In a rising rate environment know your options!
If you go to my Mortgage Blog on my DennisCSmith.com website you will see that this week we have the biggest jump in rates since mid-April. Across the board 30 year fixed rates are up 0.375% in rate—that is a big jump for a month much less five days.
The fun started earlier in the week, Tuesday, when Fed Chair Bernanke spoke and said the Fed was monitoring inflation and that the was very good chance they may raise rates in the near future to battle inflation. Not a surprise, but the markets reacted negatively for bonds and positively for stocks. Today we have some reversal of the downtrend in bond prices (and uptrend in rates), but that could be caused by profit taking. Going into yesterday bond prices went down (rates up) eleven of the past seventeen trading days since their recent high on May 20th. That is a trend.
Here is analysis you may not get from other lenders, something to consider when making your decision with whom to work:
If the Fed does increase rates we will probably see a drop in mortgage rates. What?!? The Fed raises rates and mortgage rates fall? Here is why, in my opinion. The Fed directly affects short term rates, all other markets and rates react to this. If the Fed raises short term rates it is doing so to fight inflation. The effect of higher short term rates is a stronger dollar. The stronger dollar will attract investment (demand on bonds, higher demand higher prices, higher prices lower rates). A stronger dollar will impact the cost of raw crude lowering the price of oil. Lower oil prices will ease inflation pressure. Easing inflation pressure causes lower interest rates.
Remember bond investors are long term investors; they speculate as to what will happen in the future and invest accordingly. If they suspect inflation they sell bonds, higher rates; if they suspect very low or moderate inflation they buy bonds, lower rates. The Fed increasing short term rates should have positive impact on mortgage rates.
NOTE PRICING BELOW IS BASED ON 20% DOWN FOR JUMBO LOANS AND 10% DOWN FOR CONFORMING, 3% FOR FHA, FULL DOC, AND FICOS OF 720 AND ABOVE (change from last Friday):
30 year conventional at 1 point 6.375% Increase 0.375%
30 year conforming-jumbo at 1 point 6.5% Increase 0.375%
30 year FHA at 1 point 6.375% Increase 0.375%
30 year jumbo at 1 point 7.75% Increase 0.5%
Happy Friday the 13th! I am not someone with triskaidekaphobia, however today the company with whom we contract for email servers is experiencing, let’s call them challenges. As such my email responses today may be a bit slow so my apologies in advance. I am not a big believer in coincidences so I am assuming someone has put a Friday the 13th hex on us!
Please feel free to forward this email to your co-workers and clients--or send them to my Mortgage Blog where it is posted weekly.
I am available throughout the weekend to assist with scenarios, pre-qualifications and pre-approvals and other questions.
Happy Father’s Day to us Dads!
Have a great week,
Dennis
Dennis C. SmithStratis FinancialDirect (562) 472-1118
Mobile (562) 243-6912
Fax (562) 684-4316
www.DennisCSmith.com : apply on-line, check rates, check loan status and much more
Home sales in Los Angeles and Orange County are up 20% from last May. Yes prices are down about the same percentage, here is how I interpret that data: the entry level, first time buyer market is active and selling. If the activity continues the local housing industry will begin to stabilize from the bottom up. Anyone thinking about entering the market and becoming a home owner in the next six to twelve months should think about moving that time frame up to take advantage of the current combination of low rates and prices. Have anyone you know thinking about buying anytime in the near future call me now to see what their current purchasing ability is and/or what steps they need to take to become a home owner.
Lots of economic news this week has caused stock prices to drop significantly and the beneficiary of this has been the bond markets—and mortgages. The domestic economic data has had a smaller effect than it usually would, with the annual inflation rate sitting right on the Feds target number of 2%, and personal income and spending up (thanks mainly to the government stimulus tax rebates); usually these reports would impact interest rates. The past two days the most recent jump in petroleum prices and the downgrading of whole sectors on Wall Street caused huge sell offs in equities and the money being reinvested in bonds.
Prior to closing the mortgage backed securities markets broke through the 25 Day Moving Average, on the positive side. Those of you following the rates the past several weeks know they have been slowly climbing; technically the close today above the 25 day line may signify momentum to lower rates—it very much depends on early next week and how the stock markets perform as to whether investors will continue to pull out of equities and invest in bonds. As always predictions are guessing and when it comes to someone’s house payment, I say…
Lock your rate and terms as soon as you enter escrow! That has been my advice for the past twenty years and I see little reason to change it in this market.
The positive momentum the past two days has resulted in no change in rates from last Friday, a welcomed result after our recent climb to the highest rates since last August.
