So . . . Whats new . . .?

Even though I have become a very unreliable blogger, I did have a few people email me over the past few weeks wondering about a rumor that has been circulating.

In case anyone is still out there, let me set the record straight.

I am leaving the industry . . . sort of.

Starting next week I will begin classes at the Marriott School of Business at BYU as a candidate for an MBA. This means a few things: first, I will be in school and will probably be fairly busy; second, I will sign an agreement to not work during the first semester; third, I will not be actively marketing my mortgage services.

Now that doesn't mean that it is OK for you to run out and find a new loan officer. Quite the opposite. By returning to school I will be more prepared to offer better services to my clients. My license will be moved to Mountain View Home Lending because they have a full portfolio or products and their processing department is 2nd to none.

WHAT DOES THIS MEAN FOR YOU? Simple. If you or someone you know needs mortgage related services, feel free to give me a call. If I dont answer right away, it is because I am in class, so leave a message. I will take the information I need and I will deliver you safely into the arms of the Mountain View Home Lending processing department.

It also means that my not-so-regular posts will be even less regular for the next little bit.

To be honest, I have known for years that I would be returning to school, I just finally decided it is time.

So, take care, and remember, if you need me, just give me a call. 801-916-6800.

Chiao

WHAT IS GOING ON WITH RATES?

With all the craziness that is our current economy, I have quite a few clients and friends who are trying to predict not only the bottom of the real estate market, but also the future of mortgage interest rates. Let me tell you, as long as I have been doing this I am increasingly convinced that timing the market, or predicting rates is just about as impossible as lighting a match in a lighting a match in a thunderstorm: try as you may, your success will be short lived at best.

I am not a Realtor. I own homes, all of which are loosing value faster then I would choose. I am not licensed to give advice on Real Estate value, sales prices or investment opportunities.

I am, however, a licensed Mortgage Loan Professional. That license means that I have taken a bunch of hours of education and have passed a couple of exams. More significant than the fact that I have a license is the time I have spent working in this industry. I would consider myself a bit of an expert. As an expert, I will say right here and now: NOBOBY KNOWS WHAT WILL HAPPEN TO RATES! You can line up 10 experts and chances are you will see 6 or 7 difference opinions about what the next few months will bring.

That being said, there are some indicators which have traditionally provided some hints about what is coming. Probably the most common is the Treasury Bond Market.

Allow me to explain:

Interest Rates for mortgages tend to be just slightly above the rates for US Backed Treasury Bonds. Essentially, a bond is a large loan to a company or organization such as a city or state government. Like stocks, bonds are frequently packaged into mutual funds, allowing individual investors to participate in the bond market. Bonds are sold at a fixed interest rate, so traditionally in times of economic downturns many investors are more comfortable investing in bonds rather than slumping stocks. When the stock markets are doing well people are less interested in bonds, therefore the value of the bond goes down.

The Bonds that specifically affect mortgage rates are known as Mortgage Backed Securities. In simple terms, a Mortgage Backed Security is comprised of several loans that are bundled together and sold as an investment. When a loan is closed, the lender will turn around and sell the new note to Fannie Mae or Freddie Mac or the less common Ginnie Mae. By selling the note, the original lender gets its money back and can in turn write loans to new borrowers.
Fannie, or Freddie or Ginnie then takes that loan and others similar to it and bundles them together into a security, or investment vehicle. The new security is said to be backed by mortgages because it is backed by the loans and the repayments of those loans. Individual investors can then invest in these securities which allows Fannie and Freddie and Ginnie to go back to the original lenders and purchase more loans.

To the average homeowner, not much has changed. When you make your payment to “ABC Bank” they become the Servicing company, meaning they take a small % and then pass the rest of your payment to Fannie Mae, etc. Fannie then takes a % as profit and then passes the rest on to the investors who own the Security.

So how does all that affect the Bond and your rate? Simple—at least as simple as complicated financial and debt strategies can be!

