Friday, July 25, 2008

New site for Evan's blog

I have moved my blog to a new address. Please visit me at the new link-
http://webhost.mortgagetrustinc.com/evanswanson/

Thursday, July 24, 2008

Rate Update for July 24, 2008


Mortgage rates have improved modestly today thanks to a weaker stock market and technical trading patterns.

The Dow Jones Industrial Average is currently off by over 100 points in response to weak earnings results out of Ford Motor Co. & slower than expected home sales. The weakness in stock is creating additional demand for bonds.

We can also credit the move lower to technical trading patterns. As the chart shows below, mortgage-backed bonds are “bouncing” higher off the recent low levels that they reached. This same pattern unfolded in the middle of June.

In real estate related news, I have posted a new article to my blog about key points in the housing bill expected to get signed into law in the next week. Here is a link to read it for yourself.

Current Outlook: floating

Wednesday, July 23, 2008

ACCESS loan for 0% down financing.

0% down financing is getting harder and harder to find these days. The most common approach of creating 0% down financing is through the FHA loophole which allows for a seller to contribute the 3% required down payment via a down payment assistance program such as Nehemiah and Ameridream. However, recent reports suggest that the Federal Government will eliminate this flexibility with the passage of the latest housing bill.

Once that is gone what will be next? I may have found the answer with the ACCESS program we offer in conjunction with National Homebuyer Fund. This program will provide a 2nd mortgage for a homebuyer who meets the qualifications up to 100% of the purchase price (the website states 105% but we can't get mortgage insurance beyond 100%). Here are a few key points of the program:

*The ACCESS 2nd mortgage cannot exceed 14.99% of the purchase price & cannot exceed 100% combined loan to value. The most common approach is to structure the 2nd mortgage as a 5% 2nd mortgage subordinated behind a 95% primary mortgage.

*The ACCESS 2nd mortgage is a 20 yr. mortgage with a fixed interest rate which will be 2.00% higher than the rate on the primary mortgage. It has principal and interest payments.

*The ACCESS 2nd mortgage can be used in combination with a variety of 1st mortgage products including 30 year fixed rates with interest-only payments.

*The ACCESS 2nd mortgage carries no prepayment penalty.

*In order to qualify for this program the applicant must have at least a 680 credit score & cannot have income which exceeds 140% of the median household income (In the Portland area the limit would be $86,800).

Give me a call today if you'd like to see is this program will work for you!

Rate Update for July 23, 2008

Mortgages backed-bond prices remain at the lowest level all year which means mortgage rates are also at the highest level. Looking ahead there is a mixed bag of news which could influence the direction of rates.


Working in favor of mortgage rates this morning are a couple items:
*Oil prices are now trading 16% lower from there highs back on July 11th. Lower energy prices should ease inflationary concerns.
*Because mortgage-backed bond prices are trading at multi-month lows there is considerable technical trading support which should help keep prices from dropping any lower.

However, there continue to be factors working against the prospect of lower mortgage rates:
*The stock market continues to rally from its low. Today the Dow Jones Industrial Average is up over 70 points. .
*Furthermore, the treasury is set to auction $31 billion in 2-year Notes today. The added supply of fixed income securities in the marketplace could push rates higher.

In real estate related news, I have posted a new article to my blog about key points in the housing bill expected to get signed into law in the next week. Here is a link to read it for yourself.

Current Outlook: neutral

Summary of the housing bill expected to be signed into law.....

According to reports President Bush has dropped his opposition to the housing bill which is expected to be voted on today in the House of Reprsentatives. Now that the White House backs the legislation it is expected that this bill will come into law later this week or early next week.

After reviewing mutliple articles about the new law in the WSJ, NY Times, & Bloomberg I have recorded the video below which summarizes a few key points.

Tuesday, July 22, 2008

Your Guide to Understanding Mortgage Insurance

When a home buyer takes out a new mortgage and has less than 20% down often times they will be required to provide mortgage insurance to the lender (exceptions exist when we're able to provide "combination loans" which are fairly uncommon these days).

Mortgage Insurance (also known as "mi" or "pmi') is insurance which covers the lender against a portion of their losses should the loan they make result in payment delinquency or foreclosure.

There are various forms of mortgage insurance which home buyers should be aware of. Here is a brief explanation of each:

Borrower-paid mortgage insurance (BPMI)- This is the most common form of mortgage insurance. The insurance premiums for this form are paid for by the borrower on a monthly basis and varies depending on the loan amount, loan-to-value, and credit score of the borrower. With this form of mortgage insurance the borrower can request that the mortgage insurance payment be removed from their monthly payment once they have established a 24-month clean payment record and can demonstrate that they have 20% equity in the property.

Example of monthly BPMI payment for $100,000 loan on 95% financing*: $65

Lender-paid mortgage insurance (LPMI or "No mi")- With this form of mortgage insurance the borrower accepts a modestly higher interest rate in exchange for not having to make a monthly mortgage insurance payment. Often times these plans create the lowest possible monthly payment and can be most tax efficient. However, as of late, this form of mortgage insurance is getting more and more difficult to qualify for. The other limitation with LPMI is that the increase a borrower accepts to their interest rate can never be removed even when they have achieved 20% equity in their home.

Example of additional monthly interest expense associated with LPMI for $100,000 loan on 95% financing: $33

One-time or "upfront" mortgage insurance- With this form of mortgage insurance the borrower makes a one-time mortgage insurance payment at the outset of taking the loan and then does not have to make any additional mortgage insurance payments for the duration of the loan. This option works best for a home buyer who is seeking to create the lowest possible monthly payment and has plenty of equity for down payment and settlement charges.

Example of upfront mortgage insurance for a $100,000 loan on 95% financing: $3,050

Split mortgage insurance- Split mortgage insurance combines aspects of the BPMI & the one-time mortgage insurance forms. With a split mortgage insurance structure the borrower pays an upfront or "one-time" mortgage insurance payment at closing & accepts a monthly BPMI payment as well. The most common form of this is with the FHA program. With a FHA loan the buyer finances an upfront mortgage insurance premium into the loan amount and makes a monthly mortgage insurance payment. These two amounts are less than if the borrower did the BPMI or one-time mortgage insurance exclusively.

Example of most common FHA split mortgage insurance form on a $100,000 loan on 95% financing: $1,425 upfront + $39.58 per month.

More stories on Fannie Mae & Freddie Mac

Treasury Secratary Henry Paulson has been lobbying Congress & the American Public to support his plan to instill confidence back into Fannie & Freddie. Both the New York Times and Wall Street Journal carried stories this morning about his efforts.

Here is a link the the NY Times article.

Here is a link to the WSJ article.

Rate Update for July 22, 2008

Mortgages backed-bond prices are now at the lowest level we’ve seen all year which means mortgage rates are at the highest level.


Earlier in the morning it looked as if mortgage rates may benefit from a sell-off in the stock market following weaker than expected earnings outlooks from American Express, Apple, & Wachovia. In fact, Wachovia announced yesterday that they would discontinue their wholesale mortgage lending operations effective in August of this year.

However, stocks have reversed higher (pressuring bonds lower) following comments made by Philadelphia Fed President Charlie Plosser who said “inflation is too high” and that the Fed must “back up their words with action” by hiking short-term rates. The fact that the equity markets have risen on these comments is a clear signal that Wall Street is more concerned about inflation than economic growth.

We favor a floating stance at this point because we believe technical trading patterns will help mortgage rates move lower in the coming days. However, at some point inflation concerns may very well pressure rates higher in the long-term.

On a side note, I continue to update my blog with articles about the ongoing Fannie Mae and Freddie Mac story line. If you’re curious about these two companies and how important they are to our livelihood I would encourage you to read my first posting on the topic at this link.

Current Outlook: cautiously floating

Monday, July 21, 2008

NY Times article about Fannie and Freddie

The NYT did a great article about foreign participation of Fannie Mae and Freddie Mac mortgage-backed bonds on July 21st.

