FHLA to the Rescue

More good news from real the front lines of the housing crisis.  With pressure from the U.S. Treasury, the financial board of the government-created association of Federal Home Loan Banks has agreed to double their resources for mortgage backed securities.  The new rules announced allow an additional $100 billion of securities to be purchased and held by the FHLA.  As reported by the Real Estate Journal:

“That could provide a substantial boost to the market, depending on the timing of the purchases. Fannie and Freddie are likely to sell about $500 billion of mortgage securities this year, assuming interest rates stay around current levels, says Jim Vogel, an analyst at FTN Financial Capital Markets of Memphis, Tenn. Mr. Vogel said it isn’t clear for now how eager the home-loan banks will be to buy these securities, but their ability to step up purchases gives at least a psychological boost to the market.”

So why is this so important?  And how can I say that this is the real front lines of the mortgage crisis?  It is important because while the FHLA is under no obligation to buy mortgage backed securities, they are certainly being encouraged to do so.  If the FHLA does purchase more MBS’, that, in-turn will spur more interest in the mortgage bond market resulting in lower interest rates offered by the banks to the consumers.  On the heels of the earlier news that Fannie and Freddie have been cleared to purchase greater amounts of MBS’, this is icing on the cake.  The FHLBank System is the largest collective source of home mortgage/community credit in the United States according to the fine folks at Wikipedia.  These types of financial press releases don’t grab the attention of dooms-dayers, and nay-sayers.  Those types are too busy focusing on annual home-sales figures, and Year-over-Year data about the % of builders who order McDonald’s for lunch.  While those numbers are important, the real focus should be on what the financial institutions backed by our government are doing.  It is debatable whether or not the government should even be involved in any of these activities, or whether the government should perpetuate a broken system, but guess what?  They are involved, and they are trying to help fix a broken system. 

With the support from the government-supported entities, and a financial system that needs housing to stabilize, it is practically irrelevant how many homes are being foreclosed on your block.  If the Mortgage Market (with a capital M) stabilizes at the Wall Street level, and housing prices continue to decline in the mortgage market (with a local lowercase m), then the buyers will return and gobble-up the glut of housing inventory.

The Return of Subprime

More good news for the mortgage industry.

Did you see this headline this morning: “Former Countrywide Exec Heads Firm Targeting Troubled Mortgages”?  If you didn’t see it, or perhaps overlooked it, please revisit the article here.    What you will read is the announcement of a new company called PennyMac created by a partnership between one of the pioneers behind Countrywide, and well as Blackrock, Inc. the ginormous investment firm.

So what is PennyMac going to be doing?  PennyMac was created in an effort to capitalize on the downturn in housing.  Failing loans, and defaulted borrowers have little hope in this current market.  Most lenders which extended these borrowers loans, no longer offer programs to help them and foreclose on these home-owner’s as a result.  PennyMac isn’t doing god’s work.  They are going to raise private capital and help home-owner’s who cannot afford their payments by restructuring their loans.  Whereas most lenders don’t have the time or energy to deal with defaulting home owners, clearly PennyMac sees a business opportunity in the morass.  There will surely be an economic benefit for the company, but that is to be expected when the company will be assuming some difficult loans from the outset.

Why is this important to you as an Originator?  It shows you that industry veterans are trying to think of new ways to help homeowners, which in turn will stabilize this market.  The best part of our economic system is that while some banks sit languidly and wait for the market to correct itself, others see an opportunity to make money which helps get the market moving forward.   Anything that is the opposite of sitting on the sidelines is a huge improvement.  It is only a matter of time before lenders themselves add specific Agency loans that incorporate their own appetite for sub-prime and Alt-A borrowers.  It is too large of a market to overlook and to hope that it goes away.

Fannie and Freddie: Lighter on Their Feet

A press release today from the Office of Federal Housing Enterprise Oversight announced that Fannie Mae and Freddie Mac will be allowed to spend more of their capital earnings. The Real Estate Journal has a great article that goes more in-depth about “why” this is so important and “what” some of the potential implications will be. But the real question is: how will this impact the mortgage originator and the home-owner?

In regards to Originators, this is nothing but good news. The increased financial flexibility for Fannie and Freddie will increase the liquidity in the market which should in-turn, lower interest rates. Why will that happen? Well, ultimately it allows Fannie Mae and Freddie Mac the ability to invest in more mortgages themselves, as well as allow them to guaranty more loans too. It is presumably going to impact the Jumbo-loan sector as well as the now defunct sub-prime segment of the mortgage market.

