Archive for the ‘Information for Buyers’ Category

by: Tim McLaughlin

 Interesting takeaways from the Fed minutes last Tuesday regarding “what do we do next”:

At the last FOMC meeting, it was clear that Fed officials considered making bond purchases and taking other steps to avoid falling prices, as a way to ignite the economy. Minutes from the last meeting (Sept. 21) showed officials remained divided; however, most thinking new measures to jump start growth would be needed, given that inflation is too low and unemployment too high.

Over the course of the last few weeks, many investors have been focusing on what the Fed’s new bond purchase program may look like (an anticipated tool in their revival strategy). All expectations are that the Treasury will purchase additional longer term Treasury securities to bolster the economy beginning in 1Q11.

But the minutes showed Fed officials were also looking at several strategies for inflation. The Fed is analyzing the best steps to increase inflation (yes, increase). Higher inflation, in theory, will force consumers to purchase more now to avoid higher prices later, thus further fueling the economy. Due to the economy’s weakness, inflation is currently running at 1.4% (below the Fed’s informal target of between 1.7% and 2.0%, according to Fed officials). Fed officials would like it higher than 2% (closer to 3%) for the short term to prompt spending.

Ways to artificially increase inflation:

o Reduce the Fed Funds rate (accomplished)

o Decrease personal income taxes (more disposable income; would need the help of Congress)

o Infuse additional capital into the monetary system

o Continued Bond/Treasury purchases

The most interesting statement, in my opinion -> “Participants noted a number of possible strategies for affecting short term inflation expectations, including providing more detailed information about the rates of inflation the Committee considered consistent with its mandate…as a general matter, participants felt that any needed policy accommodation would be most effective if enacted within a framework that was clearly communicated to the public. The minutes of FOMC meetings were seen as an important channel for communicating participants’ views about monetary policy.” The takeaway: look for the Fed to clearly layout what their strategy is, in simple terms, to promote inflation in future Fed releases in the months to come.

by: Tim McLaughlin

The FOMC meeting was held earlier this week, and it could not have been more of a non-event. On a high level, there was really no news; business as usual. From a macro level, there were three (minor) changes to the statement: First, the inflation paragraph is much more passive with the addition of a statement on inflation being below the level consistent with the mandate on price stability (no inflation = low rates). Second, the final paragraph explicitly states that they (the Fed) will react with more accommodation if needed (we will do what we need to do to support the market). Third, the opening paragraph is more negative on business spending (spending down = recession concerns = low rates).

What is also interesting is there is more talk of another round of Fed Treasury purchases (no talk on MBS) come the beginning of the year. It remains to be seen if/how that will impact interest rates in the near term.

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Customers, loan officers, and realtors often wonder what goes into the price (and value) of a mortgage. There are a great many components that make up the pricing of the mortgage rate/points; one of the components being the servicing value (the cash flow value of owning servicing, receiving the monthly payments, and collecting both a fee and the “float” on the loan). Lately the implied value (and actual price paid) of servicing has been dropping in the investment community, and that is being driven by end investors -> many are backed up with massive volume and are looking to slow production by paying less for the value of the servicing. While others, realizing that aggregators are doing this, are reducing their bid as well (supply/demand).

This is valuable knowledge on a couple of fronts. It is important to remember that while MBS prices are one (and probably the most dominant) component of rate/points, many other components (servicing valuations being one) also impact all-in rate/points. Important to keep in mind when rate/points don’t seem to correlate to MBS at a given spot in time.

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Interesting fact: 54% of individuals eligible to refi have enough equity in their home to structure a refinance where they don’t have to pay one penny out of pocket at the closing table to do so (they can roll it all back into the loan amount). 59% of borrowers think it is too expensive to refi and that they can’t afford it. Sounds like an education opportunity!

