Mortgage Rates: Gamble As You Shop.

Mortgage Rate Volatility slowed a bit in December after record-breaking changes in October and November. The slowing pace of change is good news for homeowners that joined the Refi Boom that closed out 2008. It was much easier to shop for a mortgage rate in the absence of 4- and 5-Rate Sheet days.

A "rate sheet" is a mortgage lender's active, available-to-the-public mortgage rates for all of its products. This includes 30-year fixed rate mortgages, 5-year ARMs, and the like.

However, rate shopping is not like shopping for a flatscreen TV to watch the BIG game. Mortgage markets are still moving with tremendous velocity, historically. Over the last two months, mortgage rates changed 2.15 times per day, on average -- nearly 11 rate changes per week.

In December, mortgage rate quotes "expired" every 3 hours, 39 minutes.

This rapid pace of change is one reason why "sleeping on it" can be dangerous. Mortgage rates may be low in the morning, but by the afternoon, they could absolutely be not-so-low.

Look, I've heard it from enough homeowner's by now that I can safely tell you -- unless you're prepared to accept a higher rate, you may not want to gamble on getting the lower one. A good question to ask yourself is this: "Is it worth a 1/8 percent rate increase to gamble that I'll find an 1/8 percent lower rate tomorrow?"

Mortgage shopping wasn't always complicated, but it is now.

In addition to a volatile rate environment, external factors are muddying up the mortgage waters, too:

1. Guidelines continue to tighten high income households.
   
2. Falling home values are making refinances very difficult. Your area is not immune. Trust us.
   
3. Rising defaults are pushing private mortgage insurance premiums higher.
   

In fact, there are very good reasons to consider taking the first low-rate mortgage you find that fits your long- and short-term financial goals. The most important one, of course, is that it's as likely that mortgage rates will rise in 2009 as they will fall. Forget what the experts tell you -- they're paid to make guesses and they're often wrong.

In markets like this, a sound piece of mortgage advice is to make friends with a "good lender". They're good mortgage lenders for a reason. They're fair with clients and they provide extra support that you won't get from a call center. And, most times, they're cheaper, too.

So, shop for mortgage rates every 3 hours, 39 minutes, or save yourself the trouble and work with a reputable jumbo mortgage lender who's both fair and knowledgeable. If you ever want a speedy rate quote, call or email me. We lend in all 50 states.

Bailouts:The Money Doesn't Come From the Moon

This is a must read article. Every bailout requires mortgaging our future deeper with the proverbial government line of credit extended by investors and savers throughout the world.

“Be Nice to the Countries That Lend You Money” I am not a doom and gloom person but you should be watching the value of the US dollar and the cost of our debt over the next few years to see if the mighty American Empire is burning or dropping to an also ran status like France, Italy or Great Britain.

How High-Income Clients Can Prepare For Lending's Next Big Wave

Four times annually, the Federal Reserve surveys 84 banks around the country regarding their general lending standards.

One of the survey questions asks about current mortgage lending standards and whether it's getting harder, or easier, to get approved for a home loan.

In the most recent survey, 75 percent of the banks said they're making it harder for "prime" borrowers to get a home loan.

That means you, Mr. Lawyer. And, Dr.Doctor.

A six-figure income with A-plus credit won't get you carte blanche with the bank anymore. Lenders stopped fighting over the right to collect your interest payments months ago.

Today, they're more worried about you defaulting. Something about 250k bank and finance jobs toasted in the last year and the deep recession makes investors a little worried. No ONE is immune from the big waves sweeping over the credit markets.

The first wave of lender tightening eased into the books earlier this year. Most changes were focused on the borrower's individual credit characteristics including income, assets, and credit score.

The second wave of tightened, however, has been completely out of the mortgage applicant's hands. It's collateral -- the fancy bank term for "what your home is worth". Banks are very concerned about collateral.

Mortgage lenders read the papers, too, and they know that home values are falling or are flat in most neighborhoods. There's a recovery underway, but it's not going to be immediate.

Therefore, many banks assume that the 80 percent home loan made today will be a 85 percent home loan sometime in 2009 and having less than 20% equity in a home is not where the banks want you to be -- especially with joblessness on the rise and a loads of unanswered questions about the economy.

For homeowners with jumbo or super-jumbo mortgages, this loan-to-value change will resonate deeply. Just this morning, for example, one of the country's largest niche lenders dramatically lowered its maximum LTV ratios for prime borrowers.

