VanEd Newslog

Finance Friday: Another Fed Rate Cut

On Wednesday the Fed cut the Fed Funds rate by another .25% to 2.00%.  Most banks lowered their Prime rate to 5.00% in response.  This will benefit borrowers in Home Equity Lines of Credit (HELOCs) that are tied to prime, which has dropped by 3.25% since September 2007.  This will also benefit people in adjustable rate loans (ARMs) that are due to reset soon.  Over the past year, the Constant Maturity Treasury (CMT) index has dropped by 3.18%, the London Interbank Offered Rate (LIBOR) has declined by 2.31%, the Monthly Treasury Average (MTA) index has declined by 1.5%, and the 11th District Cost of Funds Index (COFI) has dropped by 1.1%. These declines may help prevent some foreclosures because interest rate resets should be minimal.

However, the rate cut has not benefited new loans.  Rates for new Hybrid ARMs (3/1 and 5/1) are in the 5.5% to 5.75% range, and 30 year fixed loans are still slightly higher than 6.00%.  These rates will probably not decline until there is some real slowing in the economy or a real drop in commodity prices, such as oil, food, steel, lumber, etc.

Elsewhere, the House of Representatives passed the FHA Housing and Homeowner Retention Act, which allows FHA to insure loans to troubled borrowers facing foreclosure.  This act allows FHA to loan up to 90% of the current home value, which in most cases will require the current lender to accept a short pay.  Accepting a short payment may be less costly for the lender than the foreclosure process.  Unfortunately, borrowers will have to demonstrate they have the income to afford the proposed payment.  Many borrowers got into bad loans in the first place because they couldn't verify their income.

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Boulder West Financial Services. He can be reached on-line at http://www.boulderwest.com/.

Finance Friday: Tug-of-War continues

Investors seem to be more concerned with rising global inflation than the slowing economy, and interest rates are creeping up as a result. 

The rate for no point low fee mortgages reached 6.375% today.  This is despite many economic indicators showing a slowing economy.  March new home sales dropped to their lowest level since 1991 to a seasonally adjusted 526,000, down from February's 575,000.  With approximately 468,000 new homes available, this is an eleven month supply.  The University of Michigan consumer confidence index fell to its lowest level since 1982.  A Credit Suisse forecast indicates there may be as many as 6.5 million foreclosures by the end of 2012.  New unemployment claims dropped slightly this week, to 342,000 down from 375,000 last week.

The mortgage climate keeps getting worse.  E-trade has pulled out of the mortgage market, and Citi may be next.  Some lenders are rejecting current appraisals and relying on automated values as a reason to reject new loans.  We are even seeing some investors adding conditions to automated underwriting approvals such as Fannie Mae's DU and Freddie Mac's LP.

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Boulder West Financial Services. He can be reached on-line at http://www.boulderwest.com/.

Finance Friday: Then there were none.

Over the past decade, the largest purveyors of low doc, no doc, stated income, and option arms were Greenpoint, Countrywide, ALS, and Washington Mutual.  In August of 2007, Greenpoint was shut down by Capital One, their parent company.  Shortly after, Countrywide began experiencing financial difficulties and stopped providing all except agency (Fannie, Freddie, and FHA) loans.  A few months later, Lehman shut down their mortgage subsidiary, Aurora Loan Services.  Last week, Washington Mutual effectively stopped accepting new mortgage applications.  They shut down their wholesale division and closed all but one of their loan centers.  Washington Mutual was the leader of the option arm, which is a monthly adjustable loan with extremely low starting payments that often results in negative amortization.  This effectively limits borrowers to standard VA, FHA, Fannie Mae, and Freddie Mac loans.  Even the "jumbo" FHA and Fannie Mae loans are still priced higher than the loans under the old conforming limits.

Numbers released this week continue to show a weak economy.  Housing starts fell off a cliff in March, dropping to lowest level since January 1991, and very close to a 40 year low.  This is after starts reached a 25 year high in January 2006.  Jobless claims increased by 17,000 to 372,000 newly unemployed workers.  This brings the total number of unemployed to almost 3 million.   Increases in the inflation indices's along with continuing increases in the cost of commodities points to higher inflation which adds to the confusion.  Oil hit $115.00 per barrel and the euro hit $1.60 earlier this week.

The tug of war between a slowing economy and the fear of inflation has investors leaving the safety of bonds and mortgages for stocks as the Dow had one of its strongest weeks.  It appears that future Fed rate cuts are almost over, which sent the yield on the 10 year treasury to over 3.8% on Friday after trading under 3.5% earlier in the week.  Rates for no point low fee mortgages increased to 6.25%. Rates will probably stay above 6.00% until there is another financial disaster.

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Boulder West Financial Services. He can be reached on-line at http://www.boulderwest.com/.

Finance Friday: New rules on Jumbo loan amounts for FHA loans, cash-out refi's

HUD has released Mortgagee Letter 2008-09 which announced new limits on cash-out refinances. The new loan-to-value (LTV) ratio may not exceed 85% of the estimate of value if the loan balance is to exceed $417,000.

The letter also states that any loan where the amount of the loan exceeds the conforming loan limit of $417,000 (January 1st, 2008 limits) AND the LTV exceeds 95% of the estimate of value AND the property is determined to be in a declining market by the appraiser or the lender, then a second appraisal will be required. If the second appraisal is more than 5% lower than the first, the lower of the two appraisals must be used to determine the maximum loan amount on the property.

