Long Beach California Real Estate Loans

Long Beach, Ca.  The U.S. House passed President Obama's $819B stimulus package without any Republican votes. In the Senate, where the Republicans have more power to demand changes, they will likely ask for more tax cuts, less spending and a bigger focus on housing.  It is too bad that Washington is so divided.  Without working together, nothing will ever get done properly.  Rush Limbaugh's comments not withstanding, what we really need to do is to come up with a new plan that will positively affect everyone immediately.  It is disappointing that Pelosi thinks that funding birth control is really going to stimulate the economy. 

Ford posted a $5.9B 4Q loss ($14.6B total loss in 2008, $2.8B loss in 2007, and $12.6B loss in 2006), but reiterated that they will not need any government funding. There is a record $30B 5yr note auction today. Right now, the futures market is pricing in a 70% chance that the Fed keeps rates somewhere between 0 and .25% until at least June 24th, 2009.  Boeing announced they were letting go of another 1000 employees due to its recent losses.

Rates moved higher yesterday and this morning, in spite of the House passing the Stimulus Bill . Things were relatively stable, even with the stock market rallying on financial stocks' improvement, until the Fed's announcement. As expected, they are leaving overnight rates alone. But bond market investors were disappointed that the policy statement did not include an immediate intent to begin purchasing government bonds - they have an "inclination" to do so. Today does not look rosy either. We have a $30 billion 5-year note auction by the Treasury, with the market still swallowing $40 billion of 2-yr notes. We already saw Jobless Claims rise 3,000 last week, up to 588,000, with the moving average increasing to 542,500 from 518,250 the week before. Durable Good orders fell for the 5th month in a row, and dropped 2.6% in December following a November revised decline of 3.7%. Later we can look forward to New Home Sales, expected down slightly. In spite of being "over sold", prices have moved down more, and rates higher, mostly due to the auction ahead of us. As I type this the 10-yr is at 2.72% and 30-yr mortgage prices are about .375 worse in price.

On the mortgage cram down legislation that allows bankruptcy judges to "cram down" residential mortgages will have a varied impact on mortgage-backed securities, analysts at Fitch Ratings say the legislation is "not likely to trigger immediate rating downgrades." But if cram down legislation is enacted and entices more consumers to try to alter the terms of their home loans through the bankruptcy process, then downgrades may ensue, according to Huxley Somerville, head of Fitch's U.S. residential MBS group. "Due to varying deal language, about 31% of Fitch rated prime and alt-A transactions have a greater risk of senior bond downgrades with the remaining 69% having limited risk," Mr. Somerville said. Fitch said it remains to be seen what impact bankruptcy cram downs may have on the extent and pace of loan modifications and the degree to which the legislation may increase consumer bankruptcy filings.  When downgrades occur from the rating agencies, then cost of loans will only be added to the cost of doing business.  It is why we are opposed to this legislation for our industry.

Many of you have said your referral sources are struggling to understand why rates have worsened the last several weeks.  What happened to the 4.5% rate.  Here is what you can say to them.  Our mortgage market is broken.  Pricing is now artificially set whenever the Federal Government purchases mortgage backed bonds.  This has stripped premium pricing for higher note rates.   Capacity has been exceeded for existing investors given the great number of people and companies that are no longer in business. Companies that have exceeded their lending capacity are raising rates and fees to reduce loan volume.   The rising cost of business, litigation, and compliance is causing the normal margins of pricing to be increased as well.  And finally the current trends of legislation for cram down and new risk price adjusters from the Fannie and Freddie all add up to opposing forces for lower rates.   While the Fed would like lower rates and so would we, these forces are counteracting to each other and has increased the cost of credit to our borrower.  Again, encourage people to take advantage of these rate levels while they can this year.  Next year could be a different story, especially when inflation sets in behind this deflation period we are seeing. 

Kirk Mulhearn, a real estate broker and professional mortgage planner, can be reached at 562-989-4608 ext. 110