What a roller coaster week - rates went up on Wed - down a bit today - I wouldn't gamble for too much longer if at all. The advice from the experts is to "lock on price gains - rates unlikely to be lower).
Below are various commentaries - and also info on Oregon State Bond - great program for first time buyers - I used to do a ton of these - and with rates at 3.875 (or 4.25% with 3% concession) you can't go wrong!
Thanks - I look forward to being of assistance to you and your clients.
From "Rate Alert"
What a ride! we talked about market volatility yesterday remaining extreme over the next week or so; today's Nov employment report set it up. A huge miss on estimates from analysts and economists; as we always note, trying to predict employment is difficult if not impossible. The Nov unemployment rates was widely expected to be unchanged, it jumped 0.2% to 9.8% the highest in months. Total non-farm job growth widely believed to have increased 140K were up just 39K; private non-farm jobs were expected up 145K, we got only 50K. Oct non-farm jobs were revised from 151K to +172K and Sept non farm jobs revised from -41K to -24K. The better revisions to Oct and Sept were a glimmer of a bright spot but the Nov data shocked markets. Manufacturing jobs dropped by 13,000 in November, the most in three months, economists had projected an increase of 5,000. Employment at service-providers increased 54,000. The number of temporary workers rose 39,500. Construction companies subtracted 5,000 workers and retailers let go 28,100 workers.
No matter how its sliced, the employment report has thrown a wet blanket over al the recent more positive economic data that had sent equity markets exploding this week and interest rates up. With job markets still soft the US economy isn't likely to sustain any substantial growth. Looking for anything positive from the data this morning, the upward revisions in Oct and Sept is about it.
Prior to the 8:30 employment report mortgage prices started down 15/32 (.47 bp) frm yesterday's generally unchanged prices; the 10 yr note yield was trading at 3.04% +4 bp. By 9:15 the 10 yr note yield had rallied back to 2.93% -7 bp and mortgage prices +24/32 (.75 bp) frm yesterday's close. Stock indexes got hit, at 9:15 the DJIA traded -55 points. At 9:30 the DJIA opened -40, 10 yr +17/32 at 2.93% -7 bp and mortgage prices +12/32 (.65 bp) frm yesterday's close.
Alan Greenspan on CNBC earlier this morning said the US economy may not improve but stagnate at low growth for a long time.
Two more data points at 10:00; Oct factory orders, expected down 1.2% were down 0.9%. The Nov ISM services sector index was about in line at 55.0 frm 54.3; the new orders component at 57.7 frm 56.7, prices pad at 63.2 frm 68.3, and employment component at 52.7 from 50.9. Any index over 50 is considered expansion. The reaction to the 10:00 data points has cut the early price gains in half from what we marked at 9:30. At 10:05 mortgage prices were 10/32 (.31 bp) lower than at 9:30.
The dollar being hit hard this morning on the weak employment, sending gold up and aiding the equity markets frm serious selling.
Keep your head about you today; the bond and mortgage markets remain weak and bearish; already the rate markets have given back a lot of the initial gains on the reaction to the employment report. We hear from many that there remains a belief out there that mortgage rates will decline back to recent lows; a huge mistake in thinking in my view. Interest rates are headed higher, markets may bounce a little but any improvements in prices are considered selling opportunities by traders we chat with. Expect the potential of high volatility over the next week or two. Already we are turning our focus to next week's Treasury auctions, $66B of 3s, 10s and 30s. The employment data this morning is already old news.
Short-Term Rates are up as Well
McLean, VA - Freddie Mac (OTC: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), which found that the both fixed- and shorter-term mortgage rates rose this week. This was the third week in a row where fixed-rate mortgage rates were up.
News Facts
•· 30-year fixed-rate mortgage (FRM) averaged 4.46 percent for the week ending December 2, 2010, up from last week when it averaged 4.40 percent. Last year at this time, the 30-year FRM averaged 4.71 percent.
•· 15-year FRM this week averaged 3.81 percent, up from last week when it averaged 3.77 percent. A year ago at this time, the 15-year FRM averaged 4.27 percent.
•· 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.49 percent this week, , up from last week when it averaged 3.45 percent. A year ago, the 5-year ARM averaged 4.19 percent.
•· 1-year Treasury-indexed ARM averaged 3.25 percent this week, up from last week when it averaged 3.23 percent. At this time last year, the 1-year ARM averaged 4.25 percent.
Quotes
Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac.
•· "Mortgage rates followed bond yields higher this week as recently released economic data suggest the economy may be stronger this quarter than the previous. Regional manufacturing indexes for Dallas, Chicago and Milwaukee all rose in November. In addition, the Federal Reserve noted that 10 of its 12 regions saw improvement through mid-November in its December 1st regional economic review.
