Tuesday, November 23, 2010

Market UpDate

Tuesday’s bond market has opened in positive territory again after news of the Korean conflict raised fears of further instability in the world markets. The stock markets have reacted negatively with the Dow down 145 points and the Nasdaq down 33 points. The bond market is currently up 19/32, which should improve this morning’s mortgage rates by approximately .125 - .250 of a discount point.
There were two relevant economic reports posted this morning. The initial revision to the 3rd Quarter Gross Domestic Product (GDP) was the first, showing a 2.5% annual rate of economic growth during the third quarter. This was a little higher than forecasts and a fairly sizable increase from the previous estimate of 2.0%, meaning economic activity was stronger than many had thought. This is bad news for the bond market and mortgage rates because long-term securities such as mortgage-related bonds are more attractive to investors in a weak eco nomic and low inflation environment. Still, to the benefit of mortgage shoppers the Korean news is taking center stage, at least during morning trading.

The National Association of Realtors reported late this morning that home resales fell 2.2% last month, nearly matching forecasts. This can be considered relatively favorable news for the bond market and mortgage rates because it indicates the housing sector remains weak. Since a weak housing sector makes a broader economic recovery more difficult, today’s results are good news. However, since there was little variance from forecasts and this data is not considered highly important, its impact on this morning’s rates has been minimal.

Monday, November 22, 2010

FHA Refinance for Borrowers in Negative Equity Positions (NEP)

Homeowner’s who are in a negative equity position (owe more than the value of their home)
have a program designed to help them if they meet the guidelines set by Department of Housing and Urban Development (HUD). This new program is an enhancement to the existing Making Home Affordable Program (MHA) and is a FHA refinance program that will give a greater number of homeowners the opportunity to stay in their homes. The homeowner would have to qualify for the new FHA loan and their current lender or investor would have to write off 10% of the existing first lien mortgage. Eligibility of this NEP –FHA loan is voluntary and requires the consent of lien holders. The home owner eligibility is as follows.
1. The homeowner must be in a negative equity position;
2. The homeowner must be current on the existing mortgage to be refinanced;
3. The homeowner must occupy the subject property (1-4 units) as their primary residence;
4. The homeowner must qualify for the new loan under standard FHA underwriting
     requirements and possess a “FICO based” decision credit score greater than or equal to 500;
5. The existing loan to be refinanced must not be a FHA-insured loan;
6. The existing first lien holder must write off at least 10 percent of the unpaid principal balance;
7. The refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than
     97.75 percent;
8.  Non-extinguished existing subordinate mortgages must be re-subordinated and the new loan
      may not have a combined loan-to-value ratio greater than 115 percent;
 9.  For loans that receive a “refer” risk classification from TOTAL Mortgage Scorecard
     (TOTAL) and/or are manually underwritten, the homeowner’s total monthly mortgage
      payment, including the first and any subordinate mortgage(s), cannot be greater than 31
      percent of gross monthly income and total debt, including all recurring debts, cannot be
      greater than 50 percent of gross monthly income;
10. FHA mortgagees are not permitted to use premium pricing to pay off existing debt
      obligations to qualify the borrower for the new loan;
11. FHA mortgagees are not permitted to make mortgage payments on behalf of the borrower
      or otherwise bring the existing loan current to make it eligible for FHA insurance; and
12. The existing loan to be refinanced may not have been brought current by the existing first
      Lien holder, except through an acceptable permanent loan modification as described below.

The Mortgagee must ensure the existing first lien holder writes off at least 10% of unpaid principal on their current loan. The short payoff serves as payment in full and a full conveyance for the debt is completed. The new FHA loan can be no more than 97.75% of the unpaid principal balance of the first lien and any existing subordinate mortgages must be re-subordinated and not have a combined loan to value of more than 115%.

More information is available on the HUD website at; www.hud.gov

Quote For The Day

"If it were not for the company of fools, a witty man would often be greatly at a loss."

Francois De La Rochefoucauld

Tuesday, November 16, 2010

Quote For The Day

"Life affords no higher pleasure than that of surmounting difficulties, passing from one step of success to another, forming new wishes and seeing them gratified."

Samuel Johnson

Market UpDate

Tuesday’s bond market has opened well in positive territory following the release of some quite favorable economic data. The stock markets have reacted as we would have expected, showing early losses. The Dow is currently down 130 points while the Nasdaq has fallen 24 points. The bond market is currently up 16/32, but unfortunately we will likely not see an improvement in this morning’s mortgage rates due to fairly significant weakness late yesterday. With yesterday’s late selling, I am expecting to see this morning’s mortgage rates to be approximately .375 of a discount point higher than yesterday’s morning rates.

Both of this morning’s economic releases gave us results that were extremely favorable to the bond market and mortgage rates. The first was October's Producer Price Index (PPI) that showed a 0.4% increase in the overall reading and a 0.6% DECLINE in the more important core reading. This was well below foreca sts for each, meaning that inflationary pressures were nowhere near as strong as many had thought, at least not at the producer level of the economy. This is extremely good news for the bond market and mortgage rates because inflation is the number one nemesis of the bond market. It erodes the value of a bond’s future fixed interest payments, making them much less attractive to investors. The end result is falling bond prices and higher mortgage rates.

Monday, November 15, 2010

Monday Morning Market UpDate

This week brings us the release of six monthly economic reports for the markets to digest. With very important data scheduled for release three different days and relevant data four of the five days, we will likely see a fair amount of volatility in the markets and mortgage pricing this week.

The first data is one of the most important reports of the week. The Commerce Department will give us October’s Retail Sales figures early tomorrow morning. This data measures consumer spending, which is considered extremely important because it makes up two-thirds of the U.S. economy. It is expected to show a 0.7% rise in spending, meaning consumers spent much more last month than they did in September. This would be considered negative news for bonds because large increases in spending fuels an economic recovery and raises inflation concerns in the marketplace. If tomorrow’s report reveals a smaller than expected increase in spending, bonds should react favorably, pushing mortgage rates lower. If it shows a larger than expected increase, mortgage rates will likely move higher tomorrow.

There are two reports scheduled to be posted Tuesday. The first is October's Producer Price Index (PPI) from the Labor Department, which is one of the two key inflation readings on tap this week. The PPI measures inflationary pressures at the producer level of the economy. There are two portions of the index that are used- the overall reading and the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices. If it reveals stronger than expected readings, indicating that inflationary pressures are rising, the bond market will probably react negatively and should drive mortgage rates higher. If we see in-line or weaker than expected numbers, mortgage rates should fall Tuesday. Current forecasts are calling for an increase of 0.8% in the overall reading and a 0.1% inc rease in the core reading.
Tuesday’s second report is October's Industrial Production data. It gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to reveal a 0.3% increase in production. Stronger levels of production would be considered bad news for the bond market and mortgage rates, but this data is not as important as the PPI readings are. A significant surprise in the PPI would likely make this data a non-factor in Tuesday’s mortgage pricing.