Broker's Blog

It seems like I can't ever get through a day anymore where the news, my clients, my referral sources, friends, family or all of the above isn't commenting, ok complaining, about the state of the housing market, the economy, foreign policy, the Fed, the presidential candidates, etc.  Is it just me, or does there seem to be an attitude of impending doom which is running through our society, and more specifically, our industry?  I admit, times aren't the greatest and I have done my share of whining, but is the sky really falling?

Perhaps the desire for immediate gratification has skewed our thinking and lead too many folks to focus on the short term challenges and to not look through the eyes of history at the bigger picture. 

I had the privilege of going to a benefits meeting attended by 100 or so American Veterans in beautiful Bandera, yesterday evening, at the invitation of Mary Jo Schaffer (a fellow activerain blogger).  It was a great experience...this is why.  Yesterday had more than it's share of uptight conversations and fretting emails and I was letting it start to get to me.  My phone was ringing all the way to Bandera and only a couple of the calls actually had to do with closing deals, most were folks bemoning the current state of affairs.  As I was entering Bandera, I got off the phone to find my way and quickly realized that even though I'm in the country more than most (our main office is in Boerne), I wasn't taking the time to enjoy it!  So I took  a deep breath, found the Silver Sage Corral Events Center, and walked in, not exactly sure what to expect.  What I found was a group of brave souls who risked everything on many occasions to allow us to live in this great country.  A few of the WW2 vets reminded me of my grandfather who was in the war himself and lived through the great depression.  A flood of stories he has told me over the years of his experiences in the depression and in the war ran through my mind.  I was immediatly embarassed of my own recent tendency to focus on the glass as half empty and to not be regularly counting my blessings.  On the way back to San Antonio I tried to take a step back and look at our current situation form a broader perspective...

Today is a sad day for those of us who have made Tex Vet Loans a regular part of our program offerings.  The Texas Veteran's Land Board has ended the rate discounts which were available on 15 year terms and for "service era" veterans (served during the Vietnam War and have been retired/discharged less than 30 yrs).  Up until now there was no lower interest rate on a fixed term than a Texas Veterans subsidized loan to a "service era" veteran.  The rates on these loans were almost always in the 4 percent range. 

But the news isn't all bad.  Texas Veteran's Land Board still has below market base rates, still has a rate reduction for veteran's with a service connected disability rating of 50% or higher, and VA still waives the funding fee for diabled veterans.  Also, it is strongly rumored that in lieu of the "service era" discount, TX VET Land Board will lower the base rate significantly.  This would help a much larger number of veterans, since the number of eligible "service era" veterans decreases significantly each year (mostly due to the <= 30 yrs since retirement/discharge requirement).  TX Vet Land Board publishes the TX Veterans Housing Assistance rates (www.texasveterans.com, then "housing assistance", then "interest rates") every Friday at approximately 5pm (officially it's at the beginning of the first business day of the week).  I'll post again, once we know what the policy rate change is going to be.

This program is still a fantastic benefit which Texas provides for our veterans, and I am unaware of any program like it in any other state.  For almost all qualified veterans, the deal still doesn't get much better than what Texas Vet Financing affords to our TX Veterans.

If you are a Texas Veteran or know someone who is and could benefit from a below market rate loan for the purchase of a home, please call Marshall @ 210-274-3037 for more information.

“If we don’t change direction soon, we’ll end up where we’re going.” This quip by Prof Irwin Corey, an American vaudeville comic and actor, seems to mirror the mindset of many government agencies dealing with the regulation and facilitation of the housing and finance industries. Change is the name of the game, today, and some say it’s barely half-time.

Congress passed, and the president signed into law, HR 3221 (the Housing and Economic Recovery Act of 2008) at the end of July. This law has many provisions and it’s not my intention to discuss them all. Here’s a highlight of some of the changes…

