There’s always something to howl about.
Mortgage Officer
Given all of the discussion here lately about using video, I thought I’d post something a bit more “ordinary” than Mr. Potato Head but hopefully useful as well. The video below is some of my thoughts on what the jobs report that comes out tomorrow might mean for the mortgage world and some recommendations going forward.
Tom Vanderwell
My apologies for taking almost 24 hours after the Fed to get this up. As I’ve done in the past, I want to go through what the Fed said yesterday and give some insights into what I think it means for the housing and mortgage markets. You can find the entire FOMC statement at Federal Reserve.gov. As usual, my comments will be inserted inside the statement and will be in bold and italics. Here goes:
Information received since the Federal Open Market Committee met in June suggests that economic activity is leveling out. I think it’s important to notice that they didn’t say things are improving, just leveling out. The Fed never uses any words without a reason. Conditions in financial markets have improved further in recent weeks. Household spending has continued to show signs of stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. I think that what they mean by household spending is stabilizing is that people have slashed and burned their budgets down to the minimum and aren’t cutting back further. However, if you look at the Retail Sales Report this morning, it raises a question of whether household spending is stabilizing. Businesses are still cutting back on fixed investment and staffing that’s a nice way of saying jobs are still being lost but are making progress in bringing inventory stocks into better alignment with sales. inventory in better alignment with sales – what that really means is that the jobs that “make things” are still being eliminated. Although economic activity is likely to remain weak for a time a time – that’s a nice way of saying we’re in for a long slow climb back, the Committee continues to anticipate “continues to anticipate” is that sort of like, “Please, please please, I really really want it?” that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability. They have had this sentence in there for a Read more
I got what I thought was a very interesting and thoughtful e-mail last week from Jessica Horton, a Realtor down in Georgia, who I’ve gotten to know. She and I have chatted a bit both online and over the phone about the markets, the dynamics of today’s lending rules and the ins and outs of structuring deals. Oh, and we are both authors on the Bloodhound Blog.
I’ve taken Jessica’s e-mail and my response and turned them into a post. I’ve eliminated a few minor conversational tidbits but I’ve left the majority of our e-mail conversation intact.
Why am I reposting this?
For three main reasons:
I found it very refreshing that Jessica was talking to a number (I don’t know how many) lenders and was attempting to understand better how they work and what their processes and procedures are for making sure that things go smoothly. With the HVCC and the new MDIA and the pending changes from Fannie Mae and Freddie Mac, the rate a lender offers will always be important, but their ability to get things done is more important than it has ever been.
Take a few minutes and read through the exchange. Jessica’s questions are in “normal” print and my answers are in bold and italics.
Tom
Jessica,
See below. Thanks for giving me this opportunity.
Tom Vanderwell
From: Jessica Wynn Horton [mailto:jessicahorton30292@gmail.com]
Sent: Wednesday, July 29, 2009 1:58 PM
To: Tom Vanderwell at Straight Read more
I originally wrote this and posted it on my new site, Straight Talk About Mortgages – The Bigger Picture, but I’ve been urged to post it here as well. So, I’m doing that. Why have I set up another site? It’s pretty simple…..
The financial and real estate world that we are in are much more complex than most of us have ever experienced in our life times. As part of what I’m going to be rolling out soon which I’m calling, “Straight Talk Lending,” I believe that it’s important that people have the an understanding of the bigger issues that are and potentially will be influencing their business, lending and real estate decisions.
Typically once a week, I’m going to take an issue and dive into it on a much deeper level. The opportunity to explore what it really means and how it’s going to impact the mortgage and real estate worlds is an exciting challenge and I hope it will be beneficial for many others as well.
Tom Vanderwell
Now for the post that I wrote:
Okay, anyone who has watched the news, or at least the financial news in the last week, especially after Bernanke’s testimony before both the Senate and the House has heard talk of an “Exit Strategy.” I think that it would be well for us to take a few minutes and look at a couple of questions relating to that issue:
Before we get into those questions, here’s a clip from Bloomberg that talks about an exit strategy and what Bernanke might be thinking and planning. This interview was done last week and was looking forward to Bernanke’s testimony this week.
Now, time to dig into the details of it. What is an exit strategy? It’s pretty simple:
How in the world is the government going to get out of owning an Read more
In keeping with my practice of translating the Fed’s statements, here goes this one:
“Move along, keep moving, nothing to see here folks! Business as usual!”
They didn’t do a thing to address the bond market concerns or to allow that things are changing at all. Expect mortgage rates to drift up a small amount on the lack of news…..
Tom Vanderwell
This afternoon, the Federal Reserve released their Beige Book. What’s a Beige Book? It’s their report based on observations and comments from people inside the business world on the state of the economy. I’m going to walk through some “highlights” and “lowlights” of what’s happening. My comments are in bold and italics……
“Reports from the twelve Federal Reserve District Banks indicate that economic conditions remained weak or deteriorated further during the period from mid-April through May.”
