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Take it easy on us, folks.  Mortgage rates are tough to predict on a  quarterly basis let alone a weekly one.  Three times this year, I changed my long-term bias from floating, to locking, then back to floating.  Moreover, a long-term floating bias is still going to have times when it makes sense to “get while the getting’s good” and lock immediately.

My September 2009 mortgage rates outlook examines that very conundrum.  In short, I’m locked for all closings before October 7, 2009 but floating longer-term closings.  There is a substantial pricing difference between a 60-day rate lock and 30-day rate lock (usually as much as a .5% discount fee).  That means that it would cost $1500 more to lock a rate, for a $300,000 loan, for 60 days rather than it would for 30 days.  That’s why we try to “play the rate game” with y’all when we offer mortgage rates prognistications.

Rate lock management is about managing RISK, not trying to manage the rate. Simply put, we KNOW we can’t catch the absolute bottom of the market but we try to analyze how economic, political, and financial markets’ forces might affect those rates between the time you apply for a loan and when you close.  THAT is the mark of a true mortgage professional.

In August, you saw a difference between Tom Vanderwell’s bias and mine.  Tom advises that the inflationary pressures, not limited to but including the increase in money supply, higher taxes, and commodities-push inflation could propel mortgage rates higher.  I ultimately agree with Tom but believe that the probability of a prolonged (or double-dip) recession will keep conforming mortgage rates below 6% for the rest of the year and possibly into the first half of next year.

…and I can STILL be wrong. If I am, you’ll see me change my bias faster than Madonna changes lovers.  I’ll give you an example of where Tom’s current bias will save his customers money while my current bias will cost my customers money; when the federal mortgage rates subsidy expires.  We could wake up Tuesday to find out the Fed prematurely arrested that program.

Let me reiterate what I said at the beginning of my tenure on Mortgages Unzipped; professional mortgage originators WILL understand:

• which market moves mortgage rates
• which impending economic figure release will move the market
• how to measure a customer’s tolerance for the risk of mortgage rate fluctuations
• how to renegotiate a rate-lock, for the customer’s benefit, in volatile markets

Look for the mortgage professional with the guts to answer the all important question:

What do you think mortgage rates are gonna do, in the next 30 days?

It could save you, literally… thousands of dollars to your closing costs.  What we write in public isn’t as important as the personal advice you receive when engaging us for your next mortgage transaction.  What we write in public demonstrates HOW we develop our lock management strategy.

If you think working with a real mortgage professional is expensive, wait until you see how much an amateur can cost you.

If June, 2009 was the month of disaster for mortgage rates, July, 2009 is the month of the recovery.  Mortgage rates jumped from under 5% to close to 6%, in June, while they have plummeted to the sub-5% level in ten short days.

Will mortgage rates rise or drop this summer? Listen to my 90-second opinion here.

Keep something in mind as you listen; my advice is not a svengali-like prediction.  Rather, my advice examines the market movements, from the heart and mind of a former securities trader, with the sole purpose of mitigating risk and looking for reward.  I think you’ll find that I’m more worried about risk than I am of the potential reward.

Are rates going to go higher?  Listen and proffer your argument below.

Are you seeking a new home and deliberating over which real estate agent to use?  Beware of the five most common lies real estate agents, representing buyers, tell about their compensation:

1- My services are free to you; the seller pays me.

This one is the most common and it is entirely untrue.  The current compensation model provides for the buyers’ representative to be paid a co-brokerage fee from the listing agent.  The listing agent is paid by the seller who receives the proceeds from the sale by…

…YOU.  The buyer.  The trick is that the 2.5% to 3.0% co-brokerage fee your agent earns, is most likely “financed” by you over the life of the loan.  That makes the buyers’ brokerage fee “feel” like 6-7%.

2- My compensation does not conflict with my ability to represent your interests aggressively.

This one is simple math.  If the buyers’ agent is paid a percentage of the purchase price, her financial interests are aligned with a higher sales price.  Most agents I know operate ethically but make no mistake about it, until real estate commissions are divorced, the compensation is never mathematically aligned with aggressive buyer representation.

3- We’re not allowed to “rebate” the commission to you.

That’s only a lie in 35 states.  In most states, you can negotiate a buyer brokerage fee and have the “excess” compensation from the co-brokerage fee either

• (a): credited towards your closing costs (if allowable) or
• (b) sent to you post-closing by check.

4- Only discount real estate agents, like Redfin, can negotiate the buyer’s brokerage fee.

See #3; all commissions are negotiable.

5- The Buyers Brokerage Agreement is not something we really enforce.

It’s a contract, folks and it’s often slipped in the pile of documents you sign when you make an offer.  Sometimes, it isn’t even explained until your offer is refused by the seller. Then, the agent reminds you that you’re “joined at the hip” for twelve months.  Read these documents before you sign them.  If you only want this agent’s representation for the duration of the negotiation for a particular property, make her specify that in the agency agreement.