by: Tim McLaughlin

This coming week, Federal Reserve officials will wrestle
with a perplexing question: how weak does the economy
have to get, and for how long, to justify taking new steps to
enhance growth? Last week, the latest data from the
government was mildly encouraging: Retail Sales increased
0.4% in August (and 0.3% the month before) -> a sign that
consumer spending is growing at a sustainable clip.
Weak consumer spending and high unemployment have
impeded the recovery, and prompted fears in some camps
that the US could slip back toward a recession. But those
fears have eased recently as the US has notched a few
better than expected economic reports. And because Fed
officials don’t agree on what threshold the slowdown would
have to hit to prompt further action, the Fed is unlikely to
launch a new big bond buying program next week.
The central bank continues to consider whether to restart
the bond buying program it undertook last year and early this
year to drive down long term interest rates and encourage
more private borrowing and, thus, economic growth. It has
already pushed short term interest rates to near zero, but
growth remains stubbornly slow, unemployment high and
inflation lower than the Fed wants.
Right now the Fed is holding its bond portfolio at a
constant level. Fed Chairman Bernanke has avoided laying
out specifically what would prompt him to grow that portfolio
by restarting the bond buying program. Other members of
the policy setting Federal Open Market Committee have
differing views.
“If the growth numbers come in about where the
consensus forecast is, and we continue to get inflation
between 1% and 2%, I don’t believe I would see a need for
further stimulus,” says Jeffrey Lacker, president of the
Federal Reserve Bank of Richmond. He is part of a vocal
camp of Fed officials who are reluctant to expand the Fed’s
$2 plus trillion portfolio of securities and loans. The group,
which includes the presidents of the Kansas City and
Philadelphia Fed banks (Thomas Hoenig and Charles
Plosser), doubts new purchases would help growth and
fears they could cause inflation later. Mr. Lacker says it
would take a real risk of broadly falling consumer prices,
known as deflation, to justify more action.
If impact of the release remains to be seen, but the
market will analyze the language with a watchful eye.

by: Tim McLaughlin

 
The marketplace is filled with overconfident buyers these
days. However, even in this market, buyers can get tripped
up. Here are five common missteps that home buyers make.

Snubbing the real estate agent – Who needs an agent?
Everyone, actually. Finding a house and figuring out comps
(the price of comparable homes on the market), managing
the nuances of offers, inspections, financing and all the other
pivotal steps to buying a home is where many buyers tend to
get tripped up. Since the seller is the one paying the Realtor
commission, this is the most valuable “free” service you will
ever get from a knowledgeable source. Ask your Weichert
Realtor to help you set up a game plan.

“Guesstimating” how much you can afford – Many
buyers mistakenly take a “do it yourself approach” to
financing. They use online calculators to estimate how much
house they can afford, dive into the house hunt and then get
a dose of cold water when lenders refuse to qualify them for
that amount. Make a date with your Weichert Financial
Services Gold Services Manager to run the numbers and get
pre-approved before you get serious about your search.

Focusing on the house and not the neighborhood – In
hindsight, many buyers polled a year or so after the
purchase say they wish they’d taken their due diligence a
few steps further to really get to know all the perks, quirks
and hassles of living in a particular place. You can always fix
up the house, but there’s no easy remedy for annoying
neighbors, oppressive homeowner association rules and
marathon commutes.

“Uneducated” lowball offers – With ample housing
inventory, there are plenty of houses for sale. When you find
the right house at the right price, don’t assume you can just
lob in a lowball offer or make unreasonable demands. Even
in this marketplace, nice houses in desirable neighborhoods
are fetching multiple bids. You need to be educated in what
the right bid is, and there are a lot of various attributes that
go into that equation. Again, use the knowledge base at your
disposal and let your Weichert Realtor help you navigate the
waters and determine how to proceed.

Not focusing on interest rates – Many individuals are
waiting to purchase a home, thinking that time is on their
side. Rates are at, truly, all time historic lows. These low
rates will NOT be here forever, so capitalize today!

By : Tim McLaughlin

A lot of talk around the August 10th FOMC meeting in the market over the past week (the meeting minutes will be released on Tuesday). One Managing Director at an investment bank on the street stated that there moves at that particular meeting “will go down as one of the top 10 mistakes in Fed history”.

The move in question is to purchase MBS and Treasury securities from the proceeds from the MBS pay downs they have already purchased (“one of the poorest signaling moves I can ever remember”, as quoted by another trader).

It is still unclear to many what they were trying to do/signal. If they thought the move was supposed to comfort a market that was going through a stressful period of weaker than expected data releases, they were wrong. Maybe this is really their way of giving us a stealth easing bias. Or maybe the FOMC wanted to signal that the economy was going to struggle for a for a long, long time, and they are trying to game plan what their next move is, and went with this patchwork plan in the interim until they figure it out.

