Category — Fed

What is the MDIA or Mortgage Disclosure Information Act?

The Mortgage Disclosure Information Act or MDIA was passed into law when Congress enacted the Housing and Economic Recovery Act becoming effective July 30, 2009. The MDIA, seeks to ensure that consumer’s receive cost disclosures earlier in the mortgage process to create transparency during the loan process. It is important to understand the significance of this law and the affect it can have on your loan closings. Bear in mind, this rule only applies to primary residences and vacation / second home transactions and the interpretation will vary among lenders who will error on the side of caution.

What Changes Do the New Rules Bring?

The MDIA only allows a “reasonable” credit report fee to be collected before the customer receives the Good Faith Estimate (GFE) and Truth in Lending (TIL). The customer must receive both the GFE and the TIL within 3 days of application. Once the borrower has received and signed the initial Truth in Lending Disclosure, the loan officer can then order the appraisal. The MDIA has established the following schedule to be used to determine when it is permissible to accept fees:

• Disclosures mailed to borrowers —- on the 4th business day after mailing
• Disclosures e-mailed to borrowers —- on the day actual receipt is confirmed
• Disclosures are provided in person —- on the day of receipt

There is a 7 day mandatory waiting period after receiving the final Good Faith Estimate and Truth in Lending before signing final loan documents. If, throughout the loan process, the fees and charges change more than 10%, the APR by .125% or a change in loan terms there is a mandatory 3 day wait plus the mandatory wait time based on the manor the re disclosure took place. Its important to note, that this means ANY fees added after the initial disclosure has been made, not just lender.

What Makes the APR change?

• Fees - Changes in lender or title fees
• Interest Rate - Locking a rate other than what was disclosed on the application or an extension in rate lock time period
• Loan Amount - Putting more or less money down; Reduction in purchase price
• Type of Loan - Deciding to put less money down, changing to an FHA or VA which can have more fees associated.

What Can a REALTOR® & Lender do to Help Ensure Timely Close?

First it’s important for everyone to be on the same page to understand that the loan process will take longer. It’s crucial that the buyer is genuinely pre-approved prior to entering into the contract. Its imperative that a dialogue takes place in the beginning with the chosen title representative to accurately reflect their fees. Its important for loan officers to lock the loan early in the process, don’t gamble the interest rate. Going forward its important to manage your customers expectations. Also, its going to be important to schedule your loan closings 45 days out and initially even 60 days while lenders get used to these new processes as we are only 3 weeks into it and the first loans are approaching closing.

If something does come up at the end it’s important to note, that no re disclosure is necessary if the lender, broker, Realtor or seller pay whatever fee was added. The final rule also allows consumers to expedite consummation to meet a bona fide personal financial emergency.

Be ready, more regulations coming down the pike as well. New RESPA regulations that were published November 17, 2008 and are scheduled to take full effect on January 1, 2010.

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Ouch! Mortgage bonds had a horrible week with the 4.5% bond falling from a high of 100.75 to a close of 98.75 a whopping 200 points. Looks like we will begin next week with significantly higher mortgage rates, apparently the economy has begun to see the light at the end of the tunnel and the worst is behind it according to all the “good news” out last week that caused the selling of mortgage bonds. A key question is are we out of the woods or is it just a little rebound before the downtrend continues?

Unemployment dropped to 9.4%, from the prior month’s reading of 9.5% - breaking a streak of 9 straight monthly increases. People still aren’t spending. Savings rate stands at 4.6%, down from May figure of 6.2% but still up significantly from prior publications of negative to 1% all the while wages and salaries have declined 4.7% from the prior year. Consumers have still have little access to credit as credit cards and home equity lines have all but dried up. The only thing that could stimulate the consumer would be a reversal of wages or lower taxes and with the Fed Printing Press working 24 hour days, 7 days a week we can be assured tax rates will increase…significantly is my guess. Just next week the Fed will be auctioning off another $75B. How high can taxes go?… funny you should ask!