These new rules are designed to protect the Federal Housing Administration which will now be in a position to guarantee larger loans than it has previously. The letter also describes how a declining market is determined. You may click here to read Mortgagee Letter 2008-09 in its entirety.

Federal Reserve Board proposed amendments to Regulation Z

April 8th marks the final day for public comment on the Proposed Rule Amending Regulation Z. The Federal Reserve recently put forth the proposed amendment which is the Regulation that implements the Truth in Lending Act as well as the Home ownership and Equity Protection Act.

As written, the new rule would require disclosure from Mortgage Brokers as to the specific dollar amount that the broker would earn from a transaction. This disclosure would be required to occur prior to any fee being paid by the consumer and before loan application.

Click here to read the proposed rule. All interested parties are welcome to make comment on the proposed rule to the Federal Reserve. To make a comment, email The Board of Governors of the Federal Reserve System and identify "Docket No R-1305" in the subject line of the email.

Email address:  regs.comment@federalreserve.gov

Van Education Center celebrates our 10th Anniversary!

Today Van Education Center (www.vaned.com) celebrates our 10th anniversary, and we wanted to take just a moment to thank all of our students, members, association partners, affiliates and YOU! You have helped make VanEd a nationwide leader in distance education for real estate, appraisal and mortgage brokers.

VanEd opened in 1998 as the first online real estate pre-license school in Colorado, and was one of the first online real estate education providers in the country. VanEd followed by teaching Continuing Education online. The next few years saw the online Appraisal program develop and VanEd became the online home to the Colorado Association of REALTORS® GRI, Graduate REALTOR® Institute program.

Today VanEd offers courses in more than 30 states, and is a recognized leader in online education. We  are proud to have been able to serve the industry for the past decade, and we are excited about the opportunities ahead. We will continue to provide the highest quality education and service to the highest caliber students.

And from all of us who have had the privilege of assisting our students over the years, we thank you for your support and look forward to the coming decade. And remember, whether you are currently a student or are planning a career in real estate, appraisal or the mortgage industries, we want you to know that our commitment to you remains the same. As always, we are here to help!

Finance Friday: Treasury begins buying mortgages

The US Treasury started buying mortgage backed securities this week in an effort to ease the frozen capital markets.  Investors have been reluctant to purchase any mortgage backed securities that are not either guaranteed or sponsored by the government.  Fannie Mae and Freddie Mac have become the lender of both first and last resort.  Allowing investments banks to trade mortgages or treasury securities should ease this situation.  This has lowered the spread between the cost of mortgage securities and treasury securities by over one quarter of one percent.  However, this spread is still almost twice as high as it averaged for 2007.

Mortgage rates remain stubbornly high this week with no point low fee loans still at six percent or above.  Adjustable rate mortgages have all but disappeared as these rates are as high or higher than the fixed rate loans.

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Boulder West Financial Services. He can be reached on-line at http://www.boulderwest.com/.

Finance Friday: Fannie Mae announces risk based pricing.

Just when we think it can't get any crazier, it does.  Watching the Bear Stearns stock price drop from $60.00 per on Thursday to under $28.00 per share at the close on Friday led many to believe we would have a collapse of the financial markets on Monday.  On Sunday, JP Morgan Chase announced they would acquire Bear Stearns for $2.00 per share as long as the government agreed to assume the risk of $30 Billion of questionable mortgages.  The FED also opened the "discount window" to non-banks, agreeing to buy good quality mortgage securities. 

These actions relaxed the financial markets and prevented a "run on banks". On Wednesday, Federal regulators eased the capital requirements for Fannie Mae and Freddie Mac which will provide an additional $200 billion to help prop up mortgages.

These actions improved mortgage rates as the spread between mortgages and treasuries decreased.  Today no point low fee loans are under 6.00%.  However, many investors are beginning to implement the risk based pricing announced by Fannie Mae on March 6th.  This won't affect any buyers with FICO scores of 720 or above, but severely impacts purchasers with lower scores.  For instance, buyers with FICO's below 720 with less than 30% down will pay a .5 point (fee, not rate) surcharge.  A buyer with a FICO of under 640 will pay a surcharge of 2.50 points with less than 30% down.  Also this week many Mortgage Insurance companies have changed their guidelines in areas designated as declining markets, which covers much of California, Florida, and Nevada. 

These changes are making it difficult (if not impossible) for buyers with credit deficiencies and a lack of down payment to purchase homes.  The only positive is the new FHA limits that were announced earlier this month should help many buyers qualify.  With the demise of 100% financing FHA may be the only low down payment option for cash strapped buyers.

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Boulder West Financial Services. He can be reached on-line at http://www.boulderwest.com/.

IRS releases Stimulus Payment Schedules & Calculator to estimate stimulus payments

The IRS announced yesterday that they will begin sending out the more than 130 million economic stimulus payments as early as May 2nd. The payments will be sent weekly through early July. The IRS expects to make up to 34 million payments within the first few weeks of May. The majority of those receiving payments early will be those whose returns are received and processed by April 15th, and who have elected Direct Deposit on their Federal income tax returns.

It was also announced that the IRS created a new online calculator designed to estimate the amount of a taxpayers stimulus payment based on the payment schedules. Click here to use the on-line calculator.

Below are the schedules sent out by the IRS yesterday for economic stimulus payments related to tax returns processed by April 15, 2008. There is also a podcast from the IRS that discusses the economic stimulus payments. To listen to the podcast, Click here.

