Posts Tagged ‘utah mortgage’

Welcome to RateWatch for Thursday July 29, I’m your host, Chris Jones, and here’s what’s happening:

Today’s market: The benchmark bond is up 12bps today.  We’re trading in a very narrow channel.  Economic news today was all about employment, as in, there isn’t much of it.  Unemployment benefits have been extended, so continuing claims were up, which did not surprise anyone.  New claims were down, but not very much.  The recovery continues to fail to do the one thing that would really get the economy moving again – create jobs.

What that means to you: rates are holding steady.  It’s generally acknowledged that banks would like to raise rates, but competition is making that very difficult.  Remember, they don’t make money unless they lend it out to people.  Rates are therefore critical to attracting business.  There’s no central rate-making authority in mortgages.  The banks take their cues from the bond market and from each other.  So today’s rates are in the 4.5% range on conventional and FHA, with 15-year rates in the 4% range.

At some point, obviously, this is going to change.  We’ll have a terrorist attack (which would be mixed for bonds) or we’ll have IBM invent cold fusion (which would be very, very bad for bonds), and the market will break out of this channel and start moving, almost certainly upward.  We are trading right now at the bottom of the historical range, as in, it’s never been this good.  Ever.  So it isn’t as if there is a lot farther down we can go.

How long will it last? That’s the billion-dollar question.  Here’s the answer: NO ONE KNOWS.  Only one thing is certain: rates in this range will go away.  Do not wait to talk to a professional.  You can call us.  That’s what we’re here for.

That’s RateWatch for July 29, I’m your host, Chris Jones.  You can find us at thechrisjonesgroup.com or text us at 801-850-378.

Welcome to the first edition of the Crystal Ball, where I tell you definitively what will be happening in the world over the coming days.  You have been warned.

The Los Angeles Dodgers will not be able to catch San Diego, and will fail to make the playoffs.  Again.

My class on the History of Money will attract more students than my Thomas Jefferson Youth Certification class this fall.  The Leadership Education Academy will be a resounding success, mostly because Janette Wagner, the organizer, is one of those hyper-capable people you hope to have as your friend.

The new Wall Street Reform Act will increase the fees you pay for credit cards, restrict credit for small businesses, and raise mortgage interest rates.  This will happen gradually over the next several months to two years, so that it will be possible to blame the banks for the increases.

The Obama Administration will blame the banks for the increases.

Mortgage brokerage firms will close in record numbers in 2011, and the number of active loan officers in the US will decline by another 50% from current numbers.  In case you were unaware of this, the new financial regulations make it almost impossible for brokers to survive, due to the nature of the restrictions on loan officer compensation.  In one example, the requirement that a loan officer be compensated only from one source – either the borrower or the lender, but not both – means that either your mortgage will carry a lower interest rate and huge closing costs, or a huge rate and low closing costs, but nothing in between.  And oh, that compensation cannot be based on the interest rate, although that’s how the BANK is compensated.

Mortgage lending will continue to increase in difficulty.  Credit will be further restricted, especially to marginal borrowers.  Loan costs will rise further.  Incidences of mortgage fraud will skyrocket.  The correlation will equal causation, but no one in any major publication or network will understand that.  It goes without saying that no one in the government will.

The Republican Party will take control of the House of Representatives in November.  The Senate will remain in Democrat hands.  Harry Reid will survive.

I will become Foursquare Mayor of Emmett’s and Ethel’s.

Mortgage interest rates will remain below 5% until November.  The GOP victory will cause them to rise, because a GOP win will be viewed as good for business – the stock market – and bad for government – the bond market.  Money will move from bonds into stocks and rates will rise.  The rise will be seen as a bad thing by most people, and will make possible charges that the Republicans have screwed up the only good part of the economy before they even take office.

The Obama Administration will charge the Republicans with screwing up the economy before they’ve even taken office.

My book, The Six Channels of Marketing, will be completed, and over 100 people will have enrolled in the PerfectHome program, by Hallowe’en.

