Golf Savings Bank, Everett Branch will be celebrating their new location with an Open House on Thursday, November 12th, from 4-7pm.  Food, Drinks and Prizes!   For more info, give me a call...

2917 Pacific Ave.    Everett, WA 98201

The US Treasury, Federal Reserve, Congressional leadership as well as private industry groups that represent home builders, realtors and mortgage bankers have all stated that they would like to see interest rates on 30 year fixed rate mortgages stabilize in low 4% range in an effort to stimulate home buying, selling, and refinance activity.

The Federal Reserve allocated $500 billion to purchase fixed rate mortgage backed securities at the lower 3.5, 4.0 and 4.5 bond coupons to drive "up their price" thereby allowing mortgage rates tied to those bond coupons to be available to home owners and home buyers.  This buying program began in early January and the Fed's authorized buying representatives have purchased an average of almost $4.5 billion in mortgage backed security purchases per day.  At this pace, the Fed will burn through the $500 billion allocated for this program in early June.  

Unintended Consequences:  the usual buyers of mortgage backed securities have reduced their volume of purchases because of the artificially inflated "demand pool" created by the Fed buying program, and while the lower rate coupon prices have risen, the interest rates and the cost of those rates have not benefited consumers.  The reasons are:

1. Banks and investors holding mortgage notes at higher rates are losing tremendous amounts of money as borrowers are refinancing out of those higher rates and into lower rate mortgages.
2. Banks and investors are losing billions of dollars as foreclosures and losses from sales of foreclosed properties mount, and are taking increased profits.
3. During the slowdown of 2007 and 2008, many banks and mortgage facilities reduced their warehouse capacities to temporarily store mortgage bundles prior to securitization, reduced their staffs, etc and cannot handle the increased volume.  As a result, they have "raised" the rates and increased their profit margins on rates offered to their public in an effort to slow down incoming new mortgages.

Based on historical margins made by investors and banks, lower interest rates "should" be available to consumers, as well as the ability for lenders to offer "low" cost refinances.  However, because of the previously mentioned factors, it is not likely that rates in the low 4% range will be available to consumers without additional government spending or regulatory action.

Additionally, because of increased lending requirements, appraisal valuation restrictions, and declining market restrictions, many homeowners are not able to refinance into these lower interest mortgages.  In May, the Home Valuation Code of Conduct governing home appraisals will go into effect, which could further restrict some homeowners from refinancing due to lower home valuation.  Moreover, bank owned properties are being added to the inventory of homes for sale in Snohomish County and at fire-sale prices, which drives values of homes in those neighborhoods lower and lower with every month.  Lastly, credit card companies will be reducing the credit limits on credit cards of consumers by "trillions" of dollars over the next several months, which will have an adverse impact on many cardholders' credit scores--further making it difficult for some consumers to refinance.

Government and regulatory officials have discussed the possibility of allowing "rate and term" refinances to occur without appraisal valuation, but this would have a negative impact on the purchase of mortgage backed securities because investors will demand increased yield on their money because of the tremendous risk associated with "high" loan to value mortgages. 

Homeowners considering refinancing should act now while there still might be enough appraisable value in their home, and rates are currently in the high 4% to low 5% range.

I have had one, and only one visit to a Waffle House, an East Coast / Old south breakfast joint franchise. It wasn't just a waffle, it was a 3am in the morning "zen like" experience. I was with some friends at a conference at a YL camp in Georgia, roundabout where the classic movie "Deliverance" was filmed. There were many highlights to the trip...the Tate Mansion tour where I smelled ghosts and our tour guide who assured us that there was "God fearin' Klan" still in these parts. But the highlight was the Waffle House!

The waitress was missing some teef, and making passes at each one of us...offering us "xtre butter 'n such." The other customers displayed the best of americana...the dude sitting at the counter with enough crack showing to be noticed by cars passing by, yet none of the locals seemed to notice. The old lady wolfing down a waffle over in the corner with a Camel hanging out her mouth...not removing it to take another bite or chew, that was skill!

Waffles at 3am...why? Because the Waffle House is open 24/7 in many locations and when people want waffles, they gotta have them and the Waffle House is ready to provide. You can have your "moons over myhammy" but I will forever feel that I have been to the mountain top when it comes to waffles. Savory, buttery, cooked right in front of you and "real Americans" --black, white, hicks, meth heads, and ordained ministers all sharing a common appreciation for waffles. It was almost like church. Surely, were there a Waffle House in Samaria, Bethlehem, Jerusalem, Jesus and the Disciples would have been there. Mixing it up with real folks eatin' waffles.

Am I going a little crazy...yea, but if you don't understand...you probably haven't been to a Waffle House.