• Registration / Licensure of all originators: This provision requires all originators to be licensed/registered with the National Mortgage Licensing System and Registry (except Federally Chartered Institutions). Although this will be a logistical nightmare for some in the industry, it should help “clean up” the industry.
• Tax Credit for First Time Homebuyers: This provision allows for any first time homebuyer who purchases/purchased between the dates of April 9, 2008 and July 1, 2009 (it’s in effect now) receive a $7,500 tax credit for the year in which they bought their home. This is a tax credit and not a tax deduction and is paid back to the IRS over the next 15 years (or sooner if the property becomes a rental home). There is no interest charged on the tax credit funds which are repaid. As always, there are some exceptions. I am not a CPA, but I was told on an industry conference call that this will not affect alternative minimum taxation and phases out above $150,000 combined, married annual income. I would imagine there are other implications, so check with your tax advisor to find out how it would affect you, specifically. Either way, an interest free loan from the IRS doesn’t happen every day!
• Conventional Loan Limits Increased: The formula for determining loan limits in high cost areas was adjusted, but it shouldn’t affect us here in TX.
• Fannie/Freddie Oversight: This provision establishes a new federal regulator with powers similar to a Federal Bank regulator to oversee the activities of Fannie and Freddie. The funding source for this regulator and the associated funds is being paid for by an additional 4.2 basis point fee added to loan interest rates.
• Fannie/Freddie Stability: This provision authorizes the Secretary of the Treasury to extend lines of credit and to, if necessary, purchase equity in Fannie or Freddie to ensure solvency and calm the credit markets.
• FHA Rescue/Hope Now: These two programs are designed, in different ways, to help those experiencing serious delinquency or feeling a serious house payment crunch. The exact details of how the plans will be administered (and the details of the plan itself) have not yet been ironed out. More to follow when it’s known.
• FHA Modernization: Ok, here’s the biggie. As of the end of September, FHA will no longer insure loans which involve Seller Funded Down Payment Assistance (SFDPA). This doesn’t sound like such a big deal until you consider that over 1/3^rd of First Time Homebuyers who use FHA for financing utilize SFDPA, because if they can’t pay the entire down-payment themselves, get a gift from a blood relative, receive Down payment Assistance from a community or grant based program (will be used up quickly), receive the money from their employer, or borrow the money out of their retirement, that’s the only option left. So, in order to buy a home with little to no money down after the end of September, borrowers will have to be VA eligible, find and qualify for community grant money, have such high credit scores and reserves that they can qualify for one of the very few and far between portfolio zero down home loans, or have an employer or relative willing to GIVE them the down payment. As if that doesn’t tighten up things, enough, they are increasing the minimum down payment requirement from 3-3.5%, while also raising upfront and monthly mortgage insurance payments. I can understand needing to change some of the requirements for SFDPA or providing a 1-2% down program which requires a stronger credit profile, but HUD insists that if these changes aren’t made, then they will have to be supplemented by taxpayers to the tune of $1.4 billion in 2009.

HUD also sites that loans with SFDPA suffer almost 3 times the delinquency rates as traditional FHA loans. I’m not sure what the best answer is, but I do know that for millions of Americans who have the ability to reliably make a house payment and be responsible home owners, if they do not close on a FHA loan by the end of September, they will no longer be able to purchase a home without a sizeable down-payment, thus taking them out of the housing market until their savings or industry changes allow them to purchase. These loans are not inherently bad. Proper budgeting and planning before the purchase of a home and working with a mortgage professional who desires to see you in a good position go along way to ensuring a happy homeownership experience.

It’s a buyer’s market, San Antonio (and most of Texas) have seen stable real-estate markets (albeit a little slower), the IRS is offering $7,500 interest free “loans”, you can still utilize SFDPA and move in with little to no money down up to $332,500, and all this while rates are historically low. Although no one can predict the future, it would seem that the rest of August and September would be an excellent opportunity for FHA buyers (especially first time homebuyers) to realize the American dream and become homeowners before the process becomes even more difficult.

So change is still (and will continue to be) the name of the game. The upside is that with change comes opportunity. Ramsay Clark once said, “Turbulence is life force. It is opportunity. Let’s love turbulence and use it for change.” I think he’s got something there.

The real estate finance industry is a very confusing place for most consumers (and many loan officers) right now, and many of the mass media reports I read or hear aren't helping the situation.  Over the next few weeks I will address some common misconceptions and provide a few updates on the realities of today's mortgage marketplace in the hope of bringing some clarity to the situation.

Interest Rates 101

The need for a knowledgeable and conscientous mortgage professional has never been more important.  The only reliable way to monitor mortgage rates on a real time basis is to monitor the mortgage backed securities market.  The most common misconception that I hear over and over again is that the Federal Reserve's reductions of interest rates automatically translate into a reduction in mortgage rates.  In reality, the opposite is usually true, especially for the week or so following the reduction.  The reason is this - the rates which the Federal Reserve directly controls (Fed Funds Rate, Discount Rate, and Prime Rate) are ALL short term interest rates.  These reductions affect (or should affect) short term rates and/or adjustable rates such as credit cards, car loans, consumer loans, and the like. 

