Author Archive

Okay, this Mr. Sack guy is the guy who manages the Fed’s day to day dealing with the financial markets.   Here’s what he had to say about rates yesterday:

• 10 year Treasuries were .50% lower than they would have been without the program.
• Mortgage rates would be 1% higher if it weren’t for the Fed’s purchase of mortgage backed securities.

The only questions that I see coming from this are:

• Will those differences automatically reverse themselves when the program stops?   It’s not necessarily a given that they will unwind immediately when the buying by the Fed stops.
• How long will it take for those positions to unwind?   Will rates climb over 30 days?  6 months?  12 to 18 months?
• If you are contemplating either refinancing or purchasing relatively soon, why haven’t you done something yet?   Call me, call Justin, call any of the lenders on the contributor list on the side of this column, but don’t wait too long.   The window of opportunity is going to be closing some time soon and probably sooner than we all think.

Stay Tuned……

The Fed’s Market’s Guy Eyes Asset Sales and Rate Increases – Real Time Economics – WSJ

Mr. Sack is a key voice on the Fed’s expanding balance sheet, because he manages most of the central bank’s interactions with financial markets and thus many of its asset purchase and money lending programs……

Mr. Sack’s group estimates that the Fed’s purchases of $300 billion in long-term Treasury securities earlier this year helped to push yields on 10-year Treasury notes down by about half a percentage point……

Some critics have argued that the Treasury purchases didn’t have the intended impact of pushing rates down.
But Mr. Sack – a long-time proponent of such purchases – said his estimate is supported by regression analyses by the Fed.

Purchases of mortgage backed securities, he says, pushed those rates down by a full percentage point.

We’ll get more details later today, but it looks like it’s going to get harder and be more expensive to get an FHA loan.   A couple of main points to consider:

• FHA is currently losing money by the truckloads, so something has to change.
• The increased FICO scores, larger downpayments and reduced seller concessions will probably weed out a few people, but not that many.
• It will make it more expensive to buy a house FHA.
• At first glance, the part about scrutiny of the lenders seems like it really wouldn’t affect borrowers, right?   Wrong, here’s why.   If FHA becomes more demanding in terms of their buy back provisions with lenders, guess what, lenders are going to be looking at absolutely every little detail on the loans to make sure that they comply with the guidelines.    Your borrower needs to have 12 months on the same job and he’s only at 11.5 months?  Sorry, wait two weeks.    The paystubs are dated 31 days before application and we need 30 – sorry, got to get another one.    The bank statement, well, you get the picture.

I’m working on a post outlining the details of what Fannie is doing next week Saturday with their new guidelines.   Fun times…..

FHA to Toughen Mortgage Rules in Lenders Crackdown – Real Estate * US * News * Story – CNBC.com

Amid rising foreclosures and falling home prices, the Federal Housing Administration is proposing new rules to crack down on lenders and asking Congress for the authority to raise certain borrower requirements, all in an effort to reduce risk to its $685 billion mortgage portfolio. 

While FHA Commissioner David Stevens said in an interview on CNBC following that release that the FHA would not need additional federal funding to meet its loan losses, he added that FHA will be looking for new ways to reduce risk.

Those steps will include raising minimum borrower FICO scores, requiring larger down payments, and reducing the maximum permissible seller concession from six percent currently to three percent.

It could also include raising up-front and/or annual insurance premiums, which would require Congressional authority. This is according to the testimony HUD Secretary Shaun Donovan is scheduled to present to the House Financial Services Committee on Wednesday afternoon, obtained by CNBC.

In addition to changes for borrowers, Secretary Donovan is proposing increased lender accountability.

“We will hold lenders accountable for their origination quality and compliance with FHA policies,” Donovan will tell lawmakers.

Gee – do you think they should have done that a long time ago?

Yeah, that’s right.  The biggest kick in the stomach since the September/October meltdown of 2008.   What is that kick in the stomach?

It’s the government’s withdrawal from the mortgage backed securities market.  We’ve already talked about how the government’s market share in the residential mortgage market has climbed to an all time high.   But this is something else.   In addition to that, the government has committed to spending almost $1 Trillion (that’s $1,000,000,000,000) in buying mortgage backed securities in an effort to keep rates lower.

If you recall, when the Fed announced they were buying Mortgage Backed Securities, rates dropped by .375% over night.    As we’ve discussed on here before, many people believe that it’s reasonable to expect rates will edge up by about that amount over the next 5 months as the Fed winds down their purchase plans.

