Dennis' Mortgage Blog

Growing up watching television in the late 60's and into the 70's we saw Darren Stevens and Robbie Douglas and other soon to be Dads pacing in a hospital waiting room as their wives were delivering babies.  They would be pacing, knowing that soon they would be a father but not knowing whether they would have sons or daughters--and in Robbie's case triplets!  After much suspense for Darren or Robbie (and us at home!) a nurse or doctor would come in, "Congratulations Mr. Stevens, your a Dad!"  Then we would have the ubiquitous scene of the nurse holding the precious little witch up to the glass of the nursery as Darren smiled and made coo-coo faces from the other side.

Well the whole mortgage industry is pacing in the waiting room, we know we have new loan limits for FHA and conforming but we do not know yet what they look like.  We can see the limits through the glass but the markets and lenders have not let us take them home yet because they have not figured out how they will be priced.  And there's the rub, what will be charged for mortgages fitting the new limits?

Quick review/lesson on the mortgage market:  Lenders fund mortgages under certain guidelines and then bundle the individual mortgages together into big "pools" and sell those pools on what is known as the secondary market, at which point they become Mortgage Backed Securities (MBS).  The securities trade as bonds trade as other bonds issued by government and private entities are their competition for investment dollars.  When in high demand the prices of the MBS rise, causing their yields--or interest rates--to fall.  The demand for MBS and other bonds rises and falls with many different factors, primarily the expectation for inflation--high expectation for inflation equals lower demand and higher rates.

With the new "jumbo-conforming" and "jumbo-FHA" loan limits the markets are puzzled as to how to handle these new MBS.  At one point there was some thought that mortgages that fall into these new categories would be pooled with "regular-conforming" and FHA mortgages for selling on the secondary market.  It appears now however that the new jumbo-conforming/FHA mortgages that will be funded between whenever they start funding them and December 31, 2008 when the limits expire will have their own MBS markets or pools and they will not be packaged with the traditional conforming and FHA mortgages. 

......silence.....crickets chirping....sound of mortgage originators quiet steps pacing empty waiting rooms...There appears to be little to no interest by investors to purchase the new MBS for the jumbo-conforming/FHA products.  No secondary market investment means no funds for lending by the lenders means no pricing for originators to quote clients calling asking, "can we refinance our $650,000 adjustable rate mortgage on our $1,000,000 home using the new loan limits yet?"

So we wait for the investment side of the market--which was hugely responsible for the credit crisis we have been in since last summer--to determine what price they are willing to put on the risk they feel they will be taking with the new MBS.  Once they do lenders will be able to price the loans and we will be able to give competent quotes to clients that we will be able to close.

Stay tuned.

Now a word from our advetisor: Dennis C. Smith of Stratis Financial.  I see from my website statistics that I have been fortunate to have a lot of traffic on the website and people reading this mortgage blog.  That is great, I hope my thoughts and opinions are able to educate you on the industry and provide you with needed and valuable information to make sound decisions regarding your mortgage and debt decisions.  It is my hope as well that when you are in position to obtain a mortgage that you click on my email address or pick up the phone and contact me.  That is if you want to work with an honest and experienced mortgage broker.

Back to our program.

Rates started improving dramatically yesterday (Tues 3/10/08) and continue to improve significantly today reversing the big losses from last week.  The cause was the Feds move yesterday to increase liquidity (and confidence) by allowing banks to borrow against the MBS portfolios.  More Friday on my weekly rate and market update.

Dennis

 Wednesday, March 12, 2008