August 6th, 2009 9:56 PM by Preston Ware
Three advantages I have as a mortgage broker over a large bank are speed, pricing and service. If you really think about it, those are the three components that separate any service business from another. The recently implemented Home Value Code of Conduct (HVCC) legislation has succeeded in worsening speed, pricing and service received for any individual obtaining mortgage financing. The HVCC will also succeed in putting many small business owners, (real estate appraisers) out of business. This change in the way banks do business stems from guidelines set by New York State attorney general Andrew Cuomo. HVCC guidelines do not apply to FHA financing where a borrower typically borrows 96.5% but only applies to Fannie Mae and Freddie Mac financing where the borrower typically borrows 80% financing. (You would think it would be the other way around)
The Home Valuation Code of Conduct (HVCC) is legislation that passed in March 2008 and became effective on May 1st, 2009. From that moment forward all real estate appraisals for Fannie Mae and Freddie Mac mortgage loans are now ordered through the bank’s appraisal management company rather than by the mortgage originator. The intent of this legislation is to prevent “persuasion” coming from the mortgage originator on the value of the property. Prior to this, a financial institution would call up their favorite appraiser and place the order. What’s the big deal you ask? Here are examples of how this legislation, raises price for the consumer and lowers service levels and will help to effectively put many small business owners out of business.
Appraisers, like mortgage people or realtors have been struggling for the last several years due to the difficult market. This legislation effectively takes away 40% of the appraisers business. I have known appraisers who have done a fine job for 25 years. They focus on service and doing the job in a timely manner and being as accurate as possible. Now their base of repeat customers can no longer call them up and use them on a Fannie Mae or Freddie Mac transaction. How would you like it if you were an AC technician and you had 200 customers, then one day the state tells you that you no longer can visit those people unless the compressor company sets the appointment for you. Twenty-five years of hard work and customer service has just been thrown out the window.
The Home Valuation Code of Conduct raises costs to the customer and reduces the appraisers pay and creates inefficiencies. Where $350 used to be the going rate for an appraisal now the cost is $400. The appraisal management company skims $100 of the top just for picking a random appraiser. If the bank tries to honor the old price, this means the appraiser who once made $350 per job is now making $250 per job. Now we are more likely to have a less experienced appraiser, who doesn’t care about service because there is no link between doing a fine job and his next order. He is less likely to put as much time into the job because he is getting paid less. Turn around times which used to be five days are now two weeks. This may force the mortgage broker to extend the lock which costs the consumer even more money and frustration. Just last week, I had a purchase where the sloppy appraiser misread the contract price. I had no way of telling him he made a mistake. The bank never fixed the mistake and it cost my client an additional $800 out of pocket. Under the HVCC, if a customer chooses to switch lenders, they have to start all over and pay for a brand new appraisal from a different random guy. It used to be we could transfer an appraisal from one bank to another if we found a better interest rate for the customer.
There is a petition going around that is a protest to this HVCC legislation. Please sign it on line. I have placed it on my web site and I am also placing it at the bottom of this article. This is just another example of how government intervention doesn’t necessarily always help the big picture. Another example of how mortgage brokers are being portrayed as the villains in this whole mortgage meltdown. Another example of how the large lending institutions, with their lobbyists, are pushing out the small business owner.
You can add your name to the petition at http://www.hvccpetition.com/
Written by Preston Ware First South Mortgage Tel: 704-542-8057 * http://www.prestonware.com Email is email@example.com.
In anticipation of Federal Reserve chairman Ben Bernanke’s biannual testimony to Congress, markets are poised to begin the Tuesday session looking up. The bondholder rescue of CIT Group has also boosted sentiment, and yesterday’s upgraded forecast from Goldman Sachs on the S&P 500 hasn’t hurt either.
The main event today is Bernanke’s testimony at 10 am. Stealing his own thunder, however, Bernanke hit on all the key themes in an op-ed published in the Wall Street Journal this morning. The Chairman said the central bank has all the tools it needs to tighten monetary policy when the economy improves, but, crucially, he said that conditions won’t warrant a tighter policy for an “extended period.”
Bernanke Confronted ‘Exit Strategy’ Concerns Head On: “...as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road…. We are confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate, in a smooth and timely manner….When the time comes to tighten monetary policy, we must either eliminate these large reserve balances or, if they remain, neutralize any potential undesired effects on the economy.”
Don’t Expect Policy to be Tightened Soon: “...the Federal Reserve has many effective tools to tighten monetary policy when the economic outlook requires us to do so. As my colleagues and I have stated, however, economic conditions are not likely to warrant tighter monetary policy for an extended period.”
