramblings…
The grand experiment has failed.
It’s time for consumers and business leaders to step forward and say “enough is enough.”
Many of us in the real estate and lending business know that mortgage loan underwriting and appraisal requirements are beyond ridiculous. While the big banks continue to horde money, insist on tighter than ever reasons to lend it, and wait to see how much they will need to give up to the Fed and others in lawsuits, consumers bear the brunt in the inability to obtain a reasonably underwritten mortgage loan. Should you think this is an over-reaction, ask anyone who has experienced the loan process recently.
While some borrowers are squeaky clean and the process goes smoothly, most are not squeaky clean and experience a nightmare in over-regulated appraisal and loan requirements, and lengthy closing timelines.
Senator Corker (Tenn.) on CNBC 9-2-11 hit the preverbal nail on the head; he said Washington (politicians) have no idea what makes business function. Amen.
What took place in Washington in the aftermath of the 2008 crisis is coming home to roost within the business world. Regulations were piled on by Barney Frank and Chris Dodd as both saw an opportunity to increase government's influence on businesses and consumers. Neither one of them had, or has a clue; Dodd/Frank must be repealed as well as choking the life out of regulators.
The time is way past for all of us to say “enough is enough!”
Can you refi? Consumers are having a hard time coming up with enough incentive to buy these days with prices and interest rates falling. Many that would like to re-finance and improve their financial situation are struggling due to extreme tight underwriting and low appraisals. If you can refinance it’s a GREAT time!
If the President and Congress want to do something that doesn't cost and may increase consumer confidence and spending they should open the pipeline increasing re-financing. Instead we have the FHFA launching $200B of lawsuits against banks and individuals over sub-prime bad loans. Will the FHFA also sue S&P, Moody's and Fitch for rating the *CDO’s (Collateralized Debt Obligations) made up of sub prime loans at AAA? No! If the government were to get out of the way the US economy would improve more quickly.
How about this? Re-finance all mortgages that are current and have been current for six months with no appraisals and no credit underwriting; but no cash outs unless the appraisal allows it. Lowering mortgage payments is the same as getting a bonus or an increase in pay.
Yeah, right…that would require out of the box thinking which scares bankers to death.
The Wall Street Journal had quite an opinion piece on the recent Bank of America job cuts. "What is the cost of overregulation? Bank of America appears to have provided part of the answer by announcing...it will cut 30,000 jobs between now and 2014. CEO Brian Moynihan said the bank's plan is to slash $5 billion in annual expenses from its consumer businesses. Mr. Moynihan didn't say this, but we will: These layoffs are part of the bill for the last two years of Washington's financial rule-writing. After loose monetary policy had combined with insane housing policy to create a financial crisis, the Democrats who ran Washington in 2009 and 2010 enacted myriad new rules that had nothing to do with easy money or housing. Take the amendment that Illinois Democrat and Senator Dick Durbin (with the help of 17 Senate Republicans) attached to last year's Dodd-Frank financial law. Mr. Durbin's amendment instructed the Federal Reserve to limit the amount of "swipe fees" that banks can charge merchants when customers use debit cards. How exactly does forcing banks to charge Wal-Mart less money for operating an electronic payment system prevent the next financial crisis? Readers may wait a long time for a satisfactory answer, but the cost of this Dodd-Frank directive is straightforward."
The WSJ opinion piece goes on. "Restricting bank profits on a particular product may have obvious populist appeal, but politicians shouldn't be surprised if banks decide that such consumer credit operations aren't good businesses and can function with fewer employees. Add in the various federal programs aimed at extracting penalties for this or that mortgage-foreclosure error and it's understandable that a bank would have trouble forecasting growth to justify its current work force. To be sure, Bank of America is also suffering from its own mistake in deciding to buy Countrywide Financial in 2008. As for the financial industry generally, it had become distended and needed to shrink after the bubble years of easy money. But given the real-world results for bank employees, politicians should not be allowed to pretend that there are no consequences when they deliberately reduce the profitability of employers. Mr. Obama proposed last week to spend some $450 billion more in outlays or tax credits to create more jobs, but it would have cost a lot less to save these 30,000."