The article quantifies the involvement of foreign investors in buying mortgage-backed bonds (which helps keep bond yields/ interest rates low). The article suggests that in the past few years Fannie Mae and Freddie Mac officials were "selling" mortgage-backed bonds as investments to foreigners by describing them as securities which were implicitly backed by the US Government even though the US has no legal obligation to bail Fannie Mae and Freddie Mac out. However, based on Henry Paulson's recent comments it looks likes this may actually be the case.

Here is a link to read the article for yourself.

Rate Update for July 21, 2008


Mortgages rates have now reached multi-month highs.

Since Tuesday, July 15th the Dow Jones Industrial Average has rallied by over 6% as confidence in the financial sector has begun to return to investors’ psyche.

Watch today’s you tube video for a refresher on how the stock market impacts mortgage rates.

Current Outlook: cautiously floating

Friday, July 18, 2008

Rate Update for July 18, 2008

Mortgages rates are slightly higher for a 3rd straight day.


Since July 15th the stock market has rallied by over 4%. This rally has pressured mortgage-backed bond prices lower by 188 basis points. Below is a chart showing mortgage backed bond prices over the past 6 months.

Mortgage-backed bonds are currently trading at recent support levels which mean we may see some stabilization to prices and possibly even a reversal. We are shifting our outlook to a cautiously floating stance in the hopes that this layer of technical support will help rates move back down.

Current Outlook: floating

Thursday, July 17, 2008

Rate Update for July 17, 2008

Mortgages rates are slightly higher again this morning following yesterday’s rally in the stock market.

In case you missed it the equity markets rallied by the largest margin in over 3 months on Wednesday. Mortgage-backed bonds tend to trade inversely with the stock market. When the stock market rallies it pushes bonds prices lower, which in turn causes mortgage rates to rise.

The stock market started the day higher today but has since backed off. In the absence of significant economic data we will be watching the stock market for direction the next 2 days.

Current Outlook: locking

Wednesday, July 16, 2008

Rate Update for July 16, 2008

Mortgages rates are slightly higher this morning following worse than expected inflation data.

The Labor Department reported that the Consumer Price Index (CPI) soared by 5% on a year-over-year basis. This increase to consumer prices is the largest since May of 1991.

If you’ll remember back to yesterday’s rate update the PPI showed an increase of over 9% on a year-over-year basis which was the largest increase since 1981!
This double whammy of worse than expected inflation does not bode well for mortgage rates. For a detailed explanation as to why inflation causes mortgage rates to rise please view this link.

We are shifting our outlook to a locking stance in the near-term.

I also wanted to plug the article I wrote on my blog yesterday evening about Fannie Mae & Freddie Mac. Many of us have heard of these companies and may have a vague understanding of their role in the mortgage industry. This article is designed to help you gain a very clear understanding of their role & importance. To view click this link.

Current Outlook: locking

Tuesday, July 15, 2008

Fannie Mae & Freddie Mac in the news.....

Unless you live under a rock you are probably very familiar with the turmoil ongoing in the financial sector of our economy. This turmoil brought Indymac Bank to its knees last Friday when the Federal Government seized it's assets for failing to maintain adequate capitalization. This bank failure is the 2nd largest bank failure in US history. Their failure has brought increased concern over the financial well-being of mortgage industry titans FNMA (Fannie Mae) & FHLMC (Freddie Mac).

Most people have heard of Fannie Mae and Freddie Mac but may not understand much about them. The media has recently done a great job of generating fear and panic surrounding these two companies but has yet to explain the crucial roles that these two entities play in our economy. It is my objective with this blog posting to clear some of this up and answer the following questions:


  • Who are Fannie Mae & Freddie Mac?
  • What exactly do they do?
  • Why are they so important?
  • Why are they currently in the news?
  • And what would be the implication of their financial failure?
  • What's next?
Who are Fannie Mae & Freddie Mac? and What exactly do they do?......A Brief History
To first understand who Fannie & Freddie are let's take a look at why they exist. Prior to these two entities (before 1938) the mortgage industry was fairly simple. A local or regional bank would collect money from individuals and businesses in the form of deposits and lend that money back out in the form of mortgages (or other types of loans).

This system worked pretty well for many years except for a couple limitations.

One problem with this system was that a bank was limited to lending out only a portion of the deposits they took in. Therefore, if a bank had $10 million in deposits they would have the ability to lend out only portion of those assets (say $9 million or 90% for example) depending on the prevailing reserve requirements. A reserve requirement is the minimum amount of deposits a bank must hold relative to the loans outstanding.

A second problem was that banks were typically limited to lending in the local area in which they were located.

Then came the national banks. These larger institutions had branch presence across the country. This gave them the ability to collect $10 million of deposits in New York City and redistribute these funds in the form of loans in another state (Illinois for example).

This system also worked fairly well for a number of years except during times of economic contraction when bank runs would occur. A bank run is when a large number of individuals withdraw their deposits from a bank for fear that the bank is going to fail.

This happened frequently following the Great Depression and stock market crash of 1929. The result was that when the economy needed monetary infusions to help boost growth the opposite would occur because banks would suffer huge declines in their reserves.

To rectify this problem, Franklin Delano Roosevelt founded the Federal National Mortgage Association (Fannie Mae) in 1938 as a government agency. This agency was to provide liquidity in the mortgage market by buying mortgages from banks which they then chopped up and securitized into mortgage-backed bonds (avid 'rate update' followers should know what these are) that were sold to investors.

From a banks perspective, they were now able to lend a borrower an amount of money for a mortgage, sell the mortgage to Fannie Mae (and book a small profit), then lend that same amount of money again, and again, and again. Conceivably, as long as investors were willing to buy the bond backed by the original mortgage there was an endless supply of liquidity available for mortgage lenders. With this financial invention "securitization" was born and the period of credit expansion in the US was underway.

Add Freddie Mac
In 1968 the Federal Government decided that they no longer wanted Fannie Mae on their Federal balance sheet so they privatised the company. So that Fannie Mae would not act as a monopoly they also chartered the Federal National Mortgage Association (Freddie Mac) to compete with them.

To this day both companies are in existence as publicly traded entities and continue to provide liquidity to the mortgage market through the same purchase & securitization process described above.

Why are they so important?
Virtually every bank and lender out there is running at or near the minimum reserve requirement ratio which is currently set at 3% (simply put). Therefore, if a bank has $100 billion in loans outstanding, they have to have at least $3 billion in capital as backing (the reason Indymac failed last Friday was because they fell below this 3% level).

What Fannie Mae & Freddie Mac allow banks to do is to continue to lend even if they are getting close to their reserve requirements because as soon as they lend the money on a mortgage (increasing their loans outstanding and decreasing their capital), they get the cash back from the sale of the mortgage (decreasing their loans outstanding and increasing their capital).

Why are they in the news?
Fannie Mae & Freddie Mac are currently in the news because they are experiencing financial difficulty.

The current problems at Fannie Mae & Freddie Mac are twofold.

First, their loan portfolios have gotten very large which has raised questions about their solvency. In fact, today, Fannie Mae boasts a loan portfolio of $5.3 trillion. However, they only have $84 billion in capital which means their reserves are only about 1.58% of their outstanding loans. If they were a bank then the Federal Government would have already shut them down.

Second, they are losing A LOT of money which is putting further pressure on their capitalization ratio. These companies lose money when mortgages perform poorly because they guarantee the principal and interest on the mortgage-backed securities that they issue even if the borrower defaults. Therefore, during periods of rising defaults, delinquencies, and foreclosures-as is currently the case- these companies incur huge losses. In fact, according to their last two quarterly reports, they've lost over $11 billion in operating income over the last 6 months. These large losses coupled with their already low capitalization rate has investors concerned over their long-term viability.

What would the failure of Fannie & Freddie mean to the mortgage market?
The bottom line is that such a failure would be devastating to the mortgage market. The void that the loss of these two institutions would create in terms of providing liquidity in the mortgage market would be irreplaceable by the private sector.

In the event that these two corporations failed at best we could count on mortgage offerings that mirror the "non-conforming" or "jumbo" mortgage market today. These are loans that are portfolioed or securitized by the private sector and typically have much more stringent qualifying guidelines & (say good-bye to low down payment and investor loans) higher interest rates (currently non-conforming fixed rates carry rates in the 7-8.5% range.