No surprise there, at least not for me. So, if conditions remain weak or deteriorated, then where are the gree shoots of recovery that people are talking about?
“However, five of the Districts noted that the downward trend is showing signs of moderating.”
So, let’s think about that. 5 out of 12, that’s 41% show that the pace of downward trend is slowing down. Is that a good thing? Well, let’s look at a couple of other numbers. According to this, 100% of the districts show that they are slowing down. 59% of them are slowing down at the same or faster paces than they were previously.
“Manufacturing declined or remained weak in most Districts.”
Given the shutdowns in the auto industry and the related industries, this certainly isn’t a surprise. What’s going to be interesting is what that shows as Chrysler (and hopefully GM) get back to work after their “furloughs.”
“Nonfinancial Services – Districts reporting on nonfinancial services indicated that for the most part activity continued to decline………In contrast, San Francisco reported a substantial pickup in real estate services such as title insurance due to an increase in home refinancing.
Ooohhh, that illustrates the trouble that we’re in. One of the biggest “improvements” in the non-financial services is the title insurance industry because of mortgage refinancing. Guess what’s not going to last very long due to rising rates…..
Consumer Spending and Tourism
Consumer spending remained soft as households focused on purchasing less expensive necessities…… Several Districts reported that discounters have seen their sales increase, while purchases of luxury goods continued to weaken. Respondents from Boston, Philadelphia, Cleveland, Atlanta, St. Louis, Kansas City, and Dallas expect soft consumer sales to Read more
And to quote one of my all time favorite movie characters, Forrest Gump, “And that’s all I’m going to say about that.”
Check out HVCC Petition at www.hvccpetition.com
Well, here we are on the morning many people thought would never come. Many people said they never expected that GM would actually go under. Well, under they are with approximately $178 Billion in liabilities and only $82 Billion in assets (and I think the $82 Billion includes the money that you and I gave them.)
So what difference does that make for the mortgage market? A couple of things:
So, GM, the one company that was supposedly too big to fail, failed and failing isn’t a good thing for the mortgage rate market.
What else is happening?
Wow! What a day in the mortgage and bond markets today. I think it’s a good thing to say that while a lot of us saw this coming, very few of us expected that it would happen today. Let’s walk through what happened, what it means and where we go from here.
What happened? A couple of things happened that caused the bond market to go into a free fall (okay more than a couple):
Okay, first, I have a confession to make. The bank that I work for chose to be proactive and we began implementing the Home Valuation Code of Conduct on mortgage applications taken on or after January 12. Why did we do it so early? I’m not going to attempt to read the minds of the corporate people on that one.
I am going to share what I’ve learned about the Home Valuation Code of Conduct and what it means for lenders, Realtors and consumers. Please remember this is not a formal analysis of the rules of the HVCC, this is strictly my personal experience of what it means:
The Five Most Important Things About the Home Valuation Code of Conduct:
1. For consumers – it means that the cost of an appraisal has gone up. 6 months ago, a standard appraisal in my area would cost between $275 and $300. Now, that same appraisal is going to run $375. What does the consumer get for his additional $75? Basically, he gets one thing. He gets a bit more comfort that the appraiser isn’t necessarily a friend of the Realtor or the lender and he doesn’t need to be as concerned that the appraiser is being pressured by someone to “meet a number” so the deal gets done.
2. For Realtors – it means that they can’t rely on “a friend” to get the deal done. The days of working with the local appraiser who knows pretty much the entire market are over. Now they have no impact on who does the appraisal. So what does that mean? It means that they are probably going to be getting some appraisers who don’t know the market as well. What does that mean? It means the Realtor has to not only know the market, they have to have the data available and be able to pass that information quickly and easily to the appraiser. I don’t believe that it would violate any rules if the Realtor were to look up what they feel are the 6 best comparables, print the information and have it waiting at the house Read more
It has amazed me how many people (mainly Realtors and lenders) are already out there proclaiming that you can now go back to the days of the “No money down” loans with FHA and you can do it right now. Well, that’s not quite the whole story. Let me explain:
What I know:
What I don’t know:
Personal feelings:
So I guess my recommendation is essentially this:
In case you haven’t been able to tell, I’ve been a little frustrated (okay a lot frustrated) with the markets lately. Why? Am I asking for bad news?
Nope, I’m looking for straight talk and reality and I don’t believe we’re getting that right now. I don’t believe that:
I’ve spent 20 years trying to help people manage their money and their real estate investments wisely and it’s never been more challenging than it is now.
So, I’m going to keep preaching the world the way I see it. It isn’t pretty and it isn’t nearly as pretty as the main stream media would like you to believe.
Ask yourself this, when it comes to analyzing and understanding the economy, who would you put more confidence in? Brian Williams and Katie Couric or Paul Krugman and Nouriel Roubini?
I’ll be on Paul and Nouriel’s side every time.
