Archive for September, 2009
Market: So the economy is roaring back, eh? Weeeeellllll…. Some are beginning to wonder. Mortgage-backed securities (these are the bonds issued by FNMA, etc. that directly link to mortgage interest rates – also abbreviated “mbs” in this space) are not reacting the way one would expect if everything was rosy going forward. As the economy heats up, money should be flowing into stocks (it is) and out of bonds (it isn’t). The benchmark 4.5% FNMA bond today is up 25bps (bps are “basis points”; 100 basis points = 1%) because existing home sales data was worse than expected. As bond rates rise, mortgage rates fall. A move of 25bps on the bond translates to less than .125% move in mortgages, but it’s something.
Analysis: strong economic growth is supposed to mean bad things for bonds, because investors take money from fixed-return investments – bonds being chief among them – and put it in stocks. As bond rates fall, mortgage rates rise, all else being equal. There are other factors, of course, like inflation, but in the main, good economic news is generally considered bad for mortgage interest rates. So with rates sitting in the low 5% range on fixed 30-year mortgages and in the low 4% range on 5/1 ARMs and the like, why is the end of the recession not causing a move higher?
Answer: we don’t know. But the suspicion is that the recession’s end might be oversold just a tad. Remember, in the last giant downturn, we had a fool’s rally in 1930 that almost got us back to the level before the 1929 crash. Then the bottom fell out, and we didn’t see those highs again for 20 years. Not saying here that history is repeating itself, by any means. But the possibility that history will repeat itself is in the back of every trader’s mind, I assure you. Caution is warranted. Therefore I fairly confidently predict that the thing you should worry about, if you’re buying a house, is getting it done before the $8000 federal tax credit vanishes on December 1, rather than the interest rate you’ll get.
My recommendation is that you have your house under contract by Hallowe’en, if you want to have a chance to be closed by Thanksgiving. And not every mortgage guy can get you done that fast. Please understand and remember this.
I’m not sure how to say this without making myself unpopular, so I’ll just go for it.
HVCC is here to stay.
I’ve written before, several times now, on the Home Valuation Code of Conduct (HVCC), which has been widely blamed for depressing home values and causing borrower and buyer and seller and Realtor and mortgage professional frustration since it went into force on May 1 of this year. There has been what appears to be a huge outcry over the Code; there’s a petition to get rid of it that has over 75,000 signatures, and there’s a bill in Congress to institute an 18-month moratorium.
None of this makes any difference. Want me to outline the reasons?
1. 75,000 people sounds like a lot, until you realize that it isn’t enough people to fill up the Big House at the University of Michigan on Saturday. Spread that over the entire country, and it’s 1500 people per state. That’s an irrelevancy.
2. HR 3044 was introduced by two of the most obscure memners of Congress. This is never a positive. It now has 91 cosponsors, which sounds like a lot, until you realize that cosponsors don’t mean very much. Congressmen cosponsor most anything that gets introduced, if they think it will give them cover. HR 3044 is perfect for this, because it makes it look like Congress is doing something when, in fact, it isn’t. The bill is stalled in the House Finance Committee – hasn’t even been assigned a subcommittee yet – and isn’t going anywhere. Paul Kanjorski (D-PA), who is on the Finance Committee, has his own bill that has passed the House twice already, and that’s the one the Committee is backing. Read it. It doesn’t do anything at all with HVCC.
3. When the momentum is this heavily toward increased regulation, there is no practical chance that any restrictions on the mortgage industry will be lifted. Since we all talk to each other all the time, we get this sense that the whole country is opposed to the HVCC and that the momentum is to get rid of it. Then FHA institutes its own HVCC-like language, and you realize that you’re getting a false picture of how things really are. Washington is spending thousands of man-hours a week finding NEW regulations to place on us, and you think any effort will be wasted on removing some? That’s delusional. If there really were any pressure to pass the moratorium, or to get rid of HVCC altogether, what do you think the chances are that the bureaucrats at FHA would be patterning their own parameters after it?
4. Not even everyone in our industry is opposed to the HVCC. I’m not, for instance. I like most of it. There are parts that I think need tinkering with – I’ll talk more about that later – but on the whole, I think it addresses a serious problem. I’m far from alone. Yesterday there was an excellent article by the inimitable Marcie Geffner about how repealing the HVCC would be a step backward, and this was echoed in the comments, especially notably by two long-time professional appraisers that like the HVCC and what it’s done for them. I have letters from appraisers that praise the AMC I use – these are quite important to me – because their lives have been made easier since the HVCC went into force. Saying that you like the HVCC is about on par with saying George Bush was a decent President, so most people, even if they think that, keep their mouths shut. This doesn’t mean there aren’t any people that do.
When I started writing about this back in the early summer I predicted not only that there would be no repeal, but that the FHA would institute its own version of HVCC before long. Last Friday, FHA released new appraisal restrictions that are almost word-for-word out of the HVCC, exactly as forecast. I confess that I cheated when I made the prediction; I had actually spoken to people in Washington DC that knew what was going on (I know, I know, bloggers are supposed to make wild, unsubstantiated guesses about things, not do actual research). Since then, I’ve done more discussing, and I have an idea what the next HVCC-related event is going to be.
It’s okay, you’ll like this one.