At worst, mortgage lending would seize to exist except for seller contracts and private "hard money" loans.

What next?
The fate of Fannie Mae and Freddie Mac will likely be impacted on the health of the housing market & the Federal Government's willingness to step in if need be.

Should we begin to see some stabilization in housing it would create incentive for borrowers to make their payments which would prevent foreclosures that cost these corporations billions. This could eventually allow Fannie Mae & Freddie Mac to return to profitability and hopefully rebuild their battered balance sheets.

However, should these two titans fail we believe the Federal Government will step in and nationalize these two entities to avoid an all out halt of mortgage lending in our economy. Of course, the longer-term problem with that is how the American taxpayer will pay for it.

Rate Update for July 15, 2008

There are all sorts of things to talk about this morning.

First off, the stock market is trading lower this morning. The Dow Jones Industrial average is now down below 11,000. Fears over the financial sector continue to hurt stocks as confidence in the US Treasury’s plan to aid Fannie Mae and Freddie Mac is waning. Bad news for stocks is typically good news for mortgage rates. For an in depth look at the relationship between stocks and mortgage rates click here.

Despite the weakness in stocks mortgage rates may not benefit from the current financial environment. Inflation is showing its ugly head once again in today’s Producer Price Index Report (PPI). The PPI reports on inflation at the wholesale and manufacturing level of our economy. This morning’s report indicated that prices year-over-year increased by a whopping 9.2%, the most since June of 1981!

Furthermore, in testimony on Capitol Hill, Fed Chairman Ben Bernanke said the US Economy faces, “numerous difficulties” and gave an uncertain outlook on inflation.
All in all, the news isn’t pretty. We are going to recommend that our clients with near-term closing lock in if they haven’t already. Longer-term closing may be able to be patient and see lower rates in the next few weeks.

Current Outlook: mixed

Monday, July 14, 2008

New rules for the Mortgage Industry voted on today!

The Fed voted to add more regulations to the mortgage lending industry today. For an overview see this article on wsj.com.

Also, here is a link to the Federal Reserve website to read their announcement.

Rate Update for July 14, 2008




The Federal Government had a busy weekend dealing with ailing financial firms. Fannie Mae & Freddie Mac saw there stock prices fall by over 50% last week as investors expressed concern over the two firms’ large mortgage portfolio. The Treasury pledged to back to two companies should investor confidence erode further. This is good news for mortgage rates in the long-term.


On Friday Federal Regulators seized the troubled financial thrift Indymac Bank in what is the 2nd largest bank failure in US history. The news renews fears over the financial system and may help mortgage rates in the near terms because of investor appetite for safety.

Watch today’s you tube video to learn what we’ll be watching for this week.

Current Outlook: neutral

Thursday, July 10, 2008

Rate Update for July 10, 2008


Mortgage rates have come down by .25%-.375% over the past week. In the absence of any scheduled economic data our attention is focused on the stock market and technical trading patterns.


Watch today’s you tube video to get an understanding of how the technical trading patterns have shifted our near-term outlook for mortgage rates.


Current Outlook: locking bias

Wednesday, July 9, 2008

Rate Update for July 9, 2008

Mortgage-backed bonds did rally yesterday which has helped mortgage rates trend lower. In the absence of any significant economic data we will be watching the stock market & technical trading patterns.

The stock market is currently trading modestly lower. Traders are trying to weigh the positive earnings news out of Aluminum maker Alcoa yesterday against the rising tensions in the Middle East.

If you haven’t heard Iran tested nine long-range missiles yesterday raising tensions between them and Israel. When geo-political tension exists it commonly causes mortgage rates to move lower. However, because this involves an oil producing nation if this conflict escalates mortgage rates could suffer due to higher oil prices.

From a technical standpoint mortgage rates rallied yesterday and are now facing overhead resistance. We favor locking in yesterday’s gains.

Current Outlook: locking

Tuesday, July 8, 2008

Rate Update for July 8, 2008

In a surprising reversal stocks sank yesterday after starting the day in positive territory. The sell-off in the equity markets helped mortgage-backed bonds rally which is why mortgages rates are slightly better this morning.

Looking ahead there are a number of speeches today from key officials including Ben Bernanke and Henry Paulson. Their comments always have the ability to impact the markets so we’ll be listening for what they have to say.

Earnings season for stocks kicks off today. Publicly traded corporations report their earnings every 3 months following the completion of a quarter. The reason this is important for mortgage rates is because of the inverse relationship between the stock market and bond market. For more information about this dynamic visit this link.

The bottom line is if the stock market rallies it will likely hurt mortgage rates and vice versa.

Current Outlook: floating bias

Monday, July 7, 2008

2nd mortgage options

What is a 2nd mortgage/ home equity loan?

A 2nd mortgage is a loan that is originated and subordinated behind a first mortgage. 2nd mortgages are also referred to as home equity loans, junior liens, or combination loans. These loans can take on various forms. The two most popular 2nd mortgages are the Home Equity Line of Credit (HELOC) and the Fixed Rate Home Equity Loan.

HELOC’s
A HELOC is a line of credit much like a credit card that is secured against the equity in a home. These are most often originated after a person has owned a home but can also be originated as a part of a purchase transaction.

HELOC’s have extremely flexible terms and is an excellent financial tool for homeowner’s with a large equity position in their home. HELOC’s typically have a 10-year “draw” term. During this period a user may borrower up to the maximum amount of the line of credit and pay it back as many times as they wish. Due to the flexible nature of the draws HELOC’s have variable interest rates that are based on the prime index plus a fixed margin. Margins on HELOC’s can vary from -0%-3.00%. The margin is determined by the borrower’s credit and equity available in the home. During the draw period borrowers make a minimum of interest-only payments based on the average balance during a given billing period (much like a credit card). The borrower may make additional payments at any time which will go towards reducing the balance owed against the line of credit. In the event that a borrower does not use the HELOC they will not pay any interest. Some HELOC’s do have an annual service fee charged for the maintenance of the account.

Fixed Rate Home Equity Loan
The most common fixed rate home equity loan is a 30/15 balloon program. With this loan a borrower will take out a sum of money and make payments based on a 30-year amortization at a fixed rate. However, at the end of 15 years if the borrower still had this loan they would be forced to pay-off or refinance the remaining balance. Typically these loans do not carry any penalty to prepay them early.


When would a 2nd mortgage make sense?
We originate 2nd mortgages in many different cases. 2nd mortgages are used as combination loans in purchase transactions in order to allow the client to avoid paying for costly private mortgage insurance. 2nd mortgages are also used when a client needs to borrow a small sum of money for a short period of time to satisfy an unbudgeted obligation. Since 2nd mortgages are relatively inexpensive to originate often times they can be more cost effective than refinancing a larger primary mortgage.

Rate Update July 7, 2008

Mortgage rates appear to be trending higher as economic uncertainty prevails over the financial markets. Friday’s jobs report indicated that the labor market remains very weak. June marked the 6th consecutive month that the US economy lost jobs.
However, higher commodity prices continue to raise concerns over inflationary pressures in our economy.

The Fed is in a difficult position because they are responsible for maintaining price stability (low inflation) & sustainable economic growth. Over the next two days three Fed officials are scheduled to speak, including Ben Bernanke tomorrow. The financial markets will be listening to their outlooks as to when the Fed may act to lower or raise short-term rates in the future. We believe mortgage rates would benefit from an indication that they will likely move to raise short-term rates because of the implications it would have on the US Dollar.

For now, we are going to recommend that our clients lock.

Current Outlook: locking

Thursday, July 3, 2008

Rate Update July 3, 2008

This morning’s jobs report did show continued weakness in the jobs market. The report indicated that the US Economy lost 62,000 jobs last month. This marks the 6th straight month of contraction in the jobs market. As I explained in yesterday’s ‘rate update’, a weak jobs report is likely to help mortgage rates. However, the bond market has shown a muted reaction thus far. Why?

