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

April 6th post, delayed

April 6^th and a beautiful spring, bordering on summer day in Bend, OR. Get out and absorb the rays today because this is described as part of our winter pattern and chill is coming back in the next couple of days. Chill is what the markets have felt already today. After 4 consecutive weeks of stock market improvements, a recent record by-the-way, the Dow and S&P are both “chilled” this morning. Last weeks change to Financial Accounting Standards on mark-to-market accounting was the latest in a series of good news items that kept bulls wanting for a turn around. This bear-market rally has lost steam today and with a short trading week (closing early on Thursday and closed Good Friday) there is concern that financial stocks may have gotten ahead of themselves in the past run up.

What is up with mortgage rates? Normally a rally in stocks would be bad news for the bond market, but with the Fed propping up demand, bonds have done very well, thank you. In fact, the Freddie Mac announcement last Thursday was again for a record low 30 year rate at about 4.75%. Indices driving commercial lending rates have also been faring quite well over the past weeks. All of this held true even with a late-week drop in bonds that is seen in the chart below. Much of Friday’s drop has already been offset this morning though and exceptional rates are here. While this may last for a number of weeks we should not become complacent. If you or a friend and client are on the fence, now is the time for action.

What other mortgage news is out there? Great news from Fannie Mae on High Balance Loan Limits! The normal conforming loan limit of $417,000 remains the sweet spot for best-ever pricing, but FNMA announced guidelines that will make very good pricing available on loans up to the new high balance amounts. This has a limited direct effect in Bend (higher loan limit is 447,500) but a huge indirect effect. The high-balance amount in many parts of California will now be at $729,250, opening the door for more transactions there. And we know that loosening the activity in CA will have a real benefit to the Bend market as well. Banks are also coming out with their guidelines for ‘Home-Affordable’ programs that were announced by the Obama administration as part of the American Recovery and Reinvestment Act of 2009 – the Stimulus Act. So good news is flowing to more than just the executives of FNMA who will be receiving bonuses!

Have a property needing rehab or renovation? Let’s talk about the great terms of the sweet FHA 203k rehab loan program that allows a one-time close at great rates on the purchase, renovation and long-term ownership of properties that can get picked up for dimes on the dollar. We’ll love helping you and your clients get the very best opportunities to take advantage of these and other programs you don’t want to pass up. Make it a great week! - Dave

March 30 post, delayed

The rally in the stock market has been encouraging to economy watchers but the debate is on as to whether this is a bear-market rally or merely a “dead-cat bounce”. This morning the stock market is off 200 points again as stock buyers are catching their collective breath. Interesting that no one seems to be calling this a recovery yet but at best a bear-market rally. I appreciate that conservatism of thought as it will take a solid economic base to truly signal recovery on the way. And yes, we can expect stocks to be the advance leading indicator, but this is still too early.

The impact of stock movement on mortgage interest rates has been minimal. MBS continue to trade at levels supporting the sub 5.0% interest rates we have been looking for. An element helping that trend was the report of Personal Consumption Expenditure, the Fed’s favorite inflation indicator. It came through late last week with an annual number at a very tame 1.8%. Wage numbers came through up 0.2% which is good for the economy and not hot enough to be an inflation scare. The damper on the economy was the improving savings rate. For the first time in over a decade the savings rate has had 2 consecutive months of 4.0%+ numbers. This is wise on part of insecure consumers, but keeps spending and recovery capital constrained. Compare this to the average savings rate for 2005-2007 seen in the chart below of under 0.5% for a 3 year period. It will be tricky to get a normalized spending-led recovery and maintain some reasonable level of household savings. Watch the savings rate to get a feel for the length of the recession, the higher that rate the longer the duration of the downturn.

Today’s announcement from Washington on demands placed on the automakers including the ouster of the 8-year CEO of GM is surprising only in one aspect. This is not unusual at all for active boards of directors to step up and kick some executive posteriors in bringing positive change to their investments. What IS unusual is that Washington DC, the White House is a significant part of that Board making the demands. Let’s hope for success there.

