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

The Fed did shake up the market a bit with their FOMC announcement (click here) on Wednesday. The interesting thing is that the only real news was that their purchases of $1.25 Trillion of Mortgage-Backed Securities (MBS) would end NOT by Christmas, but taper off into March. No more or less purchased, just spread out (less per week) for the coming 6 months. The market loved the deferral of the end even if it means lesser appetite in the middle. Loved it so much that as you can see in the chart down below, MBS are now enjoying their best levels in the 90 day window, not quite as good as 6 months ago, but still exceptional. Interest rates are fantastic, and this party won’t last forever.

Speaking of deferring the END, what have you heard lately about the $8,000 real estate tax credit? Here is some scoop. About a week ago, 5 senators introduced Senate Bill 1678 and last Thursday, two more senators joined them. This bill would extend to June 1, 2010 what otherwise will expire December 1, 2009. No other changes are proposed. Sen. Isakson, a cosponsor to this bill, had previously been adamant on expanding to all buyers and not just First Time Home Buyers (FTHB) and expanding the dollars. He now has joined this group to get something rather than nothing passed. By the way, the companion bill in the House, H.R.1993 introduced last April, has 28 co-sponsors including 4 who joined on last week.

The California Association of Realtors came out with a report (click here) based on surveys indicating that nearly 40% of California FTHB would not have purchased a home if the federal tax credit incentives were not available. Interesting. Again, this party won’t last forever. In fact, transactions have to close within 63 days to qualify, unless the extensions happen. NAR is suggesting that offers need to be made in this week if they are to have a chance of closing on time. Recognize that there will be a huge crunch on lenders and especially title companies and that is Thanksgiving weekend! Don’t go slow and don’t even think about short sales.

[This Post was first sent out on September 28th. If you wish to receive real-time email of these postings, send me a note to dave@signetmortgage.com]

In the meantime, the rates are fantastic. Is there anyone you know who would benefit from receiving this kind of timely information? Please hit the reply button and let me know – I’ll be happy to help them make informed decisions in this important time. Or give me a call anytime at 541 318 0888. I look forward to helping you, your clients, family and friends get the best professional advice and service available. Make it a great week!

Have you enjoyed the 50% ride up in the stock market since lows of March 2009? I hope you aren’t one who rode it down, got disgusted and finally pulled out of the market just before it took off again. There is quite a bit of talk of another dip coming in stocks – some even predicting going lower than March. I’m not an expert there, and have no predictions, but I do have interest. Normally the stock and bond markets run contrary based on fund flows (today being an example with stocks falling and bonds improving – thereby allowing interest rates to drop.) But for the past 6 months, rate-influential Mortgage-Backed Securities (MBS) have done very well, thank you, even during this baby-bull run.

It brings up some plusses and minuses to be thinking about coming into the 4^th quarter. Here are some looming actions that should not be disregarded as you encourage clients or make plans:

1. The end of the $8k tax credit is 70 days away. Funding and closing by Monday Nov 30^th or nada.
2. The Fed will stop buying MBS near the end of the year. They’ll be close to but short of $1.25 Trillion target.
3. The temporary, expanded conforming limits ($729,750 in much of CA) end 12/31/09.
4. Plus normal, seasonal trough in January all lead to a tough start of the year in 2010.

On the flip side:

1. Interest rates are at 90 day bests
2. MBS are being supported by 200 day moving averages
3. Demand for Treasury notes has continued to exceed expectations leading to overflow demand into MBS
4. Historical precedent of ~30 months post recession end (declared this past week by Bernanke) before the Fed starts raising rates (hard to believe it will be that long this time but that is the history.)

All of this leads me to one thought – “Make hay while the sun shines” because it is shining brightly right now.

More on housing and the coming week’s indicators below. This past week, we Tweeted on the Tax Credit extension discussion (now down to 70 days remaining); the Goldman report projecting 10-yr Treasury rates to drop from over 3.4% to 3.0%; inflation seen as benign and the Fed statements from Bernanke, along with a great video of Roger Federer magic. Hope to connect with you this week!

In the meantime, the rates are fantastic. Is there anyone you know who would benefit from receiving this kind of timely information? Please hit the reply button and let me know – I’ll be happy to help them make informed decisions in this important time. Or give me a call anytime at 541 318 0888. I look forward to helping you, your clients, family and friends get the best professional advice and service available. Make it a great week!

So is it really the unemployment number or the UNDERemploymnet number that keeps buyers out of the market?

First let’s look at jobs and inflation data. The Jobs report on Friday was a bit of a surprise with fewer jobs lost (216,000 non-farm payroll) than expected (250k) and fewer than any month in the past year. Many are taking this as another sign that we are near or at the bottom of the recession. The turnaround call could be correct as the employment numbers always lag quite a bit and will continue to worsen even as GDP starts to rise. Even with the better than expected job loss number we need to keep a few things in mind. The number is always very preliminary and will very likely be revised down as the last 2 months were revised this week by another 50k each. The population dynamics are such that 130k jobs must be added just to stay even. This helps account for the unemployment number rising to 9.7%, its highest point in more than a quarter century (it was last over 10% when I came into the job market out of Grad School). In the past 24 months (shown at right) the unemployment number has risen more than double. This is still expected to rise to over 10% before the winter sets in.

