Archive for the ‘Information for Sellers’ Category

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

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.
================================
“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.
================================
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!
———————————
Also available: a 15 year Fixed Rate mortgage at 3.99%,
life of loan. Ask us how to capitalize on these fantastic deals.
———————————
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.
———————————
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.
=====================================
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.
=====================================
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.

by Tim McLaughlin

Getting a low down payment mortgage can provide you with a means to purchase a home without coming up with a large amount of money upfront. While this type of mortgage can be beneficial, there are a few potential drawbacks that you will need to know about to analyze if putting more money down is right for you. Here are a few things to consider about low down payment mortgages.

Low Down Payment

With a standard mortgage without mortgage insurance, you are going to have to come up with at least 20% of the purchase price out of your pocket. This can be a very significant investment for first time homebuyers or when you get into more expensive homes. When you opt to go with a low down payment mortgage, you will be able to invest a lot less of your own money. For example, with an FHA loan, you can put down as little as 3.5% of the purchase price.

Keep Reserves

The biggest benefit of getting this type of mortgage is that you are going to be able to hold onto your cash reserves. When you put a substantial amount of money down, this is going to cut into the amount of savings that you have. Being able to have a large amount of money in savings is going to be beneficial in a number of different ways. You will have capital available to invest, to furnish your home, for emergencies, and with higher reserves, that will also help in the qualification process.

Private Mortgage Insurance

One of the drawbacks of getting a low down payment mortgage is that you are going to have to obtain private mortgage insurance. Private mortgage insurance is a type of insurance that you must pay in lieu of putting 20% down. The investor is going to require this in order to insure themselves against the possibility of you defaulting on the mortgage. If you default on the mortgage, the private mortgage insurance company is going to pay the lender a part of the balance that is owed. Private mortgage insurance is going to add money to your monthly payment, however, once your loan to value reduces to 77.5%, via appreciation or via principal reduction, the mortgage insurance may be removed.

Interest Rate

Something else that you will want to take into consideration is the interest rate. Many times, lenders are going to give you a lower interest rate when you make a larger down payment. Therefore, you are going to have to decide whether putting a small amount of money down is going to be in your best interest in the long run. If your interest rate is higher, your monthly payment may increase.

Making the Decision

If you can get a low interest rate and the private mortgage insurance is not too unbearable for you, getting a low down payment mortgage can be beneficial. Just make sure that you are not going to be paying too much money overall so you can avoid paying extra upfront. Need help analyzing? Ask us how!