A quick highlight of Signet’s available lending shows that individual home purchasers have great loan tools at their hand. Loan rates are as low as they’ve been in our lifetimes. Qualified borrowers are being approved for exceptional loan programs. Signet is happy to work with your investor clients as well. Rates for reasonably leveraged investment properties can be as low as principal residence rates, below 5.0% with some additional points paid upfront. And at these rates, investment properties are penciling at levels not seen in our area in the past 5 years. We’ll give you, your friends and family the service and professional advice they deserve. Never hesitate to recommend the best to your clients. We have brought on additional processing support to give the same exceptional service level to all of your needs and opportunities. Welcome aboard Claudine!

Call 541 318 0888 or email anytime and make it a great week! - Dave

March 23rd post

Spring time showers are falling from the Federal Reserve clouds in million dollar notes. As we reported on Fed Day Wednesday, the Fed announced an INCREASE of security purchases (including Mortgage Backed Securities – MBS) of over a trillion dollars, bringing their planned purchases now to over $1.75 trillion. If you missed that write up, click here or if you would like to see the actual announcement from the Fed, click here. Let’s take a look at the amazing window of opportunity this presents and discuss how to overcome homebuyer fantasies that may keep deals from getting done.

The Fed had already purchased over $200B of mortgage-backed securities before Wednesday’s announcement, so we have an idea of the pattern by which they are moving with their purchases. Thursday’s rocket-like increase in MBS prices was an early response to what will likely be a months-long activity of benefit to mortgage bonds and mortgage rates. But the often misunderstood perception is that “with all that money still to come” (MBS purchases will eventually tally more than 5x where the cumulative amount stands as of today), “rates have got to keep getting even better than where they are now.” Be careful! Don’t sit and let this window pass you by.

Help your homebuyers know that the Fed buying spree has to date kept rates near 5% and that there goal is to keep them low and stable but not drive them to an even lower number (I have heard assumptions that rates will go to 4% and this is highly unlikely.) In fact, the Fed has been buying MBS largely that are associated with mortgages in the 5-6% range along with some that support the 4.5-5% rates. They have been mixing it up. Those with coupon rates associated with the higher end of this scale will likely be refinanced sooner, getting the fed its money back in a shorter period. This is good for the Fed and is helping the overall mortgage market remain stable and allows other investors in the MBS market more freedom to move. With all of this activity, the 4.5% 30 year fixed rate is available today with limited point-costs above normal closing-costs (i.e. APRs around 4.6%.)

Here today, gone tomorrow? - Low rates are definitely going to be gone at some tomorrow and that is the big question – how long will this last? The Fed’s intent is to spend their MBS $1.25 T over the rest of this calendar year. This will be a powerful influence towards low rates during this period. HOWEVER, there are darker forces offsetting this that will be of great interest and we will watch and report on these as well. The largest concern is the possibility (probability) of increased inflation in the near term. Inflation, of course, kills the return of any investor in long-term mortgage securities. Inflation is what leads to higher interest rates. It was inflation that took interest rates to crazy levels in the Carter administration and it took nearly the entire 8 year tenure of President Reagan to get rates back below double digit amounts.

We’ll write more about it in the future, but an early indicator of inflation concern is the price of Gold. On Wednesday, the price of Gold went from the low 900’s to very near $1,000/oz. in one day. The fear causing the inflation chatter has been the extreme and unprecedented government spending in the stimulus and budget plans. If this goes unchecked there is no doubt that inflation will be the result. Specifically on Wednesday, the new concern was the Fed’s formal announcement that they would be monetizing the debt by buying Treasury Securities. This is a very tricky maneuver that has never worked successfully in the past century. It has given short-term relief followed by an inflationary backlash. Now it is possible that our Fed and Treasury will be smarter than the last half dozen architects to attempt this, but it will be very difficult and the money is starting to bet against them. These are the reasons it is so highly likely we won’t see commonly-available 4% home buying money. We will be able to put individuals in the right circumstances into exceptional loans, but not for everyone.

I hope you are getting a picture of the call for action needed with this temporary window of opportunity. I’ll be happy to explain it further to you, your office meeting, your clients and family – just give me a call. I hope your Spring break is full of opportunity. Make it a great week! -Dave

Greetings!

Today is Fed Day and we thought it might be a sleeper! Yowza!

The Federal Reserve released moments ago an announcement from their FOMC meeting concluded this morning. The full announcement is reprinted at the bottom of this email.

