Well it is another start to the week and the early AM read is putting some upward pressure on interest rates. On tap for the economic calendar this week is:

There is some dissent to the recent Fed Policy statement as one of the Fed President’s have broken ranks and is sharply critical of the continued lax monetary policy.  I am not sure what he is smoking but Kansas City Fed President Thomas Hoenig feels the time to raise rates is now.  While I do not claim to be an economic scholar but this recovery kind of feels like a car stuck in the mud.  The tires are spinning but we aren’t getting anywhere. For more on Hoenig’s opinion follow this LINK for the full article.

Since the beginning of the housing meltdown and the collapse of the mortgage market, credit and underwriting has continued to get tighter and tighter. The mortgage market has gone from “exotic” to “vanilla” and borrowers with excellent credit, strong equity positions, and significant reserves have been locked out of the market if they did not show adequate income and fit “in the box”. In the good ole days, these were the borrowers that the stated income programs were intended to serve. Instead, the market morphed into an ugly animal that allowed anyone to utilize stated programs and gave the borrowering public carte blanche to lie in order to but too much home.

So what if you are a borrower with great credit, significant equity, and strong reserves? Well if you protect your wealth by filing a creative tax return and minimize your tax liability – you really have no where to go – until now.

Say hello to the Homeownership Accelerator! This loan is a first lien line of credit that allows for a make sense approach when analyzing a borrowers qualifications. The Fed’s would probably say it is a “exotic” mortgage but when you analyze the features and the intention of the program it is a great alternative for many borrowers. The program works like this:

The starting rate (currently) is 3.50% with interest only payments. The program is tied to the 1 Month LIBOR plus (in this case) a 3.250 margin. The premise of the program is that you use it as your household operating account and put all your income against the balance, thereby reducing your interest costs on your mortgage. As the month goes on you utilize the account with checks or a Visa card to buy groceries, pay bills, dine out, go to the movies, etc. etc. etc.. The program works to accelerate the amortization and pay off of your mortgage as long as your cash in flow exceeds your monthly outflow. For a detailed look at the program youu can view a movie that outlines details at http://homeownershipaccelerator.net/.

The creative aspect of the program is that the underwriting is purely make sense and allows credit worthy borrowers who are otherwise locked out of the market to get a home loan.  One “creative” aspect is the allowance of asset depletion to establish an income stream for a borrower.  For instance, if we have a borrower with $1,000,000 in reserves (yes they do exist) then you simply divied the total of reserves by 120 months to establish a qualifying income stream of $8,333 per month.  There is more as the focus is a view of the entire borrower profile rather than the conventional market where we are forced to cram everyone into a box or send them away unhappy and without a loan.

As we head into another month end we continue to enjoy interest rates that have not been seen since the 1950’s! Just the other day I had the opportunity to quote a 15 year fixed rate loan (< $417,000) at an interest rate of 3.750% and a 1.000 point cost!  Never in my 26 year career have I ever quoted any type of fixed instrument with a rate less than 4.000%!  If you are a fence sitter and are waiting for the bottom of the market, take a sanity pill, jump off the fence, and lock in a rate TODAY.  Rates may go a bit lower but the risk to the upside is far greater at this time.  Don’t miss out on a great opportunity to take advantage of these rates combined with some very attractive home prices in the Bay Area.

If your interested in seeing a successful businessman’s view of the state of our administration and economy, you may be interested in giving this short video a view! Doing business in China is more stable and predictable than in the US??  Kind of causes you to take pause when you think about it.

This week Treasury will borrow a total of $104B, $4B less than a month ago, in 2 yr, 5 yr and 7 yr note offerings, the demand for the debt is expected to be good but we have noted some minor anomalies in the demand for US debt in recent auctions. That said, traders still expect the auctions will meet with decent demand; if however the demand ever weakens the rate markets will spike higher quickly.