Working against mortgage rates are two other stories:

First, oil prices continue to move higher. Oil futures rose to almost $146 a barrel earlier today which is also raising inflationary concerns.

In addition, the European Central Bank (ECB) announced this morning that they were raising short-term interest rates in order to combat inflation pressures in the EU. This announcement is likely to put pressure on the US dollar in the future which could lead to additional inflation pressure.

Current Outlook: neutral

Wednesday, July 2, 2008

Rate Update July 2, 2008


Mortgage Rates rose modestly yesterday afternoon after the stock market rallied in the afternoon.

Attention is now focused on tomorrow’s monthly jobs report. I have posted a new article on my blog explaining the importance of the monthly jobs report which you can view at this link. The bottom line is that the monthly jobs report is an indicator of the economies health. When this report shows fewer jobs created than expected mortgage rates tend to go down and vice versa.

Watch today’s you tube video for our recommendation and why.

Current Outlook: floating into tomorrow's jobs report

Importance of the Employment Report on Mortgage Rates

We often stress the importance of the monthly "jobs report" in trying to forecast the direction of mortgage rates. The objective of this post is to provide an explanation of why this report is so important.

Let's first have a look at what information can be found in the monthly "jobs report". Here is a summary:

Employment Report
In the US, the employment report, also known as the labor report, is regarded as the most important among all economic indicators. The report provides the first comprehensive look at the economy, covering nine economic categories. Here are the three main components of the report:

1. Payroll Employment: Measures the change in number of workers in a given month and measures the number of jobs in more than 500 industries (ex-¬farming) in all states and 255 metropolitan areas. The employment estimates are based on a survey of larger businesses and counts the number of paid employees working part-time or full-time in the nation's business and government establishments. This release is the most closely watched indicator because of its timeliness, accuracy and its comprehensiveness. It is important to compare this figure to a monthly moving average (6 or 9 months) to capture a true perspective of the trend in labor market strength. Equally important are the frequent revisions for the prior months, which are often significant.

2. Unemployment Rate: The percentage of the civilian labor force actively looking for employment but unable to find jobs. Although it is a highly proclaimed figure (due to simplicity of the number and its political implications), the unemployment rate gets relatively less importance in the markets because it is known to be a lagging indicator -- it usually falls behind economic turns.

3. Average Hourly Earnings Growth: The growth rate between one month’s average hourly rate and another’s sheds light on wage growth and, hence, assesses the potential of wage-push inflation. The year-on-year rate is also important in capturing the longer-term trend.

And why is it important?
The employment data give the most comprehensive report on how many people are looking for jobs, how many have them, what they're getting paid and how many hours they are working. These numbers are the best way to gauge the current state and future direction of the economy. They also provide insight on wage trends and wage inflation. If wage inflation threatens, usually interest rates will rise, and bond and stock prices will fall. The Employment Report is scheduled for release at 8:30 (ET) on the first Friday of each month by the Bureau of Labor Statistics.

Tuesday, July 1, 2008

Rate Update July 1, 2008

Over the past two weeks the Dow Jones Industrial Average has lost approximately $316 Billion (yes with a ‘B’) in market capitalization. This weakness in the stock market has caused 30 year fixed rates to fall by .375%. If you have not yet read this blog posting on how the stock market impacts mortgage rates it would be timely now.

From a technical standpoint mortgage-backed bonds continue to take direction from stocks. However, I wanted to point out the graph below. The first circle at the bottom left shows the lows that mortgage backed bond prices hit at the beginning of March (during this time 30 yr rates hit 6.375-6.50%). From that low bond prices rallied over the next few days and rates dropped by .50%. Two weeks ago we also hit this low in bond prices (30-yr rates also hit 6.375%-6.50%). It looks like we are trying to rally back from these levels so we are going to maintain a floating position for now.
Current Outlook: floating

Monday, June 30, 2008

Pro's & Con's of the Oregon Bond Program

As mortgage lenders continue to restrict their lending guidelines in response to the "subprime fallout" it is no wonder that mortgage originators are increasing their reliance on FHA & state sponsored first time home buyer programs to fill the void.

In Oregon we have the Oregon Bond program (http://www.oregonbond.us/). This particular program is offered through the Oregon Housing and Community Department and is funded through tax-exempt mortgage revenue bonds.

On the surface, the Oregon Bond program appears to be the "end all, be all" program for ANY first time home buyer. However, it is my goal with this blog post to inform you of the positive and negative aspects of this loan option.

Pro's:
*Low/ No down payment requirement- The Oregon Bond program has two down payment options for first-time home buyers. The first option called the "Rate Advantage" has a lower interest rate and carries a minimum down payment requirement of 3%. The second option called the "Cash Advantage" requires 0% down on the part of the home buyer. However, at the time of this posting the Cash Advantage program was temporarily suspended.

*Interest Rate- The Oregon Bond Program has a very attractive interest rate. At the time of this blog posting a borrower could lock in a 30 year fixed rate @ 5.75% for the Rate Advantage option. This is about .375% less than a comparable FHA option.

*Flexible credit approval- Like the FHA loan program the Oregon Bond loan can be fairly flexible in terms of an applicants credit score. Unlike conventional loans there are not adverse rate adjustments for applicants with lower credit scores.

Con's:
*Mortgage Insurance: The Oregon Bond loan program carries fairly expensive mortgage insurance requirements. Just like the FHA loan the mortgage insurance is structured with a 1.50% upfront mortgage insurance premium that gets financed into the loan plus a .50% monthly premium that is built into the monthly payment. For example, a $200,000 loan would get financed @ $203,000 to fund a $3,000 mortgage insurance policy at closing plus $83.33 per month.

*Recapture Provision: This provision is often overlooked by borrowers and loan originators but it can be a costly oversight. With an Oregon bond loan the home buyer may be subject to a recapture tax when the home is sold in the future. For a detailed explanation of this provision I would encourage you to research it at the Oregon Bond website. I will do my best to explain it here. The recapture tax is collected at a rate as high as 6.25% of the original loan amount if the home is sold within the first 9 years of the loan at a higher price than it was initially purchased for if the loan holder's income exceeds a certain threshold (currently about $70,000) at the time of sale. For example, a home buyer takes a loan out for $200,000 today to buy a home for $225,000. In 5 years, they decide to sell their home. At that time they sell their home for $275,000. If their household income at that time exceeds the threshold (determined at that time) then they would owe $12,500 (6.25% of $200,000) in recapture tax, even if they had refinanced during the course of owning the home.

*Inflexible guidelines: Although the Oregon Bond program is flexible in some degree (mostly credit and down payment) it is considered to be inflexible in other areas. For example, the program requires a 2-year work history in the same industry and school does not count. for many home buyers they have only been out of school for less than 2 years. These borrowers would not qualify for an Oregon Bond program but may qualify for FHA loans. Furthermore, there is a very limited set of Oregon Bond lenders to choose from. Therefore, an Oregon Bond application is subject to the underwriting tendencies of a few different lenders. This differs greatly from FHA where we can originate almost anywhere.

*Income limits: Unlike the FHA loan program the Oregon Bond loan program REQUIRES that an applicant be a first time home buyer (defined as not having owned in the previous 3 years) & may not have a household income that exceeds a certain level (depending on the county that the property is in). For the Portland-Metro area the income threshold is about $70,000 at the time of this post.

*Processing: Oregon Bond programs have to be reviewed by the lender and the state of Oregon. Typically speaking the process for getting an Oregon Bond loan is much more cumbersome and time consuming than a traditional FHA loan. We like to ask for 45-60 days to get an Oregon bond loan done whereas we can do FHA loans in a much shorter time frame.

Rate Update June 30, 2008

The weak stock market may continue to help mortgage rates move lower. However, a weakening dollar may raise inflationary concerns.

The European Union reported the highest year-over-year inflation reading in 16 years this morning. How can European Inflation impact mortgage rates in the US?
In order to combat inflation the EU will have to begin raising short-term rates beginning this Thursday. As the EU raises short-term rates it will reduce demand for the US Dollar because investors will be able to earn higher returns with the Euro. The weakening dollar will continue to push oil prices and other commodity prices higher which could exacerbate inflation concerns in the US.

