A Meeting of the Mindless

Not much gets done by committee. There are a thousand pull quotes I could insert to reinforce:

“A committee is a group of the unprepared, appointed by the unwilling to do the unnecessary,” “A committee is a group that keeps minutes and loses hours.,” Muddle is the extra, unknown personality in any committee.”

But, there is one committee wields considerable influence. The Federal Open Market Committee (FOMC) holds eight regularly scheduled meetings per year. At these meetings, the Committee reviews economic and financial conditions, and decides on economic policy. At their last meeting, this all-powerful brain trust dropped what amounted to an A-bomb when they intimated that they were going “ease” on the “easing” they previously proclaimed would last for the next couple years. That announcement was akin to fingernails on a chalkboard, making most of the mortgage broker ilk twist in obvious mental discomfort.

The Feds have kept the overnight interest rates at near zero for the better part of the last four years. The changes in the federal funds rate trigger a chain of events that affect other short-term interest rates, foreign exchange rates, long-term interest rates, the amount of money and credit, and, ultimately, a range of economic variables, including employment, output, and prices of goods and services. Most directly, they affect mortgage rates.



However, after an initial .5 -.75 increase in price on rates, mortgage rates on 30-year loans fell for the third consecutive week… Whew, that was close.

According to Freddie Mac’s weekly rate survey, for the week ending April 12 lenders on average were offering 30-year conventional FRMs at 3.88% with 0.7 points. A week earlier rates were 10 basis points higher. And a year ago rates were at at 4.91%.

Refinance transactions have dominated the mortgage market since 2008 accounting for 66% of all loans funded, which coincides with the Fed Funds Committee committed to dropping their shorts. So, while “There is no monument dedicated to the memory of a committee,” this group may just get one if mortgagors and brokers have a vote.

The Sky is Falling: Rates to Spike to 4%

The headline seems absurd (Rates “spike” to 4%), but that is the truth. The 10-Year Treasury Note Yield [T-No (^TNX)] and the corresponding mortgage rates have taken a dastardly beating over the last 10 days, but the net result is that you can still get a conventional, 30-year fixed, no-cost loan at 4%.

As a broker, it is difficult to escape the myopia. This amazing 4% loan would have been roughly .5% cheaper just 10 days ago. In other words, your $400,000 loan will now cost $2,000 more to close as the same rate. That is not chump change, but if you remember, there was a time when throngs of people were clamoring for 6% adjustable loans. That considered, it seems like small potatoes.

In the last 45 days, rates have deteriorated pretty significantly. The price on a conforming jumbo loan has billowed by 1.5% to price (not rate) since the first week of February. On a $600,000 loan, that is a $9,000 difference in cost for the same loan. More practically, a person could have gotten a 3.875% APR loan (no cost) at that time while the current market no-cost loan would be closer to 4.25%. The difference in payment is about $85 per month.

So while it feels like the sky is falling, it’s important to remember that it’s a sunny, Southern California sky.

Home Affordability Reaches An All-Time High

Home affordability moved higher last quarter, boosted by the lowest mortgage rates in history, a rise in median income, and low home prices throughout California and the country.  According to the National Association of Home Builders, the quarterly?Home Opportunity Index read 75.9 in 2011′s fourth quarter. In other words, more than 3 in 4 homes sold between October-December 2011 were affordable to households earning the national median income of $64,200.  When you look at the three factors that effect home affordability, this may be the best home buying opportunity we will have in our lifetime:

1. 1. Mortgage rates are at historic lows and the chances of them going any lower are slim.
   2. Housing prices are depressed to the level that investors are jumping into the purchase market adding support to current price levels.
   3. Household income levels remain strong.

In addition the rental market is showing lower vacancies and higher rents so the comparison of rent vs. buy is also being swayed in favor of buying.  For someone who has been sitting on the sidelines waiting to buy, things have definitely moved in the right direction.  This data shows that the housing market is ripe with great opportunities and a purchase now could very likely be the single best investment you make in your lifetime.

In addition to this great buying opportunity, there are purchase loans currently available that are helping many people buy a home and take advantage of the current low mortgage rates.  For buyers with minimal down payments, financing is available with as little as 3% down on purchases up to $430,000.  With only 3.5% down, loans are available on purchases up to $756,000.  And with 10% down jumbo loans are available on purchases up to $1,375,000.  These loan programs combined with record low mortgage rates and low housing prices make for incredible opportunities for people looking to purchase a home.  Looking forward 5-10 years, anyone who got into the housing market today will be very thankful they did.  Even Jim Cramer said today that housing affordability makes this the ideal time for homebuyers to get in the market.  For details on any of these financing programs Scott Springborn can be reached at (949) 280-3593.