The Utah Jazz will fail to sign another free agent.  Mehmet Okur will report to camp but be physically unable to perform until midseason.  The lack of a long-range shooter will restrict the effectiveness of the Jazz low-post players.  By December the Jazz will nonetheless be second behind Oklahoma City in the Midwest Division.

My sister Diana’s children will both sleep through the night – the same night – by Labor Day.

The final book of the Hunger Games Trilogy, Mockingjay, will deservedly become a New York Times bestseller, despite (because of?) its highly anarchic political bent.  Someone will be smart enough to see a gigantic business opportunity in the production of mockingjay pins.  An entire generation of young adults will be un-indoctrinated, and dedicate their lives to the preservation of individual liberty.  And the world will be saved.  So you see, there’s nothing to worry about.

Your predictions are welcome in the comments, and you may also submit additional topics for me to answer with a gaze into the Crystal Ball.  Which I predict the next edition of in 30 days.

Okay, so I was wrong. At least I wasn’t the only one.

Last month I wrote about how the expiration of the $8000 and $6500 tax credits for new home buying wouldn’t have much impact on the housing market. Those expired, for the uninitiated, on April 30, and since then sales on new homes have dropped to their lowest levels in history. So that wasn’t one of those really good predictions, and I’m sorry, and I admit I was wrong.

Pundits are saying that the drop is caused by buyers moving their purchases forward to take advantage of the tax credit, so that sales just moved from May to April. That surely took place. But at least here in my shop, there were a good number of people that couldn’t get the deal done in time, and who still are in the process of buying. That should have put some shims under the falling market.

So I have a different explanation for why what happened…happened. See, it wasn’t so much about the money. Markets are really smart. They compensate pretty fast for price-altering events like tax credits and artificial purchase incentives (see “Clunkers, Cash for”). When someone offers $8000 as an incentive for you to purchase a home, then the seller of that home adjusts his price upward to meet the new reality that you have more cash to spend, so most of the $8000 does you no good at all. As an aside, this is what the eggheads call “inflation”.

That did happen in this case, though not by anything like $8000 worth. No, the spike in home buying was not caused by the cash incentive as a dollar amount; rather, it was caused by the application of that dollar amount. As in, the $8000 was not a reduction in the price of the home; it was a boost in cash for down payment and closing costs. Yes, I know the government specifically said that the credit could not be used as a down payment. But, humans being what they are, and being waaaaaaay smarter than the government, they got “gifts” to cover the down payment and closing costs, then repaid those “gifts” with the tax credits. Voila! A temporary reinstatement of the zero-down loan programs the government killed last year.

The reason we’re in the economic mess we’re in is really quite simple: we borrowed too much money, and nobody saved a nickel. Now we can’t make the payments on the things we bought, so they’re being repossessed and foreclosed on. For a business, that means money is drying up and that means firings and layoffs. That exacerbates the personal financial problems, which means people stop spending, which further reduces the money for business, and around and around the mulberry bush.

If you have no cash, you can’t buy a home, because there are no zero-down programs outside of USDA Rural – which, not coincidentally, ran out of money 6 months before the end of the fiscal year – and Veterans’ Administration. But this program made it possible to fudge that, and brought a lot more buyers into the game. Until it ran out.

If you parsed the data, and nobody will actually give it to you so you can do this, but what you would find almost immediately is that the large majority of those tax credits were claimed by people whose down payments were smaller than the $8000 credit. Personally, I would bet that almost half of the loans that closed on which the credit applied were closed with gifts as the means of down payment. That was certainly true in our shop. I have no idea how many of those gifts were legitimate. Perhaps all of them. I hope so. But I doubt it.

Then, of course, the gravy train reached the terminus and everyone had to get off. Immediately, home sales dropped off a cliff. This doesn’t happen in market conditions where nothing hinky is going on. The market simply adjusts – prices fall, in this case – and people move on. Really, folks, the $8000 is not a big deal. It represents a payment increase of only about $40/mo for a borrower at today’s rates. That might have a small depressive effect on the market, but nothing like what we’re seeing.

