Like David Bowie's lyrics..."changes are taking the pace I'm going thru" and the mortgage world is going thru changes that take the pace to a whole new level.  It seems every time we turn around, there is a new rule, new legislation, new guideline, new something or other.

On July 30^th a new ‘something or other'  became effective.  It's called the Housing and Economic Recovery Act (HERA).  This act requires all mortgage lenders and mortgage brokers to help prevent deceptive lending practices and protect customers by helping them become more informed."  Sounds smart on the surface, right?

With the government stepping in everywhere to manage our lives, it seems that once again in their effort to protect us from ourselves, they are going to bog down the process and make it a paperwork frustration...not just for the bankers and brokers...but for the consumers too.  This paperwork frustration may also make the once common 30-day closing become more difficult to meet. 

Here are a few things you can expect:

No fees may be collected for the transaction other than those for running a credit report at the initial time of application. Additional fees may be collected only after four business days.

Should the APR change by more than .125% on a fixed rate loan or .250% on an adjustable rate loan, the lender must disclose the new APR and the borrower must have a minimum of three business days to review the information before the transaction may proceed.

Items that can trigger re-disclosure requirements include a change(s) in the loan amount, closing date, loan program, any fees that impact the APR or interest rate from the rate indicated on the original loan application.

In cases where documents are sent by mail to the borrower related to re-disclosure of APR and/or providing a copy of the appraisal, anticipate six business days (three to allow for mailing and three to allow adequate time to review them) before a closing can occur. 

Keep in mind, if something should change prior to closing (like the seller finally agrees to roll in closing costs so you want to adjust the purchase price), if it affects the APR by 1/8^th then re-disclosure is required and then the waiting period kicks in again. 

For more information on this and how it might affect you, send an email to Elizabeth@ElizabethRoseOnline.com.

The Home Valuation Code of Conduct (HVCC) became effective on May 1^st in an effort to insulate the appraisal process from influence by any of the parties that may have an interest in the outcome. So...what is wrong with that?   

Recently, the National Association of Realtors (NAR) conducted a survey...and...well, the survey results weren't so good, however they came as no surprise to realtors, lenders, and mortgage originators.

Here's just a few of the results:

• 76% report the time to obtain a completed appraisal has increased an average of 8 days.
• Lost sales are reported by 37% of respondents
• An increase use of out-of-area Appraisers was reported by 70% of those surveyed
• Approximately half of appraisers reported a reduction in fees received and 70% of appraisers reported an increase in costs to the consumer
• 55% realtors surveyed reported a perceived decrease in appraisal quality.

Talk about adverse effects! (Maybe that is why you should care?)

Yesterday, NAR President Charles McMillian sent an email to members stating his recent meetings with the NY Attorney General's office, Federal Housing Finance Agency (FHFA), Fannie and Freddie, have led to new guidance to all lenders on HVCC.  Here are is sampling of their "new guidance" -

They stated, "Contrary to some suggestion..."

• The code does not require the use of AMC's (Appraisal management companies) over independent or in-house appraisers. 
• Closing costs have risen in some instances, but that has not been a function of the Code.
• The Code may have initially slowed appraisal time as it was being implemented.  However, there are other reasons for turnaround time changes
• Contrary to some suggestions, the Code provides for communications with appraisers about errors, additional needed information and unprofessional conduct
• Contrary to some suggestions, the Code does not lead to lower appraisals for property.  The Code insulates appraisers from pressures that led to higher or lower appraisals and should now lead to more accurate valuations

Well, now that has been resolved, we can go back to wondering how this is really helping our housing market - and buyers and sellers.

But decide for yourself, read the report here: http://www.fhfa.gov/webfiles/14611/hvcc_NOTICE_7_22_09F.pdf

Better than expected earnings from Corporate America, higher Retail Sales and a hot Producer Price Index has moved our 30 year Mortgage Back Security from the cheese platter to....the waste basket?  Oh no....

The producer price index is a reading on wholesale inflation.  The headline number was hot and after stripping out energy and food, the core number was quite a bit better than expected.  Of course there still is no fear of inflation just yet, but today shows us that any suggestion of future inflation can ruin the day in the bond markets.  Tomorrow will get a better idea of the hint of inflation when the Consumer Price Index is released. 

The improvements seen in the market over the past 4 days have been completely erased and the market has lost almost 100 basis points in just those few days.  Today MBS opened below support at the 50-day moving average and is clinging on...

