MARKET UPDATE - JANUARY 2010

REGULATION RECAP

2009 was a remarkable year for mortgage regulation. It was Government intervention at its finest. In an attempt to curb the evil doings of mortgage companies from years past, the Government proved that over regulation can be just as damaging as a lack of regulation. New laws, new disclosures, and new procedures were cooked up by elected officials with an apparently limited knowledge of how the mortgage industry works. Mortgage brokers and bankers cried out and petitioned the government to reconsider the new regulations, which fell on deaf ears. Now borrowers, real estate agents, title companies and appraisers have joined the fight; maybe a little too late. This is a recap of the new regulation, its intention, and more importantly the outcome to date.

Home Valuation Code of Conduct (HVCC)

Effective Date: 05/01/09

Intent: The government wanted to create separation between the loan officer and/or mortgage company and the appraiser. The intention was to force mortgage companies to order appraisals through Appraisal Management Companies (AMC) which would randomly rotate appraisers and prevent direct contact between loan officer and appraiser. The goal was to prevent appraisal manipulation.

Outcome: Most of the AMCs are owned by the lenders that are ordering the appraisals, creating another profit source for the lenders and eliminating any separation which was the original intention of the HVCC. An appraisal now costs 30%-60% more than prior to the enforcement of the HVCC; a direct cost to the borrower. Appraisals which prior to the HVCC took 24-72 hours to complete, can now take weeks to complete. Appraisals are next to impossible to transfer from lender to lender which is commonplace due to one lender declining a file, and another willing to approve that same file. It is not uncommon for two or three appraisals to be ordered on one transaction.

Update: HR 4173, the Wall Street Reform and Consumer Protection Act of 2009, has passed the House and is on its way to the Senate. It is widely anticipated that this will pass, eliminating the HVCC. Hooray! Once passed, it is likely that the lenders will still require appraisals to be ordered under the HVCC rules. There is just too much profit and control for the lenders to give up. Boo…

Mortgage Disclosure Improvement Act (MDIA)

Effective Date: 07/30/09

Intent: The new Truth in Lending regulations increase the time needed to close loans to ensure that the borrowers understand their options and feel comfortable with the loan.

Outcome: Delayed closings. Borrower now has more time to understand the Annual Percentage Rate (APR). To date: Borrowers still do not understand the APR.

Update: No changes in the MDIA anticipated.

HUD’s Final Rule – RESPA Reform

Effective Date: 01/01/10

Intent: This is the single largest RESPA reform in the history of RESPA. In an attempt to add “transparency” and increased disclosure to the borrower in a mortgage transaction, HUD has officially implemented the new 2010 Good Faith Estimate and new 2010 HUD-1.

Outcome: The Good Faith Estimate (GFE) goes from one simple page, to four (not very “green” of the government). The new GFE fails to disclose total monthly payment and cash needed to close. Why did the government remove two of the most crucial pieces of information from the new GFE? Sorry, at a total lose for words. The new GFE requires disclosure of fees that are actually paid by the seller, but appear on the good faith estimate as a charge to the borrower. Mortgage brokers have to disclosure compensation in a Mickey Mouse fashion of charges and credits to the borrower; but banks do not. The new GFE still has to be disclosed to the borrower within three days of the application with accurate fees, which in many cases can now not be produced (i.e. title fees, inspection fees) within the three day window. Low and zero tolerances in fee changes lead some loan officers to over estimate fees, which will potentially lead to violations of MDIA (read above) creating closing delays.

Update: Too soon to tell. On a positive note, mortgage brokers will be the only institutions that will be required to be at full disclosure on the new good faith estimate. Banks will not be required to disclose all compensation. This may prove to benefit mortgage brokers once the public realizes that “Big Banks” are not required to disclose everything.

S.A.F.E. Act

Effective Date: 07/31/09 – 07/31/10 (varies by state)

Intent: “The new standards, as well as the uniformity and consistency of such standards, directed to be established nationwide by the SAFE Act present a significant step in the effort to increase integrity in the residential mortgage loan market, enhance consumer protections, and reduce fraud. The SAFE Act encourages states to participate in the Nationwide Mortgage Licensing System and Registry, and requires states to have in place, by law or regulation, a system for licensing and registering loan originators that meets the requirements of sections 1505, 1506, and 1508(d) of the SAFE Act.” – HUD

Outcome: The SAFE Act is long over due. We tip our hats to the government for implementing legislation that will in fact make the mortgage industry better. Unfortunately most states are broke and are struggling to implement the SAFE Act.

