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Greece’s Impact On U.S. Mortgage Rates
Turning to Greece, since that situation is certainly impacting our markets, the fear that a) the problems will spread beyond Greece, b) Greece may leave the 11-yr old single currency “euro-zone, or c) this is the beginning of the entire euro experiment are causing a drop in the value of the euro and a rally in the dollar. (Not that the dollar should be in great shape, but hey, we’ll take what we can get.) A general strike shut down Greek airports, tourist sites and public services and some 50,000 demonstrators marched against the planned public spending cuts and tax rises, demanding that tax cheats and corrupt politicians be put on trial. Off with their heads!

So what does it mean to our mortgage business (rates) if Europe “tightens its belt”? This would actually continue to help our rates since it would slow the recovery in Europe, reduce the chance of inflation around the world, and allow our Fed to keep short-term rates low (monetary policy to be more accommodative) for longer than expected. A stronger US dollar is good for keeping inflation down. more…

In the past week, we’ve seen promising economic and home price data, but many homeowners are still strained to the point where foreclosure is inevitable—or perhaps “viable” for those deeply underwater homeowners considering strategic defaults. So the often repeated question is: what do late mortgage payments, foreclosures and bankruptcies do to your credit score? A couple weeks ago, Les Christie at CNNMoney did a great job of answering this question, and since the story got a bit lost in the SEC/Goldman Sachs lawsuit hysteria, we just wanted to highlight it again.

Excerpted below are some estimated credit score hits a borrower would take by being late on their mortgage, and eventually going into foreclosure and/or bankruptcy. These are based on models from Fair Isaac, one of the three major credit bureaus … in other words, these aren’t real consumer scores. But it’s still a useful ballpark for debt-strained consumers who need scenarios of what might happen to their credit score. Every profile will be different based on overall credit profile, and the recovery time to get back to a favorable score vary based on credit history prior to the derogatory filings. Derogatory reports remain on the credit scores for 7 years (and in the case of bankruptcy, it’s 7 years from the time of discharge), but if an otherwise top-tier credit score consumer is hit by default, foreclosure or bankruptcy, their score can rebound in less than half that time if they resume a well-maintained credit profile immediately. more…

An Underwriter Explains Why Are Loans So Hard To Approve
Lately I have been hearing from producers, some of whom are upset about the current lending environment, some not. But for a slightly different view of things, here is what one very experienced and knowledgeable underwriter wrote to me. This is worth the read even for consumers who wonder why their loans are so hard to do:

“It used to be that we could ‘underwrite’ a loan and use common sense to navigate individual circumstances and actually make a decision that a loan was a good credit risk. Then DU and LP [Fannie and Freddie's automated underwriting engines] came along and gave us the laundry list that had to be followed. We were still able to manually underwrite loans for those transactions that did not fit the box. Then the bottom fell out of the business and everyone got scared and new rules came out. Investors and Wall Street were to blame for allowing individuals who were not telling the truth to buy homes. Today investors are pre-underwriting loans prior to purchase and we have to ‘march to their tune’ including getting pieces of paper that seem ridiculous, but since we need the investor to purchase the loan so we obtain them anyway. Only the most qualified borrowers with all their ducks in a row get loans these days. Manually underwritten loans are subject to scrutiny such as we have never seen before and frankly, we do not have the courage to paint outside of the lines because we cannot afford to have a loan purchase refused. Today, it takes two to three times as long to underwrite a loan and we have checklist upon checklist that help us make sure all of the i’s are dotted and the t’s are crossed. I have been doing this for over 30 years and frankly we are back to the rules of the early 80′s or worse when it comes to documentation.” more…

RELEVANCE OF FHA LOANS

Q: Are FHA loans even relevant for the San Francisco Bay Area?
A: Yes. In the 9 county San Francisco Bay Area, FHA loan limits are $729,750. With a 3.5% down payment, this translates into a $756,217 home purchase price. So on a condo with $350 HOA dues, all-inclusive pretax monthly costs are $5632 and all-inclusive cash-to-close is $46,172. With a 10% down payment, this translates into a $810,833 home purchase price. So on a single family home, all-inclusive pretax monthly costs are $5405 and all-inclusive cash-to-close is $103,252. Cash-to-close figures include 8mo prepaid taxes and 1yr prepaid insurance. About $145,000 gross annual household is needed to qualify for these scenarios.

OVERVIEW OF FHA LOANS more…

Yesterday was a special day. In the late afternoon I visited Costco, which some people feel simultaneously represents everything that is both bad and good about the retail channel. The change in time over the weekend had made it so the setting sun shone through the front entrance, illuminating the Samsung 46 inch plasma, the flannel shirts, AND the pre-lit Christmas tree boxes all at once. It was a tender moment.

