Have you ever asked a loan officer if they know what the mortgage market is doing and they respond with:

"Well, if I only had a crystal ball.. I’d be able to forecast exactly what they’ll do…"

The bad news is, they have no idea what they’re doing.  It’s a horrible line that just says "I’m not familiar with the factors that effect mortgage rates, but I can quote you a stellar rate right now!"   The good news is, you’ve found someone that does get it.  If you want to capitalize on the best mortgage rates with the best terms, you need to work with someone who can tell you what effects rates and when they will change.

Seriously, you need to stop rate shopping and start advice shopping. It will save you thousands more.

Here’s this week’s WealthWithMortgage economic calendar (still struggling on photo quality…I’m a mortgage guy, not a graphics guy.)

If you want to see market updates (and random rants) as they come available, please ‘Follow Me’ on Twitter! 

Oh, and I can help you if you’re considering buying or refinancing a home and are shopping advice – the phone’s always on (515-991-7102). 

Housing and Urban Department (HUD) Secretary Alphonso Jackson is expected to resign on Monday.  The reasons of why he will be resigning have not been released.  This resignation is expected to create difficulties with the Bush Administration’s attempts at correcting the mortgage market concerns (understatement?).

The Wall Street Journal said:

"The news is a setback for the Bush administration and its efforts to combat the housing and mortgage mess. HUD, usually a backwater federal agency, has been at the heart of the administration’s attempts to ease problems for homeowners. Although Treasury Secretary Henry Paulson has taken the lead on many initiatives, Mr. Jackson has been a partner on many, including programs such as Hope Now, an administration-backed industry plan to loosen the terms on hundreds of thousands of subprime mortgages."

I’ll be interested if the reasons for Jackson’s resignation will ever surface.  Either way, things continue to change.  Stay tuned for the next government staff shuffle.

I’m sure Monday will bring many more artilces/news on this announcement.

"While sales are down we are seeing a decrease in average days on market over the last month or so.  As you can see the amount of new listings took a little jump last week which probably has to do with people wanting to get their house on the market before the warm weather hits.  I anticipate we will see sales numbers rise from where there are now, but won’t probably surpass our numbers from last year at this time."

(Click to Hugify)

I hope you enjoy these statistics as much as I do.

By OFHEO making this ‘small’ change, it should free up as much as $200 billion of immediate liquidity to the market for mortgage-backed securities.  MarketWatch suggested this move should allow both Fannie and Freddie to buy or guarantee about $2 trillion in mortgages this year.  Wow.

One thing I must bring up, is an experience I personally had with Bear Stearn’s about 12 months ago.  Bear had a mortgage wholesale department, which I had a working relationship with.  I had a borrower with over 100 properties financed in Iowa and I was looking for a 70% refinance (no cash-out) on a non-owner occupied deal, an extremely credit worthy borrower.  They turned it down because they felt it was too risky.  Wow.  I was surprised then, I’m still surprised now (well, sort of).   I can only say from my experience that Bear started to shy away from mortgage securities quite a while back.

I found this brief history of the value of Bear Stearn’s stock extremely interesting:

• March 14th, 2008 – $30/Share
• a week ago – $60/Share
• a year ago – more than $150/Share

As MarketWatch put it:

‘The $2-a-share price represents 2.4% of Bear Stearn’s fourth-quarter 2007 book value per share of $84.09, Oppenheimer analyst Meredith Whitney said in a research note Monday.’

One interesting addition to an already surprising story, is the Federal Reserve;s move to provide as much as $30 billion in financing for Bear Stearn’s less-liquid assets (like mortgage securities!) which they have been unable to sell.  This is believed to be the largest advance of money to a single company.   The exact financing terms or assets involved have not been announced from the Fed. 

More importantly, I’m discussing this move because it will drive the market today.  Currently (at 7:30am CST), futures are down 221 pts.  Overnight, stocks fell sharply in Asia and Europe.   It could be ugly as investors assess what could only be called a fire sale on Bear Sterns and a ‘bail out’ from the Fed.  We know what happened globally overnight, what will happen here?