Late in the day Wednesday, the Treasury unveiled their plan to take up to $40 billion in so-called illiquid assets off bank balance sheets.  Nine investment managers have been chosen to bid for these illiquid assets.

The $40 billion is composed of $30 billion of equity and debt invested by the Treasury, along with an additional $10 billion by the private investor groups.

The programs goal is to enable the financial institutions to dispose of troubled illiquid mortgage securities and other packaged assets so they can provide new sources of lending to the economy.

Some analyst believe interest in the program has diminished and financial institutions might be a bit more reluctant to sell assets.  Could this have something to do with the easing of Mark to Market accounting...thus valuations have either improved already or are likely to improve as the economy strengthens?

Mortgage Backed Securities (MBS) are moving again!  Over the past several days, MBS have been improving as stocks continue their struggle.  Today's bond auction was well received which has helped fuel a beautiful rally today, giving Bonds the needed momentum to break above some tough overhead resistance.  The past few days gains have brought rates back...well, almost back...to the levels of one month ago.  

Rumors of a 2^nd stimulus plan hit the wires just days ago and the chatter continues.  The first stimulus plan was aimed at Banks, Automakers, City and State governments.  New reports indicate that it also put more money into the hands of the poorest American's thru monthly food stamp allocations.  Aside from that...it's a bit difficult to see the benefits.

We were promised with the first stimulus plan that it would create jobs.  That has not occurred as we saw another ugly jobs report just last week. 

Now, some insiders say that the first stimulus plan is having a positive effect, but the country is still sick and needs more relief.  While the chatter continues, President Obama said that the unemployment rate is something "we wrestle with constantly", but added that spending more borrowed money is "potentially counterproductive."  Imagine that!  (See blog post "Obama Says We Are Already Out of Money")  It sure would have been nice if they would have figured that out before they when on their spending spree.  (They have already spent 2 Trillion of taxpayer dollars).

As I mentioned in my previous post, this Spending...oops, I mean Stimulus plan will lead to inflation and higher interest rates all around.  Remember, we are auctioning Treasury securities to pay for this spending.  In order to attract buyers, these longer term instruments would rise in rates.  While Mortgage Rates are NOT tied to Treasuries, Mortgage Bonds and Treasury Bonds compete for the same investment dollar.  In order for Mortgage Bonds to compete, rates will rise. 

Today the Fed begins their 2 day meeting.  We know the Fed Funds Rate is not going to change, but there is speculation that the Fed will buy more longer-term Treasuries, which may provide a jump start to eventually bring Mortgage rates down.

So if you are still considering a refinance, it is important to be ready to pull the trigger should "Fed-speak" cause a rally tomorrow.  Be prepared to act quickly.

I've seen many people pass on saving $200 per month in the hopes rates might improve a bit more, helping them gain another $25 per month in additional savings with a lower rate that where we stand.  Now clearly we've seen many times this year, rate turn higher and this window of opportunity is lost.  Reminds me of the old saying, "if you snooze, you lose."

I don't want anyone to miss an opportunity by either waiting, or not understanding what is at stake.  If you think you might want to take action, let's talk further about your situation.  Just send a note to me at Elizabeth@ElizabethRoseOnline.com to see if I can help improve your current situation.

For more insight of what has impacted Mortgage Rates:

Since falling off the cliff on May 27^th, Mortgage Bonds lost 500 basis points (worsened) and have since regained a portion of those loses.  Still, Bonds are down 212 from May 27^th when they could no longer cling to the important support level of the 100 day moving average, then pummeled right thru the 200 day moving average.  After finally finding a support level, they bounced on June 11^th and are attempting to make a bit of a recovery.

While the Fed has committed to purchasing Mortgage Backed Securities in an effort to keep rates low and help stabilize the housing market, the added supply of paper is making this difficult.  This afternoon, the Treasury will auction off another $40B in 2 year Notes, part of the $104B that is hitting the markets in the next 3 days.  Recent history has shown that Bonds haven't performed well upon the announcement of the auction and during the auction.  So, why all the auctions?  We have to pay for all the stimulus plans.  This is how the Treasury pays the way.