30 year conventional at 1 point 6.25% Flat
30 year conforming-jumbo at 1 point 6.375% Flat
30 year FHA at 1 point 6.375% Flat
30 year jumbo at 1 point 7.625% Flat
This weekend AJ and JD move into their new home. This couple has been extremely committed and dedicated to being home owners, as dedicated and committed as any couple I have worked with in twenty years. As we get closer to Independence Day I can think of no better example of the American Dream than this couple. Thank you AJ and JD for the opportunity to work with you and congratulations on you new home!
Short sales have unique challenges for everyone, I have the experience to guide buyers and agents through escrow and financing to closing!
A bit of an abbreviated update this week due to a crazy schedule, part of which I will be able to tell you about in a week or two—very exciting stuff!
The market was hammered early in the week and rates jumped up, yesterday with some profit taking we saw a bit of a retreat and again this morning when prices came out. While the market ended flat for the day overall rates are slightly down from last Friday. Look for continued upward pressure however as the credit industry (i.e. banks and financial institutions) continue to report earnings and forecasts; as well as climbing oil prices.
30 year conventional at 1 point 6.25% Down 0.125%
30 year conforming-jumbo at 1 point 6.375% Down 0.125%
30 year jumbo at 1 point 7.625% Down 0.125%
Today is the first day of Summer, barbecues, pool parties, trips to the beach and watermelon!
Originally posted on the Long Beach Post (www.lbpost.com)
Dennis, What’s Your Remedy?
This was the question posed by LBPost reader Bob Schilling who graciously agreed to let me use his question and my response for this post. His question was asked after reading my post last week on Washington Mutual filing to rescind the foreclosure on Congresswoman Laura Richardson’s property in Sacramento. His question as to remedy was directed to the mortgage industry and crisis in the country. Here is my reply:
Bob:
Sorry it has taken me about a week to get back to you—a little busy trying to keep the business going! My remedy for the mortgage industry is one I have touted for years but is not very popular within my industry: a national lending license (NLL). I am very much against expanding Federal government and very much in favor of state’s rights; that said areas of Federal commerce do require more Federal oversight and mortgage lending is an area particularly weak in this department. There is a huge gap between oversight and regulation. Look at the stock markets, they have significant regulation, but they work as efficiently and with as little fraud and deception as they do because of proper oversight; the cornerstone of which is very strict licensing that is difficult to obtain and if lost the individual is finished in the industry. In mortgage lending each state has their own laws regarding licensing, if the license, individuals originating mortgages. The rules in CO are different than SC are different than CA. Even in our state there are separate licenses, the broker license through the Department of Real Estate which has its own regulations and disclosures, and the lending license through the Department of Corporations. The DRE license requires all originators working for the broker to also have a DRE license. At our company, Stratis Financial, I am the broker so ultimately responsible for all activity; each of our loan originators has either a DRE salespersons license or a DRE broker’s license. If we obtain licensing through the DOC then our individual originators do not need to be licensed—this is the way Countrywide, Wells Fargo, BofA, etc. operate, their corporation is licensed but not the individual actually interacting with the consumer. So on my side of the fence everyone at the company must be licensed and adhere to the DRE standards and policies; on the other side of the fence anyone can originate a loan. On my side of the fence if there are violations either myself or the originator, or both, can lose a license and can no longer work as a broker originating loans. On the other side of the fence an originator who is, let’s say not of high quality, can move from lender to lender and continue to perpetuate fraud, non-disclosure, etc. Overseeing all of this is supposedly HUD, we have an annual HUD audit so we can continue to originate and fund FHA mortgages (which are also the bulk of reverse mortgages); plus we are subject to DRE audits. A company that is not originating and funding FHA mortgages must follow HUD guidelines for RESPA and other policies—but is not audited to ensure compliance. A NLL like I propose would require every individual in the U.S. to have the same license, adhere to the same policies, regulations, disclosures and laws and carry the weight of enforcement. If I perform illegal activity in CA as a broker and lose my NLL I cannot then move to a direct lender and continue originating loans, nor can I move to another state and originate loans. I am finished in the industry. This would apply to internet lenders, banks, direct lenders and brokers. It would also be somewhat difficult to obtain. I find it absurd that it is so easy to obtain a license from the California Department of Real Estate, which then allows an individual to be involved in the purchase, sale or finance of real property—including a primary residence. Our industry involves families most expensive and important asset: their home; and it is way to easy to obtain a license to be involved. Over the years I have seen more than my share of “professionals” who put those assets at risk, or do not have the ability to properly ensure their clients best interests are protected. It is relatively easy to get a license and then be in a position to funnel equity to oneself or one’s partners. This should not be the case. Stock traders are handling most families investments and voluntary asset placements; i.e. not their homes. While they do have significant funds and trust in their control for their clients, in the end the funds they are controlling and transacting are, for lack of a better term, discretionary on behalf of the client. Yet stock traders must undergo rigorous testing and licensing to be in this position; while their counterparts in real estate and real estate lending undergo