Dave Woodland - Your Bend, OR Friendly, Knowledgable Mortgage Professional

Rates are even better this week than last! We are locking conforming loans at 4.625% for 30-year fixed for the price of an origination and normal closing costs. Why the improvement? Mortgage Backed Securities (MBS) continue to ride sky high with values very close to their 2-year high-water mark set 6 weeks ago. There are more investors wishing to buy MBS as an excellent investment, now safely returning twice what CDs and other fixed income instruments are returning. The volumes available (supply) of mortgage bonds dipped lower in the last 2 weeks as home purchases and refinances slowed, causing demand to exceed supply.

All of this is possible because the inflation monster is secured tightly in its closet for apparently many more months to come, leaving supply and demand to rule the day. Two very critical factors to watch for in supply and demand are Fed purchases of MBS and foreign investors’ appetite for US debt instruments. The Fed purchase program will taper off through an end, slated for March 30, 2010. See the chart below for Fed purchase history. The other most significant influence on gov’t issued debt (MBS compete directly with T Bills for investor demand) is the level of interest from overseas buyers.

Much has been said about “When will China stop buying our debt?” The answer was clarified to me Friday by the Oracle of Omaha, Warren Buffett in a Charlie Rose interview. If you didn't see it, watch for it on Bloomberg replays or see excerpts of it by clicking here. He explained many things very clearly including why China buys US debt, even after they threaten to walk away. It is all about the US-China Trade deficit which is running in excess of $400 Billion annually. Those are real, US dollars being exported that have to work their way back into the US to have any value. The most logical place for that until the trade balance shifts is into Treasury securities, hence the continued demand. Now the biggest problem will come if we deficit-spend our way into a need for even more bond investors than this cycle can support. Current projections of deficit spending over then next 7 years would cause irreparable damage to this delicate balance. Mr. Geithner will have to apply a hand of restraint in the current spending plans. Watch for this to become a much more important topic in the coming year.

Last week I pointed out that the trend of Central Oregon home unit values and median prices were moving in different directions. (Unit volumes have recovered in Oct ‘09 to be ~90% of Oct ’07 transactions, whereas median prices have continued to fall, now at ~50% of Oct ’07 prices.) I asked the question there about price per square foot because median prices are a combination of two very different influences, changes in the price per square foot (true value indicator) and a shift in the “mix” of higher and lower priced homes. Well one of my readers got back to me with some good-news facts. Even though the median price has fallen by 50%, the price per square foot in the same time has dropped less than 30%. This shows what we have known from the activity: the median price drop is significantly a reflection of the shift in mix to starter homes selling more than higher-end homes. Time will tell, but this should give some hope for a recovery in the median prices as mix shifts again to more normal. Central Oregon is still the best place in the US to live. If you haven’t seen it already – make sure you check out the new Visit Bend promotional video, click here.

The coming week has economic reports of interest. The retail sales reports will be out today and PPI/CPI inflation data on T/W. The following week’s auctions of T-Bills will be interesting when announced on Thursday. If you are tired of the impact HVCC has had on your deals, click here for a blog of recent experience. Check out the job interview skills video toward the bottom of this email and make it a great week!

Thank You! I appreciate your support ... lots of changes in the industry and many have not survived - Thanks to you keeping us top of mind - Signet has continued to thrive and celebrated its 6th year in business this summer! As I am 100% referral based - I depend on you to keep growing! We have added exceptional professionals to handle the increase – don’t hesitate to call.

Originially sent out Monday 11/9/09 - for realtime receipt of our blog - email dave@signetmortgage.com

Rates, Housing, Tax Credits, Unemployment, FED announcements, Treasury Auctions, Oh My! We had a full week with many different topics in play. To cut to the chase: Signet Mortgage lending rates remain for 30-yr fixed at 4.75% with an origination and normal closing costs for conforming amounts and qualified borrowers. We are locking and closing loans. Come see us

THE Fed held their FOMC meetings and announced on Wednesday that they are not raising interest rates. In fact, based on the state of the economy (all rosy stories aside) the FOMC statement that we should expect “exceptionally low levels of the federal funds rate for an extended period “ (full statement: click here) is feeling like it may be in place for more than just a number of months. The Fed’s primary objectives are fostering growth and avoiding inflation. If anything, we continue to see if anything, deflationary signs. And unemployment is a big part of that sign. We won’t see the Fed raising interest rates until they start seeing unemployment turn.

The headliner unemployment number is now officially 10.2%, highest since 1983 when I was graduating from business school. Remember just over a year ago when still at under 6% unemployment and Clayton Christensen made a statement that unemployment would rise over 10% and we were in awe because we respect his opinion so well? Now the real news is not the headliner. The real news is that with adding in the underemployed the number is now at 17.5%, and growing. This is why the fed expects that “inflation will remain subdued for some time .“ That’s not to say we won’t see interest rates rising, just delayed and dependent on supply and demand rather than inflation.

The big news that raised Alerts! and Tweets from Signet Mortgage this week was the passage and enactment of the “Worker, Homeownership, and Business Assistance Act of 2009”. (Click here for text of the Act.) While this and its expanded tax credit got all the attention for its impact on the housing market, the passage in the House Saturday night, of the health care bill will ultimately have a broader impact on the long-term housing market and values. But for now we have an expanded and extended tax credit. We’ve told you about the main points:

$8,000 First Time Home Buyers credit continues

New $6,500 for existing “Move-Up” homebuyers

- Same home for 5 yrs of past 8-yr period

Contracts (EMA) signed by 4/30/10

Closings before 7/1/10

Home purchase price of $800,000 or less

Income limits expanded

- Old: $75,000 single, $150,000 Married

- New: $125,000 single, $225,000 Married

Tax Return filing will require HUD-1 be Attached

The rest of the story is timing how these items become effective. The good news is that the “Move-Up” credit is effective for purchases closed from last Friday Nov. 6^th and forward. This is also true for the $800,000 limit and for the new expanded income limits. The surprise is that the tax return filing requirement for a signed HUD-1 attachment is retroactive to all credit-claiming sales for 2009. This isn’t bad, just expect a rush of requests at the title companies come tax time.