This Week’s Economic Calendar:

Tuesday;

9:00 am Case/Shiller Home price index (+4.0% in May)

10:00 am July consumer confidence index (51.0 frm 52.9 in June)

1:00 pm $38B 2 yr note auction

Wednesday;

7:00 am Weekly MBA mortgage applications data

8:30 am June durable goods orders (+1.0%, ex transportation +0.5%

1:00 pm $37B 5 yr note auction

2:00 pm Fed Beige Book economic report

Thursday;

8:30 am weekly jobless claims (-4K to 460K; continuing claims 4.55 mil frm 4.49 mil)

1:00 $29B 7 yr note auction

Friday;

8:30 am Q2 advance GDP (+2.5% frm +2.7% in Q1)

8:30 Q2 employment cost index (+0.4%)

9:45 am July Chicago Purchasing Mgrs index (56.0 frm 59.1 in June)

9:55 am U. of Michigan consumer sentiment index (67.0 frm 66.5)

Foreclosure Rates Fall Again:

U.S. foreclosure rates fell for the third straight month according to RealtyTrac’s new report.  New foreclosure fillings in June dropped 2.81 percent from the previous month and 6.98 percent from the previous year.

While foreclosure rates are falling, they are still at high levels with 16 straight months of readings of over 300,000.  Still 410 out of every 411 homes are not in foreclosure, so there is still some strength in the housing market.

Consumer Prices Continue to Fall:

Consumer Prices fell for the third straight month, providing bargains for American Shoppers.

The Consumer Price Index, the government’s most closely watched inflation barometer, dipped 0.1 percent in June, according to the Labor Department. Less expensive energy bills were a big factor behind the drop. Prices for food items and airline fares also dropped last month.  Also, ”core” consumer prices are holding near a 44 year low.
 
What Happened to Rates Last Week:

Mortgage backed securities (MBS) gained +44 basis points last week which caused 30 year fixed rates to decrease for both government and conventional loans.  Rate declined on the back of some weaker than expected economic data.  Manufacturing Data, Consumer Price Index and Consumer Sentiment all were much worse than market expectations.  Economic concerns helped to push investors towards purchasing MBS as a way to earn low yields in exchange for safety that you cannot find in the stock markets.

What to Watch Out For This Week:

The following are the major economic reports that will hit the market this week.  They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages.  I will be watching these reports closely for you and let you know if there are any big surprises:

It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets.  Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon. 

All in all rates are at very attractive levels and it is unlikely they will go much lower from here.  If you are a fence sitter and are waiting for the bottom, wait no more as the trend is more likely to be upward for the near term outlook.  30 year fixed rates are in the mid 4% range and 15 year fixed rates are in the low 4% to high 3% range!  In 26 years as a mortgage professional I have never been able to quote such attractive interest rates!

Why are so many people listing their houses now?
Once the tax credit expired (new contracts had to signed by April 30th) everyone expected that listings would go down.  But they haven’t…they have gone up.  With all of the negative media attention on housing it would be easy to consider that it is because the sellers are distressed in some way.  Maybe they lost their job or they are trying to sell the home before it goes into foreclosure.

But here is the real reason why listings are up:  Interest rates are at an all-time low.  Despite the constant bombardment of negative media coverage, the vast majority of existing homeowners are very credit worthy, live within their means and have stable income.  Experienced homeowners have seen interest rates in the 5’s, 6’s, and 7’s in the last several years.  And those that have owned homes for longer have seen double-digit interest rates.  So, they know that when interest rates are at an all time low – it is time to make a move.

The idea is that if they were ever going to move to a different school district, move up or down in size, etc. now is the time to do it.  Sure, they might get a little less for their house this year compared to what they might sell it for a couple of years down the road but that is more than offset by the huge savings in mortgage and interest payments.

This means that homebuyers also have attractive interest rates which is another good time to sell, because more people buy when interest rates are low.  Buyers are a little slower to “pull the trigger” on a sales contract because there is moderate amount of inventory around.  But many of these potential homebuyers already missed out on the tax credit window because they thought the government would keep extending it or maybe they just weren’t ready to enter the market yet.  Regardless that window of opportunity has shut.  Don’t miss this even bigger window of opportunity!

