5 Sec Summary of This Years Posts

Bond Market Doesn't Like Tax Cuts: Mortgage Rates Spike

Bond Market Revolt

The US Treasury bond market reaction to the Fed’s QE policies and to this disgrace of a budget proposal was swift and severe. I have a picture of it for you right here.



That is what the bond market thinks of Ben Bernanke’s plan to spur inflation but hold down treasury yields.

The ovals show today’s bond-market reaction to the budget deficit that Bernanke will no doubt monetize as part of QE III and QE IV when this round of “quantitative easing” blows up in his face.


Conforming Mortgages Went From 4.00% to 4.50% in the last few weeks. This is not helping housing or the economy at all.

Jumbo Mortgage Rates have moved from 5.00% to 5.375% in the last two weeks in particular.

Interest rates are ultra-low by historical standards by any measure but we can clearly see what will happen if enormous deficits, high unemployment and a weak dollar are not addressed soon by the FED, Congress and ultimately by the american people.

How the Mortgage Bubble Really Topped Out.

Part of the trillions in bad loans were the option ARMs(pick-a-pay) This nice FED produced map brings a lot of clarity via time series spread of complex mortgages shown in a recent Chicago Fed publication. Nothing like a good real estate crash to bring things to a halt CLICK IMAGE FOR LARGER VIEW:

http://chicagofed.org/webpages/publications/working_papers/2010/wp_17.cfm

Ben Bernanke 60 Minute Interview: Worth a View

Part 1



Part Duex

Rainy Day Savers Rewarded With Lowest Jumbo Mortgage Rates In History

It has been a tough couple of years — almost the proverbial perfect storm — for clients needing to refinance a jumbo loan.

The Great Recession(depression?) has cut home values, turning some jumbo loans upside down for borrowers. Falling values and tighter credit have made refinancing difficult and qualifying new borrowers even tougher unless they were very prudent over the last few years. Socking away money for the proverbial rainy day.

Low and no down payment and adjustable rate schemes are history. ARMs are available but clients want fixed. Why gamble with future rates when fixed is at historic lows?

But the storm may have completely passed. Across several states luxury home values have stabilized and insanely tough credit standards are being moved down to the 700 FICO score level or better, interest rates are at historic lows again, new creative loan plans are emerging and pent-up demand for high-end housing is eager to enter the market.

Cloud Computing Technology specialist David Sparks was surprised when we informed him he would be able to refinance his $1.5 million post modern-style house in Santa Monica and tap into the equity for an additional $75,000 so he could remodel his kitchen.

Sparks, refinanced his expensive adjustable-rate mortgage into a 30-year fixed jumbo mortgage at 5.125 percent.

In 2009, the average rate on a 30-year jumbo mortgage was 6.86 percent compared to 5.25 percent in November, the lowest in history. That represents a significant savings for borrowers.

For example, a homeowner with a 30-year fixed jumbo mortgage balance of $900,000 at 6.25 percent pays $5,541 a month. The same balance refinanced into a 5.00 percent jumbo loan reduces the monthly figure by $710.

The jumbo mortgage market is alive and well for well-qualified borrowers, with well-qualified being the key word if you are still paying close attention. And creditworthy consumers are waiting much longer to close their jumbo mortgages while banks pore over financial documents and complete due diligence. 

Borrowers face considerably more scrutiny than they did before the epic financial meltdown that started in 2008. With 10% of jumbo mortgages at least 60 days late the focus of underwriting is finding and lending to rock solid borrowers who have survived the financial storm by being prudent with their finances.

It used to be that high-earning borrowers with excellent credit and ample cash reserves could sign a new multi-million dollar jumbo mortgage or refinance an existing loan on their posh digs with no questions asked.

Of course, that was before the economy tanked and the housing market went belly-up, making lenders skittish about financing any type of mortgage, especially since they had to hold the loans they made on their balance sheets. Return of capital became the most important element of any loan. Those that qualify are being rewarded for their prudence.

Most client’s refinancing are saving 1-2 thousand dollars a month because they are dropping their interest rates over 1%. The majority of jumbo mortgage loans funded over the last quarter were 30Y fixed. Maybe running with the herd is right once in awhile. The latest chart should really demonstrate how much money is on sale for SOLID borrowers.

And above all please get a jumbo loan that makes sense for your short and long term financial plans. If your ready to start the conversation, contact one of our seasoned advisors by visiting our main site here. As always, have a prosperous day. 

Jumbo Mortgage: Prudent Borrowers Rewarded By Lowest Jumbo Rates Ever

Solid, ultra low interest rate jumbo mortgage loans are being actively funded by remembering the lending philosophy we relied on before the risk could be passed onto some unsuspecting pension fund via a CDO created by a trader at a Wall St Bank. With trillions in mortgage loan losses across the nation, major changes were needed. Regulatory reform passed Congress last week, but it wasn’t hard for the jumbo mortgage market to fix our own problems.

Normalcy has returned. The jumbo loan environment has settled into a prove it, we double verify it, and we fund it environment for well qualified borrowers. The recent national statistics show about 14% loans with a principal balance of 1m+ are at least 60 days late. This is up sharply in the last six months from the 9.78% figure that we ended 2009. Hopefully these default figures will flatten out and fall as the better jumbo loans of 09-10 perform much better than the loans closed in 04-08.

Against this backdrop jumbo loans are being funded only on a portfolio basis (Wall ST jumbo loan packaging is dead) to solid clients under the philosophy that the borrower and the amount of equity in the property should have an ample margin for the known/unknown risks a borrower/lender may face down the road. With regulators, taxpayers, shareholders and all stakeholders demanding sound lending the industry has delivered. I believe this only benefits the luxury market although it pushes out the marginal borrower and may result in some property value declines as the available buyers have thinned out a bit.

Sound lending has returned and borrowers are being ‘rewarded’ for their financial strength and prudence. Remember it’s a ‘prove it’ to us world now.

First and foremost, lenders are pulling copies of your tax returns directly from Uncle Sam. The idea here is to make sure that you haven't altered the copy of your last two years' tax returns that you provided when you signed your loan application. Lenders want to know if you might have exaggerated how much you earned.