Housing has been rebounding. On Tuesday, the Pending Home Sales Index came in at an amazing 3.6%, where only a 0.7% rise was expected. The National Association of Realtors reported that Pending Home Sales rose in June for the fifth straight month, fueled by low home loan rates and bargain home prices. Its important to note that this figure is on contracts written and not closed…. But regardless it seems the Fed’s buying of mortgage bonds to keep rates low, over $ ONE TRILLION worth, and the $8,000 “first time” home buyer tax credit does seem to be helping sales to firm. Can we say missing the boat???

Be on the look out his week for rates to bounce a little lower due to last weeks oversold conditions, with hand on trigger to lock. We are still on a long term down trend but still below all major moving averages. Hopefully the 4.5% mortgage bond can get above the 50 day moving average of 99.41 and the 100 day next at 99.90.

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Over 275 subprime lenders, Countrywide, Bear Stearns, Lehman Brothers, Merrill Lynch, Washington Mutual, Fannie Mae, Freddie Mac and now Wachovia……. getting bought out days before it would have to go the way of Lehman Brothers. The FDIC comes out to say that “Wachovia did not fail.” That is a major play on words.

The American public spoke today. I for one am getting tired of the “bailout talks.” Let the cards fall where they may. Giving $700 billion is nothing but a reward to those that got us in this mess. At what point would a rational person think there was a problem? After the 275 subprime lenders? It just did not have to go down this way. Why do taxpayers have to ante up? We did not do this.  There are other ways to fix this situation and saving some executives butt is not something to which I am inclined to say yes.

I say, hell no to the bail out. There has been way to much saving face with Wachovia, Bear, WAMU and all the others.

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Big news today was that Warren Buffet was taking a $5-10 billion stake in Goldman Sachs. Two important points to point out is over the last few days Goldman has repeatedly stated that it was in no need of equity and sufficiently capitalized. The second point is not to get too excited. Yes Warren Buffet is the greatest investor of all time and yes he is very shrewd and yes he makes a ton of money on his investments but I would not go as far as the media to say that his investment marks the bottom and would not follow his lead just yet.

Listening to the media there has been 3 prior bottoms as well. His $10 billion is protected to the tune of a guaranteed return of 10% a year. So the bottom is a lot closer for him than us little guys. But this is a good this as a vote of confidence in the sense that the investment community is more willing to make investments in the financial sector…and this could be a turning point. But probably not THE turning point.

On the flip side  Fed Chairman Bernanke and Treasury Secretary Paulson had some trouble selling the $700 billion bailout to the Senate Banking Committee. There is a lot uncertainty regarding this bailout funding and the market will be very reluctant to go higher until it can see the plan come together.

So once again we are in a hurry up and wait mentality.

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Do not go to the bath room with an unlocked loan or open trade. The 10 minutes can cost thousands! Volatility and panic set in the market again as traders once again questioned the governments plan to buy mortgage backed securities and bid up commodity prices and sold the dollar. Looking forward to the fed having to auction off more Treasuries in their effort to raise the $700 Billion needed to finance the bailout. It’s pretty much a sure thing that anything the government estimates is off by 2/3rds. So it’s only a matter of time before they are in the trillions.

October Crude contracts were trading $25 higher at one point, the highest one day gain in history, closing up $16.37 higher on the day. With oil higher and heavy metals such as gold rallying nearly $45 an oz, we are once again touching on inflationary fears which would make mortgage rates soar. After hitting a recent high last Tuesday of 101.69 the 5.5% MBS have given up nearly 175bps to close at 99.9375. The Dow got hammered and gave up nearly all Fridays gains to close down 372 points.

If we are in a recession, mortgage rates don’t know it yet. The markets tend to be very omniscient.

