Clint Hammond

I've been right so far, Monday's spike in mbs (drop in rates) has held up. The price of mbs has been in an upward trend cycle since around Mid August. The stock market has been volatile, the bond market has been volatile, hurricanes, energy up and then down, gas/oil is dropping to levels unseen since early spring. Prediction of what is going on within a window of time is very difficult to do right now. We saw bond prices down as much as 28 bp and up as much as 31 bp. That was all just today. The problem is that the markets themselves are hyper reactionary and hyper sensitive. The slightest hint that anything is good or anything is bad, causes a completely unwarranted rush in one direction or the other. It's honestly ridiculous.

Not only have Markets been hyper reactionary and hyper sensitive, but lenders are as well. No one wants to set their rates and then let it ride. This week, would say that at least 5 times a lender reprice notice went out and before the new rates could be posted, bonds would hit a 180 and the new rates were basically worthless. I told you the swing we saw today, we ended the day flat. That's right, down 28bp at one point, up 31bp at others and finished the day at 0bp change. But with a trend in a favorable direction for buyers and refinance applicants, don't just assume you need to lock in right now. However, if any of my borrowers read this, remember, we don't just hang around and hope the rates get better, we lock when we hit our rate. If you're purchasing, you're in a bit different situation, you are at some point going to have to lock, regardless of what is going on or what rates are. What this means is you need to have a long talk with me (or whoever you are using for you mortgage lender) and decide what makes the most sense within the time allotted. Unlike the luxury of letting it float till we get what we need as my refinance borrowers are, the purchase has to get done and locked in at least 3 days or so before the closing.

"Why don't we just lock in, and if rates get better, we get the new rate?" If you owned "Stock ABC" and it was trading today for $50/share. You bought that stock for $20/share. You bought 100 shares so you spent $2,000 on your stock. (We're not going to account for brokerage or transaction fees for our example...no sense in overdoing it.) So you see an opportunity at the $50/share price to make $3,000. Not bad for a days work huh? Everything you and your stock broker have discussed says that this stock is where it's going to settle if not start to go back the other way. In other words, time to take your profit and you're more than happy with a $3,000 turn, you've more than doubled your money! SO you sell it. The day after you sell, any number of possibile market influences start exerting upward pressure on the price of "Stock ABC" and all of a sudden, it's trading at $60/share. Would you call your stock broker and ask him "well since it's selling for $60/share, can you just give me an extra $1,000 so I can have the price that it's getting today?" Of course you wouldn't, it's ridiculous for me to even suggest. You would kick yourself for not waiting another day or you'd say "I should've seen it coming" or something to that effect. But in the end, you'd be happy with it because you got what you agree to get and made an amount of money that was "sufficient" for you to go through with the transaction.

Mortgage backed securities and "locking in rates" are the same thing. Once you've locked in, the bank is committed to give you that rate and you are also committed to take that rate. Everything is a decision based on opportunity cost. Selling my stock at $50/share guarantees me that $3,000 profit. What if market forces played the other hand though? What if I sold it and the next day it dropped to $15/share? All of a sudden my decision to sell the exact same stock at the exact same price because it made sense to me and I was happy with the terms and conditions offered at the time, now looks like the best move I could've made. My opportunity cost of selling was the chance that the stock might continue up and the opportunity cost of holding is the chance that the stock could plummet. So I can make an uncoerced and informed decision based on the information available at the time. I opt that the cost of holding on to the stock is greater than the cost of selling. So I sell the stock and/or lock my rate and then assume that anything that happens from that day forward is completely unrelated to my transaction.

The moral of the story is simple. If what you want and what you are willing to take is there, then take it and there is nothing wrong with making that decision. If rates go down after you lock, shrug it off with "well, it was worth an .125% higher rate because I slept better knowing that it was locked in." Call it an insurance premium. If you decide to float, then don't get upset if it moves either because you opted to see if "better was there" but you have to do it with full knowledge of existing market conditions and at the advice of your mortgage professional. Ask your mortgage lender if they know the following: 1) What are mortgage rates based on? Either they answer mortgage backed securities or you find another lender. 2) What is the next piece of economic news due out that is going to have a rate impact, or potentially have one? They better tell you Friday has a chance to be a big day. (I won't answer the question right now, you have to call me for the answer.) 3) Do you have real time access to mortgage backed securities? If they answer no, or even worse, ask why that would matter. Get up and leave on the spot. I assure you, they are out of their league if they can't answer those 3 questions. Put them against a true mortgage professional and they will lose any day of the week.

That's it for now, I would suggest floating as I have the last three days, but don't be ashamed or scared to go ahead and lock if you're happy with no origination, no discount point and a 6.125% rate on a 30 yr fixed. That's still pretty strong! Let's see what Friday has in store for us and enjoy this time above the 200 day moving average (first time since May) and the upward trend that is managing to chug along in the right direction. Call me if you want more details, always happy to help!

