Trump Wins! You the consumer of mortgages LOSE!

Yes, today there will be a quick drop in rates as the Dow panics and there is a flight to safety.  However in the weeks and months following you will see long term rates go up by .50 to 1.0% as mortgage backed securities and other bonds go out of favor with investors.  Trump has made it clear he is going to get this country's financial house in order and to do that, we need to make interest on the money we borrow and borrow less.  Long term (decades) this could be good for you as a citizen of the United States.  Short term (next 8 years) we will see rates go up and the cost of borrowing for your home will be more expensive.

My advice, if you are thinking about refinancing LOCK TODAY!  If you are thinking about buying in the near future move your timeline up. Rates will be higher in 3-6 months and you will not be able to afford as much.

Please contact me: http://www.cornerstonemortgage.com/ChrisScheer/

Weighing In On Brexit: A Loan Officer's Perspective

Thursday's historical 'Brexit' ("British exit", which refers to the June 23, 2016 referendum by British voters to exit the European Union) vote has caused panic and uncertainty in the financial markets.  Whenever something like this happens there is an immediate flight to safety.  That means that large institutional investors move their money out of stocks and buy bonds.  When bonds are in demand, their price goes up and thus their yield or effective interest rate goes down.  This is why we saw rates fall between .125-.25% on Friday, June 24th, 2016.

The challenge with the rates falling is that they are near historical lows.  Realistically they don’t have much room to go lower.  The large institutional investors will get to a point where a return less than 3.5% is just not worth tying their money up and they will look for either higher returns or short term places they can wait for the market to determine when the uncertainty is over.

We have had a sellers’ market all year long with a large amount of buyers, small housing inventories and low interest rates.  That being said, the changes made to the mortgage underwriting process after the mortgage crash of 2008 has placed a significant amount of weight on accurate appraisal values.  Even with competing offers, buyers offering over list price and houses selling the first day of listing (or even before), the scrutiny in which appraisals are facing will control any potential bubble.  

Over the past 90 days I have seen 5-10% of the purchase transactions where the appraised value has been lower than the sales price.  This forces either the seller to lower their price or the buyer to pay the difference.  In both cases the mortgage industry and the country are protected from a perceived “bubble.”  The lender is lending off of the appraised value or the sales price, whichever is lower.  Thus they are certain that their risk is appropriate for the loan program that the buyer has chosen.  If there is one lesson that the industry learned in 2008 it was that collateral appropriately valued is key.  The industry is continuing to hang their hat on that and we will not see the overvaluations that occurred prior to 2008.

One thing to keep in mind though, is that if you purchased your home between January of 2013 and March of 2016 there is a good chance that your interest rate may be higher than the market and with the increase in home valuations that has occurred your equity position may have changed enough to warrant a mortgage fitness checkup.  I highly recommend that you reach out to your preferred loan officer and discuss your situation with them.  

Please feel free to contact me with questions or for a mortgage fitness checkup.

-Chris Scheer

We are on the cusp!

Undeniably the stock market has become a Bear market. That means that the Dow industrial average is down more than 20%. Sooner or later, those investors are going to start to move to safer investments. What are safer investments you ask? Well I am going to suggest that Mortgage Backed Securities are safer investments. For the last 12 months, this investment has been out of favor with everyone from institutional investors to foreign investors. As housing prices have fallen drastically on both coasts the middle of the country has done a good job of holding value. The Countrywide Mortgage debacle has turned a corner and is now Bank of America’s problem. The Fed has not had to rescue any more mortgage companies for the last 30 days. Second quarter earnings are being reported this week and by now all the major companies have figured out that they cannot hide the losses from the mortgage mess, so those will be dealt with in these reports.

That leaves us with mortgage backed securities in position to be an attractive investment again; especially the Ginnie Mae government loans. With over 70% of all loan applications that I am taking right now being for FHA or VA loans, I am confident that most other successful originators are doing the same. This will create a huge supply for these investments and the hawkers of these securities will have the product to sell and most of these properties will not be those that are going into foreclosure but being bought out of foreclosure by people who have the means and desire to make their mortgage payments. Sooner or later, Wall Street is going to start moving these securities and then the laws of economics will take over. As demand goes up so does price. On a bond, for those of you that don’t remember, when the price goes up the yield (see interest rate) goes down. Thus, even though there is discussion of the Fed raising short term interest rates, what they really are hoping for is that the lowering of short term rates that they did months ago will finally take hold on the long rates and we will see the 30 year fixed rate get below 6% again.

Now I realize that this is optimistic thinking on my part, but if you listen to the doom and gloom prognosticators out there saying that the economy and the stock market are still in for tougher times, someone has to be willing to bet on the bond market. Today I am that person!!!

What a difference a day makes!

Over the past 11 months the mortgage industry has gone through one of the most tumultuous times in recent history. As mortgage companies went out of business, others were rescued by the Federal Reserve and program guidelines changed like your mother told you to change your underwear; DAILY. Many people, loan officers included were caught not being up to date on the ever changing landscape of guideline changes. I can admit I had challenges with 2 condo loans in particular.

