Wednesday, May 29, 2013

Economic Calendar for the Week of May 27 – May 31

Economic Calendar for the Week of May 27 – May 31

 DateTime (ET)ReleaseForConsensusPriorImpact
Tu
May 28
10:00Consumer ConfidenceMay72.568.1Moderate
Th
May 30
08:30Initial Unemployment Claims5/25340K340KModerate
Th
May 30
08:30Continuing Unemployment Claims5/183.000M2.912MModerate
Th
May 30
08:30GDP – 2nd EstimateQ12.5%2.5%Moderate
Th
May 30
08:30GDP Deflator – 2nd EstimateQ11.2%1.2%Moderate
Th
May 30
10:00Pending Home SalesApr1.5%1.5%Moderate
Th
May 30
11:00Crude Inventories5/25NA–0.338MModerate
F
May 31
08:30Personal IncomeApr0.1%0.2%Moderate
F
May 31
08:30Personal SpendingApr0.1%0.2%HIGH
F
May 31
08:30PCE Prices – CoreApr0.1%0.0%HIGH
F
May 31
09:45Chicago PMIMay49.349.0HIGH
F
May 31
09:55U. of Michigan Consumer Sentiment – FinalMay83.783.7Moderate

>> Federal Reserve Watch   

Forecasting Federal Reserve policy changes in coming months... Some investors worry the Fed's super low Funds Rate could rise sooner, but economists expect no changes before the end of the year. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.
Current Fed Funds Rate: 0%–0.25%
After FOMC meeting on:Consensus
Jun 190%–0.25%
Jul 310%–0.25%
Sep 180%–0.25%

Probability of change from current policy:

After FOMC meeting on:Consensus
Jun 19     <1 td="">
Jul 31     <1 td="">
Sep 18     <1 td="">

MARKET INFO THAT HITS US WHERE WE LIVE.

A shower of home purchases sure sweetened the real estate market in April, as Existing Home Sales gained 0.6% for the month, hitting an annual rate of 4.97 million units. This put them up 9.7% over a year ago, reaching their highest sales pace since November 2009, when they were helped along by an $8,000 homebuyer tax credit. No government largesse is needed now to lure buyers, and the median price of an existing home is up 11.0% from a year ago, the supply at 5.2 months.

April was a sweet month for new home purchases too. New home sales were up 2.3%, to a 454,000 annual rate, and are now up a solid 29.0% versus a year ago.The faster sales pace meant that a 5,000-unit increase in inventories did not push out the 4.1 months' supply. With the number of completed new homes at a record low, buyers are moving quickly. The median new home selling price is up 14.9% over a year ago. In addition, the FHFA index of prices for all homes financed by conforming mortgages was up 1.3% in March and is up 7.2% over a year ago.

BUSINESS TIP OF THE WEEK... Getting new business is key to every business. Each day, focus as soon as you can on doing one thing to bring in new clients or to create new opportunities with the clients you have.

>> Review of Last Week

APPLYING THE BRAKES... After four record-setting weeks in a row for stocks, investors put on the brakes, all indexes closing down for the week. Fed Chairman Ben Bernanke's Congressional testimony, plus comments in the FOMC meeting minutes, made Wall Streeters worry that the Fed will begin tapering its bond purchases, designed to keep interest rates down and the economy heading back up. Some Fed members saw this starting in late June if the economy showed more evidence of growth, but "...views differed about what evidence would be necessary and the likelihood of that outcome."

There was plenty of reason for investor optimism going into the long holiday weekend. Friday's Durable Good Orders report showed stronger than expected demand in April for big ticket purchases. Thursday's weekly unemployment claims were down 23,000 to 340,000, while continuing claims dropped 112,000, to 2.91 million, the lowest they've been since March 2008. Other good news in a light week of data included the better than forecast April new home sales and existing home sales that were perfectly in line with predictions.
The week ended with the Dow down 0.3%, to 15303; the S&P 500 down 1.1%, to 1650; and the Nasdaq also down 1.1%, to 3459. 
Even though stocks slid, concerns that the Fed would slow its buying program kept bond prices in check. The FNMA 3.5% bond we watch ended the week down .86, at $104.18.National average mortgage rates ticked up again last week in Freddie Mac's Primary Mortgage Market Survey. They're still near historically low, well beneath levels of a year ago. The Mortgage Bankers Association's Purchase Index was down 4% for the week, but is up 10% compared to a year ago.

DID YOU KNOW?... An online real estate listing site calculated that national home prices are still 7% undervalued in Q2 of 2013. 

