Florida's #1 Mortgage Planner

Once again, I am publishing a headline that has not yet happened, but very well may be seen in the not-so-distant future. While we are currently experiencing some of the lowest mortgage rates in history, and may even see lower if the government gets their way, do not expect them to remain low for very long. In fact, low rates may be a thing of the past in 2009.

You may have already heard me talk about the “mortgage rate bubble”, a term I coined a while ago. Much of the reason for the bubble will be the fact the Fed will ultimately be the only buyer of mortgage backed securities in their efforts to drive mortgage rates down to 4.5% or less in another feeble attempt to stimulate the housing and mortgage markets. With rates this low, we have seen huge increases in demand for mortgages, but with tighter lending standards, even getting tighter right now, most of these applications will not close and we are not seeing a rush to buy up properties by anyone other than investors. Investors seem to amass the majority of buyers, but tighter lending standards have reduced their abilities drastically.

To read more, head over to the Florida Mortgage Report...

You all know that I am not a fan of government interventions, nor government regulations that are absolutely insane, such as the new HUD GFE. I am all for government regulations that actually do what they are supposed to do, which is to protect the consumer and give them good, solid guidance on how to shop for their mortgages. Unfortunately, the new GFE goes in the opposite direction.

HUD made the announcement last month, and stated the new GFE and HUD-1 Statements would save consumers nearly $700. I have no idea where they came up with the $700 savings, nor am I even going to dispute that. Instead I will point out that while they may save $700 because of the new GFE, they could lose thousands, or more, by doing what the HUD is encouraging consumers to do while shopping for their mortgage. Is that good legislation?

I know, you are wondering just what I am talking about, right? Well, you have all read and/or heard about rate shopping, comparing loan proposals from 4 or more lenders to get the best deal. If you have been reading my information for a while, you know this is a futile way to find the best value and can ultimately cost you much more over time. Well, the new GFE takes rate shopping to the ludicrous level, actually encouraging shopping by GFEs!!!!

"Use this chart to compare GFEs from different loan originators. Fill in the information by using a different column for each GFE you receive. By comparing loan offers, you can shop for the best loan."

By now, you should know that rates can change in an instant, especially in the current marketplace. That has been one of my points explaining why rate shopping is futile. Now, HUD wants you to shop by GFEs? This would be a great joke, except it isn't and will almost guarantee consumers more harm than good.

Why? Anyone whom originates a loan has to take the time to prepare a GFE and, by law, has up to three (3) business days to deliver it to you. Even if you shopped all 4 lenders at the same time, it could still take 3 or 4 days to get your comparison to ensure you are getting the "best deal". Unless you can find 4 lenders that can lock in your rate at the same time and before you sign the documents, which is highly unlikely, the rates on the GFEs will likely not be valid anyway.

Since mortgage rates can change, even if only in pricing and not necessarily rate, in mere minutes, you can only begin to imagine just how much those rates can change while you are waiting to do your GFE comparison. In three days, rates could have swung higher by a full percentage or more!!! I would prefer people rate shopping over GFE shopping any day, even though that is a futile effort as well.

Why did HUD make the changes? It is their effort to cut down on foreclosures and to protect consumers from harmful loans or not being fully aware of what they are getting into. Hey, I am all for that, but is this new GFE doing that? NO!!!

So let's look at what HUD Secretary Steve Preston said and just how true his statements are...

"It has been a long road but today we can finally announce a better way to buy homes in America" (Is this really a better way to buy homes? What about refinances?)

"Consumers need and deserve to know what they're getting themselves into before they sign on the dotted line. (agreed) After carefully considering the concerns of consumers and the different businesses in the housing sector, we have developed an approach that empowers the average family to shop for the most appropriate loan to meet their needs." (This fails to accomplish this statement. It does not address a consumers needs, rather to try and get them the lowest rate and fees which may actually be contrary to their needs.)

And what about Brian Montgomery, HUD's Assistant Secretary of Housing...