Looking ahead this week we have the June jobs report set to be released on Thursday. With the 4th of July holiday on Friday we may see increased volatility because of fewer traders working in the markets.

Current Outlook: neutral

Friday, June 27, 2008

Fannie Mae continues to tighten their guidelines....

Fannie Mae released an announcement yesterday which indicated they are tightening some of their guidelines to qualify for a new mortgage. The reason this is important is because Fannie Mae dictates underwriting guidelines for virtually all mortgage lenders.

There is one guideline change within this announcement that we feel will be impactful and thought we should share it with you.

It involves a buyer who is buying a new primary residence but has yet to sell and close on their existing residence. In this circumstance the buyer is required to qualify for BOTH mortgage payments (BOTH= the proposed mortgage payment on the new house & the existing mortgage payment). However, currently we are able to offset a portion of their existing mortgage payment by giving them a credit for the market rent that their home would earn if they chose to rent it out (even if this is not their intention). This helps them qualify for the new house. However, Fannie Mae has changed that guideline to the following (bold and italicized copy represent the changes):

1) If current home is being retained as a 2nd home (basically no rental income needed to qualify, but home is not being sold) - qualify with the full PITI payment on both properties plus borrowers must have 6 months mortgage payments in reserves for both homes!


2) If the home is being retained for an investment property & rental income is needed to qualify, you need the following: a) Evidence that the borrower's have at least 30% equity in their current home, b) a copy of the fully executed lease agreement & c) evidence of receipt of the security deposit & deposit into the borrower's account. If the borrower's lack 30% equity (as verified by appraisal, AVM or BPO (Broker Price Opinion), you will also need 6 months' mortgage payments in reserve on both properties*!

With average market times increasing (Washington County currently around 70-80 days) this will delay buyer's ability to purchase a new home.

What you need to do?
Be sure your client gets pre-approved EARLY AND OFTEN
!

Rate Update June 27, 2008

This morning’s Personal Consumption Expenditure Report (PCE) showed that core inflation increased in line with analysts’ expectations. This is good news for mortgage rates because there has been a lot of concern over growing price pressures in our economy (inflation is the primary factor that drives mortgage rates).

With the stock market indexes losing value, oil prices over $140/ barrel, and continued fears in the financial industry there is a lot of uncertainty in the markets right now. BAD NEWS TENDS TO BE GOOD FOR MORTGAGE RATES because investors view bonds as a “safe-haven” for their investment dollars. In times of uncertainty bonds tend to get bid higher in price which pushes yields lower. We think mortgage rates have a good likelihood of moving lower amid all this uncertainty.

Current Outlook: floating bias

What is Personal Consumption Expenditure (PCE)?
The Core PCE excludes the volatile food and energy components from a measure of price changes in consumer goods and services. It consists of the actual and imputed expenditures of households and includes data pertaining to durables, non-durables, and services. It is essentially a measure of goods and services targeted towards individuals and consumed by individuals. This report is the Fed's favorite gauge on inflation.

Thursday, June 26, 2008

Rate Update June 26, 2008


Some mortgage programs saw improvements to rates this morning.

As expected the Fed kept rates unchanged yesterday afternoon. Watch today’s you tube video to better understand what they said and how it may impact mortgage rates.

Attention will now be focused on tomorrow’s Personal Consumption Expenditure (PCE) report. This report includes the Fed’s favorite gauge of inflation.

Current Outlook: neutral with a floating bias

What is Personal Consumption Expenditure (PCE)?

The Core PCE excludes the volatile food and energy components from a measure of price changes in consumer goods and services. It consists of the actual and imputed expenditures of households and includes data pertaining to durables, non-durables, and services. It is essentially a measure of goods and services targeted towards individuals and consumed by individuals. This report is the Fed's favorite gauge on inflation.

Wednesday, June 25, 2008

Rate Update June 25, 2008


Rates are higher this morning.

The big news event of the day will take place today at 2:15 EST when the Fed gives their post-meeting statement. We already know that the Fed is likely to leave rates unchanged. What is more important is how they craft their language. Watch today’s you tube video to understand what we’ll be listening for.

Current Outlook: neutral ahead of Fed meeting

Tuesday, June 24, 2008

Rate Update June 24, 2008

Mortgage-backed bonds are trading higher this morning which has helped rates remain unchanged from yesterday despite a sell-off in the afternoon.

The bond market is benefitting from a weak stock market. Over the past week I’ve referenced the impact that the stock market can have on mortgage rates. For a detailed explanation please search for the article, "how the stock market impacts mortgage rates" on this blog.

Tomorrow at 2:15 EST the Fed will give its monetary policy decision and post-policy statement. It is widely expected that they will leave rates unchanged. What is more important is how they craft the wording of their statement. We’ll break this down in tomorrow’s ‘rate update’.

In real estate news, the S & P Case-Shiller Home Price Index report was released today. It revealed further losses to home values in all 20 major metro areas that it follows. To view the report please visit this link.

Current Outlook: neutral ahead of Fed meeting

Monday, June 23, 2008

Rate Update June 23, 2008

Weakness in the stock market has helped rates stabilize. The Dow Jones Industrial Average is back below 12,000 as credit related concerns continue. If weakness in the stock market persists we could see mortgage rates benefit.

We don’t expect a lot to change with regard to interest rates until Wednesday when the Fed is scheduled to issue their monetary policy decision. It is widely expected that they will leave rates unchanged but the substance of their statement could move the markets. It is clear that inflationary pressures in the economy are growing and the financial markets will be listening for how they plan to deal with it.

Current Outlook: neutral

Friday, June 20, 2008

Rate Update June 20, 2008

Mortgage rates are slightly higher this morning than they were yesterday due to a sell-off in the bond market yesterday afternoon.
There is not economic data set for release today so we will be watching the stock market and technical trading patterns for clues as to the direction of mortgage rates. Stocks are currently trading lower in response to further concerns regarding bank write-downs & oil prices. Weakness in stocks typically helps mortgage rates move lower.

However, technical trading patterns have us concerned because bonds are trading up against a ceiling of resistance. Should bond prices break through this resistance it would be a sure sign that rates would move lower in the near term. For now we remain neutral.

Current Outlook: neutral

Thursday, June 19, 2008

Rate Update June 19, 2008

Mortgage rates did improve yesterday thanks to a rally in the mortgage-backed bond market that we expected. At this point mortgage-backed bond prices are trading right at the level we had predicted in yesterday’s rate update. We are going to shift our outlook to a neutral stance as concerning inflation data continues to trickle in.

Current Outlook: neutral

Wednesday, June 18, 2008

Rate Update June 18, 2008


Mortgage rates improved by .125% yesterday afternoon because of technical trading patterns that we had identified in yesterday’s rate update.

Today there are two factors which we think provide a favorable outlook for mortgage rates in the near-term. Watch today’s you tube video for an explanation.

The stock market is trading lower this morning in response to weak outlooks from a couple major corporations. Read this link to get an understanding of how the stock market can impact mortgage rates.

From a technical standpoint mortgage-backed bonds look like they’ll continue to rally off their lows. Watch today’s you tube video to see how high we think they’ll go.

Current Outlook: cautiously floating

Tuesday, June 17, 2008

Rate Update June 17, 2008

Mortgage rates increased by another .125%-.25% yesterday because of continued inflationary pressure.

This morning the Labor Department issued the monthly Producer Price Index (PPI) report. This report is important for inflation expectations because it indicates price changes in the wholesale and manufacturing level of our economy. The report indicated that price changes for wholesalers and manufactures have increased rapidly over the past year (7.2%). However, if you strip out volatile food and energy prices the Core increase was only 3%.

Despite the hotter than expected inflation data, which would typically be bad for mortgage rates, mortgage-backed bonds are actually trading higher this morning because of technical trading patterns. If you’ll look at the chart below you’ll see that mortgage backed-bond prices have reached this level two other times. Each time the bond market was able to “bounce” off this floor of support and move higher, which pushed rates back lower. The difference this time is that evidence of looming inflation is more visible this time around. We are going to recommend cautiously floating for those who can afford to lose another .125% in rate. Otherwise we would advise locking.

