Clint Hammond

Not getting into it, just feel obligated to update you on where things closed. Dow was down 128 points at the close, finished the week at 8,451. S&P shed 10 points to close at 899 and the good old NASDAQ actually picked up 4 points to close at 1,649. We have a holiday Monday for the markets so the next update on that note will be Tuesday. The 5.5% FNMA continued it's plunge and was taken behind the old woodshed to close down 109bp on the day to finish the week at $98.25.

Have you seen Charlie Wilsons War? The scene at the end when Tom Hanks and the other guy...his name escapes me, are talking and Hanks says something about how great it is with Berlin Wall coming down and the other guy's response, basically, is this little "story", I love it and thought it was relevant for the times we're in.

In this village, a little boy is given a gift of a horse. The villagers all say, "Isn't that fabulous? Isn't that wonderful? What a wonderful gift."The Zen master says, "We'll see."

A couple years later the boy falls off the horse and breaks his leg. The villagers all say, "Isn't that terrible The horse is cursed! That's horrible!" The Zen master says, "We'll see."

A few years later the country goes to war and the government conscripts all the males into the army, but the boy's leg is so screwed up, he doesn't have to go. The villagers all say, "Isn't that fabulous? Isn't that wonderful?"

The Zen master says, "We'll see."

Are things really that bad right now? We'll see.

The first assumption that has to be made is that you have some optimistic tendencies or you wouldn't still be in the business. If my first assumption is incorrect, then you have not been paying attention and had you been paying attention, you most likely wouldn't have gotten out of the bed this morning.

Chicken Little is all I can think about right now except it's not the sky that's falling, it's the stock market. And wow, when it goes, it goes. 1 year ago today, 10/9/07, the Dow Jones Industrial Average closed trading at 14,093.08. The NASDAQ was sitting at 2,805 and the S&P was hanging out at 1,561. Today, after 7 consecutive days of serious decline, the Dow shed another 678 points to finish at 8,579 (5,514 points lower than this time last year), the NASDAQ was rocked with a 95 point hit to close at 1,645 (1,160 lower than October of 07') and the S&P shed 75 points to close trading at 909 (652 lower than 52 short weeks ago.) That's 40% lower for the Dow....40% is a ridiculous number to have lost in 1 year. Of course it's 41% lost by the NASDAQ and almost 42% by the S&P 500. To put that in perspective, the attacks of September 11th sent the markets tumbling. They recovered by the beginning of October that year and climbed through the end of 2001. That month, the Dow lost 1370 points or 14%, the NASDAQ lost 336 or 19%, and the S&P lost 129 points, or 11%. Shocking to anyone other than me? Does it indicate how completely fragile things are when banks don't lend to banks? When credit markets lock up like they have tetanus everything hits free fall mode and no one seems to be able to stop it.

So how does this tend to impact real estate markets and why would Realtors need to be concerned with this type of information? You're not a stock broker right? Your clients aren't coming to you about their 401k or their IRA right? So why do you need to read my blog or at least have a finger on the pulse of the equity markets? You're clients don't expect you to understand this, it's not your area of expertise right? Of course all of those are very true. Your client isn't going to use or not use your services based on whether or not you have the ability to rattle of where the Dow closed or what the most recent initial jobless claims figures looked like. You are exactly right about that. But if you want to truly be a good salesman or saleswoman, regardless of field, you have to be able to do one thing in environments like we're in, you have to be the calming influence in their financial life right now. Their 401k has done nothing but deteriorate, they themselves, their co-workers, family, a friend, someone they know has been laid off. They see the paper every day and watch the news every night so they are absorbing that negativity to point where they see it in their sleep. They listen to a political debate between the candidates for the highest office in our great country, the two people that so many Americans are hoping can help "fix" this mess and they are giving contradictory solutions and imposing yet more fear on you "if the other guy gets elected, it'll get worse." And if you really listen to them both, neither has a clue as to A) how we got here, B) where we are going next, and C) how to fix this. Neither of them are clued into the solution because if they were, then being President would be irrelevant to their ability to fix it. They could just make a phone call to the Fed and/or the Treasury and say, "hey guys, here is the answer so push this and we'll be out of this mess in no time." But I dont' think that's happened.....and it won't because this fear and uncertainty is something that both sides can view as their hook to get this election won. We're smarter than that right?