Lenders also are going to great lengths to verify employment and liquid assets. We are seeking confirmation in writing from your H.R. department about what you earn, your position and how long you've worked there.


It's the same for your bank or brokerage accounts. Rather than being satisfied solely with the copies of the statements you provided, lenders are going directly to your financial services company to secure another set of those statements to make sure the numbers line up or that you just lost 200k betting that the latest iPhone signal problem would crush Apple’s stock price.

Lenders are no longer taking the appraiser's word for how much the property you want to buy or refinance is worth, either. Now, we are employing automated valuation models as well as an additional appraisal from a separate vendor to be certain the value estimate is on the money. This is especially true in highly distress markets or for very unique custom homes. After all, the bank is ‘buying’ the home and the borrower is signing to pay it back over 15-30 years.

Next in the line of close scrutiny is your credit score, but not just the score pulled when you applied for the loan. Now, our industry is pulling a second score shortly before closing to make sure that you haven't taken out a luxury car lease/loan, bought a houseful of furniture on credit or done something else that might change your ability to make your house payments.

Having passed all these double checks, a well qualified client with 20%+ equity, a 740 FICO or better, borrowing $1m on a primary residence could lock in the following jumbo loan rates in the majority of states:

5/1 ARM 3.625%
7/1 ARM 4.50%
10/1 ARM 4.90%
15Y Fixed 4.50%
30Y Fixed 5.125%

With a bit more equity and a higher FICO score these jumbo loan rates are even lower. I think people need to strongly consider locking in the lowest fixed jumbo mortgage rates we have ever seen. Most client’s refinancing are saving 1-2 thousand dollars a month because they are dropping their interest rates over 1%. The majority of jumbo mortgage loans funded over the last quarter were 30Y fixed. Maybe running with the herd is right once in awhile. The latest chart should really demonstrate how much money is on sale for SOLID borrowers.

And above all please get a jumbo loan that makes sense for your short and long term financial plans. As always, have a prosperous day.

Millions Of Luxury Homeowners Gambling With Their Jumbo Loan

Ten's of millions of luxury homeowners have adjusted from an ARM with a fixed rate period into a fully adjustable jumbo loan. Following the large drop in LIBOR rates since 2007, floating with the 6-month or 1 year LIBOR index has been an excellent risk homeowners took the last few years. Even if they were not aware of the relationship of their mortgage payment and the workings of the global short-term money market.

In the last few weeks it has become crystal clear that Europe is having a massive government debt crisis which started in Greece and is spreading throughout the European Union. This crisis is causing major moves in all the various LIBOR indexes and the action in Europe will translate into higher mortgage payments in the US whenever someone reaches their semi-annual adjustment period.


The underlying rate trend in these indexes in the last few weeks is a steady march higher as governments, banks and corporations are going to market to borrow hundred of billions of Euros. This is pushing LIBOR rates up for the 6- month and 1 year about .25% within the last two weeks. All the LIBOR indexes are at the highest levels in over a year despite massive liquidity being pumped into the system by the EU Central Bank and the FED.

Now we aren’t in the danger zone yet for US based jumbo mortgage loans that are floating considering that the average margin to the 1Y LIBOR is 2.50% arriving at a current floating rate of 3.25%. But a plausible scenario of a consistent flow of gov/corp borrowers, an improving global economy over the next year could push LIBOR rates consistently higher. Any real growth in the economy will be meet with higher interest rates and this will be reflected on the hundreds of billions of dollars worth of jumbo loan mortgages that are sitting with rates of about 3.25-4% now.

We think homeowners that are floating against the LIBOR indexes without a plan to sell soon or get another ARM this year or a fixed jumbo mortgage are gambling with their mortgage payment. Not having a solid plan is a very dangerous proposition given the huge debt crisis that continues to unfold around the world. I am a firm believer in having full coverage auto insurance given the cost of coverage vs the financial risk of an accident. Millions of American’s are just waiting for a financial accident when they get their new rate increase notice. Most ARMs adjust every six months with a 30-60 day notice of the new interest rate and payment. The jumbo loan trend has only been down for the last few years as the world almost fell into a financial black hole during the 07-08 meltdown.

I think with the economic recovery gaining speed that it is only prudent to lock in another ARM or a fixed jumbo mortgage while we are at the lowest rates in history. Avoiding an interest rate increase that for millions would come as a nasty surprise. If you need to refinance your jumbo mortgage within the next few years it’s prudent to explore your jumbo loan options now. As always, have a prosperous day.

Choosing a Government Loan Option in 2010

As interest rates continue to flirt with record lows, homebuyers turn to government-backed loans to finance their mortgages. With three major programs in place—VA loans, USDA loans and FHA loans—several demographics are given a helping hand to buy a place to call home.

Qualifying for government-backed loans tends to be easier than doing so for conventional loans. Credit requirements are less stringent, and borrowers usually don’t need huge financial reserves. Debt-to-income ratios are even more flexible.

VA Loans
In 1944, Congress created the Veterans Affairs Home Loan Guaranty program exclusively for our nation’s military service members. Still popular today, the program offers lower monthly payments thanks to competitive interest rates and the elimination of private monthly mortgage insurance. Borrowers qualifying for mortgage guidelines can even purchase a home with no money down, which is cited by borrowers as the program’s greatest strength.

For active-duty military members, VA loans come with interest rate caps. When borrowers close a deal with a VA loan, sellers may cover up to 6 percent of closing costs.
If VA loan borrowers want to make prepayments on the loan, they can do so without any penalty. Before borrowers default on a loan, the VA offers counseling and several options to avoid foreclosure.

With all of these benefits, it’s no wonder why VA loan volume surged 80 percent last year.
USDA Loans
Despite its temporary hiatus, the Rural Development program is designed to help low- and middle-income families in rural communities purchase homes. When the USDA designed the program in 1987, few lenders operated in rural areas, and now the program is too popular for its own good.

