Mortgage Rates Officially Hit New All-Time Lows

Mortgage Rates hit new all-time lows today.  

In most cases, lenders' offerings are just slightly better across the board than they were in late January, the last time the market's officially noted "new all-time lows," though some lenders are not quite back to their previous best levels.  

So, what's going on? A few things...

A much weaker-than-expected reading on a widely followed report on business conditions in the mid-Atlantic region gave rates markets a bit of an early jolt lower.  From there, an absence of additional data gave way to technical momentum, helping rates even lower.

Markets are facing tremendous uncertainty over the eventual outcome of Greek elections in June, as well as the fate of the Spanish banking sector.  Today, Spain saw their own version of the "run on banks" that occurred in Greece yesterday, reminding traders that, even if Greece makes it out of this mess still in the Euro-zone, that there are bigger fish to fry.  

All that uncertainty has investors piling into safe-haven assets.  In a global economy where a currency as massive as the Euro is in serious trouble due to problems in one small Euro-zone country, investors are just looking for a safe place to park their assets.  US Treasuries have been one such place and their recent rally benefits other products in that same medicine cabinet, such as MBS (the "mortgage backed securities" that most directly influence mortgage rates).

Apart from Europe, there's also the consideration of Fed policy in the US.  Whether or not the Fed extends recent quantitative easing measures or embarks on new ones is a matter of great concern to bond markets.  At the last policy announcement, the door was left open for additional easing as-needed, and yesterday's "minutes" from that policy meeting essentially confirmed that open door. Markets perceive that "as needed" is becoming more and more "needed" if the Fed sees signs in the domestic economy like the one seen in this morning's weak data.  

When investors think the Fed is more likely to buy more fixed-income investments, rates stay low or move lower, all other things being equal. 

Any way you account for the causes, the bottom line is that mortgage rates are lower.    Keep in mind, of course, that while the European credit theater will likely continue to weigh on markets, keeping rates fairly contained in this new, low range, that "cement" can always be broken if sufficient force is applied.  

While fond of mentioning the increasing barriers to improvement at current levels, it's not that I  think rates can't improve, it just feels that it will be slow going, and with risks of periodic bounce back.  The wisdom of locking or floating slightly favors locking at this point, in my opinion.

Until next time...

Are We There Yet? Housing and Lending Temperatures

It seems every time I turn around we have new data to digest. The fact is that actual results often speak louder than data. The human equation always makes things interesting, and can be one of the biggest factors in determining economic direction.

We are what we think. So, what do we think, and what are the actual results in the real estate and lending world right now?

The fact is we are transacting home loans; more than we've done in the last 4 years or so. There is plenty of money out there for good credit borrowers. Yes, underwriting requirements continue to be tight, but get past that and you're good to go.

Underwater? HARP 2 contunues to be a viable option for many.

Wells Fargo's economic team suggests that early reports indicate that the critical spring home buying season has gotten off to its best start in five years. "Sales of new single-family homes totaled 83,000 units during the first quarter, up 16 percent from a year ago, while sales of existing single-family homes rose 7.2 percent, marking the best combined pace for first quarter home sales since 2007. The rise in existing home sales has generated a little excitement, as news is spreading that homes sold outside the foreclosure process are often receiving multiple bids and selling above the asking price."

Wells suggests that "the sudden prevalence of multiple bids around the country appears to be the result of unseasonably mild winter weather, which brought buyers back into the market to a much greater degree than sellers. The first quarter is typically the slowest quarter of the year, with March being the only busy month. Inventories of existing homes have fallen to just a 6.3-months' supply, and the inventory of unsold vacant homes has fallen by 353,000 units over the past year. Inventories of new homes continue to decline and are now at a paltry 144,000 units nationwide. Only about one-third of those homes are actually completed. With inventories dwindling, home prices have improved a bit."

Of course Realtors and Lenders can tell you that the better news on sales and prices, along with near record high affordability and near record low mortgage rates, has encouraged builders to move forward with a few more projects. Starts of new single-family homes rose 16.7 percent during the first quarter, for a total of 104,600 units.

But the Jefferies Monthly Housing Monitor took somewhat of the opposite tack: On the surface it appears that momentum is building towards favoring a near-bottom in U.S. housing. Small positives have emerged, as they have in the past, but the data is "still inconsistent enough to keep us concerned about such a fragile sector. Nonetheless, it is easy to agree that mixed is certainly better than down and the recent stronger-than-expected pending homes sales report adds support. The positive spin is that we haven't seen material drops in recent months in most housing data, and in some cases we have seen actual improvements. The negative spin is simply that the market remains saturated with inventory (lots in the "shadows") and that lending activity for home purchases remains exceptionally tight in the face of record low costs of home ownership."