Quick Mid-Day Update:
I found an interesting summary of Bear’s Risk Positions.  Here’s the breakdown:

• CMBS (Commerical Mortgage Backed Securities) – $16 Billion
• Prime and Alt-A Mortgages – $15 Billion
• Subprime – $2 Billion
• Total – $33 Billion

As far as the market goes, DOW is down about 48pts.  Financial stocks are pretty weak on the news over the weekend:

• Lehman Brothers down 18%
• Goldman Sachs down 7%
• Morgan Stanley down 8%
• Merrill Lynch down 8%

Mortgage Backed Securites are up 50bps, so rates open for the better.  We’re currently up against a strong level of resistance.. so things could get pushed further down (rates increasing).  Watch technical factors today to decide which direction things will go!

In a surprise move, this afternoon (Sunday afternoon)… The Fed announced two changes to the discount rate.  The first change, the most surprising one – was an expansion of it’s lending to securities dealers for up to six months.  The securities will join the banks that the Fed worked directly with before.

The second part of the announcement was reducing the discount rate from 3.5% to 3.25%.  This cut is said to have part to do with the announcement of JP Morgan Chase & Co’s purchase of Bear Stearns.  There have been many speculators calling some of the recent moves of the Fed ‘bailouts’.  I just think we’re seeing the fed work in ways we’ve never seen them work before.

The Wall Street Journal said it the best:

‘Since the current credit crisis began in August (2007), the Fed has taken even more innovative steps to push its remedies beyond the banking system.’

It’s interesting to see the Fed continue to stop in and make moves to inject liquidity into the financial markets.  What will they do next?…. No, seriously.. WHAT WILL THEY DO NEXT?

You’re guess is probably as good as mine.  I’m betting on a 3/4% cut to the Fed Funds Rate (FFR) on Tuesday. 

Let’s make a connection of what all this means to mortgage rates in the short term (as it’s the question I’m most often asked).  When a change to fiscal policy is made, it normally takes 6 months to see the effects of it.  With the FFR moving down as quickly as it has, we’ll probably be facing nasty inflation numbers down the road.  As investors realize this, they’ll pull money out of mortgage bonds (smart ones already have) and back into stocks.  Until we start seeing some fed hikes (it’s a ways out there), we’re going to see mortgage rates slowly increase.

However, we’ll still continue to see the crazy volatility that we’ve been seeing.  Sometimes the market is emotional instead of logical.  Make sure that you’re partnered with a mortgage planner that is watching the market closely so you can capitalize on the opportunity when it happens.

Related Stories Worth Reading:
Federal Reserve Statement on Rate Cut
‘Fed acts Sunday to prevent global bank run Monday’ on MarketWatch
‘Fed Cuts Rates, Extends Loans to Calm Markets’ on Wall Street Journal

"There was a jump in new listings again this week which increased our overall inventory above the 2 month running average.  We are still trending down from where we were last year, but as we move into spring our sales numbers should increase from where they are now."

(Click On Picture To Hugify)

I hope you enjoy these updates as much as I do!

If you have less than a 720 credit score, you will have an adjustment against the ‘base rate’ that you’d qualify for.  I can almost promise that the longer you wait to get a loan, the larger these adjustments will get.  All of these adjustments were determined on extremely complicated statistics and analysis, so don’t get too mad.  Obviously, Fannie Mae believes these loans have a better chance of not performing (meaning they are more likely to end up in foreclosure).

You’ll find Fannie Mae’s announcement at their website.  I’ve taken screen shots directly from the announcement so you can see the breakdown of the ‘loan level price adjustments’.

The first chart is for purchase loans and refinances without any cash out:

(Click On Chart To Hugisize)

The second chart is for cash-out refinances:

So what does this mean to you, the customer? 

Quick scenario: Let’s say you’re buying a home for $300,000 and you’re financing 90%.  You have a 660 credit score, you have the income and assets to qualify for the loan.