Conclusion: the $8000 credit had the impact it did because it filled a market niche where there is huge demand, and that is the niche for 100% loans. The loss of the credit has taken out a very large part of the borrowing pool, those people that cannot come up with $7000-10,000 to put down on a house. Until something fills that gap again, don’t expect a huge market rebound.

In my last post, I addressed where the borrowers had gone.  In this one, I want to talk about how to get them back.

As I mentioned, borrowers are having trouble qualifying, much as they would have trouble running a 10k.  Some can do it, but those people are almost all those that have been training, saving their money, hoarding their equity, shepherding their credit.  Everyone else?  Well, it’s time for those magical fitness tools, diet and exercise.

There are two difficulties with this.  One, many people don’t know what they need to do, and two, almost everyone needs someone to help them, or they won’t do it correctly, no matter how badly they want to.  This dramatically restricts the pool of borrowers and makes it hard for Realtors and loan originators to make a living.  It sounds terrible.  But it isn’t.  Really, it isn’t.  There’s a fabulous hidden opportunity here.

The good news here is that this means the market is as big as you want it to be.  EVERYONE, or, okay, not absolutely everyone, but functionally everyone, will buy a home at some point.  Right now, true, most of them cannot qualify for a loan to do so.  The solution is simple.  Stop being a track timer, and start being a fitness coach.

By this, I mean that it’s time to stop just taking an application and pulling a credit, and deciding that there’s no deal.  Of COURSE there’s no deal.  That shouldn’t be surprising.  But if you want to make it in a market like this, you’re going to have to do more than issue a denial.

What we do is create a plan.  We train our clients and show them how to get to the point where they do qualify.  More than two-thirds of our clients are people we’ve been working with for more than 90 days.  Almost half of them are people that we’ve been working with for six months and more.  In May, one of our clients opened her file 228 days ago.  But the week before her, we closed a loan for a fellow who opened his file 447 days before the close.

We discovered, looking at our closings, that we had done just as much business in 2009 as we did in 2006, despite the complete market meltdown we saw over that four-year period.  But that happened because in a good market, like the one in 2006, we had no competitive advantage.  Our specialty is rehab, doing the hard work to move a client from unable to qualify into position to get the loan they want.  In a market where everyone can already qualify, in the hundred-yard-dash market, we have no advantages.  But in the 10k market?  We shine.  Rehab and training in this market is not a frivolity.  It’s a necessity.

Anyone can do this.  We happen to be really good at it, and we like it (which is why we’re good at it), but anyone can do it.  I spoke to a loan officer of my acquaintance a few days ago, and he was getting out of the business.  I asked him why.  Was his phone not ringing anymore?  No, he said, it was still ringing, but none of the inquiries was turning into a loan.  “Yet,” I said.  “What?” he said.  “Not a loan yet.  As in, you work with them and eventually they’ll qualify.”  At first he had no idea what I was talking about.  Then he thought that was way too much work.  So now he’s selling cars or something, instead of doing what he really likes and is good at, because he couldn’t change his thinking.

The borrowers are out there.  There are just as many as there ever were.  And we can have a greater impact on their lives than we could ever have had when all they had to do was roll out of bed and get a loan.  All it takes is a little bit of hard work and some patience, and this market can have more opportunities in it than any other.

Freddie Mac is reporting that mortgage rates have hit a low for the year.  This news is being met with commentary about how borrowers and buyers seem unaffected.  Housing starts are down, purchases fell off a cliff the last 4 weeks…if rates are so great, where are the borrowers?

Here are a couple of clues.

First, and perhaps most importantly, it is really, really hard to sell a house when you owe more on it than you can sell it for.  If you short sell, or send in the keys, your credit will not permit you to become a buyer for a good long while.  There are some million plus people that ordinarily would be prime candidates for purchase that are in this group.  There are tens of millions – some estimates have up to 25% of the homeowners in the US – that are unwilling to trash their credit and therefore cannot sell their homes.  Not all of those people (me, for instance) are interested in moving, but a lot of them are.  That takes some ten million more people out of the market.

But if it were only that, I think the low rates would be having a significant impact.  Unfortunately, there’s something worse happening.

