Posts Tagged ‘Lehi mortgage’

Markets: The collapse of the dollar has driven rates slowly but surely to levels we haven’t seen in six months.  Seriously.  It would not be impossible to find 4.625% on some 30-year fixed loans, and we’re closing a 5/1 ARM tomorrow at 3.875%.

Analysis: Well, exactly a year ago today we watched as the mortgage market exploded and rates dropped by more than a full point in two hours.  I remember this well, as I logged on in a spare moment from a condo in Florida, where I was supposed to be on vacation, and spent the next two solid days on the phone because of it.  Not that I’m complaining, exactly, although it was surely most inconvenient.

But this is gratitude week, and I am spending it more or less being grateful.  I am truly grateful for all of you and your willingness to pass along the information I share here.  I depend on referrals for all of my business, and I don’t forget that you have to be thrilled with what you get from me, or you won’t refer me – and I wouldn’t want you to.

We’ll be making some changes to our operations here over the next couple of months that should improve our communications and expand the number of available channels for it, so that you can get this alert however suits you best, whether by Twitter or Facebook or email or text or what have you.  Watch for that, and in the meantime, give me suggestions on how I can make this alert more useful to you.  In turn, let me ask you to forward it on to someone – just one person – that might enjoy it, so that the reach of good, solid market information can grow.  Thanks in advance.

Action: And here is a suggestion from alert reader AmyJo in which she suggests that I add an action section to RateWatch, so here it is: if you’re interested at all in potentially refinancing or purchasing, hit reply to this email and let’s start the conversation.  Average lead time from first discussion to close is running at a career-high 84 days now.  It takes time to get things in place to qualify in this environment.  Do not wait and miss out, and yes, we’re still working in the holidays.  Let us work for you.

Cj

Chris Jones

Markets: The bond market has reversed itself the last two days and is headed higher once again.  It has broken through a couple of lines of resistance and is now trading at what my sources say is “an unsustainable level”.  More on that below.  Current levels on the FNMA bond correspond to 30-year fixed rates below 5%, though not very much below.  Still.

Analysis: What is the definition of “unsustainable”?  If you ask me, unsustainable means “you can’t keep doing this forever”.  These days, it seems to also mean “you can’t keep doing this for long enough to matter,” as when a football team grabs an early lead through fancy trick plays, but shortly runs out of those and cannot sustain the advantage.  It matters which we’re talking about, because the bond market certainly is in Unsustainable 1 territory, but not – again, just as clearly – in Unsustainable 2 territory.  We know this because we’ve been here before.

So we’re here, and we’re here long enough to matter, IF.  It is absolutely true that most lenders (and this is especially true with the new federal babysitting regulations) cannot react fast enough to help you take advantage of rates that will be abnormally low for only a few hours.  It is also true, however, that some lenders can, and the number that have that capability can be increased by your timely action.  DO NOT WAIT FOR RATES TO HIT YOUR TARGET ZONE BEFORE YOU START TALKING TO YOUR LENDER.  That’s not going to work, people.  For most, a couple of hours is just not enough time to get all the documents whizzed back and forth before a lock becomes possible, not with rates moving with this kind of volatility.

Since I already used the running analogy last time, let me use a hunting one here.  If you think you’re going to get the perfect shot on a deer by waiting for the deer to get in the right area, then going in after it, you’re crazy.  The way to make sure of a good shot is to get there first and wait.  Similarly, the way to make sure you get the rate you want – and 15-year rates are in the very low 4s right now, for instance, with 5-year ARMs in the mid 3% range – is to get your documentation together and go over it with your lender BEFORE you need to shoot.  That gives you the very best possible chance to get exactly what you want.

These days, a couple of extra days is a godsend.  Get moving now, and give yourself a break.

Cj

Markets: We’re down 12bps (.12%) on the day on the FNMA 4.5% bond, which is the benchmark for interest rates at the moment.  That’s down about 100bps (1%) from its high of last Thursday.  It is, however, a good bit higher than it was earlier today, so we’re seeing a sort of rally into the FOMC minutes that will be released at 2pm EDT.  The Dow is threatening 10,000 again.  This is translating to rates at 5%, plus or minus a fraction.

Analysis: This is not going to be easy to say, and will likely not make me popular.  Nevertheless, it has to be said, I think.  We’re in trouble.  This economy is in serious trouble.  Lasting, probably permanent, possibly fatal trouble.

The trouble is not coming from the usual sources.  It has very little to do with unemployment, or with productivity, or with declining innovation among US firms.  It has to do with the complete abandonment of fiscally-sound policy by the federal government, which is leading to the destruction of the dollar.

A friend of mine asked me the other day why, if the government is printing trillions of dollars to finance the national debt and keep the payrolls fat, we’re not seeing inflation.  I told him that we were.  It’s not showing up in the Consumer Price Index yet (though it eventually will), but that’s because the CPI measures only price increases.  There is another way for inflation to express itself, and that is in the decline of the value of the currency against international standards, like the price of gold or oil, or the value of other currencies, all of which are spiking.  There is no consumer pressure on prices because a) nobody is borrowing money to spend, because they can’t get loans b) nobody has any liquid savings, so no spending can come from reserves and c) banks are holding on to cash instead of lending it, because right now, who is a good credit risk?  Anyone?  Much better to fatten the balance sheet to prevent your institution from being taken over by the FDIC.

We got in debt as a people, then our government got into debt over what it could handle, now we’re trying to get out of debt by borrowing or printing money.  A child could see that this won’t work.  What is required is discipline and sacrifice.  Unfortunately, discipline and sacrifice are hallmarks of a bygone age.  Unless we recapture it, we’re in for a hard time.  This is only the front porch of the house of horrors, if we don’t shape up.

Advice: Don’t borrow money for anything that does not appreciate in value (education and land, pretty much).  Shed your debt as quickly as you can, including your home loan.  Learn valuable, off-grid skills like how to grow carrots and raise chickens.  And pray very hard.

Cj

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.

Cj

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.