The other measure of unemployment is derived by adding in the “under-employed”, those wishing to work full time but only able to have part time jobs. This combined number hit its peak this week at 16.8%, up from 16.3% last month. Still looking at the chart on the right, perhaps the best indicator that the economy is recovery has begun is the 12 month change in the unemployment number which in June was +3.9, July +3.6 and Aug +3.5. This downward trend represents a solidifying and even a start on the recovery.

That being said, we are now talking about 6.9 million jobs lost since the peak in the business cycle. This number is to me the saddest number in the review of our economy and makes me really look forward to the upturn. For further employment analysis click here.

The inflation component of the jobs report shows that the average hourly earnings rose 6 cents on the month and 2.6% y-o-y. This compares to 3.6% in the prior year and is perceived as an inflation-friendly, low number. Remember that inflation is the real driver of long-term interest rates. Further inflation confidence (“subdued”) came as the Fed published Minutes of the August FOMC meeting (click here for the full report). The most heartening news from the report includes this continuing quote: “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period” which matches the past few FOMC findings.

The Fed’s assessment of real estate markets was also interesting. First the good news – in residential real estate “home sales, prices, and construction had shown signs of stabilization in many areas and were increasing modestly in others.” On the other hand, commercial real estate is seen as “being weighed down by deteriorating fundamentals, including declining occupancy and rental rates; by falling prices; and by difficulty in refinancing loans on existing properties.” This, of course is where Signet Mortgage comes in. While the refinancing of commercial properties is very difficult, we have had great success in placing loans nationally where lending is still being done. If you would like to read a report of FDIC Chair Sheila Bair calling commercial real estate a “looming problem”, click here.

Finally, in residential lending, the interesting trend (and entirely consistent with our own experience at Signet corporate-wide) is that now fully 23% of all mortgage originations are FHA loans. For the full report, click here. In fact the only surprising thing to me is that this number is up from 3% only 2 years ago. The other encouraging trend we have seen at Signet is that the vast majority of borrower applications are being accepted by our lenders. Our business is based entirely on referrals and so we get a higher percentage of highly qualified borrowers than those that rely on advertising, but we have been able to qualify a huge percentage of the borrowers that come our way. Appraised values still make some refinancing loans more difficult but a very low percentage have run into this.

Much of the information noted above was interesting enough in the middle of last week that we tweeted them as they were happening. If you want to see this type of info real time, you can follow us on twitter by clicking here. Once you get to that page, click on the “Join today!” button if you haven’t already joined, then the “follow” button. You don’t have to send tweets to follow on Twitter. In fact, you can choose to have tweets sent as a text message to your cell phone and you never need to even go to Twitter again on line if you don’t want to. Just follow DaveWoodland and then click “device updates on” and input your cell phone information. Very easy

It has been two months of weddings and travel and I am now catching up to input the recent blogging. The following was originally sent out September 7, 2009. If you would like to receive live email postings, send me an email at dave@signetmortgage.com.

In the meantime, the rates are great and programs are available. We are still riding on exceptional opportunities. Let’s make it a great week!

I had a good conversation today with a trusted appraiser I know who surprised me with his comments about the HVCC. I fully expected him to be put-out by the audacity of it all. Certainly the misinterpretations opened up by the 1004MC (market condition report) would be a concern to him. Listen to some of his response:

"Honestly, I’ve really like the overall effect the HVCC has had on the appraisal industry, and get a little offended to hear the critics. I truly believe that the low appraisal values that are being reported are a measure of how much influence lenders had on their “preferred” appraisers. Since the implementation of the HVCC, I have begun reviewing appraisals that would not have previously gone through the AMC’s, and I am shocked at how bad the appraisals by those “preferred” appraiser’s have been. It is obvious to me that there are some appraiser’s that “cherry pick” the comparables to hit a value and overlook more relevant sales closer to the subject. Based on the reviews I have done since the implementation of the HVCC, the legislation was needed, and I can now understand why the industry has been blamed for the mess we are currently in."

Imagine that. A very successful, hard-working, ethical appraiser sees the benefit of the HVCC. Perhaps all that whining about lower-quality, unrealistic-valued appraisals exacerbating the spiral of housing prices is not the right whine. Maybe there has been some apple shining that can be leveled-out a bit here. I personally believe the “few bad apples” have spoiled the “whole bunch girl” (with a nod to J5 and respect to the late-MJ) and I wish it hadn’t happened or didn’t have to happen. But here we sit and there continue to be some bad results from the current system. I don’t have the solution for this, just offering food for thought.