These loans are the only other no-money-down options. When borrowers need to pay money down, USDA loans allow family and non-profit organizations to pitch in. Just like VA loans, there is no mortgage insurance and interest rates are often lower than conventional financing options, and borrowers can finance 100 percent of the appraised value of a home. In 2009, the USDA insured more than 115,000 loans, which was more than double the 2008 figure.
FHA Loans
The oldest of the government-backed loans, FHA loans still draw plenty of prospective homebuyers. Interest rates for FHA loans don’t differ more than 0.125 percent from conventional loans. Unlike the other two government loans, FHA loans include a mortgage insurance, but one that is less expensive than a private insurance. The fee is included in monthly payments.

In some instances, borrowers can combine FHA loans with other loans, resulting in 0 percent down. Even with imperfect credit, borrowers can expect smaller down payments than those of conventional loans, as low as 3 percent. Much like USDA loans, borrowers can get down payment assistance from relatives and non profits.

Given the breadth of financial upsides built into government-backed loans, prospective homebuyers everywhere should consider one of these options. Check with a lender to help determine your eligibility for any government program.

Jumbo Loan Borrowers: How to Think About Buying Your Dream Home.

The enormous social pressure and the expectations that come with it lead to misunderstandings and confusion. Here's my advice to someone in the market:

• In an era where house prices rise reliably (which was 1963 to 2007), it was almost impossible to overpay for a house. It was an efficient market, and rising prices cover many mistakes. Investing in houses in the USA was a no-brainer. More leverage and more at stake just paid off more in the end. In 2006 many subprime and ALT-A lenders would allow nothing down up to a 1m jumbo loan with a 720 FICO score. Needless to say these loans defaulted at a 40%+ rate as people walked away when values dropped. The old mantra of buying as much house as possible with as little down payment as you could doesn’t work if values fall in the future.
• A house is not just an investment, it's a place to live. This is the only significant financial investment that has two functions.
• The psychology of down markets is irrational. Rising house prices might be efficient (many bidders for a single item lead to higher prices), but when there aren't so many bidders, irrational sellers (see #2) don't lower their prices accordingly. So, inventories get longer and it's easy for the prospective buyer to think that a certain price is the 'right' price because so many people are offering houses at that price. Just because someone offers a price, though, doesn't mean it's fair in a given market.
• Along the same lines, anchoring has a huge impact on housing prices. If someone offers a house for $1.7m and you think it's worth $1.2m, you don't offer that. No, of course not. The price is a mental and emotional anchor, and you're likely to offer far more because you are falling in love with a view, a certain floor plan or a special neighborhood.
• The social power of a luxury home is huge. When you buy a luxury home or a country estate, you are making a statement to your in-laws, your family, your neighbors and your business/social contacts. Nothing wrong with that, but the question you must ask yourself is, "how big a statement can I afford?" How much are you willing to spend on personal marketing and temporary self-esteem? This is a big social pressure faced by newly-wed couples, lawyers and doctors as they come out of school landing that deep six figure position.
• If buying a bigger house (or even a house with an extra living room or a 4 car garage) is going to keep you in stuck in the office 90 hours a week till the end of time, is it really worth it?
• By the time you buy a house, you probably have a family or have plans to bring some little owns into your life. Which means that this is a joint decision, a group decision, a decision made under stress by at least two people, probably people that don't have a lot of practice talking rationally about significant financial decisions that also have emotional and social underpinnings.
• If you have a steady career, matching your mortgage to your income isn't dumb. Given the recent environment with bonus money being cut and profit sharing taking a dip having a jumbo mortgage payment that is less than ¼ to 1/3 of take home pay can bring about a lot of piece of mind.
• Real estate brokers, by law, work for the seller (unless otherwise noted). And yet buyers often try to please the broker. You'll never see her again, don't worry about it. [Let me be really clear about what I wrote here, just in case you'd like to misinterpret it: When a prospect sees an ad or goes to an open house, she is about to interact with a broker. That broker, in almost every case, is hired by the seller and has a fiduciary responsibility to the seller to get the very best price for the house. There are exceptions, like buyer's brokers, but those brokers, as I said, note that they are representing the buyer--how can you represent someone without telling them? Many brokers like to pretend to themselves that they are representing both sides, and while that's a nice concept, that's not the law.
• You're probably not going to be able to flip your house in two years for a big profit. Maybe not even ten years. So revisit #2 and imagine that there is no financial investment, just a house you love. And spend accordingly.

I'm optimistic about the power of a house to change your finances, increase your net worth, to provide a foundation for a family and our communities. I'm just not sure you should buy more house than you can COMFORTABLY afford merely because houses have such good marketing.

And above all please get a jumbo loan that makes sense for your short and long term financial plans. As always, have a prosperous day.

Bet Against the American Dream. Now with Great Music!

Bet Against the American Dream from Alexander Hotz on Vimeo.

Jumbo Loan Borrowers: Risk Major Rate Increase

Cross-Posted with www.freerateupdate.com. The source for mortgage rate news.
Ten's of Millions of homeowners have adjusted from an ARM with a fixed rate period into a fully adjustable jumbo loan. Following the large drop in LIBOR rates since 2007, floating with the 6-month or 1 year LIBOR index has been an excellent risk home owners took the last few years. Of course now we hear solid information that job losses have stopped and we are in the midst of an economic recovery. The underlying rate trend in these indexes is a push higher on each piece of good news around the world regrading the stabilization of consumer retail sales, auto sales, and the home purchase market. Any real growth in the economy will be meet with higher interest rates and this will be reflected on the hundreds of billions of dollars worth of jumbo loan mortgages that are sitting with rates of about 3.50-4% now.

We think home owners that are floating against the LIBOR indexes without a plan to sell soon or get another ARM or better yet a fixed jumbo loan are living without interest rate insurance. I am a firm believer in having full coverage auto insurance given the cost of coverage vs the financial risk of an accident. They are just waiting for a financial accident when they get the new rate increase notice. Most ARMs adjust every six months with a 30-60 day notice of the new interest rate and payment. The jumbo loan rate trend has only been down for the last few years as the world almost fell off a cliff during the 07-08 meltdown. I think with the economic recovery gaining speed that it is only prudent to get some jumbo mortgage interest rate insurance and lock the lowest rates in history. Avoid an interest rate increase that for millions would come as a nasty surprise. If you need to refinance your jumbo mortgage within the next few years it’s prudent to explore your jumbo loan options now. As always, have a prosperous day.

