Justin Miller

The Fed's been at it again, offering words that sound encouraging at first blush, confirming that their buying program of Mortgage Backed Securities is in full swing and will continue as needed. Of course, the media will pick this up and offer their own interpretation, saying "Good news, the Fed's words on continuing their purchasing program mean that rates will continue to drop lower, and remain low into the summer..." But is this really what that means? Not so.

Here's the truth.

Yes, the Fed has been buying Mortgage Bonds, but if you look at what they are purchasing, they are buying a lot of FNMA 30-yr 5.5% and 5.0% Bonds...which won't have much of an impact on present interest rates. Why? First, see the Fed's purchases for yourself by hitting this link: Direct Link to View Fed Mortgage Bond Buying - http://www.newyorkfed.org/markets/mbs/index.html.

So why is the Fed buying these Bonds? Well if you think about it, it's very smart of the Fed...and maybe even a little sneaky...because 5.5% Bonds actually represent outstanding mortgages with rates of 6 - 6.50%, which are precisely the loans being refinanced at today's great interest rates.

Stay with me here...

With rates at present low levels, many of the mortgages in these FNMA 5.5% pools being bought up by the Fed will be refinanced and paid, thus giving the Fed a quick recoup on some of their investment. And this is likely a big reason why the Fed said they could continue this purchasing program beyond June, if necessary. Bottom line, the Fed buying these higher rate coupons will not necessarily help rates to move lower, as their actions do not impact the loans being originated at today's low rates.

Here's the most important part.

Sometimes I talk to clients who are in a situation where it makes sense to refinance right now, and save $250 per month for example. But when they hear the media throwing around teases of lower rates ahead, they decide to hold off on making the decision to save the $250 per month right now, in the hopes of gaining another $30 per month in additional savings with a lower rate than where we stand presently. Now clearly, rates could turn higher, and this window of opportunity could pass them by entirely.

The clincher is this:

Even if those clients ultimately are correct in timing the market, and eventually grab that lower rate and save another $30 per month - think of what they have lost by waiting. While they delayed, they lost the savings they could have gained by taking action sooner - or in the example used, $250 - for every single month they waited. So even if they got lucky and obtained the rate they were looking for, it could take years to make up what they lost by waiting.

I don't want anyone to miss an opportunity by either waiting, or not understanding what is at stake. Let's talk further on this - call or email me and let's discuss what this might mean for you

A true mortgage professional will tell you that interest rates are fluid. That is, they are subject to change as market conditions drive the cost to borrow higher or lower. On most days rates are released mid morning. However, if conditions are right, it is possible for them to change at any point in the day. I have an extensive knowledge of the conditions that move the market. I monitor these conditions throughout the day and can provide an accurate and honest rate quote only after learning about the particular characteristics of your situation. Unlike many of my competitors who post a "teaser rate" that may or may not be available to you, I believe you deserve better.

Here is some big news this morning. A new homebuyer's tax credit is being added to the stimulus package that will be voted on. According to the AP the proposal would allow a tax credit of 10 percent of the value of new or existing residences, up to a $15,000 limit. Current law provides for a $7,500 tax break but only for first-time homebuyers.

http://news.yahoo.com/s/ap/20090205/ap_on_go_co/congress_stimulus

I seem to be getting more and more calls and referrals b/c the client and/or realtor was dealing with a mortgage broker/bank that pre-approved a loan and now right before closing it can't be done. What I have found is that there are a lot of uneducated people in the mortgage industry b/c it is too easy to get licensed. Now, I have a Bachelors of Science in Finance and Accounting. That does not make me better than the rest or what I am referring to when I saw uneducated. I am talking about the people in this industry that don't pick up a newspaper, read updates from their lenders, read a magazine on their industry.

I would suggest to anyone in this industry to listen to CNBC, subscribe to The Wall Street Journal, Mortgage Originator/Entrepreneuer/Inc./Florida Trend (or your states equivalent) magazines, etc. This will help you stay up to date on what is going on. If you don't like to read, you might want to force yourself to.

I am able to be very critical of mortgage brokers/banks in this industry b/c I used to be an account executive for a lender dealing directly with mortgage brokers so I DO know my competition b/c I have dealt with them. Too many people do not pay attention to detail. They are saying they can do a deal and hoping it gets through underwriting. This is not 3 years ago where you could throw a bunch of crap against the wall and it would stick. You are not going to sneak anything by an underwriter anymore.

Also, people in this industry have no idea how to do loans in this environment which can mostly be referred to as conforming loans. I was never a subprime person. I have been fortunate enough to have been dealing with A paper clients. With these type of clients it all starts with the loan application and the questions that are asked. Ask the client how they are paid (W-2, hourly, salary, overtime, bonuses, etc.). Look at the documentation when you receive it. Are there any other deductions on the paystub such as a loan, child support, etc? On the appraisal, how far away are the comps, when were the sales from, is it a stable market, oversupply, was it listed on the MLS in the past 12 months for refinance, etc. PICK UP AND READ THE LENDERS GUIDELINES BEFORE PRE-APPROVING A LOAN. Just b/c you have an automated underwriting approval doesn't mean the deal will close. The automated systems are only as good as the person entering the information.

The bottom line is if you are dealing with someone who knows what they are doing YOU CAN CLOSE LOANS!!! This is a great time for the consumer b/c homes are selling at a discount, rates are low, and there are still great programs out there.

Justin Miller