In further analyzing the move, this is such a far cry from 2008/2009 when the Fed used the balance sheet so creatively to instill confidence in the markets. The spring turnaround in 2009 was all about a FOMC that took calculated credit risks with the balance sheet to instill much needed confidence in risk asset markets. Fast forward to today and the Fed is reeling from a regulatory firestorm and it has retrenched into the flawed easing policy of buying risk free assets to expand excess reserves for banks that cannot and will not lend. As one economist noted, that plan didn’t work in Japan (in the 80’s/90’s) and it won’t work here. The buying of Treasuries to fill excess reserves at over stretched banks has been a waste of time. Banks are doing very little with their excess reserves, and this move does nothing to make them change their stance.

The FOMC minutes on Tuesday may lend more clarity that we are not yet privy to, but in the meantime, many are hoping to see a return of a 2003 style Ben Bernanke who stops talking about Treasury purchases and starts laying the groundwork for more TALF like programs if something is needed on the stimulus side. Until that time comes, however, we will continue to see a constant tone: a flailing economy and low interest rates, which is good for some facets of the nation, but very bad for others.

by Tim McLaughlin

Dear Mr. And Mrs. Homeowner: Your home is probably
brimming with tax advantages. Do you know about all the
breaks you are entitled to? Obviously, you should always
consult a professional tax advisor for details, but here’s a list
of the top 5 tax deductions for homeowners:
1. Mortgage Interest – Mortgage interest on a home is
usually fully tax deductible. You can deduct interest on
multiple mortgages, as long as they do not exceed $1
million. The purpose of the mortgage must specifically
be to buy, build or improve a home.
2. Points Paid on a Purchased/Refinanced Loan – If you
refinanced, you may be able to write off any points you
paid to buy down the mortgage rate. To do this, you
deduct the points proportionately over the life of the new
loan. For example, if you took out a 30 year loan, you
would deduct 1/30th of the points you paid each year.
Remember, if you’ve refinanced before, and you have
points from the previous refinance that you haven’t
finished deducting, you can write off the rest of those
points in the year you refinance. If you bought your
home last year, the points you paid at closing are
deductible on your income tax statement for that year. If
the seller paid some (or all) of your points for you, you
may be able to deduct those seller paid points too!
3. PMI – extended through 2010! Late in 2007, Congress
extended the tax deduction for homeowners paying
private mortgage insurance through 2010. This one has
some restrictions: for example, the borrowers must have
an adjusted gross income under $110,000.
4. Capital Gains with No Income Taxes – Thanks to the
1997 Tax Act, once every two years, single homeowners
can realize a tax-exempt profit of up to $250,000, as
long as the seller owned and occupied the home as a
principal residence during any two of the last five years.
Married homeowners who file jointly on their tax returns
do not have to pay taxes on up to $500,000 of gains
when they sell their primary residence.
5. Refinance – Well, sure, I guess this one isn’t really a
true “tax break”, but when you reduce your payment
and/or loan term at historically low interest rates, it will
feel like one. Need help refinancing? Ask us how!

by Tim McLaughlin

A question we received this week: Why aren’t we seeing
even lower rates available with higher point quotes? The
short answer is liquidity. In order to be able to offer lower
rate quotes with high point attributes, the corresponding
(lower rate) MBS securities that these loans would be
delivered into for investor delivery must be actively trading.
However, these lower rate coupons (3.5% for 30 years ->
which include 3.750% to 4.125% rates, and 3.0% for 15
years -> 3.250% to 3.625% rates) are trading on a very
limited basis, if at all. When they do trade (ex: FNMA 3.5%
30 year), we execute what we can, and offer corresponding
rates. However, until these coupons start trading on a daily,
liquid basis, it is difficult to offer high point/lower rate quotes
across the board.
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“What is a ‘short squeeze’?” With any security, where the
investor has purchased the security from a seller, but when it
comes time for the seller to deliver the loans that make up
the security, the seller doesn’t have the loans to deliver, that
results in a “short squeeze”. The event usually happens in
non-liquid instruments, which is why most pipeline hedging
takes place in very liquid, vanilla instruments (Fannie 4%
securities, for instance), rather than in securities where
liquidity may be an issue (Fannie 3.5% securities). In a short
squeeze, the price will often go up for no other reason than
the demand is much higher than the supply, if the investor
can even find the bonds to offer them back. I bring this up
because we are seeing a lot of short squeeze scenarios in
the marketplace right now, and that is causing potential price
volatility day to day, particularly when you analyze the lower
rate coupons or specified trades, such as high balance
(north of $417K) securities.
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The market seems very concerned with next week’s Fed
meeting, since the economic recovery seems to be faltering.
There is conjecture about what the Fed will say and do,
stimulus wise, if anything. Also up for debate is what the
government will do with all of the cash that is coming in from
maturing asset holdings (i.e. – the MBS Purchase Program),
or mortgages that are paying off early. Will they reallocate
the funds within the central government, or will they funnel
the proceeds back into the MBS market for more
purchases?