Jumbo Loans: Post Steroid Lending Era

Cross-Posted with www.freerateupdate.com. The source for mortgage rate news.

The value of luxury homes has been declining for 3-4 years now depending on the particular city. We won’t go into specific markets here as that is better explained on a granular level by the Case-Shiller Research and individual neighborhood analysis of 750k-4m luxury homes by your local luxury realtor. Above 4m is rarified air and is declining but has much different dynamics such as what the NFL/NBA/MLB contracts will look like in 2012 and if the hedge fund industry will continue to pay the large performance bonus numbers of the recent past. You get the idea.

Luxury home prices shouldn’t be declining some could say because:

• Financial markets the world over have recovered nicely from the March 2009 lows.
• Unemployment is running less than 4% for seasoned, highly skilled, well educated professionals (doctors, engineers, lawyers, etc). The rest of the working economy is running north of 10% unemployment if you believe the official stats.
• Jumbo loan borrowers didn’t do the crazy exotic financing that imploded in subprime and pay option ARMs weren’t very common in the 1-4m market.

I agree in theory but what is often misunderstood by jumbo mortgage borrowers is the crazy lending that was done during the bubble years of the last decade that pushed values up almost daily. They don’t know the huge impact on luxury home prices of removing the steroid juiced lending of Bear Stearns, Lehman et al. The thousands of banks/brokers that sold their ultimately toxic/destructive jumbo loan programs that ended up in bundled securities that investors curse the day they bought.

Everybody knows we have had massive government bailouts and are in a recession. But they didn’t know that their home was appreciating rapidly during the bubble because everything was being bid up in their neighborhood, city and nationally with juiced money from casino like investment banks. Most clients I speak to thought their neighbors had better paying careers or had been better investors/savers. No, they were outbidding and buying on the juice of Wall St casino money. Also the move up buyers with equity in their starter home that are ready to buy in the gated community are on the endangered species list in most cities.

With the steroids that powered crazy out of your mind lending removed, the puffed up and totally juiced real estate market of 10-30% annual price gains in some markets is gone and never to return. Hopefully. The inventory of homes for sale priced at $750,000 to $1 million is now 20 months, vs. 11 months for homes in the $100,000 to $250,000 range, the National Association of Realtors reports. With all these forces at work the body of luxury real estate is shrinking back to normal based on the fundamentals of ability to pay and put a healthy down payment of hard earned money into a home purchase.

Did you know that at the height of the insanity most people could borrower a million dollars with a strong FICO score and a reasonably believable stated income?  No money down and little document verification! Those are the luxury foreclosures that litter Florida, Arizona, Nevada, California etc.

The return to sanity with the jumbo loan lending of the banks and credit unions left standing has resulted in substantial equity requirements, fully documented income, a verified chunk of savings/investment assets and a requirement of 1-2 full appraisal reports of what the home is worth now based on sales of similar properties in the last 30-60 days.

I feel for the luxury homeowners that have “…lost hundreds of thousands of my equity.” But the money wasn’t real unless they cashed it out at the top via a refinance/HELOC or a sale. The casino lending is gone and hopefully won’t return again. The most critical element in getting the best and most competitive jumbo mortgage rate is EQUITY.

My crystal ball is in for repair so don’t be mad if I am not perfectly correct on this prediction but we believe that jumbo loan rates will be higher within the next year and luxury home values will continue to slowly decline in most cities across the country as the effect of steroid lending wears off and return to the stability of real local economic fundamentals. If you need to refinance your jumbo mortgage within the next few years it’s prudent to explore your jumbo loan options now. As always, have a prosperous day.

Jumbo Mortgage Borrowers:Avoiding Mistakes of the Past

Cross-Posted with www.freerateupdate.com

Over the years, I have had countless conversations with home buyers about their jumbo mortgages. From 2003 to 2008, a typical a cocktail party or a BBQ invariably went something like this:

Home-Buyer: We got a great deal on our new mortgage.
Me: Did you do a 30 year fixed jumbo loan or something more exotic?
HB: 30 year fixed jumbo mortgage— at 4.5% !
Me:  Sorry, but that’s not 30 year fixed — rates are 6.5% today. That’s probably a 2/28, with a reset in 200X.
HB: No, we definitely asked for a 30 year fixed.
Me:  Well, that’s not what you got — its impossible to get that loan at that rate today.
HB: We’re good negotiators.
Me: Jumbo Mortgage rates are set by the bond market. Banks charge a mark up ABOVE the rates that they can borrow money. They can’t get 30 year money at 4.5%, so you can’t get 4.5%.  There is only so much negotiating you can do with the bond market.
HB: Well, its definitely a 30 year fixed.
Me: Please make the pain stop . . .

And so on.

Huge swaths of people, did not understand what they were buying, what it cost them, what their other options were, whether they could afford it or not.

I am not saying this to exonerate their ignorance — it is inexcusable in my opinion. Adults must take responsibility for their decision making, regardless of how foolish it may have been. That home buyers cannot figure out a basic financing document is beyond my comprehension. However, that is the way it is. We must acknowledge the simple reality, if we wish to avoid this problem in the future. That’s why we need to insure consumers understand what they are purchasing.

We are happy to see clients take a serious look at their current loan and the pros/cons of their various jumbo loan ARM refinance options vs the certainty of a refinance into a fixed jumbo mortgage. I think this a great change from the days of simply selecting the “cheapest” option of “no-points, no fees” on a jumbo 5/1 Interest Only ARM. Home owners realize their risks and are trying to make the most informed decision possible.  The prudent behavior by lenders and borrowers will result in much better jumbo loan performance and better lending standards in the future.

Now for the meat and potatos of jumbo mortgage rates this week. The trend was largely sideways action for products that aren’t deposit based. Our portfolio products dropped by .125-.25% across the product spectrum  for money good credits. Here is a sampling

30Y Fixed Jumbo Mortgage 5.625% paying 1 discount point

7Y ARM Jumbo Loan 4.50% paying 1 discount point

*In order to help customers compare similar jumbo loans, we use the following parameters in conducting our rate survey: A jumbo loan amount of $1m, sales price $1.3m. Each loan is a purchase transaction, 720 credit score, 30 day rate lock, taxes and insurance being escrowed, single family primary residence with fully documented income and verified assets(savings/investments).

