MBA – no major change in mortgage apps

Smart Real Estate News & Commentary by Chris McLaughlin August 11, 2010

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MBA – no major change in mortgage apps

The Mortgage Bankers Association’s (MBA) Market Composite Index, a measure of mortgage loan application volume, increased 0.6% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 0.4% compared with the previous week.  The Refinance Index increased 0.6% from the previous week and the seasonally adjusted Purchase Index increased 0.3% from one week earlier. The unadjusted Purchase Index decreased 0.3% compared with the previous week and was 34.1% lower than the same week one year ago.  The four week moving average for the seasonally adjusted Market Index is up 1.2%.  The four week moving average is up 1.8% for the seasonally adjusted Purchase Index, while this average is up 1.0% for the Refinance Index.  The refinance share of mortgage activity increased to 78.1% of total applications from 78.0% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 5.9% from 5.4% of total applications from the previous week.

Fed pessimistic about growth 

At the conclusion of its meeting yesterday, the Federal Reserve warned that the U.S. economic recovery is weakening.  “The pace of recovery in output and employment has slowed in recent months,” the Fed said in its statement. It said while it still expects the economy to grow, the improvement will be “more modest in the near term than had been anticipated.”  The Fed also announced its plan to buy additional long-term Treasurys. The purchase was seen as moving “one step closer to reinstituting a more aggressive policy,” according to a note from Deutsche Bank economists.  Yesterday’s statement was seen as the strongest statement of concern yet by the Fed. 

As expected, the fed funds rate, the central bank’s key tool to spur the economy, remained near 0%, where it has been since December 2008, and it repeated its outlook of the last 17 months that weakness in the economy will keep the fed funds rate at “exceptionally low levels” for an “extended period.”  The Fed made a modest change in that policy at Tuesday’s meeting as it announced it would not allow its balance sheet to shrink as securities reached maturity. Instead, it will reinvest principal payments into long-term Treasuries, concentrating on purchases of 2-year and 10-year Treasuries. Paul Ashworth, senior U.S. economist for Capital Economics, said the reinvestment announcement is “a largely symbolic gesture, designed to reassure the markets rather than boost the economy.” He estimates that it will amount to about $100 billion in additional Treasury purchases a year, a modest amount in the scheme of the Fed’s overall holdings.

Olick – lower rates no major impact on mortgages

“Are you kidding?  What do you mean mortgage rates mean nothing to housing?  Well, we’ve been sitting around record lows on the 30-year fixed for many many months now, and while the refinance market has certainly seen a boost, the home purchase market has not.  A full 78% of residential mortgage applications today are for refis, not purchases. Would things be worse if rates were higher? Of course. I’m just saying they wouldn’t be much better if rates dropped another 40 or even 50 basis points.  Today the Fed Funds rate remained unchanged, which doesn’t tie directly to the 30-year fixed, but in the additional comments, Fed governors said they would put proceeds from maturing mortgage bonds into treasury debt.  So much for an exit strategy. 

The Vanguard Group’s Ken Volpert said he reads in that: ‘Mortgage rates are low and being lower is not going to make a difference.’  Capital Growth Management’s Ken Heebner adds of the Fed and mortgage rates, ‘They don’t need to drive them lower. You could see mortgages go lower but I think this action reinforces their commitment to drive stimulus.’  But I guess I didn’t need all these learned Wall Street types to tell me that, as I spent the morning with a real estate agent, as he prepared for a Realtor’s open house on a Chevy Chase, Maryland property that just dropped in price by more than $200,000.  Mortgage rates? ‘It is a piece of the equation; it is relatively small though in the big picture of things,” he tells me. “Issues like stability of employment, cash that the buyers may be pulling out of the stock market in order to pay for the home, and just the insecurity they may have regarding what is the price or the value of the home going to do after they go to settlement? The cumulative of those different issues, I think, have created some timidity for the purchasers out there.’  He also added something a little more startling to hear in this upscale neighborhood: ‘They are coming in the door with definite interest in buying a home, but there is a concern: Are they going to have the ability to keep the house?’”

US trade gap widens

The Commerce Department reported yesterday that the monthly trade gap totaled $49.9 billion, or 18.8%, in June on a surge of consumer goods from China and other suppliers, suggesting U.S. second-quarter economic growth was much weaker than previously thought.  That deficit was wider than any of the 67 Wall Street forecasts collected before the report, and is likely to prompt analysts to ratchet down estimates of second-quarter gross domestic product growth.  U.S. imports of goods and services grew 3% in June to $200.3 billion, the highest since October 2008, in a show of strengthening domestic demand. Imports of consumer goods hit a record $43.1 billion and imports of non-petroleum goods were the highest since August 2008.  Imports from China soared to $32.9 billion, the highest since October 2008.  The closely watched U.S trade deficit with the East Asian manufacturer widened to $26.2 billion, also the highest since October 2008, while U.S. exports to China fell slightly.  The big jump in the U.S. trade deficit follows Chinese government data on Tuesday that showed China’s trade surplus surged to $28.7 billion in July, an 18-month high.