Stimulus Payment Schedule for Tax Returns
Received and Processed by April 15

Direct Deposit Payments
If the last two digits of your Social Security number are:	Your economic stimulus payment deposit should be sent to your bank account by:
00 – 20	May 2
21 – 75	May 9
76 – 99	May 16
Paper Check
If the last two digits of your Social Security number are:	Your check should be in the mail by:
00 – 09	May 16
10 – 18	May 23
19 – 25	May 30
26 – 38	June 6
39 – 51	June 13
52 – 63	June 20
64 – 75	June 27
76 – 87	July 4
88 – 99	July 11

Finance Friday: Treasury to buy mortgages

The US Treasury announced on Wednesday it would begin buying mortgage backed securities from several primary dealers beginning on March 27th.  This should ease mortgage rates as the spread between mortgages and treasury securities reached over 3.00% last week.  In fact, while rates on the 10 year treasury security have dropped by over one-half on one percent since the first of the year, mortgage rates are actually up over .50%.

Fannie Mae and Freddie Mac have also released guidelines on the purchase of loans with the new limits, often referred to as Fannie Mae Jumbos.  The rate premium has not been set yet, but it will probably be slightly higher than current conforming rates, but substantially lower than most jumbo products.

The financial markets had another crazy week.  Gold surpassed $1,000 per ounce, oil hit $110.00 per barrel, and the Euro hit an all time record of $1.56.  The wild swings in the stock market led to a drop in interest rates.  The rate for no point low fee 30 year mortgages has dipped close to 6.00%.

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Boulder West Financial Services. He can be reached on-line at http://www.boulderwest.com/.

Finance Friday: New HUD loan limits

The Department of Housing and Urban Development announced new loan limits effective March 5, 2008.  These limits are in response to the stimulus package that was passed in February.  The new loan limit for the Denver metro area for example, including Adams, Arapahoe, Broomfield, Denver, and Jefferson county is $406,250.  The limits are higher in the ski resort communities.  Pitkin and Summit counties have a $729,750.  For a county by county breakdown of loan limits nationwide, visit the HUD website and this link; https://entp.hud.gov/idapp/html/hicostlook.cfm.

This week was another bad week for interest rates as the spread between the mortgage backed securities and the treasury bonds hit levels not seen since 1986.  The interest rate for a 30 year fixed loan is typically about 1.50% higher than the 10 year treasury security.  The spread increased in 2007, reaching 2.25% by the end of the year. In January the rate on the 10 year treasury was close to 4.00% while the rate on a 30 year fixed mortgage was 6.25%.  Last week the 10 year treasury yield fell to 3.51% while mortgage rates rose to 6.375%, which is a spread of almost 3.00%.  The widening spread is caused by both a lack of buyers (no one wants to hold mortgages today) and banks dumping their mortgage backed securities in an effort to raise capital.

Rates for no point 30 year fixed loans today are close to 6.5%.

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Boulder West Financial Services. He can be reached on-line at http://www.boulderwest.com/.

VanEd note: Realtor.org has also put together a hard copy of the new loan limit breakdown. You can view that online or print it out by clicking here.

Finance Friday: A good week for rates

The wild ride in interest rates continued this week, but for a change it is positive.  No point thirty year fixed loans are back to 6.00% after hitting 6.5% last week.  The amount and speed of rate changes has been overwhelming in the past four weeks.  This is due in part to the uncertainty of all the financial markets along with the decline in the housing market.  Sales of new and existing homes continue to slide, with a decline in the median home price of 4.00% for all of 2007. 

People are paying for necessities with credit cards and dipping into retirement accounts to remain solvent.  Delinquencies are increasing for both automobile loans and credit cards.  The economic news of the week including a hefty jump in new claims for unemployment and huge drop in durable goods amplified the problems. Oh, by the way, oil hitting $103 per barrel and the Euro hitting $1.52, both all time records, didn't help.

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Boulder West Financial Services. He can be reached on-line at http://www.boulderwest.com/.

IRS releases instructions for mortgage cacellation relief

The IRS has released IR-2008-17 to educate taxpayers concerning the new mortgage cancellation tax relief provisions enacted at the end of 2007. Borrowers who had some portion of their mortgage debt forgiven in 2007 should receive a Form 1099C from the lender identifying the amount of forgiven debt.

The borrower/taxpayer will then need to file a newly-created form (form 982) to report to the IRS that the debt relief was for a qualified mortgage.

The forms and all instructions are available at the IRS website, http://www.irs.gov/pub/irs-pdf/f982.pdf. The mortgage relief provision applies to debt forgiven in 2007, no matter when the mortgage was assumed. The most frequent circumstances in which there is debt forgiveness is on foreclosure, short sale or mortgage workout or reformation agreed to with the lender.

Finance Friday: Rates jump up

This was a bad week from an interest rate standpoint.  Rates for no point thirty year fixed loans hit a high of 6.5%, before settling back down to about 6.25% today.  The reason behind the increase is the fear of stagflation, where we have inflation and recession at the same time.  Inflation is hitting the consumer in the pocket book every time they buy food, fill up their car, pay their utility bill, or pay their health insurance bill.  However, the Philadelphia Federal Reserve's index of manufacturing activity  in the northeast United States dropped to -24 in February, which, if the index stays at this level, indicates a deep recession.   

The drop in value of the dollar as well as a continuing rise in commodity prices, led by oil at over $100.00 per barrel has bond investors running scared.  They are putting their money into short term securities such as one and two year notes instead of 10 and 30 year bonds and mortgages. Today's spread between two year notes and 30 year bonds is over 2.5%.  Last year at this time we were talking about 6.00% rates for all types of mortgages, including one, three, five, and ten year adjustable loans as well as the fixed rate products.  Today, the rate for a five/one hybrid loan is 5.25%, or one percent below the 30 year fixed rate.