Mortgage rates can make a right turn at any second.  Mortgage rates are not low because of anything that the Federal Reserve, Treasury, or Obama administration is currently doing.  Mortgage rates are low because of global fear about the economy and financial system.  This causes banks and investors to hoard their cash and park it into nice, safe and boring mortgage backed securities.  You earn a very low interest rate in return for safety.  But the financial markets and the global economy will turn around, and when it does it will move mortgage rates up with it.
 
What Happened to Rates Last Week:

Mortgage backed securities (MBS) gained +19 basis points last week which caused 30 year fixed rates to decrease for both government and conventional loans.  Rate declined on fears of a U.S. double-dip recession.  Economic concerns help to push investors towards purchasing MBS as a way to earn low yields in exchange for safety that you cannot find in the stock markets.

What to Watch Out For This Week:
The following are the major economic reports that will hit the market this week.  They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages.  I will be watching these reports closely for you and let you know if there are any big surprises:

It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets.  Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.

It is time for a call to action as FHA loans are in danger of becoming more costly thereby pushing persepctive home buyers out of the market.  To view a video and get more details on this issue - CLICK HERE! 

Please take the time, watch the video and let your representative know how you feel!!

The news or buzz on the street is that the next round of crack downs and arrests for mortgage fraud are coming – THIS WEEK!  The details so far are:

By Michael Braga

Published: Saturday, June 12, 2010 at 1:00 a.m.
Last Modified: Saturday, June 12, 2010 at 12:10 a.m.

“The FBI is expected to ramp up its clampdown on mortgage fraud and arrest hundreds across the United States as early as next week, according to a Friday story published by the Financial Times.

The British business newspaper said that its information was based on conversations with two people familiar with the FBI operation and that the agency is “targeting offenders who have persuaded borrowers to submit false data about their income on mortgage applications, have given homeowners misleading information about foreclosure rescue programs and have inflated home appraisals.”

The FBI has set up 23 local mortgage fraud task forces around the U.S. since October 2008 with the mandate to limit the illegal misstatement, misrepresentation or omission of material facts on mortgage applications.

Because Southwest Florida was the site of so much potential mortgage fraud during the real estate boom and its aftermath, there is a strong possibility that local residents could be rounded up in the crackdown.

After a year-long investigation and the review of nearly 19 million real estate transactions, the Herald-Tribune reported last summer that Florida was the site of more than $10 billion in suspicious property flips.

The newspaper has since reported that several large-scale criminal investigations are underway, but it was unclear on Friday whether any of those cases are part of the FBI’s imminent efforts.

David Couvertier, the FBI’s Tampa spokesman, did not respond to calls or e-mails from the Herald-Tribune seeking comment. Steve Cole, a spokesman for the U.S. Attorney’s office in Tampa, said Friday that he could not comment.

The most prominent investigation uncovered by the Herald-Tribune involves Sarasota real estate agent Craig Adams.

Adams, who organized scores of transactions in which houses were sold to associates at inflated prices so that they could obtain hundreds of millions of dollars in loans, turned himself into the FBI in 2008 and has been providing information that has implicated at least 30 of his colleagues.

The information has already led to the April 2009 arrest of Lisa Rototo, a Sarasota title agent who closed dozens of deals for Adams and his associates.

Rotolo has been cooperating with the FBI ever since.

An FBI affidavit in Rotolo’s criminal case, which was filed in U.S. District Court in Tampa, contains a list of 37 transactions in which Adams and his associates allegedly obtained mortgages through fraudulent means.

All told, the players involved in flipping and mortgage fraud defaulted on nearly $500 million in loans in Southwest Florida, the Herald-Tribune investigation found.”

If you are in the mortgage business do you fell safe or are you a little nervous!

Fridat was FDIC pays a visit day and overall it was pretty quiet! Washington First International Bank of Seattle Washington bit the dust and all deposits were assumed by East West Bank of Pasadena.

The market is atrting the week on the negative side with upward pressure on mortgage rates. The economic calendar for the week consists of:

Inflation data can always be a market mover so pay close attention to the PPI and CPI figures this week.  Thanks for stopping by and happy Monday to all!