Today, having discovered that WH does not open itself to independent franchises, I am going out on my own!  Waffle Busses!  A whole fleet of them, covering the I-5 Corridor from Vancouver to Bellingham. 

I was frustrated last night, looking at the evaporation of higher end rebate...so why is this happening, govies, conventional-everything. 

There is an economic concept that I had to refresh myself on from my old econ text books called "price compression".  (Larry Betag brought this up in a post).  When talking about convertible securities/callable bonds, which MBS's are, in a declining interest rate environment the issuer of the security feels that there is no appreciation potential  for the instrument and that it will be redeemed at the call price.  So they offload the instrument and issue NEW bonds at lower rates which have greater appreciation potential.  So, the MBS market is in an adjustment phase for the next few days, structuring itself for a "new bond price environment."

One take on this phenomenon of "rebate evaporation"  is that the market "technicals" are truly pointing toward lower rates in the near future.   That is good news for us.  The wild card, is that there is soooo  much volatility and so many other factors in play that bonds could lose their allure even with the Government becoming an investor in mortgage backed securities.

Anyway, just some thoughts.

Every economic crisis creates an opportunity for scams as well as some legitimate businesses.  A gal I know who has been in and around the Real Estate / Mortgage business for over 20 years is a remarkable opportunist and imaginative to say the least!  Whenever there is some change, some economic tremor or new "law" restricting a formerly acceptable business practice, she is on it like white on rice, a veritable life insurance salesman with business cards and a display table at a funeral reception. 

I won't expose her particular scam in this post, I'll save it for later this week (got to check with my attorney to make sure I don't write something that she can make some money on!)

These types of "entrepreneurs" are gifted...and they surface 2 steps ahead of everyone else and capitalize on confusion, the void of real information, and desparation.  Is the housing crisis fertile enough ground for their lemonade stands to start appearing?  You bet, large and small.

If you don't feel like you can post what you are seeing, please send me an email. 

The U.S. economy entered a recession in December 2007, a committee of economists at the private National Bureau of Economic Research said.  I chuckled as I read it.  Chuckled more as I reviewed the housing data!  I remember GW saying "Who says gas is going to hit $3 a gallon?" last year.   How information gets offloaded to us via the media is truly laughable.  All economic data and analysis is "rear view mirror" oriented.  They do a great job commenting on what happened, but haven't a clue as to how to describe where we currently are and what is five feet in front of us. 

Imagine if a sports team's PR department issued data on there team based on last seasons results.  It's official, after reviewing our 0-10 record last season, we are definitely in a rebuilding mode.  BUT...while we haven't played any games for the upcoming season, we are likely to have 10 opportunities to win, and could possibly improve upon our record because it's impossible to have a worse record than we had last year.

Brilliant.  I love the "data" that is trickling in on the big shopping weekend of late.  The poor dead Walmart worker who was trampled was used by one news agency as evidence that there is "pent up consumer demand" and "numbers should be better than expected."

Hey, let's get real for a moment.  We are in the first innings of an economic cluster screw.  Deny reality all you want, but it is going to take some years to plow through this mess!  If you sit down at a poker game, and you can't identify the sucker...grab a mirror!

This is classic: 

At 7:30am this morning, I get a frantic phone call from an agent that I worked with on a transaction about a year ago.  I never pursued a referral relationship with him because I felt like he was pushing our mutual client into making a quick decision and wasn't really trying to understand their goals.  Upon confronting him about this, he emphatically stated that "Clients are craving to be told what to do, and I'm helping them to be decisive."

Well, whether you buy that line of bull or not, he wasn't my cup of tea.  So anyway, back to this morning.  He said that he knew that I could close a deal quickly and that time was critical.  "Why is time so critical?" I asked. 

Here comes the "lunacy"... The agent said, "Well, he is going to be unemployed in 3 weeks but his boss said that he would verify his employment as a favor."

And I would want this loan on my warehouse line?  I didn't even bother explaining to him why he is a complete idiot, waste of a real estate license, loser--I hung up the phone.

There are some great agents and LO's out there...but not many.

 Why is interest rate modification not making house payments affordable?  Hmmmmm...let's think, they are going from a 6% interest only payment on a $300k loan ($1500 monthly) to a 5% Fully amortized over 30 years payment on the $300k loan ($1610)...hmmmm a payment increase even after loan modification.  Or, the ARM rate adjusted from 6% i/o ($1500) to a fully amortized rate of 6% at 25 years ($1932 monthly) and they got their rate modified to 6% fully ammed at 30 years, ($1798)...still a $298 per month increase on what they were used to paying.