So back from my tangent.....why you need to know this. Because your client is worried about losing his or her job, they are seeing money market, mutual fund, IRA, 401k, retirement accounts lose weight faster than Mike Golic on a television commercial and here you are trying to sell them a $350,000 house in the midst of hearing about how the only thing falling faster than asset account values are home values. So you think that might, just might, be driving a little fear? The guys on Wall Street aren't the only ones that panic, when the market goes nuts, people take irrational paths to security. So even though that $350,000 is $15,000 under what they can afford, it's $25,000 under appraised value, it's 250 sq ft bigger than what they needed for lower selling price, and regardless of the fact that interest rates on 30 year money is still at historical lows they still can't pull the trigger.. Go on-line and google "historical mortgage rates" and look at Articles from as recent as 99' and 2000 and they are talking about 30 year mortgages "falling below 8%"....8% would get me run out of any borrower interview I attempted to have right now! Because even 6.25% sounds bad to us we're so spoiled anymore with the events and markets of the last 5 or 6 years. Let's be realistic, the terms for purchasing a home right now are actually outstanding when set against the rate environment that we were in just 8 years ago. In the year 2000, the FRMC Average 30 year fixed rate mortgage was 8.05% over the year. In May of 2000, rates averaged 8.62%.....think about how much our mentality has changed just since May of 2000.

So everything about the transaction is right but they can't commit to the transaction they can't bring themselves to sign off on the offer. They can afford it, it fits their needs, it's the right location, it's going to, over the long term, appreciate the way that all homes do when the time frame is right. We got so wrapped up in the day trading and the quick buck that it carried over into the housing market mentality and we wanted to buy a house today and if it didn't jump 10% in value before next spring then somebody messed up or that appraiser was just wrong....Well folks, that's not the case. So what's the problem? Why is the house not getting sold? FEAR. It's a recurring theme isn't it? The Realtors that I know personally and are not just successful right now, they are actually producing at levels higher than previous years and they all have one thing in common. They are not selling mortgages, they are selling properties, and they are doing a fantastic job of killing fear. They are stopping panic, anxiety, and fear dead cold and putting clients into the house they need to be buying right now. They aren't doing that with the ability to rattle off the numbers I give you every day, they are doing it by knowing, roughly, what's going on in the market and addressing it with their client. "I know, it's so scary isn't it? But that's why we are talking to Clint, we'll get you in the right mortgage and right financing structure, we'll make sure your CPA and your financial planner are involved in the process, and we know this market locally like the back of our hand. We'll find the house that will give us that slow and steady appreciation and all those things together will most certainly secure you and your family against all this madness.Isn't it nice to know you are protected from those headlines you read?" By ignoring the market and the headlines, you're ignoring the very thing that is killing you sale. And even if it's subconsciously, your client will have the impression that you're clueless. The other factor leading to their continued success is the fact that the majority of Realtors can't hack it in this market and are already leaving the industry or they are frozen with the same fear their clients are and aren't out there beating the streets getting things bought and sold. These folks are, they understand the concept of selling and they understand that sometimes, you just got to find a way to slay that dragon, that fear, that is preventing their sale from materializing. One Realtor in particular that I work with quite a bit, I actually refinanced her and her husband and we closed today as a matter of fact (you see, money can still be found to lend to the right borrower), she will be the first to tell you that she knows nothing about equities and credit markets. She doesn't follow it all. But she does know that her clients read the paper and watch the news and it's something that she will address immediately because it's a concern that her client has and a concern that is the very obstacle between her and that next contract. She knows that by addressing it, acknowledging it, and the passing them off to me, she will plow through that obstacle and arrive stress free at the closing table.

Lets get it together and get things moving. I'm closing loans, purchase and refi's, becasue you know what? People haven't quit needing a roof over their head and they sure aren't paying cash for it. That means that so long as there is a need to fill, someone with the knowledge, determination, character and most of all, the ability to be flexible and nimble in a rapidly changing industry will be standing there to fill that need as a Realtor and as a lender. The question is whether or not you are humble enough to change the way you approach your business.