the equivalent of a high school final exam (for which there are prep courses to assist you in passing). Should not the individuals who routinely are involved in transactions involving families’ homes have at least the same licensing requirement as those individuals whose transactions involve stocks and equities? Our industry has a tremendous amount of dedicated, passionate and committed professionals who handle themselves with integrity and honor; it also has a significant number of users and abusers who are looking to make a buck and do not care about victims or families. It is the latter who would be out of the industry with a NLL. Why is there no NLL? There are many powerful groups who oppose it. First are the states who feel they might lose some control and power over their local real estate and lending professionals—easy solution, while requiring a national license states can also have their own criteria; secondly for many states they would save millions of dollars if they were to use the NLL standard and remove themselves from the licensing and regulating of mortgage lending. Second, the real estate sales industry and its professional associations such as the California Association of Realtors and National Association of Realtors would strongly oppose a NLL. Even though a NLL would strengthen the real estate industry and increase consumer confidence in the industry they would oppose it on several grounds; primarily because a NLL would reduce their ability to make more revenue and commissions. Many real estate companies also operate mortgage companies and steer clients into their “in-house” lenders; in doing so they collect the commissions on the sale of real estate and the commissions on the mortgages funded. By having a NLL these companies must now ensure their mortgage divisions are fully licensed, adding to their cost of doing business and perhaps reducing their employment pool. Since obtaining the NLL would be akin to a college final exam than a high school final exam you can imagine the size of the employment pool capable of passing the exam. For real estate companies the marginal cost of adding another salesperson, or licensee, is very small—perhaps a desk, a phone and some business cards. Because in most states, including California, these individuals can also originate and fund mortgages, with the ease of licensing and the small cost of adding the licensed individual to the company it is easy for real estate companies and brokers to have large numbers of salespersons who can not only transact real estate sales but also real estate financing; any time a business can increase potential revenue at a very small marginal cost it will. With a NLL real estate companies would see their marginal cost of adding licensed personnel to operate their mortgage divisions would go up considerably. Finally the banks and national lenders strongly oppose any NLL because their personnel throughout the country must now be licensed; in states like California for a lender like Countrywide or Bank of America that can mean tens of thousands of loan originators who must now obtain a NLL. This will cut down on their origination staff and reduce their presence in the market; again it impacts their revenue and costs. In the beginning a NLL will probably mean a slightly higher cost for the consumer in getting a home loan or mortgage as the supply and demand function hits the market; but given the mechanics and dynamics of mortgage lending the costs will eventually fall to the current market cost of approximately a one point margin for most home loans. In the long term Americans across the country will be able to have confidence in the mortgage broker or lender knowing he or she is highly qualified and strictly licensed. While some cheats and frauds will still be in the industry, their numbers will decline precipitously with a national lending license. At that is my primary remedy for the mortgage industry, thank you for asking! Thanks for reading My Front Porch and your comments, Dennis C SmithMy Front PorchDennis@LBPost.com
Your thoughts welcome, click here to email me or on “Leave A Comment” below for public response.
Experience counts, with over twenty years in the mortgage industry you can count on me!
Short report this week as I have to go play golf this morning, I know but someone has to do it—it is golf with a purpose however as Community Hospital Foundation is hosting their 26th Annual Tournament. For those in the Long Beach/SoCal area check out the Community Hospital of Long Beach website (www.chlb.org ) CHLB provides quality health care to the community and the emergency room is top rate with typically not much wait! (Disclaimer: I have served on the CHLB board for six years)
This week we once again experienced the wild swings in pricing as the economic news pulled the markets around. We continue to see some positive news for the economy which puts upward pressure on rates. The best barometer for daily rate activity is the stock markets—when they are up big in a given day so are mortgage rates, when stocks fall so do interest rates.
As I write this in the wee hours of the morning rates are not out for the day yet, but based on the opening bond prices and yesterday’s closing prices the rates below are very close to what we will have when rate sheets come out later this morning. As always every potential borrower should call as every situation is different affecting the rate they may receive.
30 year conventional at 1 point 6.00% No Change
30 year conforming-jumbo at 1 point 6.125% No Change
30 year FHA at 1 point 6.00% No Change
30 year jumbo at 1 point 7.25% No Change
Today is June 6th; it is the sixty-four years ago this morning that the Allied Forces landed on the beaches of Normandy and began the final push to liberate Europe from fascism and oppression. Ultimately hundreds of thousands of Americans died to ensure the freedom of the people of Europe and other parts of the world, solidifying our place in history as the defenders of liberty.
Dennis C. Smith, California Dept. of Real Estate Broker #00966315 Stratis Financial Corporation, California Dept. of Real Estate Broker #01269597
Dennis C. Smith, California Dept. of Real Estate Broker #00966315
Stratis Financial Corporation, California Dept. of Real Estate Broker #01269597
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