Current Outlook: cautiously floating

Monday, June 16, 2008

Guide for understanding the Good Faith Estimate (GFE)

At the beginning of the mortgage application process mortgage lenders are
required by law to disclose to you the fees and charges that you can expect to incur in conjunction with the loan they are offering. This is accomplished on a Good Faith Estimate (GFE) and should be included with initial correspondence between you and the lender. Often times consumers have difficulty comparing GFE’s so we’ve put together this document to help.

Quick note: If a lender does not voluntarily or refuses to provide to you a GFE then you should be VERY skeptical of the services they are offering.


Understanding the Good Faith Estimate
It’s important to understand that the GFE is a snapshot of the entire transaction and includes expected settlement charges not only from the broker but also all the other 3rd party servicers involved with your purchase. These servicers would include the appraiser, lender, escrow/ title company, county recorder’s office, etc.

It may also include collections for your impound account so that you can have your real estate taxes and homeowner’s insurance collected with your monthly mortgage payment.

In order for you to make the best possible decisions with regard to your loan it’s important to understand what all these charges mean and how they affect your loan. Here is a summary of the fees you can expect to see on a GFE:

Section 800- Items payable in connection with the loanItems in this section are generally payable to the broker, the appraiser, credit reporting agency, and lender. These fees will usually vary slightly from lender to lender.

Loan Origination Fee, Loan Discount, Mortgage Broker Fee: Points are disclosed in this section. A point is equal to 1% of the loan amount and is a fee that can be charged at closing in exchange for a lower interest rate over the life of the loan. The status quo in the mortgage industry is to charge a 1% origination fee although lenders should also offer 0% point options.

Appraisal fee: The cost of your appraisal is disclosed in this section. A standard appraisal with an interior and exterior inspection runs $400-$450. Appraisals for newly constructed homes may also include a $75-$100 charge for a 442 final inspection. Depending on the type of loan sometimes the bank may not require an interior inspection of the property in which case the appraisal may only cost $300. More and more lenders are utilizing statistical databases to verify the value of a home without having to do a physical inspection of the property. In this instance an appraisal waiver could be as cheap as $50.

Credit report: A credit report costs between $18-$20 depending on the agency that it is pulled from. Depending on the length of your escrow we may need to pull multiple reports which could increase the cost on this line. Furthermore, if there are corrections that need to be made and supplemental work is required on your credit report then these charges can be much higher.

Processing fee: We have an in-house processing department. This means that documentation taken from you as the borrower, appraiser, credit reporting agency, title company, insurance agent, and realtors are packaged up and organized on-site. Our processing department then works in direct contact with our lender to make sure that your final approval and loan documents are ready for your closing in a timely manner. The processing fee is paid to compensate for their behind the scenes work.

Underwriting fee/ Wholesale Administration fee: All lenders have an underwriting department that is in charge of analyzing the loan and approving or denying it. Lenders will charge anywhere from $295-$1,100 to underwrite a loan package depending on the type and size of the loan.

Tax Related Service Fee: All lenders are required to order a tax service for each specific loan they originate. The tax service is responsible for checking in annually to make sure that a borrower is paying their taxes (i.e. federal, state, municipal, etc.). The reason this is important for a lender is because government agencies have the ability to place liens on a property ahead of their mortgage liens. The tax service fee is usually $75-$100 depending on the lender and can often be included in the Underwriting/ Wholesale Administration fee.

Wire Transfer Fee: Banking laws require that amounts of money greater than $10,000 be wired through the Federal Reserve Bank so that they can monitor the transfer and flow of money in the United States. Lenders incur fees every time they wire funds to the escrow company in order to fund your loan. Wire transfer fees range between $50-$150 and can also be included as a part of the Underwriting Fee/ Wholesale Administration Fee.

Document Preparation Fee: If you’ve ever signed loan documents before you know how many need to be signed. Many lenders charge a fee for drawing the set of loan documents which are then sent to escrow for your signatures. These fees can range between $50-$225 can also be included in the Underwriting Fee/ Wholesale Administration Fee.

Flood Certification Report: Lending laws require that lenders pull a flood report for every property they are lending against. These reports tell the lender whether or not the property is located in a flood zone and whether or not the borrower will need to purchase flood insurance in conjunction with their homeowner’s insurance. A flood certification report usually runs between $15-$30 and can also be included in with the Underwriting Fee/ Wholesale Administration Fee.

Section 1100- Title/ Escrow Charges
This section of the GFE discloses the expected settlement charges that the title/ escrow company will charge. Please note: In evaluating a loans for a home purchase, these fees may vary widely from lender to lender but at the end of the day these fees will be the same no matter what your GFE says and what lender you go with.

Closing or Escrow Fee: This fee is paid to the escrow company and is their compensation for acting as the 3rd party facilitator for the transaction. In a nutshell, for a purchase they take the funds from the buyer (down payment + loan proceeds) and exchange it for a deed to the property from the seller. For a refinance they take the loan proceeds from a new loan and pay-off all the existing debts that need to be paid off. Escrow fees are dependent on the size of the transaction but usually range between $250-$700.

Document Preparation Fee/ E-Doc Fee: Some escrow companies charge a fee for the process of working up a set of escrow documents which legally give them permission to act as the 3rd party facilitator. This fee is usually around $100.

Title Insurance: Title insurance protects you and the lender in case the title to the subject property does not accurately represent the correct and undisputable ownership of the property. Essentially it insures against losses incurred because of defects to the title of the property. Title insurance premiums are paid to the title insurance company and depend on the size of the loan and whether or not it
is a refinance or a purchase.

Endorsements to Title Insurance: Like any kind of insurance policy (i.e. title, auto, home) insurance companies write very general policies that apply to the most amounts of people so they can create economies of scale. Everybody’s situation is different which means you will likely also have to purchase endorsements to your title insurance policy. Title insurance is no different. These endorsements will be specific to your loan, property, and location. Endorsements usually will cost an additional $50-$250.

Courier: On the day that your loan funds the escrow company will have to get the new deed down to the county recorder to record the document. They almost always hire a courier to do this which will cost between $50-$125.

Re-conveyance Fees: Re-conveyance fees only apply to refinance transactions. These are fees that are charged to release the previous lender’s interest in the property and convey the new lender as the lien holder. Re-conveyance fees usually run $100 per existing loan.

Early-Issue Title Insurance (EITI): Early-Issue Title Insurance is an additional title insurance premium required by lenders for borrowers who are taking out a new loan secured by a newly constructed home. It is an insurance policy that protects you and the lender from any mechanics liens filed against the property after you close. The cost of the insurance is usually $2.00-$2.50 per $1,000 in the loan amount. If you are using Continental Home Mortgage in conjunction with buying a JLS Custom Home often time we can have this cost waived.

Section 1200- Government Recording & Transfer Charges
The 1200 section of the GFE are charges collected by the government to cover
recording charges and any taxes that need to be collected in connection with the transfer of real estate. Please note: As it was with the Title/ Escrow charges, at the end of the day no matter what lender you end up working with these charges will end up being the same even if they aren’t disclosed on the GFE.

Recording Fees: Each county recorder charges a slightly different amount to record the deed. The charges are based on a per page basis. Typically the cost to record the Deed is $100-$175.

City/ County Tax/ Stamps: Some counties collect a tax for any real estate sale that occurs inside the borders of the county. Most notably, Washington County, OR charges .10% of the purchase price to be split evenly between the buyer and seller.

Section 1300- Additional Settlement Charges
In unique circumstances there may be other charges that arise. For example,
sometimes Condominium Associations will charge set-up or pro-rated assessments to borrowers at closing. These fees may be itemized in this
section.

Section 900- Items Required By Lender to Be Paid in Advance
Charges in this section may vary depending entirely on the time of month you
close and the amount of your homeowner’s insurance premium. Please note:
Charges disclosed in this section are NOT dependent on the lender you choose
to work with.