Here’s some comment on the Fed's and the Administration's perception of why the economy is so weak. All the talk is centered around Easing, Monetary Policy, Interest Rates, Stimulus etc. and while low interest rates are great it is not interest rates that are keeping the economy down at this point.
Lack of jobs and lack of confidence are the problem. Nothing is going to get better until we achieve real job growth and recent Jobless Claims numbers are indicating that nothing is changing. Job growth will stimulate a housing recovery and both will boost the economy.
Now the wiz bang geniuses in DC think that they can tinker with rates and numbers and fix it enough to get re-elected but I submit they are wrong. Businesses and entrepreneurs (read new businesses and job creation) need to have confidence that a fairly predictable business and regulatory environment exists in which to operate. That does not exist today hence businesses, large and small, are not willing to risk and are sitting on whatever cash they have. The answer, I think, to repairing the economy and promoting growth is not interest rates, a new Stimulus, the Fed buying bonds, or whatever else they tried that hasn't worked. The answer is rolling back the tsunami of new regulations the politicians have placed in motion.
Businesses literally do not know if what they are doing today is going to become illegal next month or next year. We are experiencing "death by regulation" in almost every industry. Hundreds of new regs are still to be written and implemented. Our Industry is only one, among many, that are being pummeled with new rules and regs.
Bottom line is: get the Government out of our way and American businesses will get moving.
Until next time…
*Definitions: A collateralized debt obligation, or CDO, is a debt instrument (a bond) that is backed by a pool of other bonds. From the same pool of bonds, several CDO tranches are normally created. The least risky tranches have a priority claim on interest and principal paid by the underlying bonds. In return, these tranches receive the lowest rates of interest. The riskiest tranches are the first to absorb any defaults among the underlying bonds. In return, these tranches receive the highest rates of interest.
What are “tranches” you ask? Tranches are from the French for slice, portion or batch, the word tranche most commonly refers to one in a series of debt instruments that are backed by a common underlying pool of assets, but which have different terms and conditions. Tranches within a given debt issue typically represent a spectrum of risk and return tradeoffs, ranging from high risk/high return to low risk/low return. Apart from this specific application, the term tranche often is heard within the financial services industry as a synonym for segment or group. Thus, rather than hearing about a client segment, you may hear someone speak about a tranche of clients.
All clear? Contact me any time: log onto http://www.mijoymortgage.com/ for all the good stuff.
It’s time for consumers and business leaders to step forward and say “enough is enough.”
Many of us in the real estate and lending business know that mortgage loan underwriting and appraisal requirements are beyond ridiculous. While the big banks continue to horde money, insist on tighter than ever reasons to lend it, and wait to see how much they will need to give up to the Fed and others in lawsuits, consumers bear the brunt in the inability to obtain a reasonably underwritten mortgage loan. Should you think this is an over-reaction, ask anyone who has experienced the loan process recently.
While some borrowers are squeaky clean and the process goes smoothly, most are not squeaky clean and experience a nightmare in over-regulated appraisal and loan requirements, and lengthy closing timelines.
Senator Corker (Tenn.) on CNBC 9-2-11 hit the preverbal nail on the head; he said Washington (politicians) have no idea what makes business function. Amen.
What took place in Washington in the aftermath of the 2008 crisis is coming home to roost within the business world. Regulations were piled on by Barney Frank and Chris Dodd as both saw an opportunity to increase government's influence on businesses and consumers. Neither one of them had, or has a clue; Dodd/Frank must be repealed as well as choking the life out of regulators.
The time is way past for all of us to say “enough is enough!”
Can you refi? Consumers are having a hard time coming up with enough incentive to buy these days with prices and interest rates falling. Many that would like to re-finance and improve their financial situation are struggling due to extreme tight underwriting and low appraisals. If you can refinance it’s a GREAT time!
If the President and Congress want to do something that doesn't cost and may increase consumer confidence and spending they should open the pipeline increasing re-financing. Instead we have the FHFA launching $200B of lawsuits against banks and individuals over sub-prime bad loans. Will the FHFA also sue S&P, Moody's and Fitch for rating the *CDO’s (Collateralized Debt Obligations) made up of sub prime loans at AAA? No! If the government were to get out of the way the US economy would improve more quickly.
