A Big Nothing!

Well the Federal Reserve cut interest rates by another .5% today which makes that 1.25% in the last 10 days. What did Wall Street do? They acted excited, but by the end of the day the dow was down 37 points. The bond market was even less excited and there was almost no movement at all. Why is the big question?

I would love to tell you that I know the answer, but I don’t. Here is my best guess as to what will happen over the next 30 days. As the heavy money has a chance to digest the Fed comments and view the rest of the economic indicators that are coming out this week they will determine what direction the market will go. This week will still be a week with potential wild movements in both directions for mortgage interest rates. As the market recognizes that the Fed may have to take further action, positions on the bond market will be taken and we will see the 30 year fixed get down to 5.5% or possible below.

Here are the economic indicators that are coming out this week:

1/30 Gross Domestic Product (Advance) (BEA) 2007 Q4 8:30

1/31 Personal Income (BEA) December 8:30

Construction Put in Place (Census) December 10:00

For more you can go to http://www.economicindicators.gov/

If you have questions or comments about this please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

Market Update January 25, 2008

The very same group of lawmakers that were on a mission at the end of last year to pass a bill that “reformed” the mortgage industry by putting heavy re­strictions and potential penalties for providing consumers much needed diver­sity in mortgage products, is now “coming to the rescue” of some struggling consumers by passing a stimulus plan that includes a way for more homeown­ers with viable credit to finance even larger loans and put a few hundred dollars extra in their pockets.

Industry analysts have been saying for weeks that low mortgage interest rates are not enough to help turn away the wave of potential foreclosures that are beginning to flow into the conforming mortgage market. The “reform” scared many lenders straight back to lending guidelines from the 90’s which severely hindered many homeowner’s ability to take advantage of the current low rates.

The stimulus package that has been approved by the House, and is going to the Senate next week, will give relief to some of these homeowners. As part of the proposed package, the current conforming loan limit would be increased to as high as $729,750 which will allow many homeowners with jumbo loans to refinance at lower rates. It might also allow homeowners with combo loans to possibly refinance into one lower monthly payment and rate. These increases are also being offered to FHA loans as part of this package to allow the Federal Housing Administration to help in the recovery efforts. Additional benefits could be felt by homebuilders and realtors who have struggled to sell properties at the higher price point or who can’t get buyers off the fence due to poor con­sumer sentiment about the market.

It’s now time to hold your breathe as this package is put before the Senate. Although some Senators are commenting publicly that they would like to see it fly through as well, history shows that it only takes one person with their own agenda to stop the progress of any package. If it goes through, we might be seeing the beginning of a refinance rally which would be welcome by many in the industry.

For questions or comments, please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

What Just Happened?

In a move not seen in recent history the Federal Reserve has stepped in and lowered short term interest rates. I could go on and on about the fears of the world about the U.S. economy going into recession, but you can get plenty of that information from other sources such as http://online.wsj.com/article_email/SB120100837976106391-lMyQjAxMDI4MDIxMzAyMDM4Wj.html or http://www.forbes.com/2008/01/23/europe-interest-rates-markets-equity-cx_vr_0123markets06.html?partner=msn.

What I want to discuss is the ramifications this has on real estate and the mortgage industry.

The bond market responded to the rate cute as I would have expected. Prior to the move the market had priced in a 50 basis point cut at the next Fed meeting. All it did yesterday was add the other 25 basis points to the Fed move and now we are seeing the 30 year fixed in the 5.5% range. If borrowers are paying attention, you can now purchase a home with little or no money down and get a fixed rate mortgage for 6% or less. Housing prices are at near bargain basement prices. The Fed is betting that aside from calming the fears of the world markets, this will be the impetus that will get people back out buying houses. I personally think that we are still months away from that day. Even thought the inventory is overloaded with good houses for first time homebuyers and there are bargains everywhere you look. It will fall upon the middle class of America to jump start the real estate cycle.

