BluefoxToday blog : July 2010

Fannie Mae recently took an assertive step, in its own mind at least, to stem the growing tendency of mortgage borrowers pulling off strategic defaults. In that homeowners who could afford their payments choose to walk away from the obligation anyway. The GSE went ahead and added another category to the new policy. Home loan recipients who fail to do a workout in good faith also fall under the spell of its new guidelines. What this all means is that property owners fitting these parameters would be ineligible for mortgages backed by Fannie Mae for seven long years from the recorded foreclosure date.

Strategic default entered the already crowded mortgage and real estate vocabulary just recently when the ever thinner-skinned housing bubble couldn't hold on any more worthless air and popped. The event sent property values on a long skid toward the beckoning abyss and in the process wiped out equity in numbers not seen in modern times. Eventually home prices sank below the underlying mortgage balances and to the utter horror of observant homeowners just kept on going down, spawning the unpleasant designation for the phenomenon; underwater. And those underwater on their mortgages are prime candidates for a strategic default.

Right now Fannie Mae controls a decent chunk of the mortgage market and that gives its policy adjustment some teeth. Yet, as government-affiliated home loan providers today just about completely dominate the housing finance arena, no one else has thus far followed suit. Freddie Mac and FHA are the other major performers and predictably will then attract with their less restrictive rules much of the business Fannie Mae will be turning away.  

The private home loan sector is still struggling to rise from the ashes, but when they do so Fannie Mae's policy is bound to lose even more of its bite. Mortgage applicants - with strategic default/ foreclosure on their record - with down payment funds and solid income will be shopping for the best deal and private mortgage lenders with their innovative minds are certainly going to find a way to accommodate this specialty slice of the real estate market pie.

As things stand, Fannie Mae's policy change seems to hold minimal deterrence power for homeowners contemplating to go for the now notorious strategic default. People simply have too many options besides Fannie Mae to look at.

Trend and Forecast in Mortgage Rates on July 30, 2010 - Improving, or...?

Here are some of the events affecting mortgage rates today:

What Mortgage Backed Securities (MBS) Are Doing Today:

• The price of the FNMA 30-Year 4.0% MBS coupon opened at 102.09 this morning - the same as yesterday's close.
  
  
• At 9:30 AM, the 4.0% MBS coupon was trading at 102.56 - up 9/32 from its opening.

Remember, on mortgage backed securities (MBSs), as the price goes up, the yield comes down - and so do mortgage rates. I expect that mortgage rates will be up to 0.250 points better in price this morning as compared to yesterday.

Price Trend in Mortgage Backed Securities:

The chart below shows the price trend of the FNMA 30-Year 4.0% coupon over the past 30 days from 6-30-2010 to 7-30-2010:

Economic Reports, News, and Events Affecting Mortgage Rates Today:

• Preliminary Reading of the 2nd Quarter Gross Domestic Product (GDP) - the GDP in the 2nd Quarter of 2010 grew at an annualized rate of 2.4%, slightly less than expected, and much less than the 5.4% growth rate in the 4th Quarter of 2009 and the 3.7% growth rate of the first quarter of 2010. So far, this has been a jobless recovery, and weekly unemployment in recent weeks has continued at just above the 450,000 level. As confidence remains low and unemployment remains high, it's not expected that consumers will be purchasing more goods again any time soon. While significant, the data did not have an impact on the mortgage market or mortgage rates this morning.
  
• Employment Cost Index (ECI) - is up 0.5% for the 2nd quarter of 2010, slightly more than the 0.4% increase that was expected. The ECI measures the costs of employee wages and benefits, this providing us with an indication of the threat of wage inflation. Wages & salaries rose 0.4% while benefits rose 0.6%. The year-over-year rate for wages & salaries is up 1.8%. The ECI report did not have an impact on the mortgage market or mortgage rates this morning.
  
• University of Michigan's Index of Consumer Sentiment - came in with a reading this morning of 67.8, a little better than expected, but still down significantly from April's and May's readings. The past 3 readings were 66.5 in June, 75.5 in May, and 73.3 in April. This index measures consumer willingness to spend and can usually have enough of an impact on the financial markets to change mortgage rates. This report indicates that consumers are not very likely to make many purchases. The consumer sentiment report did not have an impact on the mortgage market or mortgage rates this morning.