With Monday's huge jump in mortgage backed securities, we're shifting our focus to the FNMA 5.5% bond. Today, we started the day way down, as much as -28bp. By mid morning we were looking at 16bp gain. However, with no real significant (as far as bonds are concerned) economic reports due out it was going to be up to the stock market how we finished the day. News from Lehman that they are in bad shape and are now attempting to sell off a majority of its investment management division and commercial real estate holding in order to raise capital. Buyers saw the opportunity andjumped into the oversold sectors of the market which of course took money out of bonds. So our 5.5% FNMA mbs closed down 16bps on the day to close at $100.84. This should be a short term trend and by the end of the week I fully expect to see us settle where we were on Monday. We have a resistance level just above us and "normal" market actions most likely won't be able to break through. However, we have retail sales reports coming on Monday and I have to assume that those won't produce "good news" and we'll see a flight to the safety of bonds.

For my last team advice post, sew up your "inter team" and make sure they work well with your partners. The importance of those people around you that help you day in and day out cannot be overstated. And you can't "over-appreciate them" either. Plan a nice event with you, your mortgage/cpa/financial planner/etc partners, have everyone split the cost and cook out at someones house, go bowling, whatever it is that they enjoy and treat them to "thank you" night. Not only will it make everyone feel appreciated, but it will provide a social setting that will further the efficiency of your whole operation. If my processor and the setup person from Real Estate office are friends, then they will naturally work better together. Plus, you'll be able to advance your relationships with those that send business to you. It's important to have that level of friendship, it furthers trust and provides incentive to help perpetuate every ones success and business.

In case you spent the last 2 days in the Amazon basin, I'll tip you off to some news from the weekend. Fannie Mae and Freddie Mac had operational control taken from them by the government following Sunday's announcement. The Federal Housing Finance Agency (FHFA) will be taking over the board of directors and management of the mortgage giants and the US treasury is providing up to $100 Billion in Capital for each (that's right, EACH) to ensure that they will be able to stay afloat amid their current debt obligations. Without coming right out and saying it, what this boils down to is a form of conservatorship similar to a Chapter 11 bankruptcy that will allow the two companies to reorganize their operations. However, both will be run by the FHFA for a period of time yet to be defined. This, as you can imagine has dominated the financial news and all financial markets today and doesn't show signs of stopping in the days to come as more of the finer details of the plan become known. Some predict (and I am in this particular camp) mortgage rates on a 30 year fixed rate mortgage could drop as much as 1/2 point over the next few weeks which would obviously provide borrowers a great opportunity to refinance at lower rates. The stock market also soared in response to the news with the Dow winning back 290 points to close at 11,510, the NASDAQ scooped up 13 points to finish the day at 2,269 and the S&P 500 notched a 25 point gain to close at 1,267.

The "issue" in the credit markets for the last year has been a question that investors can't shake....how safe is this investment? Bonds are "safe" and "soft" and all that comfortable stuff that have provided a nice little hiding place when things get ugly in the stock market. The problem is that for 13 months, almost to the day, the talk has been all but "safe and soft." With "declining property values", increasing foreclosures, an inability for borrowers to refinance for any number of reasons, etc, investors have backed out of the credit markets and that has helped spin property values lower, foreclosures higher, and that has pushed investors to tighten up more. It's a cycle and that wasn't breaking up like everyone kept expecting it to. If there is no guarantee that the money is going to be there later, (i.e. foreclosures), then it's no longer a safe bet. With the federal government basically saying, "The money WILL be there" in there move yesterday, the value and safety of mortgage backed securities returned and returned like a flood. The Fannie Mae 6%, our current benchmark, closed the day up 100bp to close at $102.47. It had actually been up as much as 153 bp to a price of $103 before running out of steam and retreating back to the 100bp gain for the closing. To give that some perspective, that is around the mark that mbs were closing the day at in early 2005....wow. So the chipping away that we've seen at the resistance levels ended up giving way to a gain the likes that we haven't seen in one day since March of this year. So even though we closed off the days high water mark with the late day retreat, we still closed well above the 200 day moving average and that's crucial to sustain this momentum. Hopefully this will generate some steam not just for financial markets, but for the consumer out there looking for a better deal on their mortgage (I worked up over $1,645,000 in new loan applications today alone and the bulk of that was in refinance loans.) This should also help jump start the buyers in order to take advantage of the low interest rates that are and will (hopefully) continue to be available as move into the fall.

This is my team email for the day, highlighting when one memeber can bring information to the table that will help kickstart business for the other members. In other words, get out your follow ups and lead sheets and hit the phones hard tomorrow if you haven't already started today. Call anyone you've house hunted with and get them off the fence and to the closing table. Hesitation on their part could be a very costly error. When you consider that rates are already moving toward historic lows, you can't assume they will be there forever. That's the mistake so many people made several years ago, taking the market conditions for granted and forgetting how they were really supposed to conduct business in order to sustain that business REGARDLESS of what the market throws at you. This could easily be that life line so many have been waiting for and afford you the opportunity to tread water long enough to get your 'best practices and procedures' better dialed in as we move forward.

