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Dennis' Mortgage Blog

Fed Cuts Rates: Why?

November 1st, 2007 10:38 AM

Yesterday the Federal Reserve Board of Governors cut the Fed funds rate once again, lowering the Prime Rate another 0.25% to 7.5%. While this is good news for homeowners with equity lines and will have positive impact on many borrowing rates, I do not think it was the right move for the economy and for the long term.

The economy grew in the third quarter of 2007 at the biggest rate in the past one and a half years and marked the twenty-fourth consecutive month of positive economic growth; taking us back to the third quarter of 2001--or every quarter since 9/11. Rate cuts should be used when the economy is shrinking or in recession--or appears ready to fall into recession. The underlying economic fundamentals do not show me, and many others, that this is the case with our current economy.

The rate cuts by the Fed were not met with cheer in the bond markets yesterday. Why? Because they are inflationary and bond investors do not like inflation. Lower rates today that could spur inflation tomorrow will lead to even higher rates the day after tomorrow. Much higher rates.

The last cuts the last two months by the Fed seem to me to be motivated not for economic reasons but for emotional reasons--to bolster confidence for investors and appear that the Fed is doing something about the housing and mortgage markets. In fact the lowering of the Fed funds rate may have the opposite effect and instead of helping the markets hurt them as higher rates may become necessary down the road.

Here is a chart of 30 year fixed rate conforming and jumbo rates on the 1st of each month back to last June (rates are based on purchase transaction with good FICO scores, at least 10% down and cost of 1 point--APR not calculated for comparative purposes):

As you can see after spike a few months ago as the subprime issues came to market we have seen a decline in rates as the markets and investors adjusted their portfolios and lending criteria. The market is taking care of mortgage rates and qualifying--the Fed and Congress needs to stay out of it.

Dennis

Thursday, November 01, 2007

Posted by Dennis C. Smith on November 1st, 2007 10:38 AMPost a Comment (0)

Weekly Rate Email to Agents: 11-30-2007

November 30th, 2007 11:21 AM

Click here to donate to One Hour For Education and help children obtain school uniforms--all that is asked is you to take a few minutes to donate one hour's pay or compensation to help those in need. Thank you.

Check in regularly on Mortgage Blog for opinion and commentary on the industry and markets.

First the big news: No change in Fannie and Freddie loan limits for 2008. Also California is not joining Alaska, Hawaii and the Virgin Islands as high price regions with subsequent higher loan limits. So we remain at $417,000 for the coming year.

Topsy-turvy week again, there is significant uncertainty in U.S. and international financial markets. As a result you have probably read or heard about the huge swings this week in the stock markets. For much of the week there is connectivity between equities (stocks) and bonds (interest rates); if stock prices are going up so are rates and vice-versa as money flows from bonds to stocks. There has been a few days where both stocks and bonds have improved but not many recently.

Next week a lot of data comes out for the economy and the Fed will be watching closely. Currently the Fed watchers are about 2-1 that the Fed will cut rates once again, because of this the big drop in rates this week shows investors already beginning to price the cuts in.

Moving forward be very cautious and try to get borrowers locked as soon as possible through escrow closing.

No change in Jumbo rates as major financial companies still try to gain any traction in the credit markets, significant drop in conforming.

30 year conventional at 1 point 5.625%

30 year jumbo at 1 point 6.625%

We are seeing an uptick in buyers getting prequalified and writing offers...hoping the trend continues through the end of the year and into 2008!

Please feel free to forward this email to your co-workers and clients--or send them to my Mortgage Blog where it is posted weekly.

Have a great weekend,

Dennis

Friday, November 30, 2007

Posted by Dennis C. Smith on November 30th, 2007 11:21 AMPost a Comment (0)

Weekly Rate Email To Agents: 11-23-07

November 23rd, 2007 10:27 AM

Check in regularly on Mortgage Blog for opinion and commentary on the industry and markets. Click here to donate to One Hour For Education and help children obtain school uniforms--all that is asked is you to take a few minutes to donate one hour's pay or compensation to help those in need. Thank you.

Check in regularly on Mortgage Blog for opinion and commentary on the industry and markets.

