Dennis' Mortgage Blog

Question of the week:  What are some financial issues I should check annually?

Answer:    I’m cheating this week as this was my first Question of the week from January 2, 2009; but the question is important enough to bring out again this year.  As you start 2010 and get ready to have your taxes prepared a couple of financial areas I suggest you check in on:

·         Retirement Did you alter your retirement withholding in 2009?  Do you need to increase or decrease your deductions for your 401(k)?  The maximum contribution in 2010 is the same as 2009, $16,500 for individuals under 50 and $22,000 for those over 50.  With the S&P gaining over 25% in 2009 those who kept their contributions constant last year faired pretty well.

·         Insurance  Is your hazard insurance policy current and accurately reflecting the replacement value of your home?  Is your life insurance coverage adequate?

·         Estate Planning  Do you have an estate plan?  Is it current and reflective of your current assets and wishes?  Do you own property but do not think you need any family planning because you are single?  Everyone with assets should have an estate plan, especially if they own real estate in California (or any other state with inheritance taxes).

·         Debt Have you increased your debt in the past twelve months?  Do you have a plan to pay it down and off?  Can you restructure your debt to lower the overall interest rates being charged or the monthly cash flow required to manage the debt and keep payments current?

·         Mortgage  Do you need a review of your current mortgage and options?  Call me!

These are not fun or sexy issues for most people to be tackling, but like changing the batteries in your smoke detectors you need to regularly review and update these critical areas of your home economics.  If you have any questions or looking for qualified professionals to assist you please do not hesitate to contact me.

Have a question for me?  Ask me!

Welcome 2010!  Happy New Year to everyone, I hope your holiday celebrations were fun and filled with as much family and friends as you desired—that amount can vary for all of us I know!  We have a wonderful time seeing almost all of our immediate families on both sides of the aisle, including our annual sojourn to Marin County to stay a few days with my sister and brother in-law for some rest, relaxation and wonderful food and company.  Hard to get into the first week of the year, but here we are one work week down in 2010 and 51 to go.  So let’s go!

This morning I had the opportunity to address the Long Beach Commercial Real Estate group.  In my address I said that the three keys to the real estate and mortgage industries in 2010 will be: Jobs, Rates and Regulation.

JOBS  Currently over 4.9 million Americans on continuing unemployment, the number drops or stays constant not because of hiring but because of termination of benefits.  Since the recession began in December 2007 over 7 million Americans have lost jobs.  Unemployment is over 10% and it will take a while for the number to stabilize and reverse.  I quoted one analyst we subscribe to (Barry Habib, Mortgage Market Guide) who figured out that to get unemployment down to 6% by 2015 over 225,000 jobs per month for 60 months need to be created.  That number gets bigger the longer our economy keeps shedding jobs instead of adding them.  Expect unemployment to be well over 8% for some time to come.

RATES  The Federal Reserve Mortgage Purchase Program is slated to end March 31^st after purchasing over $1.3 Trillion in mortgage backed securities.  The estimates for mortgages written in 2009 is approximately $1.3 Trillion.  When the Fed stops buying Mortgage Backed Securities who will fill the void? What price will need to be on those MBS to attract investors?  The effect of the Fed’s purchasing program is thought to be about three-quarters of a percent (0.75%).  Look at the rate chart below and move all the lines up about 1% and that is what mortgages should be without the Fed program. 

With Congressional and Senatorial primaries coming in June in most states and general election in November it will be interesting to see what the Fed decides to do moving forward.  Already there are discussion in their meetings about continuing the program.  At the last meeting two Fed Governors were for continuing the program, one was against and the rest were silent on the issue.

Further affecting rates is the massive borrowing from the Treasury that is supporting Washington’s spending spree.  The Treasury is sucking huge amounts of money from around the globe which over-burdens the investment markets with supply.  As it continues there will be more upward pressure on mortgage rates as prices get depressed to attract investors.