Look at how it changes the borrowing landscape for a condo buyer in Chicago with strong income and excellent credit:

• Yesterday: 20% downpayment required, second mortgage permissable for 5%


• Today : 25-30% downpayment required, no second mortgage permissable
• Sure we have investors willing to gamble a little and do 10-15% down but who really wants a 8% mortgage!? BTW, these are the same guys you see playing 50k a hand blackjack at the Venitian.

In other markets, where home values are more dubious, like California, downpayment requirements can be even higher.

Now, this isn't to say that prime borrowers won't get approved for home loans -- it's just meant to tell the street-level story of what's going on. There are a lot of people in cities like Chicago or Cincinnati that were first-time home buyers between 2002-2006. For those homeowners, the only mortgage approval system of which they know is one that's based on them -- their FICO, income and ability to fog a mirror.

Today, it's The Triangle + Rock Solid Appraised Value.

This is why prime borrowers are finding it harder to get a mortgage -- it doesn't matter what you look like on paper, it's what you and your home look like on paper.

The market will likely to tighten further in the near-term so the best way to prepare for is to ask good questions in advance of your actual needs. A proactive plan always works better than a reactive one.

If buying a home or refinancing one is in your plans for December 2008, or January-March 2009, reach out to your loan officer to find out how changing guidelines for prime borrowers can impact you. Especially if you're a jumbo or super-jumbo borrower. Also, we are very excited to have added a niche portfolio lender that can do a 30Y Fixed Jumbo throughout the country in the low 6% range for the solid "money good" credit client. Contact our office to check out our jumbo mortgage rates for your home purchase or refinance. As always, no pressue and no obligation beyond a short chat.

Credit Crunch: Now with Extra Crunch

Over the summer we experienced a restriction in lending guidelines that moved most jumbo mortgages to a minimum of 20% equity requirement. Now the dominoes have really started to fall and within the last week we have seen many of our investors move to a minimum of 25-30% equity either for a refinance or a purchase loan in most major markets.

Remember these are for true jumbo mortgage borrowers above the conforming loan limit with stellar credit, ample savings and substantial provable income. What's the impact? I would expect to see continued price pressure on the luxury market as buyers wake up to an even more restrictive lending environment. It will continue to tighten or rates will increase(to compensate for risk) until the loans perform and the foreclosures slow. We still have lower down payment niche programs available within various markets but we fear that major moves by national investors will force others to tighten as well in their regional market. If you are considering refinancing I especially encourage you to evaluate your options now.

Get out and Vote.

I am writing this on Election Day, and I have been mulling over what it must feel like to go to bed and realize that you may be the next President of the United States. Pretty cool. If you win, you get great perks: a couple of 747’s, a nice house with plenty of staff, great travel, and a huge advance on your memoirs in 4 to 8 years. Unfortunately, whoever wins today will assume office at a calamitous time, when the financial underpinnings of the world economy are terribly fragile. However, a little closer to home, the next President will also have a significant impact on the future of the real estate industry. The way he and Congress navigate the credit crisis, tax policy on capital gains, and address a crumbling infrastructure will be simultaneously precarious and vital to our nation's future. I hope we, as a people, make the right choice. After all, we deserve it after two years of listening to the longest presidential campaign in US history!

The Great Housing Bubble Book

THE GREAT HOUSING BUBBLE: WHY DID HOUSE PRICES FALL?
The Great Housing Bubble is a fantastic resource for anyone looking to understand why home prices fell. The writing has exceptional depth and detail, and it is presented in an engaging and easy-to-understand manner. It is destined to be the standard by which other books on the subject will be measured. It is the first book written after prices peaked, and it is the first in the genre to detail the psychological factors that are arguably more important for understanding the housing bubble. There have been a number of books written while prices were rising that used measures of price relative to historic norms and sounded the alarm of an impending market crash. Economic statistics and technical, measurable factors show what people did, but they do not explain why they did it. The Great Housing Bubble analyzes not only what happened; it explains why it happened.


The author of The Great Housing Bubble, Lawrence Roberts, works in the real estate industry, and he lives, Irvine, California, the center of both the housing bubble and the subprime universe. Irvine's residential real estate market witnessed one of the most dramatic increases in prices of any market in the United States. His unique location and his position in the industry make him uniquely qualified to discuss the housing bubble.