This added supply has pushed Treasury yields higher in an effort to make the government's debt more appealing to be financed.  While Mortgage Rates are based on the activity of the Mortgage Bond, Treasuries will also compete for investor dollars.  A short while ago the most active Mortgage coupon was at 4%, while long-term Treasuries were just above 2%.  This made Mortgage Bonds very attractive to investors however, the massive debt that must be financed via Treasury auctions has pushed longer-term Treasury yields closer to 4%.  This has forced the focus coupon on Mortgage Bonds up to 4.5%, as to give investors a more attractive return on them.  And then lies a problem in seeing Mortgage rates move lower.  Aside from Mortgage Bonds having their own added supply come to market from refinances that are now closing, Mortgage rates can't move much lower unless longer-term Treasuries move lower first.  Which brings us right back to the Fed Meeting, which concludes tomorrow.  Again, should they announce more longer-term Treasury purchases, this could help the Mortgage Bond market.

Feel free to contact me for more information: Elizabeth@ElizabethRoseOnline.com

The Treasury has been going to town printing money...clear proof we are "already out of money".  The Treasury has literally been printing money at a record pace by way of Treasury auctions to pay for the massive spending.  How does that impact those attractive home loan rates you once were hearing about?  Let's break it down.

It's back to school with Economics 101.  Supply and Demand.  For months, our government has been trying to right the economy with various stimulus and bail out plans.  These plans cost money...money we don't have.  So how do we pay for it?  The US prints money so to speak by issuing Bonds which are purchased by investors. 

And these hundreds of Billions of dollars of new Bond SUPPLY have to be absorbed by the market, so the additional supply literally weighs on the entire Bond market (Treasury Bonds and Mortgage Bonds) and drags prices lower.  Lower prices means higher home loan rates. 

Also, when you think of supply, consider all the tons of refinances recently - and all those loans have been bundled, packaged and sold on Wall Street...and this additional SUPPLY has now started to hit the secondary market as those closed loans are now getting turned around and sold.  This supply also must be absorbed.

The Fed recently became a large purchaser of Bonds in an effort to help shore up the housing market and keep home loan rates low.  In January they made a commitment to invest $500B in Mortgage Backed Securities (aka Mortgage Bonds) over the six month period, ending June 30^th.  on March 18, they expanded that commitment by another $750B bringing the grand total to 1.25 Trillion and extended the time frame thru the end of 2009, possibly into 2010. 

While the Fed has been a buyer, they simply can't buy enough to balance all the selling...or all the new paper they are auctioning off to pay for the stimulus and bailout packages.  Anytime supply vastly exceeds demand prices will move lower.  And as prices move lower, yields rise - that rise in yield will attract new buyers as they get a higher return on their investment.  This is how the market finds balance.  It's like a see-saw.

More is coming...more Bond supply...as next week brings another enormous round of Bond auctions with three separate auctions scheduled to take place.  Seeing how badly Bond pricing behaved during last week's round it would seem Traders are likely getting very jittery thinking about how the Bond market will react leading up to and during these events. It can't be good news for home loan rates either.

Since falling thru important support levels on May 26, Mortgage Bonds have lost 256 points driving home loan rates solidly above 5%.  While we've had a few weak attempts to improve, the supply continues to weigh heavily on the market.  It could be tough from here to get much better.

Many people are still listening to main street media....and the one thing we know about main stream media is that they tend to get it wrong.  There is still a lot of misinformation floating around...in fact, I received a call last week from a person considering a refinance.  And he "informed" me that the Fed was meeting this week and he had heard the Fed might cut rates again.  I was very perplexed by this comment and unsure of its origin (The media?  The internet? Talk around the watercooler?).  First, the Fed Funds Rate is already at ZERO.  So...cut what?  Secondly, the Fed Funds Rate does not translate to mortgage rates.

The Fed Funds Rate (FFR) is the overnight rate that banks charge one another.  Mortgage Rates are tied to the Mortgage Backed Security Bond Market.  Two different animals.  Mortgage rates do respond to the FFR, but in the opposite direction.  This is due to inflation.

The Fed's role is to set monetary policy to help promote economic stability and growth.

Yesterday the Fed concluded their 2-day meeting with their policy statement.  As expected, they left the Fed funds target on hold.  Their policy statement indicated no real change in the Fed's current purchase program of Treasuries and mortgage backed securities.  However, traders were hoping the Fed would announce an increase in the amounts they would buy in an effort to keep rates low.  Trader's disappointment resulted in a hard knee-jerk sell off before slowing recovering most of the loss. 

Mortgage bonds have some headwinds to conquer for rates to improve from here.  Watch for my coming report on the elusive (or is it mythical?) 4% mortgage interest rate.