The quick answer on "why this is important." Because your clients will ask you about it and if you don't know the answer, you fuel their fear. And as we've discussed, fear kills deals. Bottom line. If you, their real estate professional, don't have some grip on the financial markets, then you cannot properly advise them in their home buying process. If you do know the answers, you eliminate a lot of the anxiety that will be hoovering over your clients dinner table tonight while your well written and professional offer for that property they loved so much sits unsigned on the coffee table next to yesterday's mail and this mornings newspaper. (Remember, that newspaper has something called "headlines" on it and if you've seen those lately, they aren't exactly a "cure-all" for anxiety and fear.....) So if you don't know this, that client(s) will finish dinner, put the kids down, and manufacture a way that they are fine in that house and 3 bedrooms is plenty for them and 3 kids, the boys can just keep sharing a room and upgrading is not what they need to do in a market like this......or something like that. You get my point right? However, if you're armed with knowledge, then you can be quick from the hip to A) have them already spoken with me so that they know what the numbers look like. B) Understand that it will actually cost them more if they wait. And C) that you are a true professional and that you are so good, you know everything from where to find the right property to what's going on the credit markets, and what a wonderful mortgage person you put them in touch with. "Those headlines are talking about other markets, this market is fine and we're taking advantage of the situation because we have a solid team behind us." Doesn't that just sound better to you?? It should, that's the difference in a commission check at the closing table and "oh well, at least I can write off lunch and gas on my taxes..."

So what happened today? Better question is how, why, when, where, who, and what happened today because it was busy to say the very least. Early this morning, the Fed lead the way in a global interest rate cut, chopping rates 50bp down to 1.5% for Fed Funds and 50bp for Discount Rate. (Down to 1.75%.) Shortly thereafter, the ECB, Canada, The UK, Sweden, and Switzerland all cut rates as well. (This is important that they all followed suit, but we'll get to that shortly.) Stock futures immediately sky rocketed on the news. But here is the time-line on the rest of the day:

by 8:30 or so this morning had already fallen from their highs but we're still pointing towards a higher open.

15 minutes later at 8:45am, stock futures were pointing to a lower open and oil dropped $2 down to $88/barrel.

By 9:30 this morning, stocks were getting beat up like you wouldn't believe. Oil down $2.50 to $87.50/barrel and mortgage bonds were clinging to meager gains.

By 10am, the Dow having been down almost 300 points swing the other direction and was up 170 points, pulled back to only up 25 points and then back up over 100 points. Mortgage backed securities were positive, no negative, NO positive, oops again, their negative. 4 times by 10 am, MBS moved between black and red.

By noon, mortgage bonds had dropped to their lowest levels of the day and then bounced right back to even.....what the heck?

Mid afternoon, the VIX or "fear index" hit an all time high with a reading of almost 59. A value over 30 are generally indicative of large amounts of volatility as a result of fear, anxiety, and uncertainty among investors while readings below 20 are closely related to more complacent markets. So 59 is ridiculous to say the least.

Mortgage bonds, were down at one point 132bp on the day, fought back and after trading in a Grand Canyon size range of 162bp closed the day down 41bp for our 5.5% FNMA mortgage bond at $100.22. The Dow closed up the days chaos dropping 189 points and closing at 9,258. The NASDAQ let 14 points slip away and closed at 1,740 while the broader S&P 500 tossed 11 more points and wrapped up trading at 984.

So where is the rate cut info? How much did mortgage rates fall? That's where the fun really begins. Regardless of how many times I say it, or how many times it's proved, no one gets it. It's the biggest misconception in the general public. If they hear, "The Fed cut rats by a half a point..." then EVERYONE assumes that mortgage rates are a half a point lower today than they were yesterday. Wrong answer wrong answer wrong answer. A fed cut provides inflationary pressure and pumps money into the system. The "normal subsequent market action" tends to be stocks higher, bonds lower (bonds hate inflation and they are also losing money to the stock market since they are competing for the same dollars.) And that means HIGHER MORTGAGE RATES. Some investors repriced as many as 5 times today with a higher rate sheet than the one before....not what most folks think huh? One investor, a major correspondent and wholesale lender, repriced 4 times. The initial rate sheet today gave us a "par" 30 year fixed at 6.125% assuming 20% down and good credit, primary residence, and no discount points or origination fee. So 'even steven' so to speak. The 4th rate sheet they distributed would price that EXACT SAME LOAN at 6.625%. That means that between 9:30 or 10am and 4pm today, there was a full .5% increase in interest rate on a 30 year fixed rate mortgage. Exactly the same amount that "Joe Public" thinks rates were "cut" today. They are not the same and I cannot stress enough the importance of you being able to explain this.

The other issue we had today was odd and just like the rate cut, was surprise and bonds didn't like it at all. The treasury came out of nowhere with an auction of Treasury bonds that added sudden supply to the market and it sent bond prices plunging lower. Tomorrow, the Treasury will auction off another $10 billion in reopened 10-year bonds maturing in 6 years and 4 months.