The impact of the credit has been debated, but there is plenty of evidence (increased volumes and dropping median prices) that it has had a big effect recently. The question is, will the expanding to move-up buyers have a broadening effect? The congress hopes so. Some local evidence of the impact is seen in a report from Pat Huber, CPA and Broker at Taft Dire here in Bend. She points out that unit volumes dropped to a low point a year ago and have climbed back to 91% of 2006 volumes (comparing October stats.) At the same time, median prices for Oct 2009 compared to October 2006 are only at 52%. The recent, increased volumes have largely been at lower prices. If any of you are numbers-fans, I’d love to see the same measures using price per square foot. I know it has dropped, but I am betting not to a 52% level, supporting my supposition that the FTHB impact that is driving some of the drop in median prices. If that is the case, we should see some stabilizing and perhaps recovery in the medians. The interesting story will be how we come out of the credit-supported buying in the late-spring, early-summer. Don’t expect further extensions.

If you are interested in reading the actual legislative language of the Home Buying Tax Credit Extension bill, it is available by going to this link: http://bit.ly/3UustY This is an amendment (S.AMDT.2724 to H.R.3548) to the Unemployment Extension Bill as offered by Senator Schumer.

As described previously the terms of the expansion to long-time homeowners includes a requirement that they have lived in the same principal residence at least 5 of the last 8 years. The credit will be $6,500 for those individuals.

Limitations are set at income of $150,000 single and $225,000 married (previously reported at $250k)

Maximum home purchase price is set at $800,000 to qualify for the credit. This will be of more interest in California and High priced regions.

Happy reading and remember it is still in amendments to a bill that hasn't passed yet. More legislative "sausage" to be made before we have something to send to the White House for signature.

Plenty of news from last week and I mean even bigger than the Ducks’ smothering of the overmatched Trojans.

In FHA and FNMA home financing news, the High-Balance Conforming Limits that were set to expire this year have been extended through all of 2010. This is big residential real estate news. This legislation means that Central Oregon FHA limits will remain at $417k rather than rolling back to the ~$300k level they were headed for. And for Fannie Mae loans, while the difference in OR between “standard” conforming ($417k) and “high-balance” conforming ($447k) is minimal, the difference in markets that often provide buyers into Central Oregon is very important. California’s high balance limit of $729,750 when combined with a purchase-money second of $350,000 and an approx 20% down payment means that a home with a purchase price of $1,350,000 can be purchased without jumbo financing. FNMA-backed, conforming rates are better than Jumbo residential rates which still don’t enjoy a secondary market.

In economic news, the Q3 GDP numbers were published with a surprisingly high 3.5% growth. This news has to be tempered with a few caveats as cheerleaders call for the official end of the recession. The start of a recession officially waits for 2 consecutive quarters of GDP decline. People often look back to an earlier date to peg the start but it isn’t official until we’ve experienced the 2 consecutive quarters. With this one-quarter upturn, even at the surprising, >1% growth number, we need to remember some of the temporary stimuli that are included in the 3^rd quarter, especially the Clunk of a car incentive program (see here for $24,000 per car taxpayer cost analysis.) Local inquiry resulted in one car dealership indicating that they have had ZERO new car sales in the weeks since Clunker ended. So, while we are happy for some upturn in the GDP, let’s watch for more signs of broad improvement before we relax.

In banking news, the FDIC shutdown 9 more banks on Friday and this was before the CIT restructure announcement. This brings to 141 the number of FDIC takeovers since the beginning of “The Great Recession” and 115 on the year. Incidentally, the 9 banks along with CIT are heavily invested in Commercial Real Estate. Many community banks are the repositories of land, development and commercial lending and we are just still seeing the tip of the iceberg on problems there. Once again this past week Signet stepped in to help a building owner who had been turned down on a loan renewal request with their bank (of 30 years!!) unwilling or unable to extend credit in this region. Please have building owners you know step forward early and get refinanced now rather than waiting for the current note to come due. Signet is ready to take care of their refinancing needs now.

In other legislative news, the Home Buyer Tax Credit Extension gathered momentum and some clarity this past week as we reported on Thursday. However, this is not yet a done deal. The progress last week included a voice vote of confidence in the Senate and an assurance of House passage, but the actual vehicle for passage in both houses needs to be finalized. The likely scenario has the Home Buyer Credit being attached to an unemployment extension bill that has similar levels of support. While the benefits of kick starting the economic engine are likely, the results still raise questions (see Clunker discussion above.) Assuming passage here are the high points again:

• $8,000 FTHB credit continues
• New $6,500 for existing homebuyers

• • Same home for consecutive 5-yr period

• Contracts signed by 4/30/10
• Closings before 7/1/10
• Income limits expanded

• • Old: $75,000 single, $150,000 Married
  • New: $125,000 single, $250,000 Married

• Military personnel extension into 2011
• New tax return filing requirements

• • Fraud prevention
  • HUD-1 attachment to returns

I appreciate all of your support ... lots of changes in the industry and many have not survived - Thanks to you keeping us top of mind - Signet has continued to thrive and celebrated its 6th year in business this summer! As I am 100% referral based - I depend on you to keep growing! We have added exceptional professionals to handle the increase – don’t hesitate to call.

Look for expanded resources on our web site coming soon - an increased emphasis on Commercial Financing, Renovation Lending and Reverse Mortgages.