» Fed

Cj Takes on the Fed

chrisjones — Wed, 10 Feb 2010 18:17:48 +0000

Okay, well, it’s not that dramatic, but I do have a new post up on Zillow’s Mortgages Unzipped, with some in-depth commentary on why mortgage interest rates are not rising dramatically, pronouncements of doom to the contrary.

Thought you might like to see it.

RateWatch – Nothing to See Here

chrisjones — Thu, 25 Jun 2009 14:27:51 +0000

Market: So, yesterday we were watching the Fed, and as it turned out there was nothing to see. Bonds ended exactly flat at 0. Today we’re up 12bps and sitting on a multiple resistance line (Note: if this doesn’t make any sense to you, don’t worry. It’s not important in the cosmic sense. I just want you to know that I’m paying attention to it, and that I know what it means. Call it outsourcing your worry about rates.)

Analysis: Oil spiked a couple weeks ago because it looked like the recession was bottoming out. Whoops. Demand continues to be bad. Oil is now falling. GDP numbers today showed the economy shrinking by 5.5%, and unemployment numbers were bad again, and now earnings are bad as well, so what we learn from this is that we still have a long way to go. This argues for a flat rate environment.

In fact, we’d be trending strongly downward except that every time the government holds a press conference it talks about changing the face of the financial landscape to such a degree that lenders and banks are forced to hedge their bets. Think of it this way: you’re in Vegas. You want to play a little blackjack. You go to the table and the dealer deals you some cards. Then when you look at them, he takes one back. Apparently you can’t look at both of them. This hand, the dealer says, 23 will be the winning score. Next hand it’s back to 21, except you can’t win if you have clubs. How much would you bet on a game like that?

But that’s precisely what’s happening with the US government. Between President Obama, Ben Bernanke, Secretary Geithner, FHA, FHFA, OFHEO, HUD, and a partridge in a pear tree, every single day (and sometimes twice) the rules for lending, how much you can lend, to whom, under what conditions, are changing. If you were a bank, how much would you bet on a game like that?

If it weren’t so catastrophic to so many people, it would be actually kind of fun, like trying to do a puzzle using a funhouse mirror. At least I can say my job isn’t dull.

Chris Jones
City 1st Mortgage Services, Utah’s Mortgage Lender of Choice (and nearly everywhere else)
801-310-3407

RateWatch – All Eyes on the Fed

chrisjones — Wed, 24 Jun 2009 16:06:13 +0000

Market: Flat. We’re down 16 bps, which doesn’t signify. It’s been this way since Monday. Rates holding 5.25%-5.5%, depending on about 84 things.

Analysis: The Fed is meeting, and should release something in about an hour. The fun part is predicting a) what they will say and b) what will happen to the markets when they do. Consensus is that nobody knows anything. The Fed will almost certainly do nothing with rates, but if they did, they would have to raise. Would that be good or bad? Nobody knows.

One thing to bear in mind is the huge number of Alt-A mortgage resets coming in the next 24 months from Option ARM and other exotic mortgages. Right now, those resets are not all that bad, just as most subprime resets weren’t that bad – despite what you hear on the news – because everything is indexed to the Fed and LIBOR rates, and those rates are lower than a 3-year-old with a lump of coal at Christmas. If the Fed raises, which many are urging, to protect the value of the dollar, that may help curb inflation, which we’re not seeing any of yet, but it will also make those resets hurt more, which will crush what’s left of the banking system.

Don’t you wish you were Ben Bernanke? Gee, I do.

Chris Jones

City 1st Mortgage Services, Utah’s Lender of Choice (and most everywhere else, too)

801-310-3407

Wasn’t I Just Saying That?

chrisjones — Tue, 19 May 2009 19:58:22 +0000

A couple weeks ago I posted about debt and spending in A Conundrum Wrapped in a Paradox, Stuffed in a Burrito. The point was that we as a country can get – and have gotten – to a place where we can’t keep spending as we have, because we weren’t spending our money, and now the debt service is so high that we can’t pay it all back unless we start economizing.

Today, here’s this from the San Francisco Fed:

In the long-run, however, consumption cannot grow faster than income because there is an upper limit to how much debt households can service, based on their incomes. For many U.S. households, current debt levels appear too high, as evidenced by the sharp rise in delinquencies and foreclosures in recent years. To achieve a sustainable level of debt relative to income, households may need to undergo a prolonged period of deleveraging, whereby debt is reduced and saving is increased.

Bingo.

RateWatch FED Madness – Fed Gets Its Freak On

chrisjones — Thu, 19 Mar 2009 15:58:36 +0000

Yesterday the Fed announced a couple of things of critical import to the mortgage world. One, it is not doing much of anything with the Fed rate for the forseeable future. There is not going to be a rush to raise interest rates even if the economy improves dramatically, and there’s no reason to think that it will, not any time soon. Two, it is expanding its purchasing program of mortgage-backed securities from $500 billion (half is spent) to $1.25 trillion. With a “T”. Three, it is going to start buying back long-term Treasury bonds as well, $300 million worth.