How about this? Re-finance all mortgages that are current and have been current for six months with no appraisals and no credit underwriting; but no cash outs unless the appraisal allows it. Lowering mortgage payments is the same as getting a bonus or an increase in pay.
Yeah, right…that would require out of the box thinking which scares bankers to death.
The Wall Street Journal had quite an opinion piece on the recent Bank of America job cuts. "What is the cost of overregulation? Bank of America appears to have provided part of the answer by announcing...it will cut 30,000 jobs between now and 2014. CEO Brian Moynihan said the bank's plan is to slash $5 billion in annual expenses from its consumer businesses. Mr. Moynihan didn't say this, but we will: These layoffs are part of the bill for the last two years of Washington's financial rule-writing. After loose monetary policy had combined with insane housing policy to create a financial crisis, the Democrats who ran Washington in 2009 and 2010 enacted myriad new rules that had nothing to do with easy money or housing. Take the amendment that Illinois Democrat and Senator Dick Durbin (with the help of 17 Senate Republicans) attached to last year's Dodd-Frank financial law. Mr. Durbin's amendment instructed the Federal Reserve to limit the amount of "swipe fees" that banks can charge merchants when customers use debit cards. How exactly does forcing banks to charge Wal-Mart less money for operating an electronic payment system prevent the next financial crisis? Readers may wait a long time for a satisfactory answer, but the cost of this Dodd-Frank directive is straightforward."
The WSJ opinion piece goes on. "Restricting bank profits on a particular product may have obvious populist appeal, but politicians shouldn't be surprised if banks decide that such consumer credit operations aren't good businesses and can function with fewer employees. Add in the various federal programs aimed at extracting penalties for this or that mortgage-foreclosure error and it's understandable that a bank would have trouble forecasting growth to justify its current work force. To be sure, Bank of America is also suffering from its own mistake in deciding to buy Countrywide Financial in 2008. As for the financial industry generally, it had become distended and needed to shrink after the bubble years of easy money. But given the real-world results for bank employees, politicians should not be allowed to pretend that there are no consequences when they deliberately reduce the profitability of employers. Mr. Obama proposed last week to spend some $450 billion more in outlays or tax credits to create more jobs, but it would have cost a lot less to save these 30,000."
Here’s some comment on the Fed's and the Administration's perception of why the economy is so weak. All the talk is centered around Easing, Monetary Policy, Interest Rates, Stimulus etc. and while low interest rates are great it is not interest rates that are keeping the economy down at this point.
Lack of jobs and lack of confidence are the problem. Nothing is going to get better until we achieve real job growth and recent Jobless Claims numbers are indicating that nothing is changing. Job growth will stimulate a housing recovery and both will boost the economy.
Now the wiz bang geniuses in DC think that they can tinker with rates and numbers and fix it enough to get re-elected but I submit they are wrong. Businesses and entrepreneurs (read new businesses and job creation) need to have confidence that a fairly predictable business and regulatory environment exists in which to operate. That does not exist today hence businesses, large and small, are not willing to risk and are sitting on whatever cash they have. The answer, I think, to repairing the economy and promoting growth is not interest rates, a new Stimulus, the Fed buying bonds, or whatever else they tried that hasn't worked. The answer is rolling back the tsunami of new regulations the politicians have placed in motion.
Businesses literally do not know if what they are doing today is going to become illegal next month or next year. We are experiencing "death by regulation" in almost every industry. Hundreds of new regs are still to be written and implemented. Our Industry is only one, among many, that are being pummeled with new rules and regs.
Bottom line is: get the Government out of our way and American businesses will get moving.
Until next time…
*Definitions: A collateralized debt obligation, or CDO, is a debt instrument (a bond) that is backed by a pool of other bonds. From the same pool of bonds, several CDO tranches are normally created. The least risky tranches have a priority claim on interest and principal paid by the underlying bonds. In return, these tranches receive the lowest rates of interest. The riskiest tranches are the first to absorb any defaults among the underlying bonds. In return, these tranches receive the highest rates of interest.
What are “tranches” you ask? Tranches are from the French for slice, portion or batch, the word tranche most commonly refers to one in a series of debt instruments that are backed by a common underlying pool of assets, but which have different terms and conditions. Tranches within a given debt issue typically represent a spectrum of risk and return tradeoffs, ranging from high risk/high return to low risk/low return. Apart from this specific application, the term tranche often is heard within the financial services industry as a synonym for segment or group. Thus, rather than hearing about a client segment, you may hear someone speak about a tranche of clients.
