Back in the Saddle!

It has been almost 2 weeks since I posted an update as the market has been extremely active and business is good!  Here is the latest and the greatest:

 

The PCE (Personal Consumption Expenditure Index) came in with the core number being reported as unchanged for the month of March.  This leaves the number showing a core inflation level, year over year, of 2.1% which brings us ever so much closer to the Fed’s posted target range of 1% to 2%. The PCE index is not well known and gets little respect from the markets except that it is one of the Fed’s favorites which means we need to keep an eye on it to predict future rate fluctuations.  As of this morning, MBS have had a nice little kick with an increase of +19bps and the pressure on mortgage rates are down.

 

Did You Know? 

The estimated Social Security shortfall as of today between future taxes being collected and the future benefits to be paid out over the next 75 years is a mere $4.7 trillion!

 

The average household savings rate in
China is a whopping 25%.

 

38% of American’s surveyed anticipate that their retirement years will be financially challenging.

 

Happy Monday – I’ll attempt to update each day this week.  Thanks!

Good News On The Inflation Front!

The CPI number(s) came out this morning and it turned out to be a “bond” friendly number.  The year over year core inflation rate dropped from 2.7% to 2.5%.  Still of from the Fed’s stated 2.0% target but at least moving in the right direction.  The month to month change in the core rate was a mild 0.1%. The overall increase for the CPI was 0.6% which was right in line with expectations.

In other news, Housing Starts were up (surprisingly!) 0.8% to an annual rate of 1.518 million units. This was largely attributed to warmer weather and on the future horizon the news is also good in that Building Permits were also up at a 0.8% rate and 1.544 million units annualized.

No real market movers for the remaining of the week with the exception of Thursday’s Philadelphia Fed Index which has the potential to jog rates one way or the other.

That is all for today – hang tight and let me know if you have any suggestions or questions for future content.

Friday the 13th!

Supposed to be a bad day, right?!?

Well not as it pertains to today’s news on inflation! The PPI (Producer Price Index) came in at 1.0% with the core number (ex energy and food) came in unchanged.  The core number expectations were for a .2% increase. This brought the core year over year number down to 1.7% which bodes well for the interest rate front.Now all eyes are turned towards next Tuesday’s CPI (Consumer Price Index) reading which will have a more significant impact on the market.  Expectations on the CPI hover around .6% with expectations on the core reading at .4%.  Stay tuned for next Tuesday’s wild ride!

In industry news, American Home Mortgage, one of the nations largest REIT’s took a big stock hit with the announcement that they would not hit Q1 earning estimates and that they were taking a write down of over $400 million dollars based on pending loan losses with their Alt-A portfolio. This is evidence that the sub prime meltdown will and is starting to bleed over into the more traditional prime side of the market.  I am sure there is still more bad news to come as ARM’s continue to adjust, defaults continue to increase, and more lenders take big time financial hits.

FYI – the fear of Friday the thirteenth has a name.  That name is Paraskavedekatriaphobia! Try saying that one 3 times real fast! Follow the word to the Expedia link that tells you more than you probably want or need to know about the history of Friday the 13th.  Thanks and have a great day.

Catching Up

It was an extremely busy week and I have not had the opportunity to update information since Tuesday! Yesterday was the red letter day as far as the economic reports are concerned and there was excitement aplenty for those of us that make a living in the mortgage industry.

On the jobs side of the equation, speculation had pegged an increase in non farm payrolls to the tune of about135,000.  When the number came in at +180,000, the sell off on the bonds began.  Reaction was somewhat exaggerated due to the abbreviated session and we can expect more of the same when Monday rolls around.  What this means is that at least for the short term, rates will move higher and there is no likelihood of the Fed’s easing rates anytime in the near future.

With all the news around the sub prime meltdown and increased Federal scrutiny and regulation in our industry, you as a consumer need to be aware that things have changed DRAMATICALLY over the past 6 months.  Loans that were routinely approved 3 to 6 months ago are now denied. This is particularly applicable with I/O (interest only) and Option ARM type products.  In addition, FNMA announced this last week that they had completed the scheduled update of their automated underwriting engine, Desktop Underwriter (DU).  This means that they have not tightened guidelines on conforming loan products in connection with conforming I/O product and higher Loan to Values (LTV’s).  What was once a slam dunk 100% purchase transaction will now be only for the stout of heart to attempt to get through the system and close.