The thing that opened my eyes to my own profession of loan originators as being a culprit in spoiling some of the apples was this comment:

"Since the HVCC, I did an appraisal for one of those clients that I had previously refused to work for because they insisted they would not pay me for the appraisal if I did not come in at a value high enough to close their loan. I wouldn’t have had the chance at their business, were it not for the HVCC. Now I can complete their appraisals without the looming thought in the forefront of my mind that they might not pay if the value is too low."

Whoa – shame on us for influencing the system to misrepresent values to get deals done. I know these are rare exceptions (at least I hope so) and I am sorry they caused the whole system to change (the new logistics are simply put, a real burden) but if this was happening in even 3% of the transactions out there, the impact to shareholders and now taxpayers is awful.

We ended the conversation with agreement that the burdens and relationships are less desirable, but perhaps necessary. We also agreed that the 1004MC will be a problem when the trend is shifting from down to stable to up and the mechanical form may not give the reviewer enough knowledge to make an appropriate judgment. Let’s hope there is a better ability to transfer personal knowledge of the complete picture and avoid a lengthening of the trend that would be unintended.

Here’s to honest appraisers who held firm and continue to ply their trade with integrity! I hope you each do well in this transition

Dave Woodland

Signet Mortgage

Bend, OR

It has been a great week for long-term mortgage rates! Before I get to some of the causes and what we can anticipate, let me make a quick report on the state of banks and their willingness to lend. If you follow me on Twitter, you saw that another local lender just shut their doors on lending to commercial property investors. I know of two stellar investor deals with exceptional guarantors who were turned away from what I believe is the last remaining local bank who was lending on investor deals. That closing leaves Signet Mortgage as the sole channel to investor purchase- and refinance-money for CRE in Central Oregon. We’ve always been the best source but now it looks like we are a lone source. There’s a reason we say: "Connecting Locally - Funding Globally."^sm Our funding sources are from all over the country and are still active and available to you right here in our market. So why did the local bank not lend to these gold-plated investors? The bank examiners from the US Treasury (in this case the Office of Thrift Supervision) established limits by loan type at such a level that prevent them from making investor CRE loans. This is part of the “Big Pendulum Swing” I have been talking about. The effects of over-regulation are already starting to take a big toll on our ability to stage a full-blown recovery. More on this in the HVCC discussion below, but the take away here is: Signet still has the sources and will help you get your deal done.

The news in last week’s blog was the announced $104B float of Treasury Notes set for the 23-25^th. The announcement was so unappetizing and the fear of shrinking investors so high that on the day of the announcement, the buyers of related long-term Mortgage-Backed Securities voted with their feet and staged a sell off Thursday the 18^th. (see the big red bar just right of middle on this chart)

The good news is that throughout the week, as the Treasury Notes were actually issued, the demand was great (I heard it described as outstanding) and the traders of MBS charged back in with strong buying (all of the green bars on the right side, the last big green bar being last Thursday.) If you saw the Freddie Mac rate announcement on Thursday (reported in papers on Friday), the rates indicated (5.42% on conforming 30Y fixed with 0.7 pts) still hadn’t captured much of the improvement. We expect this week’s number will be better and Signet’s residential lending sources were providing funds at better than this number all during the week and even better today.

If you are a chart reader, you will enjoy seeing that the blue line above (the 200-Day Moving Average) acted as a firm barrier on Monday, Tuesday and Wednesday and that Thursday’s break-out day pushed us well above this tough hurdle, changing it now into a strong level of support (S1 above.)

What was the basis for the outstanding sale of Treasury Notes through the week? Investors in fixed-income securities were relieved to see the strong showing of China in the bidding. This released much of the tension that has surrounded the bond world for the past month (remember that China holds $763 B or 11.8% of the US debt $6.45 T). Some may attribute this bidding to the visit of Secretary Geithner to China some weeks ago. While the communication at that level is helpful, there really is only one driving force behind China’s purchase of US Treasuries. It is an offset to the trade imbalance and keeps making China’s huge export market work. With the US buying 5 times as much from China as it exports to China, the US dollar weakens. China can’t endure a weak dollar as it would make our buying power in China much lower. To keep the goods flowing across the Pacific, China buys US-T and thereby bolsters the US Dollar.

The existing home sales numbers were reported by the NAR last week and they came in good, but just a bit softer than expectations. Continued problems arising from the now regulated residential appraisal system have been called-out as a source of some of the log jam, slowing sales. Our experience with the Home Valuation Code of Conduct (HVCC) is that unintended consequences have really clogged up the residential lending system. Well-meaning federal legislators have once again created onerous regulation of an industry to protect us against ourselves. The effect of this over regulation is deals are being delayed and sometimes killed and consumers are being hurt. Some of you saw an article on this topic late last week (reprinted at the very end of this email.) The follow up to all of this is that two members of the House introduced legislation on Friday to create an 18-month moratorium on the HVCC while the kinks get worked out.

Many other big news items going on and we’ll be happy to share our information with you and your clients. Please give us a call anytime. These days - more than ever - experience counts! Signet stands poised, ready to help you. Make it a great week! - Dave