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Boulder West Financial Services. He can be reached on-line at http://www.boulderwest.com/.

Finance Friday: Economic stimulus bill signed

President Bush signed the economic stimulus bill on Wednesday which includes a provision to increase the maximum loan limits for Fannie Mae, Freddie Mac, and FHA.   While the details are sketchy, it appears that the loan limits will be increased between 25% and 75% of the current median price or FHA loan limit for each specific county.  The entire country should see limits at least 125% of each counties current median income or the FHA loan limit.  High cost areas may see increases of 175%.  The maximum loan will be limited to $729,750, which is 175% if the current Fannie Mae limit of $417,000.  We are awaiting details on specific loan limits.  Also, these limits are temporary and will expire on December 31, 2008.

This week was not kind to mortgage rates, as no point low fee thirty year fixed rate loans increased from 5.75% at the start of the week to today's rate of 6.25%.  However, the spread between thirty year fixed rates and adjustable rates has increased making adjustable and hybrid loans more attractive. 5/1 hybrid loans can still be obtained with starting rates as low as 5.5%.

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Boulder West Financial Services. He can be reached on-line at http://www.boulderwest.com/.

Finance Friday: Congress passes stimulus package

Congress passed the economic stimulus bill yesterday and it should be signed by the President shortly.  Part of this package allows Fannie Mae and Freddie Mac to purchase loans up to $729,750 that are closed between July 31, 2007 and December 31, 2008.  The actual limit will vary based on the local housing cost index.  Most areas of the country will not see an increase in their loan amounts. It also allows FHA to insure loans up to $729,750 in high cost areas.  As with other FHA loan limits, these will be set on a county by county basis.

In other mortgage news, Countrywide notified 122,000 homeowners that they could no longer draw against their HELOC because the automated valuation system they use shows their line limits are in excess of value.  Also, Chase is now limiting second mortgages (including HELOCs) to 70% LTV in many parts of California because of declining values.  CTX mortgage has been sold to some kind of private equity company.  What becomes of them is unclear at this time.

A report released yesterday indicates that over 20% of the option ARM products placed in Mortgage Backed Securities last year had no income verification and less than 10% equity. Two percent of them had no down payment.

Rates were an up and down affair again this week.  We started out the week at 5.75% for thirty year fixed rate loans, dropped to 5.5% on Wednesday, and are back to 5.75% for no point loans today.

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Boulder West Financial Services. He can be reached on-line at http://www.boulderwest.com/.

Finance Friday: Another week, another rate cut

On Wednesday, the Fed announced a cut in both the Federal Funds rate and the Discount rate one one-half on one percent.  This is on top of the emergency rate cut of .75% last week.  Mortgage rates have been all over the board in the last two weeks, from a low of 5.25% last Wednesday to a high of 5.875% on Monday.  They have settled down to 5.75% today.  Many analysts think the aggressive Fed action along with the proposed stimulus package may actually cause rates to increase.  The Fed's action certainly makes it appear they are more concerned with a slowing economy than rising inflation.  If the Fed takes their eye off the "inflation" ball, fixed term investments (such as bonds and mortgages) could be hurt by an erosion of their value.  Nothing scares a bond investor more than than inflation.

We are starting to see risk based pricing on FHA loans.  At least one lender is charging an extra .25% for borrowers without a credit score, 1.5% for borrowers with a credit score of 530to 579, and 3.0% for credit scores between 500 and 529. 

Elsewhere, Beazer Homes announced they are shutting down their mortgage lending division, Beazer Mortgage.  Remember, last March the FBI and HUD launched a joint investigation of fraudulent pricing on the purchases of homes with FHA insured financing provided by Beazer Mortgage.  E-loan also finally shut down all operations yesterday, ending a process that started with the layoff of most of their employees last November.

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Boulder West Financial Services. He can be reached on-line at http://www.boulderwest.com/.

Another rate cut from the Federal Reserve

The Federal Open Market Committee today lowered the target federal funds rate to 3 percent. This marks a 50 basis point reduction from the previous target rate.

In its press release the committee stated that it expects inflation to moderate in the coming quarters, and that recent information indicated a "deepening of the housing contraction" as one factor in its decision. The Committee expects that this step, along with the earlier rate cuts, will help to promote moderate growth and help to mitigate risk to the economy.

The Board of Governors also unanimously approved a 50 basis point decrease in the discount rate (down to 3.5%).

Finance Friday: Short but sweet

Well, that was fun.  We just went through possibly the shortest refinance boom in history. 

Last Friday, January 19th the interest rate for no point thirty year fixed loans was 5.625%.  The markets were closed on Monday for the Martin Luther King holiday, but the worldwide financial markets were in a bearish mode, reflecting huge drops in both the stock markets and interest rates.  On Tuesday, January 22nd, rates dropped to 5.5% as the Fed had a .75% emergency rate cut and the Dow opened down over 400 points.  On Wednesday morning, as the stock market slide continued, mortgage rates actually dipped to 5.25% for a no point thirty year fixed loan. By lunchtime on Wednesday, it became apparent both the Fed and the Congress were on board for simultaneous fiscal and monetary stimulus, stopping the slide in both the stock market and interest rates.  Most investors had multiple rate increases on Wednesday afternoon causing panic by mortgage brokers trying to lock in loans.  It was difficult, if not impossible to lock loans in on Wednesday afternoon as the entire online lock-in process was frozen.  On Thursday morning, interest rates were up to 5.75%, even higher than the preceding week. 