The Great Housing Bubble is an easy read. It was developed section by section through a series of posts on the Irvine Housing Blog. With the feedback provided by 3,000 daily proofreaders, the writing is clear, concise, and accurate. Much of the work reflects the collective wisdom of this large and diverse community. However, the book is also a fully researched and supported academic work. Statistics used in the work are cited, and conclusions are drawn from academic literature and documented in an extensive bibliography and end notes. These academic research papers are used to support the author's arguments and lift the work from a series of unsubstantiated opinions to a collective, unbiased, and widely accepted view of the housing bubble.


The Great Housing Bubble concludes with a series of recommendations for preventing future housing bubbles. There are both regulatory and market-based solutions. These include changes in standard appraisal methodology, the revamping of our current system of loan standards and documentation, and a call to regulate the sales tactics of realtors. These solutions are carefully explained, and although they would be difficult to implement politically, if these proposals were adopted, future housing bubbles would be very unlikely.

Mortgage Industry will say NO more often.

In a move that will stymie thousands of would-be home buyers and homeowners, Fannie Mae announced another round of mortgage guidelines changes a few weeks ago that will have a huge impact.

Unlike past revisions in which Fannie Mae tightened debt ratio and credit scoring requirements, however, the newest underwriting updates home equity and home buyer downpayments.

This is consistent with the emerging underwriting philosophy that Collateral is King.

No home equity, no downpayment, no loan.

Effective December 13, 2008, Fannie Mae will enforce the following single-family residence restrictions:

• Primary residence, "cash out" refinances are limited to 85% loan-to-value



• Second home, cash out refinances are limited to 75% loan-to-value



• Investment properties cannot be refinanced without a 25% equity position

Each bullet point represents a 5 percent tightening over the previous guidelines.

Now, to be clear, Fannie Mae isn't the only source for mortgage money. The others are comprised by the FHA, the VA, and an innumerable amount of portfolio lenders. To date, these groups have yet to announce similar loan-to-value restrictions.

But, because Fannie Mae (along with Freddie Mac) guarantees almost half of the nation's home loans, it does swing a big stick. Historically, when Fannie Mae gets tight with its money, the other groups tend to follow.

Starting 45 days from now, qualifying for a conforming mortgage will require more home equity than at any time since 2003.

Now, there are a lot of people sitting around right now, waiting for mortgage rates to fall before buying or refinancing their home.

I'd offer a more prudent idea: Just get on with it already.

None of us can predict what where mortgage rates will go. Recession, inflation, whatever -- it's a big mystery. But, we do know with 100% certainty that guidelines will tighten effective December 13, 2008, and it will prohibit Americans from getting access to mortgages.

We know this because Fannie Mae published it on its Web site.

If you're buying a home or in need of a refinance, consider moving up your timeline. If rates fall after-the-fact, you can always try to refinance into something less expensive. But if guidelines shut you out, there's nothing you can do about in hindsight.

If you know you need a conforming mortgage or a jumbo mortgage, just take care of it. Great low rates don't mean a thing if you can't get qualified. And starting December 13, 2008, the qualifying hurdles are going to be raised.

LIBOR: The Driver of Jumbo Rates.

With the London Interbank Offered Rate (Libor) at record levels, thus hurting short-term borrowing, as well as blowing up many jumbo mortgages linked to the floating rate that have begun to adjust, it's useful to remind yourself how exactly Libor works. Click image to enlarge.

First Time Buyer Credit: Really a 0% Loan

I’ve been seeing quite a few agents and lenders using the $7,500 1st Time Buyer “Credit” in their promotional materials aimed at first time buyers. Be careful out there as many people “explaining” this “credit” to first time buyers are not including the part where it has to be repaid. The first payment of $500 begins two years after you receive the “Credit” and continues for 15 years. If you sell the property at a profit before the $7,500 is paid back, the balance is due when you sell. On the bright side, it does appear that if you do not have enough “profit” to repay the interest free loan of $7,500…it is forgiven.

Excerpted from FAQ’s On the $7,500 1st Time Buyer “Credit”:

“ …Because the tax credit must be repaid, it operates like a zero-interest loan….The program is called a tax credit because it operates through the tax code and is administered by the IRS. Also like a tax credit, it provides a reduction in tax liability in the year it is claimed.”

“…the tax credit must be repaid. Home buyers will be required to repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale…if the tax credit is claimed on the 2008 tax return, a $500 payment is not due until the 2010 tax return is filed.”

“…this will maximize the stimulus for the housing market and the economy, will help stabilize home prices, and will increase home sales.”

