Dennis' Mortgage Blog

Question of the week:  Can you give us an update and scorecard on changes in regulations affecting consumers so far in 2009?

Answer:  I will try!

Raising Loan Limits: These were actually raised in 2008 but Congress extended the loan limits into 2009 and it appears they are with us for a while.  Of all the regulations and acts passed since the housing/credit/economic crisis began the raising of loan limits above $417,000 in high cost areas, such as most of Southern California, has had the most positive and dramatic impact on helping the housing market recover, helping homeowners refinance their mortgages and ensuring activity in the mortgage industry.  A+

First Time Homebuyer Credit:  In 2008 the credit was more of a no interest loan as anyone taking the credit has to pay it back; in 2009 the credit of up to $8000 has been widely successful.  Perhaps too successful as this Los Angeles Times article discusses the huge amounts of fraud associated with the program.  The credit expires in November, anyone eligible for the credit must close escrow before the end of business November 30, 2009 or they are out of luck.  Unless Congress extends the credit, which has not happened and may not as discussed in the LA Times piece.  Many of the first time buyers we have worked with this year probably would have bought without the credit, so as to its success in actually attracting buyers who would not have otherwise bought I am skeptical; as well it may have pulled buyers out of future markets to purchase in 2009.  Because of the lack of oversight and lack of proof that it has been responsible for dramatically increasing the number of new buyers we otherwise would have had with low rates and prices I give the program a B- .

Credit Card Reform:  Passed in May, first rules took affect in August the rest of the regulations take effect in February.  Once the bill passed banks raised rates ahead of the bill taking effect, switched card holders from fixed to variable rates which are not governed by the bill, changed rules so interest is charged not on outstanding balances that are not paid off when the monthly statement but instead from the moment of purchase and a boost in fees to borrowers.  In effect the passage of the reform to protect consumers spurred banks into action to change their policies ahead of the rules taking effect which has the exact opposite impact the reform desired: it increased the cost of credit, most particularly on those who pay off their balances in full every month.  For having yet another “consumer protection” program that had the opposite result of its intention I give the reform a D (it would have been an F but that would have generated more negative email than normal).

Home Valuation Code of Conduct (HVCC):  Let’s see we have inexperienced and incompetent appraisers being used by national appraisal management companies who are paying the appraisers less than half of what an experienced, quality, appraiser gets paid, the appraisers are chosen not by ability but by how quick they respond to a request for service and the industry is rife with transactions with horrible appraisals completed by these incompetent, but cheap, appraisers.  But it is what is best for the consumer, despite paying upfront for an appraisal that kills any transaction, that according to those who enacted the policy and blog commentators who know next to nothing about the real estate industry or appraisals. HVCC gets a solid F, only because I do not think F- is a valid grade.

Mortgage Disclosure Information Act: When first enacted there were some bumps, and there still are as the rules from the government keep changing so lenders keep changing their requirements.  Overall it has added a couple of steps to the process making it a bit more tedious for those of us who have been providing the disclosures all along, i.e. have been compliant with existing laws, but has not tremendously hindered the process.  It has added costs to the industry however as more people are needed to ensure compliance.  I give this a C, it was unnecessary but the rules have not killed the industry (see HVCC).

New RESPA Regulations: The new RESPA rules for Good Faith Estimates have not yet taken effect and already I give them an F.  On my website I have devoted a page to the new Good Faith Estimate and comment on the impact.  A major change could be the selection of escrow companies possibly moving from real estate agents to mortgage originators should escrow companies see tremendous negative impact to their revenues as a result of the new Good Faith Estimate, and HUD-1, forms required in mortgage transactions.  Ironically the name of the new act is “Rule To Simplify and Improve the Process of Obtaining Mortgages and Reduce Consumer Settlement Costs.”  In then end the exact opposite will occur on all points.  As I said this one gets an F and it has not even taken effect yet.

Overall I give the federal government a failing grade on its attempts to “protect” or “help” the consumer, with the exception of the increased loan limits it has failed to protect the consumer or the tax payer. 

The single act that could do more to protect Americans from bad lenders, brokers and originators would be to require a national lending license that is as difficult to obtain as the Series 7 license required of stock brokers.  With no exceptions nor exclusions every person who originates mortgages, with for a bank, direct lender, broker, or correspondent, would have to have the license.  Suspension or forfeiture of the license in one state would prevent an individual from doing the same job in another state or another sector of the industry (currently an individual can lose his license in California from the DRE and no longer work for a broker but can go to a bank or direct lender in California or get a license in another state and just continue to fraud or bad practices with a different company).