•· "House prices indices, however, are trending downwards. The 12-month growth rate in the S&P/Case-Shiller® 20-city index eased from 1.7 percent in August to 0.6 percent in September. Only six of the cities had positive annual growth, compared to nine in August."
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•· From Dick Lepre, San Francisco: Friday December 3, 2010
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•· The irrational exuberance generated by Wednesday's better than expected ADP jobs report was dashed by the jobless recovery reality of a poorer than expected BLS Employment Situation Report . 39,000 jobs were added last month and the Unemployment Rate rose to 9.8%. The news today is that the economic optimism generated earlier this week was not backed up by the data. The likely short-term effect will be that Keynesians insist that we need another serious round of deficit spending rather that the chump change bill of 2009 while supply-siders will insist that we need an extension of the Bush tax cuts. The soon-to-be bifurcated Congress enhances the probability of political stasis. The big picture problem is that we want to do something to decrease unemployment but we want to start working on the deficit/debt problem. The start of a long-term solution is out there is the form of the "something for everyone to hate" Bowles-Simpson draft. Deferring implementation of a long-term sane fiscal plan for some method of stimulating employment will make the size of the problem larger.
•· The Treasury Technical's are still bearish and offer little support for today's disappointing report.
Oergon State Bond
- contact me for details on the specifics of the program if you are not familiar with it - it's the same as before - but if you have not closed a property with OSB financing it might be a good idea to get familiar with it. I find it easy to work with and very beneficial to first time buyers. Thanks!
Happy Friday! The rates aren't very cooperative and are all over the board - definitely a moving target. Commentaries are below from a variety of sources.
I used to be a top producer of the Oregon State Bond loan product - was in the top three of the state for many years running - then when I got into Sales Management my team did most of the OSB loans. Now I'm back and planning to help lots of folks with this wonderful loan product. Rumor has it that this program will be available after first of December - I don't want to get into trouble for quoting rates without APR - let me just say that rates on this program are a lot lower than traditional mortgages. COntact me and I can send you details on this program available only in Oregon.
Have a great weekend - should be a good one for getting the home organized and ready for Turkey Day - if you are traveling enjoy the "massage" at the airport.
From Think Big, Work Small
No data today to think about; the interest rate markets opened quietly this morning for a welcome change after the high volatility this week. In pre-market trading early this morning the key stock indexes were weaker after a strong rally yesterday took the DJIA up 173 points. At 9:00 the DJIA futures traded down 45, the 10 yr note +2/32 and mortgage prices -1/32 (.03 bp). Stocks in Europe and U.S. index futures fell as China added to efforts to limit the threat from the fastest inflation in two years.
The war of words escalated to outright direct criticism of China's refusal to increase the value of its currency. Bernanke last night in a speech in Frankfurt took the gloves off and warned China it must let the yuan increase or run the risk of pushing the world back into another leg of this recession. Meanwhile China is apparently willing to aggressively fight the Fed's QE as well as its exploding inflation rate. China's cabinet this week unveiled a package of anti- inflation measures including crackdowns on speculation in agricultural products and a threat of price caps on "daily necessities." China's argument against the Fed's easing move is that it will drive hot money into Asia and increase inflationary concerns. Bernanke wants the US inflation level to increase to keep deflation at bay.
Bernanke in Frankfurt continued to defend his QE move; saying it will aid the world economy, and implicitly criticized China for keeping its currency weak. The best way to underpin the dollar and support the global recovery "is through policies that lead to a resumption of robust growth in a context of price stability in the United States," Bernanke said. Countries that undervalue their currencies may eventually inhibit growth around the world and risk financial instability at home, he said. The increasing disagreement between the two strongest economies in the world is one of the key issues driving interest rates higher; the Fed is intent on increasing the level of US inflation to avoid what drove the Great Depression as deflation of assets made it much worse. China in the meantime is making moves to stop its inflation spiral, keeping the yuan from increasing is one tool being used, but the risks to global recovery increase with it.
Bernanke has used all the bullets he has; it now has to be turned over to Congress and the Administration; the Fed can't do anymore. Monetary policy has limits, now we need fiscal changes. Already the squabbles are building in Congress and the Administration even before the newly constituted Congress is seated.
The Fed will buy another skimpy amount of QE 2 today; about $1.5B of long dated maturities (2028 to 2040). One of a few buys that are at the longer end of the yield curve. The 30 yr bond is rallying however not much change in the bellwether 10 yr note or in mortgage prices. We are focusing now on the 10 yr note yield at 2.96%, the level that has so far held selling. Mortgages are also working hard to hold support, the 200 day moving average and chart support at 98.00 (at 9:45 98.31 bp).