Fixed Jumbo Mortgage Rates at Historic Lows

Cross post.

Los Angeles Feb 24th (Freerateupdate.com)

Warning: A little technical.This is the Whole Wheat 8 Grain Variety of our ongoing commentary on the jumbo mortgage market.







As the top chart shows, 30-year fixed rate jumbo mortgage rates are going for a post-crisis low, a rate not seen since 2005. With a few scattered exceptions, the rate you get today is about as low as it has ever been in history. Conforming rates are still very close to all-time lows.

As the second chart shows, the Federal Reserve has put on the books about $1.25T of mortgage securities(tan section) which completes the program as announced. Anything could change as the conforming mortgage market tries to stand on its own. If rates skyrocket(unlikely) expect FED action as a stable housing market is a distinct policy of the Obama Administration and the too big to fail banks. The TBTF are sitting on north of 4m homes that they will need to short sale or foreclose on this year per various estimates being thrown around the industry.



The fundamentals driving the jumbo mortgage rates (i.e., 10-year Treasury yields and the spread between MBS and Treasury yields that investors demand in order to compensate them for the prepayment risk of mortgage-backed securities) suggest that we are very unlikely to see rates go lower than they are now. Treasury yields are quite low from a historical perspective, and spreads are about as tight as they have ever been.

One other interesting fact that shows up in the first chart is that the difference between jumbo and conforming mortgage rates is still quite large given that a conforming 30Y fixed is at 4.75% currently. That means that even if conforming rates move higher, it will likely take awhile before jumbo rates move much higher; the spread between them could compress by another 25-50 bps for the absolute Super Prime Credits with 30-40% equity and substantial investment assets. aka Money Good Credits.

However, I should also point out that the declining spread between jumbo and conforming loan rates is a very good sign that private capital is returning to the jumbo mortgage market in general. The Fed is only buying conforming mortgages, not jumbos, so jumbos have been outperforming conforming MBS, which in turn suggests that private capital has been actively seeking out the higher yields on jumbos. That is also an indication that when the Fed stops buying MBS at the end of March, there is no reason to expect jumbo mortgage rates to move significantly higher. A lot of pressure is building because of the RECORD default rate of 9.6% which prevents investors such as pension funds, insurance companies and mutual funds from aggressively buying jumbo mortgage bonds. These twin forces lead us to believe we will see rates in the 5.75-6.50% range on the 30Y Fixed Jumbo Loan throughout the year.

We continue to believe that prospective homebuyers and most long term homeowners would be well-served to choose a 30-year fixed jumbo mortgage instead of an adjustable rate. But, one size fits all advice never works as you well know.  Fixed rates are very low from a historical perspective, while the short-term rates that drive ARMs are very likely to rise significantly in coming years. With the fixed rate you get the certainty of locking in a historically low jumbo loan rate, but with adjustable rates you are exposed to considerable uncertainty down the road, because no one knows today how high short-term rates will be in the future. We always advise matching the loan term with personal and financial plans.

Have a prosperous day.

Energy Miracle Needed STAT

In his speech, Bill Gates touts TerraPower reactors that can be fueled by nuclear waste as one possible solution. Is nuclear power the answer? I don't know, but at the very least Gates should be applauded for highlighting the need for immediate innovation in the energy sector. The value of having someone of Gates's stature talk about getting to net zero CO2 can't be overstated. What do you think?

Luxury Homeowners Default at Record Rate

Cross posted on www.FreeRateUpdate.com

Retail sales came out basically flat, car sales have stabilized(aside from Toyota) and job losses seem to be slowing down. But this long running recession is not finished with exacting pain on jumbo mortgage borrowers.

A record 9.6% of homeowners with a jumbo mortgage are behind on their payments or in foreclosure as the housing crisis spreads to borrowers with previously stellar credit records and six figure incomes. And the wave of foreclosures isn't expected to crest until the end of next year as the walk aways from 2004-7 purchases work their way along the lengthy foreclosure process which had been delayed by various state and federal foreclosure moratoriums.

The seriously late payment rate on prime jumbo loans has doubled from this time last year, and now represents the largest share of new foreclosures. U.S. prime jumbo mortgages backing securities at least 60 days late rose to 9.6 percent in January from 9.2 percent in December, the 32nd straight increase for “serious delinquencies,” according to Fitch Ratings.

The worst of the trouble continues to be centered in California, Nevada, Arizona , Florida; recently Oregon and Washington State have been added to the list of hard hit markets. These states account for 46 percent of new foreclosures in the country. There were no signs of improvement. The pain, however, is spreading throughout the country as mid-level and high end job losses take their toll. Aside from job losses lost bonus income and pay cuts were cited by borrowers as factors in their inability to stay current on their jumbo mortgage payments.

With continued economic weakness and property values in most cities declining we highly recommend our fix it and forget it strategy. Lock in a jumbo loan term that meets your specific personal and financial goals. We tend to favor the 7/1 ARM Jumbo Mortgage at 4.50% or the fixed jumbo loan at 5.625% with a 30Y term. These represent an excellent value considering that in three decades we haven’t had jumbo mortgage rates lower than these levels. As always, make it a prosperous week.

Determining When To Refinance Your Mortgage

Interest rates have dropped to all-time lows in the past few months, as the US government continues its efforts to jump start the housing market and overall economy. The Fed has spent massive amounts of money the past year via a $300 billion treasury buyback program and $1.45 trillion MBS purchase program, all in an effort to keep mortgage rates low. This, in addition to key housing bills recently passed by the Obama Administration such as the Homeowner Affordability and Stability Plan and the Home Affordable Modification Plan, have many saying that now is an ideal time to refinance.