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The market is hanging deep in its hole but has at least stopped digging. The weekend is thankfully approaching and trade is wondering just how many more things can be thrown its way come Monday morning and how it wants to be positioned. It has paid off to be long the flight-to-quality trade and given Paulson’s less-than detailed press conference, the dip buyers may yet be inclined to shore up prices at the lows.

The 10-yr yield hovers around the pivotal 3.76% level with a close below keeping bonds in the game but severely scrambled.  With the Dow, NASDAQ & S&P raring upwards, Treasuries and Agency MBS’s are taking the brunt of the blow as investors move safe harbor capital off the sidelines to deploy them back in the stock market.  As a result, Agency MBS pricing is off a full point as is GNMA (FHA) MBS.  Wow, what a week it was.

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The market backing off with the flight-to-quality taking a bit of a breather. Central banks have coordinated an injection of about $180B into the banking system (Bloomberg) and that seems to have calmed some nerves, for now. But the threat of broken banks hasn’t just gone away and funds will likely flow to treasuries, just not as panicked.

Once again, with each new fix the risk is it doesn’t work.  Not that anyone is paying attention to the mundane economic data being released, but initial claims came in on the high side of expectations at 455K vs an expected 440K mark and leading indicators off consensus levels as well.  The slumping economy’s impact on the credit crunch has not been addressed as much as the vice versa effect, the credit crunch’s effect on the economy.

Don’t discount the exacerbating effect on the current financial fiasco of an economy that is shedding jobs at an alarming pace.  So doom and gloom aside, agency MBS pricing is selling this morning as the central bank capital injections have temporarily soothed the flight to quality stampede.  FNMA 5.00% MBS are off 12 ticks (-12/32) while GNMA (FHA) 5.00% are off 7 ticks (-7/32).

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I received a call Friday January 25th, 2008 from a freelance reporter in Los Angeles named Marcie Geffner who was doing a story for a well known bank website called BankRate. She wanted to interview me to get my opinion on whether those with adjustable rates should take advantage of the lower fixed rates and refinance.

You can see the whole Bank Rate article here.

This interview led me to some important points that I want to make. It’s not a marketing secret that scaring the crap out of consumers is a pretty useful sales tactic. People buy on emotion and make emotional decisions and the news media and advertisers sell products that way.

I have been pounding the table since May 2007 that the Federal Reserve would start to lower rates in the fall of 2007; you can see my Blog post. So this big whoop la comes as no surprise.

What needs to be understood is that mortgages just like any investment should be managed. Just like investments, different loan products “perform” better during certain periods and working with a Certified Mortgage Planner allows customers to take advantage of changes in market sentiment and conditions and save $10’s of thousands of dollars.

Managing a mortgage is not about getting the lowest interest rate. It’s about matching the mortgage to the client’s financial goals. When you match the mortgage to their financial goals rates do not matter. The loan program that you have is meeting a certain financial need of the borrower.

This is part of wealth creation I explain to clients. In this business I have meet many people who have achieved great wealth by aligning their mortgage (s) to their financial need. I have never met one that achieved great wealth because they received the lowest mortgage rate. [Read more →]

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In an emergency phone meeting, Monday night, the Fed Cut Rates .75%. The biggest one time rate cut since 1984. The Fed meet before its scheduled January 29th-30th meeting and is expected to cut ANOTHER .50% at that time. This move all but says we may be in a recession.

The stock market is scheduled to open with its worse drop in recent memory and bad news for Bank of America, reporting it a 95% drop in net income and may call in to question the buy out of beleaguered Countrywide.

If Bank of America does not go forward with the Countrywide buy, Countrywide is all but assured a spot in Federal Bankruptcy court and that would send additional shock waves through the financial markets.

Those with adjustable rates gotta be loving the current rate environment. I have been saying since May 2007 the Fed would lower rates and I would go with short term adjust ables. Those with a home equity line of credit will see their rate decline this month of at least .75%. All the short term adjustable rate indices’s, such as the LIBOR, MTA and CMT will have huge declines today and over the coming months so we will all see our payments going down. Who would have ever thought we would see the 30 year near 5%?