Scott Springborn is a Mortgage Broker by trade. I can tell you from experience he is very good at finding a loan or a home that meets your individual needs. He resides in Newport Beach with his wife Hillary and three children. For recreation, Scott enjoys traveling with his family, surfing, snowboarding, bodysurfing, poker, and golf. Visit Scott at Back Bay Funding, or his personal mortgage site, SpringbornMortgage.com.

Scott Springborn
Back Bay Funding
19600 Fairchild Road, Suite 150
Irvine, CA 92612
Phone: 949.280.3593
Fax: 949.258.5870
Email: springborn@backbayfunding.com
DRE License #01709616   NMLS #328114
Read my daily mortgage blog:
http://springbornmortgage.com/

What do Jessicas Alba & Biel Have to Do With Mortgage Rates?

Got a Condo? Better Move Quickly

Today, I just got a “guideline update” from a lender.

$25 Billion “Robo-Signing” Settlement: What’s it Mean to You?

Last week, federal and state authorities (49 of 50 states) reached a settlement with five of the major banks (Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial) in what amounts to a “mea culpa” admission from the entities in exchange for immunity from further prosecution. “Robo-signing” of foreclosures occurred the bank level by some of largest banks. Instead of doing their due diligence, the banks had been green-lighting foreclosures without reviewing the appropriate paperwork.  Employees have admitted sending through between 8,000 and 10,000 foreclosure packets per month without even looking at them because of the immense volume.

There are several positive outcomes from this measure. Firstly, the deal includes some $17 Billion in principal relief for distressed homeowners. That sounds nice until you consider that there is nearly 40 times that amount in negative equity nationwide.

Secondly, the deal puts more accountability on the loan modification process.  Previously, the homeowner had been a the mercy of the lender with regard to outcome, turn times and progress of the modification; this reform calls for transparency in the loan modification process.

A third tenant of this deal is that lenders can’t practice “dual-tracking” which is a process by which banks simultaneously pursue foreclosure while in the modification evaluation process.

Another “good thing” about this is that it will likely free up lenders to foreclose on properties in cases in which foreclosure is unavoidable. Clearing the legal pathway is essential for the housing market to reach an equilibrium and return to a normal state.  The foreclosure inventory has been artificially down because of the the “foreclosure-gate,” the alleged mishandling of foreclosure paperwork.  This settlement will help free up the questions of about the legality of foreclosing due to the MERS fiasco and robo-signing.

So how do you get your hands on the approximate $12-Billion of the $17-Billion in relief slated for the state of California?  You need to call your servicer, and do it quickly.  Banks have been incentivized to make these concessions in the first 12 months of the deal’s signing.  No doubt, this is a tenant that the Obama administration pushed for in order to curry favor with the public on the upcoming election.

Your first stop to see if you qualify for any of those monies should be http://nationalmortgagesettlement.com/.  According to the website, there are three main areas of help:

1. Homeowners needing loan modifications now

, including first and second lien principal reduction.  The servicers are required to work off up to $17 billion in principal reduction and other forms of loan modification relief nationwide.State attorneys general anticipate the settlement’s requirement for principal reduction will show other lenders that principal reduction is one effective tool in combating foreclosure and that it will not lead to widespread defaults by borrowers who really can afford to pay.

2. Borrowers who are current, but underwater.  Borrowers will be able to refinance at today’s historically low interest rates.  Servicers will have to provide up to $3 billion in refinancing relief nationwide.
3. Borrowers who lost their homes to foreclosure with no requirement to prove financial harm and without having to release private claims against the servicers or the right to participate in the OCC review process.  $1.5 billion will be distributed nationwide to some 750,000 borrowers.

Whodunit? The Crime of Rising Rates

Mortgage rates and costs are headed up thanks to the federal government’s policy of passing the buck to fund a temporary payroll tax cut extension. Fannie Mae announced on December 30, 2011, that the Federal Housing Finance Agency will increase “g-fees” on single-family mortgage-backed securities charged by the government-sponsored enterprises by 10 basis points effective April 1, 2012.

I’m not sure if you read over that first sentence but this is in response to the new funding mechanism for the payroll tax cut extension passed by Congress.

I feel like one of the detectives in one of those crime shows staring at a white board trying to figure out how payroll taxes have anything to do with loan rates; so far, I don’t have any solid leads.

First, we need to solve the question, “what the heck are g-fees?”  They are the loan guarantee fees, or more simply, the funding costs to lenders when they hock their loans.