For homeowners this is great news as well. With Fannie and Freddie allowed to use their liquidity in the mortgage arena, we can expect to see increased offerings as mentioned above. It should also allay concerns for those people who thought big business was going to turn it’s back on homeowners. Obviously, solving the housing market crisis is everyone’s #1 concern.

The great news here is that seemingly everyone is doing everything, and anything to straighten out this mess. Most bloggers will say that this help has either come too late, or shouldn’t be coming at all. I think that when private enterprise gets into trouble, they should be allowed to do what they can to clean the mess up.

Below is a link to CNBC’s video coverage of the story, hat-tip to JF for his help:

http://www.cnbc.com/id/15840232?video=689319687

Any Press is Good Press

Turn your TV on tomorrow morning.

If I had to choose whether or not to bet $20 in my office NCAA basketball pool, or bet that same amount of money that one of the lead news stories tomorrow would be “Fed Cuts Rates!”, I would take the latter all day long.  That is the easy money.  The Fed is reportedly going to cut the Fed Funds Rate tomorrow by up to .75%.  What does that mean for you?  That means that lead service providers will be flooded with inquiries tomorrow, and for those of you in the retail mortgage business, you can expect a few walk-in appointments.  As they say in Hollywood, “any press is good press.”

The same is true of our industry.  Any time that our Fed Chairman Ben Bernake speaks, people listen.  Most people have no idea that these overnight cuts can actually lead to higher mortgage rates, and guess what?  They don’t care.  It isn’t our job to explain the phenomenon of how cutting short-term interst rates typically exacerbates inflation which leads to higher mortgage rates down-the-line.  People aren’t calling you to hear an Economics Seminar.  They are calling because they have a 6.375% 5-year Adjustable and few credit cards that they have to pay off after their daughters Sweet 16 Party and a wine-tasting trip to Napa turned into renewing vows and a new Lexus SUV.  Don’t unload all your negativity on them and talk about short-term versus long-term and how the rates were actually lower on Monday.  Try this: tell them, “yes, rates are down.  Now is a great time to refinance.”  Why would I say that?  Truthfully, IT IS A GREAT TIME TO REFINANCE!  If a person can qualify, the market is still bearing historically low interst rates, regardless of how low those same rates were 3 weeks ago.  Don’t make these people feel badly about missing last week’s opportunity; help them take advantage of today’s.

There was a great article on NPR the last time the Fed slashed it’s overnight rate, and the major point was that waiting for the bottom of the market is like gambling.  Nobody ever knows when it will come.  When you are talking to your potential clients tomorrow you might add a touch of positive energy and focus on how good the rates are.  And when they ask you if the Fed cut rates, you can say, “Yes.  Yes they did.”  And you don’t have to feel bad about it because it is true.

Fannie Mae Announces Increased Jumbo Guidelines and Rate Adjustments

One of the most highly anticipated days for Originators and Homeowners alike, has finally arrived: Fannie Mae has announced the new Jumbo Guidelines. This will undoubtedly lead to many more loan applications as Jumbo Loan Note holders will want to take advantage of this small window of opportunity (the new limits are temporary adjustments good only through December 2008.) So while other sites will surely rip the announcement and the program because of the impossible-to-live-up-to hype and the somewhat limited guideline changes, this is still great news for Originators and Homeowners.

What specifically is the good news?

• Increased loan limits (Specific County Increases)
• 30-Year and 15-Year Fixed Loans Offered starting April 1 (5-year ARM offered May 1)
• Purchases up to 90%
• Refinances up to 75% CLTV (no cashout refi) and 95%(!) CLTVs (probably subordination allowances)
• Up to 45% DTI ratio
• 5/1 ARM to have Interest-Only Option as well

There are certainly some limitations to the new product offerings: no cash-out refinances, manual underwriting, and no Stated Income option will all pose problems. But as any Originator can tell you, anyone who has recently purchased or refinanced a Jumbo Loan amount probably got into an ARM. Jumbo Fixed loan options had such ridiculously high rates due to secondary market problems, that the only programs that Jumbo Loan holders could take were short-term. These people will jump at the opportunity to lock into something stable. And if there were a select few of those people who actually stomached a late ‘07 or early ‘08 30-Year Jumbo, they will be ecstatic at the chance to lower their rates too.

If you’re an Originator, comb through your files and start calling those “Jumbo” note holders; if you’re a Home Owner, call your trusted Loan Officer and take advantage while you can!