Mortgage Interest rates are determined by the demand for fixed rate mortgage backed securities which are mostly issued by Fannie Mae and Freddie Mac (known as GSEs - government sponsored enterprises).  The higher the demand is for these bonds/securities, the lower the actual interest rate is.  Wall Street usually sees a reduction in Fed Reserve rates as good news for stocks, and so the demand for stocks goes up, while the demand for bonds goes down (thus a higher interest rate on mortgage backed securities/bonds).  If the Fed continues to push short term rates lower too aggresively and inflation becomes a significant factor, mortgage rates will increase even more in both the short and long term.  So, you might think that a reasonable benchmark by which to guage mortgage interest rates would be the 10 or 30 yr US treasury bond...and that used to be the case.  In these uncertain financial times it is not uncommon for treasuries and mortgage backed securities to move in opposite directions at the same time.  Alot of this has to do with both the devaluation of mortgage backed security pools which contain subprime loans and the perceived stability of the companies which insure mortgage bonds. 

Are you still with me?  I can hear the yawns from here...stick with me for just a little longer...you'll have a better understanding of mortgage rates and pricing than many loan officers do...  As if this issue wasn't complicated enough, these days, Fannie Mae and Freddie Mac keep increasing the fees they charge to lenders to deliver a loan to be securitized.  Go figure, the lenders pass it right along to the consumer.  So, even if base interest rates stay the same, the effective interest rate provided to the borrower has increased (and all signs point to a continuing of this trend).  Example:  A borrower with a 640 credit score who wishes to put 5% down on the purchase of a home will pay approximately .25% higher in interest rate today than they would have with the same base interest rate 9 months ago.  The amount of mortgage insurance has increased, as well.  The news may say mortgage rates are getting lower, but depending on your situation, the exact opposite may very well be true.  Fannie and Freddie have announced additional underwriting guideline revisions AND LOAN DELIVERY FEES which will be in place by the end of May.  Wells Fargo announced, yesterday, the introduction of a .75% (300 bps to price) increase to rates on any program which has a guideline change which was not locked prior to that change.  Analysts don't expect the current trends to reverse until 2010.

The bottom line is:  If you have considered buying, building, or refinancing any realestate, the time to act is now!  Base rates could creep a bit lower before climbing higher, but lender delivery fee increases show no signs of slowing down...making your net interest rate higher.

Marshall Moody is a licensed mortgage broker and the owner of Stone Oak Mortgage - a full service mortgage broker firm - in San Antonio, TX.  Please feel free to contact him at (210) 497-6565 with any questions or concerns about realestate finance.

Howdy, folks! After much prodding by my web marketing consultant, employees, family and friends (all of which are most likely tired of my rants) I am starting a Blog…welcome to the first edition.

Since this is the first post, I’ll introduce myself. My name is Marshall Moody and I’m a manager and licensed mortgage broker (68973) for Stone Oak Mortgage (www.stoneoakmortgage.com) in San Antonio, TX. I also maintain memberships with National Association of Mortgage Brokers, Texas Association of Mortgage Brokers, Greater San Antonio Builder’s Association, Stone Oak Business Association, and the National Association of Home Builders. I’ve been in the industry in various capacities for over a decade. My biggest satisfaction is helping fellow citizens realize and maximize the American Dream of homeownership, but some recent events almost make it seem like the American Nightmare! Use a reputable broker to stay out of that second classification…but I digress.

Unless you don’t have any connection with recent news, you know that the mortgage industry is in shambles…which has spilled over into the real estate industry in a big way…and is spilling (or will be spilling) into the broader economy. Many analysts have said that this is the worst nationwide real estate market that we’ve seen since the great depression…in my opinion that’s pushing it, but not far off in some areas of the country (thank God I live in Texas!)

Congress and consumer advocate groups have responded by initiating, supporting, and passing legislation which they believe will protect consumers from loans which they do not need to be in, and will help keep brokers / lenders “in check”. I would guess that most folks (including me) find this admirable and worthy of pursuing…the mortgage industry obviously needs to change.

The first major piece of legislation was the FHA reform act which most citizens and many in congress support…it will greatly increase the ability of both banks and brokers to help out those who need to refinance out of ARMs and also keeps the lower priced purchase market liquid. Although met with significant support, it has stagnated in the Senate…presumably stuck in committee due to political concerns. It’s a shame and this bill should be passed as quickly as prudently possible.

This leads me to HR 3915 which recently passed the House of Representatives, and is on its way to the Senate. This Bill has some excellent provisions for protecting consumers, but in a few ways could actually lead to more harm than good.

First, the good stuff!