>> This Week’s Forecast

CONSUMERS CONFIDENT, GDP HOLDS, PENDING HOME SALES INCH AHEAD... A solid improvement in Consumer Confidence is expected for May. The 2nd Estimate of GDPis predicted to show economic growth holding at a middling 2.5%. Pending Home Salesare forecast inching up in April, indicating sales of existing homes should continue to climb.

Other items of interest include the Core PCE Prices read on inflation for April. Here the Fed should be happy to see things under control. The Chicago PMI reading of Midwest manufacturing activity is forecast up a tick for May. 

Financial markets were closed Monday in observance of Memorial Day.

Financing Handcuffs Real Estate Investors

First-time home buyers aren't the only ones struggling to get financing.  The small real estate investors with whom they compete for starter homes and distressed sales face limits imposed by lenders and federal regulators that are tougher than what owner-occupants have to deal with.
About one out of every five homes for sale is bought by investors, but the total would be significantly greater if investors could qualify for lower-interest loans and overcome restrictions placed on them by lenders.  Most investors (59.5 percent) finance more than half the cost of the properties they buy, according to a 2011 survey by Move, Inc.  Yet they do not qualify for the record-low mortgages rates available to owner-occupants, and must find commercial financing at significantly higher rates.  According to an August survey of investors co-sponsored by BiggerPockets.com and Memphis Invest, lower interest rates would make 70 percent of investors more willing to invest in additional properties.
Most lenders put limits on the amount they will lend an investor, regardless of credit history, property values or track record.   The BiggerPockets.com/Memphis Invest survey found that nearly half of investors, 44 percent, would be willing to put down more than 20 to 50 percent on a business loan in order to be able to borrow more from a lender, and 32 percent of real estate investors would be willing to make a down payment of 50% of the purchase price if they could finance more properties.
A bulletin from the Office of the Comptroller of the Currency served notice on lenders that that the financing of single family rentals is to be managed with the same risk management policies and procedures used for commercial real estate loans, not residential mortgages.
Among the issues the OCC addressed was financing of multiple properties.  “Borrowers may finance multiple properties through one or more financial institutions but underwriting standards and the complexity of risk analysis should increase as the number of properties financed for a borrower and related parties increases. When a borrower finances multiple IORR (investor-owned) properties, a comprehensive global cash flow analysis of the borrower is generally necessary to properly underwrite and administer the credit relationship. In such cases, bank management should analyse and administer the relationship on a consolidated basis,” the OCC bulletin said.
However, not all investors agree that multiple investments increase risk.
“Federal lending policy makers have an opportunity to speed up the housing correction and increase neighbourhood stabilization programs without having to commit any more tax payer funds.  The data shows very clearly that if they were to raise the limits that they have imposed on investor purchases with FNMA and Freddie Mac, while simultaneously raising the criteria to qualify for those raised limits, they could spur real estate investors to take action in larger numbers and much faster,”



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How To Choose A Mortgage Lender