Hope your Thanksgiving was a wonderful as mine. My favorite holiday for many reasons, we give thanks for who we have in our lives, it is a celebration of the genesis of the American spirit that has carried on for three and a half centuries, we celebrate with family and friends, and I get to use all my amatuer culinary talents to put together a fun and tasty feast!

Although our industry is taking it on the chin this Thanksgiving I am still very thankful for the career I have chosen and opportunities over the years to help hundreds of families know the joys of homeownership and to participate in part of the American Dream. I look forward to the coming year and helping more families and others in the industry to navigate through the turbulent markets and find the best mortgage solutions for their needs.

With light trading on Wall Street any trades have big impact so we have seen big swings once again through the week in bonds. Way down on Tuesday, way up on Wednesday and mixed today as the stock markets go up. Result is yet another week of no change, yay! We love stability. As we move into the end of the year the reporting of troubles with capitalization for Freddie Mac and accounting issues at Fannie Mae may lead to more tightening--or government intervention for the two.

As I said no change for the week on fixed rates, below are for fixed rates, full document, purchase transactions with FICOs of 720 or higher for purchases:

30 year conventional at 1 point 5.875%

30 year jumbo at 1 point 6.625%

Please feel free to forward this email to your co-workers and clients--or send them to my Mortgage Blog where it is posted weekly.

Have a great weekend,

Dennis

Friday, November 23, 2007

Posted by Dennis C. Smith on November 23rd, 2007 10:27 AMPost a Comment (0)

Elevator Music

November 20th, 2007 11:04 AM

So while on hold we listen to soft instrumental versions of "Yesterday", "Sweet Caroline" and "Wendy". What are we holding for? Congress, Fannie Mae, Freddie Mac and HUD to name a few. Since the subprime meltdown started earlier this year, reaching crescendo in the media in October, building from August, we heard hundreds of sound bytes, read thousands of statements and have been promised many things. But still we wait on hold, quietly humming, "...I write the songs that make...."

Some legislation has passed through the House and is in Senate committee that is trying to focus "blame" or at least "accountability" on the shoulders of mortgage brokers, but it probably will not get passed before the end of the year. Some noise has been made about changes in HUD guidelines and maximum loan amounts for FHA and conforming mortgages--but we have not seen anything at this point. There has been talk of revising IRS penalties for foreclosure and forgiveness of principal--but we still whistle along on hold.

Dennis

Tuesday, November 20, 2007

This week news is coming out that both Fannie Mae and Freddie Mac are facing major accounting adjustments and capitalization issues--essentially Freddie may be out of the lending business very soon. This brother and sister tandem are responsible for the bulk of mortgages in the United States, and many are looking to higher loan limits for them to help out those with adjustable loans about to jump to higher rates. If their issues are not settled soon we may look back to the credit crunch of 2007 as a mere inconvenience compared to what the failure or incapacity of Fannie and/or Freddie would mean.

Take me off hold, stop the music, either get out of the way of the markets and stop fiddling with legislation or pass something so we can adjust and move forward. Most importantly, raise the loan limits!

Posted by Dennis C. Smith on November 20th, 2007 11:04 AMPost a Comment (0)

Weekly Rate Update to Agents 11-16-07

November 16th, 2007 4:49 PM

Sorry for the delay in this email this week--I was participating in the Long Beach Education Foundation's Principal for a Day program. I was fortunate to be the principal at Patrick Henry Elementary for the morning--where I know two great little students who head there from my breakfast table every day! It is a great program bringing the community into the schools to see the terrific work that is being done.

Real estate is "location, location, location" as long as that location has strong schools. In Long Beach Unified we have those schools. One of the strengths is the mandatory school uniforms for students K-8th grade. As part of that policy all students must be provided a uniform if they cannot afford one--but district money cannot be spent to purchase them. Enter the wonderful women of the Assistance League of Long Beach and their Rick Rackers program. They have been clothing school children for decades and will for years to come.