The less simple defintion of  ”g-fees”  is they are fees charged by mortgage-backed securities (MBS) providers, such as Freddie Mac and Fannie Mae, to lenders for bundling, servicing, selling and reporting MBS to investors. The main component of the guarantee fee is charged to protect against credit-related losses in the mortgage portfolio (think of it like MBS insurance), but small sub-fees are also deducted to cover internal expenses. Quantitatively,  it is small deduction, about an average is 15-25 basis points in relation to the stated coupon (interest) rate.  The fee allows the corporations selling the mortgage backed securities to make a profit, while benefiting both mortgage lenders and borrowers by making groups of mortgages more marketable and liquid. This helps bring investor capital into the business, allowing all participants to lower their risk exposure and enabling them to offer mortgages to borrowers of lower credit quality.  In layman’s terms, the banks free up their capital by selling their “conforming” loans to Fannie and Freddie.  That’s why it is so important that loans “conform” to the Fannie Mae guidelines.  If they don’t, that loan may not be able to be cleared from the lender’s books.

It’s hard to say exactly how this change will impact borrowing costs from lender to lender across the board, but because Fannie Mae financing is so prevalent in the mortgage market today, there’s no question it will raise costs for mortgage borrowers.

Here’s an excerpt from a bulletin from one of my lenders on how it will affect the rates:

As directed by the Federal Housing Finance Agency (FHFA), pursuant to the federal Temporary Payroll Tax Cut Continuation Act of 2011 (Act), Fannie Mae must increase by 10 basis points the guaranty fee that we will charge for all single-family mortgage loans delivered on or after April 1, 2012. To comply with this directive, we will increase by 10 basis points the guaranty fee applicable to single-family loans in MBS pools that have issue dates on or after April 1, 2012. Fannie Mae will make similar adjustments to the base pricing for single-family loans committed through its single-family whole loan programs and other negotiated transactions.

Here’s anothe excerpt from another lender:

As a result of the Temporary Payroll Tax Cut Continuation Act of 2011, effective January 23rd, 2012, (we) will implement a 50 basis point decrease to our base pricing to accommodate the increased loan guarantee fee (G-Fee) for all Conforming Conventional (including High Balance) Loans, as described below:

I don’t know if you followed the math there or not, but Fannie Mae is increasing 10 basis points and the lenders are increasing 50 basis points.  Not only is the buck getting passed again, it turns into five bucks by the time it get to you, the consumer.

What does it mean?  If you have a loan already locked and in process, this likely won’t have an impact. New rate locks won’t be impacted either, as long as the loan can be delivered to Fannie Mae before the April 1^st deadline – which means it likely needs to fund within the next 30 days (*hint, *hint:  Act now if you haven’t already).  If you are are affected by the fees, according to the bulletins, you will likely pay .5 percent more for your loan.  On a $400,000 loan, that’s a difference of $2,000, while Mortgage Bankers Association CEO David Stevens said the increase could mean an extra $4,000 in fees on a $200,000 mortgage.

They call it “temporary,” but the fee isn’t likely to go away soon as it is slated to remain in effect through Oct. 1, 2021; that’s about as temporary as a gun shot wound and almost as painful. Who is the shooter? Well, the GSR is all over President Barack Obama’s hands; he signed the temporary two-month payroll tax cut last week after House and Senate leaders reached a last-minute deal prior to the holiday break.

The Congressional Budget Office estimated the g-fees would offset about $35.7 billion in the costs of the tax cut.  So again, it’s the big business that has negatively impacted the lending and housing market. So there’s your answer on “whodunit?”  Unfortunately, they’re going to get away with this crime.

Steve Bush operates OC Loan Broker as a sole-proprietor mortgage broker and specializes in low-cost, low-rate refinance loans.  You can reach him at  Steve@OCLoanBroker.com or (562) 726-2874.

Want a 4% Fixed? Be Prepared to Provide Blood

There’s something to the unattributed quote that “The secret of success is to be like a duck – smooth and unruffled on top, but paddling furiously underneath.”  That’s kind of how the loan process is.  As a broker, I am fighting so many battles with lenders behind the scenes (feels like under water) that my clients never know about.  For some of these battles, we enlist our borrowers’ help.

Lenders are a capricious entity. They ask for some of the craziest things to fund loans. Lenders assume all you borrowers are lying, cheating slackers. As a loan broker, my job is to prove that you are, in fact, good upstanding, hard-working, bill-paying citizens. From the broker side, the worst part is that lenders are not consistent, so when I ask for your documents, about 30 percent is guesswork.

I am lucky enough to have two borrowers who both gave me two loans that were nearly identical scenarios. In both cases, the same person underwrote both files and did so completely differently. I had two totally different subsets of conditions to satisfy with each doppelganger loan. If I don’t need a LOE (letter of explanation) for decling income on one file, why do I need it on another?  I’ve refinanced the same person with the exact same loan details with the same bank four months apart, and the conditions lists looked as different as Ric Ocasek and Paulina Porizkova.