While they are keeping the Fed Funds Target Rate at 0- 0.25%, the real news is that they made a couple of barn-burner announcements. Today they said the Federal Reserve:

• will employ all available tools to promote economic recovery
• will maintain the target range for an extended period
• will increase the size of the Federal Reserve’s balance sheet
• will purchase an additional $750 billion of agency mortgage-backed securities (MBS)
• will purchases of agency debt this year by up to $100 billion
• will purchase up to $300 billion of longer-term Treasury securities
• has implemented the TALF as an extension of credit to households and small businesses (yesterday's announcement by Pres. Obama opens more SBA loans)

The response in the market place is just what we are looking for. MBS are trading up over 100 basis points higher than this morning. Of course bonds up means interest rates down, so this is terrific news and should open up opportunities! It isn’t quite back to where it was in January but it is very close.

What about the Current Market?

Lots happening .. what to make of it

After a big drop in rates in early January, rates have climbed for a month dropping back some a couple of weeks ago. An improvement during this period has brought most locks back under 5% again (some with APRs as low as 4.6% as I mentioned on Monday).

Today’s activity will help solidify the 4.50-4.875% range for top-notch borrowers. If this holds we should see this range be the reality for qualified borrowers for an extended period of time. Based on the way the Fed had begun buying previously, I don’t see rates going much below this for most borrowers, but hey, if 6% is an excellent rate in the big scheme of things, how much better it is to be looking at rates near 4.5%.

No doubt you have heard the weekend hubbub about AIG paying $100+ Million in bonuses to their financial engineers. When I first saw the NY Times alert on it I was incredulous. My career has largely been as a financial executive with large multi-national corporations in Silicon Valley. In that competitive environment, I never saw bonuses paid when corporations were missing targets badly, let alone losing money and I can’t even imagine it with the kind of failure that took place at AIG. Geithner was apparently right in the thick of the original AIG bailout negotiations and I am not surprised this got overlooked in the rush to put the protection in place – they couldn’t think of everything that would come up in the next 6-12 months. But I am disappointed that he just blamed the prior administration like he has amnesia or something. So the good news is that just an hour ago, Obama instructed Geithner to try and block these payments. Or is that good news?

Here is the connection to mortgage rates. The reasoning given over the weekend for not canceling the bonuses was based on respecting the contracts. That is an appropriate concern but contracts can be renegotiated. GM and their unions are being asked to renegotiate in order to accept fed money. And the kicker is that while the Obama team was saying they had to respect the contracts for AIG, at the same time they’ve been saying they need to disregard the contracts of mortgage lending in the bankruptcy “cramdown” legislation that will be settled this week. And this is where it will hurt mortgage lenders and therefore rates. Investors will shy away from secondary market if the real estate backed securities can have that real estate protection over-ridden by bankruptcy judges. Having reluctant investors means higher rates. In the meantime, rates are stupendous. We locked more loans in the 4.5 to 4.875% range this past week. The 4.5% loan had an APR of 4.612% so you can see that these are great rates.

Obama has also been busy this morning announcing with Mr. Geithner the program to improve SBA commercial lending and it is better than expected. The SBA fees are suspended both on 7(a) loans and 504 loans until the pool for that runs out. The best guess is that will be through the latter part of this year. And for the 7(a) loans made by banks and guaranteed by the SBA, they will expand the guarantee to 90%, eliminating substantial risk from the banks. And finally, it looks like $15 B of TARP money will be used to buy SBA backed loans in the secondary market so there should be some demand for these loans and a chance of better liquidity and reasonable rates.

This week is Fed week where the FOMC will announce its rate decision. The pundits are projecting zero chance of a change up or down. For the 4^th day in a row, stocks are up with major indices all up over 10% from the beginning of last week. Wells Fargo Bank for example has moved from $8 to $15. Bonds have had good money flow, through the same time and interest rates are holding their own in spite of stock moves and China statements. We’ll keep our eye on it and let you know if there is anything extraordinary. Please continue to refer your friends and family. We appreciate your association and friendship. Make it a blessed St. Patrick’s week, may the rain fall lightly on your fields and all that! Oh and BYU has 2 tough matches this week, but they are in the dance - go Cougs! -Dave