What can you do?  Seek out and work with a professional in the mortgage industry that you can trust.  There are a lot of them in the industry but also be aware and on the look out for the bad apples.  They really are easy to spot.  Asking simple and pointed questions is the best approach and if you don’t get straight forward and honest answers then move on to the next option. I’ll write more on the subject of shopping for a mortgage loan in next weeks posts.

That is all for now so I just want to reach out and wish everyone a happy and safe Easter holiday.  See you all next week!

Tuesday Trivia

A quiet day on the economic report front and all is well with the bond market.  As of this writing at 11:00 am pst – mbs’ are flat for the day with no change! As stated previously, Friday will be the market moving day so be ready as it is a short trading day (Good Friday) and is chalk full of data.

The latest count of defunct lenders stands at 47 with SouthStar Funding becoming the latest casualty.  They are a non-prime lender and there is little other information available at this time.  Also, New Century finally did file for protection under the bankruptcy laws and based on the events of recent weeks this should come as no surprise. For more information on this story you can access the information here.

On the lending side of the equation, guidelines continue to evolve in response to Federal scrutiny and increasing defaults.  Stated income loans (aka “The Liar Loan”) is quickly having options trimmed with guideline changes.  There are fewer and fewer options available for a wage earner (W-2) that wishes to apply for a loan and not supply income documentation.  The guidance from all of the Federal regulatory agencies is that if the borrower is a W-2 wage earner why would a lender not supplement the file with documentation in the form of check stubs and W-2’s.  The speculation is that the ONLY reason to allow the transaction to proceed as a stated is because the income is not real.  Henceforth the industry has earned the nickname of the “Liar Loan”! The whole existence of stated income options is to accommodate clients with complicated financial profiles and ease the documentation requirements.  The income stated on the application is supposed to be real and accurate and to knowingly mis-state your income is considered a felony!  Also, in most cases, the borrower will be asked to sign a 4506 in escrow which allows the lender to request copies of their tax returns from the IRS as a means of auditing what was stated on the application.  Sooooo, if you are a borrower and your Loan Agent is processing your loan as a stated income application, read what income is on the application when you sign it!  Because it is your name, your neck, and your freedom that is on the line regardless of who put the number on the piece of paper.

tly, there was an article this morning in the Times on dropping home values in the east bay market.  The statistics in the article pointed to as high as a 25% decline in the median home price for communities such as Berkeley, Brentwood, Clayton, and Walnut Creek.  It further stated that Walnut Creek’s median home price was now lower than the median home prices in Martinez, Brentwood, and Pinole!  Analysts pointed to the large population of condo’s in WC and two ongoing condo conversions as possible price draggers for the WC market.

Thank you and I hope you all have a great day!

Storm Clouds on the Horizon?

The numbers came in on Friday and they were not favorable to a lower interest rate environment.  The PCE (Personal Consumption Expenditure Index) came in at a higher than expected 2.4%  year  over year figure which is higher than the stated Fed target number of less than or equal to 2.0%.  Inflation is possibly on the horizon and so too is a Fed rate hike if it continues to post numbers that are unfavorable.

 

On the calendar for the coming week is:

 

Monday 4/2         ISM Index

Wednesday 4/4    ISM Services Index

                                Crude Inventories

Thursday 4/6        Initial Jobless Claims

Friday 4/7             Average Work Week

                                Hourly Earnings

                                Non Farm Payrolls

                                Unemployment Rate

 

Friday looks to be the market moving day so be prepared for rate movement and plan accordingly.

 

I’ll post information tomorrow on the legislation that opened up the tax deductibility of mortgage insurance at least for 2007.  With the rise in interest rates and the tightening of guidelines brought on partially by the sub prime crisis, utilizing a single loan with MI is becoming more and more competitive than using a 1^st and 2^nd combo to avoid mortgage insurance.  Stay tuned and lets all have a great week!