About Long Beach's Sunrise Boulevard Historic District

Long Beach, CA. Will 2009 bring economic collapse or will markets begin to mend?
Two reliable predictors give hope. First, the spread between LIBOR and Treasury yields, which measures global risk. The spread ended the year tighter than when it began, and far tighter than the extreme levels of late summer. Second, volatility embedded in stock option prices is a good predictor, and is referred to as the "fear index." While still elevated, it ended the year reflecting much less fear than the worst seen in 2008. Both indicators lead us to believe that the economy has backed away from the brink.

While the economy may not collapse completely, we have some tough work ahead of us. Recessions brought on by financial crises (rather than typical business cycles) are severe, reports John Mauldin. In past such recessions, real housing prices declined 35% over six years, while equity prices collapsed 55% percent over three and a half years. The unemployment rate rose by 7% over four years and output fell 9% over two years. And government debt increased massively. By these historical measures, we have a long way to go.

The good news for home buyers is that mortgage rates are low, and are likely to stay that way. Fallout - of the 50% variety - and early loan payoffs have become the problems du jour. In spite of Barron's warning to "get out (of Treasuries) now," there is little economic reason for mortgage rates to rise. Nary a holiday party went by without someone asking when they could have their 4.50% mortgage rate (in the near future, we think). Mortgage demand is strong. The New York Fed "began purchasing fixed-rate mortgage- backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae," the Fed bank said in a statement released by e- mail.

So severe is the concern over lower rates, fallout, and refinanced mortgages, that the lack of premium mortgage pricing is as much an impediment to the refinance boom as anything else. You can pick any premium mortgage rate you want and your loan officer price struggles to get to par. This will continue I am afraid until the housing market is steadied for prices and buyers other than the Federal government begin purchasing mortgage backed bonds.

The Fed began their MBS buying program yesterday; they will announce the amount purchased each Thursday. The mortgage basis tightened off of this purchasing pressure. Oil is now at a five week high as OPEC's production cuts are starting to have an effect on the market, oil is now above $50/barrel. Right now the futures market is pricing in a 76% chance that the Fed keeps rates somewhere between 0 and .25% until at least April 29^th, 2009. Currently, the Ten Year yield is at 2.56% (2.47% yesterday)

Speaking of rates, the historical link between Treasury rates and mortgage rates is practically non-existent. Yesterday, for example, Treasury rates moved up since Construction Spending fell only .6%, less than half as what was forecast, and before the $54 billion in government securities to be sold this week ($8 billion in 10-yr TIPS today). The government's sale of notes this week is causing impacting the supply side of the equation, moving Treasury rates higher. So this morning we find the yield on the 10-yr up to 2.56%, but mortgage prices are better than yesterday afternoon by .50% and continuing to show improvement. Remember, investors have been very slow to reflect, but I would wait one hour or so and most investors should begin to reflect the improving price. However, as I have said over and over, the market is artificially being impacted and can quickly retreat.

Kirk Mulhearn, A professional Mortgage Planner, may be contacted at 866-961-8042 ext. 110

Long Beach, CA. You might not have caught key details that could have personal impact on you or people you know-now or in the recession months ahead. One of the most ambitious mass-market "loan modification" programs was outlined recently by the Federal Housing Finance Agency-overseer or Fannie Mae and Freddie Mac-along with the 33 banks and mortgage servicers who make up the private-sector Hope Now Alliance.

The program, which started nationwide December 15th, is for thousands of subprime and other borrowers who are seriously behind on payments-three months or more-and are slipping fast toward foreclosure. To be eligible for intervention, owners need to document that they can handle mortgage payments with up to 38 percent of their monthly gross income.

They also need to demonstrate that they have experienced some form of financial reversal that made them delinquent on their payments, and prove that they did not intentionally go into default just to get better terms.

If they can pass through these hoops, borrowers may qualify for sharply reduced interest rates, deferrals of principal payments or extended loan terms-whatever combination it takes to get them an affordable payment with their current income.

Participating lenders say they want to hear as early as possible from potential beneficiaries. If homeowners can't connect directly, they can work through the Hope Now Alliance (www.hopenow.com) or through the U.S. Department of Housing and Urban Development (www.hud.gov/foreclosure).

The same day the new federally assisted mass modifications effort was announced, one of the largest lenders and servicers-Citicorp-unveiled a program designed to catch at-risk home owners before they fall behind.

Beginning last month, Citicorp will reach out to an estimated 500,000 mortgage customers who are not currently delinquent but who appear to be at risk-either because their credit files show tell-take signs of financial stress or because their homes are located in markets Citicorp believes face serious economic strains and job losses in the coming year.

Although most mortgage industry executives and economists believe that today's foreclosure crisis is so serious that only wholesale remedial approaches can prevent home losses from piling up, not everyone agrees with the new programs or the loan modification options they throw to homeowners.

Bottom line for borrowers: Definitely pursue a loan modification if you qualify and need one. But talk with your servicer or loan officer to make sure that the revised terms you're signing up for are realistic for your long-range economic situation, and not likely to be just a temporary patch.

Kirk Mulhearn is the co-owner and manager of the Bixby Knolls' Prudential California Realty branch, and the co-manager of G.E.M., Golden Empire Mortgage, also located at the Bixby Knolls' office. He can be reached at 866-961-8042 ext.110 or on his cell @ 562.965.0054.