While it’s true that the low rates currently available will eventually increase once the Fed wraps up purchasing mortgage-backed securities in March, and many governmental housing programs set to expire soon, a refinance is a big financial investment and should not be taken lightly. The key thing about refinancing is knowing when to go through with the process, as it might not be a good idea in certain situations. Below are a few general things that you might want to think about if considering a refinance mortgage:

1. The interest rate on a new loan
2. Associated closing costs and lenders fees
3. The amount of time you plan on staying in your home
4. How much equity you have built up in your home
5. Your credit score

Obviously, the biggest factor to most borrowers when refinancing is lowering their interest rate so that their monthly mortgage payments are lowered. A commonly cited rule of thumb is that refinancing is only beneficial if the interest rate on your existing mortgage is two points higher than the current market rate. However, if there are other factors involved in your refinance decision, such as changing the structure of your mortgage or changing the term, than the two points rule probably won’t play as big a part.

The associated fees and costs are also major points to consider when looking at refinancing. Generally a refinance costs around 3-5% of the amount outstanding on a current home mortgage. Therefore, in order to benefit from refinancing, you must stay in your home long enough to recoup the costs associated with the process. If you don't plan on staying in your home for long, then the lower payments most likely won't cover your closing costs. The point where the savings realized in interest exceeds the total cost of the refi is the break even. Use an online mortgage calculator to figure out your break-even and potential refinancing savings. Quicken Loans has a pretty good refinance calculator on their website that I found very helpful. You can check it out as well as some of the other calculators they have for yourself on their website HERE:.

Another thing that you’ll need to look at is of you have enough equity in your home for a refinance. The amount of equity that a borrower has will determine whether they will be approved for a refinance as well as determine what interest rates they qualify for.

America's Debt in All Her Visual Glory

click here for the real beauty from our friends at VisualEconomics.

Prince Alwaleed:I Love America But You Have To Fix Your Problems.

Charlie Rose which not enough people watch because he is on PBS did an excellent interview with Prince Alwaleed. I have known of the Prince for sometime because of his massive ownership stake in Citigroup. But most recently they purchased The Four Seasons Hotel brand along with Bill Gates. The interview is wide ranging from the Middle East, his investments, global change, China. Take a look. If you get bogged down with the Mid-East political talk Charlie draws him into, just skip ahead as there are some real insights here.
The video is here. No imbed available.

Wells Fargo:Forecasting Much Higher Mortgage Rates

File this under: Jumbo Mortgage Rate Warning.

The CFO of Wells Fargo which funds/services about 25% of the US mortgage market was asked a very good round of questions by a Wall St analyst today regarding their take on mortgage rates. Summary for the time pressed, higher fixed jumbo mortgage and mortgage rates in general will rise after the FED is done in March 2010.

Analyst: just a follow-up question on rates. I just wanted to understand, Howard, how you are thinking about the impact of the Fed exit on the fixed-income market and how you are planning on managing the balance sheet for that?

Howard Atkins, Wells CFO: Well, that is a good question, Betsy, andthe Fed obviously is active in buying MBS. And despite the fact that the yield curve is as positively sloped as it is right now, their active purchases is a factor that is, in some senses, artificially keeping long MBS yields lower than they might otherwise be. At some point presumably, they will either gradually or more quickly reverse course and that could lead to an increase in mortgage interest rates. And as I mentioned a couple of times in my remarks, in possible preparation for that, we have been keeping our powder dry, in effect underinvesting this large base of core deposits that we have for the possibility that that reverses course.

Analyst: So you might get some OCI hit near term, but dry powder leads you to a better outlook for earnings, is that the way to think about it?

Atkins: Yes, again, while the mortgage business is showing good results right now, in effect, on the portfolio side, the investment portfolio, we, in effect, are giving up some current income. We don't believe in the carry trade and we do want to preserve some powder in case rates do go up and we'll have the powder at that point, we will invest the powder at that point to offset some -- whatever is going on in the mortgage business.

John Stumpf, CEO: I see this as the classic short-term view of the business and long-term view of the business. 400 basis points or something like that, which you make in the carry trade today is very attractive. But we think it is the wrong decision long term because we think the bias is for higher rates, not for lower rates and we are willing to wait for that to happen. We think that is the better trade.

Atkins: we are effectively giving up 400 basis points today for possibly a year or so, maybe plus or minus, to avoid the potential risk of a larger number of basis points for 30 years. So the last thing we want to do is get stuck with securities at these low levels of interest rates. 

Stumpf: Because I think when rates move, they are probably going to move at some speed and I don't think it's going to be maybe a quarter. It could be more than that and it could happen relatively quickly.

Atkins: this is the same thing that we did back in 2002, 2003 when interest rates were also at cyclical low points just before they went up a lot. What we are doing now is not very different from the way the Company has always managed itself.

So they are positioning themselves for much higher rates in mid 2010 and beyond.

No Crystal Ball Needed:2010 Will Be Tough.

I don't want to be too quick to judge 2010. But the readings I am seeing point to a very tough year economically. I learned a long time ago to watch behavior and action above all else. I do the action test when out in the real world. I will watch the number of shopping bags in the mall, car dealership parking lots, traffic at the Starbucks, store traffic and cart composition at the Costco or grocery store. I have been wondering if the anecdotal evidence I had been hearing was really speaking to a real sustainable economic recovery.

With this question on my mind and back at the house, I gazed into the crystal ball and saw two troubling charts. These charts are the actual Google US search volume for real estate and mortgage related terms. Google has roughly 70% of the search market. The action points to a very tough start to 2010. I am not counting this year out in terms of economic growth entirely. Until unemployment really improves, I expect to see falling home prices, retailers constantly having huge promos, auto makers pushing crazy deals and people putting the financial house in order after the meltdown.

It is so rough that even the luxury goods index is down 6.90% YoY. How are the wealthy even getting by these days? May God Bless them and keep them in 1000 thread count sheets while they drift off to never never land.
CLICK Pics for larger view.

-13% vs 09
-29% vs 08
Mortgage Index. This includes all mortgage terms and not just jumbo loans.

-44% vs 09
-43% vs 08

You can also find other indexes for Autos, Furniture, Travel etc. Go to Google Index Tool Here.