Instead of trying to fix an industry that worked very well until the loosening of credit standards by Fannie and Freddie at the direction of Congress, the government should make it more difficult to be an originator.

In the words of Ronald Reagan, the scariest words one can hear are, “I’m from the federal government and I am here to help.”

Have a question for me?  Ask me!   

Time is running out on the IRS tax credit!  If you are considering purchasing a home this year, are qualified and wish to take advantage of the IRS credit hurry and get into escrow.  All escrows must be closed by the end of business on November 30, 2009.  Are you qualified?  Click this link IRS Form 5405 for Frequently Asked Questions click here IRS FAQ

In the past I have addressed trading ranges, a commodity has a high and low price in the marketplace and generally the price drifts between the upper and lower levels for a while, when the price breaks through either the upper resistance or lower support there is opportunity for a new trading range to be established.  For those who understand the trading range skip to next paragraph.  For instance the Dennis C Smith Corporation (DCS) over the past two weeks has had a high of $10 and a low of $9.50; everytime the price reaches $10 it bounces of and heads down, whenever it hits $9.50 it bounces off and heads higher.  This week DCS had some positive news and forecast for the future was higher revenues on fixed costs so on Tuesday it closed at $10.10, Wednesday it dipped below $10 but then rallied and closed at $10.12, Thursday it hit $10 then bounced up closing at $10.15, today it never dipped and closed at $10.18—DCS stock is rising get on it!  So it has broken through the range of $9.50 to $10 and a new range is going to be established with $10 probably the bottom of the range.  This will continue until more news or economic situations cause it to create a new range higher or lower.

This past week a lot of convergence occurred in the mortgage backed securities (MBS) market.  The top levels of resistance converged on the bottom levels of support, as well the 10 and 25 day moving averages moved lower as the 50 and 100 day moving averages edge higher (moving averages are the average price of the commodity during the period, in this instance the 25 day moving average is the average closing price of Fannie Mae mortgage back securities for the past 25 trading days) .  Squeezing in between all these numbers was the daily trading of MBS.  All week long the prices would drop at open (bonds: prices drop rates rise) and drop lower and then rally before closing to end the day near flat.  Carefully staying within the levels of resistance and support. 

Economic news, as usual had some impact on the numbers, but the two biggest factors in the see-saw trading everyday were the money supply and American Corporations.  The money supply was affected by A: the Feds continuing to purchase MBS and prop up the market and B: an announcement that next week will be a record auction week of U.S. Treasury bonds, over $150 billion being put up for sale.

One Hundred Fifty Billion Dollars in one week, of your tax dollar backed debt being sold to anyone, or country, willing to purchase the debt.  We will see next week how the auction is received by investors, most notably foreign investors who so far have kept betting on America despite hugely mounting debt and deficits and a cracking dam holding back inflation. 

Providing some positive news is the American Corporation as this is earnings week.  Over 80% of those reporting earnings so far have beaten expectations.  Further the news is filled with reports of “profits dropped by…” or “DCS profits for 3^rd quarter down…”  That is great news. Um, Dennis the news is that profits dropped or are down.  The news is that there are profits!  Companies are making money.  When they make money they can spend money, on things like salaries and hiring.  While the jobless claims number increased this past week, the economic fundamentals point to layoffs to slow and hiring to begin in the next couple of months in some parts of the country, and later in others (like California). 

Cool website  At least I thought so.  Job growth and loss from 2004 through mid-September 2009, click the play button on the top left of the map.

For the week despite the flow into stocks by investors rates stayed flat, most likely thanks to the Fed purchasing program of mortgage backed securities..

Rates for Friday October 16, 2009:

FIXED RATE MORTGAGES AT COST OF 1 POINT*

30 year conventional 4.75%                              FLAT

30 year conforming-jumbo 5.125%                   FLAT

30 year FHA    4.75%                                      Down 0.125%

30 year FHA jumbo 5.125%                            Down 0.125%

Remember we have true, honest to goodness quality Jumbo rates again! Call for quotes as they vary depending on LTV, FICO and loan amount. 

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.

Is this our last run at summer in Southern California?  With temperatures pushing the mid-80s in Long Beach one week before Halloween I certainly hope so!  We have ballet classes, rehearsals for Nutcracker, a Green Dragons soccer game, church and I hope some time in the kitchen to develop some good eats—a normal weekend in other words!  If you need me for any questions or pre-qualifications please call or email and I will get to you as the schedule permits.

Have a great weekend and don’t forget the SPF 30 so you don’t get burned!

Dennis

Remember this update is posted weekly on My Blog at www.DennisCSmith.com ; feel free to forward the link to family and friends who may be interested in past commentaries.

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