Here is an example before the loan level price adjustment took place (Before):

• $270,000 Loan
• 30 Year Fixed Amortization
• 6% Rate
• $1618.79 per month (principal and interest)

Here is an example after the loan level price adjustment took place (Now):

• $270,000 Loan
• 30 Year Fixed Amortization
• 6.25% Rate
• $1,662.44 per month (principal and interest)

A difference of $44 more each month!  As you can see with the adjustments, rates could be seriously worse if your credit score is below 660. 

If you need help determining how these changes effect you, or how to improve your credit score to qualify for a better rate – please let me know.  I’d be glad to help!

According to an update from the Des Moines Business Record today, Iowa’s unemployment rate dropped from 3.8% to 3.6% in January. Also notable, the number of workers increased 9,800 in January.  Elisabeth Buch, Director of Iowa workforce Development said:

"The Iowa labor market grew at a moderate pace in January, while the national economy showed serious signs of faltering."

Specifics on job growth are as follows:

• 3,900 jobs gained in the service sector
• 1,600 new jobs in transportation and government
• 1,600 new jobs in trade
• 800 new jobs in professional and business services
• 400 new jobs in the finance industry
• 1,000 jobs were lost in construction
• 900 jobs were lost in manufacturing

Again, don’t get caught up in the media hype.  Iowa may have a slight slowdown in our real estate market (watch our weekly market watch), but overall, things aren’t as bad as they may seem in the news.  Yes, foreclosures will continue to be a problem.. and if I don’t already sound like a broken record – things will continue to get worse with foreclosures before they get better.

If you’re an real estate investor in Iowa, you should be out looking for deals.  I have numerous clients that are currently building their retirement plan through real estate, you should be too.   

Whether you’re a borrower looking for answers, or an originator trying to make something of this mess.  You’ve come to the right place.  I’ve been doing a TON of research to get guidelines updated as of today.  I must warn readers that these guidelines can change at a moments notice and most likely will.  So take the information with caution and check directly with mortgage insurance companies (customers, have your loan officer do this) to make sure that the loan still qualifies.  Often, we cannot order mortgage insurance until we have the loan underwritten.  So the faster you can move, the better off you are.

Real quick – Mortgage Insurance is a product that lenders require borrowers to carry to insure them for the amount lent over 80% of the purchase price on purchases or appraised value on refinances.  If you can’t get PMI, you can’t get a mortgage loan – period.

FICO (credit score) based risk is the new way things are now done in the mortgage industry.  As mentioned before, we’ve seen the guidelines changes for the mortgage insurance specifically on that factor (I’m sure we’ll see Fannie and Freddie do the same thing soon).  Here’s the readers digest version of the changes:

For Owner Occupied Loans with an ‘Approve/Eligible’ (Top Teir Fannie Mae Approval)
Max LTV 80.01- 95%  need a minimum score 620 (Purchase or Rate/Term)
Max LTV 95.01-100% need a minimum score of 680 (Purchase or Rate/Term)
Max LTV 80.01-90% need a minimum score 680 for Cash Out.   (Effective March 14)

For Owner Occupied Loans with a ‘Level’ approval (Less Than Cream of the Crop, a Growing Pool)
LTV’s less than 80% need 620 minimum score
Max LTV-80.01- 95% need a 660 minimum score (Purchase or Rate/Term)
Max LTV-80.01- 90% need a 680 minimum score for Cash Out.
** There are no ‘level’ approvals on non-owner occupied properties with any LTV **

For Non-Owner Occupied with an ‘Approve/Eligible’
Max LTV 80.01-90% need a minimum score 660 (Purchase or Rate/Term)
Max LTV 80.01-90% need a minimum score 720 (CASH OUT)

If you’re a detail person, here is the full table w/ company specific information:

(Click to Hugisize)

If you’re a borrower currently looking for answers, I hope you find this summary beneficial. 

If your current loan officer has:

• Abandoned you
• Won’t call you back
• Turned your loan down
• Hasn’t mentioned the MI guideline changes
• Doesn’t understand the recent changes
• …fill in the blank of a horrible quality or problem

Please give me a call or e-mail me.   I’d love to be a resource for you and help you find a home for your home loan!