Global Housing Bubble

We found a beautiful interactive chart from the Economist, comparing Houses prices in 21 countries. Looks like the housing bubble was mostly global (Canada being one of the notable exceptions as they have a much different mortgage market).  Click here to visit Economist site.

http://www.economist.com/displaystory.cfm?story_id=14438245

FDIC Warns Banks to Expect 2-3% Rate Increase

Homeowners waiting for "the right time" to refinance/purchase should move up the timeline rapidly. The FDIC, Federal Reserve and other federal bank/credit union regulatory agencies are warning the banking industry today to prepare for an increase in rates from 2-4% over the next 1-2 years.This is a serious wake up call to people considering refinancing or purchasing a new home, especially for jumbo loan borrowers. The greatest increase would be immediately seen in fixed jumbo mortgage products such as the 30Y and 15Y fixed jumbo loans which have become the loan structure of choice over the last year.

Given the historical fixed mortgage rate, dire fiscal position of the US Government forcing the US Treasury to borrower roughly 1.5 Trillion in 2010 and the recent warnings from various regulatory agencies; we firmly believe 2010 may offer the best fixed jumbo mortgage  refinance opportuntity homeowners are likely to see over the next decade. For those purchasing a home this year strongly consider going with a fixed rate mortgage. Obviously, financial advice isn't one size fits all but you can always error on the side of caution and lock in some of the best fixed mortgage rates in history.

Matt Taibbi In Controversial Financial War Piece

We are impressed with Matt's command of the subject from a financial, political and overall style of social commentary. We first noticed his work for Rollingstone. 

Without further introduction we have below

Fannie, Freddie, and the New Red and Blue

It has become conventional wisdom, perhaps even cliche, to pin the origins of the credit crisis on the big banks or, AIG or even the practice of financial modeling. Certainly, these actors have received the most play in the media, and have now endured the focus of populist ire for more than a year. We now think that the analysis leading commentators to focus blame on these entities is fatally flawed.

via Origins of an American Kleptocracy | zero hedge.

Over the Christmas holiday a nasty thing happened: Tim Geithner’s Treasury Department decided to lift the cap on aid to the Government-Sponsored Entities, Fannie Mae and Freddie Mac, apparently in response to Obama administration fears that the two agencies would become insolvent. The cap was raised from $200 billion on each and government backstopping of the mortgage market will apparently now extend into infinity for at least three years, through 2012.

The move has already inspired a mini-firestorm, with several outlets delving deeply into the recent history of the GSEs and uncovering some disturbing new facts. Chief among those were an analysis of the GSEs by a former chief credit officer of Fannie named Edward Pinto, who found that Fannie and Freddie routinely mismarked subprime or Alt-A (a sort of purgatory class of nonprime risky mortgage, resting between subprime and prime) mortgages as prime. The Wall Street Journal explains:

In general, a subprime mortgage refers to the credit of the borrower. A FICO score of less than 660 is the dividing line between prime and subprime, but Fannie and Freddie were reporting these mortgages as prime, according to Mr. Pinto. Fannie has admitted this in a third-quarter 10-Q report in 2008.

This is a damning fact and if true certainly supports the Journal claim that the GSE actions were a “principal cause of the financial crisis.” But having established this, the Journal then goes in this direction:

Market observers, rating agencies and investors were unaware of the number of subprime and Alt-A mortgages infecting the financial system in late 2006 and early 2007. Of the 26 million subprime and Alt-A loans outstanding in 2008, 10 million were held or guaranteed by Fannie and Freddie, 5.2 million by other government agencies, and 1.4 million were on the books of the four largest U.S. banks.

Sometimes I’m amazed at the speed with which highly provocative information like this GSE business can be converted into distracting propaganda in this country. In the right hands Pinto’s analysis of the GSEs — just like the revelations in the past few years about practices at AIG, Moody’s, Countrywide, Goldman Sachs, the Fed, and, hell, let’s add the offices of Senator Chris Dodd — would have been a starting point for a deeper investigation into a financial system that is clearly a complex and intimate symbiosis of state and private corruption.

For what we’ve learned in the last few years as one scandal after another spilled onto the front pages is that the bubble economies of the last two decades were not merely monstrous Ponzi schemes that destroyed trillions in wealth while making a small handful of people rich. They were also a profound expression of the fundamentally criminal nature of our political system, in which state power/largess and the private pursuit of (mostly short-term) profit were brilliantly fused in a kind of ongoing theft scheme that sought to instant-cannibalize all the wealth America had stored up during its postwar glory, in the process keeping politicians in office and bankers in beach homes while continually moving the increasingly inevitable disaster to the future.

That is a terrible story and it is also sort of a taboo story, since we don’t really have a system of media now that is willing or even able to digest that dark and complicated truth. Instead, our media — which has always been at best an inadvertent accomplice to these messes — is basically set up to take every revelation about the underlying truth and split it down the middle, feeding half to one side of the political spectrum and one half to the other, where the actual point is then burned up in the useless smoke of a blame game.

The essentially complicit nature of the two ruling political parties was in this way covered up for decades, as the crimes of the Democrats were greedily consumed as entertainment by the Limbaugh crowd while the crimes of the Bushies became hot-selling t-shirts and bumper stickers for the Air Americalistenership. The abiding mutual hatred the red/blue groups shared consistently prevented any kind of collective realization about the structure of the overall scheme.

What worries me is that we’re now reverting to the same old pattern with the financial crisis story. We’re starting to see fault lines develop, where one side blames the government while another side blames Wall Street for the messes of the last two decades. The side blaming the government tends to belong to the free-marketeer class and divines in safety-net purveyors like the GSEs and in the Fed’s money-printing fundamental corruptions of the capitalist ideal, while the side blaming the bankers tends to belong to the left-liberal tradition that focuses on greed and seeming absence of community conscience among the CEO class as primary corruptors of the social contract.

In the former view the government is to blame for punting on its oversight responsibilities and for corrupting the financial bloodstream with market-altering guarantees, while in the latter view the bankers are at fault for lobbying the politicians to make exactly the same moves. The antigovernment folks like to focus on the irresponsible (and typically low-income or minority) home-borrower and their political allies in Washington as chief villains, while the anti-banker crowd looks at the massive personal profits and outsized influence of the executive class and waves the Cui bono? stick in that direction.