Why am I telling you this? Because today at the Principal for a Day reception I was able to announce the start of the "One Hour For Education" fund raiser for the Long Beach Education Foundation and proceeds benefiting the Rick Rackers "Operation School Bell" and clothing children in need. The One Hour program is easy, and relatively cheap. You do not need to go anywhere, buy a table or get dressed up. Simply click this link scroll down the page to "donate" and fill out the donation form and credit card number. We are not asking for a lot, only the equivalent of one hour's wages. I know, I know, in real estate we are paid commission, not by the hour. Break your income down to one hour and donate, please! If everyone donates just one hour's pay we will have tens, hundreds of thousands of dollars. We will be helping raise the education standards in our community, and therefore raising the quality of neighborhoods and communities.

Please pass the link around your office, your clients, your neighbors. We all benefit from strong schools, we have great, strong schools in Long Beach. Click here , make a small donation and maintain that greatness and strength.

No economic news today, wanted to focus on the One Hour For Education program and my plea for your support. Thanks.

Another volatile week day-to-day with rates that end up flat Friday-to-Friday:

30 Yr. Fixed Conforming with 10% or more down: 5.875% at 1.00 point

30 Yr. Fixed Jumbo with 10% or more down: 6.625% at 1.00 point

Note these are for 30 day locks, purchase transactions with 10% or more down and strong FICO's.

Great product we have been using for conforming loans: 100% financing with no mortgage insurance. With FICO over 740 today the rate is 6.375% at 1 point, only 0.5% above the 80% purchase rate for the same FICO--strict qualifying guidelines but we are seeing several qualified applicants taking advantage of the market to purchase their first home wtih this product.

Please feel free to forward this email to your co-workers and clients--or send them to my Mortgage Blog where it is posted weekly.

Have a great weekend,

Dennis

Friday, November 16, 2007

Posted by Dennis C. Smith on November 16th, 2007 4:49 PMPost a Comment (2)

Government Bailouts? Watch This

November 13th, 2007 4:44 PM

Short YouTube video on whether the federal government should be involved in bailouts for subprime borrowers.

http://www.youtube.com/profile?user=SubprimeNewsroom

Dennis

Tuesday, November 13, 2007

Posted by Dennis C. Smith on November 13th, 2007 4:44 PMPost a Comment (0)

Weekly Email to Agents with Rates 11-9-07

November 9th, 2007 2:52 PM

Not a lot of economic news this week, but a lot of commentary. You no doubt noticed the stock markets taking it on the chin this week, typically that assists the mortgage rates, but not so much this week. There has been some late day rallys but week to week we are once again flat--good news in my opinion we like stability.

As we head towards the end of the year expect volatility in the markets as portfolio managers move between investments to take advantage of gains and losses as need be for their fund reporting and taxes. As well the commentary is now shifting to a slowing economy and when it will "un-slow" to use a very technical economics term. Fed Chief Bernanke was on the record yesterday stating the economy will slow through the end of the year and then regain positive momentum end of the first quarter or early second quarter in 2008. Federal Reserve Chairmen having the "ear of God" concerning markets it is not surprising that his remarks have led to drops in the stock markets. In the meantime the economic news shows slower growth, but by no means contraction, in the economy. As always my advice is to lock buyers through the close of escrow as soon as possible--then if rates shift down with the vast majority of clients we can move to a lower rate with another lender.

On the political front the email boxes of mortgage brokers, at least those like me who belong to the National Association of Mortgage Brokers and the California Association of Mortgage Brokers, have been filled with updates on H.R. 3915, “The Mortgage Reform and Anti-Predatory Lending Act of 2007 which has passed one committee and is working its way to a house vote. The bigest problem in the bill is the proposal to eliminate "yield spread premium" or YSP. The reasoning being that brokers switch borrowers to higher rate mortgages to take advantage of YSP paid by lenders to brokers thereby increasing the borrowers' rate and the broker's profit. Like any industry there are certainly those who do this--and no matter how much I caution potential clients of the opportunity for this to happen some will nonetheless go to another broker quoting a cheaper rate on a particular day only to find themselves faced with a higher rate at closing. Unfortunately because of this activity future borrowers will probably suffer if the YSPs are eliminated. Why? Because YSP is how we can do no point and no point no fee mortgages. Without a rebate or yield spread premium from the lender for a higher rate then the borrower has to come up with either cash or equity at closing to pay for appraisals, escrow, title, loan docs, our profit (no we do not work for free--do you?), essentially all the closing costs.