But this article, and the report that Meredith Whitney gave yesterday (see the next post) give serious credence to the fact that it could be substantially worse than that.   Why?

• Because the credit qualify of mortgages has deteriorated substantially since then.
• Because the investment market has changed since then.
• The appetite for mortgage backed securities is probably substantially less than what they expect that it is.

Now if we apply the Vanderwell Rule of 50% (what’s that? – simple, take their estimates and “tone them down” by 50%) what does that say for mortgage rates?

It essentially says that we’re going to be looking at a minimum of .5 to .75% higher rates in the next 6 months.

Viewpoint: Like Us, Whitney Sees Risks in Fed’s MBS Exit : HousingWire || financial news for the mortgage market

I’d qualify that – I’d say let’s hope it emerges into the public view over the next four months, because it could be – if the Fed exits as planned at the end of first quarter 2010 – the biggest kick in the stomach housing and financial markets have gotten since surviving the near total shut down of credit last fall.

Nothing…..

Did they change anything on their statement?

Nope.

Will it have an impact on mortgage rates?

I don’t think so.

According to the BAI survey, the perception is:

• 31% of the consumers thought it was harder to get a mortgage.
• 5% thought it was easier.
• By default that means that 64% thought it was about the same as 6 months ago.

What do I think?

If you have good credit, can document your income and assets, have enough assets for a downpayment, and are working with a MORE THAN competent mortgage lender who knows how to navigate the complexities of today’s market, then it’s no harder now than it was 6 months ago.

If your credit is struggling, you can’t document your income (sorry – self employed people who write everything off are out of luck) and don’t have either equity or a downpayment or you’re working with a lender who isn’t on top of things, then it is harder.

So, tell me – what’s the perception that you’re seeing?

31% of BAI Survey Respondents Find Mortgage Access Worsening : HousingWire || financial news for the mortgage market

Financial services information and intelligence provider Bank Administration Institute (BAI) launched the BAI & Finacle Banking Confidence Index, which tracks the effect of upheaval in the financial services industry on consumers’ views.

The index measures consumer views across five areas: financial stress and the economy, access to credit, fees and disclosure, managing personal finances and consumer trust.

The index’s findings, released Tuesday, indicate one-third of consumers feel their financial situation has deteriorated in recent months, but few expect conditions to grow even worse.

Of those surveyed, nearly one-third — or 31% — indicated access to mortgages is worse now than six months ago, while only 5% said it improved. The projections indicate 12% of respondents expected access to improve in another six months, while 15% expect access to worsen.

“In today’s fast-changing scenario, consumer opinion counts more than ever before and technology has made the consumer highly empowered,” said Haragopal Mangipudi, global head at Finacle, a solution from Infosys (INFY: 46.39 -1.70%). “Presented with diverse and ever-dynamic consumer segments, banks need to anticipate changing requirements and fine-tune business strategy.”

Lots of news happening today:

• Gross Domestic Product for the 3rd quarter came in on a preliminary reading at 3.6% up.   That’s great news, right?  Well, it’s good news, but look at the temporary stimulus measures that propped that up.   The cash for clunkers auto stimulus program is supposed to have added 1.7% to the overall number.   So we’d be at 1.9% without that.    What do you suppose the housing market would look like without it’s $8,000 version of cash for clunkers?   Yeah, that’s right.    So, besides for the temporary stimulus measures, which are exactly that, temporary, we’re not looking all that good.   Temporary euphoria going on in the stock markets and on CNBC right now though.
• Speaking of temporary euphoria – the markets are happy because initial jobless claims fell by 1000.   That’s right ONLY 530,000 people got laid off last week.   Whew, that feels better.    NOT.
• Exxon Mobil’s earnings fell – but remember what oil prices were like a year ago?   No big surprise there.
• The talk continues in Washington about whether there really is a too big to fail and what to do with the likes of Citibank, AIG, GMAC and the like.   
• The talk continues about an “extend and pretend” home buyer tax credit designed to push the housing troubles down the road.   Lots of talk, lots of people saying that it’s passed.   It hasn’t yet.    Passed a couple of committees, yes, but a true up or down vote in front of the House and Senate and signed by the President, nope.    When we do have a solid plan, I’ll tell you what I know and what I like or don’t like about it.   Until then, it’s all rumor and innuendo.

So what are mortgage rates doing with all of this news?   Really nothing.   Rates have remained stable today.

My recommendation remains to lock all loans because the potential for an increase in rates is greater than a potential for a decrease.

Stay tuned, it could be an interesting week with the jobs claim next Friday, the Fed meeting soon and just a lot of stuff going on.