Mortgage Pick-Me-Up

More good news from real the front lines of the housing crisis.  With pressure from the U.S. Treasury, the financial board of the government-created association of Federal Home Loan Banks has agreed to double their resources for mortgage backed securities.  The new rules announced allow an additional $100 billion of securities to be purchased and held by the FHLA.  As reported by the Real Estate Journal:

“That could provide a substantial boost to the market, depending on the timing of the purchases. Fannie and Freddie are likely to sell about $500 billion of mortgage securities this year, assuming interest rates stay around current levels, says Jim Vogel, an analyst at FTN Financial Capital Markets of Memphis, Tenn. Mr. Vogel said it isn’t clear for now how eager the home-loan banks will be to buy these securities, but their ability to step up purchases gives at least a psychological boost to the market.”

So why is this so important?  And how can I say that this is the real front lines of the mortgage crisis?  It is important because while the FHLA is under no obligation to buy mortgage backed securities, they are certainly being encouraged to do so.  If the FHLA does purchase more MBS’, that, in-turn will spur more interest in the mortgage bond market resulting in lower interest rates offered by the banks to the consumers.  On the heels of the earlier news that Fannie and Freddie have been cleared to purchase greater amounts of MBS’, this is icing on the cake.  The FHLBank System is the largest collective source of home mortgage/community credit in the United States according to the fine folks at Wikipedia.  These types of financial press releases don’t grab the attention of dooms-dayers, and nay-sayers.  Those types are too busy focusing on annual home-sales figures, and Year-over-Year data about the % of builders who order McDonald’s for lunch.  While those numbers are important, the real focus should be on what the financial institutions backed by our government are doing.  It is debatable whether or not the government should even be involved in any of these activities, or whether the government should perpetuate a broken system, but guess what?  They are involved, and they are trying to help fix a broken system. 

With the support from the government-supported entities, and a financial system that needs housing to stabilize, it is practically irrelevant how many homes are being foreclosed on your block.  If the Mortgage Market (with a capital M) stabilizes at the Wall Street level, and housing prices continue to decline in the mortgage market (with a local lowercase m), then the buyers will return and gobble-up the glut of housing inventory.

More good news for the mortgage industry.

Did you see this headline this morning: “Former Countrywide Exec Heads Firm Targeting Troubled Mortgages”?  If you didn’t see it, or perhaps overlooked it, please revisit the article here.    What you will read is the announcement of a new company called PennyMac created by a partnership between one of the pioneers behind Countrywide, and well as Blackrock, Inc. the ginormous investment firm.

So what is PennyMac going to be doing?  PennyMac was created in an effort to capitalize on the downturn in housing.  Failing loans, and defaulted borrowers have little hope in this current market.  Most lenders which extended these borrowers loans, no longer offer programs to help them and foreclose on these home-owner’s as a result.  PennyMac isn’t doing god’s work.  They are going to raise private capital and help home-owner’s who cannot afford their payments by restructuring their loans.  Whereas most lenders don’t have the time or energy to deal with defaulting home owners, clearly PennyMac sees a business opportunity in the morass.  There will surely be an economic benefit for the company, but that is to be expected when the company will be assuming some difficult loans from the outset.

Why is this important to you as an Originator?  It shows you that industry veterans are trying to think of new ways to help homeowners, which in turn will stabilize this market.  The best part of our economic system is that while some banks sit languidly and wait for the market to correct itself, others see an opportunity to make money which helps get the market moving forward.   Anything that is the opposite of sitting on the sidelines is a huge improvement.  It is only a matter of time before lenders themselves add specific Agency loans that incorporate their own appetite for sub-prime and Alt-A borrowers.  It is too large of a market to overlook and to hope that it goes away.

“The Crisis is Over.”  No worries…  just like the band in the picture above.

Where was this headline?  Did you catch it?  I certainly didn’t.  It took me a pretty thorough search through my Google Reader to find it. 

Here is the quote, from Punk Ziegel financial analyst Richard Bove, as reported in this article in Reuters:

“I do, in fact, believe that the crisis is over. There will be more negative developments but they will be meaningless,” Bove wrote in a note to clients.  “This comment sounds ridiculous given the conviction on the part of most commentators that the worst is yet to come; the extent of the decline is unknown; and that the length of the decline is similarly unclear,” Bove wrote.

This isn’t some local Real Estate “expert” trying to sell of their existing lot of homes.  This is a qualified financial analyst from a very respected Wall Street firm.  Apparently Mr. Bove isn’t alone in his positive thinking.  After the influx in capital, and the government approval of that capital infusion, Fannie and Freddie’s stocks have both doubled in the past 5 days.  Wall Street obviously believes that between the government intervention, and the increase in liquidity, that mortgages are again palatable.

The housing market, and mortgages in particular, have been the whipping boy for the past 12 months.  The media scrutiny certainly is not to blame for the mess created in our industry, but the negativity for the sake of negativity, hasn’t helped pull us out of the morass.  If major industry publications don’t pump this headlines up into the “Top Story” like they have with every “The World is Falling because of Mortgages” headline, than they are certainly doing a disservice to originators, homeowners, and investors alike.