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On October 30 and 31st the Fed meets again. Looks like the odds of a .25% reduction in the Fed Funds is 100%. Chances of a reduction of .50% are sitting around 20%. Primarily the reason for the increased optimism of a reduction has been related to the horrible earnings announcements by the big banks and mortgage lenders, such as Bank of America who reported $1.45 billion in trading losses, Wachovia with $1.3 billion in losses and write downs, Countrywide reporting a 1.2 billion loss and Merrill Lynch who reported a $8.4 billion third-quarter write-off all due to their exposures to the subprime mortgage market. On the economic front all has been fairly well the last few months.

The only major news this week will be Wednesday’s Pending Home Sales and the ADP employment report. The ADP number has been historically inaccurate. The actual Employment number will be released on Friday.

Going into next week, I would float all short term rates and lock long term. Right now we are looking a 30 year fixed under 6% these rates have not been seen for a long time and should be taken advantage of before the fed announcement. Longer term I would float all loans as I believe we will have lower rates overall in the months to come.

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Fed Chairman spoke at The Economic Club of New York last night and todays stock market sell off was at least in part a reaction to his comments on the current financial crisis. Chairman Bernanke stated in his conclusion, that although the credit markets have seen some improvement, he thinks that a “full recovery of market functioning may take some time” and “we may well see some setbacks.”

Some positive notes to point out from his speech:

• Core Inflation has moderated but overall inflation risks remain
• Consumer Spending has thus far has not been effected

So, just what is core inflation? Core inflation itself, has no specific definition. There are 3 core measures the Fed uses.

1. PPI or Producer Price Index - measures prices on a wholesale level
2. CPI or Consumer Price Index - CPI measures a basket of goods or services. There are eight groups from where price data is collected. Housing, Food and Beverages, Transportation, Apparel, Education, Medical Care and Communication, Other goods and services
3. PCE or Personal Consumption - measures the prices paid by consumers on a domestic level for goods or services

(CPI numbers will be reported tomorrow morning 10/16 at 8:30 am. Estimates are for 0.2%)

Consumer Spending was mentioned more than once throughout the speech and will be a heavyweight for a decision at the next FOMC meeting on October 30 - 31 and going forward. Chairman Bernanke and the rest of The Dream Team will have a watchful eye for any “spill over to other parts of the economy–for example, by acting as a restraint on consumer spending.” Consumer spending is huge for the overall economy as it accounts for a full 2/3rds of GDP. So its the uncontested heavyweight in the feds eye for now.

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There is a debate going on between those that feel the Federal Government, Mortgage Lenders, Builders and Banks are under an obligation to assist homeowners whose loans are getting ready to and have adjusted and to assist those that are already facing foreclosure. The other side of the debate says that there should be no assistance and let the cards fall where they may, that a government bailout is a free license to go out without caution and the government will save you.

Side One: What are the government leaders saying by bailing out these borrowers? These home owners were given an opportunity; an opportunity that they otherwise would not have had. Subprime loans where designed, in theory anyway, to help those with bad credit get a loan and over the course of the next 2 to 3 years repair their credit and get into a low rate good credit loan. Problem with that is 90% of the people with bad credit have bad credit because they never pay their bills and can not manage their debt. The majority of subprime borrowers did nothing once the loan closed to repair their credit. They already have bad credit let them go to foreclosure. Bailing them out is just giving a green light to go out and mismanage their finances again. Give them tough love do not enable them. Screw ‘em. Let them drown. These borrowers need to learn from their mistakes. [Read more →]