Per Diem Interest: Line 901 is representative of the interest that the lender will collect at closing to pay for the interest on the loan from the date of funding to the end of the month. For example, if the loan closes on the 16th of the month then the lender will collect 15 days worth of interest at closing to pay for the rest of that month. Lenders have to collect interest at closing because mortgages are paid in arrears which means when you make a mortgage payment you are actually paying the interest for the previous 30 days. This differs from rents which is typically paid in advance (a tenant pays on the 1st of the month to live in the property for the next 30 days).

Hazard Insurance Premium: Hazard insurance and homeowner’s insurance are one in the same when it comes to your mortgage disclosures. You are obligated to select your homeowner’s insurance coverage and premium. Ultimately the premium you agree to is what will be paid at closing and show up on line 903. However, at the disclosure stages your mortgage professional will estimate this amount on your behalf.

Section 1000- Reserves Deposited With Lender
Section 1000 is only applicable if you intend on having real estate taxes and homeowner’s insurance included with your monthly mortgage payment. If you elect to pay these items separately then there will not be any amounts listed in this section.

If you choose to have your real estate taxes and homeowner’s insurance
impounded then the collections in this section will depend entirely on the amount of property taxes for the subject property, the timing of your scheduled close date, and the amount of your homeowner’s insurance. Your mortgage professional should be able to explain why the lender is collecting what they are collecting.

Rate Update June 16, 2008

Over the past two weeks mortgage rates have increased by approximately .25%-.50% depending on the loan program. Concerns over inflation have been the main culprit. This morning news surrounding inflation topics continue to create headlines.

Crude oil prices rose to $139.89/ barrel this morning which will continue to put price pressure on every corner of our economy. Furthermore, the Euro Zone reported higher than expected inflation for May. Inflation overseas can negatively impact the demand for our long-term bonds domestically which is why this report is important.

From a technical standpoint mortgage-backed bond prices stand at multi-year lows. Last time prices reached this level they reversed and rallied higher, pushing mortgage rates back down. This scenario could play out again.

Current Outlook: neutral

Friday, June 13, 2008

Rate Update June 13, 2008


Rates moved higher yesterday upon further selling pressure in the bond market. However, we are shifting our outlook to a floating position today. In yesterday’s ‘rate update’ we stated that , “From a technical standpoint we are testing multi-month lows on bond prices. We may see a bounce off these lows which would help rates move lower.” You can see this in the chart below where we circled the lows we reached at the beginning of March. Yesterday bond prices reached that same low and this morning bonds are trading higher which should help rates move back lower.

Current Outlook: floating

Thursday, June 12, 2008

Rate Update June 12, 2008

Rates are effectively unchanged this morning. However, mortgage-backed bonds have come under selling pressure which could pressure rates slightly higher later on today.

What is pressuring bonds?

*This morning’s retail sales report indicated that consumer spending grew twice as fast as economists had expected. This good news for our economy is helping stocks this morning which is creating selling pressure in the bond market.

*Second, Fed member Charlie Plosser said yesterday, “Monetary policy is quite accommodative right now, inflation is on everybody's mind...We have to take appropriate steps to do something about that." His comments are further sounding alarms regarding inflation.

From a technical standpoint we are testing multi-month lows on bond prices. We may see a bounce off these lows which would help rates move lower.

Current Outlook: neutral

Wednesday, June 11, 2008

Portland Metro Real Estate Market

This was a recent piece done on KOIN 6 news involving the National Association of Realtors Cheif Economist.

Rate Update June 11, 2008


Mortgage rates have increased .25%-.50% over the past couple weeks in response to increased focus on inflation in the financial markets. If you’ve been following ‘rate update’ closely then you know that we began sounding alarms back in the beginning of May when oil prices rocketed past $100/ barrel.

Consumers are beginning to hear that mortgage rates are moving higher which increases the likelihood that you will get asked why rates are moving higher. Please watch today’s you tube video for a concise explanation of what has happened in our economy that has pushed rates higher.

Current Outlook: neutral in near term with locking bias long-term

Tuesday, June 10, 2008

Helpful tips for evaluating a Good Faith Estimate

Comparing two GFE’s from two separate lenders can often be a confusing and overwhelming task. It can be very difficult to differentiate between costs and fees that are connected to the lender and costs which are independent of the lender.

Here are some common tips in evaluating a GFE that will help you best understand what you’re evaluating.

* The 800 section is the only section that should vary between lender- It states very clearly on the GFE that the charges itemized in the 800 section are “ITEMS PAYABLE IN CONNECTION WITH THE LOAN.” It stands to reason then when comparing two lenders with two different loan offerings that this is the section which can vary between them. The rest of the sections in a GFE (1100, 1200, 1300, 900, & 1000) disclose charges form 3rd party-service providers or pre-paid interest, taxes, & insurance which are all independent of your lender. Although there may be discrepancies between two competing GFE’s in the non-800 sections these should not be taken into account because in the end these charges should end up being the same (some minor exceptions may apply).

*Differences in title and escrow fees do not necessarily represent a cheaper option- Many times clients will share GFE’s with us from another lender which at first glance appear to offer lower settlement charges. But, after carefully reviewing how the charges are broken out they find that it is not the case after all.

For example, let’s evaluate a situation where an applicant is comparing 2 GFE’s for a $250,000 loan they are taking out to buy a $350,000 home. Here is a summary of 2 GFE’s from two different lenders:

Lender 1-Total Estimated Settlement Charges - $7,103
Lender 2- Total Estimated Settlement Charges- $5,242

After closer evaluation the applicant realizes that despite the higher figure for Total Settlement Charges that lender is actually offering a lower closing cost option. Here is how the GFE’s broke down by section:

Sec. 800 charges (loan closing costs)
Lender 1= $1,608
Lender 2= $3,958

Sec. 900 (Prepaid Interest & Insurance)
Lender 1= $1,728 (cumulative= $3,336)
Lender 2= $467 (cumulative= $4,425)

Sec. 1000 (Prepaid Insurance & Taxes for reserves)
Lender 1= $2,650 (cumulative= $5,986)
Lender 2= $0 (cumulative= $4,425)

Sec. 1100 (Title & Escrow closing costs)
Lender 1= $975 (cumulative= $6,961)
Lender 2= $675 (cumulative= $5,100)

Sec. 1200 (County recording)
Lender 1= $142 (cumulative= $7,103)
Lender 2= $142 (cumulative= $5,242)


In taking a closer look at the GFE the applicant realizes that lender 2 is actually charging $2,350 more in lender fees than is lender 1. However, by “low-balling” the expected closing costs for title & escrow charges & by showing a loan with no impounds (versus Lender 1 who included prepaid taxes and insurance) Lender 2 was able to make their loan look cheaper. In fact, in this example it is not the case.

*Closing costs are not the only story- Just because a lender has presented to you a GFE with the lowest closing costs doesn’t make it the best option for you. Keep in mind that a GFE may not accurately disclose all the important terms of a mortgage. Therefore, in determining what loan option is best the applicant should also consider the type of loan, payment, prepayment penalty, and reliability of the lender.

Generally speaking there is an inverse relationship between closing costs and interest rate. Therefore, if an application intends on being in a home for the long-term it may make sense to incur more costs at closing by paying additional points in exchange for a lower interest rate.

*Trust your intuition- Although the GFE is meant to help consumer’s easily compare loan options from different lenders we often find that the average consumer has difficulty clearly comparing multiple GFE’s. Ultimately, it is usually a good decision to work with a lender that your intuition says you can trust. Give each lender an opportunity to walk you through their GFE and explain each of the charges. If a lender is not willing to give you a GFE or is not willing to take the time to explain it to you then often times this lender is not going to perform as promised.

Rate Update June 10, 2008

Mortgage rates are higher this morning following a significant sell-off in mortgage-backed bonds yesterday. You can see on the chart below that since breaking below the 200-day moving average on June 4th mortgage-backed bonds have traded lower all but one day (red lines indicate down days & green lines indicate up days). Over that time mortgage rates have increased by about .25%.