1) This bill provides for Nationalized Licensing requirements for all loan originators that are not employees of federally chartered banks (like Bank of America, WAMU, and the like). It appears that federally chartered bank’s originators will only need to be registered. Although it still has a loophole for federally chartered institutions, this is still being debated and is, at least, a big step forward in keeping the criminal element minimized in our industry. The obvious increase in accountability should be welcomed by consumers and mortgage professionals, alike, since any licensed originator will have to pass a 100 question test, a criminal background check, net worth or bonding requirements, and continuing education (along with occasional audits by state officials). Most would need to renew their license on an annual or bi-annual basis…all but originators at banks. Mortgage banking offices can still be a haven for those who fail to meet one or more of the requirements for licensing. It is well known in the industry, that if you can’t get licensed, go work at a bank…that must change.

2) This bill also re-emphasizes the need for early and frequent disclosure of fees to the borrower (brokers disclose the yield they make upon sale of the loan, while banks are exempt from disclosing this information, even an approximation). This is already required by RESPA and practiced by the majority of originators, but the strengthening and re-emphasis is appropriate considering the current state of affairs and consumer claims of ignorance and deception. If this bill is truly for the benefit of consumers, it is curious that the bank’s exemption from having to disclose their compensation and from licensing requirements still exists.

Now, the misguided stuff!

1) …as I just briefly mentioned above, the continuation of allowing the banks to hide their return on sale (Service Release Premium or SRP) while forcing brokers to disclose their return on sale (Yield Spread Premium or YSP) is still a disservice to consumers and grossly unfair. Beyond enforcing a less than level playing field, hurting competition and having transparency only on the broker side of the business, this allows high premium pricing programs to persist in the banking world. Some would say that the bankers are “safer” than the brokers, but please remember that it was mortgage banks and warehouse lenders which determined the underwriting guidelines for all the alt-a and sub-prime mortgages which are now causing these problems. Brokers do not set guidelines or package securities, they connect a borrower with a program which they qualify for based on the guidelines provided by the lenders or banks.

2) This relates to the info above in that the bill lowers the HOEPA triggers (thresholds which determine what a “high cost mortgage” is). HOEPA calculations for brokers include any YSP earned, but since banks are not required to disclose their SRP, it is NOT included in the calculation. The new standards would prevent brokers from being able to finance lower priced affordable housing…especially in high title cost states like TX. Do we really want the banks to have a monopoly on this business? Remember Countrywide is a bank and is not the only one who lended questionably. Brokers have traditionally done approx 60% of this business…many of these borrowers find banks intimidating.

3) This bill intends to legislate underwriting guidelines…WOW! That should be a scary thought for consumers! We wouldn’t want the government to tell us who can obtain life insurance and who can’t, which homes can be insured and which can’t, who can buy a car and who can’t, who can get medical insurance and who can’t…you get the point…so why would it be good for the mortgage industry? The bill requires that all borrowers demonstrate a documentable ability to repay the loan and it also all but outlaws non-prime lending. The reality of the matter is that the non-prime loans that started this problem are all but extinct since they are worthless on the secondary market. IF they ever return, it will be in a much more conservative, lower-risk-oriented version like the non-prime loan programs which have been around for many decades…which performed well (higher down-payment , reserve, credit requirements than existed in the previous few years). The language on “ability to repay” is currently being interpreted as the elimination of all stated income and low income documentation loans. Here again, the market and guidelines have already corrected. The only stated deals still readily available are for borrowers with sterling credit, lower loan-to-value ratios, are self-employed and have strong liquid asset reserves…these are tried and true guidelines from the past. To legislate these programs away will take another 20-40% of otherwise qualified buyers/borrowers out of the already struggling real estate market…further damaging what some are calling the worst real estate crisis since the great depression.

4) This bill also creates stiffer legal ramifications and exposure to civil litigation for firms which securitize mortgages. Although some level of accountability should be enforced, the current wording would lead to a rash of lawsuits and a whole new “how do you get out of your mortgage with no credit damage and maybe even some extra cash from the lender” industry which, one would think, raise mortgage rates to offset the legal losses they would surely incur. ….Right Motive…Wrong Methodology! I t could create a new term for lawyers, no longer the “ambulance chasers” they would be the “do you have a mortgage chasers”. Just what our country needs – more lawsuits.

If our government can pass prudent, constructive legislation at this very ripe opportunity, it shouldn’t be too long before the American Dream is a pleasant reality for more folks in more places while keeping the mortgage market solid and solvent.

Wow! More of a long rant than a blog post…I’ll work on that…apparently I had a lot on my chest…

I hope you found this informative. Please contact marshall@stoneoakmortgage.com with any questions, comments, concerns or suggestions!