Trend in Mortgage Rates:

The chart below shows the trend in mortgage rates over the past 3 years:

Mortgage Rate Forecast:

Mortgage rates are at their historic lows - they haven't been this low since the early 1950s - and continue to go lower as the global economic crisis continues. However, the stock market is over sold while the bond market is over bought. It also appears that banks in Europe are not as bad off as previously thought. Mortgage rates could head up soon as the markets begin to correct themselves. As such, I would not take too much of a chance in waiting for even lower mortgage rates.

If you're happy with the mortgage rate being offered to you today and if you don't want to risk mortgage rates moving higher, then you should apply and lock in now. It's better to have locked when you should have floated than it is to float when you should have locked.

Are you in need of a mortgage to purchase a home? Or want to refinance an existing mortgage into a lower permanent fixed rate? Or want to take cash out of the equity of your home? Or consolidate debt and reduce the monthly bills? Then be sure to request a mortgage rate quote today!

Cash is the obvious dominator with overall Las Vegas Area REO Purchases.  Cash not only dominates but CRUSHES financed purchases under $75000.  The primary reason is the stuff priced under $75000 is unhabitable and ineligible for financing or is condo ineligible for financing. 

Asset managers for REO also may choose cash offers that may be lower than financed simply because financed offers have exceeded their appraised price on the property or because there are less contingencies and they can close quicker (which takes the asset - or liability - off of their books quicker.)

Condo financing is currently a challenge in the Las Vegas Area.  Lenders want to see low investor concentration, low HOA deliquencies and no construction defect or other litigation against HOA or community.  To determine if a condo is eligible for financing, a condo certification may be ordered from the HOA (this does cost money) and have it run by an underwriter.

Whether you are all cash or a financed buyer, you can search Las Vegas Area (Henderson & North Las Vegas too) homes right here for free and no obligation!

View other REO Stats for the Las Vegas Valley!

Last Month's Las Vegas Area REO Financing Profile Report

 Summerlin June 2010 Real Estate Resale Market Report:

• Listings (7/15/2010):  720
• Under Contract (7/15/2010):  654
  
• Sold June 2010:  175

Since Last Month's Report:

• Listings UP +44
  
• Pendings DOWN -42
  
• Sold Units UP +25
  

Last Month's Summerlin Report

Most Current Summerlin Market Report

While the recent Banking Reform Bill was touted as a means to prevent future financial crises, a little-known amendment offers a helping hand to unemployed homeowners. With HAMP and other foreclosure relief efforts intended to help working homeowners, they offered little to the millions of unemployed who fail to qualify for a loan modification.

The new program will be administered by HUD, the Department of Housing and Urban Development; and while the details are yet to be announced, the bill includes as much as $1 billion to be used to help those without jobs make their monthly mortgage payments. And with unemployment remaining abnormally high, the funds will provide a “safety-net” to many homeowners who might otherwise be forced into foreclosure.

The current recession has been exceedingly difficult for millions across the country, and there are many who legitimately need the assistance offered. However, $1 billion isn’t much when spread across the millions of unemployed. I would hope that HUD does an effective job of distributing the funds and insures that money not go to dead people, those in prison, or those who do not own homes, as was recently the case with the Housing Tax Credit.

The Housing Guru: The expert source for all your housing questions

Home Affordable Modification Program, or more commonly HAMP, was rolled out to allow mortgage lenders and servicers to make available trial modifications to an estimated 3 to 4 million homeowners.When Treasury announced its birth it raised hopes among not only mortgage borrowers in trouble but also government officials who frantically tried to bring the collapsing housing market back to its feet and with that give the badly-mauled banking sector something more concrete to lean on. But things haven't turned out all that well with HAMP.

At least that's what SIGTARP says. SIGTARP is another wonderful acronym - among so many - that has risen to fame on the heels of the memorable finance and real estate crash and stands for Special Inspector General for Troubled Asset Relief Program. That's a long one. In short, he is - could be a she too - tasked to monitor the government's massive struggle to bring reasonable order to the shaky national banking system and the besieged housing realm.