Update: The SAFE Act has already weeded many loan officers out of the industry. Loan officers that work for the “Big Banks” are not required to be licensed. Once again, if you wish to work with a loan officer who has taken the required education, passed a state and national test, and been officially licensed as a loan officer, you will want to contact us, your local mortgage broker.

EXISTING HOMES SALES SURGE

Fueled by historically low interest rates and the extension of the first time homebuyer tax credit, existing home sales were up 7.4% in November. The National Association of Realtors estimates that 51% of all sales in November were from first time homebuyers.

Existing home sales may see a dip down by the third quarter of 2010 due to higher interest rates and expiration of the first time homebuyer tax credit.

DROP IN FORECLOSURES

“Foreclosure filings fell by 8% in November, making it the fourth consecutive month of improvement in the housing market. There were 306,627 filings last month, according to RealtyTrac, an online marketer of foreclosed properties. That decline follows a 3% drop in October, 4% in September and 1% in August.” – cnnfn.com

Statically foreclosures are down but this is due in large part to market manipulation. Loan modifications and foreclosure moratoriums have influenced foreclosure rates. The drop in foreclosures does shine some positive light on the housing market although the market is a long way from being healthy.

In November 76,701 homes were foreclosed on, bringing the total for the year to a whopping 777,630 (stats from RealtyTrac). “Nevada, Florida, California and Arizona -- continued to amass the largest numbers of foreclosure filings with Nevada the hardest hit state of all. One of every 119 households had a filing in November, nearly four times the national average of one for every 417. Florida had one for every 165 households, California one for every 180, and Arizona one for every 186.” – cnnfn.com

SHORT TERM INTEREST RATES TO REMAIN LOW


Short term interest rates remain low as the Federal Reserve leaves the fed funds rate at an all time low, in hopes of a recovery in the housing and job markets. It is anticipated the FED will not likely change its stance on not raising interest rates for the foreseeable future.
Long term rates have seen a steady increase over the last few weeks, due in part buy the Federal Reserve’s commitment to purchase mortgage backed securities. The FED has stated that it will cease to purchase mortgage backed securities in 2010. To date the FED has purchased more than $1 trillion in mortgages. Wall Street and foreign investors have been hesitant to purchase mortgage backed securities due to poor performance during the housing crisis and it is not known who is going to step in to purchase mortgage backed securities once the FED pulls out of this role. That uncertainty has recently caused a spike in long term rates.

MARKET UPDATE - DECEMBER 2009

Happy Holidays


THANKFULLY I HAVE AN ARM

Adjustable rate mortgages have gotten a bad rap over the last few years. Unfortunately for the mortgage industry, there were a handful of bad apples that sold certain types of adjustable rate mortgages to unsuspecting borrowers who trusted the loan officer enough not to read or question the loan documents that they were signing. There were also those that knowingly purchased “exotic” adjustable rate mortgage products that offered teaser rates which allowed them to purchase properties well outside their price range. Those to name a few are in trouble; loan officer and borrower.

For some reason the media has deemed all adjustable rate mortgages as bad, and of course the public as a whole believes that to be true. Prime adjustable rate mortgages are typically fixed for a term of 3 to 10 years at a rate 1% to 1.5% lower than a 30 year fixed rate mortgage. Prime refers to non subprime A paper mortgages. Today a 5 year ARM can go for as low as 3.5% (APR 3.545%). The first 5 years, the rate will be 3.5%. For individuals who will likely sell or refinance within 5 years, this loan product still makes the best financial sense. That being said, these loan products are rarely being originated due to fear; created by lack of understanding, media hype and misinformation.

For those that purchased an ARM during the boom and now find themselves upside down and unable to sell or refinance should now be thankful they have an ARM. Many “prime” ARM mortgages will adjust down once the fixed term is over; that is as long as short term rates stay low. Prime ARM mortgages will typically adjust to the current short term rate index (LIBOR, Treasury, etc.) plus a margin of 2.25% (can vary with lender). Most short term rates are trading from 1% to 1.5%. Add that to the margin and you have a low interest rate. For those that have an Option Arm mortgage, and have not been paying the negative amortization payment; your rate may currently be under 3%. To verify what your adjustable rate mortgage will do after the fixed term, review your adjustable rate rider in your loan documents, or contact your mortgage professional.

Short term rates will eventually rise. In the meantime, be thankful that you purchased an adjustable rate mortgage to help ride out the depressed housing market and economy. With any luck you will be able to refinance into another ARM or fixed rate mortgage once the market stabilizes.

