Steve’s Mortgage Minute – What is real?

We are in a time when the professions of real estate and mortgage sales is vital to an economic turnaround and vital to the financial security and well being of our clients. Thus, it is important that we keep our clients focused on reality rather than the misinformation that persists in the media and market place. Bad information landed many buyers/clients into bad situations and as we move out of this crisis it is vital that we “keep it real” and provide accurate information.

So, here is a small does of “Real vs. Not Real” – Let me know if you have any other points I can add to the list.

What is real?

• Interest rates in the 4.750 – 4.875% range with normal closing costs (imagine someone missing these rates because they are waiting for 4.00%!)
• Higher fees for borrowers with high loan to values and credit scores below 700 (due to Fannie and Freddie pricing adds)
• The new Home Affordable program looks like it will be the first “special program” that will actually help distressed homeowners with high LTV’s and reduced income. (call me for more info)
• Banks offering below market financing for new construction homes that are in their REO programs – this is a great opportunity for people who do not have a home to sell. (Banner Bank – Horizon Bank etc)
• The economy is showing signs of improvement and I believe it is real but like a patient with a serious illness there will be setbacks and it will be at least 18 months before things seem normal again
• Banks being totally ill prepared to deal with their REO’s – this is causing real estate agents to work twice as hard and not allowing them to do their jobs in helping clear excess inventory from the markets
• Scam artists who ask distressed homeowners for upfront fees to help them “renegotiate their debt” – this is the fastest growing industry we have today

What is not real?

• Rumors of the 4% or 4.5% rates that have now become a full on urban legend
• Banks renegotiating mortgage balances with distressed homeowners (yes you will hear a story or two on the news but it will not be broad based and our friends and neighbors will tell you of a much different scenario as they have tried to get relief)
• No closing cost loans – they do not exist and it is the ultimate in dishonesty for lenders to advertise them. Someone is paying for the title, escrow, appraisal and profit on a loan. Guess what! It is not the lender. The borrower is duped into paying these fees with higher than market interest rates. http://www.credit.com/news/experts/2009-02-02/mortgages-the-free-refinancing-myth.html
• “900” Fico scores – these new consumer scores are different from the scores that lenders use to evaluate a borrowers credit worthiness – http://articles.moneycentral.msn.com/Banking/YourCreditRating/WhatTheNewCreditScoreMeansToYou.aspx

Market Status:

After several weeks of tremendous gains in the stock market, stocks are under some selling pressure as a result of bank analyst, Mike Mayo, spewing out a negative forecast which includes his thoughts that loan losses by financial institutions will exceed levels from the Great Depression. The pressure in Stocks has given Mortgage Bonds a modest boost and prices remain just above support at the 25-day Moving Average.

However, with the recent changes to mark-to-market, I feel that there will be a positive impact on economics and the overall operations of the financial institutions because it will free up their capital ratios and allow them to do more lending, ultimately leading to profit potential.

There are few economic reports set for release this week, as the market will close early Thursday and all day on Friday for the Holiday. There will however be additional Bond supply hitting the markets later this week, which could have an impact on the markets at that time. Since Mortgage Bonds are trying to cling to the 25-day Moving Average, I recommend carefully floating for now.