Dennis' Mortgage Blog

October 1, 2007 Monthly Financial Wire

Welcome to October, the start to the 4^th and final quarter of 2007. Click the Financial Wire link to read this month’s edition, there are a couple of very interesting and thought provoking articles I will comment on below.

September was an interesting month in the economy. We saw the Federal Reserve drop the rates that affect consumers via the Prime Rate for the first time since July 2003—when Prime dropped to 4.00% --and we saw Prime drop 0.50% to 7.75%. The impetus of course was to encourage more lending and borrowing and generally try to get the credit markets working again—the result was a bit of a yawn and everyone expected the Fed to lower the rate.

Economic data was a bit of a mixed bag indicating a slowing in the economic growth cycle we have been experiencing since 2002. Week to week the data would show downturns followed the next day but more growth, fewer jobs created one day and the next increased wages and consumer spending. With the mixed bag comes uncertainty as to the future direction of the economy and that is typically not too good for investment markets.

Overall the month of September was positive for interest rates as we saw both jumbo and conforming loans drop a bit, jumbo a bit more so decreasing the gap that widened so dramatically in August. Too early to tell if this is a trend or temporary reaction to the Fed and other investment markets, but a good sign for those needing mortgages.

We start October with rates for 30 year fixed rate mortgages, fully documented income, at least 10% down and FICO scores over 720 at a cost of 1 point (plus additional fees per good faith estimates) of 6.00% for conforming and 7.125% for Jumbo loans. Here is your visual:

Of great interest to us in September was legislation passed by the House and sent to the Senate to revise the loan limits and qualification requirements for FHA mortgages. The House version would have a dramatic impact on lending in Southern California as it would greatly increase the loan limit for FHA loans, as well the House version eliminated any down payment or equity requirement. We are still waiting to see the Senate version, and then of course, if you remember your “School House Rock” from Saturday cartoons on how a bill becomes a law, the House and Senate committees meet to iron the differences in their versions, vote on one piece of legislation and send to the White House for signature. Given the commentary and political opportunity provided by the housing market situation, I am surprised it has taken this long with no bill produced—the cynic in me says the politicians are working on what pork to add to the bill.

The lead article in the Financial Wire is excellent and I highly recommend it. It shows two different surveys on housing prices in the United States, one survey shows prices decreased and another survey shows prices increased during the same period. Why? Each of the surveys was for a different customer with a specific purpose for the survey. As a result the surveys each required different data. The article explains each survey, what was included and what was excluded in the data and because of the data used the different conclusions that resulted. A great lesson for us to read beyond the headlines and opening paragraphs of stories that are based on polls and surveys—what is being asked, to whom and for what purpose, these questions will let us know how to interpret the numbers we are reading. An excellent example of this is in the reporting of monthly foreclosures. The media is providing percentage increases in foreclosures, or total filings, from the same period last year, say August 2006 to August 2007. I am yet to see a story that informs the reader of the actual number of foreclosure filings in August 2006. Why? Providing the percentages allows the story to be sensationalized if they can say filings increased 100%, instead of saying filings increased from 50 to 100. As well these stories omit the percentage of households the filings represent, the average length of homeownership and other data that would allow the reader to know a more complete story. Read the facts!

In the side bar of the Financial Wire is a story covering pre-approval letters—the staple of our business. I have provided hundreds of such letters over the years and they all require the same thing: an extensive conversation with the client covering income, assets, goals and objectives, comfort level with payments and a credit report. Until I can present you with mortgage options that would a) allow you to purchase the home you want to write an offer on b) be within my ability to get the mortgage approved and funded and c) be within your comfort level of monthly payment and funds to close, I will not provide a letter. When we meet all of those factors, a mortgage product that you qualify for that would cover the purchase price of the home and you are able to qualify for the mortgage and you feel comfortable with the mortgage product, its features and the payment, then I will write a letter saying you have pre-approval to purchase the property. If someone just asks you what your income is, how much money you have in the bank and if you have good credit, they cannot write you a bona fide pre-approval letter. What they can write is a “I wish that these folks qualify so I can get a loan application” letter.

Enjoy October! Give me your questions and feedback.

Dennis

 Monday, October 01, 2007