Now to the coordinated effort of the ECB, UK, Canada, Sweden, and Switzerland and what it will mean moving forward. One of the problems that we've seen with previous Fed cuts is this, no movement by other countries. What this does is it helps weaken the dollar and therefor making things, such as oil, more expensive and that is what? Inflationary. However, a coordinated effort to help free up the pipes and get the credit markets moving again is crucial because it keeps the currency markets stable and doesn't act as a devaluing influence on the US Greenback.

So the initial impact of the rate cut, the coordinated rate cut, was lower bond prices and therefore higher interest rates. The "non-impact" that was supposed to have happened was solid pop for the equity markets and that didn't happen. This keeps my prediction of lower interest rates on home loans solidly intact for some point over the next week to the next 8 weeks. Somewhere in that window of time, we're going to have a miniature refi boom and that is a wonderful time for you to jump on all those leads, hit the phones, beat the street, whatever you call and get those buyers off the sidelines. Here are your tools, so use them and get to work:

- FHA is an OUTSTANDING and well priced product. Use it for those first time buyers. Don't "sell" the financing, that's my job, but you can certainly make people aware of how attractive it is.

- $7,500 first time buyer incentive. Does anyone remember this??? It's still there and it's still a solid reason for those 1st time buyers to hope off the fence and get to the business of buying a house.

- The savvy buyer will know that "lower home prices + lower home loan rates = On sale x On sale which means higher return on the back end of their investment."

- Listing agents? Use the Seller Buydown strategy I've talked about before rather than drop your price. If you couple a seller buydown with already lower rates, can you imagine how incredible you'll look to the client and to the buyers agent when you move that property? Remember Lower rates means lower payments and lower payments means that you've opened up the pool of "prospective and approve-able buyers" significantly and by default/definition, that home will sell quicker.

- Explain the market to your client as I have explained it to you and it's really not scary. It's not, because they understand it. Even the worst news in the world is palatable if you comprehend, even a little bit, what's going on. It's the unknown that creates the incurable fear and anxiety and that fear and anxiety kill your sale. Period.

So there it is in the "not so long story short" version. If you want more detail, call me and I'll be happy to go through every bit of it with you. I am also working on a "quick hits" or bullet point style piece that might be a very handy sheet to slip into your buyer packets or your listing packets. That way, you give them the info all nice and neat and don't have to go into detail yourself. If you want something like that, email me and request it that way, don't do it through the site here because it may end up lost in the shuffle of the spam filter. I can always be reached at chammond@mortgagenetwork.com. My office number is 803-771-6933 and feel free to call anytime. If you don't get me, I will get back to you same day.

I'm a resource for you. I'm here to help if needed and I truly enjoy helping as much as I can because I want and I need y'all selling houses. So let's knock fear and doubt back out of the way and start doing our business of selling and financing the American Dream. That's what we're good at and that's what we like doing.

More to come as what should be an interesting close to an interesting week!

The FNMA 5.5% bond jumped around in a 53bp range today but was under profit-taking pressure because of the recent jumps. All surges have to have little retreats in order to sustain themselves and that's pretty much what we saw today. The bond wrapped up the day trading 19bp lower to close at $100.62. Only one or two lenders repriced from for the worse compared to their initial rate sheets of the morning and that was due in large part to the fact that most of the real damage was done early as we still closed up 28bp from the initial open, just down on the day overall and really no change from when most lenders came out with pricing. The stock market made a feeble attempt to rebound from yesterday's slaughter and the Fed tried to assist markets with a drastic and very far-reaching move when it announced that it would set up a special facility to thaw frozen credit pipes by acting like an investor to buy commercial paper used by companies to finance daily operations. Australia's central bank took things further than expected with it's 1% cut in it's funds rate. It was Australia's largest cut in 16 years and it took global equities markets completely by surprise. Investors will now be banking on other central banks to follow their lead with cuts of their own. The Bank of England is expected to cut it's benchmark rate later this week during it's meeting and both the Fed and the European Central Bank are expected to cut rates very soon as well. The estimated cut across the board by the fed is a .75% cut later this month. With inflation viewed (per the FOMC meeting minutes released today) as being "in check" or less of a threat than the currently dysfunctional system of global markets, this is all the more likely a move by the Fed. The stock market sold off hard during the last half hour of trading with all three indices's falling to 5 year lows. The dow plunged 508 points to close at 9,447, the S&P dropped like a rock losing 60 points and closed at 996 while the NASDAQ was drilled with a 108 point loss to close at 1,754. The US 10-yr note fell victim to the same profit taking that mortgage bonds did and closed down 38 bp at $104.06

