News for Prescott AZ - AmericanTowns.com

Thursday, February 12, 2009

Mortgage Market Weekly:

Mortgage Market Weekly

(Edition February 12, 2009) Vol. 86

In This Week's "Good News":

Wells Fargo Cutting Some Mortgage Balances

Following recent articles that I wrote about the acquisition of Wachovia by Wells Fargo I thought that I would write about a new development.  In an interesting move recently, Wells Fargo & Co. offered to cut mortgage balances by as much as 20% for up to 478,000 customers of recently-acquired Wachovia Corp., which has brought an option ARM mortgage portfolio with nearly $60 billion in impaired loans.

With rising defaults and increasing government pressure to modify loans to stem foreclosures, the San Francisco-based bank has mailed letters to qualified borrowers, asking for proof of current income and a 2007 income-tax statement.

The Wachovia eligible customers as well as those who are in, or in jeopardy of being in foreclosure will have until the end of February to contact Wells Fargo at which time they will be provided with a phone number in order to speak to a bank official.

I will note here that loan modifications are also being offered which will help reduce interest rates and increase terms up to 40 years.  Most economists fear that this particular approach will likely not help stem the tide of foreclosures, due to the fact that property values will likely not rise anytime soon to the levels that the borrower's obtained financing at (appraised value vs. loan amount owed) - current troubled borrowers and some not-so-troubled borrowers appear to be realizing this fact and are just walking away from their homes.

Wells Fargo recently announced that Wachovia's option adjustable-rate mortgage portfolio has close to $60 billion of impaired loans.

In This Week's "Take It How You Will" News:

Will Interest Rates Fall Further?

This is a question that I get at least 10 times a day, so I thought that I would go into what is involved in answering this question. 

Recently, the U.S. Treasury has been invoking its own stimulus package with large investments in mortgage backed security notes. 

It has been buying significant amounts of FNMA and FHLMC (FreddieMac) notes with the main target range of 5.00% to 5.50%.  What this means is that the Treasury is buying up securities from banks in the hopes of loosing up their currently restricted lending practices.

But, what does this actually mean to the consumer looking to refinance or purchase a home?  What it means is that the Treasury is buying up securities from banks at a significantly discounted rate, i.e. their buy rate of 5.00% is typically tied to a note rate of 6.00 percent from the bank - a mortgage or mortgage notes of current bank borrowers with note rates of 6.000 percent (the 5.50% buy for 6.50% notes) - statistically, this will not inspire any banks to start lending outside of the range the mortgage backed notes are being purchased at. 

So does this mean that rates will remain in the 5 percent to 6 percent range?  Not necessarily.  But until the Treasury starts buying large amounts of 4.00 to 4.5 percent notes there will be likely little to persuade mortgage lenders to reduce interest rates on fixed rate mortgages.

The only other way that mortgage rates will drop - which is not highly likely, as we have seen in the past few months, would be for banks to reduce interest rates by reducing their profit margins on mortgage note rates charged to the public.

I will note here that if you are a potential mortgage borrower for the purpose of refinance or purchase, you will want to stop and seriously consider what "sitting on the fence" means

For those wishing to refinance, but waiting for significantly lower rates, that day may never come - also, take into consideration the amount of money that you are spending on your currently higher interest rate waiting for the interest rate to fall further.  This may mean many additional months for you to re-coup the cost of the refinance in the first place.

For those wishing to purchase a home, but waiting for significantly reduced purchase prices and lower rates, as you wait loan underwriting guideline updates are continually making it more and more difficult to borrower money - not to mention the continuing additional add-ons that FNMA and FHLMC are adding to the mortgage loan officer or mortgage brokers bottom line, which make it more and more difficult to secure an interest rate to a borrowers' satisfaction without having to add significant discount points to do it.

Will rates go down significantly?  Maybe they will.  Will purchase prices go lower?  They probably will.  Will you be able to borrower money with future underwriting guidelines and at a respectable interest rate?  Maybe you won't.

Have your clients' and perspective clients' sit down and do the math - they may not want to ‘sit on the fence' much longer.

Home Prices May ‘Bottom-Out' By End Of ‘09

The good news is that a home price bottom is expected by year-end, according to one of the nation's most respected economists.

The bad news, at least for current homeowners, is that prices are set to fall another 11 percent before stabilizing.

Since their peak in 2006, home prices have fallen about 25 percent, per a Moody's Economy report just issued.

Moody's chief economist Mark Zandi stated in the report that "Notwithstanding the intensifying economic gloom, the bottom of the housing downturn is within sight for the nation".

He went on to state: "Presuming we see strong action by policymakers to help support the economy and the housing market, prices will begin to recover by the end of this year."