This is the second problem.  Let me use an analogy here.  Getting a mortgage loan is like running.  Once upon a time, say, 2006, getting a loan was a lot like running a 100-yard dash.  Practically anyone can do this.  They might not be very fast, but it is likely that all but the very most obese would be able to run 100 yards without stopping.  Roll out of bed, go to the track, run 100 yards.  Roll out of bed, go to a loan officer, get a loan for a home.  Pretty much, that was that we had four years back.

Fast forward to 2010.  Lenders are terrified.  Foreclosures are everywhere.  10% of the workforce is officially unemployed, with another 10% or more practically so.  The only hiring going on is being done by the US Census.  Homes are underwater.  It’s not a good lending environment.

Add to this something we forget, and that is that low rates are good for BORROWERS, but they suck for LENDERS.  If you’re getting 10% on your money, a higher foreclosure rate won’t kill you.  When you get 4.5%, it does.  So let’s just sum up with “lenders are skittish”.  When they get skittish, they lock down on qualifying.

Roll out of bed.  Go to the track.  Run a 10k.

Um.

Most people cannot do this.  The average Joe and Jane are unable to run 6 miles without stopping.  There is a segment of the population that can, of course.  You know which ones those are, because they are actively running, and quite regularly.  But out of the next 100 people you meet, how many could run 6 consecutive miles?  10? 5?  Not many.  Many people, say another 35-40, could be able to run a 10k in 90 days or so.  They’d have to train, but no major lifestyle changes would be necessary.  The other 50?  They would have to significantly alter their diets, start getting some limited exercise, and train up.  It would take a while.  Six months.  For some, a year.  For some, it would never be possible, whether for health reasons or sheer unwillingness to change.

And that’s where we are with mortgage loans.  There is a segment of the population that can qualify just by showing up.  It’s a small segment now, and it’s the segment that is financially savvy, very careful, saves money, made a sizable down payment and/or bought their house several years ago and never cashed out of it.  That’s 10-15% of the population.  Then there’s another 35% or so that might be able to qualify if they worked at it.  They’d have to pay down some debt, fix up the house, sell a car.  Save some money (this one is the kicker).  Many of these people have credit issues that need fixing.  But a little guidance and they can get there.

Problem is, they don’t get the guidance.  It’s hard to train for a 10k.  It hurts.  You try to do it yourself, you’ll find its quite difficult to do.  If you have a coach, someone that can tell you that those shin splints you’re getting are not going to go away without rest, and “shake it off” is not going to work, then you’re far, far more likely to get where you need to be to run your 6 miles, get your loan.

[AN ASIDE: why did the $8000 tax credit make such a difference?  Because the hardest thing for people to do is to save money.  They cannot come up with a down payment.  Inasmuch as there are only two kinds of 100% loans anymore - USDA Rural (currently out of money with 6 months left to go in the fiscal year) and VA - the $8000 credit allowed a lot of people to get a "gift" from mom and dad (or, let's face it, from Visa), put the cash down on the house, then use Uncle Sam's largesse to pay it back.  PRESTO!  100% financing.  That's gone now, and the pool of buyers is shrinking fast.  It's like having a rabid dog chase you while you're running.  Amazing what you can do in that circumstance.  But it's a short-term thing, and it has negative consequences that show up later.]

Then there are the remainder, the 50% that really need to change radically.  Those people will almost NEVER get there without help.  They need radical credit surgery, a draconian budget, major lifestyle changes.  Without a coach that really cares, and will take the time to design a program that they can stick to, then help them stick to it, they will not be able to qualify in six months to a year.  They will not ever be able to qualify.  That’s HALF of the population.

You want to know where the borrowers are?  They’re stuck in their homes that they wish they could sell.  They’re unable to qualify for loans.

So woe is me, all of us in real estate are doomed.  Or are we?  I have outlined the problem.  There is a solution.  Want to hear it?  It’s really quite simple.

Unfortunately, I have to go do some mortgage work now.  But during Mexico/South Africa tomorrow, I’ll post the answer.