What does all this mean for us? i.e. Realtors and their clients. What it means is that there will be bumps along the way but at some point over the next 90 or so days, we should see a very substantial drop in rates and that means that we're going to have more affordable housing and that should help spur demand for those that have been on the side lines while everything has been so unsettled. Get on the phone to all prospective buyers, have them 100% pre-approved with a mortgage professional even if they haven't looked at the first house yet. That way, you get your price range dialed in, you set your 'target rate' and then when that price spike hits, you snag a solid contract for your client by being able to offer a cash buyer, in essence, and a quick close. At this point, most of the work will be done if it's one of my borrowers. The hurdles will have been cleared, those last minute "gotchas" will be taken care of and then it's a matter of just getting title work and appraisal and you can close in 10 days. Why wouldn't you want that? It'll make you like a hero when you put a family in the house they want at the rate they want and the payment they want. It's the only way that you can take some level of ownership and control on what is otherwise a volatile market. If you get on a "rate watch" even for purchases, then "what will rates be tomorrow?" is no longer a variable in your clients decision making process. In other words, we've eliminated another layer of that fear and if you've been following along, fear is what kills deals, not mortgage rates, not properties, not payments, not "wishy washy" buyers, etc., fear kills sales. Period. If you can't close a sale, it's your fault for not eliminating fear and having the clients expectations properly set and the proper plan in place. So get them with someone like me before you ever get in the car with. Have a meeting of the minds, (you, the client, and me) and sit down to hash it all out between the group in person and face to face. Then you get all the unknowns out of the picture and you close on houses at a pace that other Realtors will envy in a market like this. You'll look like a genius and you'll double your referral business.

Try it out, what else do you have to lose these days?

Crazy week last week, global markets didn't get that 'rejuvination' needed over the weekend apparently. The Dow fell as much as 800 points during today's trading before mustering up a rally to close "only down 370 points" on fears that the bailout package may have been too little too late to stem any economic downturn. Bonds of course saw the benefit as investors found the safe haven of the bond market for their dollars. Our benchmark, the 5.5% FNMA mortgage bond, traded in a 68bp range and ended up closing at $100.81 which was 56bp higher than we started the day. This what I was calling for last week as we are trending higher but not as high as we should be when all is taken into consideration. The 10 yr T closed out the day up 110bp so there is still a bias to the "safer" government insured money. But as we all know, as of a few weeks ago with the Fed take over of Fannie and Freddie, that's in essence what our mortgage backed securities are anyway. So the yield is higher on mortgage bonds but investors are still hung on the "safety" of t-bills. This, as it has to, will prove only an initial reaction to the volatility and at some point the demand for mortgage bonds is going to be driven up, along with price, which will push rates down.

The Dow lcosed at 9,955 (down 370) for the first time in 4 years. The nasdaq followed suit and plunged 84 points to close at 1,862 and the broader S&P slimmed down by 42 points to close at 1,056. Fed meeting minutes are out tomorrow, so expect a little activity there but otherwise this is a quiet week in economic reporting so it's going to be mainly technical movement and the economy is down almost 1 million jobs, stocks are plunging, and it's bleak economically speaking in the short run. But!......

This is good news, as bad as everything else may seem to you right now, considering a drop in rates is going to, BY DEFAULT, make houses cheaper for buyers at the same sales price they currently are listed at. Meaning sellers will derive their needed benefit of a higher sales price and buyers will get the same monthly payment. I cannot stress enough how much the housing industry needs lower rates. We're still at, historically speaking, very low rates. But a market like the one we're in, globally, not locally, is going to need something to kick it in the rear to get things moving again. Housing markets are the best medicine my friends because as I can attest, and many of you as well, when you buy a home that's not where it ends. There are many trips to the local hardware store if my wife is involved.....so that's spending and that's consumer spending in more than one area. That multiplied by all the home buyers that this lower rate environment can create equals economic recovery so don't underestimate what you do as Realtors and what I do in the financing side. It's vital to our economy and that's the bottom line.

Call me, lets stimulate the economy, it'll be fun and we'll make sure to take all the credit on the other side of this when we can laugh about it all and talk about "08' when things were so bad..." This is when careers are made so keep plugging away.