Practically everyone agrees that if affordability is at record levels, the government continues to try and prop up housing markets, so why are we still mired in such a soft housing sector? On the lending side, loan officer's and underwriters can tell you that access to, and the securing of, mortgage capital is still a challenge for many borrowers. Loan origination is economically very lucrative for lenders, but lack of clarity on future regulatory fronts and the costs of compliance weigh heavily on the sector: simply put, lack of clarity results in lack of funding.
See: http://mijoymortgage55.blogspot.com/2012/04/taming-underwriting-beast.html

Politicians and others have floated ideas regarding housing recovery related to negative equity and/or shared appreciation loan modification plans that address homeowner/lender responsibility.
See: http://mijoymortgage55.blogspot.com/2012/02/menendez-introduces-bill-to-keep-people.html.

Here's a "piggy-back" idea that seems to be gaining momentum in some circles:

Steve Kaye with Catalyst Funding says: "A little over 2 years ago I went to see my Congressman, Darrel Issa (R-US Rep, CA);  since January 2011, Rep. Issa has served as Chairman of the House Oversight and Government Reform Committee.

I wished to share a plan that stressed a more aggressive approach to the housing crisis was necessary; one that extended beyond simple loan modification.

The problem with a straight modification-only plan is that it only provides a temporary solution - at best - and only addresses the mortgage payment - which is no longer the only issue or concern. The homeowner who is $150K or more upside down on his mortgage would absolutely benefit from saving $500 a month or more on his mortgage payment. However, when he wakes up the next morning, he is still going to be $150K upside down on his mortgage and looking at a minimum of 8-10 years at normal appreciation to climb out of that hole. No...This is merely a band aide that would only extend our housing woes."
He continued, "I lobbied for historic reform that would require, in conjunction with the modification, a principal reduction plan that would put home values at 100% of current market value --- a 'clean start", so to speak. It would not give the gift of equity, but would provide some optimism and hope for the future. And if the owner sold in the following 5 years, 50% of any equity gained would have to be paid to the existing lender who provided the modification/reduction. Other portions of the Plan addressed additional ways to stimulate the market in regard to expanding home ownership and purchasing power without compromising normal loan qualifying. Clearly, we cannot stimulate the housing market by only providing opportunity for 1st time home buyers.  Yes, there would be losses absorbed by lenders and financial institutions However, the revitalization and stabilization of the housing industry would stimulate the economy and provide additional earnings through more home lending, more use of credit, etc.  Homeowners who are not upside down will also gain as equity - lost during these past years - will return and provide value.  The more I have read over the past year, the more I am convinced that these 'simplistic' ideas will, in some manner, be put into play at some point --- they have to. 
Some excerpts are from Mortgage Daily, 5-9-12

Certainly, any successful loan modification or refinance must address not just monthly payment savings; negative equity will continue to be a drag on housing and full economic recovery. While saving on the payment is better than not....it would be great if, while saving on the payment, negative equity issues could be addressed at the same time in a modification or refinance.

Your ideas or comments are appreciated!

Until next time...

HARP 3? It's All The Rage

What? HARP 3? Didn't we just start HARP 2?

Yes, we did. Follow the bouncing ball....

While it may be to your advantage to refinance now on HARP 2, let's make sure it's a good idea...start here: http://www.mijoymortgage.com/UNDERWATER_HARP_2.0.html.

OK, onto the latest news of the day.....will there be a HARP 3? Following is a pretty detailed look at the questions of "if" and "why." The fact is HARP 2 has not been an effective across-the-board remedy for everyone.

To make all of this easy, contact me for an evaluation after you visit: http://www.mijoymortgage.com/UNDERWATER_HARP_2.0.html.

I am evaluating individual scenarios on a case-by-case basis. Some HARP 2 refinances make really good sense and some don't. For certain you will get honest answers. Check out my testimonials: http://www.mijoymortgage.com/Testimonials.html.

HARP…HARP 2.0…HARP 3.0…HARP 4.0... will the industry have trouble keeping track of which borrower refinanced under which HARP? The Home Affordable Refinance Program certainly has its proponents, and its critics, along with a fair number of LOs/lenders who are on the fence about it, warily watching what happens.