Last week I saw a restaurant review on a local blog that touted “The New York Times says  . . .” and I thought, wait a minute, the Times didn't “say” anything, somebody that works for the Times did!  One person, one opinion, not the entire staff and their collective opinion, but one individual.  Invoking the mighty Times just because the reviewer works for the NY Times, transfers the credibility and credentials of the institution to the individual and turns an individual opinion into a powerful endorsement.
When someone refers to this writing, chances are they will say; “forbes.com said ” and not “Mark Greene said on forbes.com   .  .  .”  See what I mean?  “Who’s Mark Greene” is replaced with the towering credibility of the forbes.com brand.  Unknown uncertainty instantly transformed into concrete factual evidence.
The mortgage lending business is hyper-competitive and mortgage originators come in all forms of education, training, experience and affiliation. With 25 years in the trenches, an undergraduate finance degree from a reputable university, countless hours of training and continuous education, and the trust and goodwill I have built with the many sources that refer their clients to me, you would think my capture rate would be bullet proof.  Not even close! I have lost business to mortgage people with less experience, less training and less education, simply because they work for lenders with household names.  A prospective client will tell me that they have “talked to” Wells Fargo or Chase or Bank of America or whoever, and they have adamant and unwavering faith in the information they received.
When I hear “Wells Fargo told me” or “Chase told me” or “(lender name here) told me,” I recognize that I am competing with the institution and not the rep or employee of the institution that the borrower actually spoke with.  I am thrust into a mortgage contest with the Great and Powerful Wizard of Oz with the booming voice and the pyrotechnics, not the little man behind the curtain.  And it is the little man behind the curtain that is quoting terms and offering up the advantages of working with the “biggest” and most “amazingest” mortgage lender on the planet!
In the past I have proposed that the person spoken to was merely a representative of the institution, not the institution itself, often to no avail. Credentials are not a prerequisite for assessing expertise or even competence when consumers shop for a mortgage lender. Name recognition is a big deal. Transferring the credibility and credentials of the institution to the individual gives consumers a sense of comfort and security that eases the requisite leap of faith when choosing a mortgage lender.
Here is where I share an industry secret, are you ready?  Mortgage people are salespeople.  First and foremost, the primary goal of a mortgage originator/loan officer is to convince you to apply for your mortgage with them.  Financial acumen is helpful but not required; the best salespeople are the biggest producers in the mortgage industry.  Consumers looking for the most skilled financial mortgage expert often choose the best salesperson; expertise and wherewithal vary along a greatly disparate continuum.
Mortgage originators are fond of titles, so choosing a lender based on how remarkable the rep’s title is may be perilous.  Starting with Loan Officer and of course Senior Loan Officer, I have seen; Advisor, Consultant, Planner and the more impressive senior versions of these. Add in initials based on graduate education (MBA) or related field licensing (CPA) and title crowning can become quite prestigious. Although I have to admit that I have always been impressed with the CPA moniker on my colleague Matt Gratalo’s business card. Matt is a very senior, highly respected loan originator and manager that I have worked with for many years and he is in fact a CPA, which garners lots of respect from his clients and appropriate deference from his peers, me included.  Initials as part of a title speak to credentials and expertise, originators with initials should go on your short list.
Even so, titles may not be the best starting point when selecting a mortgage originator, remember, even the Great and Powerful Wizard of Oz is really just a guy behind a curtain.
In 1992, I was a Loan Officer with Paine Webber Mortgage in Cranford, New Jersey and the great Chris Puorro (legendary mortgage management tough guy), was my sales manager.  I knocked on his door one day and asked him what the requirements were for me to become a Senior Loan Officer.  He looked up at me, asked how long I had been there and when I said two years, he smiled and said “congratulations, you’re a Senior Loan Officer!”  And that was that, I had new business cards within a week.  No test, no additional training, no scorecard, just presto! Senior Loan Officer. Beware the fancy title!
Nowadays, just about every real estate office has an “in-house” lender with an originator right there in the office. Convenient and accessible, this must be the right answer; why else would the lender have such coveted positioning?  In-house reps exist because there is a mutually beneficial financial relationship, the lender has unrestricted access to agents and buyers, and the real estate company is compensated by the lender.  Marketing Services Agreements (MSA), Joint Ventures, Desk Rentals and whatever other form these relationships take, may seem counter to RESPA (Real Estate Settlement and Procedures Act), rules governing  compensation for real estate referrals, but they are industry norms. That being said, an in-house rep can be a great choice, but again, “expertise and wherewithal vary along a greatly disparate continuum.”
The web has exploded with “discount” mortgage financing options offering fantastic terms and lightning fast closings.  The idea being that the absence of “brick and mortar” costs associated with traditional lenders, allows for discounted, below market rates.  Sounds great but not true. The largest on-line lender has over 8,000 employees manning phones and populating cubicles in office buildings, getting loans closed.  Brick and mortar costs are part of their income statement.  On-line financing is popular with tech savvy consumers and can be a convenient alternative to traditional lending sources. Significant interest rate discounts offered by on-line financing sources are advertisements, like everything else, if it sounds too good to be true, it is.
And what about all of those local or regional mortgage companies with names that are not so well known, the “correspondent” mortgage lenders?  Correspondent lenders employ their own processing, underwriting and closing staff, and use warehouse lines to fund loans.  They specialize in residential mortgages, they tend to have more entrepreneurial cultures and originators are generally independent and experienced.  But just like the big banks, the in-house lenders and the World Wide Web reps, “expertise and wherewithal vary along a greatly disparate continuum.”
So just how is a consumer supposed to choose a mortgage lender?  What should the decision tree look like?
Start by asking someone close in your universe that has recently gotten a mortgage, see if they can recommend their lender.  Ask a financial adviser, an accountant, your attorney or your realtor to help you with a short list of lender referrals.  These people deal with mortgage lenders regularly and can help you filter that continuum with the greatly disparate expertise and wherewithal and add real confidence to your decision.
Search the internet and thoroughly investigate offerings for details. Advertising is shiny, so squint through the glare and find out about fees, lock-in periods, points and qualification requirements for what is being featured.
Remember that the port of entry with every lender you consider is a salesperson, everyone you talk to will sound like the best deal.  Take notes, ask for things like Good Faith Estimates (GFE) and Truth-In-Lending (TIL) statements to be e-mailed or faxed to you.  The mortgage lending industry is electronic, everything is available to you in writing instantly.
At the end of the day, your mortgage loan will be originated, processed, approved and closed by people, software and institutions will be the platforms that allow individuals to do their jobs, but you are choosing people to help with the single biggest financial decision most people will make. Beware the man behind the curtain, but if trust in your lender’s rep is the result of your vetting process, chances are you have chosen well.