Today, interest rates are back to 5.875%.  As long as the markets believe the Fed's interest is in promoting economic growth instead of limiting inflation, we have probably seen the lows in rates for the year.  Hopefully you got your refinance locked in on Wednesday.

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Boulder West Financial Services. He can be reached on-line at http://www.boulderwest.com/.

Fed Emergency Cuts

This morning the Fed announced emergency rate cuts in both the Fed Funds Rate and the Discount Rate of .75%, bringing the Fed Funds Rate to 3.50% and the Discount Rate to 4.00%, in response to a worldwide stock market sell off.  The sell off started in Asia, then moved to Europe yesterday, and continued today with total losses as much as 7.00% to 10.00% of the index value.  Because our markets were closed for the Martin Luther King holiday, we did not  see the turmoil until this morning.  The Dow initially opened down 460 points, but has rebounded to being down less than 200 points.  It will be interesting to see where the market closes this afternoon.

The Prime Rate should move down to 6.5% in response to this rate cut, which will help out home equity lines.  If the financial panic continues, we could see thirty year fixed loans dip below 5.50%.

It is questionable whether this will actually help our economy. Unfortunately, we are in a liquidity crisis, and lowering rates does not help that situation.

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Boulder West Financial Services. He can be reached on-line at http://www.boulderwest.com/.

Finance Friday: Another lender bites the dust

Aurora Loan Services, a Lehman Brothers Company, announced yesterday they are suspending all wholesale and correspondent lending effective January 18, 2008.

Aurora Loan Services has been a leader in the low-doc, no-doc, and Alt-A lending for the past decade.  They have also been aggressive in their Jumbo (over $417,000) loan pricing.  Coupled with last Friday's announcement of the Bank of America purchase of Countrywide, the already stressed Alt-A and low-doc market is all but gone.

On the bright side, mortgage rates have declined substantially, with no point low fee thirty year fixed loans approaching 5.5%.  This gives many homeowners in adjustable loans the opportunity to lock in a great rate without any future payment shocks. The only caveat is new loans have to maintain loan to value requirements, and borrowers must meet minimum income and credit standards.

Even for people that can't meet current guidelines, the indices's used by most conventional adjustable loans have declined, keeping future adjustments in check.  The one year LIBOR has come down to 3.4%, the Constant Maturies Treasury (CMT) index is down to 3.26%, and the MTA is down to about 4.2% (The MTA is the slowest moving average because it uses a 12 month average of one-year treasury securities).  Most margins in adjustable loans are in the 2.00% to 3.00% range over the specified index, so rates will be in the 5.5% to 7.00% range upon adjustment.  This won't help borrowers in sub-prime loans because these loans generally have a margin of 5.00% and 6.00% over the LIBOR, which means their rates will be in the 8.00% to 9.00% range after adjustment.

It is interesting how three of the biggest players in the low-doc, low-doc, and Alt-A market, Greenpoint, Countrywide, and ALS are now gone.

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Boulder West Financial Services. He can be reached on-line at http://www.boulderwest.com/.

Finance Friday: More trouble ahead

The news coming about home builders and mortgage lenders keeps getting worse and worse.  This week KB Homes posted a net loss of $773 million for the 4th quarter. Countrywide shares have dropped more than 80% from their high to under $5.00 per share after rumors of an impending bankruptcy.  They said foreclosures and late payments in their portfolio are the highest on record.  Countrywide currently owns 10,000 properties through foreclosure.  At an expected loss of $50,000 for each property (which may be optimistic), the total damage may be over one-half of a Billion. 

Goldman Sachs is forecasting a recession in 2008 citing reduced consumer spending because of the slowing housing market.  They are also calling for an increase in the unemployment rate to 6.5% from the current 5.0% rate.

On the interest rate front, thirty year fixed rate loans are well under 6.00%.  No point low fee loans reached 5.75% this week.

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Boulder West Financial Services. He can be reached on-line at http://www.boulderwest.com/.

Happy New Year! Here’s a Thousand Dollars!

OK, so the IRS isn’t really giving you $1,000, but if you are an IRA owner, you can contribute an additional $1,000 this year, tax-free or tax-deferred, depending on your retirement plan. Your salary may not rise with the cost of living, but thankfully the IRS does change with the times, at least for Traditional and Roth IRA owners. The annual contribution will jump $1,000 to $5,000 allowed contribution for 2008 (plus an extra $1,000 if you're over 50). Please note that after April 15th, 2007, you cannot deposit the 2007 contribution to your IRA if you haven't already.

And remember, if you haven't opened a Roth or Traditional IRA, you can still open a 2007 IRA until April 15th, 2008. You could contribute $4,000 for 2007 and $5,000 for 2008. If you use this extra $1,000 to invest wisely in a self-directed retirement plan, you may look back at that extra $1,000 from 2008 when you're ready to retire and think it really was a gift from the IRS.

Guest Authors Bill Humphrey and Catherine Wynne are Principals with Entrust New Direction IRA. Reach them online at www.newdirectionira.com.

Finance Friday: Fannie Mae tightens approval standards for condos.

Fannie Mae has always had minimum standards that condominiums must meet before they are eligible for purchase.  These include (but are not limited to) at least 60% of the units must be occupied by their owners, no more than 10% can be owned by one person or entity, the common areas and amenities have to be complete, and control of the HOA must have been turned over to the unit owners.  Fannie Mae has a limited review process that eliminated most of these requirements, needing only master insurance on the project. 