Most real estate agents are good and honest professionals.  Even the honest ones though, won’t necessarily offer you an opportunity to discuss their compensation unless you bring it up.  Feel free to print this article and review each “lie” with them before you look for a home.  It could save you thousands of dollars.

PS:  Food for thought-

Why would a buyer pay an agent twice as much money for an “easier” transaction?

Ask your agent about a recent difficult transaction she negotiated.  She’ll most likely brag about a first-time home buyer who bought a bank-owned property.  She’ll dazzle you with war stories and perhaps even tear up a bit about the pride she felt when the new homeowners moved into their home. Ask her how much the price was, then…

…explain that you’re buying a home from a seller with equity (no bank involved), are impeccably qualified, and intend to close quickly.  Compliment her on her dedication to the first-time home buyer and have her acknowledge that your case should be much easier for her to handle…

…then offer to pay her the same amount as the first-time home buyer did.

I wasn’t sure about the new trend of higher mortgage rates.  The nagging thought was that the Fed would continue or expand it’s open checkbook policy, buy mortgage bonds, and keep home loan rates artificially low.

When the whole market melted down, I said “don’t panic“; it was good advice.  Mortgage rates, which jumped from 4.625% to 5.5% in one week, retreated to 5%.  I jumped on that opportunity.  I’ve been cautiously optimistic for lower mortgage rates in late June.

Ben Bernanke’s testimony yesterday spooked me. I’m not so sure he wants to be Sugar Daddy Ben anymore.  I think he’s cutting back on the subsidies.  This signifies a change in “BIAS” for me.  Since January, I’ve been “biased” towards lower mortgage rates because of the milky Federal teat from which to nurse.

Will I still find an opportunity to float rather than lock? Certainly.  As long as there are traders, overreactions will provide that opportunity.  I think those opportunities will be fewer for the duration of 2009.

PS:  I’ve received over a dozen e-mails this week asking my advice on your loan-in-process.   If you are working with another mortgage adviser, you should speak with her first.  If your rate isn’t locked and you’re not getting daily updates from your loan adviser, you need to consider one of these professionals.

What a week, huh?  The mortgage rates meltdown scared a lot of people this week, me included.  I was mostly worried that foreign investors believed American homeowners were a all sub-prime borrowers.  I knew if that false sterotype were allowed to proliferate, mortgage rates would skyrocket. I was worried but…

…I didn’t panic.

I didn’t panic because I remembered two rules of investing, learned early in my career:

1- Buy the rumor and sell the news. I expect the Fed to massively intervene next week;  perhaps expand its commitment even higher.  If Ben’s talking on the TV, I’m locking a day or two later.

2- Don’t fight the Fed. People do it all of the time and often end up on the wrong side of the trade.  Why would you fight an institution that just creates money when it needs it?

I said we’ll see rates under 5% by the end of next week.  It looks like I was wrong.  Check out how I screwed this one up

Update: June, 2009 Mortgage Rates Thoughts (added at midnight)

We’re in the “Era Of Finger Pointing” so I”ll just pile on; mortgage rates have skyrocketed in the past week and it’s all the Chinese, Tom McClintock, and Bill Gross’ fault.

Tom McClintock is a  California Congressman (and former gubernatorial candidate).  Congressman McClintock wrote an opinion piece, in the Washington Times this past weekend, that suggested that the budget crisis in California foreshadows the inevitable national crisis:

What can California do? Its credit is stretched to the breaking point, and increasing tax rates now produces decreasing tax revenues. Its deficit vastly exceeds resolution by conventional budget reductions. There is no line item labeled “waste,” and the state’s deficit vastly exceeds the truly obsolete and overlapping programs strewn throughout its budget.

McClintock’s summary and warning:

The decline and fall of the California Republic is a morality play in the form of Greek tragedy. Before dismissing California’s agony as the just price for its hubris and folly, though, heed this warning: Congress is well under way toward imposing the same policies on the rest of the nation. California is just a little further down that road.

Bill Gross is perhaps the most prescient fixed-income money manager in the world.  He’s often known for being early but correct.  Mr. Gross suggested that America’s soverign debt might lose it’s rock-solid AAA rating and that we’re headed for the junk bond heap:

Bill Gross, manager of the world’s biggest bond fund, warned on Thursday the United States will eventually lose its top AAA credit rating, a fear that had already spooked financial markets on Thursday and could keep the dollar, stocks and bonds under heavy selling pressure.

Throw in the unsolicited money management advice from our largest creditor, the Maoists, and you have a recipe for a panic run on mortgage bonds.

Mortgage rates responded appropriately; the mortgage-backed securities market sold off about 3% in the last five days.  This means that a 4.5% mortgage rate, that cost 1 point a week ago, costs 4 points today.  This is a short-term overreaction.   Moody’s rating service, mostly owned by Friend of Obama (FOO), Warren Buffett, reaffirmed the US Treasury’s Aaa (highest) rating today:

And today, Warren Buffett’s Moody’s (MCO) went ahead and decided to kick sand in Bill Gross’s face yet again. How so? Moody’s affirmed the U.S.’s Aaa rating, arguing that “the U.S. economy’s long-term resilience and key role in global affairs should bolster its ability to resume a strong performance following the current recession.”