A Guide To Fixing The Housing Market

Step 1, the federal government has to stop implementing creative mortgage financing solutions to help consumers buy or refinance homes.  Step 2, everybody, everywhere should channel all thoughts, conversation and energy towards creating jobs, political people, entrepreneurs, corporate soldiers, ma and pa, everybody. And Step 3, eliminate the insanity and chaos in the afraid-to-make-a-mistake mortgage industry.
Starting with a robust housing market as the desired result, and working backwards through the maze of barriers to achieve that end, we need to establish a framework from which we can launch this initiative.  Last, we will need an efficient and reliable mortgage financing industry to provide a means to facilitate home purchases.  Mostly, since quality mortgage loans require a predictable income stream as a source of repayment, most commonly from wages from permanent or reasonably permanent employment, jobs will be vital to this framework for getting the housing market back on track.  But first, foremost and  undeniably paramount to a housing market firing on all cylinders is the unconditional necessity for federal  mortgage and financial politicking to stand down and not engineer the kind of policy that has caused so much bad for so many for so long.
Everybody in the mortgage business and everybody in every industry that supports mortgage business are terrified of making mistakes. Mistakes could render a loan unsellable in the secondary markets or if for some reason a loan defaults and a supporting document is missing or a guideline was incorrectly interpreted, the loan could become a buy-back candidate. Mortgage lenders want nothing to do with preventable loan losses and as a result, a policy and procedural quagmire has cast a long shadow over how mortgage loans find their way to closing tables.  The fact is that mortgage financing today has little to do with identifying qualified home buyers and everything to do with chasing documents.
Truth and consequences shone a painfully bright light on a mortgage financing industry that was unruly and haphazard, a patch-work of high risk, high return motivated lending practices that failed Risk Analysis 101 and led to catastrophic failure. With ample room for improved policy changes, all of which were desperately needed and long overdue, the rush to implement these fail safe transformations sacrificed consistency and efficiency and left the mortgage industry awash in risk averse defense. In other words, lenders are interpreting underwriting guidelines and documentation requirements far more conservatively than a sustainably robust housing market would require. We are drowning in over-documentation and the people charged with keeping mortgage lenders safe have no clear and consistent mandate to implement, they are interpreting policy as they see fit.  There is no detailed instruction manual from Fannie Mae and Freddie Mac, there is a picture of what the finished product should look like, and every lender is left to their own devices to find a way to get there.
What we need is structure, across the board, same for everybody, blessed by Fannie and Freddie, no buy-back guideline structure.  And it should be simple, follow the directions on the box, not open to individual interpretation structure tied to a culture of make sense directives.  Correctly and accurately documented loans with a clear path to proving employment, income and assets.  There will be prospective borrowers eliminated as a result of the new structure, but this is the cost of correcting what needs correcting.  I submit that this process will result in a reduction in defaults commensurate with the increase in prospective borrowers eliminated from consideration.