All clear? Contact me any time: log onto http://www.mijoymortgage.com/ for all the good stuff.
Be a USDA loan expert; 100% financing still allowed
USDA Programs Guaranteed Loan Changes
USDA has 2 main borrower programs, a “Direct” loan, which is an interest rate subsidy loan that USDA loans directly to qualified low income borrowers, and a “Guaranteed” loan program where USDA insures institutional loans made to qualified borrowers, based on geographic and income qualifiers. Here’s a link to the qualifiers:
http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?NavKey=home@1
Currently, USDA charges borrowers an Upfront Guarantee Fee of 3.5% of the loan amount.
Effective with USDA commitments on/after 10-1-11, an Annual (monthly) Borrower Fee will be added, the Upfront Fee will be reduced.
The Upfront Guarantee Fee will be reduced from 3.5% to 2% for purchase transactions. This fee can be financed into the loan amount with an LTV up to 102% (100% financing), or paid in cash.
The Upfront Guarantee Fee for refinance transactions will remain at 1%.
The USDA will implement a new Annual (monthly) Fee of 0.30% charged on all loans with a Conditional Commitment issued on or after October 1, 2011. This fee will be added to the borrower’s monthly payment and will remain for the life of the loan. The initial Annual Fee, for the first year of the loan, will be calculated based upon the guaranteed loan amount. For the remaining years of the loan, the Annual Fee will be calculated on the average annual scheduled unpaid principal balance of the loan, not the actual unpaid principal balance.
Examples for a $100,000 30 year fixed loan at 4.250%, Old vs. New:
Loan amount Upfront fee Annual (Monthly) Fee Monthly payment total
With Upfront fee P/I/Monthly fee
Old
$103,500 3.5% / $3500 -0- $509.16
New
$102,000 2 .0% / $2000 $24.87 $526.65
Bottom line, about $17 more per month on $100,000 loan.
Fee calculators can be found here:
https://usdalinc.sc.egov.usda.gov/USDALincTrainingResourceLib.do.
The calculators are located in the Loan Origination section under Documentation and Resources.
Now you're an expert...until next time....
USDA has 2 main borrower programs, a “Direct” loan, which is an interest rate subsidy loan that USDA loans directly to qualified low income borrowers, and a “Guaranteed” loan program where USDA insures institutional loans made to qualified borrowers, based on geographic and income qualifiers. Here’s a link to the qualifiers:
http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?NavKey=home@1
Currently, USDA charges borrowers an Upfront Guarantee Fee of 3.5% of the loan amount.
Effective with USDA commitments on/after 10-1-11, an Annual (monthly) Borrower Fee will be added, the Upfront Fee will be reduced.
The Upfront Guarantee Fee will be reduced from 3.5% to 2% for purchase transactions. This fee can be financed into the loan amount with an LTV up to 102% (100% financing), or paid in cash.
The Upfront Guarantee Fee for refinance transactions will remain at 1%.
The USDA will implement a new Annual (monthly) Fee of 0.30% charged on all loans with a Conditional Commitment issued on or after October 1, 2011. This fee will be added to the borrower’s monthly payment and will remain for the life of the loan. The initial Annual Fee, for the first year of the loan, will be calculated based upon the guaranteed loan amount. For the remaining years of the loan, the Annual Fee will be calculated on the average annual scheduled unpaid principal balance of the loan, not the actual unpaid principal balance.
Examples for a $100,000 30 year fixed loan at 4.250%, Old vs. New:
Loan amount Upfront fee Annual (Monthly) Fee Monthly payment total
With Upfront fee P/I/Monthly fee
Old
$103,500 3.5% / $3500 -0- $509.16
New
$102,000 2 .0% / $2000 $24.87 $526.65
Bottom line, about $17 more per month on $100,000 loan.
Fee calculators can be found here:
https://usdalinc.sc.egov.usda.gov/USDALincTrainingResourceLib.do.
The calculators are located in the Loan Origination section under Documentation and Resources.
Now you're an expert...until next time....
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