by  Tim McLaughlin

A 30 year Fixed Rate mortgage with a start rate in year
one of 2.875% – unheard of, right? Wrong! This is exactly
what we are offering to borrowers looking for the deal of a
lifetime this weekend. You can get a conventional 30 year
Fixed Rate mortgage with the following terms:
Year 1: 2.875% interest rate
Year 2: 3.875% interest rate
Years 3 thru 30: 4.875% interest rate
So a 2.875% interest rate year one, and a life of loan
maximum interest rate of 4.875%. Virtually unheard of until
now!
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Also available: a 15 year Fixed Rate mortgage at 3.99%,
life of loan. Ask us how to capitalize on these fantastic deals.
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Mortgage backed security prices continue to remain
historically low, in conjunction with Treasury prices (the 10
year hit 2.89% on Thursday – the lowest since April 2009).
Bonds rallied after Federal Reserve Chairman Ben
Bernanke’s “uncertain” economic outlook supported the
notion of low inflation and low interest rates for a long period
of time. The U.S. economy faces “unusually uncertain”
prospects, he stated, and, based on that, the central bank
was ready to take further steps to bolster growth if needed.
Bernanke said policymakers believe the U.S. economy is still
on a path to recovery, but for now, he said the Fed expects
economic conditions will warrant an exceptionally low
benchmark federal funds rate for an “extended period”.
Bernanke indicated inflation is not a concern. All this is good
news for mortgage interest rates.
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For any Realtor or prospective buyer looking for statistical
information about an area, they may want to start with the
FDIC’s recently released stats:

http://www2.fdic.gov/recon/index.asp.

It is a compilation of key economic data in graphic format for
the United States as a whole and for each state, county and
certain metropolitan statistical areas.

by Tim McLaughlin

Given economic question marks around the globe, most
economists don’t believe that our economy can handle higher
rates until 2011. In fact, the bond market has priced in slower
growth and lower inflation over the next 12 to 18 months, and
some believe that the Fed’s first overnight rate hike won’t be
until the 2nd half of 2011. And if you like the yield on the 10 yr
near 3%, you should be in luck since smarter minds than mine
think that we may sit here until the fall, and mortgage rates may
trend right along with it (77% of the economists polled by
Bloomberg project no change in the Fed Funds rate through the
remainder of 2010). And given the recent trend down in interest
rates, it is no surprise that refinances are up about 33% from
their low May levels, with the majority of those refinancing doing
so to reduce their payment and/or reduce their term structure.
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Congress appears to be tied up in knots and compromises
lately, so Federal Reserve officials may be taking matters into
their own hands towards improving the economy. The Fed has
a limited set of tools with which to work, especially with its
overnight Fed Funds target rate already near 0%. It would seem
unlikely that a massive infusion of cash is in the cards, and
there are risks of the recovery losing steam and possibly
reversing. There is little chance of the Fed selling off its
massive holdings of MBS anytime soon (much of which has
been going away with lower rates leading to some loans
refinancing) and there are rumors that discussions have
actually begun about the chances of the Fed buying more
MBS’s (believe it or not). Some other tools: The Fed could
change the wording of its statements to make sure that the
market knows that rates will stay low for a long period of time
(but I think we already get that). It could also cut the interest
rate paid to banks for extra money they keep on reserve at the
Fed from 0.25% to 0%, which would give banks more incentive
to lend money to customers rather than leave it with the Fed
(where it would make nada at 0%).
All are interesting points, but from the mortgage industry’s
view point, the Fed buying mortgage backed securities certainly
helped push home loan rates down, but few people at this point
seem to believe that rates are the big issue with housing. Just
ask anyone who has had a loan fall through due to the property
not qualifying, the borrower’s credit being an issue, or the
borrower’s debt loan being too great.
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Saw someone in a 25 year mortgage (23.5 years remaining)
refinance into a 10 year mortgage at the same payment this
week. True story. Could this be you? Ask us to research how.