Expecting a quiet day today after the week's very volatile swings; no data and the weekend ahead. Next week more Treasury borrowing; $35B 2 yr note auction on Monday, $35B 5 yr note on Tuesday and $29B of 7 yr notes on Wednesday.
McLean, VA - Freddie Mac (OTC: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), which found that the 30-year fixed-rate mortgage (FRM) and the 15-year (FRM) rose dramatically this week, as did the 5-year ARM. The 1-year ARM remained unchanged from the previous week.
News Facts
•· 30-year fixed-rate mortgage (FRM) averaged 4.39 percent for the week ending November 18, 2010, up from last week when it averaged 4.17 percent. Last year at this time, the 30-year FRM averaged 4.83 percent.
•· 15-year FRM this week averaged 3.76 percent, up from last week when it averaged 3.57 percent. A year ago at this time, the 15-year FRM averaged 4.32 percent.
•· 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.40 percent this week, up from last week when it averaged 3.25 percent. A year ago, the 5-year ARM averaged 4.25 percent.
•· 1-year Treasury-indexed ARM averaged 3.26 percent this week unchanged from last week when it also averaged 3.26 percent. At this time last year, the 1-year ARM averaged 4.35 percent.
Quotes
Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac.
•· "Rates on 30-year fixed-rate mortgages were up to the highest level since early August and rates on shorter-maturity loans rose as well, although by somewhat lesser amounts. Retail sales rose by nearly twice the consensus in October and represented the strongest gain since March. Moreover, consumer sentiment, as measured by the University of Michigan, ticked up in November to the highest level since June.
•· The housing market is showing some potential gains as well. Although new construction on one-family homes dipped 1.1 percent in October, homebuilder confidence rose in November to the strongest level since June, according to the NAHB/Wells Fargo Housing Market Index. In addition, median house prices showed positive annual growth in 77 out of 155 metropolitan areas in the third quarter of this year, with 11 exhibiting double-digit increases, according the National Association of Realtors®; only 30 cities experienced positive annual gains in the third quarter of 2009.
From Dick Lepre, San Francisco
Friday November 19, 2010
Bernanke is defending QE today at a speech in Frankfurt.
Thursday November 18, 2010
Initial Jobless Claims were 439,000. Leading Economic Indicators was +0.5%, consensus was +0.6%, previous was +0.3%. A large component of LEI is money supply and it is driven up by QE. From Ireland and the rest of the EU, to the U.S. Treasury Department to the State of California we are seeing the price of fiscal irresponsibility. Fixed income investors are concerned about 1) getting paid back (in the case of California) and 2) the effect that QE will have on inflation. For fixed income securities those are the only two meaningful issues.
Bloomberg has a story captioned: "Prime U.S. Mortgage Foreclosures Rise to Record on Unemployment."
On days such as today I regret that I did not go to graduate school and get a PhD in physics and pursue a simpler career such as particle physics. We may find the Higgs boson before we find a solution to our current economic woes.
Lots going on - commentaries below talk about the rate environment and I also included a piece from NPR that discusses the Federal Reserve meeting this last Wednesday. It "dumbs down" the content and makes it more understandable - I can appreciate that, ha!
Have a great weekend - I look forward to talking with you soon.
Hugs,
From Think Big, Work Small
Oct job gains were substantially stronger than the overall consensus; non-farm payrolls were expected to increase by 60K, as reported jobs increased 151K. Not only Oct jobs out-stripped estimates, there were sizeable upward revisions in Sept and Aug; Sept non farm jobs was revised from -95K to -41K and August revised to -1K from -57K originally reported----a total of 110K increase from what had been reported. The unemployment rate was unchanged at 9.6%. Average hourly earnings increased 0.2% and is up 1.7% since last Oct. Private hiring, which excludes government agencies, rose 159,000 in October, the biggest gain since April. Economists projected an 80,000 gain, the survey showed. Manufacturing payrolls unexpectedly decreased by 7,000 last month. Economists had projected a gain of 5,000. Government payrolls decreased by 8,000. State and local governments reduced employment by 7,000, while the federal government trimmed 1,000 jobs.
The employment report is good news for the economy, but keep it in perspective. Over the past three months based on the Oct data and revisions in Sept and August non-farm jobs increased a total of 269K, averaging 89K a month; any increases are welcome news but employment is still not gaining much. With 80K to 100K new job entrants each month it would take job increases of 300K a month to even dent the unemployment picture.