Lenders need a single blueprint for creating loan files, detailed, comprehensive, even evolving, but only one, not the myriad of interpretations by every underwriting manager in every lender in the vast mortgage lending universe. That is what characterizes mortgage lending today, a cacophony of clarifications for what the secondary markets consider a sell-able loan file. We have chaos, underwriting, processing and documenting mayhem.So the last step in fixing the housing market is to create a structure for mortgage lending guidelines that is clear, concise and effective for vetting borrower risk.  Lenders are busy chasing documents they believe will overwhelmingly satisfy scrutiny, to construct bullet proof loan files.  The primary goal is loans that are sell-able and not “buy-back-able,” default potential is a secondary consideration.  The reason being, if extraordinary measures are taken to create perfect loan files, fewer loans will default and fewer will become preventable loan losses.
Out of chaos comes order, or so says Nietzsche or the Freemasons or whoever, but we do have chaos when what we need is order.  A common sense, real world financial instruction manual for constructing loans, that will safeguard lender processing and underwriting, even if a loan defaults.  The instructions should be inclusive and be specific about what constitutes proper and complete documentation and when it is needed.  There should be clear and definite plug and play constructs for each part of a loan file; credit, assets and income.  Lenders have to be confident that using this new model will eliminate the threat of arbitrary buy-back decisions, attesting to the integrity of the construct of the loan file should be the litmus test.  If a lender knowingly violates agreements and attestations, and develops a history of loan defaults, they can be black balled from selling loans to the secondary markets.
Remember, the goal is a reliable and efficient mortgage financing industry as a means to facilitate the housing markets.  Right now we have countless varieties of guideline interpretations and secondary market dictates that have created a moving target for what is necessary and appropriate.
Before we bring order to chaos in the mortgage financing industry, we need to be able to make loans to people so they can buy houses.  The nature of a loan is that it has to be repaid, so people will need a means to generate income so they have money to pay back their mortgage loan.  A job is a great source of income because it generates regular and recurring income and it is verifiable.  So we will need to create jobs, lots of jobs, lots more than are being created now.  The employment picture has been so bad for so long that we have re-interpreted what is acceptable for a healthy employment report.  The first Friday of the month brings a tenth of a percent drop in the unemployment rate and church bells ring out as the equity markets rally.  Nobody is listening to the whispers about how all of the people who have given up the chase for a job and left the work force as the reason for the new and improved unemployment rate, we just like to hear that things look like they are getting better.   Financial talking heads spin anaemic job creation results into marching, full throttle recovery.  And then the jobs conversation goes quiet until next month’s employment report.
The people we elect to manage America are busy fixing everything but the one thing we need fixed the most, jobs.  Make no mistake, social issues are important, they are culture shaping, compelling and need to be addressed now issues. I get it that we need to engage in these conversations but nobody is talking about jobs and that I don’t get.  The passion and the activism that we see every day about alternative energy,  gun control, immigration reform, same sex marriage, abortion, global warming and on and on, smothers the practical, needs to be addressed even sooner jobs issue.
I do not have the answer to fixing the jobs problem, I am a mortgage guy, but we are a nation of really smart people who manage our entire existence with our smart phones. There are people in our midst who can find the answer and we need to engage them in conversation, employ their resources, employ our resources, listen to their ideas and implement their strategies.  We have witnessed titanic innovation in every industry but government, and we need the kind of better ideas that government has proven impotent to conjure.
The left and the right are so perpetually locked in a steel cage death match to exert the will of one over the other that both sides have forgotten that what we need is jobs.  The mom or dad that is struggling to make ends meet with unemployment benefits or underemployed wages cares little about social reform, they want a job, they want to take care of their families and they want to not be afraid about their financial future.  Effective management listens to customers and finds ways to fulfil identified needs, our managing leaders need to hear what we customers are saying and focus on job creation.
Consumer spending and a robust housing market will accelerate our economic recovery like nobody’s business.  Job creation is the key that unlocks consumer spending and the housing markets.  All political and leadership conversation should focus on this single issue, all day, every day until the sustainable solution is divined.  Go ahead and have side conversation about pressing social issues but keep job creation as important as armament creation during World War 2, everybody’s list should have jobs at the top.
First and foremost, we need to recognize that the Federal government does not have the answer for fixing the housing markets, but they do have a tendency to implement lots of good-idea-run-amok initiatives in an attempt to engineer healthy home ownership.  The Community Reinvestment Act of 1977 was designed to encourage banks to help meet the needs of borrowers in all segments of their communities, including low and moderate income neighbourhoods.  This was long overdue and a critical measure for the economic development of purposely forgotten sections of the population.  CRA though included the caveat that lending practices should be “consistent with safe and sound operations” of the lending community.  The spirit of the CRA, the endorsement of the Federal Reserve and the growth of the sophisticated secondary mortgage markets, along with the absence of “safe and sound operations,” somehow morphed into the everybody-gets-a-loan sub-prime mortgage bonanza that ultimately collapsed and left us in ruins.
All the while, the federal government was championing the virtues of home ownership and endorsing real estate lending practices that gave opportunity to anyone wanting to finance the American Dream.  As home ownership percentages climbed, even the mighty chairman of the Federal Reserve himself, became a cheer leading, chest pounding advocate of this too good to be true opportunity.
And then in 2008, it was over.
But fear not, the Federal government was there to save us from ourselves once again.  In 2009, HAMP (Home Affordable Modification Program) was launched and 3 or 4 million people stood on the threshold of mortgage refinancing salvation.  Originally, the idea was to relieve consumers of the dreaded “option ARM” and replace it en masses with an affordable fixed rate mortgage.  Problem was, by the time this initiative filtered down to the lenders, consumers with option ARMS simply were not eligible, and those 3 or 4 million people needing help shrank to less than 1 million.  Sounded good on TV though.
Astonishingly, this government designed mortgage financing program has a 30% to 40% re-default rate and is proudly defended by a HAMP program architect and former Assistant Secretary for Financial Institutions at the US Treasury, citing theses re-default rates as “below industry averages and below the conservative case used in program design, which was the then existing rate of 50%.”
Huh?
I cannot imagine proposing a lending initiative to the lending executives at the company I work for and include the caveat that almost half of the people we make loans to will never pay us back.  The decision makers at my company would never endorse this lending strategy and chances are, I would end up unemployed for even proposing it.
HUD has been raising FHA mortgage insurance premiums for years, to finance the now rescinded payroll tax cut and replenish the $16 billion dollar deficit in the Mutual Mortgage Insurance Fund, and who pays?  Low-to-moderate income borrowers, FHA’s primary customers, the consumers who can least afford it.  FHA mortgage insurance premiums have become prohibitively expensive and consumers are looking at maximum financing alternatives that allow for a minimum down payment without the life-of-the-loan financial burden that is FHA mortgage insurance.  Mortgage business is being redirected to Fannie Mae and Freddie Mac and HUD seems to have no other answer but to continually raise the insurance rates.
And of course there is the new Consumer Financial Protection Bureau (CFPB), and the “Ability-to-Repay” rule which addresses issues that the mortgage industry has already fixed.  The Ability-to-Repay rule may help protect mortgage consumers from themselves more than anything else, but it is the market correcting threat of having to buy back a less than completely vetted loan that will keep lenders honest.
The Federal government has catastrophically mismanaged the mortgage financing landscape and has no clear plan for a balanced policy.  Lenders have lost billions of dollars in bad loans and have no appetite for losing any more. Oversight regulation is essential to an efficient, consumer-centric mortgage industry, but lacking a clearly defined formula for loan construction, the dreaded “buy-back” will continue to paralyse the mortgage finance process.  And until we stop all of the noise and focus on putting people back to work, none of this really matters.