Bernanke's strategy takes four steps. First, the Federal Reserve could drain bank reserves and reduce the excess liquidity at other institutions by arranging large-scale reverse repurchase agreements with financial market participants … Second, the Treasury could sell bills and deposit the proceeds with the Federal Reserve … Third, using the authority Congress gave us to pay interest on banks’ balances at the Fed, we can offer term deposits to banks—analogous to the certificates of deposit that banks offer their customers (a.k.a. the Fed selling debt although it will be called a CD instead of a bill or CP)… Fourth, if necessary, the Fed could reduce reserves by selling a portion of its holdings of long-term securities into the open market.
Analysts at BMO Capital Markets point out that asset sales are the fourth step, meaning that the Fed "wants to minimize the impact of its liquidity removal on term rates."
Reacting to Bernanke’s Op-Ed piece, Lloyds TSB Corporate Markets economist Kenneth Broux said: "Suspense is gone and speculation quelled that the Fed is planning to exit quantitative easing soon."
No major data is scheduled for the rest of the day, but markets will still be glued to the Q&A with Ben Bernanke on Capitol Hill, which begins on the House today and continues in the Senate tomorrow.
Many of the same predatory lenders who took advantage of unsuspecting borrowers with questionable loans are still out there taking advantage of the same customers with mortgage modification schemes. If you truly believe you are in need of a mortgage modification, here are some red flags for you.
Here are several things to watch out for from dubious mortgage modification specialists. First, avoid someone who tells you to purposely not pay your mortgage. Avoid someone who collects monthly payments while you attempt to modify. Some modifications can take as long as 8 months. The fee should be a flat fee that is placed into an escrow account until your modification is approved or denied.
Avoid a modification company who has a fee over $2000. I have heard of fees as high as $5000. If you are in foreclosure, you will need a foreclosure attorney which costs more but still fees that high are unnecessary. Avoid someone who tells you they can guarantee anything, especially lowering the principal balance.
Never sign the title of your home over to anyone. If you succeed in your modification, you will be asked to sign a mortgage modification agreement generated by your current bank at the end of the process.
Here are some traits of a mortgage holder who has a chance for a successful mortgage modification:
The total debt ratio of the household should be about 100%-120%. That is the sum total of every bill paid each month. The banks know from statistical averages that if a customer is deeper in debt than this, chances are they will not succeed even with a mortgage modification.
Banks want to understand the problem, and hopefully see the fix. E.g. Someone who was out of work who recently became employed again. Tell this to them is a hardship letter.
Your chances they will listen improve if you have a costly adjustable rate mortgage that just adjusted upwards. Your chances they will listen improve if you are upside down on the value of your home.
Your chances they will listen improve if you are beginning to get behind on your mortgage payments.
Do not talk to the collection department; ask to be transferred to the loan mitigation department.
On March 4, 2009, our government came out with a standardized set of rules for mortgage modifications in the form of the Home Affordable Modification Program. This legislation has two key components. One is to provide a standardized set of rules for bank’s to follow when determining if a customer should be entitled to a mortgage modification. The other half of this legislation is the home affordable loan program designed for customers with limited equity in their home and good credit.
Prior to this legislation, Bank #1 would act one way modifying loans, Bank #2 would act completely differently and Bank #3 wouldn’t do anything at all. Now the modification departments of these banks have a standardized set of guidelines to follow which include cash incentives for each modification granted.
The Home Affordable Mortgage Program allows a customer with a loan to value between 80% to 125% to refinance into one of today’s excellent low fixed rates.(Around 5%) Any mortgage holder who obtained their mortgage in the spring and summer of 2006 and 2007 should be looking at this option.
At that time, mortgage rates were in the mid to upper 6’s. The best part about this mortgage loan program is that there is no costly mortgage insurance which makes the payment higher. To qualify, the borrower must have an existing Fannie Mae loan, be current on their mortgage and fit the normal criteria for proving income. So often I am approached by clients who are pondering a mortgage modification when in fact they qualify for this mortgage loan program with a low fixed mortgage rate. This loan will benefit customers who bought their homes a few years ago and put the 20% down, and then declining values withered away their equity. This avenue is designed for the responsible borrower who pays their bills on time. To determine whether or not you have an existing Fannie Mae loan, I placed a Fannie Mae lookup link on my web site. This option is better than a mortgage modification because you will receive a 30 year fixed interest rate. Many mortgage modification programs are only fixed for five years then become adjustable again.
Written by Preston WareFirst South MortgageTel: 704-542-8057* http://www.prestonware.comEmail firstname.lastname@example.org.