In recent years, the limited review was allowed for most mortgage transactions.  Effective Dec. 24th, 2007, limited review process has been restricted, and is no longer allowed for new projects (less than one year old), for owner occupied loans with a loan to value over 90%, second homes with a loan to value less than 75%, and for investment properties. This will not impact owner occupied purchases with at least 10% down, but will adversely affect low down payment loans, loans for the purchase of second homes or rental property, and newly constructed projects.

On the interest rate front, the jobs report released this morning showing the unemployment rate increasing to 5.00% has furthered the drop in mortgage rates.  Today, no point low fee 30 year fixed loans are available at 5.875%.

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Boulder West Financial Services. He can be reached on-line at http://www.boulderwest.com/.

Notes From the Field: Your Child Needs a Roth This (Post-)Christmas

Your children or grandchildren may still be enjoying their Christmas or Hanukkah presents, playing with their toys and listening to the music, but there is one more present that, while it was not on any child’s list, could make them happy long after you’re gone.

If your child earned any amount of money in 2007, you can open a 2007 Roth IRA in their name anytime until April 17, 2008. Household chores don’t count, and you can only contribute as much as your child earned, (up to $4,000 in 2007), but if your child or grandchild mowed the neighbor’s lawn for $5, they can open a tax-free retirement account. Tax-free because, unlike a standard IRA, once the contribution is taxed normally, that money, and all the money you can earn with that money, is never taxed again.

While most children (and adults) are not too excited about saving for retirement, the Roth allows many early withdrawals without penalty. For example, once the Roth is 5 years old, and your child is 18, they can withdraw up to $10,000 for a first-time home purchase. In addition, the principal can be withdrawn at any time without penalty. Also, if the unthinkable happens, the Roth IRA money can be used for unusual medical expenses.

Once your child is 18 (in most states), they gain complete control of the IRA. This means they can choose to take the 10% tax penalty and withdraw all that hard-earned money to buy themselves anything they want. Of course, you don’t have to tell them about this option until they’re 28.

Guest Authors Bill Humphrey and Catherine Wynne are Principals with Entrust New Direction IRA. Reach them online at www.newdirectionira.com.

Finance Friday: Home Prices Drop

The Case-Shiller index of home prices released Wednesday showed home values for October dropped by 6.7% from October 2006.  What is interesting in this number is how the "hot" markets of the last few years have dropped so much.  The largest declines were in Miami, Tampa, Detroit, San Diego, Las Vegas, and Phoenix with year over year declines of over 10%.  Los Angeles, Washington DC, San Francisco, and Minneapolis show declines of 5% to 10%. 

The states with the highest total appreciation from 2002 to 2006 were Hawaii, Florida, Maryland, Arizona, California and Nevada.  Washington DC was also in the top 10.  The states that bucked the trend of "hot to cold" are Michigan, which had the lowest level of appreciation from 2002 to 2006 and Detroit's home values dropped over 10% from October 2006, and Washington and Oregon which were in the top 10 in five year price appreciation as well as having Seattle and Portland showing price increases in the last year.

Data released today showed new home sales for November plunged by 9.00% over last November for an annualized total of 647,000 units.  This is the worst showing in new home sales since April 1995 when an annualized total of 625,000 homes were sold. This is actually a positive number because we won't see meaningful appreciation in existing homes until the demand exceeds the supply. 
On the interest rate front, no point low fee 30 year fixed loans are back to 6.00% after reaching 6.25% late last week.  The thin holiday trading makes it impossible to determine which direction rates are heading.  We should know more about January 10th.

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Boulder West Financial Services. He can be reached on-line at http://www.boulderwest.com/.

Finance Friday: Fed Proposes New Mortgage Regulations

The Fed announced some proposed changes this week to the Home Ownership Equity Protection Act of 1994, which was supposed to provide customer protection from unscrupulous lenders.  This act places limitations on lenders providing "high cost" mortgages.  However, "high cost" mortgages were classified as loans that were eight percentage points higher than the prevailing treasury security.  This definition was so broad that less than one percent of mortgages written have been classified as "high cost".  For instance, todays 30 year treasury rate is 4.5%, so only mortgages with interest rates higher than 12.5% would be affected.

This proposal changes the definition of a "high cost" to mortgages that exceed the treasury security by three percent or more.  At todays rates, "high cost" mortgages would be anything over 7.5%, which will cover almost all sub-prime and many Alt-A loans.  Also, APR is used, not just the initial teaser rate.  Lenders providing "high cost" mortgages would be required to show that their customers could afford the loan (eliminating "no doc" loans).  They would also have to disclose the fees that have been paid on behalf of the customer through yield spread premiums from higher interest rates.  The proposal will also eliminate many of the deceptive advertising practices, and place limits on prepayment penalties.  Though prepayment penalties are not eliminated, they must end at least 60 days prior to any interest rate adjustment.

On the interest rate front, things have settled down from the turbulence of the last few weeks.  No point thirty year fixed loans are back to the 6.00% range.

Have a very Merry Christmas and a Happy New Year!

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Boulder West Financial Services. He can be reached on-line at http://www.boulderwest.com/.

Finance Friday: Fed Rate Cuts vs. Mortgage Rates

The last two weeks have been a real roller coaster in mortgage interest rates.  On Wednesday, Nov. 28th, no point 30 year fixed rate loans were 6.00%, and by Friday they had dropped to 5.875%.  The downward spiral continued on Monday and Tuesday as rates fell to 5.75%.  The jobs data released at the end of the week reversed this trend and by Friday, December 7th rates were back up to 6.00%.  We got a short lived break in rates on Tuesday, Dec. 11th, to 5.875% in response to the Fed rate cut.