For the technically inclined, here’s what this means: when Fed buys mortgage-backed securities, it is purchasing notes that are secured by mortgage contracts. Those contracts are the documents you sign at the closing table. Retail lenders – like me – originate mortgages and fund them, having usually pre-sold those loans to secondary lenders (this is called warehousing), which will bundle them up and sell them to FNMA/FHLMC (Fannie and Freddie). This flow is critical to what most people think of as the mortgage process. The mortgages back securities that allow banks to replenish their supply of cash to lend out again. If the Fed starts buying those securities, the flow increases in the pipeline and lenders can lend more money.

With the collapse of the credit markets, the flow has been severely restricted and that has made mortgage lending sort of like being in the middle of the ocean dying of thirst. There’s money everywhere, but we can’t lend it, because the secondary lenders have to restrict their flow to only the very choicest of loans, because those are the only ones they can securitize. That flow will free up at some point and those outside the top 10% of borrowers will once again be able to borrow money. In the meantime, the Fed action prevents the last trickle from freezing up as well. The buying pressure reduces risk in the MBS markets, raising their prices and lowering their yields. Since (in a circle, now) the yields on those MBS dictate to lenders what their risk is on mortgage lending, as those yields drop, rates drop with them.

Whew. Still with me?

Yesterday, because of the Fed announcement, bond prices exploded to the upside and yields dropped like a stone. That should (under ordinary circumstances) have meant a large drop in mortgage interest rates. But it didn’t.

Rates on mortgages took only a small dip yesterday. I say “small” because it was not nearly as big a move as would be expected from the way the bond markets moved. Why is this? Two reasons: one, refinance pipelines are choked, and I mean choked. Our staff starts work at 6am and finishes (last night, for instance) at midnight. The in-house underwriting staff at City1st is pulling 16-hour shifts and has been since roughly Christmas. Secondary market lenders are doing the same with their staff – remember, a LOT of people got laid off last year, and most lenders went very lean to try to stay in business. That means loans just can’t get through the pipe very quickly. To slow the flow, lenders keep their rates artificially high. Two, lenders know that most of their volume on these loans is coming from refinances of loans they already hold. They’re not getting new, high-performing loans without losing older, higher-interest loans at the same time, so this boom is not necessarily good for them. They’re being defensive about rates, and there are lots of good reasons for them to do this.

In light of this, what do I recommend? Same as always: if you have a deal that works, that pays for itself inside of three years, TAKE IT. Don’t try to time this stuff. It’s impossible. It’s also a major drain on your resources. The best thing you can do to make sure you get the rate you want is to get set up with us under the Mortgage Under Management program with a hard rate target. You’ll get your lock when the rate reaches your particular level without your having to be reading tea leaves. We’re professionals. We do this for a living. This RateWatch and the MUM program and all the other services you get here are part of what makes us the best. Use us, that’s what we’re here for. Hit me back with an email, and it will seriously take 10 minutes to get you set up.

Meantime, expect rates to be at 5% for FHA and slightly below for conventional, depending on about 100 different factors that could make your rate higher or lower. Call or email for specifics.

This is going to be a fun few months, folks. Stay with us, and keep your arms and hands inside the car at all times.

Chris Jones

City1st Mortgage Services

801-310-3407

chris@thechrisjonesgroup.com

RateWatch Friday Feb 6

chrisjones — Fri, 06 Feb 2009 15:24:06 +0000

Here’s the thing. Markets have displayed a huge amount of volatility over the past several months. Where once mortgage-backed securities (those things that actually control mortgage rates) would trade in a 35bp range on an average day in 2006, today we have 100 bp days all the time, and it’s not all that unusual. At least, that was true until the last three weeks. For the last three weeks, we’ve been trading sideways in very narrow ranges, almost always slightly down. It’s maddening, frankly. Rates are being ground higher a bit at a time, just a hair here and a hair there, until where once we quoted 4.75%, today we’re talking about 5.375%, and that’s only for those with 740 credit.

So the big question is: what’s going to happen next? Up or down?

And the answer is: who could possibly know? There are two wild cards here. One is Fed buying, which is still going on, but is probably being muted in its effect by Treasury selling of bonds, and the other is the “stimulus” package being argued over in Congress. Nobody knows what provisions that will contain, and until we do, no bank is going to be interested in lending money. Why bet your company in a game where the rules might change from one day to the next?

I’ll make a prediction, because you’d be disappointed if I didn’t. I predict that the stimulus package will pass by the end of next week, and give us a boost to the downside on rates for mortgages that will be powerful but brief, like two or three days brief. To take advantage of it, you’ll need someone with his finger on the trigger who can lock immediately, but who also can get the loan closed before the lock blows. Broker underwriting is averaging over 30 days right now. Our underwriting is 48 hours. We can – and do – close loans from application to fund in less than two weeks. The rally we get will be followed by more slow upward grinding, until the middle of this year, when rates will spike as the Fed runs out of buying power.

That’s the call. Put on your booties ’cause it’s cold out there today. It’s cold out there every day.