For the past 3 years the middle of the price range has been the house slowest to move. The people who are looking to buy their second or third house to move into or the people who anticipate or have just received a promotion at work and are ready to get a bigger house. These are the people who need to get back into the game. For quite some time they have been standing on the sidelines hearing all the gloom and doom about the economy and they are smart enough to recognize that they could lose their job. We are a long way away from them feeling secure enough to make that move. Until then we will continue to see housing struggle.

For questions or comments, please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

A Perfect Example!

For those of you that have followed my postings you know that I warn people about going to the “Dark Side” to get their mortgage. The “Dark Side” is those mortgage companies that you see and hear advertising for business all of the time. I realize that we all have business plans and ways to generate business. Advertising is a way to do so, but when it comes at the expense of the client, especially a client that cannot afford to pay the difference then it is not the best way to do business.

On Friday evening I received a call from a lady who was referred to me by one of my professional relationships. She had applied with a local mortgage company and was trying to refinance a loan that she owed $61,000. In her history she has a bankruptcy and she currently lives paycheck to paycheck with no savings. Because she had tremendous equity in her home she is able to refinance with little or no challenges. On a scale of 1-10 with 10 being the hardest, this is about a 4 when it comes to doing her loan. Thus I really can’t justify charging her a premium to do her loan because it would be a lot of work. More on that later, but the local mortgage company had been pressuring her to close this week and call it women’s’ intuition or just a nagging feeling she felt uneasy about closing so she mentioned it to my professional partner and she then called me. When we visited it turns out that the difference in my closing costs and those charged by the local mortgage company were $2,500. Of that $1,640 was a broker fee which was being charged instead of charging 2.5 points. Not only is that rape of a person who cannot afford it but because they are charging the broker fee instead of points the broker fee is not tax deductible. The points at least can be amortized over the life of the loan if they chose to charge points.

It is needless to say that this lady has canceled her transaction with the local mortgage company and is proceeding with Cornerstone. That is why I tell people to steer away from the “Dark Side”!

Now back to the premium for doing excessive work. On Tuesday of this week I received a phone call from a Realtor who was in a panic. Her client had been trying to back out of his purchase contract and the lender he was working with had canceled his transaction. When the client found out he had no legal grounds to get out of the contract and had to proceed or risk being sued he agreed to proceed but could not find a lender that could get him a loan in 2 days. The lender he had applied with was a national lender working his deal out of state and because they have no desire to have a relationship with either the borrower or Realtor they didn’t want to go the extra mile to get the job done. This is the type of challenge I love and I told the realtor and the client that as long as they did exactly what we told them I would be able to close in 48 hours. Since we had to drop everything we were doing to get this loan done we did charge a premium in the interest rate. Instead of making what we normally make we made an additional 1 point. I explained this to the client and they understood completely. Closing happened on time and all the parties were completely satisfied.

So there are times when people should pay a higher cost to acquire a mortgage, but unfortunately the people that should pay a few and far between and the ones that shouldn’t usually make the mistake of going to the people that will take advantage of them either because they don’t have their best interest in mind or simply their business plan does not allow them the flexibility to treat people fairly!

For comments or questions please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

Week of January 14, 2008

This will be a very busy week in terms of economic data. Tuesday will be the release of December’s Producer Price Index , along with Core PPI, and Retail Sales which gives a glimpse into the state of inflation and whether it is effecting consumer buying. Wednesday’s data will in­clude Consumer Price Index and then Thursday will be Philadelphia Fed Index, Housing starts, Building Permits, and Jobless Claims.

If that weren’t enough data, the equity market is going into earnings season when many companies report 4th quarter results. Traders will be looking for places to pick up quick profits based on earnings data and are likely to pull money out of bonds to fund these transactions, es­pecially given the rumors that the Fed might ease rates prior to the end of the month FOMC meeting. The fact that the Fed is most likely to lower the Fed Funds rate again by the end of the month will put addi­tional pressure on bonds which is never good for mortgage interest rates.

It seems however, that the never ending news of write-downs from companies such as Citifinancial and Merrill Lynch continue to balance these inflation indicators and keeps money in bonds.

If the upcoming economic data shows inflation concerns, mortgage interest rates are likely to deteriorate given the other factors this week.
For questions or comments please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

Are Rates Falling?