The initial reaction sent treasuries and mortgages down in price and up in yield. The 10 yr note price plunged 27/32, mortgages started -12/32 (.37 bp). By 9:00 some stability; the 10 yr -12/21 and mortgages -5/32 (.15 bp). Not much reaction in the equity markets early on after the recent strong rallies recently. The dollar is stronger this morning on the payroll data, hindering equity advances in early activity. At 9:30 the DJIA opened -17, the 10 yr -6/32 at 2.51% +2 bp, mortgages getting hit harder, down 10?32 (.31 bp) frm yesterday's close. By 10:00 the 10 yr note back to about unchanged but mortgages still pressured.
The Fed's QE on Wednesday pushed the 10 yr note down just 10 basis points, mortgage rates down 5 basis points. Today's job report has momentarily taken the wind out of the sails on the QE easing. A lot of day left to work over the better report on jobs; a solid report but on the margin the reaction in the financial markets isn't as strong as we might have expected. Comments on CNBC calling the jobs report a very strong report, and the President applauding; although any improvement is welcome, the job market remains impaired and not even meeting the increase in population increases. The dollar rallied on the data but since is slipping, the stock indexes firmed but on the open the DJIA opened weaker and is about unchanged at 10:00, the treasury market is weaker but given recent volatility, not that bad. The hit is coming most in the mortgage market so far; lenders sitting on large long positions selling mortgages.
Nothing left today but a couple for Fedsters making speeches that won't reveal anything of substance. Next week however, adding a little more pressure on interest rates, the Nov quarterly refunding with auctions totaling $72B; less than the August refunding but auctions on 10 yr and 30 yr bonds may drag on any significant price improving until the auctions are completed. Next week's economic calendar is very skimpy with weekly claims about it.
Shorter Term Rates Fall Again to New Record Lows
McLean, VA - Freddie Mac (OTC: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), which found that the 30-year fixed-rate mortgage rate rose slightly for the third consecutive week. The 15-year fixed-rate mortgage rate eased back down a little while the 5-year and 1-year ARMs set another low.
News Facts
•· 30-year fixed-rate mortgage (FRM) averaged 4.24 percent for the week ending November 4, 2010, up slightly from last week when it averaged 4.23 percent. Last year at this time, the 30-year FRM averaged 4.98 percent.
•· 15-year FRM this week averaged 3.63 percent down from last week when it averaged 3.66 percent. A year ago at this time, the 15-year FRM averaged 4.40 percent.
•· 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.39 percent this week, down from last week when it averaged 3.41 percent. A year ago, the 5-year ARM averaged 4.35 percent. The 5-year ARM has not been lower since Freddie Mac started tracking it in January 2005.
•· 1-year Treasury-indexed ARM averaged 3.26 percent this week down from last week when it averaged 3.30 percent. At this time last year, the 1-year ARM averaged 4.47 percent. The 1-year ARM sets another survey low this week.
Quotes
Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac.
•· "With little sign of inflation to push up long-term interest rates, fixed mortgage rates held relatively steady this week, while ARM rates hit new all-time record lows. The core price index for personal expenditures, a gauge closely followed by the Federal Reserve (Fed), rose 1.1 percent over the 12-months ending in September and represented the smallest increase since September 2001. In its November 3rd monetary policy committee statement, the Fed affirmed that measures of underlying inflation are somewhat low, relative to levels that the committee judges to be consistent, over the longer run, with its dual mandate."
From Dick Lepre, San Francisco
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NPR story on Federal Reserve Meeting Nov 5th, story issued on Wed the 3rd, by Jacob Goldstein
The Federal Reserve is about to create $600 billion out of thin air. It's a huge, experimental stimulus program that will affect stock markets and government policies around the world.
But the Fed announced its plan in a statement written largely in jargon and code. So here, from Planet Money and Slate, is today's statement, translated into plain English.
The economy still sucks.People are spending a little bit more, but they're stretched thin: One in 10 workers can't find a job, wages are basically flat, home prices are way down and nobody can get a loan.Companies are buying more stuff, for now, but they're not building new factories or offices.Nobody's hiring.Nobody's building.Inflation has gone from low to super low.
The Fed has two main jobs: Keep unemployment low and prices stable.At the moment, as you may have heard, unemployment is really high. And inflation is so low that it's making us nervous.We keep saying that unemployment's going to fall. And it keeps not falling.
So to give the economy a kick in the ass-and to pump up inflation a little bit-we decided to go on a shopping spree.First of all, we're going to keep buying new stuff when our old investments pay off.Second-and this is the big news for today-we're going to create $600 billion out of thin air and use it over the next eight months to buy bonds from the federal government. We hope this will make interest rates go so low that people will borrow and spend more money, and companies will start hiring.By the way, this is an experiment, and we don't really know how it's going to work out. We reserve the right to change our plans at any time.