You may be tempted to say the words “why” to your broker. Don’t. Truly, asking questions of a lender or underwriter is a war waged with no winners. Trying to apply logic to loans is like yelling at your navigation system. It may be cathartic, you’re not changing its mindlessness. It can be maddening, but also like a duck, in the loan process you need to let these frustrating minutia roll off your back. I often try to redirect my customer’s “whys” into “hows.” Let us not ask why they need a recorded reconveyance on a loan that’s been paid off for 18 months. Rather, let’s figure out how we get it.

With any new customer, I issue a disclaimer that goes something like the following. “I am going to ask you for a lot of stuff, and some of it will seem completely inane, and after that, I’m going to ask you for more stuff. Please just get it to me.” I’ve been asked for some copies of deposits for $50 checks because they want all “large deposits” sourced.  I had one lady who received a $200 check from her mom for her birthday. She had to refund the money to her mom and show me a “paper trail” (copy of the canceled refunding check) because that account was deemed poluted with “gift funds.”   I’ve seen a bank require someone to pay their April tax bill in January. Why would anybody pre-pay their taxes if they didn’t have to?  Well, he had to if he wanted that loan.  You need two years history of being a landlord to claim rental income. Why, I don’t know. Apparently “landlording” is an acquired skill. Many companies will not verify employment verbally. I have one lender who will not take a written verification, or a verification from an automated “The Work Number” nation-wide verification system. However, if the funder can transfer their own call in the phone system to someone’s voice mail, that will suffice.  If that person picks up the phone, it won’t. Baffling, huh? And yes, I need all pages of your statement, even the blank ones. The underwriter assumes you laundering your money to a Colombian drug cartel if you only show “page 1 of 2.”

I have probably heard each of the following statements a hundred times. “I wasn’t asked for that last time” and “I didn’t have do that when I refinanced in 2006.” Lending now is a different animal, and it’s a paper-gobbling, herbivorous beast. In 2006, they were handing out loans to anybody who could fog a mirror (Thank you Zach of Trojan Home Loans for that); Today’s lending landscape is an entirely different slippery slope.

And the whole point to my opening salvo is that we brokers and loan officers are working our tails off behind the scenes. The conditions we ask for your help on are just part of the underwriters’ whims. So you may think the real estate loan broker ilk is incompetent and crazy. But even those of us who are midful may ask you for mindless stuff. I really want your business, but I need your patience and understanding (and that paperwork I asked for 3 days ago).

I’d love to hear some of the craziest things you’ve been asked for on your loans? Leave a comment below if you’be asked to provide a urine sample (or the like) just to get a 4% fixed.

Steve Bush
Steve@OCLoanBroker.com
(562) 726-2874 -

More Housing Strength;Pending Home Sales Surged In October

Looking for new windows in your house, or windows in a new house? Scott Springborn tells us why you may miss your window altogether if you don’t jump in the housing market now.

If you’re waiting for home prices to reach its bottom, you may have missed your window.

After 3 consecutive months of easing, the Pending Home Sales Index jumped 10 percent in October, lending credence to the belief that housing is in recovery.

The Pending Home Sales Index is a monthly publication from the National Association of REALTORS®. It measures the number of homes under contract to sell nationwide. October’s reading is the highest for all of 2011, and the second-highest dating back to April 2010.

April 2010 was the last month of the last year’s federal home buyer tax credit.

For buyers and sellers in Laguna Beach and nationwide, the Pending Home Sales Index is a housing metric worth watching. Different from the Existing Home Sales and New Home Sales reports which report on “the past”, the Pending Home Sales Index is a forward-looking housing market indicator.

According to the National Association of REALTORS®, 80% of homes under contract close within 2 months.

The majority of the rest close within Months 3 and 4.

The spike in October’s Pending Home Sales Index, therefore, foretells a strong Existing Home Sales report for November and December. Not that we should be surprised! Home builders have been telling us for weeks that the market is strengthening, and that home supplies are at multi-year lows.

The only wild-card is the market’s out-sized contract failure rate. One in three pending home sales failed to close in October — nearly double the rate of the month prior and 4 times the rate of October 2010. Should this high failure rate continue, the Pending Home Sales Index’s role as a forward-looking indicator would be muted.

Overall, though, new buyer demand for housing accompanied a smaller home supply will result in higher home prices through 2012. And, with mortgage rates expected to rise, monthly carrying costs will be higher, too.

Looking at the data, the best time to buy a home may be right now.-*

Scott Springborn is a Mortgage Broker by trade. I can tell you from experience he is very good at finding a loan or a home that meets your individual needs. He resides in Newport Beach with his wife Hillary and three children. For recreation, Scott enjoys traveling with his family, surfing, snowboarding, bodysurfing, poker, and golf. Visit Scott at SpringbornMortgage.com.

Restore the Public Trust: Fire Congress!