EXTENDED TAX CREDIT

The first time homebuyer tax credit of $8,000 set to expire on November 30th, 2009 has officially been extended by President Obama. The extension allows homebuyers that qualify for the tax credit to be under contact by April 30th, 2010, and close before June 30th, 2010. The income levels have also been lifted to $125,000 for single buyers and $225,000 for married buyers.

The tax credit has also been expanded to homeowners that currently own a home or have owned a home as their primary residence five out of the last eight years. Those homebuyers may qualify for a $6,500 tax credit.

The extension and expansion of the tax credit will likely help the housing recovery by promoting new sales and stabilizing home prices; at least through June 2010. Eventually the Government will have to stop subsidizing the housing market through tax credits.

1ST TIME HOME BUYER CRAZE

A press release from the Nation Association of Realtors stated that first time homebuyers, or homebuyers that have not owned a home in the last three years, purchased 47% of all homes sold this year.

The $8,000 tax incentive and falling home prices has been credited with the first time home buyer craze.

"The credit is working better than first projected -- it now looks like we'll have 2.3 to 2.4 million first-time buyers this year," said Lawrence Yun, chief economist for NAR. "With expansion of the tax credit to additional buyers through the middle of next year, and no major unforeseen events impacting the economy, home prices should rise between 3% and 5% in 2010." NAR forecasts that existing-home sales will total slightly over 5 million in 2009, a 2% increase compared with 2008. Next year, they predict a gain of 13.6% to 5.69 million units. – cnnfn.coM

INTEREST RATE SPIKE IMMINENT

Mortgage interest rates are now nearly at a historic all time low. This is no accident and largely to do with the meddling of the Federal Reserve. Over the last year, the Federal Reserve, in an attempt to stabilize the housing crisis, has purchased or committed to purchase $1.25 trillion ($1,250,000,000,000) of mortgage backed securities.


To date, this has proved successful, artificially forcing down rates, and promoting home sales. Although the housing market continues to suffer, it would have likely been much worse had the Federal Reserve not been there to purchase mortgage back securities and drive rates down to historic lows.
The Federal Reserve has given notice that it intends to wind down its purchasing of mortgage back securities in late 2010. If another investor(s) does not step in to take the Federal Reserves place, interest rates will rise; potentially fast.

For the time being money is cheap. If you are one of the few that can refinance, now may be a great time. For homebuyers there likely no better time to take advantage of low prices, tax incentives, and cheap money. Our kids can pay for it later.

BEHIND ON YOUR MORTGAGE – YOU ARE NOT THE ONLY ONE

The Mortgage Bankers Association reported on 11/19 that in the third quarter of 2010, nearly 10% of all mortgages were delinquent. That is rapidly approaching five million borrowers, and is a 10% increase over the last two months.
“The delinquency rate includes all mortgage loans that are at least one payment past due but does not include loans in some stage of foreclosure.” – cnnfn.com
Arizona, California, Florida, and Nevada continue to have the highest level of delinquencies.

INTEREST RATE UPDATE

Mortgage Type Interest Rate APR

30 Year Fixed 4.375% 4.505%


15 Year Fixed 4.000% 4.226%


5/1 ARM 3.500% 3.464%

Call today for your individual scenario rate quote.

*Interest rates as of 12/01/09. Conforming interest rates. Not applicable for FHA and VA loans. Interest rates and APR based on loan amounts not to exceed $417,000. Loan to values not to exceed 80%. 740+ credit score. Owner occupied only. ARM Margin: 2.25% ARM Caps: 5/2/5 ARM Index: 1 Year LIBOR. Rates and payments on 5/1 ARM will adjust up or down after 60 months based on current index at that time. Purchase and rate in term refinances. Not all applicants will qualify.

For any additional information, call or email me at any time.

Sincerely,



Aaron VanTrojen



PRESIDENT

Geneva Financial, LLC

Mortgage banker / Broker licensed in:

AZ: BK-0910215, CA: 603G564, CO: LMB100021691, ID: MBL6976, MN: 40095265, NM: 3693, NV: 3195, OR: ML4799, WA: 510-MB-49323, WI: 700475

Geneva Financial,LLC NMLS License: 42056

Loan Officer NMLS License: 15420



PARTNER

Geneva Real Estate & Investments, LLC

Real estate brokerage licensed in AZ, CA, WA.

http://www.greiusa.com/
Office: 480-368-2000

Email: aaron@genevafi.com