Of course, we'll continue our policy of letting banks borrow money for free. If you're worried this is going increase inflation and destroy the dollar, please reread everything we've said to this point. We plan to keep rates near zero for as long as it takes, but we won't tell you how long that is.In the meantime, we'll keep an eye on things.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy was Thomas M. Hoenig. He's the president of the Kansas City Fed, and he's voted against Fed policy at every one of our meetings this year.He thinks this whole creating-$600-billion-out-of-thin-air thing is going to do more harm than good.He also thinks that all this money we've pumped into the economy could inflate another bubble and create widespread worries about inflation. That could lead us right into another crisis.
You can click on each sentence below to see our translation line by line. Or click "convert all" to translate the entire statement.
This post was created with Plain English, a tool created by Slate's Jeremy Singer-Vine.
TGIF - another week and more changes - I wanted to bring to light the self employed client and the types of info that is needed in order to qualify. We've used pretty standard calculations and analysis over the years but recently the policies have become a bit more stringent. Copied below is some info from one of the policy manuals and also a commentary from a well known industry expert. When you are dealing with a self employed client be sure to have their income calculated by a lender before allowing a sales agmt to be drawn up.
Have a great weekend -
Silver lining in cloud of foreclosure: A good friend of mine just sent me this message - sometimes we need to let go in order for our lives to take a turn. I figured this message would be an encouragement in the midst of the foreclosure doom and gloom: PRAISE: Truly miraculous! X and X have been able to rent a house that's bigger, better, gorgeous, fully furnished, on the McKenzie River, and the owner wants X to sign an addendum stating he has the right of first refusal to buy it after 6 months if he wants it. The current owner has had this $700K, 3600+ sq ft property on the market with no offers, and he's personally very wealthy and wants to move back to Colorado to be with his family there. Doesn't want to bother packing furniture, etc., and asked X if it would be ok for him to leave all the high end furniture there. God Reigns!!! X said God's been asking him to let his current house go, and X been agreeing but trying to talk to God to find out why, but also trying to be compliant with God's Will - ya can't have it both ways. As X was leaving to meet with the owner of the River house yesterday, he was served with the foreclosure papers as he walked out of his house - God's timing. X was just giddy he was so excited about this blessing, and could barely get the words out without a chuckle. God is so good, Praise Him, amen!
From Think Big, Work Small
Treasuries and mortgages are weaker this morning. Interest rates preparing for next week's auctions and this morning the stock market is opening better. No economic releases today. The dollar is weaker again this morning adding to the improvement in equity markets early on. With the Fed adopting an easier money policy (printing money) with QE 2 almost a certainty, the dollar continues to weaken fueling the idea that a weak dollar will improve exports. Much talk out there that a weak currency increases the global competitive advantage is heating up to what some believe is the beginning of a global currency war with every country beating down their currency to gain an advantage; an advantage overblown in our judgment but it is the consensus for the moment.
The G-20 meetings have Tim Geithner talking the talk; saying the US favors a strong dollar while the fed is set to weaken the dollar further with QE 2. Repeating themes he has pushed for the last month, Geithner said at the meeting not to seek "competitive advantage by either weakening their currency or preventing appreciation of an undervalued currency." Geithner suggested to counterparts that current account deficits or surpluses of no more than 4% of gross domestic product be the aim. The IMF this month estimated China's surplus will swell to 7.8% of GDP in 2015 from 4.7% this year. The U.S. wants the IMF to monitor progress if goals are adopted. Lots of talk with little substance, makes for headlines but as long as the Fed is printing money the US dollar is unlikely to gain and more likely to fall further. Every country trying to get an advantage in exports is increasing concerns from policy makers and investors that the friction will spark a round of devaluations and retaliatory protectionism, derailing an already fragile global economic recovery. G-20 finance chiefs plan to say members will refrain from "competitive undervaluation" of currencies, said an official from a member country, citing a draft statement and speaking on condition of anonymity.
German business confidence is improving. The Munich-based Ifo institute said its business climate index, based on a survey of 7,000 executives, rose to 107.6 from 106.8 in September. That's the highest since May 2007. Economists had expected a drop to 106.5, according to the median of 38 forecasts in Bloomberg News survey. Surging exports helped Germany's economy expand 2.2 percent in the second quarter, the fastest pace in two decades.