While the HARP 2.0 program is not even 6 months old, there is already chatter about a “new and improved” policy that could represent a new phase of refinancing-related policy risk. There have been critics from the start, of course, and this is giving them fodder to ask, “Why didn’t they do it right the first time? What makes us think that this will be the last HARP?” And borrowers, faced with rumors of kinder, gentler HARP, are wondering what is in store for them.

A big factor in the whole process, of course, are the overlays that have been put in place by the aggregators. We know that neither President Obama nor Congress set underwriting guidelines. And FHFA’s Freddie Mac and Fannie Mae may give a program to our lenders, but if the aggregators put on overlays then those lenders who can will go directly to Fannie Mae.

Recently the Senate Banking Committee held a hearing about some of the initiatives highlighted in President Obama’s plan to “Help Responsible Homeowners and Heal the Housing Market.” While there are many facets to the plan, the most recent substantive discussion focused on initiatives to help agency borrowers refinance. Some find it fascinating that, in spite of the government’s apparent desire to extricate itself from supporting the mortgage market, proposals continue to pop up suggesting the exact opposite.

A key part of the discussion focused on examining the Menendez-Boxer discussion draft of the “Responsible Homeowner Refinancing Act of 2012”. What are the HARP enhancements that are being contemplated? Well, the discussion draft has a host of recommended changes to the HARP platform. Generally, they fall along the lines outlined under President Obama’s plan to “Help Responsible Homeowners and Heal the Housing Market.”

On the agency side (Fannie/Freddie, the "GSE's"), the key principals of the plan threefold: to eliminate appraisal costs for all borrowers, increase competition so borrowers get the best possible deal, and extend streamlined refinancing for all GSE borrowers. The Menendez-Boxer discussion draft details how the administration is planning to achieve these aims.

Experts suggest that there are two significant issues that the politicians are looking to address. One is to introduce measures to facilitate cross-servicer refinancing ( a new loan being done by a lender who does not currently service the existing loan), and the other is to increase the amount of borrowers eligible for the program by reducing eligibility criteria. As best anyone can tell, the key focus seems to be in encouraging cross servicer refinancing – something that the big aggregators have discouraged using LTV overlays and other restrictions to accomplish. As one senior executive at a Top 5 aggregator told me, “None of us want to be financially or legally responsible for someone else’s junk.”

The biggest push seems to be reducing barriers for cross-servicer refinancing to promote competition and lower mortgage rates. There are a couple key ways that the bill proposes to accomplish this. First, Fannie Mae and Freddie Mac would be prohibited from disqualifying or varying borrower eligibility requirements based on LTV, CLTV, employment status, or income. (Currently, borrowers under the manual - same servicer - process qualify for HARP based exclusively on payment history, borrower benefit provisions, and verbal verification of employment. The threshold for cross-servicer refinancing is much higher under the automated underwriting systems.) Lenders using AUS for a cross-servicer HARP refinance are required to collect documentation and borrower credit, are subject to debt-to-income limits within DU/LP (Fannie & Freddie's underwriting systems), and are subject to different pay history requirements across FNMA  (Fannie) and FHLMC (Freddie).

Effectively, as any loan officer or underwriter can tell us, the cross-servicer refinance is much closer to a full underwrite of the loan, while the manual HARP process is closer to a no-underwriting process. Disallowing any variance across same- and cross-servicer refinances in employment status and income eligibility, could ease borrower qualification for cross-servicer refinances and promote competition.

Second, the reps and warrants for cross-servicer refinances would be eased to match those of same-servicer refinancing. Under HARP 2.0, lenders under the manual process are relieved of most reps and warranties on the old and new loan provided that borrowers satisfy payment history requirements and borrower benefit provisions, and have their employment verified verbally. For cross-servicer refinancing, lenders retain significant rep and warranty risk on the new loan. They are responsible for the loan case file being complete, accurate, and not fraudulent. Furthermore, they must comply with the underwriting documentation requirements regarding income, employment, asset, and property fieldwork. If any of these are incomplete, the lenders could be on the hook for reps and warrants on the new loan. And, as mentioned above, who wants to deal with another lender’s junk?

While these rep and warrant issues may sound somewhat mild, those for cross-servicer refinancing under DU and LP are very similar to what existed before HARP 2.0. Generally, there have only been changes to the reps and warrants on property valuation when an AVM is used. It’s important to note that these issues do present a significant issue for qualifying for loan from a new lender.

Until next time...