It concerns appraisal portability and the use of AMCs. Before too long – I’m forecasting by early next year – there will be a national registry of AMCs. At that point, Fannie/Freddie will institute a regulation that a lender must accept an appraisal performed by any registered AMC, which mirrors the way things used to be, where as long as an appraiser was licensed under the state laws where the loan was to be done, the lender could accept the appraisal. Seems a small change. But it isn’t.
The biggest problems mortgage and appraisal people have with the HVCC are caused by bad AMCs shorting appraisal fees and causing crappy appraisals to be generated. Good AMCs – and there are some, I use one – don’t do this. The good AMCs would, in a free market, kill off the bad ones. Appraisers would insist on full fees, and only the good AMCs are paying them, so appraisers would only work for the good ones and the bad ones would die. Most of the problems with HVCC would go away. Once this regulation appears, we’ll have a much free-er market in appraisals than we do now, and a great deal of normalcy will return to the market.
For those of you that have spent a great deal of time and energy protesting and rallying the troops to get rid of the HVCC, I strongly recommend that you use your time to do something else. Lobby for a free market in AMCs instead. For you appraisers, help is on the way. Call the Appraisal Institute and tell them to lobby for an AMC registry, so we can get back to being able to sell appraisals to anyone, instead of a restricted few.
It’s going to get better. Eventually, it’s going to get better. I promise.
From Utah Housing:
The following Utah Housing interest rate for 1st Mortgages is effective immediately through the next rate announcement on Friday, September 25, 2009, for all Mortgage Purchase Agreement Requests received: FirstHome and Equity Now - not to exceed 5.50% Hint of the week: Under revised guidelines just released on Home Run Form 161, our Approved Lender partners may now use investors authorized to do business in Utah even when they have not signed the documents necessary to become an Approved Lender as long as adequate documentation can be furnished. The new paragraph on Home Run Form 161 reads: “If the Lender shown on the HUD 1 Settlement Statement will not be the same as the Lender shown on the Home Run 2 Grant Commitment, UHC must receive a written underwriting approval from the Lender that will appear on the HUD 1 Settlement Statement that confirms the relationship between both Lenders.” If you have received this e-mail in error or if you know others who would also like to receive these updates from Utah Housing, please send a response to this e-mail. Utah Housing We're Housing Utah 2479 Lake Park Blvd. West Valley Cit
Market: MBS close down 29 bps. This erases half the gain from yesterday, which was twice the loss of the day before. So after all this, where are we? Exactly where we were. Rates hanging 5% to 5.25% (your rate can and will vary).
Analysis: It’s pretty much official, this is as low as we go. There is no buying power below 5% on the bond. Whenever we touch 101 on the 4.5% bond, we retreat. That means we’re not going lower from here. At some point, the dam will break, and money will start flowing out of bonds in quantity, and at that point rates will rise, and fairly dramatically. If you were waiting for the bottom, folks, this is it.
Take your $8000 credit, take your HomeRun2 $4000 (if you’re in Utah), and run with it. Take what you can get and go. Now is the time. You’ve got 70 days to close for the Federal Tax Credit. Waiting longer than the next week to find a house is unwise. We’re closing loans contract-to-fund in 19 days, but that’s if everything is perfect, and counting on it is very risky. So don’t. Go now.
When I decide I’m going to do something, I feel compelled to finish it. This is likely because I sucked at that for the first 35 years of my life.
So when I got to writing a newspaper – that’s writing, selling ads, laying out, printing, distributing – and it vacuumed up my entire week, I should probably have junked the thing, but I thought 1) my town really needs a newspaper and 2) I have to finish this. So I did. You can not read the results here. The attempt is based on the fact that I write a lot, dozens of pages a week, and I need a good place to run some ads for my business, and Lehi needs a paper desperately and nobody else is doing anything about it. So the Lehi Pioneer/Independent is born.
I was going to write about this earlier, but a few weeks back my huge stock of Atra razor blades ran out, so I needed to get a new razor. I toyed with disposables for a while, but those are not very good. Then my wife suggested that I try the Gillette Fusion. Not because of their incredibly sill advertising, but because we could get one for free with a combo of sales and coupons. The idea of five blades seemed stupid to me, but I told her I’d give it a shot and see what happened.
What happened was interesting. I shave every day, or very nearly, and I have a harsh beard that tears up traditional blades. The head of the Fusion was good at getting into my ever-increasing supply of facial nooks and crannies, and the blade glided pretty well. Not definitely a great deal better than my regular blades, but pretty well. At $10 for a four-pack of blades, though, I wasn’t going for it unless I got some serious blade life. $15 a month or so for razor blades is not in the cards.
Surprise! The first blade lasted five weeks. Never had a razor do that before. So now we’re on to the second blade, and if it lasts anything like the first one did, I’m going to be a regular. Good shave – not fantastic, but very good – relatively inexpensive because of the long blade life, and no nicks. So far, 35 shaves or so into the experiment, not one cut. That’s never happened before, either. So color me surprised, and cautiously a fan. If only they’d dump the stupid advertising.
My Dodge Stratus just topped 170,000 miles. What percentage of 1997 Stratuses made 170k, do you think?
I’m really sorry that this post isn’t up to the usual standard. It’s just been one of those weeks. Over the weekend I’ll try to finish my post on healthcare and get that up, so we can all argue some more. Meanwhile, live long and prosper.