Europe's stock markets are trading lower this morning while the US stock market opened a little better. US interest rates increasing in preparation for next week's $109B of auctions ($99B of 2s, 5s and 7s, $10B of 5 yr TIPS). Mortgage prices opened soft but have moved off the worst levels, however with little direct influences to trade from don't expect much frm the bond and mortgage markets today. Last week Treasury auctions of 3 yr, 10 yr and 30 yr notes and bonds did not meet the expected demand, next week's auctions are worrying traders somewhat.
From Dick Lepre, San Francisco
Friday October 22, 2010
No significant economic data today. Treasury Secretary Geitnher's G20 comments about somehow restraining trade gaps make little sense to me. If the entire point is trying to get China to revalue their currency everyone is missing the issue that China's present pegged system is doomed anyway.
Shorter Term Rates Fall To Record Lows
McLean, VA - Freddie Mac (OTC: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), which found that the 30-year fixed-rate mortgage rate rose slightly for the first time in five weeks. The 15-year fixed-rate mortgage rate also rose slightly while the 5-year ARM and 1-year ARM fell.
Quotes
Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac.
•· "Mixed inflation signals kept fixed mortgage rates at bay this week. The headline producer price index jumped 0.4 percent between August and September, which was quadruple the market consensus, while the consumer price index fell below the market forecast. Rates on the traditional 1-year and 5-year hybrid ARMs eased to all-time record lows.
Policy Guidelines for Self Employment Income
When the applicant owns 25% or more of a business, the applicant must be considered self-employed even if income is not used for qualification.
Employment income must be verified by obtaining:
· The individual applicant's signed federal income tax returns for the most recent tax year,
AND
· All applicants are required to complete, sign and date IRS Form 4506-T at application and at closing.
· The signed Form 4506-T must include authorization for transcripts for the two most recent years. Both 4506-T forms are required to be retained in the loan file.
· The Form 4506-T signed at application (i.e. the Form 4506-T sent in the three-day package and completed/signed/dated and returned by applicants) must be executed
· When required, IRS transcripts of tax returns must be obtained to validate the income documentation provided by the applicants and used during the underwriting process. When multiple tax returns are used (e.g. 1040, 1020, 1065), a minimum of the applicant's personal tax returns must be validated. For wage earning applicants who are not required to provide tax returns, it is acceptable to obtain W-2 transcripts. If warranted, additional documentation and transcripts may be required. The transcript information must be retained in the loan file. All discrepancies between the income verification documents and the transcript information must be adequately explained and documented.
AND
Verification of existence of the business through a third party source no more than 30 calendar days prior to the Note date,
AND
· YTD profit and loss statement signed and dated by the applicant if the application is dated more than 120 days after the fiscal year end. The profit and loss statement must be consistent with previous year(s) earnings,
AND
· Business tax returns for the most recent tax year, including K-1's for S corporations and partnerships,
AND/OR
· Corporate tax returns for the most recent tax year, including W-2's for the most recent year for corporations.
Business tax returns must be obtained even when the self-employed income is not being used for qualifying purposes in order to determine if there is a business loss and that it will not have an impact on the stable monthly income used for qualifying.
Note: The federal income tax return must reflect at least 12 months of self-employed income
Difficult For Self-Employed to Qualify For a Mortgage?
January 4, 1999 The Mortgage Professor, www.mtgprofessor.com
"I am self-employed and want to purchase a house. I can't believe that the system doesn't work for people like me."
It does work for people like you, but it is somewhat more complicated and onerous. But there are plenty of others out there that will welcome your business.
Interestingly enough, I have been in at least 6 less-developed countries where it was impossible (as opposed to "more complicated and onerous") for a self-employed person to obtain a mortgage loan from an institutional lender. Their only sources of funding, other than family members, are money-lenders, who charge extortionate rates and break their legs if they don't pay.
A major problem with lending to the self-employed is documenting an applicant's income to the lender's satisfaction. Applicants with jobs can provide lenders with pay stubs, and lenders can verify the information by contacting the employer. With self-employed applicants, there are no third parties to verify such information.
Consequently, lenders fall back on income tax returns, which they typically require for 2 years. They feel safe in relying on income tax data because any errors will be in the direction of understating rather than overstating income. Of course, they don't necessarily feel safe that the W-2s given them are authentic rather than concocted for the purpose of defrauding them, so they will require that the applicant authorize them to obtain copies directly from the IRS.
The support it provides to self-employed loan applicants is an unappreciated benefit of our income tax system. It may not be fully appreciated, of course, by applicants who have understated their income. In countries where virtually no one pays income taxes because cheating is endemic, tax returns are useless for qualifying borrowers.
The second problem with lending to the self-employed is determining the stability of reported income. For this purpose, the lender wants to see an income statement for the period since the last tax return, and in some cases a current balance sheet for the business.