Well the year has started off with interest rates heading lower, but have they really? With Fannie Mae and Freddie Mac adding risk based pricing to their delivery fees for all loans delivered after March 1, 2008 see https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2007/0716.pdf. Who knows what the rate will be at any given time. Couple that with this announcement; https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2007/0721.pdf

And the interest rate that I thought we should have is now at least .125% higher and in some cases .375% higher. Even though the price of mortgage backed securities continues to rise and the yield or effective interest rate is falling, the interest rate for most consumers is actually going up or staying the same!

Economic news favored rates falling and currently the trend has been favorable. However this week we have at least 3 Fed Governors speaking at various functions and the minutes from the December Fed meeting will be released. The market watchers will spend far too many hours dissecting the comments from these and we will see the bond market either give up its gains or take on a whole new energy as anticipation of the next Fed meeting begins. Either way, at this point it is going to take a strong push to get the 30 year fixed back down to 5.5% or below. Mostly due to the above mentioned pricing by Fannie and Freddie, but also keep in mind that the secondary departments of the major investment banks are under pressure to be profitable with the REO departments getting killed with all of the foreclosures. Thus when they do their pricing models, expect them to error on the conservative side.

For comments or questions, please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

How to start the New Year!

The last day of 2007 was a day of sadness and hope. The year was coming to an end I as I reflected upon the previous 364 days I had a chance to take inventory of the things I had accomplished in that year and identify the opportunities lost or at least not capitalized on. I also recognized the amount of time I spent on personal growth, recovering from a failed business. The decision to close that business took my heart and soul away when I did that just a little over a year ago. I don’t think that when I closed the business I realized just how emotionally devastating to me it was. When I did so, I went to work for a friend who I had played soccer with over 20 years ago and he is the type of person who is always upbeat. I used that environment to bolster my emotions while I worked through the pain and tried to plan the rest of my professional life.

As some of you may know, I spent many hours riding a bike or hitting golf balls while I tried to find what I really loved doing. I found myself mentoring and coaching loan officers and realtors, thus I recognized that being back in sales management was the calling I needed to answer. I answered that calling and have found myself enjoying the challenge each and every day. I work with a group of people that share similar vision for how to run a mortgage company. Loan officers that believe in doing the right thing and support people that truly care about taking care of the customer. We are positioned to grow if the market allows us to but will be successful if we stay the current size. If I knew what I wanted when I closed my company I could not have asked for a better set of circumstances. So again I give thanks to the people at First Integrity Mortgage; the company that hired me when I closed my company. The people there did all that I asked and gave me all the room to flourish while I found myself.

Now that I have moved on to Cornerstone I want to take the time to thank them for having the belief in my management skills to bring me back into the game. At my new company a special thanks goes to Brad Bradford for championing the concept of hiring me. Never underestimate the relationships that you form in your life. Brad was a loan officer with me at a mortgage company over 10 years ago. We never developed a friendship, but a healthy respect for how we both went about doing our business. Had I known that he would become a key part of my life 10 years later I now know that I would have done more to build that friendship. But alas, hindsight is 20/20 and unfortunately, the younger we are the less foresight we have to build those relationships. I guess that only thing we can hope is that we are smart enough to not burn bridges.

So much for the sadness, now on to the hope; As Monday’s bond market came to a close it finished the year with a strong rally. We opened Wednesday with a continuation of that rally. As of the time I write this, our pricing is within 25 basis points of our lowest point in 2007 and that was as low as we had seen since 2003. Interest rates are below 6% again and should stay there for at least the coming week. This should give me as well as the loan officers I work with an opportunity to start the year off with a few good months. With this being an election year we can hope that rates will hold steady and we won’t see any major upward movement. Although with gas going up, the only thing we know that will affect is the spending power of the American consumer. Either way, I am optimistic that the business plan that I have spent the last 3 years developing will flourish this year and all those that utilize it will reach and surpass their goals.

For comments or questions please contact ChrisScheer at cscheer@cornerstonestl.com or 314.223.9824.