Of course, Zandi noted that those same policymakers have yet to "break the downward spiral" of rising job losses, frozen credit markets, and record foreclosures.  But with home prices falling to more affordable levels and homebuilder inventory sliding to more appropriate positions, stabilization is within reach.

The report notes that 62 percent of the nation's 381 metro areas will see double-digit declines by the time the market correction is complete.

Declines will likely exceed 20 percent in about 100 of those areas, with the hardest hit regions of Southeast Florida, California's Central Valley, and Riverside, CA expected to decline by upwards of 50 percent.

On the bright side, 42 markets, mainly in the South, are expected to fall by less than one percent from this point forward.

Please note that this information is estimating a bottom - not a recovery.

"Even if the recession ends late this year, as expected, the subsequent recovery looks to be lackluster. Real GDP is not expected to return to its prerecession peak until late 2010, and the nation will not approach a full-employment jobless rate of 5% before President Obama's term nears its conclusion in 2012," the release said.

 

In This Week's "Wait and See" News:

So far this week, the DOW has plummeted giving back all of the recent gains.  This significant downturn appears mainly due to the news that the Senate had passed their version of the economic stimulus package, and that GM and UBS will reduce their workforces significantly.

Next week look for Building Permits (Feb. 18) and Initial Jobless claims (Feb. 19) to have a significant impact on mortgage interest rates. 

Also, look for Leading Economic indicators (Feb. 19) and Consumer Price Index (Feb. 20) to put significant pressure downward across the DOW, NASDAQ and S&P.

 

Next week's Economic Calendar:

Week of February 16 - February 20

 

Date

ET

Release

For

Actual

Briefing.com

Consensus

Prior

Revised From

Feb 17

08:30

Empire State Mfg.

Feb

 

 

-23.0

-22.2

 

Feb 17

08:30

Net Long-Term TIC Flows

Dec

 

 

NA

-$21.7B

 

Feb 18

08:30

Building Permits

Jan

 

NA

530K

547K

 

Feb 18

08:30

Export Prices - Excl. Ag.

Jan

 

NA

NA

NA

 

Feb 18

08:30

Housing Starts

Jan

 

NA

530K

550K

 

Feb 18

08:30

Import Prices - Excl. Oil

Jan

 

NA

NA

NA

 

Feb 18

09:15

Capacity Utilization

Jan

 

NA

72.5%

73.6%

 

Feb 18

09:15

Industrial Production

Jan

 

NA

-1.3%

-2.0%

 

Feb 18

10:30

Crude Inventories

02/13

 

NA

NA

NA

 

Feb 19

08:30

Core PPI

Jan

 

NA

0.1%

0.2%

 

Feb 19

08:30

PPI

Jan

 

NA

0.2%

-1.9%

 

Feb 19

08:30

Initial Jobless Claims

02/14

 

NA

NA

NA

 

Feb 19

10:00

Leading Economic Indicators

Jan

 

NA

-0.1%

0.3%

 

Feb 19

10:00

Philadelphia Fed.

Feb

 

NA

-25.1

-24.3

 

Feb 20

08:30

Core Consumer Price Index

Jan

 

NA

0.1%

0.0%

 

Feb 20

08:30

Consumer Price Index

Jan

 

NA

0.3%

-0.7%

 

* Remember, typically, weaker than expected news is beneficial to a mortgage rate decrease and an increase in bond yields,  and more positive than expected news will cause mortgage rates to increase and stocks to increase in value.

 

In This Week's "Not So Good Right Now" News:

Survey Reveals Nearly Half of Banks Still Tightening Lending Standards

In a report issued this week regarding the January 2009 Senior Loan Officer Opinion Survey on Bank Lending Practices, released this week showed continued tightening of underwriting guidelines.

Despite increased pressure from the government to ease lending standards after receiving billions in taxpayer dollars, nearly half of U.S. banks continued to tighten their lending standards from November through January - this was reported by the Federal Reserve Board.

The survey reply indicated 53 national banks and 23 U.S. and international branches comprised the data for this latest report.

 

Mortgage Rate Trends:

 

Today's Conforming Loan National Averages (BankRate avg.):

30 year fixed: 5.43% Up

15 year fixed: 5.15%Up

5/1 ARM: 5.63% Up

30 year Jumbo: 6.92% Up

5/1 Jumbo ARM: 5.97% Down

* Keep in mind that these rates are national averages', rates may be lower in your region of the country.  If you would like a ‘real time' quote, give me a call, or drop me an e-mail.

 

Good news for FHA and VA 30 year fixed rate loans - they are remaining,  for the most part, constant this week, after significant gains over the past several weeks.    Expect note rates to be in the range of 5.75 to 6.25 percent throughout the rest of the week.

Rural housing rates are also showing a bit of stabilization, currently in the 5.50 to the 5.875 percent range for a 30 year fixed rate mortgage.

 

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