The two government-sponsored enterprises, Fannie Mae and Freddie Mac, who purchase enormous numbers of home loans in the secondary market, have developed detailed guidelines for qualifying self-employed borrowers. Lenders looking to sell such loans to the agencies must follow the guidelines. The problem is that implementation can be complicated and time-consuming, especially when the declared income comes from a corporation or a partnership. (If you own 25% or more, you are considered as "self-employed").
Remember when Bette Davis said "Hang on, it's going to be a bumpy ride" ---- no truer words were spoken for times like these, eh? To help your clients get ready for the lending process I'm offering to give you a checklist that our processing dept utilizes - it gives a great insight into what lenders need nowadays to get a loan thru the system. Just reply or comment and I can email to you. Between the checklist, Tums, meditation breathing, etc maybe we'll come out of this stronger. "That which does not kill you makes you stronger" - can you guess who said that? Not the most cheerful person eh?
Have a wonderful weekend - it should be great weather for a visit to the old pumpkin patch.
From Think Big Work Small
Prior to 8:30 this morning the interest rate markets were improving with nice price gains across the curve as well as mortgage prices. At 8:30 however, economic data hit that was better than had been forecast. Start with Sept retail sales, expected to be up 0.4%, increased 0.6% with auto sales removed up 0.4%; auto and truck sales were largely expected to be flat but the data implies better sales of autos and trucks. Next up at 8:30; Sept CPI, expected to be +0.2% overall and +0.1% when food and energy are removed, CPI increased just 0.1% with the core at unchanged; yr/yr the CPI +1.1%, ex food and energy +0.8% yr/yr. The cost of living in the U.S. rose less than forecast in September, indicating limited consumer demand is making it difficult for companies to raise prices. Meanwhile, while the data was being released Fed chief Ben Bernanke was speaking on the Fed's concerns that inflation is too low; he pointed out that for decades central bankers were battling inflation, now the Fed believes inflation is too low and potential leading to deflation.
More at 8:30 this morning; a huge improvement in manufacturing in the NY State manufacturing index; the overall index was thought to be up to 6.0 frm 4.1 in Sept, it exploded to 15.73. The sub-components were also very strong; new orders jumped to 12.90 frm 4.33, employment index increased to 21.67 from 14.93 and prices received increased to 8.33 frm 1.49. Any index reading over zero is considered expansion.
Prior to the 8:30 data the 10 yr note was up 10/32, 30 yr mortgages up 11/32 (.34 bp). By 8:45 the 10 yr was unchanged and mortgage prices fell back to a 2/32 gain (.06 bp). Bernanke was still speaking but by 8:45 most of his prepared text had been read and dissected. He said the long term weak employment will be detrimental to economic recovery and keep spending lower than needed to keep the recovery going. Inflation is too low to foster the Fed's inflation target. Short term real rates still too high. Fed can purchase assets; that should cement any concerns that the QE 2 is on track for Nov. Most of Bernanke's remarks were about what we have heard from the Fed for months; his comment that the Fed can purchase assets to lower interest rates removes any concern that QE 2 is unnecessary, at least in the minds of the Federal Reserve officials. The remaining question for the Fed according to Bernanke is how much QE?
By 9:00 this morning al the initial early gains in the bond and mortgage markets had evaporated. The stock indexes, on the 8:30 data, were improving. The DJIA futures at 9:00 up 12, not a lot but Bernanke's remarks about the economic outlook were not encouraging. The 10 yr note at 9:00 -6/32 to 2.53% testing its 20 day moving average; mortgage prices at 9:00 were weaker across the board for 30s and 15s. At 9:30 mortgage prices were mixed; 30 yr FNMAs -3/32 (.09 bp), 30 yr FHAs -9/32 (.28 bp) and 15s -6/32 (.18 bp). The 10 yr note -9/32 at 2.54% above its 20 day moving average. The DJIA opened +36.
Going into more data at 9:55 and 10:00 the market volatility was extreme; better manufacturing on the NY Empire State data, lower inflation readings and better retail sales set up volatility as the dollar traded weaker then reversed on the data and Bernanke's remarks. At 9:55 the U. of Michigan/Reuters consumer sentiment index was expected at 68.6 frm 68.2, it came at 67.9; the 12 month outlook at 70.0 frm 61.0 at the end of Sept. At 10:00 the final data point for this volatile day; August business inventories, expected at +0.5%, increased 0.6% with sales up just 0.1%; the inventory to sales ratio at 1.27 months from 1.26 months in July. Later this afternoon (2:00) Treasury is set to release the budget deficit for Sept, expected at -$32B
Where are the markets now? After a substantial decline in interest rates after the FOMC meeting on 9/21 when QE was put on the table, markets are consolidating the gains but not adding more to the rally. What remains now is how much will the Fed buy of US treasuries; we have nothing more than a guess, likely $500B to start with, with the proviso that if needed the Fed will buy more. There is no time line either; will it be dished out slowly or will the Fed make huge move? Likely a slow easing process rather than shock and awe.