SIGTARP refers to the 389,198 permanent mortgage modifications HAMP has thus far managed to generate, as was recently reported by Treasury.This of course is far less than what the original plan of at least doing 3 million of them called for. One thing is that HAMP is an ongoing process and perhaps when it's all said and done that plateau can be reached. But, frankly, it probably won't happen.

For one, due to high mortgage redefault rates under HAMP underwriting guidelines have been tightened leading to scores of cancelled trial and permanent modifications.It is greatly lowering the potential candidate pool. Short sales are making serious inroads as a viable option for many struggling home loan recipients. Doing a HAMP requires a lot of paperwork and patience and many are willing to take their chances with short sales.

The underwater menace seems to come into play with HAMP, too.Its malicious impact is somehow going to touch all corners of the housing enterprise. When a homeowner is sufficiently underwater he can be essentially convinced that making those lower HAMP payments for years on end still won't pull him out of the negative equity hole anytime soon, so he clearly has little incentive to apply for HAMP. Lower payments are great, but where is the equity? After careful consideration many choose to just simply walk away from their mortgages.

Besides, mortgage lenders generally haven't been all that enthused, for one reason or another, about putting their arms around the program either.HAMP appears to have suffered from clearly-defined goals, as SIGTARP claims, but also from rapidly shifting real estate market conditions. With more assertive administration Treasury could have streamlined its direction and possibly been more efficient in the use of taxpayers' money.  

Las Vegas Area REO Inventory has RISEN since last report (+330 units), Under Contracts have FALLEN (-27) units  Closing data has RISEN (+161) units.  Low interest rates have spurred a flurry of buyer interest & activity  and it continues.  

REO sales accounted for 40% of all Las Vegas Area Valley resale closings in June 2010.  REO listings account for only 21% of total resale listings.

Multiple offers are streaming in as banks continue to lower to fire and auction sale prices.

Current Listed Bank Owned Statistics:

• Listings (7/15/2010):  2476
  
• Under Contract (7/15/2010): 2760
• Sold June 2010:  1625
  

View Last Month's Report Here  

Las Vegas Area July 15, 2010 Active Listings by Type

• REO:  2476 (21%)
• Short Sale:  5231 (45%)
• All Other:  4009 (34%)

June 2010 Sales by Type:

• REO:  1625 (40%)
• Short Sale:  1416 (34%)
• Other:  1085 (26%)

This is just a guide for consumers to see what types of properties are closing vs what is listed.  Currently we have the most closes in the REO sector and the least inventory in the REO sector and it is an extreme seller's market.

Click here to see last month's Listing and Sales Type Report

Click here to view the most recent stats (scroll to bottom)

An article in the Wall Street Journal, Housing Market Stumbles, describes how home sales seem to be deteriorating, but it isn’t just a stumble; the housing market has fallen and won’t get up. The WSJ piece projects the dreaded “double-dip” in housing, a prediction that has grown more popular in recent weeks.

What most seem to overlook, however, is that the fundamentals of housing are being rearranged. The overall market was never truly in recovery; the brief periods of upward momentum were, in general, a response to an artificial stimulus applied by government—a stimulus which was neither permanent nor productive.

With the numbers of new home starts falling, with housing inventory rising, and with the potential for several million additional foreclosures, the housing market is entering a new phase where the old rules no longer apply. Past statistics regarding recovery from recession are meaningless, for the current recession has little in common with those of the past. And those who have homes to sell, those who wish to purchase a home, and those in real estate related businesses must adjust to the fundamentals of this market.

While some areas of the country have seen improvement—markets in the northeast and parts of California—other areas, especially those with the potential for additional foreclosures, are still experiencing weak demand and falling prices. Those needing to sell their home will have to market and price more aggressively; prepare for a longer period on the market; and will have to be flexible to micro-changes in their market.

An anemic job market, expected to continue well into the decade, has changed housing for the foreseeable future. And those areas with double-digit unemployment can expect additional price declines. Nationwide, prices should remain well below the levels of recent years; and, with few exceptions, appreciation will be minimal.