In a speech given Monday night Fed Chairman Ben Bernanke said that the runup in oil prices, “has added to the upside risks to inflation and inflation expectations.” His comments indicate that inflationary pressures continue to mount which will hurt mortgage rates.

Current Outlook: locking

Monday, June 9, 2008

Rate Update June 9, 2008

Mortgage rates are unchanged this morning.

A continuation of concerns surrounding inflation is dominating the headlines this morning (and over the weekend). For a review on how inflation impacts mortgage rates please refer to this blog posting.

Earlier today a Goldman Sachs analysts predicted that
oil prices would reach $150/ barrel this summer. On Sunday the average price for a gallon of gasoline in the US reached $4. Some analysts think gas prices will reach $5.75 in the next 24 months.

We continue to favor a locking position in the long-run as inflation pressures will likely push mortgage rates higher.
Current Outlook: locking

.

Friday, June 6, 2008

What is a hybrid ARM?

The most common ARM products we originate are hybrid ARMs. With a hybrid ARM the interest rate is fixed for an initial period of time before it reaches an adjustable rate period.

3/1, 5/1, 7/1, & 10/1 ARM’s- The most common hybrid ARM’s are the 3/1, 5/1, 7/1, and 10/1 ARM’s. With these loan products a borrower is able to lock in an initial interest rate for 3,5,7, & 10 years respectively. In most interest rate environments the borrower is able to lock in a lower rate for these initial periods than if they were locking into a 30-year fixed rate. Since most homebuyers do not stay in the same home or keep the same mortgage for more than 5 years these loans can provide the same level of interest-rate security as a fixed rate mortgage with a lower interest expense. After the initial fixed interest rate period is up these loans then go into an adjustable rate period where the interest rate will adjust either annually or every six months.

Refinancing when your home has recenlty been listed

Has your home recently been listed for sale? If so, did you know that by having your home listed for sale your ability to refinance your mortgage is severely limited?

95% of banks will not lend on homes that have been recently listed for sale because they are concerned that the home might go back up for sale as soon as the loan is funded or that the borrowers are in dire financial straights. Lenders make their money by putting a mortgage in place and collecting interest over long periods of time. Therefore, anything that threatens the length the mortgage is typically a roadblock for loan approval.

That said, because we have the ability broker loans we have targeted a couple investors who will allow us to refinance a home that has been recently listed so as long as the home is off the market at the time when the formal application is made.

These lenders are limited to owner-occupied homes only and will only allow us to provide a rate/ term refinance (meaning that we cannot pull-cash out). Extenuating circumstances such as a job transfer that fell through may override this restriction.

So, if your plan is to put your home up for sale and there is a chance that you may instead decide to stay in the home and refinance it's best to have a conversation with us first.

Rate Update June 6, 2008

Mortgage rates are unchanged this morning despite a lot of erratic movements in the financial markets.

Headed into the day we knew that the monthly jobs report would be important. Within the jobs report there were a couple measures that likely have traders confused on how to play the markets. First, the report indicated that the unemployment rate rose to 5.5% which was above analysts expectations (good for mortgage rates). This is the highest reading since October of 2004 and the large month-to-month increase in 22 years. You can bet the media will have a “field-day” with this. However, the bottom line is that the report showed the economy lost less jobs than were expected (bad for mortgage rates).

Overall the report shows continued weakness in the nation’s job market which would ordinarily be a good sign for mortgage rates. However, overshadowing this news is the fact that oil prices have soared in the past two days again raising inflationary concerns. This is certainly bad for mortgage rates and so we continue to favor a locking stance.

Current Outlook: locking

Thursday, June 5, 2008

WSJ.com article about foreclosures & delinquencies

The WSJ just published an article about the latest Mortgage Bankers' Association report on home delinquency and foreclosures. Both mortgage delinquency & home foreclosures are at all time-highs. Here is a link to read for yourself.

Rate Update June 5, 2008

Mortgage rates moved higher this morning.

In yesterday’s ‘rate update’ we stated, “We expect that bond prices will experience a “break-out” in the next few days. A “break-out” is when bond prices move sharply above or below technical trading levels and mortgage rates often move sharply as well.”

Indeed this occurred yesterday afternoon when bond prices broke below the 200-day moving average. From there bond prices feel as much as 70 basis points at one point which is why mortgage rates are higher today.
Tomorrow the monthly jobs report will be released. In the past two months the jobs report has improved from the dismal numbers we saw in February. That said, we think the report will continue to improve which will put more pressure on rates to move higher. We recommend that our client lock in ahead of this report.

Current Outlook: locking

Wednesday, June 4, 2008

Rate Update June 4, 2008

The labor department reported today that worker productivity increased greater than expected in the 1st quarter which is usually good news for mortgage rates. Despite the increase in worker productivity unit labor costs increased by more than analysts had expected. Watch today’s you tube video to understand why labor costs are an important factor for mortgage rates.

Mortgage-backed bonds are trading lower this morning and are caught in between the 10-day (red line) & 200-day moving average (blue line). We expect that bond prices will experience a “break-out” in the next few days. A “break-out” is when bond prices move sharply above or below technical trading levels and mortgage rates often move sharply as well.

Current Outlook: neutral

Tuesday, June 3, 2008

How do 7/1 Interest-only ARM's work?

With a 7/1 interest-only ARM the loan will carry a fixed rate for the initial 7 years of the loan. After that, the interest rate will adjust on an annual basis. For the first 7 years of the loan the borrower may make interest-only payment on the outstanding balance. At the end of 7 years the payments will amortize annually based on the remaining term of the loan.

For example, let's say we could lock a loan today @ 6.00% on this program for a $300,000 loan. For the first 7 years the borrower would make an interest-only payment of $1,500 per month. At any time the borrower could make a payment above and beyond the interest-only payment which would be applied to principal. Because the loan carries an interest-only payment they could expect their payments to decrease upon paying down a portion of the principal.

After 7 years let's assume the rate adjusts to 8.00% and the balance was still $300,000 (because the borrower elected not to pay any principal over the first 7 years). At that time the monthly payments would increase to $2,380 which reflects a 23 year amortization at 8.00%.

This loan can be a great program because for most home-buyers the 7 year fixed period offers plenty of interest-rate security while the interest-only payment provides plenty of cash-flow flexibility.

Rate Update June 3, 2008

There is no economic data set to be released today so our attention is focused on technical trading patterns and the stock market. Watch today’s you tube video to understand what we’re watching for.



Current Outlook: neutral

Monday, June 2, 2008

Rate Update June 2, 2008

There were no changes to rates today from Friday. The financial sector is dragging stocks lower this morning following the announcement that Wachovia is ousting their CEO. The Dow Jones Industrial Average is currently down over 100 points which is helping mortgage-backed bonds move modestly higher.

Looking ahead, Friday brings us the monthly jobs report which we all know can move the markets.

Despite the gains this morning in the bond market we still think mortgage-backed bonds will drift lower over the next few days/ weeks because of technical trading patterns. We remain in a locking position for now.
Current Outlook: locking bias

Friday, May 30, 2008

Bi-Weekly payment programs, are they a good idea?

With bi-weekly payment programs the lender or a 3rd party servicer will typically charge $200-$400 to sign up for the program. They will then automatically draw one half of your total monthly payment every 2 weeks and apply it to your mortgage. The reason that a bi-weekly plan pays down your mortgage quicker than the regular amortization schedule is NOT because you’re making the payment any earlier in the month but because you are making 13 payments per year (there are 52 weeks in a year, 26 bi-weekly periods, and therefore 13 total payments made).

With that said, keep in mind that you can create this very same impact by simply making one extra payment per year or by increasing your monthly mortgage payment by 1/12th of your principal and interest payment. For example, if your monthly principal and interest payment is $1,200 per month then you could add $100 per month (1/12th of $1,200) and have the same impact as the bi-weekly payment program without signing up or paying a fee.

The other consideration to make is how important is it for you to pay down your mortgage? Are their other financial objectives that deserve more attention or are better choices (i.e. retirement savings, investing for kids college education, paying down other debts, building a savings reserve fund, etc.).