Short-Term Rates Are Mixed
McLean, VA - Freddie Mac (OTC: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), which found that the 30-year fixed-rate mortgage rate fell again to break the survey's all-time low; the 30-year FRM has been under 5 percent for 23 weeks in a row. The last time 30-year FRM rates were this low was April 1951 (based on a data series of FHA rates going back to 1948). The 5-year ARM tied the all-time survey low set last week.
Quotes
Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac.
•· "September's employment report held no big surprises to financial markets, allowing long-term bond yields and fix mortgage rates to continue to ease. As a result, both the 30-year and 15-year fixed mortgage rates hit all-time record lows for the third consecutive week.
•· "Historically low rates have spurred yet another refinancing wave. Conventional mortgage applications for refinance jumped 24 percent over the week of October 8th to the strongest pace since mid-April 2009, according to the Mortgage Bankers Association. The Bureau of Economic Analysis estimates that homeowners held an average effective mortgage rate of 6.07 percent in the second quarter of 2010. By refinancing into this week's 30-year fixed-rate mortgage, the average homeowner could save over $230 a month in principal and interest payments on a $200,000 loan balance."
Dick Lepre, San Francisco
Embrace Inflation Now
Unless I am reading the wrong stuff it seems that there are lot of people, including the folks at the Federal Reserve, who believe that another really large increase in money supply is what is needed to get the economy going - especially since nothing else has worked. I need someone to explain to me why, when we have $1 trillion in excess banking reserves parked at the Fed, we need more money out there. This is the same Fed which just a few months ago was talking about how the economy was recovering and it was time to start the final act of its easy money policy by, presumably, decreasing money supply. A strange thing has happened in the last year plus. The Fed increased what is called Monetary Base (which includes excess bank reserves held by the Fed) but Money Supply as measured by M2 did not increase accordingly.
The fact is that consumers started slowing down discretionary spending this past January. With the stimulus having failed to increase consumer spending and there being no sign of fiscal restraint, the Fed is in a lousy spot.
So now the thinking is, I guess, that $1 trillion of excess reserves just is not enough and we need to be concerned about deflation. Bernanke must wake up at nights thinking about Japan which has had an economy mired for 20 years.
What may really be happening is a new policy with the slogan "Embrace Inflation Now." (For those of you too young to get that, check out "Whip Inflation Now") The eventual result may well be that we have the price of everything except housing increasing and the traditional relationships between income and housing expense are restored. Last year the government borrowed money to support tax credits to keep housing prices higher than they would be if we allowed market forces to set values. Since housing is the collateral for mortgage debt that may have seemed desirable as a modus of keeping banks viable.
The Fed may be thinking that merely whipping up concern about inflation will get people spending and provide a pop to GDP. It is hard to see how this would work at present. Are people going to buy houses when they are already overpriced and there is lack of job security? We already did a "Cash for Clunkers." Milk and bread may cost more 5 years from now but have a short shelf life.
The mistake with last year's health care bill was that it failed to address the high cost of health care. The government also did everything possible to keep home prices high. The rising costs of housing and health care have reduced discretionary spending. The consumer may not be able to take advantage of increased monetary base.
This past February Bernanke said that the "We're not going to monetize the debt"... stressing that Congress needs to start making plans to bring down the deficit to avoid such a dangerous dilemma for the Fed. Congress ignored Bernanke and now the Fed must deal with the problem.
If there is no choice but to monetize debt then the results will be: 1) inflation such as we have not recently seen 2) a devalued dollar 3) much higher mortgage rates. In a few years, the politicians who created the fiscal mess through decades of irresponsibility will be able to blame this on the Fed's increasing money supply.
I suppose that the Fed could theoretically increase the monetary base and somehow hope that those dollars remain parked at the Fed as excess reserves but that hardly stimulates the economy. If those dollars are going to stimulate economic growth it is hard to see how this can happen with contained inflation. The Fed may well have to give up its goal of inflation below 2% and settle for controlling it below 6%. The fact that the Fed announced no dollar goals for increase in Monetary Base may indicate that they will keep increasing it until it has the desired effect.
This is gonna be ugly. The era of contained inflation and low interest rates is about to become a thing of the past.
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