Central Banking Explained!

Isaac Newton, the father of modern physics, was an odd duck. Despite his almost relentless devotion to the practice of the scientific discipline, Sir Isaac spent a good deal of his leisure time dabbling in the field of alchemy — the pseudo-science that is focused on discovering a way to transform base metals such as lead into gold.
Never mind that actually discovering a way to do this would undermine the very basis of the value proposition for gold, he and many other intellectuals of his time were hellbent on solving the problem (ostensibly so that, at least for a time, it would feel good for a while).
Were Sir Isaac to be alive today, he’d be delighted to learn that the ability to manufacture value out of nothing finally has arrived. All you need to have is the reins of a Central Bank in your hands, and a printing press at your disposal.
Today, the future of the world’s nations and economies no longer respond to the whims of presidents, premiers and chancellors. It responds to the whims of the central bankers who head up the world’s most influential Central Banking Units: the Federal Reserve, the Bank of England, the European Central Bank, the Bundesbank, the Bank of China and the Bank of Japan, among a handful of others.
Twenty years ago, almost none of us could recite the names of central bankers outside the heads of the central banks in our own regions. Today, names such as Ben Bernanke, Mervyn King, Jean-Claude Trichet and, more recently, Mario Draghi are familiar if not well known to most of us, wherever we happen to reside around the globe.
It has been said that no one is remembered for a catastrophe avoided. But they should be. Over the past several years, people like Bernanke and King and Trichet have been vilified by the press when they probably should be celebrated as heroes.
To understand in greater depth exactly why, you have to read Neil Irwin’s latest tome, The Alchemists. Before reading it, I thought I understood the causes of the financial crisis. After all, it’s been written about endlessly in books including The Big Short, Too Big to Fail, A Colossal Failure of Common Sense, Mr. Market Miscalculates, Panic! and many, many others. But Irwin’s perspective is from the vantage point of the central bankers who had to develop the right policy responses to the myriad events that continued to unfold, day after to day, and, to a large extent, continue to unfold today.
The ultimate objective throughout has been and continues to be to preserve the stability of the financial markets while containing price inflation. Throughout the past six to seven years, doing so has forced the central bankers to take unprecedented risks in hopes of averting a total collapse of the bond markets, without stimulating a rash of global hyperinflation. The policy tools at their disposal have included interest rates, of course, which we all know they've managed to keep at historical lows for a surprisingly prolonged period of time. The other policy tool they have used prolifically, particularly recently, is to print money through the mechanism of bond purchases. When they do this, they’re effectively spending money they didn’t have before to purchase assets they didn’t own, the same way a bank creates money when it lends on deposits at ratios greater than the deposits. What is this practice, other than alchemy?
As the central banks buy bonds, former bondholders now have cash they can use to invest in other sectors of the financial markets — in the stock market, in the corporate bond markets, and in the private equity and debt markets, including real estate. This money simply didn't exist before, and by forcing it into these sectors of the markets, the bankers are hoping to stimulate growth in the financial sector. (By inflating the value of these assets, they hope, business confidence will improve, and as business confidence improves, investment spending and job creation will pick up.)
The other thing that happens when central bankers buy bonds is that money that would have purchased these securities, be they residential or commercial mortgage–backed securities or government bonds, is crowded out of those markets and forced to move into other areas of the financial and private markets. In buying back bonds, then, the central bankers not only are flooding the markets with capital (creating a so-called Wall of Money), but they’re concentrating that capital in the markets they think will do the most good for the economy.
Equally important, by buying up bonds, they’re holding the lid on rates by supporting the market for these bonds. This is particularly important when you’re talking about markets that are starting to implode, as the market for RMBS was during the height of the financial crisis and, more recently, as the markets for the debt of southern European sovereign nations were (and have been) for the past several years.
When bond markets threaten to implode, issuers can’t refinance. When issuers can’t refinance, they default. When they default, there are serial, domino-like effects. Bond values collapse and eventually go to zero. When bond values collapse and eventually go to zero, the banks that hold those securities as collateral go bust. When banks even threaten to go bust, depositors stage a run on the bank. This is precisely what happened to Northern Rock in the United Kingdom, which essentially was the poster child that ultimately triggered the mess we’re in, when depositors started their run on Northern Rock in the wake of the Lehman crash.

