Wednesday, January 27, 2010

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.

Friday, January 22, 2010

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.

Wednesday, January 20, 2010

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.

Tuesday, January 19, 2010

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.

Monday, January 11, 2010

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.

Thursday, January 7, 2010

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.
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 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.
 Be a citizen and comment.

Wednesday, January 6, 2010

Commercial Mortgage Defaults BLAST OFF!

Job losses, empty stores(Circuit City, Linens & Things, empty offices) and overall economy wide problems are starting to trickle up into the commercial mortgage market at a rapid pace.
For the first time since the industry began forming commercial mortgage-backed securities (CMBS), delinquencies reached above 6%, according to a report from Trepp, which studies commercial real estate trends.
For the month of December, 6.07% of CMBS loans fell behind by 30 days or more, up from 5.65% in November and a far climb from 1.21% in December 2008. That’s a 500% increase in one year, according to the report. 
In a recent speech at the Economic Forecast Forum in Raleigh, North Carolina this week, Elizabeth Duke, a governor of the board of the Federal Reserve Systemprovided some reasons for the sharp decline in performance.
“Hit hard by the loss of businesses and employment, a good deal of retail, office, and industrial space is standing vacant. In addition, many businesses have cut expenses by renegotiating existing leases,” Duke said.
She added that reduced cash flows and investors requiring higher rates of returns lead to lower valuations and losses after sales.
“As a result, credit conditions in this market are particularly strained. Commercial mortgage delinquency rates have soared,” Duke said.
 According to Trepp, the total CMBS market in the US in 2009 stood at $724.5bn
source Trepp

The 6% commercial default rate is great compared to the 12% default rate in jumbo mortgage land reported earler this week. Above all, don't get too worked up over this, the US Government, Banks and the Federal Reserve have a number of buttons to push to fix this situation. The best available option per inside Wall St sources: 

Tuesday, January 5, 2010

Jumbo Loan Default Rate Moving on Up

Standard and Poor's released their report on various RMBS(jumbo mortage loan pools), we read the report and wanted to highlight a few of the more interesting points related to jumbo loans.

The percentage of delinquent prime jumbo RMBS transactions issued in 2004 climbed to 7.97% in November, up from 7.8% in October. Delinquencies in the 2005 vintage increased to 10.65% in November from 10.2%. For the 2006 vintage, delinquencies grew to 15.25% from 14.67%, and for the 2007 vintage, delinquencies increased to 14.74% in November from 14.24%, according to the report

Unfortunately, for the banks(read:US GOV) and investors that bought these loan vintages things are not ageing well at all. Reminds me of the bidder who bought decades old Rothschild wine only to have purchased the world's most expensive vinegar. Book was "The Billionaire's Vinegar"

Now who are the crazy lenders/banks that did these loans. Surely, it was those pesky subprime guys. Not at all my friend:
The 2007 vintage showed notably worse deterioration after 24 months of “seasoning,” according to the report. After the 24 months, delinquencies totaled 10.65% of the current aggregate pool balance compared to 2005’s 1.53% and 2006’s 4.57% delinquency rate after the same amount of seasoning. But 2006 showed a poorer performance than its prior vintages. After 36 months of seasoning, delinquencies accounted for 11.2% of the current aggregate pool balance, a 185% increase over the 2005 vintage.
Delinquencies and losses varied among the issuers and securitizers of prime jumbo RMBS transactions. For the 2005 vintage, the percentage of delinquent transactions reached 18.68% for Countrywide, the most among issuers. For 2006, the leader was Washington Mutual’s 22.2%, and for 2007, Bear Stearns’ 20.25% led all issuers.
Remember the overall delinquency rate for jumbo mortgages of all vintages is running about 12%. Meaning at least 12% of loans are at least 60 days late. Realtors.... start calling the REO department of BOA, CHASE, etc as they now hold these loans that are surely to be nice foreclosure listings/deals in 6-9 months.

If you are so inclined to read the wonkish research of S&P it can be found here.

Sunday, January 3, 2010

Interest Rate Forecast: Fixed Jumbo Loan Rates Higher in 2010.

2010 Predictions are found everywhere on every facet of life. I will focus on just one that interests me and our readers. Where will rates go this year and why?

In short mortgage interest rates will begin to rise – We’ve seen a ridiculous run of low interest rates over the last decade.  This chart on the history of mortgage rates tells a very interesting story(click charts to enlarge):

Consider for a moment that we were supposedly days away from a complete meltdown of the global financial markets and the after effects being soup lines on main st.  That was Sept 2008.  What has followed, from this deep economic crisis, is another historic run of continued low interest rates.  For a more full picture of what rates have looked like over the last 17 years, here’s another chart:

As you can see, we are currently lingering in a zone well below the long term average.  Looking at the 4 year chart for the 10-year Treasury shows another interesting bit of data:

After the financial meltdown and subsequent loss of trust in the US markets, interest rates have continued to stay low.  Why is this?  The government continues to allow banks to trade the spread on the TARP money and Treasuries.  When that game is over, and it will be, interest rates will have to climb in order for the much needed capital from international sources to soak up the Treasuries.  How much debt?  With the current strategies employed by our current government, with trillions at stake, we have a lot of debt which need to be floated to cover the costs of the policies.  Who’s going to buy the Treasuries with rates this low?  No one.  In order to move the product, the price is going to have to change, which means interest rates are going to have to go up.  Jumbo mortgage rates will follow suit and especially all fixed jumbo loan programs.