What Are Fed Funds?
What are Fed Funds? These are cash balances held by banks with their local Federal Reserve Bank, typically involved in an “inter-bank sale” of a Fed fund deposit for one business day – overnight. And the Fed Funds Rate is the overnight interest rate charged by those banks with excess reserves on hand. Why would this impact the mortgage rate that James & Jen Borrower pay on their mortgage? They don’t, directly, since the credit profile of a borrower, or house, is more complicated and riskier than a bank with excess funds, and an overnight rate is obviously different than a 30 year rate. more…

In a market report last quarter, we buried a quotation that’s worth revisiting. It was from investment luminary Dean Witter in May 1933, about 3.5 years after the Great Depression began. He said:

“Some people say they want to wait for a clearer view of the future. But when the future is clear, the present bargains will have vanished. In fact, does anyone think that today’s prices will prevail once full confidence has been restored?”

These words have particular relevance for homebuyers and owners today, about 3.25 years after home prices began crashing and eventually led to what many economists have called the Great Recession. more…

Non-depository mortgage banks had some good news: the FDIC notified personnel that Colonial’s warehouse relationships would continue under BB&T, at least in the short term. Many of Colonial’s assets were purchased by BB&T, including the warehouse facility which appears to be operating “business as usual” and funding loans. There is some nervousness, however, given the investigation into TBW and the Colonial warehouse unit, but it is rumored that BB&T has assured lenders that they will keep the business channel open – and why not? It’s a good business with lots of demand!

Some interesting news came out yesterday. Barclays reported that most major credit card companies saw positive performance in July: aggregate charge-offs declined and yields increased, payment rates were higher, and delinquencies continued to improve for the third consecutive month. Do you have a credit card? Does your child? How many? US citizens hold 1.3 billion credit cards, which means that there are roughly 4 cards for every man, woman, and child. In China, where there are about 1.25 billion people, there are only 5 million credit cards. The ability spend, and in some sense capitalism in general, makes it profitable for producers to sell what consumers want to buy, but it also makes it profitable to cause consumers to buy what producers want to sell. (Think about that one! Said another way, capitalism does not just sell people what they really want, it also sells them what they think they want.) Interestingly enough, studies indicate that Americans who don’t own a credit card save more than those that do. more…

For Californians, property taxes aren’t automatically adjusted to market levels like many other states because Prop 13 imposes a cap on property taxes as the price of your home goes up. But if the price of your home has decreased and you want to appeal your property taxes in San Francisco, below are some good resources for doing so. By going to the Assessor’s Office website for your specific county, you should be able to find similar resources.

1. Read Publication 30: Residential Property Assessment Appeals more…

In our previous post, we highlighted Ben Bernanke’s testimony on the Hill today, and below is a full excerpt from the Fed’s most recent monetary policy report—this is the section discussing what they plan to do with rates as the economy recovers.

Monetary Policy as the Economy Recovers
At present, the focus of monetary policy is on stimulating economic activity in order to limit the degree to which the economy falls short of full employment and to prevent a sustained decline in inflation below levels consistent with the Federal Reserve’s legislated objectives. Economic conditions are likely to warrant accommodative monetary policy for an extended period. At some point, however, economic recovery will take hold, labor market conditions will improve, and the downward pressures on inflation will diminish. When this process has advanced sufficiently, the stance of policy will need to be tightened to prevent inflation from rising above levels consistent with price stability and to keep economic activity near its maximum sustainable level. The FOMC is confident that it has the necessary tools to withdraw policy accommodation, when such action becomes appropriate, in a smooth and timely manner. more…

This is a question a lot of people ask themselves or their lending advisors. The answer is No. This is fraud plain and simple. Also a lender on a new loan will require you to qualify to carry the full obligations (including mortgage payment, taxes, insurance) of both properties to qualify—you can’t claim your existing home will be a rental property unless you show a signed lease agreement along with proof that first month’s rent plus any deposits called for by the lease have cleared your bank and that the cleared check(s) match the name on the lease agreement. Even if you did get away with such a fraud scheme, then your existing property went into foreclosure, you’d then be subject possible fraud investigations and resulting credit issues that could haunt you down the road.

Not the answer that severely-underwater homeowners want to hear, and this is the purpose of government-backed loan modification programs—to adjust payments, loan balances, rates, or all of the above to help you. The issue many are having is that their existing loans don’t qualify for these programs, which creates a seemingly no-win situation. The approach if the government programs don’t work is to seek out an attorney to help you pursue a loan modification with your existing loan servicer. Here’s more on this walk-away trend from The Economist: more…