What we’re experiencing is not a double-dip in housing, not a “stumbling,” but a market experiencing a fundamental adjustment downward. With the current and projected absorption rates, we’re likely to have high levels of inventory for several years; and if we add in the indeterminate number of future foreclosures, structural and fundamental changes seem unavoidable. The potential inventory of homes must decline to levels appropriate for the current and anticipated absorption rate—an event unlikely in the short term—in order to begin a recovery; and until that occurs, the housing market has fallen and won’t get up.

The Housing Guru: The expert source for all your housing questions

Lenn Harley wrote a blog on Sunday in which she rightfully questioned the accuracy of what was being stated on another blog about Pre-Approval Letter. The writer of the blog that Lenn was questioning, stated that her Loan Officer had informed her that he would no longer be able to provide her with a Pre-Approval Letter for her Buyers because of restrictions imposed by RESPA. This information was incorrect, Pre-Approval Letters are very much alive and well. But before I go any further let me give three very quick definitions of what I consider a Pre-Qualification Letter, Pre-Approval Letter, and a Loan Commitment Letter. Keep in mind that these are MY definitions, and MY opinion. 

• Pre-Qualification Letter: Loan Officer pulls credit, and inquires about income and maybe bank information. From that the Loan Officer makes a quick determination as to whether the Borrower could possibly qualify for a Loan up to a certain dollar amount.
  
• Pre-Approval Letter: Loan Officer pulls credit, inquires about income and bank information, takes a full Loan Application, may or may not collect some documentation like paystubs. Runs all this information through DU or LP along with a hypothetical Sales Price, and looks for an Approved/Eligible or Accept.
  
• Loan Commitment Letter: The Loan Officer does everything that he or she would do if there was a property, pulls credit, collects all necessary documents, Borrower signs a Loan Application along with disclosures, and everything is submitted into Underwriting. Everything that would be done for an actual Loan would be done except for an Appraisal, because there isn't a property yet. The Underwriter then issues a Loan Commitment Letter up to a certain dollar amount, based on a property being able to appraise later once a property is found.

Again these are MY definitions, other Loan Officers will have their own, including equating a Pre-Qualification Letter to a Pre-Approval Letter, because that is what they do for their Pre-Qualification Letters. You need to find out what your Loan Officer means when he or she uses those terms.

Having said all that, why would a Loan Officer make a statement like the one made in the blog mentioned above? The reason is that if a Loan Officer takes six pieces of information from a Borrower, RSPA requires him to then issue a Good Faith Estimate (GFE), because those six things constitute an Application in the eyes of RSPA, and they HAVE TO issue a GFE within 3 business days or be in violation. The six things are:

• Borrowers Name
• Social Security Number
  
• Income
  
• Property Address
  
• Estimate of Value of Property
  
• Loan Amount

So why would issuing a GFE present a problem? The problem is that with the new GFE that went into affect at the beginning of the year (which has its own problems, but that is another blog) the Lender is locked in to some of the figures (Lender Fees) for 10 days, and for some of the Fees they only have a 10% flexibility. Lenders are hesitant about being put in that position, especially since there is no property yet, and the Borrowers Credit Scores could change by the time a property is found, which might require Points to be charged.

If a Lender does not want to issue a Pre-Approval Letter, because they don't want to run the risk of having to issue a GFE and be locked into those fees, then they should be upfront and just say so, and not create a Myth that RESPA does not allow them to do so.

The other reason why a Loan Officer might say something like that is because they want to play with the Fees. Use a low figure to get a Borrower to go with him or her, and then tack on higher Fees and Points once the Borrower is ready to put a loan into process. Most of those games have gone away, but they do still exist.

If your Loan Officer will not give you a Pre-Approval or Pre-Qualification Letter for a Borrower, or if you are one of those who feel that a Pre-Approval Letter or Pre-Qualification Letter is worthless, then you need to find another Loan Officer, who will produce one that you can trust.

Most of my business comes from referrals from Realtors, so I am very careful about what I issue. When I issue a Pre-Approval Letter it is worth FAR MORE than the paper it is written on, and the only way that Borrower will not be approved for a loan, is because something that could not be foreseen at the time of application, later pops up.

Get your Buyers Pre-Approved by a trusted Loan Officer as early in the process as possible, and DO NOT accept the Myth that you cannot be given one!!!

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Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com