Let's say this guy was a stated income, whose TRUE back end DTI was 70%...He could barely make payments at 6% interest only.  For the guy to actually be able to make the payment, he would need an interest rate of 4%, ammed over 30 years.  So far, I have heard of NO loan modifications that are taking clients below the start rate, and no modifications that extend the interest only period, or re-institute the interest only period, or even apply an interest only period that didn't previously exist.

Borrowers are "re-defaulting" on modified loans because there isn't enough latitude to do what is necessary to put the payment within reach of the borrower. 

How about this...2% fully amortized over 40 years for everyone!

SAN FRANCISCO (MarketWatch) -- Sheila Bair, chairman of the Federal Deposit Insurance Corp., has proposed modifying millions of mortgages to prevent foreclosure. However, changing home loans like this doesn't always prevent problems, according to Lender Processing Services, which processes mortgage payments and tracks roughly 39 million of the 50 million outstanding home loans in the market. Bair said the FDIC's modification plan would cost $24.4 billion and proposed that some of the Treasury's $700 billion Troubled Asset Relief Program be used to pay for it.

Lender Processing Services told analysts at Keefe, Bruyette & Woods that the results of such modification are often uninspiring. "Industry evidence indicates that in a majority of instances loan modifications simply delay the timeline from default to foreclosure but don't prevent them from taking place," Nathaniel Otis and William Clark, analysts at KBW, wrote in a note to investors on Tuesday. For the industry in general, after mortgages are modified roughly 25% go delinquent again after just one post-modification payment and more than half end up delinquent after several post-modification payments, Lender Processing Services told the analysts.

I can't remember how many times I heard the bozo's testifying before the House today say that many people have been helped and many more will be helped in months to come by the measures already taken by the GSE's (GOE's--government owned enterprises) and HUD.  Those that have been helped include...people in ARMS that refinanced and weren't subject to possible foreclosure; those people whose LTV's were low enough to actually refi; and those folks who have had their loan modified by servicers but 40% of whom are back in trouble because the modification was inadequate.  

I would pay money to see at least one person testify that this is a fuster-cluck beyond imagination and that most people who need help can't get it, and people who don't need help right now, will be needing help 3 months from now.    One person testify that the bailout has done nothing more than stave off the inevitable for another 3 months, and that it would have been just as effective to give every household in the U.S. $50k.

These people are either in massive denial, mentally ill, studid, OR pathological liars.

I believe that they would do very well in the 1800's, selling Lydia Pinkham's Miracle Tonic...cure all for feminine complaints, frigidity, nervousness, gout, digestion, and bubonic plague. 

Talk about "moral hazard!"  We crossed that line a long time ago...the whole concern about rewarding people for their stupidity, rewarding corporations for preying upon stupidity and gambling with profits.  The "risk" part of the capitalistic equation has been removed...and as such, there is no more capitalism.   As we stare down the barrel that holds a bullet with the names of GM, Ford, Intel, Macy's, Nordstroms, Citi, HSBC, Amazon, et al, written on it...we have to quickly realize that we either bailout no one or bailout everyone.

We have already committed ourselves to a "U" shaped recovery in all markets because of the massive (although it will get even more massive) government intervention that is preventing a hard-bottom.  This will take years to work through, not months.  I firmly believe that it is not too late to take a huge dose of "Volcker" medicine and do what is right for our country, rather than continuing to do what is easiest.   In the early 80's, confidence in us Treasuries was faltering because of Carter's unwillingness to deal with inflation.  No one was buying our debt, in fact, countries that had been our lenders were dumping US Treasuries like a never before.  THE ONLY solution, was to jack rates through the roof to entice some investors back to the table.  It had devastating consequences that was painful for the economy in the short term, but ultimately saved our economy from a world confidence perspective.

The painful medicine that we now face, will be one that forces our economy to be less dependent on consumption and more focused on production, exportation, and infrastructure development and maintenance.  Companies must fail.  We no longer have a thriving buggy-whip industry because the Government did not prop up an extinct business category.  Many good folks lost their jobs...they had to find other work.  They had to learn other skills.  Life's tough, it's a lot tougher if you are stupid. 

Simply, from a consumption level, consumer "need" level, we have no use for 3 automakers making a product that is ill-suited for the world we now live in.  Other companies supply vehicles that are better, cheaper, and more fuel efficient.  Redundancy is not economically viable. 

Housing prices will fall to 1996  levels and more banks will fail as a result.  More hedge funds will implode, and median incomes will fall as well.  But the quicker we get there, the quicker we can recover.  Pain cannot be avoided. 

OR we can bailout everyone, billions and billions, yea...trillions...and we will never recover.  It will be an "L" shaped non recovery.  Forget about a "U" shaped recovery.