Finally: inflation.  In 2009 I said the economy would be bottoming out in late 3^rd quarter /early 4^th quarter of 2009.  Some economic indicators suggest parts of the economy may have come close and be close to bottom.  As the labor markets suggest there is a ways to go before growth hits the economy.  With jobs lagging so severely the inflation factor is put off from what I the predicted to be sometime around the end of the 1^st Quarter of 2010.  I stand by my position that we are in for inflation, and I mean significant inflation over 4%, but changing my time frame to late 2^nd Quarter to early 3^rd Quarter because of the employment situation.

My prediction for 2010 is our ceiling of resistance at 6.25% for 30 year fixed rate conforming rates on purchases with 20% down and FICOs at 740 or greater at a cost of 1 point.  For 2009 this ceiling was 5%, as can be seen on the chart below we were above 5% for 10 Fridays out of 52, most of the time was spent below the 5% mark.  In the coming year we will spend more time above 5% and it could become our floor for the 1^st Quarter; as 4.75% was in 2009 (we were below it for five Fridays).  Later in the year our floor will most likely move up to 5.5%.   Note that if the Fed continues its mortgage purchase program this prediction is rescinded—floor at 4.75%-5.00% and ceiling at 5.5-5.75%

REGULATION  Our industry has had some of the most dramatic changes in policies and process in its history in the past twelve months; with the two biggest changes effective September 1, 2009 and January 1, 2010.  The government has dived into the mortgage industry, passed credit card reform, has been struggling with health care reform and is beginning hearings and meetings for major reform of the financial services industries.  Investors hate uncertainty.  Regulatory reform talks and hearings and an environment that lends itself to more extension of powers and regulations of government agencies creates tremendous uncertainty as no one knows what the rules will be. 

As they await those rules investors, company CEOs and boards, small business owners and individual Americans hold off on spending, investment and expansion.  This hoarding of cash and capital slows job growth, economic recovery and investment.  If and when Congress and the Administration signal an end to major reforms of so many sectors of our economy we will then see an increase in engagement in the economy.  With the political turmoil just ramping up ahead of the mid-term elections, watching Congress as those facing re-election start to look at the polling numbers in among their constituents will give us an idea of what the legislative and regulatory outlook for the rest of the year and into 2011 will be.

Three hours and three Tylenol later we have finished yet another meeting on the new Good Faith Estimate, dubbed GFE2010.  The form is very complicated to fill out, with seller fees like transfer tax, pest control and title insurance showing on the borrower’s estimate and to use lender rebates for cost credits we must first show a charge to the broker as a fee to the borrower before applying the credit to the borrower.  The theory behind the form is strong, the purpose of the form is strong, the execution of the form is very weak.  As such I, and my fellow loan originators across the country doing it right, will be doing a lot of education of borrowers, escrow officers and agents until everyone is familiar with the form—or it is scrapped.  Any loan applications taken after 01/01/10 require the form, and every lender is still trying to figure out how to be 100% in compliance and more importantly how to explain the form to our clients.  Patience everyone, myself at the top of the list!

Mortgages did not fair too well the last two weeks.  A combination of short work weeks, light trading, investors cashing out profits for portfolios and some economic news shoved interest rates to their highest levels since August last week.  The economic data and market fundamentals caused some rallying this week for the Mortgage Backed Securities market, pushed today by unemployment news. 

Rates slightly improved from last week.  Slightly   

Rates for Friday January 8, 2010:

FIXED RATE MORTGAGES AT COST OF 1 POINT*

30 year conventional 5.00%                              Down 0.125%

30 year conforming-jumbo 5.25%                     Down 0.125

30 year FHA    4.875%                                    Down 0.25

30 year FHA jumbo 5.25%                              Down 0.125

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, and period rate is locked (i.e 45 days instead of 30 days).

Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment and a minimum FICO score of 740; APR is not quoted as it is dependent upon specific loan amounts, lenders and services selected.  Numbers provided are for comparative purposes only.

Was it tough for you to get back to the routine this week?  Did you keep your routine or have you mixed it up with the New Year? 

Have a great weekend and a terrific 2010!

Dennis

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