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Stock investors are singing The Happy Song as the closely watched September employment report came in higher than expected, and the market was very surprised by a revision to the August -4,000 job loss report to a net gain of 89,000 jobs. These numbers had the S&P 500 closing at new highs and other index’s such as the NASDAQ and Dow Jones hitting new highs intra day before profit taking.The Labor Department reported that the U.S. economy added 110,000 jobs and experienced an unemployment rate of 4.7 percent during the month of September, higher than the 100,000 expected. This news sent bond and mortgage backed security yields quite higher, so those seeking to lock a mortgage rate over the next day or so will be paying higher prices.The latest jobs report again, proves that the off the cuff Mozilo recession talk was baseless and unfounded. Leaves you wondering why a CEO the largest mortgage company in the US would make such a statement without qualification. The in-line reading and revision to last month’s number however, have analysts reevaluating whether there is the possibility the Federal Reserve will lower rates again when it meets October 30th - 31st and whether the lowering last month was prudent.The major news next week will be the release of the FOMC minutes on Tuesday and Retail Sales on Friday so we will see if these numbers can bring down mortgage rates or if we are in for higher mortgage rates going into winter. It looks like to me, we could have higher mortgage rates for the next month, maybe even higher rates for the quarter as technical indicators seem to be breaking down but longer term 6 months to a year indicators still look in tact for lower rates. But again, any negative news on any given day can change the direction dramatically so stay tuned.The bond markets will be closed on Monday, October 8, but the stock markets are business as usual.

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Well it finally happened, the federal reserve lowered interest rates. Its been my belief all year that the Federal Reserve would lower rates in the fall. Now that it has happened its important for consumers to understand what this Fed Rate Cut means to you and your mortgage.

First, for those that have a 30 year fixed rate mortgage it basically means nothing. The lower Fed Funds Rate DOES NOT mean that the 30 year fixed rate mortgage will go down. Actually, the 30 year can go higher as this chart illustrates. By December 2001, following 4.25% in cuts throughout the year, the 30 year mortgage was actually up to 7.07%.

Additionally, with the September 18th Fed cut the average 30 year fixed rate mortgage responded by increasing 5 basis points last week after the announcement. The chart above shows from the year 2001 to mid 20007, the 30 year fixed rate stayed relatively flat and has been predominately trading in a range of 5.875% to 6.25% since the spring of 2002.

But those that have short term adjustable rates, I myself having a monthly adjustable, may very well reap the rewards over the coming months and years if this rate reduction continues. You will notice by the two charts below, that the LIBOR rates, 1YR CMT and 11th District COFI have dropped nearly in tandem with the Federal Funds rate reduction. The LIBOR dropped from 7% in 2001 down to 1% not long after.

Fed Funds Rate since 1990:

Chart of LIBOR, CMT and COFI Indices since 1990:

The coming Fed rate reduction is why I have been a big fan of short term adjustable loans for the whole year. Short term adjustable rates are tremendous mortgage planning tools in a declining interest rate environment. Where people may tend to get into trouble, they get these loans in a increasing rate environment which makes no sense. Why would anyone get a short term adjustable in a increasing rate environment? Does not make sense to me.

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President Bush announced a new Federal Housing Administration (FHA) initiative called FHA Secure to assist approximately 240,000 homeowners in refinancing out of adjustable rate mortgages and keep their homes. FHA Secure is a temporary program and all loan applications must be signed no later than December 31, 2008. With the new FHA Secure program homeowners with strong credit histories and have made all payments on time until their loan reset but are now in default will be eligible for refinancing.

“Many hard-working American families who were able to make their mortgage payments under the initial teaser terms of the exotic loan are now struggling to make ends meet because their rates have doubled or tripled,” said HUD Secretary Alphonso Jackson. “FHA Secure will bring stability to the housing market and give eligible families who were in good financial standing before their loans reset a chance to keep their homes.”

To qualify for FHASecure, eligible homeowners must meet the following five criteria:

1. A history of on-time mortgage payments before the borrower’s teaser rates expired and loans reset;
2. Interest rates must have or will reset between June 2005 and December 2009;
3. Three percent cash or equity in the home;
4. A sustained history of employment; and
5. Sufficient income to make the mortgage payment.

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