It’s not that I’m against a stimulus package for increasing homes sales, but you have to wonder how many people see CREDIT and understand LOAN? They really should call it a $7,500 1st Time Buyer Interest Free LOAN. And for all you mortage and real estate professionals, maybe we understand why the government has to call it a TAX CREDIT, but to be sure your clients know the amount has to be repaid, you should call it an interest free loan when explaining it to your clients. As always consult a CPA or accountant for further clarification.

Financial Crisis Has Hit Main Street

Jumbo Mortgage rates moved up sharply over the past week as the credit markets ground to a halt. Borrowers with good credit and a 20% down payment today could qualify for a 30-year fixed-rate mortgage at 7.625% with a one-point fee. That's up from 7.25% on Friday of last week.The rate has been trending upward from 7% since the financial meltdown gained full speed in the last few weeks. Investors are pricing in the increased default risk and the national decline in home prices. No area is immune as noted by the latest Case-Shiller numbers. The move by the US government to pass the mother of all bailouts has been awaited anxiously by the entire credit industry. If you can't save housing you can't save the financial system nor the economy from a financial meltdown/great depression scenario.

However, the worst development is adjustable rates have dramatically increased. Bloomberg reports that the international rate banks charge each other for one year loans, known as the London Interbank Offered Rate or LIBOR, moved LIBOR rates to 4.08% as markets were locked up with the meltdown in credit markets. LIBOR was in the mid to low 3% range throughout the summer. If we move to LIBOR rates of 5% range that would push ARMs to about 8%. The meltdown of household names is the best opportunity for people to refinance or purchase as investors want something safe/secure. Nothing is safer in this market than solid credit client's looking for a phenomenal jumbo mortgage rate. Now is the time to refinance as rates are likely to get worse over the next two years and guidelines to get more restrictive. The best rates in a generation are behind us as banks recapitalize and governments work to save a financial system on the edge of complete panic.

About 6 million U.S. mortgages, including almost all subprime home loans and 41 percent of prime ARMs, are linked to LIBOR, according to First American CoreLogic, Bloomberg reported.

Depending on a Bailout: Slide Show

Making Sense of the Mortgage Meltdown

View SlideShare presentation or Upload your own. (tags: kedrosky milken)

Great slide show on making sense of the mortgage meltdown from a seminar today at the Milken Institute in Los Angeles. They always have the best and most data-rich slides, bar none. Press the easel button in the viewer to blow up it to full screen.

Mortgage Rates Falling

With jumbo mortgage rates moving faster than anytime in recent history, let's take a few minutes to recap what's going on, and what's causing rates to be so volatile.

First, the bailout.

Late Sunday, Congress drafted the Emergency Economic Stabilization Act of 2008 bill and it goes to vote sometime today. The key provision in the bill that's helping mortgage rates is on Page 110.

The passage reads, summarized:

• The U.S. Treasury gets access to $250 billion immediately



• The U.S. Treasury has to ask the President for its next $100 billion



• The U.S. Treasury has to ask Congress for its next $350 billion

Because of how the bill is worded, the U.S. Treasury can't go spending taxpayer money willy-nilly, lessening the likelihood of inflation nationwide. This is good because anytime inflation pressures ease, mortgage rates stand to benefit and this is one of the catalysts for today's rate drop.

Another reason why rates are falling is death of banking giants Washington Mutual and Wachovia.

It's no coincidence that these two institutions shut down within 3 days of each other. Both were heavy pushers of the now-famous Negatively Amortizaing Mortgage, the time-bomb assets of which clogged the banks' respective balance sheets.

Consider: When Washington Mutual was rescued bought by JP Morgan Chase & Co. and the buyer devalued WAMU's portfolio by a massive $31 billion, it forced investors to reassess Wachovia's mortgage portfolio, too.

Within minutes, Charlotte-based Wachovia lost a quarter of its value and was a Dead Man Walking. Then, before even a weekend could pass, Wachovia had been packaged and sold to Citigroup with the help of the U.S. government, leading to another $42 billion in mortgage portfolio writedowns.

That's $73 billion in mortgage losses practically overnight.

Surprisingly, this is good news for mortgage borrowers because each time a bank acknowledges losses like this, the mortgage market as a whole gets one step closer to discovering what an individual home loan is really worth on Wall Street.

In fact, it's this exact conundrum that defines the mortgage market domino chain, dating back to July 2007. If markets could just accurately answer "What is a mortgage worth?", this little credit mix-up thing would be over.

WAMU and Wachovia hitting the showers brings us one step closer, and at least for today, brings mortgage rates down.

(Image courtesy: The Wall Street Journal Online)