As published on Huliq News http://www.huliq.com/1/83666/bank-positive-news-pushes-mortgage-rates-again
Today Bank of America and Citigroup made news by reporting some healthy profits. Bank of America reported a $3.2 billion profit for the second quarter. Citigroup said it earned $4.3 billion during the same period. This follows other good news earlier this week issued by Goldman Sachs and JP Morgan Chase. This may not be good news for current mortgage rates.
Good news from banks is always good news for our economy and we need that. Unfortunately good news from banks is quite often bad news in the short term for homebuyers out there purchasing their new home. As a rule, when I am coaching my clients and discussing their interest rate on their mortgage, I tell them to follow along at home. Usually, a good day in the stock market is bad for my mortgage rates and vice versa.
This is an oversimplified rule of thumb of course but it is a good general rule for the typical borrower who has many other details to follow and digest during the home buying process. The thinking here is that if we have a good economy and more people are in a position to buy, this creates more demand for mortgages and rates go up. If the economy is sluggish, there is less demand for mortgages which forces banks to lower mortgage rates to attract business.
Another way to show the impact of good and bad economy on homebuyers is to demonstrate this with a few numbers. One of my clients this week went to contract on Wednesday. He is looking at a home purchase in the amount of $315,000 with 20% down. He started the week with a quote of 4.875% and may end the week at 5.125%. (Depending how mortgage rates come out this morning.) This customer, who is getting a mortgage of $ 252,000, just saw his payment go up $39 per month. This is not enough to break him, but it is enough for him to trim his spending somewhere else.
Currently we have an interesting tug of war going on in the mortgage markets with regard to interest rate. We have huge deficit spending which will push interest rates up. We have a weak economy that will help keep them down. We have a government that is purchasing huge amounts of mortgage back securities ensuring that our banks are liquid and ready to continue lending which has helped keep mortgage rates down. No doubt Washington will do everything in its power to keep our rates low to help get rid of the glut of houses out there and also continue to receive the stimulus that occurs when consumers refinance into a lower rate.
In an effort to proactively help answer questions for customers, I have created three auto-responder series on my website.* They are entitled “The Mortgage Process”, “First Time Homebuyer Workshop” and “Debt Relief”. You will see a separate subscription box for each series. They are of course free and include video of myself describing what to expect during each phase of the home buying or refinancing process. “The Mortgage Process” describes what to expect once your loan is at the bank. The “First Time Homebuyer Workshop” is a tool that coaches FHA customers who need to put their affairs in order before they go house hunting. The “Debt Relief” series describes alternatives for customers who are in need of debt settlement or credit repair.
Written by Preston WareFirst South MortgageTel: 704-542-8057* http://www.prestonware.comEmail is email@example.com.
Mortgage rates took another step higher yesterday following a 3% rally in the stock market. Tame inflation and “not as bad” industrial production numbers have resparked the green shoots theory of a quick economic recovery. Market participants, not wanting to miss out on the rally, quickly sold their fixed income investments to move their money into the higher risk but higher return equity markets. In total, mortgage backed securities moved lower in price (as price moves lower, rates move higher) by 75 basis points which forced all lenders to reprice for the worse with some issuing a couple reprices as the losses snowballed into close. Losing much more was MBS’s closest relative, the benchmark 10 year note, which sold off and moved to a higher yield of 3.63. Just a few days ago, the 10 year note was trading under 3.30 in yield. After mortgage rates briefly touched 4.875% the other day, they have quickly turned and by day’s end yesterday par was sitting at 5.25%.
JP Morgan reported much better than expected earnings this morning. Analysts had expected a 5 cents per share earnings but they reported 2nd quarter earnings of 28 cents per share or $2.7 billion. After the much better than expected earnings from Goldman Sachs earlier this week, many anticipated similar results from JP Morgan which fueled the rally in equities.
The U.S. Department of Labor this morning released the weekly jobless claims for unemployment insurance report. This data set calculates the number of Americans who filed for first time unemployment benefits in the prior week. Today's report indicates that jobless claims fell from last week’s upwardly revised 569,000 to 522,000. Estimates from economists were for 535,000 first time claims. Continuing claims, which reports how many people continue to file due to lack of finding a new job, fell by 642,000 ? its largest amount in history ? from 6.883 million to 6.273 million. The Labor Department is warning that the better than expected numbers are being distorted by seasonal issues owing to the fact that layoffs in manufacturing happened earlier than usual.
The final report of the day comes from our friends at the Federal Reserve Bank of Philadelphia with the release of the Philly Fed Survey. This survey lets market participants know the strength of manufacturing around the Philadelphia region. Last month’s survey improved by a large margin moving from -22.6 to -2.2 which was the best reading since September of 2008 and far exceeded estimates. Readings below 0 indicate that business conditions are contracting while readings above 0 indicate expansion. Economists surveyed for this month’s survey were expecting a slight decline to -5.0. The survey in fact showed business conditions in the region contracting more than expected at a -7.5 read. Following the release, both MBS and treasuries moved to their best price of the day.