In addition to the Gross-slap Warren Buffett administered today, the Fed still has $600-700 billion earmarked to support mortgage-backed securities.  This means that they can buy a bunch of mortgage bonds, to bid up the lost 3% and drive rates back down into the 4’s.

Is this crazy? Why are we borrowing from Mao to subsidize Joe’s mortgage?  The answer lies in the depression recession war; we gotta subsidize housing by any means available if we want to pull out of the economic nose dive- even if it means we have to bribe “Big Daddy Buffett” to git ‘er done.

What’s this mean to you? Locking in your mortgage rate is probably a hasty decision right now.  Expect Ben Bernanke to speak by Friday in his gentle, reassuring tone.  Tim Geithner should be front and center, calming down those impetuous bond traders tomorrow.  Mortgage rates should drift down by the end of next week.

The Chinese, Tom McClintock, and Bill Gross are all correct; the US government’s actions are inflationary and destructive.  They are all correct but early.  The time to panic will be this fall; hopefully you’ll do what you need to get done by then.

Originally posted on Millionaire Real Estate Lender

Brian Brady Zillow

Brian Brady, enjoying his new Zillow hat, while he checks comps with the cool Zillow iPhoneApp

The recent FHA ruling (HUD Mortgagee Letter 2009-15),  designed to allow a subordinate lien, cross-collateralized by the anticipated First-Time Homebuyer Tax Credit, has been stalled.  Less than one hour after the ruling was posted on the HUD website, the provision was rescinded.  From Boston.com:

According to contacts with both FHA and HUD, Mortgagee Letter 2009-15, which stated that first-time homebuyers would be allowed to use the tax credit for their downpayment, has been rescinded. On a phone call with FHA, Kim Kahl was told, “The mortgagee letter has been rescinded for the time being.” NAEBA President John Sullivan was told something similar when contacting HUD. Neither FHA nor HUD gave further details.

This is not to say that the policy won’t be reintroduced soon.  Government relations’ executives at mortgage banks believe that HUD wanted to avoid the implementation problems the temporary agency-jumbo loan limits increase order created when the agencies and lenders weren’t prepared.

Can a home buyer borrow money for his/her down payment today? Of course they can provided the loan is documented and the repayment terms are figured into the debt-to-income ratios.  Current sources for downpayment loans, which are acceptable to HUD, are not limited to but include:

• personal loan from a family member
• unsecured line of credit (credit card)
• 401-k retirement plan loan

For example, if a home buyer wanted to purchase a $300,000 home, which required a $10,500 down payment, they could take a cash advance against a credit card.  Underwriters would most likely require that a 4% per month minimum payment ($420) be used to calculate the debt-to-income ratios (regardless of the actual minimum payment).  Is this a prudent use of credit?

Perhaps. In our example, the home buyer might pay nine months interest on that credit card loan, at 24%, until the tax credit could be realized.  That interest (in our example) would be about $1,900.  if the home buyer were reasonably certain that the home they were buying was offered at such a compelling price that the $1,900 cost was minor, then I’d suggest it might be a prudent use of credit.

Perhaps not. I’m not convinced that the compelling deals won’t be here in 8-9 months.  In short, it would seem a bit impetuous to me to use that credit card loan.

There is a difference between mortgage brokerage firms and direct lenders.  Our firm has the capacity to operate as both a principal (lender) or agent (broker) in our loan product offerings to customers.  Inasmuch, I’m afforded the luxury of both worlds.

Which relationship is better for the customer?

The answer is, whichever product offering best suits their particular needs.  There is a lot of talk about defining the mortgage originator relationship to the customer as a fiduciary; I think that’s a fine idea.  My definition of fiduciary extends beyond the scope of the regulators’ defintion of suitable recommendations for borrowers, though.  My standards require a demonstration of consumer education and care unseen in this industry, to date.

I don’t see that education and care being offered by America’s mortgage banks. Naturally, I see this as an opportunity for mortgage brokers.  It is my opinion that only fighting chance a borrower has for a true fiduciary relationship comes from an independent mortgage broker.  Banks are ill-equipped to offer that relationship because they compensate their originators more money to place a borrower in a proprietary loan product than if they brokered the loan to another financial institution. Inasmuch, the borrower is denied the opportunity for the “best terms available” because of that skewed relationship.

I want the National Association of Mortgage Brokers to start talking about this rather than to complain about the skewed licensing standards.  I don’t want fairness in licensing. If mortgage brokers are being held to higher standards than the banks’ sales representatives, so be it.  Mortgage brokers offer a superior relationship to borrowers than direct lenders do.  It’s time for us, as an industry, to embrace and promote that superiority rather than to fight for equality.

There IS a difference.