Short Refinance not very effective according to Amherst

Last week, the US Department of Housing and Urban Development (HUD) announced that the Federal Housing Administration (FHA) Short Refinance program would provide additional refinancing options to underwater homeowners starting Sept. 7.  According to Amherst Securities Group though, the number of mortgage loans eligible for the new program will be “relatively few,” given debt-to-income restraints and that it’s a volunteer program.  To be eligible for the new loan, the homeowner must be underwater but still current on the mortgage. A credit score of 500 or better is required, and once refinanced and insured by the FHA, the new refinanced loan must have a loan-to-value ratio of no more than 97.75%. 

The borrower’s existing first-lien holder must agree to write at least 10% of the unpaid principal balance, and it must bring the borrower’s combined loan-to-value ratio to no more than 115%. The existing refinanced loan cannot be an FHA-insured one.  But in order for the servicer to avoid litigation from investors for the write-down, or achieve safe harbor, they must prove the loan is in imminent default. Few servicers would be willing to label a consistently current borrower as in danger of default and needs to have the principal written down, according to Amherst.  “The true use of this program will be for loans that were once delinquent, and have been modified,” according to Amherst.

Now for our real estate education section…

Real Estate – Literally Too Good to Be True?

While most of America sit on the sidelines waiting for a full economic recovery, savvy short sale and real estate investors that recognize a good thing when they see it are reaping huge economic rewards. It’s easy to understand why they are optimistic; exceptional interest rates, huge discounts and plenty of properties to choose from…why doesn’t everyone join in?

In what might seem like a contradiction, real estate might be suffering from the perception that it is too good to be true. Rather than take the time to really crunch the numbers, most Americans rely upon the media for most of the financial information (and then wonder why they aren’t ready to retire sooner). Aside from the somewhat dubious value of that strategy, they simply don’t understand how good the current market really is; when they hear about a successful short sale transaction or investment, the reaction is disbelief or denial. For the benefit of those who are sitting on the sidelines or perhaps trying to talk a bit of sense into a friend or family member, let’s take a few minutes to run a few simple calculations and comparisons.

House Price Illusions – One of the benefits of long term real estate holdings is the inflation hedge provided…it is also a major reason more people don’t fully understand how to properly value real estate. For example, the median purchase price of a house in 1964 was roughly $19,000. As of 2009 (the last full year of data), the median purchase price was roughly $206,000…a seemingly sizable increase in nominal terms. However, when adjusted for inflation, the 2009 house would equal only $30,000 in 1964 terms.

Bargains Galore – Of course, in 1964 there were not as many houses on the market. Today it is a buyer market with many homes selling well below the $200,000 level. In many areas of the nation it’s possible to find relatively newer homes selling for less than half that amount…or the equivalent of only $15,000 in 1965 terms.

Better Rates – The savings don’t stop with prices. Interest rates really make a difference in the total cost of a house; with 30 year fixed interest loans below 5% and relatively low down payment, houses remain even more affordable today than at almost any time in the past 4 decades. Combined with a higher minimum wage, it’s possible for two minimum wage earners with decent credit to purchase an affordable starter home for roughly the cost of a car payment…and lock in that great monthly payment for a full 30 years. It’s one of the most simple yet effective ways to storm-proof a portfolio for years to come. Young people have an especially great reason to turn to short-sales to purchase their first home or begin investing early; great prices, great rates and plenty of time on your side. It’s a win-win proposition. Not sure it can be done…take the time to tune-in and see the short sale kid in action. Young or old this is an equal opportunity venture you can’t afford to miss.

See you at the top!

Chris McLaughlin
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Copyright Loss Mitigation Institute LLC 2010.

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About the author:

Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.

    * As the top Florida foreclosure and pre-
      foreclosure expert, he oversees more than
      100 short sale & REO closings each month
   * Long-time authority on real estate investing
      and rapid reselling of distressed homes.  Owns
      portfolio of nearly 100 high-value, high-profit
     properties
    * Owner of one of Florida’s largest Real Estate firms,
     running 4 different offices, supporting over
     400 agents, uniquely positioning him to help
     thousands of investors make money in the
     biggest market opportunity ever!
    * Highly sought-after speaker, consultant, and
      seminar leader for current trends and hot topics
      in Real Estate Investing, Entrepreneurship, and
      Wealth Building
    * Follow me on Twitter: http://twitter.com/mclaughlinchris
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