The economic downturn has created havoc throughout the US economy and changed our credit parkets dramatically.  With Fannie and HUD essentially removing themselves from the condo approval business and placing the burden of project warranties on the funding lenders, it is only natural that condominium purchases are becoming more difficult.  The reasons are that many lenders do not have the expertise or the stomach to warranty a project and risking a loan re-purchase and the economic crisis has rendered many projects un-approvable.

For a lender to warrant a project, they must have the expertise avaialable to review the project documents such as the CC & R’s, Articles, By Laws, Budget, Articles of Incorporation, and Master Insurance Policy to insure that the project does indeed meet Fannie Mae or HUD standards.  If the expertise is not in-house then this process may be outsourced to a thrid party provider but the burden of that warranty will still be on the funding lender.  If a loan goes bad and it is determined that the project should not have been approved, the investor is going to expect the loan to be re-purchased by the funding lender.  The funding lender can then go back and request the third party provider cover any losses (good luck with that!).

The other challenge is that the guidelines for a project to be approved have also tightened up.  The main issue that renders many projects unwarrantable in the current market is the issue of delinquent HOA dues.  If 15% or more of the current property owners are 30 days or more delinquent with their HOA dues, then the project is a no go!  Given the level of foreclosures, short sales, and cash strapped owners, we have been seeing as delinquency rates in projects as high as 25% to 30% of the unit owners! 

When considering a condo purchase or if you are thinking of listing your unit for sale, perform some homework in advance to see where your project stacks up with current lending standards.

Here are links to 2 helpful documents that give some clarification to Fannie Mae’s Loan Quality Initiative (LQI). 

The first is a summary of the initiative: CLICK HERE

The second is a FAQ document that further clarifies the program: CLICK HERE

Last Friday’s bank closures were as follows:

1. First National Bank (MS)
2. The Jefferson Bank (MS)
3. Arcola Homestead Savings Bank (IL)
4. TierOne Bank (NE)

82 closed banks YTD and counting!!

So the jobs report came out and the news was very good – or was it??  The economy added 431,000 jobs – that is the good side.  The bad side is that the break down on the number is that 390,000 of these jobs were temporary government census workers and only 41,000 jobs were added to the private sector!  Unemployment went from 9.9% to 9.7% but the news on the private sector was very disappointing and has caused stocks to drop and bonds to rally.  Of course we all now know that a rally in the bond market can and usually does lead to lower interest rates.

You can also bet on the fact that these numbers are skewed.  Here is a for instance.  If a census worker is hired, shows up and works one hour and walks off the job, then another worker is hired in his or her place, this is counted as 2 new jobs being created for the month! It really makes you wonder who makes up the rules and what the real truth is behind the numbers.  I guess the truth in regards to our recovery is what you feel in your own pocket and how well each individual is fairing.  There is still a lot of struggling people out there and it still “feels” like we have a hill to climb as far as our economy is concerned.

Well today is Friday and that means it is bank closure day.  If you are a banker, your biggest fear is the appearance of a bunch of individuals at closing time all wearing shirts or jackets with the Federal Reserve emblem on their apparel.  Since May 14th, the following banks have said goodbye:

1. Sun West Bank in Las Vegas
2. Granite Community Bank NA, Granite Bay, CA
3. Bank of Florida – Tampa
4. Bank of Florida – Southwest
5. Bank of Florida – Southeast
6. Pinehurst Bank, Minnesota
7. Midwest Bank and Trust Company, Illinois
8. Southwest Community Bank, Missouri
9. New Liberty Bank, Michigan
10. Satilla Community Bank, Georgia

To date the count is at 78 total closures on the bank side. Credit Unions have fared better with only 8 failed credit unions YTD.

So on the heels of all of this good cheer is a rallying bond market and lower rates as we head into the traditional home buying season.  Inventory still remains a challenge but the home prices are attractive and so are the rates.  If you are still sitting on the fence waiting for the perfect time to buy it is probably time to jump down off the fence and start pounding the pavement in search of your dream home!  Good luck and happy hunting!