A press release today from the Office of Federal Housing Enterprise Oversight announced that Fannie Mae and Freddie Mac will be allowed to spend more of their capital earnings. The Real Estate Journal has a great article that goes more in-depth about “why” this is so important and “what” some of the potential implications will be. But the real question is: how will this impact the mortgage originator and the home-owner?

In regards to Originators, this is nothing but good news. The increased financial flexibility for Fannie and Freddie will increase the liquidity in the market which should in-turn, lower interest rates. Why will that happen? Well, ultimately it allows Fannie Mae and Freddie Mac the ability to invest in more mortgages themselves, as well as allow them to guaranty more loans too. It is presumably going to impact the Jumbo-loan sector as well as the now defunct sub-prime segment of the mortgage market.

For homeowners this is great news as well. With Fannie and Freddie allowed to use their liquidity in the mortgage arena, we can expect to see increased offerings as mentioned above. It should also allay concerns for those people who thought big business was going to turn it’s back on homeowners. Obviously, solving the housing market crisis is everyone’s #1 concern.

The great news here is that seemingly everyone is doing everything, and anything to straighten out this mess. Most bloggers will say that this help has either come too late, or shouldn’t be coming at all. I think that when private enterprise gets into trouble, they should be allowed to do what they can to clean the mess up.

Below is a link to CNBC’s video coverage of the story, hat-tip to JF for his help:

http://www.cnbc.com/id/15840232?video=689319687

Turn your TV on tomorrow morning.

If I had to choose whether or not to bet $20 in my office NCAA basketball pool, or bet that same amount of money that one of the lead news stories tomorrow would be “Fed Cuts Rates!”, I would take the latter all day long.  That is the easy money.  The Fed is reportedly going to cut the Fed Funds Rate tomorrow by up to .75%.  What does that mean for you?  That means that lead service providers will be flooded with inquiries tomorrow, and for those of you in the retail mortgage business, you can expect a few walk-in appointments.  As they say in Hollywood, “any press is good press.”

The same is true of our industry.  Any time that our Fed Chairman Ben Bernake speaks, people listen.  Most people have no idea that these overnight cuts can actually lead to higher mortgage rates, and guess what?  They don’t care.  It isn’t our job to explain the phenomenon of how cutting short-term interst rates typically exacerbates inflation which leads to higher mortgage rates down-the-line.  People aren’t calling you to hear an Economics Seminar.  They are calling because they have a 6.375% 5-year Adjustable and few credit cards that they have to pay off after their daughters Sweet 16 Party and a wine-tasting trip to Napa turned into renewing vows and a new Lexus SUV.  Don’t unload all your negativity on them and talk about short-term versus long-term and how the rates were actually lower on Monday.  Try this: tell them, “yes, rates are down.  Now is a great time to refinance.”  Why would I say that?  Truthfully, IT IS A GREAT TIME TO REFINANCE!  If a person can qualify, the market is still bearing historically low interst rates, regardless of how low those same rates were 3 weeks ago.  Don’t make these people feel badly about missing last week’s opportunity; help them take advantage of today’s.

There was a great article on NPR the last time the Fed slashed it’s overnight rate, and the major point was that waiting for the bottom of the market is like gambling.  Nobody ever knows when it will come.  When you are talking to your potential clients tomorrow you might add a touch of positive energy and focus on how good the rates are.  And when they ask you if the Fed cut rates, you can say, “Yes.  Yes they did.”  And you don’t have to feel bad about it because it is true.

Here at the Mortgage Pick Me Up, it is important that we keep sending a positive message to our readers.  Is this blog misleading readers considering the myriad recent doom and gloom headlines? “Weak Dollar”, “Housing Prices to Fall in 2008 and 2009″, “SoCal Home Sales Ultra-Low”; my Google Reader wants to jump off a cliff, and I am right behind it.

So what are we to make of all this bad news?  Do we just pack up our things and head into another industry?  Or do we dust off our phones, and our computers, and our files, and get after it?  I say the latter, and here are three reasons why:

1. Renters to Buyers: The market is resetting itself, especially in areas like Southern California and other bubble areas.  The median home prices far outweigh the median incomes in these areas.  People can’t afford homes at current prices.  Prices must fall.  BUT, that can BE A GOOD THING!  Why?  Ever seen an apartment?  Those are all potential home-buyers.  Many of these people are simply renting because they can’t currently afford their own home.  Once the values drop to affordable figures, the huge supply of homes will now have a huge demand.  If you stick with it, you’ll be there to assist these people.
2. Make Contacts Now: I have been told since day 1 that the “real” Real Estate Professionals don’t go away in a down market.  You know what?  That has to be true.  Sure,  a record number of people became agents in recent years because of the potential windfall of income.  But guess what?  They are leaving the industry.  Many Realtors/mortgage “professionals” are packing up shop.  Should we follow them out of the door?  No, in fact, we should do the opposite.  Set up your shop and make contacts with others NOW.  This is a great time to meet with local Realtors if you’re a mortgage professional.  Back in 2005, you would have had to take these people to Fleming’s to get some time.  Now?  They’re just as happy to meet for coffee to discuss strategy for today’s tight market.  Same goes for Title, Escrow, Appraisers, etc.  If you create your network now, you will be ready for the “jump-off” when the market turns around, and you’ll be far ahead of the next group of wanna-be instant millionaires.
3. Your Good at What You Do: Are you going to leave your job just because the going gets tough?  If you’re reading this blog, you’re either a Real Estate Expert or a Real Estate Expert in Training.  This is a great industry to be in!  The combination of people skills, flexibility and potential for income is unparalleled.  Sure, there may be other sales jobs out there, but how much do you know (or care) about Injection Molding?  I mean, really?  Seriously?  Homes and mortgages alike are personal.  There is a satisfaction to helping someone locate, purchase, sell, or finance a home.  Remember that rewarding feeling you had when you helped close a deal, and the thanks you were given by that homeowner.  Remind yourself that it took an Expert to get that job done, and translate that positive energy into today’s work!

Last week the Fed’s US Flow of Funds Accounts report was published, and according to that report, US Homeowner’s had the lowest percentage of equity in their homes since that data was collected. Obviously this information was received with open-arms by the majority of Real Estate blogs which are fueled by the pervasive negativity surrounding the Real Estate Industry. But new news suggests that things aren’t actually as bad as they seem.

What was wrong with the Fed report? Well, apparently their survey doesn’t take into account those homeowner’s who have completely-paid-off their mortgages! The article which I heard about here, is based off of a survey done by the Consumer Finance Monthly research group at Ohio State University. According to their data, homeowner’s have closer to 70% equity in their homes which is much better than the originally reported 47.9% by the Fed.

While skeptics will point to the rather small scale survey that was done by Ohio State, the fact that true Home Owners (those people not owing a dime) aren’t even considered in the Fed report, is horribly misleading. Certainly adding that 40% of the population who owns their home outright (in this study) would skew the results in a much more favorable light.

Much like popular weight loss supplements that point to the thousands of people who lose weight using their product, statistics can be used to paint very different pictures. In the end, it is important to have a healthy skepticism of statistics, and the skeptics themselves.

I will be out of town tomorrow, meeting with a company called TurnHere. TurnHere is “a full-service Internet video solutions provider.”  The future for Realtors and Originators will be connecting with an increasingly tech-savvy consumer who has a voracious appetite for information in all forms.  The next post will definitely focus on a few of the various methods of personal branding and company marketing utilized in the world of Real Estate to engage these people.

See you tomorrow!

One of the most highly anticipated days for Originators and Homeowners alike, has finally arrived: Fannie Mae has announced the new Jumbo Guidelines. This will undoubtedly lead to many more loan applications as Jumbo Loan Note holders will want to take advantage of this small window of opportunity (the new limits are temporary adjustments good only through December 2008.) So while other sites will surely rip the announcement and the program because of the impossible-to-live-up-to hype and the somewhat limited guideline changes, this is still great news for Originators and Homeowners.

What specifically is the good news?

• Increased loan limits (Specific County Increases)
• 30-Year and 15-Year Fixed Loans Offered starting April 1 (5-year ARM offered May 1)
• Purchases up to 90%
• Refinances up to 75% CLTV (no cashout refi) and 95%(!) CLTVs (probably subordination allowances)
• Up to 45% DTI ratio
• 5/1 ARM to have Interest-Only Option as well

There are certainly some limitations to the new product offerings: no cash-out refinances, manual underwriting, and no Stated Income option will all pose problems. But as any Originator can tell you, anyone who has recently purchased or refinanced a Jumbo Loan amount probably got into an ARM. Jumbo Fixed loan options had such ridiculously high rates due to secondary market problems, that the only programs that Jumbo Loan holders could take were short-term. These people will jump at the opportunity to lock into something stable. And if there were a select few of those people who actually stomached a late ‘07 or early ‘08 30-Year Jumbo, they will be ecstatic at the chance to lower their rates too.

If you’re an Originator, comb through your files and start calling those “Jumbo” note holders; if you’re a Home Owner, call your trusted Loan Officer and take advantage while you can!

You want good news? How does this sound: Zillow is getting into the mortgage game and you’re invited…

It was only a matter of time before Zillow got involved in mortgages. After changing the face of the Real Estate business with their intuitive interface and ever-improving home valuation methods, Zillow is going to offer Loan Officers, Brokers, and Banks the chance to assist their growing roster of users.

Huge hat-tip to Blown Mortgage for breaking the story this evening after blogger extraordinaire Morgan Brown was privy to an initial conference with Zillow themselves. To read the entire update cruise over to Blown Mortgage and read all about it. And if you aren’t reading Morgan’s stuff on a daily basis, you should start immediately.

That is a great way to start the day! Another avenue to track down business; you can’t complain about that. Go sign-up now. You have to enter certain details about your employment, and it does cost $25, but there is no doubt it will be worth it!