Both sides are right and both sides are wrong. I know that sounds like pox-on-both-their-houses pundit sophistry. But the point is that if you focus on one side and not the other, you miss the entire point. That’s why I get freaked out when I see an important story like this GSE thing come out, and have it be immediately accompanied by arguments that “market observers, rating agencies and investors were unaware of the number of subprime and Alt-A mortgages infecting the financial system,” as though the irresponsibility of the government agency precluded similar (and, I might add, intimately related) abuses on the private side.

I mean, really — market observers were unaware of the number of subprime mortgages infecting the system? Are we to understand that nobody caught on when outstanding mortgage debt grew by $3.7 trillion between 2003 and 2005, nearly equaling the entire value of all American real estate in the year 1990? They didn’t notice when subprime mortgages went from 3% of all mortgage lending in 1997 to 20% of the market in 2003? They didn’t notice when the volume of Alt-A loans and home equity loans surged through the early part of last decade?

Now I know that that’s not what Peter Wallison of the Journal is saying here; he’s saying that even if the market saw that increase in subprime loans, even those numbers were understated thanks to Fannie and Freddie’s deceptions. But the inference that the market was hoodwinked by the GSEs is absurd. It was plain to most everyone in the financial services industry that there was a bubble going on last decade, that something deeply fucked up was going on with the mortgage markets — just as it was plain to everyone in the late nineties that something was wrong with the stock markets, when companies like Theglobe.com with annual sales under $5 million could have a $5 billion stock valuation.

Everyone was involved in the mortgage scam. At the lender level the deceptions were myriad; liar’s loans, fraudulent income documentation, negative amortization loans, HELOCs, etc. The rush to get as many loans written as possible and then get those hot potatoes moved to the next sucker in the line was furious and extended from coast to coast, sinking one lender after another in Ponzoid debt and indictments.

Then there were the countless deceptions that emerged from the securitization process, the bad math that allowed banks like Goldman to do $474 million mortgage deals where the average equity in the home was just 0.71 percent, and sell 93% of that deal as investment grade paper.

Are we really to believe that the people who did those deals didn’t know what total crap they were selling? That the people who used CDO-squareds to magically turn BBB investments into AAA investments didn’t know how nuts that was?

There were the ratings agencies, who accepted all that bad math and slapped AAA ratings on crap mortgage-backed securities in exchange for the continued largess of the banks upon whom they were financially dependent — the same ratings agencies that later sputtered and coughed up bullshit my-dog-ate-my-homework excuses for mismarking mortgages, with the Moody’s revelation that a computer error caused them to misapply AAA ratings to billions’ worth of MBS being the comic low point.

Then further along in the chain you had crooks like the folks at AIG, who took advantage of the basic nonexistence of derivatives regulation to issue billions in guarantees for these mortgage investments that they had never had any intention of paying off, to say nothing of actually having the ability to do so. And of course underwriting the entire enterprise was the implicit guarantee of Alan Greenspan’s Fed, which made it known time and time again that its modus operandi was to refuse to recognize the existence of bubbles until after they blew up, at which point it would rush in and clean up the mess, bailing out all the chief actors out with easy money.

Everyone had a hand in the bubble, from the congressmen who killed regulatory initiatives to the regulators who snoozed at the wheel to the GSEs to the Fed to the banks to the ratings agencies to the lenders. I don’t think it’s really controversial to say that, but it does seem like there’s an argument brewing about what that across-the-board complicity means.

My own personal feeling is that our recent bubbles weren’t much different than pyramid scams and lotteries; they’re the handiwork of an essentially regressive and deeply cynical political organization that systematically hoovers up taxes and investment money mainly from middle-class suckers, where it eventually gets eaten in short-term cashouts and mostly blown on sports cars and tropical vacations and eye jobs for the trophy wives of Wall Street executives. Crackonomics: take literally all the spare money from four square city blocks and turn it into one tricked-out Escalade.

For me the basic dynamic of the mortgage bubble is some Ivy League dickwad hawking a billion dollars of securitized subprime mortgages to a pension fund, and then Hobie-sailing off into the sunset with a bonus after they all blow up. Of course my seeing it that way might have a lot to do with my own personal psychological prejudices, and I get that some other person with different hangups might choose to focus on Barney Frank deciding to “roll the dice on home ownership” with the GSEs.

But what I don’t see is how anybody can say that all of this happened because Fannie and Freddie rigged the game to get Mexicans in homes, and then the banks and the ratings agencies just reacted organically to the corrupted market and helped the bubble along through no fault of their own. That’s just another (albeit more convincing) version of the early attempt to pin the disaster on the Community Reinvestment Act, which in turn is just another way of playing the red-blue blame game, which in turn is missing the point.

This GSE story is a big one, but if it gets used as a path back to a “The Market Reacted Rationally” version of history, we’re screwed. It has to be looked at as an important part of a diabolical whole, a symbiotic scheme in which the banks and the state were irreversibly intertwined in an enterprise that on both sides was never about market economics, but crime. Because otherwise… the diversionary notion that one side or the other is wholly to blame is part of what makes the whole scam possible.

p.s. Just to get this out of the way, I love Zero Hedge, and Marla Singer has been really nice to me personally. I just don’t completely agree with this particular thing. I don’t see any reason why focusing blame on the banks and the ratings agencies and AIG was “fundamentally flawed,” because, well, shit, they were to blame. The fact that Fannie and Freddie now get to jump in the pigpen with them doesn’t change that for me.

I think in the end what we’re going to find is that all the relevant actors had their own motivations for getting involved in the bubble. Two and now three presidential administrations let the Fed overheat the economy for political reasons that should be obvious. Alan Greenspan, hell, he did it because he loves seeing himself on magazine covers and wanted to keep getting invited to the right Manhattan parties. There were congressmen that converted the expansion of cheap credit into low-income votes. The bankers and lenders went along because the system of compensation on Wall Street is fucked and rewards short-term thinking while ignoring long-term consequences.

To me all of these people were equally guilty of making bad decisions to benefit themselves in the here and now at the expense of the whole in the future. When it comes to bubbles, It Takes a Village, and blaming the whole mess on the “socialist” aims of a pair of government agencies seems off base — particularly since the Randian protocapitalists running the banks benefited every bit as much from this socialism as actual homeowners, and perhaps even more, when one considers that homeowners get foreclosed upon, while bonuses are forever.

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