However, the dip lasted for only one day, as rates increased to 6.00% on Wednesday, 6.125% on Thursday, and 6.25% today.  Also, Fannie Mae and Freddie Mac instituted credit score and down payment price adjustments as well as an across the board price hit of .25% for all loans.  The net change in interest rates for the week the Fed cut rates is almost one-half of one percent.

This shouldn't be too surprising because changes in the Fed rates are rarely reflected in mortgage rates.  In 2001 the Fed cut the funds rate 11 times for a total reduction of 4.75% but mortgage rates, which started the year at 6.875%, finished the year at 7.00%.  In 2004 the Fed increased rates 5 times for a total increase of 1.25% while mortgage rates dropped slightly from 6.25% to a 5.625% by the end of the year.  2005 wasn't much different, with 8 rate decreases for a total change of 2.00%, while mortgage rates only rose by less than one-half of one percent.

The inflation numbers released today support the Fed's inflation concerns in their Tuesday  statement, making additional fed rate cuts unlikely.  It is possible we have seen the lows in interest rates for the foreseeable future.

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Boulder West Financial Services. He can be reached on-line at http://www.boulderwest.com/.

Fed cuts Federal Funds rate

This afternoon the Fed announced a quarter point cut in both the federal funds rate (to 4.25%) and the discount rate (to 4.75%).  However, their statement shows they consider the potential inflation risk as much of a problem as the potential downturn in the economy from the credit crunch.  The financial markets did not like this action, with the Dow falling from a 50 point improvement to down 250 points within an hour of the announcement.  The bond markets reacted favorably to this news, the 10 year yield dropping to under 4.00% after hitting a high of 4.17% last week. We may see 30 year fixed rate loans drop below 6.00% again soon.

The markets thought the Fed would rescue the financial markets, but this statement shows a stay the course mentality that doesn't recognize the risks from the credit collapse.  Last week Fannie Mae and Freddie Mac added credit score surcharges to loans with less than 30% down.  This week they announced a .25% charge on all loans (in addition to the credit score surcharge).  Today Washington Mutual predicted a drop in mortgage originations for 2008 of 40% from the already depressed levels of 2007.  The credit crunch is still the biggest problem facing the Fed, and they need to make credit more easily available to prevent this situation from getting worse.  The Fed needed to cut the discount rate by at least one-half of a percent to improve liquidity in the banking system.

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Boulder West Financial Services. He can be reached on-line at http://www.boulderwest.com/.

Finance Friday: Fannie Mae and Freddie Mac move to Risk Based Pricing

About a dozen years ago the mortgage industry began to use credit scores as an underwriting tool.  Electronic underwriting (Desktop Underwriting for Fannie Mae, Loan Prospector for Freddie Mac) uses a combination of credit scores, liquid assets, and loan to value to assess risk; and many times underwriting guidelines would be expanded or waived for excellent borrowers.  We have seen payment to income ratios as high as 60% and total debt ratios as high as 90% for borrowers with excellent credit scores and good liquid assets.  However, borrowers must have a credit score to be eligible for electronic underwriting (a minimum credit score of 620 is needed for loan approval).  Credit scores have been a major factor in the underwriting decision, but not in determining the interest rate. 

This all changed this week as both Fannie Mae and Freddie Mac announced risk based pricing.  Effective for loans locked in after December 1st and delivered to Fannie Mae or Freddie Mac after March 1, 2008, there will be a price adjustment for borrowers with a credit score below 680.  The price adjustment will be based on credit score, down payment, and loan term.  For borrowers with less than 30% down, the price adjustment is .75% of the loan with a credit score of 660 to 679, 1.25% of the loan with a credit score of 640 to 659, and 2.00% with a credit score of 620 to 639.  For loans with over 30% down, or a term or 15 years or less, the adjustments are .25% of the loan for a credit score below 640 and 1.00% of the loan amount with a credit score of 620 to 639.  Borrowers with a credit score of less than 620 are not eligible for normal Fannie Mae and Freddie Mac programs.  There are exceptions for some specific programs, so check with your lender for details.

On the interest rate front, this week was a roller coaster.  Rates began the week at about 6.00%, dropped to 5.75% for Monday and Tuesday as the ten year treasury yield dipped to 3.85%, rose to 5.875% on Wednesday, and back to 6.00% today as the ten year yield has risen back to above 4.10%.  A lot of the uncertainty in the interest rate market is caused by the governments plan to freeze rates on sub-prime interest rate resets at the current level. This adds another level of risk to investors because their rate of return may be changed making investing in mortgage backed securities now even more risky.

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Boulder West Financial Services. He can be reached on-line at http://www.boulderwest.com/.

Finance Friday: Banks seek cash infusion

This week many banks and brokerage firms obtained cash infusions from outside sources to prop up their balance sheet.  Banks must keep capital of at least 6% of their assets, and any major drop in their portfolio will cause them to be in violation of their banking charter.  Citi sold 4.9% of itself for $7.5 billion to Abu Dhabi, guaranteeing them an 11% return.  E-trade Financial sold 20% of itself to Citadel for $2.5 billion, paying 13.5%, with their underlying asset based securities selling for 27 cents on the dollar.  Freddie Mac raised $6 billion additional capital and only had to guarantee an 8.375% return.
Wells Fargo, supposedly immune from the sub-prime problem, put aside $1.5 billion to cover loan loss reserves for its second mortgage division.  They also announced that will only provide second mortgages to customers with underlying Wells Fargo first mortgages.

