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:

 

 

Dennis

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