Monday, May 27, 2013

Real Estate Economics 05/27/2013



An ugly week in the MBS market has moved mortgage rates up.  Statements by the Fed and its leader, Ben Bernanke, regarding the time frame for easing back on the MBS stimulus known as QE, were considered by investors to be a thumbs up on current economic growth.  Essentially, if the Fed is so optimistic about the speed of recovery, that it's willing to pull back on the stimulus much earlier than previously indicated; then investors definitely want to be taking advantage of the potential increases in the stock markets.  So, they moved their investment funds from the bond markets to stocks, which drove the bond markets down and interest rates up.

That's an extreme simplification of what went on this week, but how much do you really want to know?!  A reality check is due, and it's likely that mortgage rates could get somewhat better over the coming weeks.  Maybe not a lot better, but better.  Our economic growth rate is not stellar, and there is still no fear of inflation, so many analysts expect to see the Fed continue its stimulus efforts.  However, markets will bounce on every word from that group, and every word will be scrutinized more closely as time goes on.

On the fun side, I've attached a colorful Housing Market comparison graphic that may be of interest.  It shows the fall and rise of housing prices from 2009, 2011, and 2013 across the country.  It may be helpful in convincing your buyers and sellers to do something sooner rather than later.  The percentage of loss or gain shown is a 2 year comparison.  So, the first one shows home prices declining an average of 17.6% from March of 2007 to March of 2009, and so on.

The following rates are based on 30 day locks with no discount points and credit scores of 740 or better, as of this morning.  The 30 Yr Fixed Non-Owner rate is based on 25% down payment.  This is where the best rates come in for investors


Rate
APR
30 year fixed conforming =
3.875%
3.932%
15 year =
3.250%
3.341%
3/1 ARM =
3.125%
3.194%
FHA/VA 30 year fixed =
3.750%
4.717%
30 Yr Fixed Non-Owner =
4.500%
4.588%
Prime rate is currently =
3.250%


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Wednesday, May 22, 2013

Beware! Short Sales are showing up a foreclosures on credit reports by mistake.

This is important and fixing it will not be a problem if you know who to contact. If this has happened to you in Lane county Oregon I can help!
Justin Thayer
541-543-7287


TRINITY, Fla. - More and more short sales are turning up as foreclosures on credit reports. The issue caught the attention of Senator Bill Nelson who this week asked for a federal investigation into why the mortgage industry does not have a separate credit reporting code for short sales.
Like some of his Trinity neighbours, George Albright unloaded his underwater two-story thru a short sale.  A short sale damages credit versus a foreclosure that slashes consumer scores.
It's been more than two years since Albright sold his home, and now's he ready to buy again, but can't.  It’s showing up as a foreclosure on his credit.
Veteran mortgage broker Pam Marron found it's a scenario repeating itself over and over again.  Short sellers discover they can't get back into the housing market because their credit report shows a foreclosure.
Why? The banks and credit bureaus have no special code to report a short sale, according to Marron, who recently traveled to D.C. to educate lawmakers and lobby groups like the Consumer Protection Bureau to do something about the glitch that could affect many.
Experian says the problem is not theirs. In an email, a spokesperson explained.  "The short sales and foreclosures are being coded correctly on Experian’s credit reports.  Where we have found the discrepancies occurring is in the underwriting process."
Short term, Marron says, short sellers must demand a letter from their lender that states that the property closed is a short sale and any marking of a foreclosure should be deleted.