So far today, the fixed income sector is trying to rebound from the beating they took yesterday. Currently, the benchmark 10 year treasury note is rallying and is currently trading at a yield of 3.51 after closing yesterday at 3.63. MBS are moving higher in price as well and are currently recapturing over half of yesterday’s losses. Since MBS are moving higher, if you are currently floating continue to do so until later today. This will allow time for lenders to pass along the improvements, but things can change very quickly so we must remain defensive. You can check MBS prices by clicking over to Mortgage News Daily’s Mortgage Rates page.
Reports from fellow mortgage professionals are indicating that the par 30 year fixed rate conventional loan is in the 5.125% to 5.375% range for the best qualified consumers. If you are securing government financing, FHA or VA, expect your rate to be about .25% higher. The sell off yesterday in MBS should have resulted in higher mortgage rates this morning; however, there are two things helping rates. First, AQ informs me that most lenders locked in their pipelines in early July at the highs of MBS price which allows them to pass along pricing based on last week’s MBS price. Secondly, the move higher in interest rates last month has lessened the supply of mortgage applications for lenders to underwrite. How can a lender encourage more loan applications to be submitted? That’s right, offer better pricing.
The Federal Reserve today reported on their weekly purchases of agency mortgage-backed securities (MBS). In the four trading days between July 2 and July 8, the Federal Reserve purchased a gross of $23.250 billion Agency MBS. During this period the Federal Reserve sold $6.2billion agency MBS, which brought their weekly net purchases to a total of $17.050 billion.
Since the inception of the program the Federal Reserve has spent $638.61 billion, 51% of the $1.25 trillion that was allocated.
The goal of the Federal Reserve's agency MBS program is to provide support to mortgage and housing markets and to foster improved conditions in financial markets more generally. Only fixed-rate agency MBS securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae are eligible assets for the program. The program includes, but is not limited to, 30-year, 20-year and 15-year securities of these issuers.
Of the net $17.050 billion weekly purchases:
$900 million was used to buy 30 yr 4.0 MBS coupons. 5.28% of total weekly purchases.
$6.850 billion was used to buy 30 yr 4.5 MBS coupons. 40.18% of total weekly purchases.
$6.750 billion was used to buy 30 yr 5.0 MBS coupons. 39.59% of total weekly purchases.
$500 million was used to buy 30 yr 5.5 MBS coupons. 2.93% of total weekly purchases.
$1.450 billion was used to buy 15 yr 4.0 MBS coupons. 8.50% of total weekly purchases.
$200 million was used to buy 15 year 4.5 MBS coupons. 1.17% of total weekly purchases.
The Fed's daily average of purchases was $4.263 billion per day, down from the previous week's average of $4.620 per day. Originator supply between July 2 and July 8 averaged just under $2 billion per day, which implies the Federal Reserve continues to provide more than enough liquidity to loan originators looking to sell their loans.
Here is a chart illustrating the evolution of the Federal Reserve's Agency MBS Purchase Program. Notice that more recently Fed MBS purchases have declined relative to their market participation during March and April. This reflects the recent rise in mortgage rates and the slowdown in application activity in the mortgage market.
Forecasts were much too optimistic for the June employment numbers. The labor market lost 467,000 jobs last month, pushing the unemployment rate up one-tenth to 9.5%, its highest level in 26 years. Analysts had been looking for just 325,000 lost jobs, following a loss of 322,000 in May.
“Job losses were widespread across the major industry sectors, with large declines occurring in manufacturing, professional and business services, and construction,” said the Bureau of Labor Statistics.
Since the recession began in December 2007, the unemployment rate has surged by 4.6 percentage points, adding 7.2 million people to the unemployed list.
The unemployment rate for adult men is 10.0%, for adult women it is 7.6%. Teenagers have an unemployment rate of 24%. The jobless rate for whites is 8.7%, for blacks it is 14.7%, for Hispanics it is 12.2% ? all were little changed from May.
Job Losses by Sector:
Analyst reactions were aptly pessimistic. TD Strategist Millan Mulraine called the report "unequivocally weak" and "very ugly".
"Not only does it suggest that the pace of job losses in the U.S. remains very high, it bucks the trend of four consecutive months of improvement in the pace of job losses," he said. "Moreover, with conditions in the U.S. economy continuing to be very weak, there is little to suggest that a turnaround in U.S. labour market conditions is on the horizon."
Elsewhere in the report, average weekly hours hit a cycle low at 33.0 hours, and wage growth was nonexistent during the month but up 2.7% compared to last year.