For your information when I speak of a higher rate in this instance, we are usually looking at about 0.25% in rate to cover 1 point--essentially the wholesale to retail markup for most honest and fair mortgage brokers. So if refinancing a $400,000 mortgage, under the no YSP proposal in H.R. 3915 a couple will get a 5.875% rate and have to either bring in $4000 to cover the costs, with YSP they would see a rate of 6.125% and no points (a difference of $64 per month, about a five year payback on the point). More to come as Congress continues to try to "fix" the mortgage industry--if they try too hard lookout because they will put the housing market in such a difficult position that it will take years and years for the markets to correct making the current situation seem rosy by comparison.

Meanwhile back on the rate sheet, despite heavy moves throughout the week we end with no change in rates from Friday to Friday:

30 Yr. Fixed Conforming with 10% or more down: 5.875% at 1.00 point

30 Yr. Fixed Jumbo with 10% or more down: 6.625% at 1.00 point

Note these are for 30 day locks, purchase transactions with 10% or more down and strong FICO's.

Please feel free to forward this email to your co-workers and clients--or send them to my Mortgage Blog where it is posted weekly.

Have a great weekend,

Dennis

Friday, November 09, 2007

Posted by Dennis C. Smith on November 9th, 2007 2:52 PMPost a Comment (0)

Weekly Rate Update to Agents 11-2-2007

November 2nd, 2007 12:27 PM

Before I get into my weekly economic and rate update I want to make sure you know that we are still funding mortgages! I have had several calls the last few weeks from agents and clients wondering if there are still loans available, if jumbo loans are being funded, etc. Yes, yes and yes. The underwriting guidelines have changed so we have to make darn sure of the information we are collecting for pre-approvals and applications, but that is what we do and have done extremely well for two decades. I have heard some bad stories of borrowers not getting funded after loan docs are signed, or program changes, etc. Being a broker we have many sources for most loans, we are funding the applications we take and say we are going to fund. Having problems with a loan? Call me!!

As I mentioned in my monthly email yesterday the effect of the Fed rate cuts on Wednesday are not necessarily having the effect that was desired. The stock market is getting hammered again today, while this is benefiting bonds and mortgage rates today in the long run the reason for the pounding of equities this week will impact mortgage rates: inflation. Economic news released today (jobs up 166,000 in September, double the number anticipated, earnings and salaries up, durable goods orders up) and this week show an economy that is still growing. Between the Federal Reserve dumping several billion dollars into the economy (anyone out there remember when we used to follow M1 and the money supply?) plus the rate cut on Tuesday seems like adding some fuel to what may be smoldering inflation caused by ever rising energy costs and growing demand with low unemployment. I am concerned that at the beginning of 2008 and we may see rates climbing significantly in response to inflation rapidly entering the economy. Unfortunately the Fed has made its move for short term purposes, I hope the long term consequences do not impart even more harm on the housing industries.

Meanwhile back on the rate sheet, despite heavy moves throughout the week we end with no change in rates from Friday to Friday:

30 Yr. Fixed Conforming with 10% or more down: 5.875% at 1.00 point

30 Yr. Fixed Jumbo with 10% or more down: 6.625% at 1.00 point

Note these are for 30 day locks, purchase transactions with 10% or more down and strong FICO's.

I am seeing increased activity this week for pre-qualifications and purchase transactions--with excellent rates many buyers are finding the time is right to purchase their new homes. As I said to one client who asked if she should wait to purchase: Buying a home is an emotional investment as well as financial. When you find the right home, one that you want to write and offer on it speaks to you and you feel right about purchasing it and making it your home. While it may be true that property values may, or may not, drop in the coming months, that home that you wish to make your home may be worth less than it is today--but it will not be for sale and some other family will be living in your home. In Southern California supply and demand dictate that housing prices do not decline for prolonged periods and that in a longer term they increase in value. Any buyer purchasing their home today will be grateful in four, five, six, twenty years hence when they decide it is time for it to be another family's home.

Have a great weekend,

Dennis

Friday, November 02, 2007

Posted by Dennis C. Smith on November 2nd, 2007 12:27 PMPost a Comment (0)