As always, I'm more than happy to give more information if you want to email or call. I love what I do and I get excited when others want to know more because helping out others find success in their business is every bit if not more enjoyable than working up the loan applications that came across my desk today. Here's to hoping this rally continues and happy selling, I'm here when you need the financing.

Well, I was right. Sort of.

The Jobs Report was bad news today....Jobs lost in August came in higher than expected. 84,000 actual compared to 75,000 expected. Unemployment soared more than anyone though it would, 5.7% up to 6.1%. This had our mortgage backed securities well up on the day and still above the 200dma. However, the afternoon led to some profit taking and a sell off of bonds and a rush into stocks in spite of the news by 'bargain hunters'. (Remember, the dow closed down 300+ points yesterday and was around 11,000 so stocks were on sale today to say the least.) This profit taking and stock market sale forced bonds downward and we closed the 6% fnma mbs at $101.47, down 19 basis points. That resulted in a reprice for the worse this afternoon by almost all lenders. (Several actually popped rates up twice today.) Moving forward though, the news we got today on the jobs was worse than even the above numbers would indicate. June and July were revised and were revised for the worse, increasing the loss by 60,000 jobs from 100,000 to 160,000. The dow was down triple digits on the news and the bargain hunters late in the day helped the rally to end the day with the Dow up 18 points to close at 11,207. The NASDAQ fell 3 points to close at 2,255 and the broader S&P 500 Index added 5 points to it's day closing at 1,242.

I believe that my suggestion was and still is correct that today (unless you locked early) was not the day to lock. Next week there are only two potential "High Impact Reports" due out, both of those are next Friday with retail sales and retail sales ex-auto. That means that the bond market should take it's cues from stocks barring any insanity and the significance of today's jobs report will start to sink in. A rally in the bond market early in the week wouldn't by any stretch shock me. Let's keep things"as is" if you didn't already lock and see where we end up. We should head higher (meaning lower on the rates of course) by mid week. However, talk to your mortgage professional and if you are happy and comfortable with the rate that is on the table right now, take it. There is nothing wrong with security and you'll be happier in the long run if you have control over the situation.

Let me know if you have questions and I hope this information was useful.

Seller down payment assistance with FHA loans is gone (Ameridream, Nehemiah, etc.) What that means, in essence, is also gone is the 100% financing option. As a Realtor, if you were reliant on 100% financing options, then you weren't selling real estate! It's not as tough to sell property if financing is readily available, financing is relatively cheap, and property values are going up faster than appraisers can turn in reports. All you have to do in that environment is show up, write a contract, and get the approval that wasn't too difficult to obtain.

Enter the credit crunch, housing slump. Things changed and tightened before a lot of Realtors could adjust their selling techniques to suit that change.

** Lets say you have a resteraunt that you love. Every day you go there to eat and order the exact same thing. One day you show up and that item is no longer on the menu. The chef is an outstanding chef though and you know that so you just order something else and it's every bit as satisfying as the meal you used to order. In other words, although you may have been in the habit of one particular meal, and now it's gone, that doesn't mean you quit eating there, it's a good place to eat! Flip that over to mortgage financing and real estate sales. You've lost a menu item and you really liked that menu item. Well, if your chef was really good, or your mortgage lender, then you don't quit going there. You know he/she will take good care of you regardless of what changes are made to the menu. I'm the best chef in town!

That said, rely on your mortgage lender for advice, not just"what is the rate today" or"what are your fees?" Rely on your lender as a teammate that you can call on when you need to take good care of your client. If you (or your client) is too caught up in rates, too caught up in what the good faith looks like, too caught up in the menu of mortgage products, then you're fighting a losing battle.

Call 5 mortgage lenders tomorrow that you don't use but that are in town. Don't tell them you are an agent. First of all they won't answer because they don't cook on Saturday. But when they call you back, just ask them "What do your rates look like today on 80% financing for a purchase?" If the answer is ANYTHING other than "I can't give you a quote with any conviction until I know what the credit score is, what the property is, what the property usage is, and what are we looking at as closing date?" Every single one of those questions is going to impact rate and therefore "tweak" the menu. A borrower with a 780 credit score and 20% down payment is going see anything and everything from 6.25% up to 7.5% (based on today's rates and potentially higher really) on a 30 year fixed rate mortgage. Yes, I'm telling you that the identical borrower, with the same score, same product, same down payment, same loan amount is going to see as much as if not more, a point and a quarter + difference in rate if a loan officer gives them an accurate and truthful answer. The reason is loan level pricing adjustments and that's boring so no one talks about it or explains it. When a Realtor asks me "what are rates?" I answer very quickly, "how much does a house cost?" Seems silly but think about it for minute and get back to me.

My point is simple, your team has to be comprised of great chefs. An Itallian Chef, a French Chef, a Japanese Chef, and so forth. Because one chef can't be a great chef at all types of cooking and you need to know that regardless of what your client is in the mood for, you have a chef that can have food made to order on the table to satisfy today's need.

By the way, call me tomorrow, I will be in kitchen.