Finally!  Changes to Mark to Market are coming.  The Financial Accounting Standards Board (FASB) voted favorably to relax mark-to-market and help financial institutions. Financial companies will now be allowed to use alternate models, like cash flow analysis, in marking their assets.  No longer will institutions be limited to using last-sale data in marking assets.  This enormous change will significantly reduce the write-downs banks have been taking on investments like mortgage-backed securities.  You can revisit my blog post of December 29, 2008 to learn more about mark-to-market and its impact on our current environment.

This change to mark to market is effective for the second quarter, but can applied to first quarter earnings.  Rumors are swirling that this change will boost earnings of banks by 20% or more in the first quarter.  It is too bad that it has taken so long for this enormous issue to be fixed.  But finally Congress stepped in demanding a revisit to this concern and common sense prevailed.  Stocks are loving this news, but as you might imagine, the Bond market is suffering.  Look for interest rates to be a bit worse today on this news.

I must admit, I'm still scratching my head trying to figure out how an annual income of $250K was determined to be associated with someone "rich" and "wealthy".

The move to increase taxes and limit deductions will have far reaching impact. 

I agree with NAR that there could be further erosion of home prices and values as home ownership doesn't look as sexy anymore.    

It's clear that Obama and his team believe that people making over $250K per year are "rich"...however there is a huge separation in this income level and the real rich.  

By the way, approximately 80% of this group of people (making more than $250k) are small business owners!!!  Hard working Americans that believed in the American dream and worked their tale off to make it come true for themselves.  And they are employing 8.4 million people.  When company revenues decline the first thing businesses do is cut head count.

But the biggest challenge to the housing problem is not....falling home prices, interest rates (of course they are at historic lows), but JOBS.  If people don't have Jobs they will not buy a house no matter what the price, no matter how low interest rates go, no matter if there are tax credits to buy (the new $8,000 credit), or if we do or don't get to deduct mortgage interest.

Obama is planning to pursue taxing this "rich" group further, which will have additional negative impact on our economy...

"The Bush tax cuts will be allowed to expire in 2011, upping taxes on couples making $250,000 or more. The top rate will rise from 35% to 39.6%." (Kiplingers 2/26/08)

And if that wasn't enough...Obama also plans to add new caps on ALL itemized deductions of these folks and cap the charitable deductions they make too.

Here is a short lesson in taxes...only the amount above $250K is taxed at the higher rate.  Here is how it works...if you are married, your first $16,700 is taxed at 15%, then from $16,701 to $67,900 your tax goes up to 25%.  From $67,901 to $137,050 you jump again to 28% and so on.  However regardless of how much money you make or what bracket you fall, you will be paying taxes until mid-May every single year.

Where do you fall?  Here are the Taxes Brackets for 2009 -

The liberals that are cheering Obama's tax levy on the $250K income earners might want to pause a little as Obama has a little something in store for everyone.  Obama also plans to allow the Bush tax cuts to lapse.  What would this mean to EVERYONE?  Income taxes would return to the 2000 level.  Now keep in mind that in Obama's world, this isn't a tax increase...it's just not re-enacting a prior cut.  Hmmm.  Looks like an increase to me. 

 Take a look at the 2000 figures and compare to 2009 above:

 Let's not forget the small businesses - small business owners will see more taxes in 2011. 

Our country is struggling thru this recession and an increase in taxes to will impact the overall economy. It isn't rocket science, if people have less money in their pocket they tend to buy less goods and services. 

What would happen if the "rich" folks slightly pulled back.  What if they get fed up with this negative attitude towards them?  The government continues to say "screw you" rich people...what if the rich people decide they are tired of carrying the load with no respect and say "screw you Uncle Sam, I'm through helping you"?   They slow down buying bigger houses...or houses period; they slow down buying cars; they slow down going to the movies, shopping, and dining out.  What happens to our economy then???  They provide more than 50% of the revenues to the government.

One third of American's pay no tax at all.  Who are they?

People - stand up a fight for the Fair Tax.  What is it?  How does it work?  There are NO taxes on income, capital gains, etc.  EVERYONE pays tax at the level of consumption.  The Fair Tax is very transparent.  When you go the store to purchase, you pay taxes...but you are taking your entire paycheck with you - not just a portion of it.

It's worth repeating again...you work until the middle of May before you start earning money for your family.

The Fair Tax will ends the underground economy.  It's a simple tax form that an 8 year old can complete.  It would bring in the same revenue to the government...just change the way we collect them. 

Until then...hope you loved the 80's.  Welcome back, Jimmy Carter.