"We have carefully considered the concerns expressed from every corner of the mortgage market in developing this rule. (Really? I rather doubt that.) I am convinced that we successfully balanced the needs of consumers with those in the business of homeownership. (I disagree as they do not address all of the needs of the consumer.) None of us can lose sight of the fact that millions of Americans simply don't understand all the fine print of their mortgages and this, in many respects, is at the heart of today's mortgage crisis." (Let's just discredit the fact that many Americans are facing foreclosure due to lack of financial discipline, which even the government encouraged. Yes, there were unscrupulous mortgage professionals. There were also homeowners whom knew the fine print and did it anyway.)

You can be the judge by reading the press release and reviewing the new GFE. My thoughts are that this is yet another case of the government doing more harm than good for the consumer.

What a relief this will be for many homeowners. This afternoon, the IRS sent out the following in the IRS Newswire...

"The Internal Revenue Service today announced an expedited process that will make it easier for financially distressed homeowners to avoid having a federal tax lien block refinancing of mortgages or the sale of a home.

If taxpayers are looking to refinance or sell a home and there is a federal tax lien filed, there are options. Taxpayers or their representatives, such as their lenders, may request that the IRS make a tax lien secondary to the lien by the lending institution that is refinancing or restructuring a loan. Taxpayers or their representatives may request that the IRS discharge its claim if the home is being sold for less than the amount of the mortgage lien under certain circumstances.

The process to request a discharge or a subordination of a tax lien takes approximately 30 days after the submission of the completed application, but the IRS will work to speed those requests in wake of the economic downturn.

“We don’t want the IRS to be a barrier to people saving or selling their homes. We want to raise awareness of these lien options and to speed our decision-making process so people can refinance their mortgages or sell their homes,” said Doug Shulman, IRS commissioner.

“We realize these are difficult times for many Americans,” Shulman said. “We will ensure we have the resources in place to resolve these issues quickly and homeowners can complete their transactions.” (IR-2008-141)

Hopefully, those of you that have Federal Tax Liens on your property will find it quicker to get your home closed so you can be free and clear of that property and debt and move on with your lives. For those refinancing, try and get the tax lien subordinated behind the primary mortgage and you stand a good chance of completing the refinance even if the lien remains.

There has been a lot of brew-ha surrounding the 4.5% mortgage rates Treasury Secretary Henry Paulson stated was his desire as another {senseless} effort to boost the housing market and ultimately the economy. Real estate and mortgage bloggers, hell any blog that wanted to get some action, was posting something with that 4.5% statement in it, and a wide variety of opinions can be read. My own take is located here...Florida Mortgage Rates Hit 4.5%.

Now, regardless of how you feel overall, one need be concerned only with how we get to mortgage rates this low, especially when fundamentals are not sound. Mortgage rates are derived from mortgage backed securities, nothing else, and those are traded on the open market like any stock, commodity, even currency. Since mortgage backed securities are basically bonds, they tend to respond to the same things as other bonds. That means data supporting a weak economy tends to drive mortgage bond prices higher and thus bring mortgage rates lower.

In essence, the fundamentals which should be driving mortgage rates are surrounding a poorly performing economy, which no doubt we have been seeing, especially now that the NBER declared we have been in a recession for the last year. However, the so-called archenemy of mortgage bonds, and thus mortgage rates, is inflation, which every effort that the government does during these attempted bailouts increases inflationary risks, including the inevitable cut in the Fed Funds Rate. I will be adding a post later tonight or tomorrow talking about how inflationary rates could reach 20%, so you may not want to miss that one.

To read the rest, please head over to the Florida Mortgage Report.

As I was pondering what I could write about today, it dawned on me that it may very well be time to bring back my post on ActiveRain where I showed that the fact Telenovelas were being used to educate Hispanics on home ownership was forecasting the destruction of the mortgage market. I did that original post, Interesting Way to Forecast the Destruction of a Market, back on January 9, 2007. Shortly thereafter, the subprime market collapsed, followed by the entire mortgage market, along with the housing market's continued demise.

Since Hollywood is batting 1000 on forecasting market collapses, keep a close eye on which industry is being "broadcasted" next as it may be time to get out of that one. Heck, I would probably even start shorting stocks in the companies located in that sector of the economy.