It is still uncertain if the government will be able to come to an agreement with several lenders to stop increases in their mortgage interest rates.  Remember, these mortgages are not only contracts between the lender and the borrower, but between the lender, the security dealer, and the end investor.  Many of these securities are divided into tranches and sold to several small investors.  A renegotiation of the mortgage may violate the contract with these investors.

Some state governments have stepped up with programs to help customers refinance out of bad loans, but most borrower's are not eligible because their mortgage balance was higher than their property value, or their pay history is unacceptable.

On the interest rate front, no point low fee loans finally dropped below 6.00%.  Conforming thirty year fixed rate loans are available at 5.875% today.

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Boulder West Financial Services. He can be reached on-line at http://www.boulderwest.com/.

Notes from the Field: Who is watching your retirement money?

On Monday, November 26, The US Supreme Court began to hear the case of James LaRue, who claims he lost $150,000 when his 401(k) plan administrators did not follow his directions to remove his money from a high-risk stock fund. LaRue’s case was thrown out of lower courts because the federal law over retirement benefits and pensions does not allow citizens to sue over loses in retirement accounts. This mind-boggling statement should be repeated. Right now, in the United States, if your securities-based retirement plan administrator doesn't follow your direction, you cannot sue the company.

Hopefully for the individual, the Supreme Court will overturn that law, but the fact that this case had to go to the Supreme Court is a prime example of why many people are choosing to move their retirement funds to a self-directed retirement account, which is exactly as it sounds – self-directed. Self-directed administrators are competing for business, which gives the individual freedom of choice, not only with their investments, but also when choosing the self-directed IRA administrator.

Whatever the Supreme Court decides, more and more people are choosing the route of self-direction, where only you are responsible for your retirement money.

Guest Authors Bill Humphrey and Catherine Wynne are Principals with Entrust New Direction IRA. Reach them online at www.newdirectionira.com.

Finance Friday: Losses at Freddie Mac and Fannie Mae

Freddie Mac posted a $2.02 billion loss for the third quarter, triple the $715 million loss for the third quarter in 2006.  This is the largest quarterly loss in their history.  The fair market value of Freddie's net assets fell by $8.1 billion, which prompted a review of their preferred stock for a possible downgrade by some of the rating agencies.

Fannie Mae posted a net loss for the third quarter of 2007 of $1.4 billion, showing just how challenging the current mortgage market is.

Freddie Mac and Fannie Mae, who own or guarantee 40% of the $11.5 trillion home loan mortgage market, are about the only players left in the mortgage securitization market, and these losses will make raising capital that much more difficult.  Their stock prices are less than 40% of their 12 month high.

On the interest rate front, the 10 year treasury bill dipped below 4.00% on Wednesday in light pre-holiday trading, bringing thirty year fixed rate loans down to 6.00%.

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Boulder West Financial Services. He can be reached on-line at http://www.boulderwest.com/.

Finance Friday: Lending Legislation

H. R. 3915, the "Mortgage Reform and Anti-Predatory Lending Act of 2007", legislation to combat abuse in the mortgage lending market, was introduced in the House this week.  This bill amends Section 103 of the Truth in Lending Act.

1.    The bill will establish a federal duty of care and prohibit loan officers from steering customers to loans that are not in the consumers best interest.
2.    Requires all mortgage originators to be licensed and registered in a nationwide data base.
3.    Requires all mortgage originators to act solely in the best interests of the borrower.
4.    Establish pre-licensing training and continuing education requirements.
5.    Lenders must make a reasonable and good faith determination based on verified and documented information that the borrower has a reasonable ability to repay the loan.  This includes taking into account interest rate and payment changes necessary to fully amortize the loan.
6.    Requires disclosure of the Fully-Indexed Accrual Rate based on the index and the margin at the time of the loan origination.
7.   The loan must provide a tangible benefit to the borrower.
8.   Places limitations on allowable interest rates on "high cost loans".
9.   Attaches limited liability to secondary market securitizers who package and sell mortgage loans.
10. Contains foreclosure protections for renters including honoring pre-existing leases. It also provides renters without leases at least 90 days to vacate a property after a foreclosure.
11. Prohibits pre-payment penalties after any reset of rates or terms.

On the interest rate front, the flight to safety is finally hitting the mortgage markets.  Low point no fee thirty year fixed rate loans are in the low sixes and may reach the high fives by the end of the year.

Guest Author Randy Kelly is a Mortgage Banker and Finance Author with Boulder West Financial Services. He can be reached on-line at http://www.boulderwest.com/.

Finance Friday: Slowdown coming

Yesterday Fed Chairman Ben Bernanke finally admitted that the economy is slowing, and the housing industry is most likely in a recession.  Fannie Mae is predicting a 2.00% drop in home values for 2007 and a 4.00% drop in home values for 2008.  Fannie Mae also posted a $1.39 Billion loss for the 3rd quarter.  Washington Mutual, the lender that probably has the most risk from option ARM's is predicting a drop in mortgage applications of 35% for 2008.

The worldwide decline in equity markets has created a flight to quality for treasury securities, mostly short term.  Normally, this would translate to increased prices for mortgage paper resulting in lower rates, but mortgage rates are not sharing the wealth.  The investment community still views anything related to mortgages as toxic waste.  Even Ginnie Mae Securities that are backed the the Federal Government are not participating in the rally. The 10 year tre