When demand for a Mortgage Backed Security goes up, the price of the security also goes up. That means that the Yield (the amount the investor will make in return) goes down. If the demand is low, the price will drop, meaning that the yield will increase. Perhaps it is best to look at it this way: In order to create incentives to create more demand (and thus higher prices) the institutions selling the securities will increase the Yield (the payoff to investors). The only way they can increase the amount they pay investors is to increase the amount the homeowner pays.

Thus, High Yields on Mortgage Backed Securities lead to higher interest rates. Said another way, Low Prices of Mortgage Backed Securities lead to higher interest rates.
So how can you know what to expect? Watch the Treasury Bond Market. Specifically the 30 year bond. If the Yield is low, chances are your rate will be low. If the Yield is high your rate will be high. If the bond is trending down you can expect to see rates increase, however if the bond is trending upward you can expect rates to come down.

I know I could have just told you that, but then you wouldn’t have learned so much about one of the main contributors to our current economic mess.

As usual, if you would like additional information, shoot me a line at jayhart@cottonwoodmtg.com

DID I DIE?

Well, I got an email yesterday from a client who was surprised that I had not posted much in the past few months. He asked me if I was dead or alive of had simply given up on mortgages. I am here to set the record straight. I am not dead. I have not yet given up on mortgages—though at times in the past year I have wondered if I should!

So, here is your update: With banks struggling to find money to lend, it is becoming more common for home buyers and borrowers to be forced into considering FHA loan programs. FHA guidelines allow lower income, weaker credit scores and higher loan to value ratio. Recognizing that necessity, I have moved my mortgage affiliation to Envision Lending Group (www.envisionlending.com) . The reason is simple: I have access to all the great programs that my clients have come to expect and I also have access to the FHA programs that are becoming a necessity for many homeowners.

WHAT DOES IT MEAN FOR YOU? Nothing. Nothing has changed , except that now the name on the loan applications will read Envision Lending Group.

In the coming days look for more information on the new FHA loan requirements and processes.

Bail Out Good or Bad?

By now you have certainly heard of the Government stepping in to take control of Fannie Mae and Freddie Mac. But, just in case I am your only source or real estate news, let me give you the Readers Digest version of what has happened in the past few days:

Fannie Mae and Freddie Mac, the government sponsored agencies charged with setting mortgage guidelines and purchasing mortgage notes currently hold roughly 50% of all US mortgage notes. Over the past year the two firms have experienced $12 Billion in losses.

As of this morning, the Federal Housing Finance Agency (FHFA) has taken control of both Fannie and Freddie. By placing the two firms in what is referred to as a “conservatorship,” the government has replaced the CEO’s, eliminated some dividends, and put a freeze on all lobbying efforts on behalf of both Fannie and Freddie.

So what does it mean to you?

What everyone is really wondering is “what will happen to rates?” I am increasingly convinced that people have three concerns about the housing problem: First, when will it be easier to get a loan; second, when will rates go down; third, when will home prices go up again. Truth be told, the government takeover of Fannie and Freddie will have some effect on all three questions, but it is impossible to know the exact effect.

The more immediate result will probably be a decrease of interest rates. CNN is projecting that rates could drop as much as 1% in the next year. That is good. Unfortunately, with foreclosures still at all-time highs, it is unlikely that housing guidelines will loosen.

So what do I predict? Traditional home buyers (meaning those who get a W-2 and have good credit) will be able to refinance into lower payments. Some first time homebuyers will be able to get into larger homes. Eventually the inventory of available homes will slow down and eventually we will see prices increase. I still think we are 12 months away from Utah home values increasing much. I also think we are 12 months away from things getting any easier for the self-employed or credit-challenged borrowers.

I wish the bailout was nothing but good news. I do think it is a good step. I think we will see more government efforts in the coming months. I also think that we will never again see the combination of loose guidelines, low rates and rapid appreciation. If you are counting on those things, good luck!