Big-Ticket Homes in Higher Demand

The luxury home market is gaining momentum, with prices rising and many areas where upscale housing once struggled now turning into a seller’s market, according to the Institute for Luxury Home Marketing.
“Prices have been trending up fairly strongly since the beginning of the year,” Laurie Moore-Moore, the institute’s founder, recently told the Chicago Tribune. “Inventory has been tight, though we're starting to see a little growth in inventory again. It's not stock-market driven, not necessarily. When you look back at the housing-market downturn, the low point probably was in 2007. Typically, a downturn would be driven by high mortgage-interest rates, but this time it was the whole real estate market that crashed. And at that time, the number of wealthy people in America actually declined, and the number of wealthy households is an extremely important driver of demand.”
But by 2010, there were nearly as many wealthy households as before the downturn, with affluent households recovering fairly quickly, Moore-Moore says.
“This group focused on residential real estate as a pretty desirable asset — for them, a second or third home turned out to be a portfolio play,” Moore-Moore notes. “Driving the recovery, we've had record low interest rates and a perception of bargain prices and then we've had this very affluent group saying, maybe real estate is a smart buy.”
The high-end markets flourishing the most are Baltimore; Charlotte, N.C.; San Francisco; and Washington, D.C., according to a monthly analysis by the Altos Research data firm on behalf of the Luxury Home Marketing. The report tracks 31 ZIP codes with the highest median prices.
But not all luxury home markets are gaining momentum, according to the report. For example, some luxury markets are considered stable, including Atlanta, Los Angeles, Miami, Las Vegas, Denver, and Dallas. Also, luxury-home markets are still seeing prices fall in areas like Chicago, New York, Seattle, and Orlando.

Banks Slow to Payout Mortgage Relief Funds

Banks have paid less than half the $5.7 billion in cash owed to troubled homeowners under nearly 30 settlements brokered by the government since 2008, delaying help to the millions of victims of discrimination and shoddy lending that epitomized the housing crisis, according to a Washington Post analysis of government data.

Monday, May 13, 2013

The Ins and Outs of VA Loans


The Ins and Outs of VA Loans

Realtypin.com Author: 
VA-loans
If you are Active or Retired Military and considering purchasing a home, one type of financing you should look into is the Veterans Affairs loans (or “VA loans”), which can be issued by qualified lenders. This type of loan is intended for American veterans, or their surviving spouses, to help them purchase a home or provide a second mortgage.  
This type of loan has much better benefits than traditional loans. Many times, the loan amounts are much higher than that person would normally qualify for with a Fannie Mae or conforming loan. With a VA Loan, the monthly payment can be close to half of the person’s monthly income, instead of the typical quarter of the monthly income. Furthermore, these types of loans usually not require any down payment or a limited down payment to qualify. 
 
How do you know if you’re eligible?
 
These loans are intended for American veterans who meet a minimum time of completed service. The VA doesn’t specifically require a minimum credit score to pre-qualify for a VA loan. However, most lenders do require a minimum credit score, regardless of the veteran’s status. 
 
What about purchase loans and cash-out refinancing? 
 
You’ll usually see these terms mentioned alongside VA loans, so let’s go over each one…
 
A purchase loan is a loan offered to veteran that doesn’t require mortgage insurance or a down payment. With the cash-out refinancing option, a veteran can take equity out of their home for certain things – like paying for their children’s college tuition, home renovations, or paying off debts. To qualify for these types of loans, the veteran must have an appropriate credit score, as well as proof of sufficient income. 
 
What about an interest rate reduction refinance loan?
 
You’ll also see this type of loan talked about in conjunction with VA loans. The interest rate reduction refinance loan is open to Veterans with a current VA loan. It allows them to refinance and receive a lower rate (if they’re eligible). This type of loan can only be applied against a current VA Loan on the original property that the loan was provided to finance. 
 
So, what’s a Native American direct loan?
 
If you’re a Native American veteran, you’ll hear buzz about this option, too. This type of loan is for Native American veterans to purchase or build on Federal Trust Land. This type of loan can also be used to get a better rate on a current VA Loan. To qualify, you must be a Native American Veteran serving a minimum amount of time in the military. Furthermore, your tribe must be a participant in the program.
 
What are adapted housing grants?
 
This type of loan is provided to Veterans who need to make changes to their current home or to purchase a home with specific needs related to a disability. These types of loans can be used for things like wheelchair ramps or other improvements to aid in the living of a veteran who has suffered a disability. To be eligible for this type of loan, you must have had sustained a permanent or a certain total disability that is directly correlated to your military service.
 
If you are active or retired military and are thinking about purchasing your first home or refinancing your current home, your first stop should be to a VA loan calculator to find out if you qualify for these loans. In the end, you could wind up with a much more affordable mortgage!  
 
 
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