Tom Vanderwell
U.S. Home Prices May Be Lost for a Generation: John F. Wasik – Bloomberg.com
We might be looking at a lost generation for U.S. home values.
Far too many analysts are calling a bottom to the housing market after home prices in 20 metropolitan areas declined at a slower pace in February, according to the Standard & Poor’s/Case-Shiller Index.
Don’t be blinded by the glint of optimism in headlines about rising consumer confidence and slowing price declines. Demographic and market realities tell a more sobering story.
You won’t see a widespread housing rebound in an economy in which 600,000 jobs a month are lost and foreclosures ravage the most overleveraged areas. These are just the visible barriers to a recovery.
Mortgage lending has Read more
Yep, it’s that time again. The Fed met yesterday and today and came out with their announcement this afternoon at 2:15 pm. I promise that this one won’t be as long as the last Fed Translated was.
As usual, my comments are in bold and italics…..
April 29, 2009
For Immediate Release:
Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower. The downhill slope is less steep than it was. Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Weak sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories, fixed investment, and staffing. Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time. We aren’t going to see a substantial turn around in the economy soon. A weak, ambivalent turn around, probably, but not a strong return to growth. Nonetheless, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability. What else could they say but to say that they anticipate that what they are doing will eventually work? Would the markets be happy if they said, “We don’t have a clue whether what we’re doing is going to work?” Nope.
In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. They don’t say for how long, but I’m going to say that I think we’ve got 12 to 18 months until we start seeing a rapid spike in inflation and a rapid jump in interest rates. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term. Let’s look at that for a minute. They think that inflation would Read more
Well it’s hard to believe, but another week has flown by. Rather than spending a Saturday working on mortgage stuff and writing about mortgage stuff, I spent the day taking my 8 year old to a birthday party, cleaning out the garage and getting the pool ready for the season. It was a good day for that.
But enough about me, it’s time to take a look at what’s happened in the financial markets this week. Let’s look at a couple of key economic reports/financial news items:
Foreclosures – for the first three months of this year, many of the big banks and Fannie and Freddie had foreclosure moratoriums on. What does that mean? Basically that they stopped foreclosing on homes. But, many of the big banks lifted the moratorium shortly after the 105% refi plan was announced and Fannie and Freddie lifted their ban on March 30. The reports that I’ve read (and written about on Straight Talk About Mortgages ) show that foreclosures are spiking way up again. What does that mean? A couple of things: 1) Our inventory problems aren’t going to go away any time soon. 2) Bank earnings problems aren’t going to go away any time soon.
New Construction –Housing starts and permits both came in at pretty close to historical lows. But frankly that’s not a horrible thing from a long term standpoint. Let me explain: We have too much inventory. In virtually all price ranges and virtually all markets, there are too many houses for sale. So we don’t need builders building more houses right now because it adds to the inventory problems. Also, we have a situation where in most markets, the number of foreclosures that are on the market is raising the discrepancy between the cost of existing homes and the cost of building a new home. According to many of the developers who I’ve talked to, it’s almost impossible, in many markets, to sell a brand new home at a profit because of the pricing pressures. So, until we can work through the inventory and also address the jobs issues Read more
I’ve copied the announcement from the Treasury that sent the markets on a moonrocket today and thought that I would “walk you through it” so that we can get a better feel for whether this is a relief rally or something sustainable (and therefore what it means for mortgage rates). So, here goes. As usual, my comments are in bold and italics…..
The Financial Stability Plan – Progress So Far:
Over the past six weeks, the Treasury Department has implemented a series of initiatives as part of its Financial Stability Plan that – alongside the American Recovery and Reinvestment Act – lay the foundations for economic recovery: and spend about how many trillions? I’ve lost count.
* Efforts to Improve Affordability for Responsible Homeowners: Treasury has implemented programs to allow families to save on their mortgage payments by refinancing I’m glad that they didn’t characterize Fannie and Freddie’s 105% plan as a foreclosure prevention step because only one of the borrowers I’m doing that type of a refi for is anywhere near close to “at risk”, assist responsible homeowners in avoiding foreclosure through a loan modification plan, and, alongside the Federal Reserve, help bring mortgage interest rates down to near historic lows. This past month, the 30% increase in mortgage refinancing demonstrated that working families are benefiting from the savings due to these lower rates.
* Consumer and Business Lending Initiative to Unlock Frozen Credit Markets: Treasury and the Federal Reserve are expanding the TALF in conjunction with the Federal Reserve to jumpstart the secondary markets that support consumer and business lending. Last week, Treasury announced its plans to purchase up to $15 billion in securities backed by Small Business Administration loans. The fact that the Fed and the Treasury are buying these “packages” of consumer and business loans doesn’t mean that 1) Consumers and businesses are going to start, en masse, living on borrowed money again and 2) That the banks are going to find consumers and businesses who are credit worthy enough to write loans to.
* Capital Assistance Program: Read more