In addition to the ever changing landscape of product and guideline changes we have also seen a rate climate that reminds me of a playground toy, the sliding teeter totter! Rates go up one day, down the next, up again then up and up and then a drastic drop followed by more upward movement. I continue to preach to my clients, that locking in is the best defense in the current market. We can always look to renegotiate if rates go down drastically but, once they go up you are screwed. As my old mentor told me, “pigs get fat, hogs get slaughtered.

Let’s hope that the reforms FHA has instituted effective July 14, 2008 and the merger of Countrywide and Bank of America signal a change to the whirlwind of changes and the rest of the year is filled with calm waters for borrowers to sail in.

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

Someone Finally Heard the Message!

Stop the presses! After attempting to brand myself as “Your Residential Lending Expert” for over the past 2 years, one of my past clients has finally heard the message. Dave Simons who hosts the “Dollars and Sense” money show on KMOX 1120 AM radio has asked me to join him on Wednesday, May 21, 2008 to discuss what is going on in the mortgage industry. At this time I am scheduled to go on air at approximately 10:10 a.m. The length of the visit should be around 10 minutes.

You can tune in or check out their live stream at www.kmox.com.

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

Gentlemen Start Your Engines

Fasten your seatbelts mortgage professionals. This week President Bush will sign into effect his economic stimulus package. The stimulus package contains several features designed to improve the troubled housing market.

It would increase the Federal Housing Administration's loan limits from $362,000 to $729,750 and those of two federally sponsored entities, Fannie Mae and Freddie Mac, from $417,000 to $729,750. The FHA insures private loans made by FHA-approved lenders, while the other two buy and sell loans in the secondary market.

The measure would also enable the FHA to become more active in dealing with the direct impact of the housing crisis, permitting more borrowers facing defaults to refinance subprime loans through the federal agency.

So what does this mean to the mortgage industry?

1) Every loan that was a “Jumbo” loan that was originated in the last 4 years in all probability will be now a conforming conventional loan. That could mean a drop of up to 1.25% in the interest rate for borrowers. On $600,000 that is a savings of $489 a month. You can bet those borrowers will be clamoring for the chance to save money. Especially when the package may call for the change in the loan limits to only last for 12 months.

2) All those borrowers who have conventional loans that are over the current FHA loan limits will get a chance to refinance their first and second mortgages up to 95% of the value of their house depending upon the new FHA loan limit in their geographic area. These are the people that Fannie and Freddie have turned their backs on with the current mortgage crisis. As delinquencies rose credit standards have tightened.

3) Pipelines will swell and people will be hired to handle the increase in volumes.

4) Real Estate will recover in the following years as people have had a chance to re-adjust their budgets and dig out of the mess that was created.

For all those out there that would like to comment on this or who have one of those Jumbo loans, please contact Chris Scheer at 314.223.9824 or cscheer@cornerstonestl.com.

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.

The Newspaper Game!

Have you ever looked in your local paper or looked in the Sunday Newspaper to get interest rates for mortgages? After looking did you take the time to call some of the lenders? What did you find? I will be that 99% of the time if you called you found out that the interest rate was not available. Or that the rate was available if you were willing to pay the points listed in the paper. If I am the consumer I am thinking what kind of game is this?

When you look at the rates posted in the paper I break them down into 3 classes; Liars, honest but trying to look good, and I don’t care I am spending the company’s money. I will work backwards on this list. When I managed a branch for a large corporation, part of their business plan was to be in the newspaper. Their rates were not competitive and when I would have discussions with my boss he would say “don’t worry about putting a rate in there, just make sure our name and phone number are in bold print.” Their philosophy was that their name alone would get the business and that they viewed the paper as another place to advertise their name. Never mind that people were checking rates, just get the name out there in one more place. These are categorized by higher than average interest rates or the famous “Call for rates.” An interesting marketing strategy, but it would cause the question from the consumer, what is your rate? This was all the company was trying to do, get the phone to ring.

Then you have the honest but trying to look good. I will place the company I work for now in this category. They use the put a low rate in with points trick. This is where they put a rate in with 1 origination and 1 discount point so that the rate seems as low as the others. If you were to equate that rate out to a 0 point loan then it would be rate we could and would honor, but the rate in the paper will be expensive. At least we let you know how expensive it will be.

Lastly, we have the liars; these are the guys that use the famous bait and switch tactic. They put a rate in that is well below market, usually .25% or more and then when you call them they say that the rate was there last week but the market has moved or worse they tell you they can do that rate and then when you get your application you have charges that equate to 1 or 2 points. Again, it is the concept to do anything to make the phone ring and then get the borrower to commit. Once you have them committed you can usually coerce them or fast talk them to the closing table.

So what does the rate table in the paper do? Well I would personally use it as a guide to where interest rates are. Look for the middle of the rate scale and that is a good chance that you will be able to get that rate without excessive fees or expense.

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