Rates Set By Markets, Not The Fed
I love it when folks think that the US Government sets our mortgage rates, and not the supply & demand in the markets. It would sure make life easier for everyone in the business, especially secondary marketing & pricing folks.
Market Cliche Storm
I was standing in the unemployment line earlier this week, and overheard one guy tell his friend, “I need to stay in front of the curve right now, and figure out where the puck is going, not where’s its been. Heck, if I get hit by a bus….we don’t even know what we don’t know yet.” Obvious mortgage banker.
Property Value Too Low To Even Tax!
Here’s a true story. I inherited some acreage in Coalinga, California (near Fresno). As I was mailing off my property tax bills earlier this week, I noticed that I did not have the tax bill for the Coalinga property. I called the Fresno County Assessor’s office to see if I had misplaced it, and they replied, “A tax bill was never even sent. The value of the land was too low to even mail a tax bill this year!”
AmTrust Discontinues Condo Lending In Florida
85-year old Joe was just getting a haircut when the barber asked, “Tell me Joe, what you think about condos?” “I don’t know”, said Joe, “I never used them”. Amtrust just announced they will no longer lend on condos in Florida, effective Friday. This follows others lenders, such as Chase and Everbank who are restricting their lending there, along with the consortium of mortgage insurance companies that no longer insure condo’s in Florida. Wells Fargo, for example, for new construction and new conversion condominium projects in Florida, will require a full project approval. For them, the following are eligible review options: FHA Project Approval per the terms of Freddie Mac and Fannie Mae published parameters, Fannie Mae Project Approval (FNMA 1028), Fannie Mae Condo Project Manager (CPM) Approval. Wells Fargo Funding will no longer accept the Homeowners Association Certificate Review (Form 25) as an eligible review option.
Wells Fargo Coins New City Term: Micropolitan
While we’re on Wells Fargo, thanks to their announcement to correspondent lenders, I learned a new word yesterday: micropolitan. “In response to our ongoing mortgage market assessments, the Market Classification List is being updated as of December 15th. ‘Micropolitan Statistical Areas (smaller communities) and rural counties will now be considered when identifying counties for the Wells Fargo Market Classification List. As a result of this change you will notice an increase in the number of counties identified in Market Classification 2, 3 or 4. This change does not impact Market Classification Policy – this is only a change of counties and areas listed on the Market Classification List.’”
New Chase Guidelines
Chase unleashed a set of changes which take affect tomorrow. These include Chase eliminating > 30 year term on Freddie Mac Fixed Rate products, eliminating LP Accept Plus documentation level, eliminating DU verbal VOE, limiting Maximum DTI on Agency products with LTVs > 80% to the more restrictive of 55% or AUS findings, revising LTVs and CLTVs on Agency Fixed and ARM (Amortizing and Interest Only) products, revising LTVs and CLTVs on Non-Agency Interest Only, temporarily Suspending Co-ops on Agency Interest Only products, and revising appraisal policy on Construction to Permanent loans to require the effective date of the appraisal be dated no more than 120 days before the effective date of the permanent financing.
Jobless Claims at 26-Year High
We did have some potentially market moving news out this morning. The number of U.S. workers filing new claims for jobless benefits hit a 26-year high, with Jobless Claims +58,000 to 573,000. That was the highest print since November 1982, when 612,000 workers submitted new claims for unemployment benefits. The four-week moving average of new jobless claims rose to 540,500 from 526,250 the prior week, the highest since Dec. 18, 1982 when a reading of 554,500 was recorded. Also, the U.S. trade deficit widened unexpectedly by 1.1% to $57.2 billion in October as imports from China rose to a new record and oil imports rebounded as prices fell by a record amount. After the news the 10-yr seems content at 2.65%, and mortgages are roughly unchanged.
Pre-Fed Meeting Primer
The FOMC meets next week. So what, you ask? They are expected to make another overnight rate cut. Keep in mind that the Fed’s mandate is to promote “maximum employment, stable prices, and moderate long-term interest rates”. Easy as pie. Its primary tool to do this is the use of “open market operations”, which are the purchases or sales of Treasury and agency securities in the open market. Open market operations alter the size of the Fed’s balance sheet, since it can make purchases with its own IOUs, rather than by selling other assets or borrowing funds from some other institution.
From a bank’s point of view, suddenly the Fed owes them, and it increases their assets. The Fed’s purchase of Treasury securities increases the supply of reserves in the banking system. Normally a bank will use at least some of the reserves to make new loans, crediting the loan recipient’s deposit account in the process. Recently, however, the Fed has increased reserves and the monetary base dramatically, but broader measures of the money stock have moved much less due to banks (and companies & individuals) being cautious.
Most think of the FOMC changing the overnight Fed Funds rate: an increased supply of reserves in the system will tend to decrease short-term interest rates via its effect on the federal funds rate. Fed Funds is the rate at which banks lend balances held at the Fed to one another as one bank, finding itself short of required reserves (due to withdrawals) borrows from another that has too many. Interestingly, direct bank-to-bank lending occurs at a higher rate, with the most common reference rate being the London Interbank Offered Rate (LIBOR).
Just lock your dog and your spouse in the trunk of the car for an hour.
When you open the trunk, which one is really happy to see you?